U.S. Airways is seeking to ground high-flying Sabre Holdings Corp. – which runs the largest U.S. global distribution system linking travel agents with airline fares and other services – for allegedly engaging in monopolistic acts.

U.S. Airways has filed an antitrust lawsuit against Sabre in the U. S. District Court for the Southern District of New York.  The airline’s complaint in U.S. Airways, Inc., v. Sabre Holdings Corporation et al., No. 11 CV 2725 (SDNY), alleges that Sabre has suppressed the ability of travel agents to book tickets directly with airlines, and that it used anti-competitive practices to force the airline into an unfair agreement.

According to U.S. Airways, Sabre threatened to pull U.S. Airways’ listings from its services, which includes the reservations systems used by online travel agency Travelocity, potentially forcing U.S. Airways into bankruptcy because the Sabre Global Distribution System accounts for 35 percent, or about $3.5 billion, of U.S. Airways’ revenues.

Sabre responded to the suit by stating that the antitrust claim was a “misguided attempt by an airline” to undermine a distribution model that “has brought competition to the airline industry,” and that Sabre would “aggressively defend against US Airways’ lawsuit, pursue our own legal rights and take appropriate action to protect consumers’ right to a transparent marketplace.”

The case is just the latest development in a wave of antitrust suits against the global distribution system in the airline sector.  In January, American Airlines sued Sabre on similar grounds, saying that it could lose “countless sales” if Sabre were permitted to give preference to other airlines in flight listings.  American accused Sabre of anticompetitive behavior by slanting information viewed by travel agents before they book flights.  That action is on hold until June 1 as the parties try to reach an agreement.

And just last week, American sued online travel agency Orbitz Worldwide and its largest stakeholder, Travelport, over “anticompetitive business practices” for trying to control the distribution of airline tickets.  In that suit, American contends that Travelport and Orbitz violated Sections 1 and 2 of the Sherman Act by using their control over the distribution of air fare information to maintain their monopoly power and to hinder the development of alternative technologies that could help consumers find cheaper fares.  American pulled its listings from Orbitz and Expedia in December after those services declined to include American’s Direct Connect reservation system for its listings.

In contrast to American, U.S. Airways signed a multiyear content agreement with Expedia in January.  U.S. Airways touted this agreement in announcing its first quarter of 2011 financial results in a section entitled “Notable First Quarter Accomplishments.”  There is no mention among its notable first-quarter accomplishments of U.S. Airways’ agreements with Sabre and Travelocity in February.  Instead, although the action occurred in April, after the first quarter ended, U.S. Airways noted among its “accomplishments” that it filed an antitrust lawsuit against Sabre.

A federal court has decided that Digital Sun’s wireless sprinkler system may be innovative, but its claims of anticompetitive conduct by competitor Toro Company are all wet.

Judge Lucy Koh of the U. S. District Court for the Northern District of California has ruled that that Digital Sun’s antitrust complaint in Digital Sun v. The Toro Company falls well short of pleading standards, and dismissed all claims without oral argument.  Digital Sun, a small Silicon Valley startup that invented and markets a wireless sprinkler system, sued Toro, a worldwide manufacturer of outdoor maintenance equipment and associated products with 2010 net sales of $1.69 billion, for attempted monopolization of the wireless sprinkler market under Section 2 of the Sherman Act, unfair competition under California law, and fraud.

The grounds for this lawsuit can be traced to a proposed deal for Toro to take over Digital Sun.  During negotiations, Toro made a series of loans to Digital Sun and, in return, Digital Sun granted patent licenses (one exclusive license and one nonexclusive license) to its wireless sprinkler technologies to Toro.  When negotiations fell apart, Digital Sun filed this action after it realized that Toro now had patent rights to Digital Sun’s only product line.

In its complaint, Digital Sun alleged that Toro attempted to monopolize the wireless sprinkler market by engaging in bad faith negotiations to take over Digital Sun when all Toro really wanted was patent licenses for Digital Sun’s technologies.

Judge Koh found that Digital Sun failed to sufficiently allege its monopolization claim, including its allegations that Toro possessed market power and engaged in anticompetitive conduct.  The court observed that Digital Sun made no allegations of market share in its complaint other than ownership of patent rights in a particular type of wireless sprinkler technology.  In addition, Digital Sun acknowledged Toro did not hold Digital Sun’s patent rights in their entirety, and the license agreements actually created another competitor in most fields of use.  According to Judge Koh, these facts, as pled, could not give rise to findings of market power or anticompetitive conduct.

The court also found that Digital Sun did not sufficiently plead anticompetitive injury.  Despite the plaintiff’s allegations of bad faith negotiations by Toro, Judge Koh pointed out that Digital Sun was never forbidden from selling its product and was free to negotiate with other potential buyers.  Moreover, in the fields that Digital Sun cannot sell because of Toro’s exclusive license, Toro has simply replaced Digital Sun as the monopolist and, accordingly, the competitive landscape was unchanged.

The claims for unfair competition under California law and fraud likewise failed to pass muster.

This case showcases the challenges plaintiffs face when pleading patent-based antitrust claims, especially under the heightened pleading requirements of Twombly and its progeny.  Nevertheless, Judge Koh allowed Digital Sun to file an amended complaint to cure the pleading defects but cautioned the plaintiff that its “own arguments leave the Court with doubts as to whether these claims can be resurrected.”

