# Petition for Writ of Certiorari — Harrison Aire, Inc. v. Aerostar International, Inc. (No. 05-887)

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition for Writ of Certiorari
- **Published:** January 1, 2005

## Text

The defendants in this case are a balloon
manufacturer (Raven) and the subsidiary company it
later created to conduct its balloon manufacturing
business (Acrostar). Raven attempted to preserve its
natural monopoly in the replacement fabric market by
inserting language into its balloon manuals which
required owners to use only Raven replacement fabric,
to obtain Raven’s written approval before replacing a
significant amount of envelope fabric, and to avoid
replacing more than 65% of the fabric under any
circumstances. As Raven intended, balloon owners
reasonably believed that FAA regulations required them
to adhere to these restrictions, because balloon manuals
do contain language that must be followed under federal
law. Raven deliberately reinforced this false impression
through its sales force and through its other
publications. Aerostar continued the scheme when it
took over Raven’s balloon business.

Because the barrier to entry into the replacement
fabric market is high, because Raven/Aerostar balloon
owners believed they were permitted to replace only

4(...continued)
sell the fabric. The licenses are type-specific; fabric
which has qualified for use on an Aerostar balloon, for
example, is not qualified for use on a Cameron balloon
unless and until the fabric manufacturer obtains a PMA
or an STC for the Cameron model.

limited portions of their envelopes, and because the
owners were convinced that they were required to use
Raven/Aerostar fabric to make these repairs,
competition in the replacement fabric market was
seriously restricted. Only two small companies
obtained FAA approval to sell replacement fabric for
Raven/Aerostar balloons. Raven z 1d Aerostar reached
an accommodation with one of them, and attempted to
put the other out of business through a variety of
methods.

Even the FAA was taken in by the
Raven/Aerostar anticompetitive scheme. On_ the
assumption that the restrictive language in the manuals
really was legally binding on owners, the FAA
prosecuted a balloon repair station which had used
replacement fabric sold by one of the two- small
competitors. Only after the administrative law judge
pointed out that the manual language was not legally
binding on owners did the FAA wake up. Once it had
realized its mistake, the FAA required Aerostar to
remove the language from its manuals.”

Harrison Aire, the plaintiff in this case, is a small
corporation which has operated a balloon ride business
since the 1970s. Its most profitable Acrostar balloon
ultimately required either a new envelope or significant

Sopra. ¢ j x °
fhis was the Braden’s case referred to in the
lower court opinions.

fabric replacement. Harrison Aire could not afford a
new envelope, nor could it afford Aerostar’s fabric,
although it could have afforded one of the competitors’.
Harrison Aire believed, on the basis of Aerostar’s ICA
language and on the basis of representations made to it
by Aerostar’s agents, that it was not permitted to use
non-Aerostar fabric. Consequently it could not repair
its balloon, and lost $182,835 of income which would
have been produced by that balloon over the 10-year
useful life offered by a repaired envelope.

ARGUMENT

The circuit court created a new barrier to victims of
anticompetitive activity in an aftermarket, by
requiring the victim to show “hard evidence
dissociating the competitive situation in the
aftermarket from activities occurring in the primary
market,” contrary to the express language of this
Court in Eastman Kodak Co. v. Image Technical
Services, Inc.

The circuit court’s opinion acknowledges that
Harrison Aire produced proof of anticompetitive
conduct by Raven and Aerostar, and that this
anticompetitive conduct caused antitrust injury.” The
circuit court also found that the relevant market was the
replacement fabric market for hot air balloons which
were manufactured by Raven and its successor,
Aerostar.’ The circuit court recognized that, because of
FAA requirements, Raven (and Aerostar) enjoyed a

"Appendix A at 23a-25a, 423 F.3d at 385-386.

“Appendix A at 18a, 423 F.3d at 383 (“Under this
framework, we believe the relevant market here ts that
for replacement fabric for Aerostar balloons”).

8

natural monopoly, in which only they were permitted to
sell replacement fabric until, and unless, third party
manufacturers could obtain FAA licenses to sell the
fabric.”

