United States Court of Appeals For the First Circuit
No. 23-1802
UNITED STATES; STATE OF ARIZONA; STATE OF CALIFORNIA; DISTRICT OF COLUMBIA; STATE OF FLORIDA; COMMONWEALTH OF MASSACHUSETTS; COMMONWEALTH OF PENNSYLVANIA; COMMONWEALTH OF VIRGINIA,
Plaintiffs, Appellees,
v.
AMERICAN AIRLINES GROUP INC.,
Defendant, Appellant,
JETBLUE AIRWAYS CORPORATION,
Defendant.
APPEAL FROM THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF MASSACHUSETTS
[Hon. Leo T. Sorokin, U.S. District Judge]
Before
Barron, Chief Judge, Kayatta and Gelpí, Circuit Judges.
Gregory G. Garre, with whom Alfred C. Pfeiffer, Jr., Samir Deger-Sen, Christopher S. Yates, Farrell J. Malone, Peter E. Davis, Christine C. Smith, Marissa Marandola, and Latham & Watkins LLP were on brief, for appellant.
Mark C. Fleming, Leon B. Greenfield, Natalie M. Morrissey, Wilmer Cutler Pickering Hale and Dorr LLP, Tyler S. Badgley, Kevin R. Palmer, and U.S. Chamber of Commerce Litigation Center on brief for Chamber of Commerce of the United States of America, amicus curiae.
Peter J. Carney, Dana Foster, Cansu Gunel, Andrew Hamm, Bryan D. Gant, and White & Case LLP on brief for The International Center for Law & Economics and Antitrust Scholars, amici curiae.
Daniel E. Haar, with whom Jonathan S. Kanter, Assistant Attorney General, U.S. Department of Justice, Antitrust Division, Doha G. Mekki, Principal Deputy Assistant Attorney General, Hetal J. Doshi, Deputy Assistant Attorney General, Michael B. Kades, Deputy Assistant Attorney General, David B. Lawrence, Policy Director, Markus A. Brazill, Counsel to the Assistant Attorney General, William H. Jones II, Counsel to the Director of Civil Litigation, Patricia C. Corcoran, James H. Congdon, Scott L. Reiter, John J. Sullivan, Nickolai G. Levin, Matthew A. Waring, and Alice A. Wang were on brief, for appellees.
Robert K. Shelquist, Lockridge Grindal Nauen PLLP, and Christopher L. Sagers, on brief for Professors of Law, Business, and Economics, amici curiae.
November 8, 2024 KAYATTA, Circuit Judge. In 2020, American Airlines and
JetBlue entered into a joint venture called the Northeast Alliance
("NEA"), under which the carriers effectively agreed to operate as
a single airline with respect to most of their routes in and out
of Boston and New York City. The U.S. Department of Justice
("DOJ"), joined by several states, filed suit to enjoin the
carriers from proceeding with the NEA, alleging that it ran afoul
of the Sherman Act as an unreasonable restraint on competition.
After an extensive bench trial, the district court agreed and
entered judgment for plaintiffs. American Airlines now appeals.
Seeing no reversible error of either fact or law, we affirm. Our
reasoning follows.
I.
A.
In the passenger airline industry, where "market share
and capacity" have become "concentrated among a relatively small
number of domestic carriers," United States v. Am. Airlines Grp.
Inc., 675 F. Supp. 3d 65, 76 (D. Mass. 2023), American and JetBlue
are no minor players. American is arguably the largest airline in
the world and one of four airlines that collectively control around
eighty percent of domestic air travel. Id. at 73. It is one of
three "global network carriers" ("GNCs") operating in the U.S.
today -- each GNC (American, Delta Air Lines, and United Airlines)
- 3 - "possess[es] [a] broad network[]" of hub-and-spoke operations to
reach a "wide range of origins and destinations . . . either
directly or through connecting itineraries." Id. at 76.
American's domestic hubs as of 2019 included Charlotte, Chicago,
Dallas/Fort Worth, Los Angeles, Miami, New York City,
Philadelphia, Phoenix, and Washington, D.C. Id. at 80.
Meanwhile, JetBlue is the sixth largest airline in the
U.S. Id. at 73. It is younger than American and has historically
operated with a reputation as a "disruptor" that aggressively
competes with older legacy carriers, with documented
procompetitive effects. Id. at 79–80. Given its evolution and
pursuit of growth, JetBlue now falls within a category of hybrid
carriers that are neither GNCs nor "low-cost carriers" ("LCCs"),
i.e., those that generally rely on "point-to-point flying using a
single type of aircraft . . . [and] class of service." Id. at 76,
79. Like LCCs, JetBlue maintains a lower cost structure and
generally provides lower fares, although its cost structure has
become more complex in recent years. Id. at 79, 102. But it also
operates what could be considered a regional hub-and-spoke network
out of the Northeast, with six "focus cities" as of 2019: New York
City (its headquarters), Boston, Fort Lauderdale, Orlando, Los
Angeles, and San Juan. Id. at 79. Around seventy-five percent of
- 4 - JetBlue's routes fly in or out of New York or Boston, its two
largest focus cities. Id.
Through June 2020, American and JetBlue competed with
each other across all markets both airlines served. Id. at 80.
In the Northeast, American and JetBlue were leading
competitors -- they were two of the four largest carriers operating
in New York, and two of the largest three in Boston. Id. at 73.
