Reply Brief — Western Air Lines, Inc. v. International Travel Arrangers, Inc.

Supreme Court, u. S.

FILED

:

HOV 24 1980

No. 80-668 MICHAEL RODAK, m, corm} |

IN THE

Supreme Court of The United States

Octoser Term, 1980 |

i

Western Are Lives, Ino. |

Petitioner,

vs.

INTERNATIONAL TravEL ARRANGERS, INC.

Respondent.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

PETITIONER'S REPLY BRIEF

Patrick Lyncon# ‘

Barton H. THompson, JR. f

O’Metveny & Myers

611 West Sixth Street

Los Angeles, California 90017

$

(213) 620-1120 |

Of Counsel: Attorneys for Petitioner

Cray R. Moore Western Air Lines, Inc.

Macka.i, CrounsE & Moore

1000 First Nat’l Bank Bldg.

Minneapolis, Minnesota 55402

i

TABLE OF CONTENTS

TABLE OF AUTHORITIES.|......0.0.....c::cccsccscsssessesncseees

I. THE DISTRICT COURT’S MARKET LEVER-

AGE HOLDING DOES NOT BY ITSELF SUP-

PORT THE JUDGMENT AND THUS DOES

NOT MOOT THE PETITION... ccccccccsceseeee

Il. WESTERN’S MARKET SHARE DOES NOT

JUSTIFY THE DECISION BELOW....................

It. THE EIGHTH CIRCUIT’S DECISION

CONFLICTS WITH BERKEY PHOTO..............

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TABLE OF AUTHORITIES

Cases Cited

Page(s)

American Tobacco Co. v. United States, 328 U.S. 781

Se itetesidcsntelchadodccsdiedishenestsnosiepahadehondlidoedes Heiss cslines scaancaiiil 4

Associated Radio Service Co. v. Page Airways, Inc.,

624 F.2d 1342 (Sth Cir. 1980)... ee eeeeeceeseeeseeceeseeeceee 6

Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d

263 (2d Cir. 1979), cert. denied, 444 U.S. 1093 (1980) 4,5

California Computer Prods., Inc. v. IBM, 613 F.2d 727

i Lt aE eS OR, SE ae 4

EL. I. DuPont de Nemours & Co., 3 Trade Reg. & Co.

(CHH) { 21,770 (F.T.C. Oct. 20, 1980) ah

Memorex Corp. v. IBM, No. 78-3050 (9th Cir.

Nov. 18, 1980), af’g 458 F.Supp. 423 (N.D. Cal

NP edith iia Niele lh hatin ities sacar seip ilionninidnea inssmniitoeniaan’ 4

United States v. Grinnell Corp., 384 U.S. 563 (1966)...... 4

Federal Statutes

Sherman Antitrust Act of 1890, 26 Stat. 209

SRA UE eee passim

Bl Pe a Wickert sic sccse rc atserdranbenacotcrsenceasiendaed passim

Other Sources

IN THE

Supreme Cowt of the United States

Ocroser Term, 1980

Western Air Linezs, Ino.

Petitioner,

v8,

INTERNATIONAL TRaveL ARRANGERS, Ino.

Respondent.

ON PETITION FOR WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE EIGHTH CIRCUIT

PETITIONER’S REPLY BRIEF

As shown in the Petition, the Eighth Circuit held that

Western Air Lines, Inc. (“Western”) violated the Sherman

Act merely because its comparative advertising campaign

against a new form of air travel competition was intended

to be successful and was, in fact, successful. This holding

perverts th. Sherman Act by paralyzing competition and

conflicts with all of the decisions rejecting such misuse of

the antitrust laws. See, e.g., cases cited at p.4 infra. Inter-

national Travel Arrangers, Inc. (“ITA”), in its Brief In

Opposition, is unable to cite any precedent for the decision

below or defend the merits of the opinion. Instead, ITA

devotes virtually all of its Brief to arguing (1) that the

district court properly found that Western had used market

leverage in the Minneapolis-Las Vegas market to discourage

one travel agent from promoting Travel Group Charters

(“T'GC’s”) and (2) that Western’s large share of the Min-

neapolis-Hawaii market somehow justifies the Eighth Cir-

?

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2

cuit’s novel decision.! As explained in the Petition at pp.

27-29, the first contention is both factually unsupportable

and, more importantly, irrelevant to the question of

whether certiorari is warranted. The second argument is

simply incorrect legally.

I. THE DISTRICT COURT’S MARKET LEVERAGE

HOLDING DOES NOT BY ITSELF SUPPORT THE

JUDGMENT AND THUS DOES NOT MOOT THE

PETITION.

The district court’s market leverage holding does not by

itself support the decision below. See, Petition, pp. 27-28.

