Second Circuit Finds District Court Failed To Properly Consider Two-Sided Markets In Travel Platform Suit, Voids $15M Antitrust Verdict
09/24/2019On September 11, 2019, the United States Court of Appeals for the Second Circuit, in a panel consisting of Judges Robert D. Sack, Debra Ann Livingston and Denny Chin, affirmed in part, reversed in part and vacated in part a lower court’s decision in an antitrust action related to contracts for a travel technology platform. US Airways, Inc., for American v. Sabre Holdings Corporation, No. 17-960 (2d Cir. Sept. 11, 2019). The Second Circuit held that the district court had erred in failing to find the relevant market to be two-sided as a matter of law. The case was remanded for a new trial on the substantive question of whether certain contractual provisions in the business agreements between the parties were unlawful restraints of trade in violation of Sections 1 and 2 of the Sherman Act.
Defendant owned and operated a global distribution system (“GDS”) which served as a platform for travel agents to purchase tickets from defendant’s airline company customers in simultaneous transactions. Plaintiff, a major airline, used defendant’s platform to list available flight inventory and interface with travel travel agents. They alleged there were no viable substitutes available to travel agents who wished to perform this type of transaction. Defendant’s contracts with travel agents included minimum‐booking thresholds which prevented travel agents from collecting incentive payments unless they utilized defendant’s GDS for a minimum number of bookings. In addition, plaintiff signed contracts with defendant in 2006 and 2011, which contained four challenged provisions that restricted the pricing plaintiff could offer on the GDS platform.
Following a motion to dismiss and a motion for summary judgment filed by defendant, the district court dismissed plaintiff’s Section 2 claims. The remaining Section 1 claims proceeded to trial, and the court left to the jury the question of whether the market for the GDS platform was one- or two-sided. The jury decided that the market was one-sided and ultimately found that the challenged provisions in defendant’s agreement with plaintiff were an unreasonable restraint of trade. The jury awarded Plaintiff approximately $5 million in damages which was automatically trebled to $15 million. At the district court’s instruction, the jury also considered a two-sided market, in the alternative, and similarly concluded that the provisions were an unreasonable restraint of trade and that damages would amount to approximately $5 million. Both parties appealed. Plaintiff challenged the dismissal of its Section 2 claims, while defendant sought review of the jury verdict.
While the appeal was pending before the Second Circuit, the Supreme Court issued its decision in Ohio v. American Express Co., 138 S. Ct. 2274 (2018) (“Amex”). In applying Amex, the Second Circuit vacated the jury’s primary verdict based on the determination that the GDS market was one-sided. Comparing defendant’s business model to that of American Express, the court reasoned that Amex required, as a matter of law, that similar transaction platforms be evaluated as two-sided markets. The Court found that the GDS platform must be two-sided because defendant could not sell an airline ticket without simultaneously making a sale to the other side of the platform. The Second Circuit also reviewed the jury’s alternative finding of liability under a two-sided market theory. However, the Court determined that this alternative finding was not sufficient because the jury should have been explicitly instructed to consider both sides of the GDS platform and, as a matter of law, the determination of the market structure should not have been a jury question. In addition, the jury incorrectly found an equivalent damages value under both theories of liability. The Court found that, if properly evaluated, the two-sided damages would have been lower than one-sided damages. Despite these errors, the Court concluded that the jury had substantial evidence on which it might have determined that the challenged restraint caused anticompetitive effects in a market encompassing both sides of the platform. The Court also determined that the district court prematurely dismissed plaintiff’s monopolization claims. Accordingly, the Court reversed and vacated in part and remanded the proceedings to the district court for a new trial on both liability and damages.