In Boston, JetBlue and the three GNCs controlled more than eighty
percent of the domestic air travel market in 2019, whereas in New
York the four carriers' combined market share exceeded seventy
percent. Id. at 78. In this northeast region, American and
JetBlue competed to provide nonstop service on twenty-nine routes
to and from New York and Boston, with significant market shares on
many of those routes. Because "strategic fare and schedule changes
are the subject of continual analysis and discussion," id. at 77,
competitors like American and JetBlue generally reacted to any
fare or schedule change by the other carrier in the same market,
id. at 77, 80.
Within this competitive environment, there are various
constraints on a carrier's ability to operate at a particular
airport and expand the routes it may offer. One such constraint
is access to gates, which are limited in number and sometimes fully
allocated among existing carriers at any given time. Id. at 78
- 5 - n.10. As such, a carrier looking to initiate or expand service
needs to secure access to the requisite gates. Id. at 78. At
certain heavily congested airports, like JFK and LaGuardia ("LGA")
in New York, carriers must also secure access to slots, which
refers to authorization from the Federal Aviation Administration
("FAA") to take off or land in a particular time slot. Id. Both
gates and slots are "scarce, valuable, and sought-after
resources." Id.
In terms of domestic cooperation among airlines,
carriers in the United States historically have only engaged in
small-scale arrangements, unlike the extensive cooperation between
GNCs and various international carriers to expand service to
outlying destinations through commingled itineraries. See id. at
80–81. Domestically, cooperative arrangements have included
interline agreements, where if one carrier promises to rebook its
passengers after a cancelled flight, it may do so using its
partner's flights in addition to its own. Id. at 81. Carriers
have also engaged in code-sharing, where a carrier allows customers
of another carrier to purchase seats on a particular flight via
either carrier's website. Id.
In 2019, American started to develop a "new domestic
strategy" that involved strengthening its partnerships with other
carriers to address its apparent weaknesses on both the West and
- 6 - East Coast. Id. On the West Coast, this strategy culminated in
February 2020 with the announcement of the West Coast
International Alliance ("WCIA") between American and Alaska
Airlines. Id. The WCIA made Alaska a member of American's
"oneworld alliance" with international carriers, continued the two
carriers' code-sharing partnership, and established "capped and
non-reciprocal revenue sharing" between certain complementary
markets. Id. at 81–82 (emphasis omitted). Importantly, the WCIA
did not include any coordination between the carriers regarding
capacity, scheduling, network planning, or market allocation on
direct overlapping routes. Id. at 82. Indeed, the two carriers
were effectively not direct competitors prior to the WCIA, which
instead was meant to leverage their complementary networks. Id.
The WCIA, which American described as a success, is still in effect
today. Id.
On the East Coast, American's new domestic strategy
played out differently. In New York, American was worried about
United and Delta's growth, and perceived its own operations as
insufficiently profitable even though -- as of 2019 -- it
maintained the second-most slots at LGA and the third-most at JFK.
Id. at 83. Additionally, American perceived that some of its slots
at JFK were "under heavy scrutiny" by the FAA for underuse and
were therefore at risk. Id. Meanwhile, JetBlue had concerns of
- 7 - its own. Its growth in New York had tapered due to its inability
to obtain more slots at JFK or LGA. Id. And by 2020, it was
worried about Delta's investment in growth in Boston as a threat
to its dominance at Logan. Id.
As a result, talks began in late 2019 between American
and JetBlue regarding a possible lease of some of American's
underused slots at JFK. Id. But negotiations, which continued
through the start of the Covid-19 pandemic, soon expanded to
contemplate a broader WCIA-style alliance in the Northeast. Of
primary concern to both carriers was the hope of addressing the
perceived competitive threat that Delta posed in key markets in
the region. Id. As part of the negotiations, the carriers
produced a hypothetical joint network schedule for 2023 that pooled
and "optimized" their resources, including expected aircraft
fleets, to evaluate what a partnership could achieve in terms of
estimated passenger traffic and revenue. Id. at 84.
On July 15, 2020, American and JetBlue announced the
result of their partnership: the Northeast Alliance ("NEA"). Id.
Established through a set of contracts, the NEA included
"codesharing, schedule coordination, revenue sharing, reciprocal
loyalty benefits, and joint corporate customer benefits." Id.
Both carriers' short-haul services, as well as American's
- 8 - long-haul services touching Logan, JFK, LGA, and Newark ("the NEA
airports"), were included. Id.
One of the NEA's core features is "the optimization of
American's and JetBlue's route networks and scheduling of flight
times and frequencies at the NEA [a]irports." Id. at 85 (quotation
marks omitted). Though the agreement states that each carrier
will continue to operate independently as to pricing, capacity,
and network management decisions, the NEA's process of creating a
joint schedule "necessarily involves cooperation . . . regarding
capacity allocation" decisions, both generally and with respect to
individual routes. Id. To that end, the NEA provides for the
carriers to pool airport infrastructure, including slots and
gates. Id.
As for revenue sharing, American and JetBlue's stated
goal is to align the parties' incentives and achieve "metal
neutrality," meaning an indifference as to whether a passenger
within the NEA region flies on a JetBlue or American plane. Id.
The carriers' contract sets out a complex process to split their
revenue pool annually, where each carrier receives a base amount
of passenger-related revenue based on their respective performance
during the most recent year, after which the carriers divide the
remaining incremental revenue in the pool based on each carrier's
proportion of total NEA capacity for that year. Id. at 85—86.
- 9 - The actual mechanics of the revenue-sharing process involve one
carrier making an annual "transfer payment" of excess revenue due
to the other under the terms of the agreement. Id. at 86.