Although ITA spends several pages attempting to defend

the district court’s holding, ITA is unable to rebut the

fact that the leverage holding, even if supportable, cannot

by itself support the damages awarded against Western

nor moot the major questions presented by the Petition.2

1. ITA also implies in passing that Western did not raise the issue

before the Court of Appeals of whether the “anti-TGC campaign”

could constitute a violation of § 1 of the Sherman Act. Brief In

Opp’n, p. 2. This was Western’s “threshhold” argument, how-

ever, before the Court of OR s. Brief of Appellant Western

Air Lines, Inc., April 26, 1979, at pp. 22-29.

2. In fact, ITA is also unable to cite any evidence to support the dis-

trict court’s finding that Western threatened to cut off the

Minnesota State Automobile Association (“MSAA”) from its

“Group 60” Las Vegas program if MSAA continued to promote

TGCs. Like the Court of Appeals, ITA alludes only to evidence

that Western enjoyed market leverage and that MSAA was

“aware” of Western’s leverage. Brief In Opp’n, p. 8. As to the

critical September 25, 1973 meeting, both ITA and the Court of

Appeals can. cite only the testimony of Lynn Zumbrunnen,

estern’s regional director, that the “Group 60” program was

discussed at the meeting. Jd. But Zumbrunnen’s testimony was

that MSAA — not Western — brought up the “Group 60” pro-

gram to remind Western that MSAA “had produced and sold

many passengers to Las Vegas” for Western and that Western

risked losing this MSAA patronage if it continued to advertise

against TGCs. 18 Tr. 65. MSAA personnel at the meeting con-

firmed this account. 11 Tr. 77-78, 83, 185. There is no evidence

in the record that Western threatened MSAA back. The validity

of the district court’s finding to the contrary is an issue that

should clearly be considered on remand if this Court grants

certiorari and reverses.

3

The “anti-TGC campaign” was at the center of both the

district court’s and the Court of Appeals’ decisions. And

there is no evidence that MSAA would have cancelled its

ITA TGCs if there had not been a drop off in public interest

attributable, according to the courts below, to Western’s

advertisement warning consumers of the dramatic draw-

backs of TGCs. MSAA did not cancel its charters with

ITA immediately after the September 25, 1973 meeting

with Western, as it would have if Western’s alleged threat

had been the deterrent. Instead, it continued for several

weeks to advertise the TGCs and to solicit customers to

fill the charters. 10 Tr. 156-157, 178; 11 Tr. 97; Ex. 77.

MSAA testified that it was ultimately forced to cancel the

charters because of “lack of passengers” — not pressure

from Western. 10 Tr. 177-178. Not surprisingly, therefore,

there is no holding below that the alleged leverage, by

itself, would have supported the damage award.

The district court’s market leverage finding, in short,

does not provide an alternative ground for affirming the

decision below. The decision rests squarely on a perverse

and novel reading of the Sherman Act that this Court

should expunge.

II. WESTERN’S MARKET SHARE DOES NOT

JUSTIFY THE DECISION BELOW

ITA appears to recognize that the Court of Appeals’

decision does not rest on any inaccuracy or ambiguity in

Western’s ad but merely on the facts that Western engaged

in its advertising campaign with the intent to prevail in

the market and that the campaign was effective.3 Ap-

parently recognizing the weakness of this logic in a §1

context, ITA attempts to justify the Court of Appeals’

holding on the ground that Western held a large share of

the Minneapolis-Hawaii market.

3. ITA does not attempt to justify the Court of Appeals’ decision on

the basis of the district court’s finding that Western’s ad was in

parts unintentionally inaccurate or misleading. Indeed, ITA ex-

presses surprise that “so much of the Petition is devoted to trying

to demonstrate the truthfulness of the September 16th ad.” Brief

In Opp’n, p. 16 n.19.

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4

Contrary to ITA’s argument that “any exclusionary con-

duct by one possessing monopoly power is proscribed by

the antitrust laws,”4 the courts have long recognized that

a monopolist, like any other business, is free to compete

vigorously even though in the process it maintains or

expands its market share. See, e.g., United States v. Grin-

nell Corp., 384 U.S. 563, 570-71 (1966); Memorex Corp. v.

IBM, No. 78-3050 (9th Cir. Nov. 18, 1980), aff’g 458 F’. Supp.

423 (N.D. Cal. 1978) ; Berkey Photo, Inc. v. Eastman Kodak

Co., 603 F.2d 263, 273-75 (2d Cir. 1979), cert. denied, 444

U.S. 1093 (1980) ; California Computer Prods., Inc. v. IBM,

613 F.2d 727, 735-36 (9th Cir. 1979); EH. I. DuPont de

Nemours ¢ Co., 3 Trade Reg. Rep. (CCH) { 21,770 (F.T.C.