In addition to antitrust, Constantine Cannon has an environmental and sustainability practice and represents green technology companies profiting from wise resource use.  These different disciplines that we work in are reflected in a recent filing we noticed in the federal district court for Connecticut, Environmental Products Corp. (“Envipco”). v. Tomra of North America, Inc. (D. Conn. filed Nov. 4, 2010).

In Envipco, both plaintiffs and defendants are in the business of manufacturing and operating Reverse Vending Machines (RVMs), which collect deposit bottles and cans and refund the deposit.  The RVM company must then sort the containers of each manufacturer and return each one’s bottles and cans to it.  The suit alleges that a good pick-up service for the cans to return them to their manufacturers requires that each firm have a concentrated customer base and collection route, requiring a contract with at least one major supermarket chain in which the RVM company operates.  Envipco says that Tomra has entered into exclusive RVM contracts with 12 of 20 major supermarket chains that account for the majority of RVM use, foreclosing Evipco from a substantial portion of business in the bottle bill states that constitute the relevant market or markets.  Moreover, Tomra is alleged to have entered into equity-based partnerships with beverage manufacturers, precluding Envipco from a substantial portion of the can and bottle pickup business, forcing Envipco to turn to Tomra for that function in those places, and causing Envipco to lose underlying RVM business.  Envipco also alleges that Tomra engaged in deceptive billing practices to lure in customers and forged joint ventures with key players in the market, “denying competitors the ability to compete on a level playing field.”

The complaint also claims that Tomra is negotiating to buy another reverse vending company, Can & Bottle Systems Inc., that has monopoly power in Oregon.  Tomra and Envipco are alleged to be the only significant competitors in the U.S. in this particular market, with Tomra enjoying a 70 percent market share — or 77 percent, if the company is successful in its plans to acquire Can & Bottle.

Asserting claims under the Clayton Act and the Sherman Act, the complaint, citing to Tomra’s alleged monopoly power and market manipulation, seeks compensatory, punitive and treble damages and an order blocking Tomra from entering into long-term exclusive contracts with customers.

Businesses such as these that promote the effective use of bottle bills that recycle cans and bottles are a positive in the environmental marketplace.  The suit raises important antitrust concerns and we will monitor its progress.

A class of more than 4,500 dairy farmers spread across 11 southeastern states in two geographic markets has been certified by Judge J. Ronnie Greer of the U. S. District Court for the Eastern District of Tennessee in a case alleging a conspiracy to monopolize the production, marketing and processing of milk.

The dairy farmers allege multiple claims of antitrust conspiracy against Dean Foods Company (the nation’s largest dairy processor), National Dairy Holdings, L.P., Dairy Farmers of America, Inc., and other defendants.

The class is divided into two subclasses.  One is comprised of roughly 3,000 farmers who are members of the Dairy Farmers of America and the other consists of independent and cooperative dairy farmers.  All class members sold grade A milk to the defendants from January 1, 2001, to the present.

In opposing class certification, the defendants argued that the two subclasses have a “fundamental and irremediable conflict of interest” because the Dairy Farmers Association subclass members benefited from the alleged unlawful behavior at the expense of the independent farmers.  While Judge Greer found this aspect of the case “troubling,” he granted certification because the defendants failed to provide any testimony supporting their argument, rendering it “somewhat hypothetical.”  Judge Greer noted, however, that he may decertify or modify the class if evidence supporting the defendants’ argument can be established.

Judge Greer rejected class certification for a breach of contract claim brought on behalf of farmer-members of the Dairy Farmers Association because the claim necessarily would require each class member to individually demonstrate membership in the association at the time of the alleged breach, making the contract claim “not susceptible to class action treatment.”

A federal judge has denied General Electric Company’s request to pull the plug on Mitsubishi Heavy Limited’s potential billion-dollar case alleging GE has tried to snuff out competition in the wind turbine market.

United States District Court Judge J. Leon Holmes in Fayetteville, Arkansas, has denied GE’s motion to dismiss an attempted monopolization case brought by Mitsubishi.  Mitsubishi alleges that GE seeks to monopolize the market for variable-speed wind turbines in the United States through a pattern of “sham” patent litigation and other methods. 

However, the Judge did grant GE’s request to stay discovery in the case until the GE patent infringement claims against Mitsubishi have been resolved.  As Judge Holmes explained, “If GE prevails in any of the infringement actions, then Mitsubishi’s claims in this action will be moot because GE will have the right to exclude Mitsubishi from the market” pursuant to GE’s patent claims. 

Mitsubishi is seeking damages that could exceed $1 billion.  Mitsubishi filed its attempted monopolization claim in this case against GE on May 10, 2010.

The case is the latest in a series of acrimonious episodes between the two heavyweights over the growing U.S. market for wind turbines.  Mitsubishi is on track to build a turbine assembly plant in Fort Smith, Arkansas.  Mitsubishi has been battling GE over patent claims since 2008.

Sonia Williams, a Mitsubishi Power Systems America spokesperson, observed that “[t]he judge did decide to stay discovery for the present.  Nevertheless, we are heartened by his suggestion that he may terminate the stay if he finds appropriate circumstances.”  GE had no comment on the ruling.