The NEA, by its terms, lasts for at least seven years
and would continue indefinitely absent affirmative efforts by
either party to terminate. Id. at 87. As amended, the NEA limits
each airline's ability to transfer or sell any slots at JFK or LGA
to other third-party carriers. Id. It also includes promises
made as part of the carriers' commitments to the U.S. Department
of Transportation ("DOT") in connection with that agency's
regulatory review of the NEA. Id. Those include, among other
things, a promise by JetBlue not to exit certain JFK routes it
served prior to the Covid-19 pandemic, and an agreement to divest
certain slots at JFK if certain growth requirements are not met.
Id. at 87–88. Additionally, the parties amended the NEA to remove
revenue sharing on six carve-out routes (all of which ended at
Logan) on which American and JetBlue had a particularly high market
share. Id. at 88.
B.
On September 21, 2021, DOJ, along with several states,
filed suit to enjoin American and JetBlue from further implementing
- 10 - the NEA.1 Plaintiffs alleged that the NEA violated section one of
the Sherman Act, which prohibits "contract[s],
combination[s] . . ., or conspirac[ies], in restraint of trade or
commerce." 15 U.S.C. § 1.
In September 2022, the case proceeded to a monthlong
bench trial. As the district court noted, the trial featured
"testimony by two dozen witnesses, most of whom were either
executives of the defendants or experts paid for their testimony
by one side or the other[,] . . . augmented by more than 2,700
pages of excerpts from the depositions of seventeen additional
witnesses." Am. Airlines Grp., 675 F. Supp. 3d at 74. "More than
a thousand exhibits were admitted into evidence," and
"[p]ost-trial written submissions by the parties exceeded six
hundred pages." Id.
In relevant part, six expert witnesses testified -- two
for plaintiffs, four for defendants. Id. at 100—01. Put bluntly,
the district court did not react favorably to defendants' experts.
It rejected "entirely" the opinions and conclusions of three of
defendants' four experts for two main reasons. Id. at 104. First,
the court found them biased. Id. at 101. Each had extensively
(and largely uniformly) defended GNCs in past antitrust
1By the time of trial, the NEA was approximately eighty-percent implemented. See Am. Airlines Grp., 675 F. Supp. 3d at 89.
- 11 - litigation. Id. They also each acted and spoke like advocates
invested in obtaining a ruling for the airlines. Id. And the
court found their testimony itself generally not credible,
concluding that much of it rested on faulty assumptions. Id. at
101—04.
C.
On May 19, 2023, the district court issued its findings
of fact and conclusions of law. As to its factual findings, the
district court specifically identified seven key effects resulting
from the NEA.
First, the district court found that American and
JetBlue no longer competed within the scope of the NEA. Id. at
89. More specifically, the NEA's schedule-coordinating provisions
caused the carriers to act as one airline in the NEA region "when
choosing which routes to fly, when to fly them, and which aircraft
(and which partner) will do so." Id. The NEA's revenue-sharing
provisions were also designed to render the carriers indifferent
as to which carrier a customer uses within the NEA region. Id.
Second, the district court found that the NEA caused
both carriers to adjust their network priorities, with both
focusing more on growing in New York at the expense -- because of
fleet-size constraints -- of "some pre-NEA plans to devote
resources to growth elsewhere." Id. at 90. To that end, the court
- 12 - rejected as factually unsupported the claim that the NEA caused
the carriers to expand (or at least delay shrinking) their fleets.
Id. at 91 n.44.
Third, the court found that after the NEA was announced,
American's slots at JFK and LGA were used "more heavily and
efficiently." Id. at 92. However, the court found that this
occurred in part because American had leased certain slots to
JetBlue (which may have been likely without the NEA) as well as
"upgauged" some of its aircraft and added some routes at those
slots. Id. And the court found no plausible explanation for why
those changes could not have occurred without the NEA. See id.
Fourth, the court found that the NEA led to "decreased
capacity, lower frequencies, or reduced consumer choice on
multiple routes, including some that are heavily traveled." Id.
For one, American and JetBlue allocated certain routes to one or
the other carrier in at least thirteen markets touching LGA
(including Boston-LGA, from which American exited), which reduced
the total frequencies or capacity in certain NEA markets.2 Id. at
92–93. The court also noted that the evidence suggested that
defendants would "continue to allocate more markets between them."
Id. at 93. Additionally, the court found that even on the routes
2 American debates the factual underpinnings of this finding, which we discuss infra.
- 13 - that both carriers continued to serve, defendants ceased competing
on "wing tip[]" flights, meaning flights departing at the same
time of day. Id. at 93 & n.45.
Fifth, the court found that the NEA's reciprocity and
code-sharing features caused frequent fliers and many corporate
clients to gain broader access to benefits and discounts. Id. at
93. However, the court noted that such travelers accounted for a
relatively small percentage of American's customers. Id. at 93—
94.
Sixth, the court found that the NEA raised JetBlue's
operating costs and deprived the airline of two significant
opportunities to expand its collection of slots and approvals,
undermining the carrier's role as a maverick "disruptor" in the
market. Id. at 94–95, 79. More specifically, JetBlue lost out on
more favorable slots at London's Heathrow Airport because of the
NEA and similarly lost slots for which it had bid at Newark based
on DOT's findings about the NEA's likely effects on JetBlue's
market position. Id. at 95 & n.52.