Oct. 20, 1980); 3 P. Areeda & D. Turner, Antitrust Law

73-83 (1978). In particular, a monopolist is free to pub-

licize the advantages of its products and the drawbacks

of those of competitors unless the amount of advertising

is “so unwarranted by competitive exigencies as to con-

stitute an entry barrier.” Berkey Photo, supra, 603 F.2d

at 287, citing American Tobacco Co. v. United States, 328

U.S. 781, 797 (1946). No court has ever condemned an

advertisement under either $1 or §2 of the Sherman Act

because of the competitive purpose of its sponsor, until the

Kighth Circuit in this case.

Western’s “‘anti-TGC campaign” consisted solely of one

newspaper advertisement, several radio spots and a letter

to Minnesota travel agents warning of the serious draw-

backs of TGCs. The “anti-TGC campaign” did not involve

any abuse of market power and neither the district court

nor the Court of Appeals so found.s The Eighth Circuit

4. Brief In Opp’n, p. 10.

5. ITA implies at one point that Western’s letter to Minnesota travel

agents constituted a veiled threat to use leverage in the Minne-

apolis-Las Vegas market to punish agents promoting TGCs. Brief

in Opp’n, p. 13-14. There is no evidence to support this assertion.

Both the district court and the Court of Appeals found that the

letter was merely what it was intended to be —an informative

letter drawing travel agents’ attention to what Western viewed as

the drawbacks of TGCs. App. 9a, 15a, 8d-9d.

5

condemned the “campaign” merely because it was a “full

frontal attack” on TGCs engaged in with competitive intent.

The absurdity of the Eighth Circuit’s decision is demon-

strated by the bottom line of ITA’s argument — that a

company with market power cannot advertise with the

intent to maintain or expand its sales.

Ill. THE EIGHTH CIRCUIT’S DECISION CONFLICTS

WITH BERKEY PHOTO

ITA makes absolutely no attempt to distinguish most

of the contrary precedents cited in the Petition. In a foot-

note, however, ITA attempts to distinguish Berkey Photo,

supra, on several minor factual grounds, none of which go

to either the logic or holding of Berkey. Brief In Opp’n,

p.14n.14. In particular, ITA contends that Berkey is irrele-

vant because Western “disparaged competition rather than

bathing [its own] product in its best light.”6 Zd. As elabo-

rated in the treatise upon which Berkey relies, however,

criticism of a rival’s product should no more constitute a

Sherman Act violation than promotion of one’s own pro-

duct, even when the criticism is assertedly false:

“[DJistinguishing false statements [about rivals] .. .

from customary puffing is not easy. Even at common law,

this is ‘a tort that never has been greatly favored.’ More

importantly, the effects upon a rival would usually be

very speculative, especially when disparagement is not

systematic. Many buyers, moreover, recognize dispar-

agement as non-objective and highly biased. Although

hardly a justification for falsehood, buyer distrust of a

seller’s disparaging comments about a rival seller should

caution us against attaching much weight to isolated

examples of disparagement. Essential, therefore, is a

6. ITA also suggests that Berkey is distinguishable because

Western’s advertising “had a demonstrated substantial adverse

effect” on competitors. Brief In Opp’n, p. 14 n.14 (emphasis in

original). Kodak’s advertising, however, had a very substantial

adverse effect on the business of its competitors. 603 F.2d at 278

& 287. The Second Circuit refused to hold that Kodak’s advertis-

ing violated the Sherman Act because there was no showing that

the alleged misrepresentations had more than a de minimis effect

on competition. Jd. at 288 n.41.

e%

6

serious de minimis test. We would go further and sug-

gest that such claims should presumptively be ignored.”

3 P. Areeda & D. Turner, Antitrust Law 280-81 (1978).

See also Associated Radio Service Co. v. Page Airways,

Inc., 624 F.2d 1342, 1354 (5th Cir. 1980), citing Areeda and

Turner’s conclusion that “mere misrepresentations of one’s

own or a rival’s product” normally do not make out a § 2

violation.

IV. CONCLUSION

For these reasons, and for the reasons expressed in the

Petition, petitioner again prays that a Writ of Certiorari

issue to review the judgment and opinion of the Highth

Circuit in this case and restore advertising as a valid means

of healthy competition.

Respectfully submitted,

Patrick Lynou

Barton H. THompson, JR.

O’MEtveny & Myzrs

Attorneys for Petitioner

Western Air Lines, Inc.

Of Counsel:

Cray R. Moore

Mackatu, Crounse & Moore

November 24, 1980