Thoughts on the DOJ's Victory against JetBlue's and American Airlines' Joint Venture (or rather Market Allocation Scheme)
A "Win" is Not Always a Grand Slam, but I Will Take a Homerun Anyway
The Department of Justice (DOJ) recently obtained a victory in an antitrust lawsuit against JetBlue and American Airlines. In this post, I want to detail my thoughts about the outcome of the lawsuit and its potential implications.
Background of the DOJ’s Lawsuit
In September 2021, the Department of Justice initiated a lawsuit against JetBlue and American Airlines. JetBlue and American Airlines entered into an unprecedented agreement, called the Northeastern Alliance (NEA), to consolidate and share their operations in Boston and New York City. The agreement essentially said both companies operate as one firm in both cities.
Judge Sorkin’s opinion detailed the agreement as one that:
[C]reate[s] a relationship between American and JetBlue that includes codesharing, schedule coordination, revenue sharing, reciprocal loyalty benefits, and joint corporate customer benefits, all of which extend to most of the carriers’ flights to and from Logan, JFK, LaGuardia, and Newark.
The DOJ’s full complaint can be read here. Judge Sorkin’s opinion, released earlier this month, provided the DOJ with a decisive victory and resulted in voiding the agreement.
Thoughts and Implications of the Decision
First, I think the most essential aspect of the case is the hostility that Judge Sorkin aimed at the defendant’s experts. He clearly recognized them as industry insiders with an incentive to deceive or mislead the court and took the time to break apart their arguments in a piecemeal fashion. It was quite enjoyable to read.
Here is one section of Sorkin’s opinion where he tears into the defense side experts.
The defendants presented four expert witnesses. All of the defense experts work together for the same consulting firm…Two of them have written papers funded by a GNC, and they accepted feedback from the GNC before finalizing and publishing at least one such paper. Two have never rendered an opinion adverse to a GNC’s position in an antitrust proceeding, and another has not done so in the last two decades. American itself has retained at least two of them in the past. These facts cause the Court to view the testimony of each of these experts with heightened skepticism, as they suggest partiality and substantially undermine the independence and credibility of all four defense experts. Moreover, each defense expert exhibited during his testimony, to varying degrees, the demeanor and tone of an advocate invested in the outcome of this case. Based on the combination of their historical ties to powerful airlines and the manner in which they expressed their opinions from the witness stand, the Court finds as a general matter that the defense experts’ testimony about the defendants and the NEA was tainted by bias. The apparent bias of the defendants’ retained experts is reason enough to reject the opinions and conclusions they rendered in this case. (emphasis added).
Second, in his opinion, Judge Sorkin correctly acknowledges the existence of the fourth step of the rule of reason, which the Supreme Court in the recent NCAA v. Alston decision and the infamous Ohio v. American Express decision did not mention. For those that don’t know, the rule of reason is supposed to be a burden-shifting framework judges use to analyze potentially violative conduct. Due to decades of hostility from the courts, comprehensive research shows it effectively operates as a designation of per se legality. Given the decline of per se rules since the 1970s, most antitrust conduct is reviewed under the rule of reason - meaning a significant portion of previously unlawful conduct now goes unpunished.
While the rule of reason is certainly broken (in my opinion, beyond repair), the fourth step of the framework is actually quite critical because it requires courts to “balance” the plaintiff’s identified harms and the alleged benefits of the conduct. Such a step can generally favor the plaintiff. Let me take a moment to explain. As Professor Michael Carrier of Rutgers University School of Law has previously noted, the fourth step is necessary because the third step of the rule of reason requires a plaintiff to either show a restraint that potentially violates the Sherman Act is not reasonably necessary or that there is a less restrictive alternative to achieve the goals the defendant desires. But in cases where a plaintiff can only show a defendant’s restraint is not reasonably necessary and not show that there are less restrictive alternatives, without the fourth step, defendants would get away with their conduct. As Carrier has previously detailed, “The defendant should not be exempt from antitrust liability just because the plaintiff is not able to show a less restrictive alternative.” The fourth step ensures this doesn’t happen.