Seventh and finally, the court found that the NEA's
"spirit of partnership" had already led American and JetBlue to
disregard the NEA's safeguards. Id. at 96. Specifically, pursuant
to the terms of the NEA's revenue-sharing provisions, at the end
of 2021, JetBlue owed American a "transfer payment" of over
- 14 - $200 million. Id. However, American forgave most of that amount
and instead agreed to accept a transfer payment of $27 million.
Id. And even after disregarding the NEA's express requirements,
the carriers declined to amend the contracts accordingly -- a
decision the district court found to undermine the carriers' claims
that other provisions in the NEA would have guaranteed that they
adhered to certain procompetitive conduct or prevent
anticompetitive effects. Id. at 96–97.
D.
Based on its factual findings, the district court
proceeded to assess the lawfulness of the NEA. Courts have
construed the Sherman Act to preclude only those contracts that
"unreasonably restrain competition." N. Pac. Ry. Co. v. United
States, 356 U.S. 1, 5 (1958). "A small group of restraints are
unreasonable per se because they 'always or almost always tend to
restrict competition and decrease output.'" Ohio v. Am. Express
Co. (Amex), 585 U.S 529, 540 (2018) (quoting Bus. Elecs. Corp. v.
Sharp Elecs. Corp., 485 U.S. 717, 723 (1988)). Otherwise,
"[d]etermining whether a restraint is undue for purposes of the
Sherman Act 'presumptively' calls for what [courts] have described
as a 'rule of reason analysis.'" NCAA v. Alston, 594 U.S. 69, 81
(2021) (quoting Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006)).
- 15 - A rule-of-reason analysis requires a fact-specific
assessment of the restraint's actual effect on competition. Amex,
585 U.S. at 541. Under the rule of reason's three-step
burden-shifting framework, the plaintiff must first make a showing
that the restraint has a substantial anticompetitive effect, which
can be proven directly or indirectly. Id. at 541—42. If the
plaintiff carries that burden, the burden shifts to the defendant
to show a "procompetitive rationale for the restraint." Id. at
541. And "[i]f the defendant makes this showing, then the burden
shifts back to the plaintiff to demonstrate that the procompetitive
efficiencies could be reasonably achieved through less
anticompetitive means," id. at 542, or that on balance, the
restraint's harms outweigh its benefits, see Sullivan v. Nat'l
Football League, 34 F.3d 1091, 1111 (1st Cir. 1994).
In applying the rule of reason, the district court found
that plaintiffs met their burden of showing that the NEA had direct
anticompetitive effects in three ways. Most significantly, the
district court found that the NEA "led to decreased capacity, lower
frequencies, or reduced customer choices on multiple
routes . . . ." Am. Airlines Grp., 675 F. Supp. 3d at 92. As to
what drove that reduction in output, the district court made three
further findings. First, the court found that JetBlue and American
no longer directly competed with each other within the NEA region,
- 16 - reducing market participants in the already extremely consolidated
region by one. Second, by aligning its interests with American,
JetBlue sacrificed some of its independence and status as an
important maverick competitor in the industry. And third, the
NEA's feature of schedule/route "optimization" (including
assigning routes to either American or JetBlue) closely resembled
per se illegal market allocation.3 See Am. Airlines Grp., 675 F.
Supp. 3d at 113–17.
Next, the court found that American and JetBlue failed
to carry their burden to show a procompetitive rationale for the
NEA's anticompetitive restraints, because their asserted
justifications either were not legally cognizable or lacked
evidentiary support. Id. at 120–26. It also found that the NEA
was not an otherwise lawful joint venture with restraints merely
ancillary to its overarching procompetitive purpose, such as
pooling complementary resources to develop a new service. Id. at
122. Rather, the NEA's anticompetitive features were "at its
core." Id. at 123. For example, the court found that the primary
reason for the NEA was to strengthen defendants' competitive
position at the expense of Delta (and United) -- rather than
3The district court also found that plaintiffs alternatively satisfied their burden at step one of the rule of reason by showing that the NEA had anticompetitive effects through indirect evidence. Am. Airlines Grp., 675 F. Supp. 3d at 117–19.
- 17 - maximizing "customer value." Id. at 120—21. As to the remainder
of defendants' asserted benefits, that evidence supported at most
only one arguable benefit -- more flexible loyalty benefits.
Assuming that flexibility to be procompetitive, the district court
nevertheless found it "de minimis compared to the anticompetitive
harms the court has found . . . ." Id. at 124, 126.
The district court closed with step three. It found
that the NEA's ostensible procompetitive benefits could have been
achieved through less restrictive alternatives -- namely, an
agreement like the WCIA between American and Alaska Airlines -- and
that, on balance, the NEA's harms outweighed any cognizable
benefits. Id. at 126—28.
In light of its findings, the district court enjoined
American and JetBlue from continuing or further implementing the
NEA. Id. at 128. The court's injunction ordered them to cease
all coordination of schedules, routes, or any effort to allocate
markets. It also prohibited the carriers from entering into any
arrangement substantially similar to the NEA. To that end, the
injunction required that defendants provide notice to plaintiffs
prior to entering into any such arrangement.
- 18 - Shortly after the injunction entered, JetBlue exited the
NEA pursuant to its terms of cancellation. American, the only
remaining defendant, appealed.4
II.
We review the district court's conclusions of law de
novo and its factual findings for clear error. Calandro v.
Sedgwick Claims Mgmt. Servs. Inc., 919 F.3d 26, 33 (1st Cir. 2019).
