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US Airways Inc. v. Sabre Holdings Corp.

United States District Court, S.D. New York

March 21, 2017

US AIRWAYS, INC., Plaintiff,
v.
SABRE HOLDINGS CORP., et al., Defendants.

          OPINION AND ORDER

          LORNA G. SCHOFIELD UNITED STATES DISTRICT JUDGE.

         US Airways, Inc. (“US Airways”) brought antitrust claims against Sabre Holdings Corporation, Sabre Travel International Ltd., and Sabre GLBL Inc. (collectively, “Sabre”), under the Sherman Act, 15 U.S.C. § 1 et seq., which were tried before a jury between October 24 and December 20, 2016. The jury found in U.S. Airways' favor on one of the two claims tried. That claim alleges that Sabre unreasonably restrained trade by imposing on U.S. Airways anticompetitive and unlawful contractual provisions that harmed competition and enabled Sabre to charge U.S. Airways higher booking fees than it would have been able to charge in a competitive market. The jury awarded U.S. Airways $5, 098, 142, or $15, 294, 426 after trebling. Sabre has filed a motion for judgment as a matter of law under Federal Rule of Civil Procedure 50(b) on this claim or, in the alternative, for a new trial under Rules 50 and 59 of the Federal Rules of Civil Procedure. For the reasons that follow, the motion is denied.

         I. BACKGROUND

         A. The Parties and the Claim

         Defendant Sabre operates a global distribution system, and Sabre itself is referred to as a “GDS.” Sabre is one of three GDSs in the United States. The GDSs provide computer services that allow participating airlines and other travel providers to distribute schedule, fare and booking information to travel agents. The GDSs also provide a means for travel agents to search for, book and manage travel reservations.

         Plaintiff U.S. Airways[1] is one of the airlines that participates in the Sabre distribution system. U.S. Airways and Sabre entered into successive contracts whereby Sabre distributed U.S. Airways' flight and fare information to travel agents through the Sabre distribution system, and U.S. Airways paid Sabre a booking fee for its services whenever a U.S. Airways ticket was sold through Sabre. At issue is the parties' contract that became effective on February 23, 2011 (the “2011 Contract”).

         B. Summary of Relevant Pre-Trial Procedural History

         US Airways commenced this action against Sabre on April 21, 2011, alleging four antitrust violations under the Sherman Act. After a motion to dismiss, two of these claims survived: (1) Count I, alleging vertical restraints of trade through contractual agreements with airlines and travel agents containing anticompetitive provisions and (2) Count IV, alleging a horizontal agreement among Sabre and its GDS competitors to limit competition among the GDSs. Fact and expert discovery proceeded until 2014.

         In January 2015, after the case was reassigned to me, Sabre's motion for summary judgment was granted in part. Among other limitations, U.S. Airways' damages were limited to those suffered between February 23, 2011 -- when the 2011 Contract was signed -- and October 30, 2012 -- when a settlement agreement between the AMR Corporation and Sabre became effective, barring American and any future merged parties (like U.S. Airways) from suing for harm suffered after that date.

         In an effort to obtain a bench trial rather than a jury trial, U.S. Airways filed an amended complaint in July 2015, in effect waiving its estimated damages of $210 million after trebling and seeking only declaratory relief and nominal damages not to exceed $20. Sabre made a timely offer of judgment under Rule 68, agreeing to pay $20 in damages plus reasonable costs and attorneys' fees, and agreeing to entry of judgment without any admission of liability. U.S. Airways rejected the offer. Sabre then sought entry of judgment, arguing that its Rule 68 offer of judgment provided U.S. Airways with complete relief and that the outstanding demand for declaratory judgment was moot. In September 2015, Sabre's motion to dismiss the declaratory judgment demand was granted, but Sabre's motion to enter judgment was denied without prejudice to renewal for technical reasons explained in the Court's opinion.

         Faced with the loss of its declaratory judgment claim and the likely recovery of only $20 in damages, U.S. Airways filed a motion to restore the damages it had waived. The motion was granted in December 2015, with the proviso that U.S. Airways reimburse Sabre for its costs, including attorneys' fees, incurred in connection with U.S. Airways' efforts to obtain a bench trial. U.S. Airways fulfilled the condition, paying Sabre over $6 million, and filed its Third Amended Complaint in March 2016.

         Trial was set to commence on October 24, 2016. The parties filed seven Daubert motions seeking to disqualify or limit the testimony of eight experts, and eleven motions in limine. The motions were adjudicated between July and September 22, 2016, with the exception of one motion that was reserved for trial.