Third, despite the win, the lawsuit is not perfect. For one, the DOJ chose not to pursue this conduct as a per se violation. I think that was an unnecessary risk. Along with attacking this conduct as a joint venture, the DOJ should have attacked this conduct as a per se violation of market allocation. To my knowledge, unlike the DOJ’s book merger lawsuit that prevented the book publishing giant Bertelsmann from acquiring Simon & Schuster, the DOJ’s lawsuit against JetBlue and American Airlines was not initiated to establish some special new analysis or break new ground in antitrust law. Moreover, given that the conduct between both airlines was truly unprecedented, the DOJ should have gone after this conduct as harshly as possible. In his opinion, Judge Sorkin even called out the DOJ’s lack of alleging horizontal market allocation but was bound to stay within the confines of the causes of action alleged in the complaint (in this case, the violative conduct alleged was denoted as a joint venture). The fact that the DOJ had to spend a significant amount of resources on this lawsuit and a nearly 100-page opinion explaining why the conduct was unlawful is both an indicator of the weak standing the DOJ positioned itself to have and the eroded state of antitrust law which requires such extensive analysis to classify such brazenly collusive conduct as unlawful.
Fourth, Judge Sorkin does not detail “competition” in the manner that progressive antimonopoly advocates should fully praise. While Judge Sorkin is understandably a federal trial court judge (meaning his ability to shape the interpretation of the law is limited), judges do not have to peddle certain “isms” from Supreme Court opinions. For example, Judge Sorkin quoted that the Sherman Act promotes “free and unfettered competition” (quoting the SCOTUS opinion Northern Pacific Railway). Clearly, federal judges still do not have a refined understanding of the kind of “competition” the Sherman Act was intended to promote when Congress enacted it in 1890, which is fair competition, not survival of the fittest and competition at all costs. As my Open Markets Institute colleague Sandeep Vaheesan has previously written:
Despite the lack of judicial articulation of principles in monopolization cases, certain normative criteria can be inferred from a close read of the court decisions. The courts have implicitly prohibited firms from exploiting certain advantages to gain an edge over rivals and obtain or maintain a monopoly. First, court decisions restrict firms from using their monopoly power to maintain or extend their monopoly. Second, they limit firms from employing favorable access to finance to outcompete rivals on price. Third, they bar firms from using generally prohibited practices to acquire or maintain their monopoly power. In contrast, judicial interpretations of the Sherman Act permit the acquisition and maintenance of monopolistic positions through superior products, services, or investment in plants and equipment.
While some journalists and scholars praise the decision and the victory the DOJ obtained (for example, the two New York Times journalists stated that the decision was “a big victory for the Justice Department”), I don’t think there is much more to the decision than what I described above. Given the unprecedented nature of the horizontal conduct between JetBlue and American, this lawsuit always appeared to be a layup victory. I don’t think a layup is much of a “victory.” I also found the opinion to be quite straightforward – opinions dealing with collusive conduct usually are.
Historically speaking, the DOJ has always had a borderline fetish with prosecuting collusive conduct (under Section 1 of the Sherman Act) rather than monopolistic conduct (under Section 2 of the Sherman Act) or mergers (under Section 7 of the Clayton Act). Since the enactment of the Sherman Act in 1890, much of the DOJ’s enforcement has been focused on collusive conduct that violates Section 1. Given this, I think, regardless of whether this incident happened under a Republican or Democrat administration, I believe the DOJ challenging this conduct was a no-brainer and expected. Perhaps the craziest part of the entire situation is that JetBlue and American attempted what they did at all. Maybe that says something about their thinking about the state of antitrust law, or maybe not. Nevertheless, as Judge Sorkin details in his opinion, the defendants were well aware of their conduct and understood the legal limitations and the potential legal liability.
Thanks for reading.
Image credit: Quintin Gellar via Pexels.