The district court's findings of fact must be honored unless,
"after careful evaluation of the evidence, we are left with an
abiding conviction that those determinations and findings are
simply wrong." State Police Ass'n of Mass. v. Comm'r of Internal
Revenue, 125 F.3d 1, 5 (1st Cir. 1997); Fed. R. Civ. P. 52(a)(6).
On appeal, American nowhere expressly argues that any of
the district court's factual findings were clearly erroneous.
4 Even though the NEA is no longer in effect, American requests that we vacate the district court's permanent injunction prohibiting it from pursuing similar arrangements in the future, as well as subjecting it to a notice requirement prior to entering into any such arrangement. American also indicated at oral argument that it intends to enter into another NEA-like arrangement if we grant its requested relief. For all of these reasons collectively, American's appeal is not moot. See Auto Parts Mfg. Miss., Inc. v. King Constr. of Houston, L.L.C., 782 F.3d 186, 192 (5th Cir. 2015) ("Because appellants request vacatur of the permanent injunction, there is still a live issue before this court, and the challenge to the district court's injunctive relief is not moot."); cf. Town of Portsmouth v. Lewis, 813 F.3d 54, 58 (1st Cir. 2016) ("[A] case is moot when the court cannot give effectual relief to the potentially prevailing party." (citation omitted)).
- 19 - Instead, American trains its attention on the district court's
rule-of-reason analysis, arguing that legal error befell it each
step of the way. We treat each of American's arguments in turn.
American first takes issue with the mode of analysis the
district court employed to assess the NEA's lawfulness under the
Sherman Act. Specifically, American argues that the district court
erroneously subjected the NEA to "quick look" condemnation rather
than applying a full-blown rule-of-reason analysis. It suggests
that joint ventures like the NEA are "not usually unlawful," Broad.
Music, Inc. v. Columbia Broad. Sys. Inc., 441 U.S. 1, 23 (1979),
even though they inherently stifle competition between the two
venturing firms. Thus, it argues that the district court's
ostensibly cursory dismissal of the NEA warrants reversal.
American's argument is unavailing on multiple levels.
For one, that the NEA is a "joint venture" says little about the
level of antitrust scrutiny it should receive. After all, one
could describe price fixing as a joint venture. Our inquiry
therefore trains not on American's label, but rather on the terms
and effects of the parties' agreement. Here, the district court
found as fact that this venture reduced output while garnering no
competitive benefits that could not otherwise be achieved -- which
American does not claim to be clearly wrong. The label of "joint
- 20 - venture" does not itself change the analysis, which is "aimed at
substance rather than form." Copperweld Corp. v. Indep. Tube
Corp., 467 U.S. 752, 760 (1984). And while it is fair to say that
"most joint venture restrictions" are subject to the rule of
reason, the level of scrutiny required under that standard exists
along a "competitive spectrum." Alston, 594 U.S. at 88; see also
Dagher, 547 U.S. at 7 (rejecting per se treatment of a joint
venture). The rule of reason is merely a "fact-specific
assessment," Amex, 585 U.S. at 541, that varies based on "the
circumstances, details, and logic of a restraint," Cal. Dental
Ass'n v. FTC, 526 U.S. 756, 781 (1999). Indeed, the leading
treatise notes that "[t]he rule of reason is often erroneously
assumed to require detailed fact finding and balancing" -- instead,
the rule is better viewed as creating a "sliding scale" of
antitrust analysis with many variations in proof that depend on
context. 11 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law:
An Analysis of Antitrust Principles and Their Application ¶ 1508
(4th ed. 2022) [hereinafter Areeda & Hovenkamp].
Moreover, the district court did not condemn the NEA
with as quick a look as American suggests. Although the district
court formally found that the NEA merited a less "deep and
searching analysis," Am. Airlines Grp., 675 F. Supp. 3d at 112, it
nonetheless made extensive and reasoned findings regarding the
- 21 - NEA's effects on competition after conducting a monthlong bench
trial and reviewing a mountainous record. Under these
circumstances, we decline to classify the district court's
herculean efforts in analyzing the NEA as a mere "quick look."
Rather, tailoring its examination to the specific transaction at
issue, the court received evidence and made findings sufficient
for a confident and reliable assessment of the actual and likely
effects of the NEA's adoption.
American argues that the district court erred in finding
that plaintiffs met their initial burden of proving that the NEA
had substantial anticompetitive effects. First, American says the
only way to prove actual anticompetitive harm to consumers in the
relevant market is with empirical evidence "that tends to prove
that output was restricted or prices were above a competitive
level." Amex, 585 U.S. at 549 (quoting Brook Grp. Ltd. v. Brown
& Williamson Tobacco Corp., 509 U.S. 209, 237 (1993)). But whether
there are other available routes to show anticompetitive harm
matters not at all in this case because the district court
expressly found output reduced.
In an attempt to challenge that finding without claiming
clear error, American argues that the district court unlawfully
treated the NEA's empirical effects on output and price as
- 22 - immaterial. Here, we disagree. The court expressly found that
the NEA "led to decreased capacity, lower frequencies, or reduced
consumer choices on multiple routes, including some that are
heavily traveled." Am. Airlines Grp., 675 F. Supp. 3d at 92.
American makes no showing that these findings are clear error.
More specifically, the district court found that in at least
thirteen markets that American and JetBlue both previously served,
the NEA allocated the route to one carrier and caused the other to
exit, and that the evidence suggested that the carriers would
continue to allocate more markets between them. Id. at 92–93.