         On September 26, 2016, the Second Circuit issued its opinion in United States v. Am. Express Co., 838 F.3d 179 (2d Cir. 2016) (“Amex”), the Second Circuit's first decision addressing two-sided markets in an antitrust case. Whether the market was two-sided or onesided was also a key issue in this action. Sabre moved for reconsideration of the summary judgment denial in light of Amex, arguing that U.S. Airways' claims should be dismissed. On October 10, 2016, Sabre's motion for reconsideration was denied. On October 11, 2016, Sabre sought an adjournment of the trial and the opportunity to re-brief the Daubert motions in light of Amex. US Airways opposed the adjournment, even though U.S. Airways had prepared its case before Amex. Sabre's application was denied.

         A jury trial commenced on October 24, 2016, on the two surviving claims. The first claim was that certain provisions of the parties' 2011 Contract harmed competition and caused U.S. Airways to pay Sabre a supracompetitive booking fee, in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1. The second claim was that Sabre conspired with its two GDS competitors to limit competition among them for airlines' distribution business, in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2.

         After nine weeks of trial, the jury returned a verdict. On Count I, the contract restraints claim, the jury found that the relevant market was one-sided, that Sabre had unreasonably restrained trade and that U.S. Airways had been injured as a result. The jury awarded U.S. Airways $5, 098, 142 in damages, before trebling. On Count IV, the conspiracy claim, the jury found for Sabre. In response to hypothetical questions on the verdict form, the jury also found that, even assuming that the market were two-sided, Sabre unreasonably restrained trade, U.S. Airways was injured as a result and U.S. Airways suffered the same damages of $5, 098, 142.

         II. LEGAL STANDARDS

         A. Standards for Judgment as a Matter of Law and for a New Trial

         Sabre moves for judgment as a matter of law on Count I under Rule 50(b), Fed.R.Civ.P. Judgment as a matter of law is appropriate “only if the court, viewing the evidence in the light most favorable to the non-movant, concludes that a reasonable juror would have been compelled to accept the view of the moving party.” MacDermid Printing Sols. LLC v. Cortron Corp., 833 F.3d 172, 180 (2d Cir. 2016) (citation omitted). “The court cannot assess the weight of conflicting evidence, pass on the credibility of witnesses, or substitute its judgment for that of the jury.” Wiercinski v. Mangia 57, Inc., 787 F.3d 106, 113 (2d Cir. 2015) (internal quotation marks omitted). A Rule 50 motion may be granted only if “there exists such a complete absence of evidence supporting the verdict that the jury's findings could only have been the result of sheer surmise and conjecture, or the evidence in favor of the movant is so overwhelming that reasonable and fair minded [persons] could not arrive at a verdict against [it].” Warren v. Pataki, 823 F.3d 125, 139 (2d Cir. 2016) (quoting S.E.C. v. Ginder, 752 F.3d 569, 574 (2d Cir. 2014) (alteration in original), cert. denied sub nom. Brooks v. Pataki, 137 S.Ct. 380 (2016).

         Sabre moves in the alternative for a new trial under Rules 50 and 59(a). A court may grant a new trial only where “the court determines, in its independent judgment, that the jury has reached a seriously erroneous result or [if] its verdict is a miscarriage of justice.” Crawford v. Tribeca Lending Corp., 815 F.3d 121, 128 (2d Cir. 2016) (internal quotation marks omitted). A district court may grant a new trial “even if some evidence supports the verdict, ” id., but “precedent counsels that trial judges must exercise their ability to weigh credibility with caution and great restraint, as a judge should rarely disturb a jury's evaluation of a witness's credibility.” Raedle v. Credit Agricole Indosuez, 670 F.3d 411, 418 (2d Cir. 2012); accord In re Joint E. & S. Dist. Asbestos Litig., 52 F.3d 1124, 1135 (2d Cir. 1995) (it is for the jury to decide between conflicting expert testimony).

         B. The Legal Framework Governing U.S. Airways' Antitrust Claims

         To protect competition in the marketplace, Section 1 of the Sherman Act prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.” 15 U.S.C. § 1. “To prove a § 1 violation, a plaintiff must demonstrate: (1) a combination or some form of concerted action between at least two legally distinct economic entities that (2) unreasonably restrains trade.” Amex, 838 F.3d at 193 (quoting Geneva Pharms. Tech. Corp. v. Barr Labs. Inc., 386 F.3d 485, 606 (2d Cir. 2004)).

