Competition

• Author: International Law Group

On October 21, 1993, Virgin Atlantic Airways Limited (Virgin) brought antitrust actions against British Airways (BA), alleging that BA's incentive agreements and ticket bundling constituted predatory business practices, and breached Sections 1 and 2 of the Sherman Act. Virgin produced an expert witness who testified that the net effect of these practices was to postpone Virgin's initiation of flights to San Francisco, Washington, DC, Chicago, Los Angeles, and New York. The New York federal court gave summary judgment to BA. Virgin appeals, claiming that the district court misunderstood the economic analysis of its key expert and applied the wrong legal standards.

The U.S. Court of Appeals for the Second Circuit affirms. Virgin had alleged the incentive agreements used by BA whereby travel agents and corporate customers receive commissions or discounts once they have reached a sales threshold, unreasonably restrained trade and offended against Section 1 of the Sherman Act. To substantiate this Sherman Act claim, Virgin had to show (1) that there was some form of concerted action between at least two legally distinct economic entities; and (2) that such conduct impeded trade either per se or under the "rule of reason."

The Court finds, first, that Virgin did not produce adequate direct or circumstantial evidence tending toward proof that BA was party "to a common scheme designed to achieve an unlawful objective."

Furthermore, the incentive partners had not agreed to do anything in exchange for the benefits they were receiving. i.e., there were no minimum requirements or purchases, and buyers could choose whichever flight they found most suitable.

Second, the Court concludes that Virgin failed to show that BA's practices were illegal per se. Without being able to claim reduced output and elevated pricing, a plaintiff cannot substantiate an allegation of an adverse effect on competition as a whole in the pertinent market. Moreover, Virgin never put forth an alternative means by which BA could have achieved its goals without hampering competition. Lastly, BA came up with a pro-competitive rationale for its actions, contending that rewarding its most loyal customers fosters competition within the market.

Third, the Court disagrees with Virgin's allegation that BA's bundling...