And in markets the carriers both continued to serve, the court
found that the NEA caused American and JetBlue to cease directly
competing on "wing tip[]" flights in those markets. Id. at 93.
The district court even found that the NEA's "spirit of
partnership" undermined any claim that the carriers would continue
to compete on the routes the NEA "carve[d][]out" from its joint
schedule. Id. at 97. Based on these findings, the district court
concluded that the NEA in fact "reduced total frequencies or
capacity in certain NEA markets." Id. at 93.5 Consequently, even
5 For the first time on reply, American argues that with respect to two heavily traveled routes in which one carrier exited -- Boston-LGA and Boston-DCA -- total capacity as measured by seats increased. However, American's only support for this claim is an exhibit that is not in the trial record. Moreover, the evidence itself is raw data from which American now offers an extrapolation on appeal. We decline to entertain this evidence
- 23 - assuming arguendo that a showing of reduced capacity was required
to find anticompetitive harm, the district court made the requisite
findings here.
Without attempting to show that the district court
committed clear error in its output-related factual findings to
the contrary, American argues that the NEA actually resulted in
increased capacity in the form of "more flights, more seats, more
routes, shorter connections, better frequent flyer benefits, and
more choices." But the district court expressly rejected as
unreliable the evidence American offers in support of these claims.
Indeed, with respect to American's assertions regarding the NEA's
effects on capacity, the district court noted that "[n]o objective
or helpful corroboration is provided by citations to defendants'
own internal slide decks pitching the benefits or success of the
NEA without providing reliable sources or support for the claims
contained therein." Id. at 125. Yet American now cites the same
slide deck on appeal in support of the NEA's purported success, as
if the district court simply never made this finding.
American also claims that the NEA's capacity-expanding
effects were undisputed. But the district court expressly declined
to attribute various capacity increases to the NEA itself. See
and argument for the first time on appeal, particularly after a bench trial. See United States v. Zannino, 895 F.2d 1, 9 n.7 (1st Cir. 1990).
- 24 - id. at 92. While the district court did find that the NEA caused
the carriers to "adjust their overall network priorities" to focus
more on growth in New York, it also found that such growth came
"at the expense of resources and output by the defendants
elsewhere." Id. at 90, 124. The district court expressly found
no evidentiary support for the claim that the NEA led either
carrier to increase its fleet rather than reallocate it. See id.
at 91 n.44, 124—25. Additionally, while the district court
acknowledged that since the NEA was announced, "American's slots
at JFK and LGA have been used more heavily and efficiently," it
did not attribute this growth to the NEA because American intended
to lease underutilized slots to JetBlue even prior to the NEA.
Id. at 92. And more broadly, the mere fact that airline capacity
overall increased between 2021 and 2022 -- just as the industry
began to recover from the Covid-19 pandemic -- did little to show
that the NEA itself increased American or JetBlue's capacity in
any meaningful way.6
6 To that end, American's claim that plaintiffs' experts conceded at trial that the NEA did not cause any actual consumer harm also fails. For example, plaintiffs' expert Dr. Town simply testified that it would be difficult to assess whether the NEA caused actual consumer harm given the circumstances of the pandemic recovery. Additionally, Dr. Miller's testimony that his model did not use actual NEA schedules as inputs to observe post-NEA price or output effects did not amount to an admission that the NEA did not or would not cause any anticompetitive harm. Rather, the district court found that Dr. Miller "explained why he chose the models he used to assess [the NEA's] effects," and, in any event,
- 25 - American also contends that the district court erred in
concluding that the NEA had direct anticompetitive effects in the
form of market allocation and reduced consumer choice. American
argues that each of the various anticompetitive effects the
district court identified are all versions of the same point: that
the NEA was anticompetitive because "American and JetBlue
collaborated and were no longer fully independent competitors."
In turn, it argues that the court could only reach such a
conclusion by relying on outdated case law that it says viewed
"the protection of rivalry," as opposed to consumer welfare, as
the best means of promoting competition. However, American
misconstrues the district court's findings, which were legally
sufficient.
For one, as we have already noted, horizontal agreements
allocating markets between substantial competitors have generally
been treated as per se illegal. See Stop & Shop Supermarket Co.
v. Blue Cross & Blue Shield of R.I., 373 F.3d 57, 61 (1st Cir.
2004) ("The most important per se categories are naked horizontal
price-fixing, market allocation, and output restrictions."); see
only credited Dr. Miller's analysis to the extent it suggested that the NEA would create upward pricing pressure. Am. Airlines Grp., 675 F. Supp. 3d at 100. Moreover, the district court ultimately found that it was defendants who failed to show that new routes launched after the NEA did not instead "ar[i]se from the substantial shift in flying patterns occurring during and after the pandemic." Id. at 125.
- 26 - also Palmer, 498 U.S. at 49 ("[A]greements between competitors to
allocate territories to minimize competition are illegal.").
Granted, where a restraint like market allocation is "ancillary"
to an otherwise procompetitive joint venture, per se condemnation
of the agreement may not be warranted. See, e.g., Broad. Music,
Inc., 441 U.S. at 23 (noting that joint ventures are not usually
unlawful as price fixing where an "agreement on price is necessary
to market the product at all"). But here, the district court
found -- and American does not dispute -- that JetBlue and
American's agreement to "optimiz[e]" their route schedules and
thereby allocate markets within the NEA region was central, not
ancillary, to the NEA.7 Am. Airlines Grp., 675 F. Supp. 3d at 122—
23. Thus, the district court's finding that the NEA's market
allocation resides near the anticompetitive end of the spectrum
rests on stable footing.