         As U.S. Airways does not allege that Sabre's conduct challenged in Count I was illegal per se, the claim is appropriately analyzed under the rule of reason. Id. at 193-94. Under the rule of reason's three-step burden-shifting framework, a plaintiff must show first that a defendant's actions had an adverse effect on competition in the relevant market. A plaintiff can satisfy this first step by showing that the challenged restraints “had an actual adverse effect on competition as a whole in the relevant market.” Id. at 194 (quoting Capital Imaging Assocs., P.C. v. Mohawk Valley Med. Assocs., Inc., 996 F.2d 537, 546 (2d Cir. 1993)). Alternatively, a plaintiff can establish anticompetitive effects indirectly by showing that the defendant has “sufficient market power to cause an adverse effect on competition.” Id. (quoting Tops Mkts., Inc. v. Quality Mkts., Inc., 142 F.3d 90, 96 (2d Cir. 1998)). “A plaintiff seeking to use market power as a proxy for adverse effect must show market power, plus some other ground for believing that the challenged behavior could harm competition in the market . . . .” Id. at 195 (quoting Tops Mkts., 142 F.3d at 97). Under either inquiry, the boundaries of the relevant product market and geographic market are critical aspects of proving harm. Here, the parties agreed that the relevant geographic market is the United States.

         At the second step, the burden shifts to the defendant “to offer evidence of any procompetitive effects of the restraint at issue.” Id. At the third step, “the burden shifts back to the plaintiff[] to prove that any legitimate competitive benefits offered by defendant[] could have been achieved through less restrictive means.” Id. (quoting Geneva Pharms., 386 F.3d at 507) (alteration in original). Ultimately, “[t]he overarching standard is whether defendants' actions diminish overall competition, and hence consumer welfare.” Id. at 195 (quoting K.M.B. Warehouse Distribs., Inc. v. Walker Mfg. Co., 61 F.3d 123, 128 (2d Cir. 1995)).

         In addition to showing that a defendant's behavior unreasonably restrained trade, a plaintiff also must prove that a defendant's violation of the antitrust laws caused the plaintiff to suffer injury to its business or property. 15 U.S.C. § 15; Gelboim v. Bank of Am. Corp., 823 F.3d 759, 772-74 (2d Cir. 2016), cert. denied, 137 S.Ct. 814 (2017). If a defendant is found to have violated the antitrust laws, the jury must then determine the amount of plaintiff's damages, if any.

         III. DISCUSSION

         A. Background

         There was sufficient evidence introduced at trial from which the jury could reasonably have found as follows:

         1. The History of the GDS Business

         The GDSs use computerized reservation systems that evolved out of those developed by the airlines for their own use beginning in the 1960s. (Tr. 964:23-965:1; 968:13-21.) These systems were first made available to travel agents in the mid-1970s. (Id.) The airlines' systems offered not only their own fights and fares, but also those of other carriers in order to attract users to their platform. (Tr. 977:21-978:2.) As the systems became more established, the airlines began to charge other airlines booking fees for bookings made through their platform. (Tr. 978:16-979:11.) In 1984, the Department of Justice and the Civil Aeronautics Board concluded that the airlines had engaged in discriminatory pricing and began to regulate the reservation systems. (Tr. 981:3; 979:7-11; PX-521.)

         In 1992, the U.S. Department of Transportation (“DOT”) enacted a “mandatory participation” rule, which required the airlines to offer the same flights and fares on other airline reservation systems that they made available on their own systems. (Tr. 987:2-989:18.) This rule was the genesis of some of the contractual provisions at issue in this case. The regulations standardized the information available, thereby encouraging travel agents to search and book through a single airline's reservation system, a practice known as “single homing” that persists today. (Tr. 989:21-990:9; 995:3-8; 995:23-996:5; 2117:4-2119:17.)

         Around the same time as the 1992 rules were issued, airlines began divesting themselves of the reservation systems business, creating GDSs that were independent of the airlines. (Tr. 990:15-991:4.) GDSs were also consolidating and the internet was beginning to change the way that airline tickets were bought and sold. (Tr. 991:5-22.) In 2004, after 20 years of regulation, the DOT deregulated the GDS industry. (Tr. 1006:3-8; PX-007.) The DOT found that each of the GDSs had market power over most airlines because travel agents generally “single-homed” and the airlines were dependent upon the GDSs to reach traditional travel agents. (PX-007.0013-.0015.) However, the DOT expected that new technologies would create sufficient competition in the airline ticket distribution market to erode the GDSs market power over time. (Tr. 997:6-1002:23; 1006:3-8, PX-007.003.)