None of this is to say that the district court found the
NEA per se unlawful. It did not. It is to say, rather, that the
similarity between the NEA and naked market allocation further
7 For this reason, American's challenge to the district court's reliance on cases like United States v. Topco Associates, Inc., 405 U.S. 596, 608 (1972), which applied this per se rule to condemn a horizontal territorial-division agreement among competing grocery chains, is irrelevant. See Areeda & Hovenkamp ¶ 1511(d)(3)(A) (critiquing Topco on the grounds that the Court should have found the restraint at issue ancillary rather than per se illegal, but also noting that the Supreme Court continues to cite Topco with apparent approval, albeit in dicta).
- 27 - buttresses the district court's already well-supported conclusion
that, by reducing output without producing procompetitive benefits
that were not otherwise achievable, the NEA failed to survive a
rule-of-reason analysis.8
Having failed to undo the district court's conclusions
at step one, American turns its sights to steps two and three of
the rule-of-reason analysis. The district court found that the
only colorable "procompetitive rationale" for the NEA's restraints
established by American and JetBlue was more flexible loyalty
benefits. Alston, 594 U.S. at 96; Am. Airlines Grp., 675 F. Supp.
3d at 120, 124, 126. On appeal, American argues that the district
court improperly failed to countenance the rest of the NEA's
ostensible procompetitive benefits as a matter of law and nullified
step two in so doing. Specifically, it argues that the district
court's rejection of its asserted benefits was not based on "any
relevant fact-finding," but rather on the flawed legal conclusion
that the carriers' asserted benefits only arose out of the
8Given these conclusions, we need not reach the issue of whether the NEA's reduction in the number of competitors itself, or its effects on JetBlue's "maverick" status, constituted standalone anticompetitive harms. Nor must we address American's challenges to the district court's alternative step-one finding that plaintiffs established actual competitive harms indirectly based on American and JetBlue's "market power." Am. Airlines Grp., 675 F. Supp. 3d at 118—19, 118 n.88.
- 28 - anticompetitive collaboration at the heart of the NEA. Yet here
too, American's argument fails.
First, despite American's argument to the contrary, some
of its asserted procompetitive justifications are simply not
cognizable. For example, any defense of a restraint based on the
notion that competition itself is "inefficient, unreasonable, or
confusing" is insufficient as a matter of law. Viamedia, Inc. v.
Comcast Corp., 951 F.3d 429, 479 (7th Cir. 2020); see also
Collaboration Guidelines § 3.36(a) ("Some asserted efficiencies,
such as those premised on the notion that competition itself is
unreasonable, are insufficient as a matter of law."). Indeed, the
FTC and DOJ's Collaboration Guidelines reiterate this point,
describing "cognizable efficiencies" in horizontal collaborations
as those that "do not arise from anticompetitive reductions in
output or service, and that cannot be achieved through practical,
significantly less restrictive means." Collaboration Guidelines
§ 3.36. Additionally, it is well established that other defenses
are unacceptable, including that "the defendants fixed prices or
divided a market in order to ensure that weaker market participants
would get a 'fair' share of the trade," or that -- as American
itself tries to argue -- "elimination of competition along one
avenue . . . will not affect consumers adversely because the
- 29 - participants will continue to compete on price." Areeda &
Hovenkamp ¶ 1907(b).
The Sherman Act "exist[s] to protect the competitive
process itself, not individual firms." Grappone, Inc. v. Subaru
of New Eng., Inc., 858 F.2d 792, 794 (1st Cir. 1988) (Breyer, J.).
As such, the notion that the "presence of a strong competitor
justifies a horizontal [anticompetitive] conspiracy" is certainly
not always the case. See United States v. Apple, Inc., 791 F.3d
290, 298 (2d Cir. 2015) (finding that Apple's desire to compete
with Amazon in the e-reader market did not vindicate its
price-fixing conspiracy with publishers). The district court
rejected on factual grounds the notion that American and JetBlue
were "two small companies" seeking to collaborate so that they
could "compete more effectively with larger corporations
dominating the relevant market." Am. Airlines Grp., 675 F. Supp.
3d at 121 n.95 (quoting Brown Shoe Co. v. United States, 370 U.S.
294, 319 (1962)). American does not directly challenge this
finding on appeal. So, we see no error in the district court's
rejection of American's argument that the NEA generated a
procompetitive benefit for the purposes of step two in the sense
that it better allowed the carriers to compete with Delta -- the
NEA's principal purpose. Id. at 121—22. Indeed, "a party can[not]
relabel a restraint as a product feature and declare it 'immune
- 30 - from § 1 scrutiny.'" Alston, 594 U.S. at 101 (quoting Am. Needle,
Inc. v. Nat'l Football League, 560 U.S. 183, 199 n.7 (2010)). To
the extent that is what American seeks to do here, the effort is
mistaken. The NEA may well have benefited American and JetBlue,
but to prevail at step two the carriers had to focus on the effects
on consumers and "the competitive process" itself. See Grappone,
Inc., 858 F.2d at 794; cf. Viamedia, 951 F.3d at 479 ("[C]laimed
benefits from [challenged] conduct must be procompetitive and not
simply the result of eliminating competition.").
Moreover, American otherwise fails to show that the
district court clearly erred in rejecting defendants' remaining
asserted procompetitive justifications as factually unsupported.
For one, American nowhere lodges a challenge to the district
court's finding that the NEA was not necessary "to create a new
product or market that could not otherwise exist," or that American
and JetBlue's pooled assets were not "complementary" in a way that
would -- with collaboration -- enable them to innovate in a way
neither could alone.9 Am. Airlines Grp., 675 F. Supp. 3d at 122—
9 American does not meaningfully dispute the district court's finding that the NEA in no way revolutionized the "product" American and JetBlue provide: flights from one place to another. Am. Airlines Grp., 675 F. Supp. 3d at 122 n.97. Nor does American dispute the district court's rejection of the claim that the NEA actually resulted in "better schedules" from a customer standpoint, given its elimination of wingtip flight competition. Id. at 123.
- 31 - 23. Nor does American claim as clear error the district court's
finding that, even taking the carriers' asserted benefit of
increased competition with Delta on its own terms, the evidence of
any competitive response to the NEA by Delta (or United) was
"milquetoast, at best" and was "in line with [Delta's] typical
responses to any moves by any competitors, included changes that
were already part of the carrier's plans, and reflected general
recovery trends in New York in the wake of the pandemic." Id. at
124 & n.101. Indeed, rather than confront the sufficiency of these
findings head on, American instead paints the district court's
step-two findings as "not rooted in any relevant fact-finding" at
all. We are unpersuaded.
Perhaps most critically, American all but abandons any
serious attempt to dispute the district court's conclusion that
the rest of its claimed benefits "lack evidentiary support entirely
or find support only if an artificially narrow lens is applied."
Id. at 124. As we explained supra at Section II.B, American's
perfunctory claims regarding the NEA's purported effects on
capacity and output wither under even the slightest scrutiny. For
example, American boasts -- as if uncontroverted -- that the NEA's
efficiency gains caused the carriers to increase their capacity at
NEA airports by "more than 200%" in the form of "nearly 50 new
nonstop routes, increased frequencies on more than 130 routes,
- 32 - [and] increased capacity on 45 New York City flights." For
support, American cites only to trial exhibits consisting of
defendants' own internal slide decks and charts reiterating these
very claims, bereft of any primary source support. The district
court found this very evidence to provide "no objective or helpful
corroboration" of the carriers' claims regarding the NEA's
successes. Id. at 125–26, 126 n.109 (noting that by the time of
trial, the carriers distanced themselves from various internal
documents, likely realizing their evidentiary flaws). And
American now offers no dispositive counterpoint to the district
court's finding that, even with respect to discrete new routes
launched within the NEA region, the carriers failed to show that
American or JetBlue added any such routes "because of" the NEA
itself. Id. at 125.
Nor does American undercut the district court's finding
that the carriers' claims of capacity growth disregarded evidence
that growth within the NEA came "at the expense of resources and
output by the defendants elsewhere, as well as evidence the
defendants each would have pursued at least some of this growth
with or without the [NEA.]" Id. at 124. American suggests that
it was error for the district court to consider "out-of-market
effects" or what would (or would not) have occurred but for the
NEA at step two of the rule of reason, rather than simply take
- 33 - American's asserted procompetitive benefits on their own terms.
Not so. These considerations -- both contextualizing defendants'
asserted capacity effects and considering the carriers' pre-NEA
incentives -- properly figured into the court's ultimate analysis
of whether any such asserted benefits actually flowed from the
NEA.
Finally, American asserts that the district court's
step-three analysis was corrupted by its failure to credit its
arguments about procompetitive benefits. In doing so, American
ignores the district court's conclusion that the procompetitive
benefit achieved by the NEA -- more flexible loyalty
benefits -- could "plainly [be achieved] through less restrictive
means." Am. Airlines Grp., 675 F. Supp. 3d at 126 n.112. Indeed,
the district court explained that a "more limited WCIA-style
arrangement" complete with "some degree of codesharing and loyalty
reciprocity," similar to the agreement between American and Alaska
Airlines on the West Coast, would have sufficed. Id. at 127. This
finding is undisturbed on appeal.10
As the Supreme Court has noted, "however framed and at 10
whichever step, anticompetitive restraints of trade may wind up flunking the rule of reason to the extent the evidence shows that substantially less restrictive means exist to achieve any proven procompetitive benefits." Alston, 594 U.S. at 100; see also Areeda & Hovenkamp ¶ 1505 (noting that steps two and three "can be collapsed into one," in part because a "legitimate objective that is not promoted by the challenged restraint can be equally served
- 34 - All in all, American fails to convince us that the
district court committed clear factual errors or an error of law
in finding that the carriers did not carry their burden to "justify
the [NEA's] restraints with evidence of procompetitive benefits."
Am. Airlines Grp., 675 F. Supp. 3d at 110 (citing NCAA v. Bd. of
Regents of Univ. of Okla., 468 U.S. 85, 113 (1984)).11
III.
Presented with an arrangement that had many of the
essential attributes of an agreement between two powerful
competitors sharing revenues and divvying up highly concentrated
markets, the district court conducted a monthlong proceeding,
after which it made detailed findings of fact, many key ones of
which were unfavorable to American. Seeing no clear error in those
findings, we also see no error of law in the court's application
of the rule of reason to conclude that the arrangement violated
section one of the Sherman Act.
For the foregoing reasons, the judgment of the district
court is affirmed.
by simply abandoning the restraint, which is surely a less restrictive alternative"). 11 Additionally, we have otherwise considered American's remaining arguments and find them to be without merit.
- 35 -