         2. The GDS Business

         Sabre is one of only three GDSs in the United States, with Amadeus and Travelport. (Tr. 448:6-12.) Sabre is the largest and controls over 50% of the market. (Tr. 1365:14-1366:1.) Since deregulation, the number of GDS competitors has dropped from four to three. (Tr. 1004:1-8.) No new GDS has entered the market since the 1980s. (Tr. 962:24-963:1, 1006:9-10.) U.S. Airways estimated that 40% percent of its revenues were booked through Sabre, and another 25% through the other GDSs. (Tr. 202:15-203:6; PX 1178.0001.)

         “Brick and mortar” travel agencies book almost exclusively through the GDSs. (Tr. 2034:1-16; 2039:25-2041:4; 2049:3-14.) These travel agencies' clients are primarily corporate travelers, who are higher value customers for airlines. (Tr. 202:4-14.) Travel agencies frequently “single-home” with one GDS. In 2011, 94% of travel agency locations (i.e. travel agency offices, sometimes within a large multi-office travel agency) used a single GDS. (PX-1181.) Because of single-homing, U.S. Airways must participate in each of the GDSs to reach the corporate travelers whose travel agents book through that GDS. (Tr. 1254:1-20; 2031:2-21; 2059:5-2060:7.)

         GDSs earn revenues through booking fees paid by the airlines and other travel providers. (See Tr. 443:3-7; 452:21-23; 529:2-530:7; 978:16-19.) The GDSs do not charge travel agents for GDS services. Instead, travel agencies receive incentive payments from GDSs, as well as commission payments from airlines. (Tr. 1864:18-25; 2054:17-2057:6.) From 2006 through 2012, Sabre paid more than $1.2 billion in incentive fees to travel agents. (Tr. 1272:17-1273:7; 2057:17-2058:25; PX-766.) U.S. Airways' expert, Professor Joseph Stiglitz, opined that these “incentive payments” serve to keep the travel agents loyal to its chosen GDS, but do not benefit the airlines. (Tr. 1379:17-23; 1905:17-19; 5518:25-5519:6.)

         3. The Challenged Contractual Provisions

         Starting in 2006, the U.S. Airways' contract with Sabre included the same or similar provisions at issue here. Claims based on those provisions in the 2006 contract were dismissed as time barred. The challenged restraints, collectively referred to as the “full content” provisions (Tr. 5261:15-5262:25), as they appear in the parties' 2011 Contract (PX-006) are:

• A “No Discounts” provision, also referred to as a “parity” provision, prohibiting U.S. Airways from providing lower fares through other, non-Sabre, channels. The contract specifically required that “in no case will the Fares provided through the Sabre GDS for Bookings in the Sabre GDS . . . be more expensive or less comprehensive than the Fares offered by [US Airways] via any Reservation Outlet.” (PX-006.0013.)
• A “No Surcharge” provision, preventing U.S. Airways from charging or collecting from travel agents a fee or higher prices for booking through Sabre. The contract stated that U.S. Airways “shall not charge to or collect from any Sabre Subscriber a service fee or any similar charge.” (PX-006.0027.)
• A “No Better Benefits” provision, requiring U.S. Airways to provide Sabre GDS service subscribers access to “the same types, amounts and levels of products, services, functionality, enhancements, promotional opportunities, . . . incentives, commissions, . . . benefits and rights” that U.S. Airways offered to users of any other booking channel. (PX-006.0003.)
• A “No Direct Connects” provision, preventing U.S. Airways from inducing travel agents, or their customers, from directly connecting their reservation system with the airlines'. The contract provided, “[US Airways] shall not require or induce any Sabre Subscriber to book on any Participating Carrier Internet Site.” The contract further stated, “[US Airways] will not . . . in any other manner whatsoever require or provide commissions, compensation or other benefits or rights . . . or otherwise encourage, promote or induce . . . Sabre Subscribers (or their customers) to circumvent the Sabre GDS.” (PX-006.0004.)

         After U.S. Airways merged with America West Airlines in 2005, the airline tried unsuccessfully to avoid the challenged restraints. (Tr. 186:21-189:4.) Ultimately, U.S. Airways had no choice but to accept them in the U.S. Airways-Sabre 2006 contract for fear of being removed from the Sabre GDS or being retaliated against, for example, through “display biasing, ” which means reordering search results as they appear in the system to disadvantage a particular airline. (Tr. 190:19-193:3.) When the contract ...


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