The circuit court then departed from traditional
antitrust analysis:

But Kodak does not transform every firm
with a dominant share of the relevant
aftermarket into a monopolist. To create a
triable question of aftermarket monopoly
power, the plaintiff must produce “hard
evidence dissociating the competitive
situation in the aftermarket from activities
occurring in the primary market.” SMS
[Systems Maintenance Services, Inc. vy.
Digital Equipment Corp.]|, 188 F.3d[11]at
17 (1st Cir.1999).”

‘Appendix A at 4a, 423 F.3d at 378 (“The FAA
authorizes third-party manufacturers to sell aftermarket
parts, including replacement fabric. provided they first
obtain FAA certification that the product is equal to or
better than the original”). |

"Appendix A at 17a, 423 F.3d at 383.

9

This was error. The requirement that an antitrust
plaintiff must provide “hard evidence” showing that
competition in the (replacement fabric) aftermarket,
where Raven/Aerostar held a natural monopoly, is
different from competition in the primary (hot air
balloon) market, which was competitive, not only does
not appear in Kodak, but was firmly rejected by this
Court in that case. It is a requirement for which the
First Circuit cited no authority in SMS, and which was
not supported by any additional authority in the circuit
court’s opinion.

The First Circuit’s opinion in SMS dealt with the
unusual claim that a manufacturer’s inclusion with its
computers ofa three-year warranty was anticompetitive.
The First Circuit concluded that “[i]n the last analysis,
SMS’s monopoly power hypothesis defies common
sense.” 188 F.3d 26. Unfortunately, in reaching this
conclusion the court of appeals added things to Kodak
that are just not there.

The First Circuit began:

Kodak, then, stands for the proposition
that the foremarket does not always exert
sufficient competitive pressure to insulate
the aftermarket from monopolistic
practices. It does not hold, as SMS
entreats, that the foremarket never exerts
sufficient competitive pressure to keep the

10

aftermarket pristine. And the fact that the
primary market at times may fail to
discipline a derivative market does not
mean that the latter necessarily constitutes
the relevant market for antitrust analysis.

Although this was a restrictive reading of Kodak,
it was literally true. However, the First Circuit
continued:

Rather, a litigant who envisions the
aftermarket as the relevant market must
advance hard evidence dissociating the
competitive situation in the aftermarket
from activities occurring in the primary
market. Cf id. at 477, 112 S.Ct. 2072
(noting that the plaintiff adduced evidence
that the defendants were able to--and
did--charge supracompetitive prices in the
aftermarket). Put another way, a court
may conclude that the aftermarket is the
relevant market for antitrust analysis only
if the evidence supports an inference of
monopoly power in the aftermarket that
competition in the primary market appears
unable to check. See id. at 481-82, 112
S.Ct. 2072; see also 10 Areeda &
Hovenkamp, supra, 4 1740, at 170-71.

1 |

This was a proclamation of an unsupported
conclusion. The “hard evidence” requirement simply
does not appear in Kodak. The “cf” citations to the
Kodak opinion lead nowhere; this Court said nothing of
such an additional burden. Indeed, Kodak stands very
much for the reverse proposition, that there is no
additional burden.

One of Kodak's principal holdings was that
“there is no immutable physical law - no ‘basic
economic reality’ - insisting that competition in the
equipment market cannot coexist with market power in
the aftermarkets.”'” It is not unreasonable to conclude
that a competitive primary market will not preclude
market power in the aftermarket. lor a variety of
reasons, consumers may simply choose not to base their
equipment purchase decision on aftermarket costs.'!

"Kodak, at 504 U.S. at 471. 112 S.Ct. at 2084.

Moreover, even if consumers were capable of

acquiring and processing the complex body of
information, they may choose not to do so. Acquiring
the information is expensive. If the costs of service are
small relative to the equipment price, or if consumers
are more concerned about equipment capabilities than
service costs, they may not find it cost efficient to
compile the information.” Kodak, at 504 U.S. at 474-

(continued...)

}?

—

Consequently, “it makes little sense to assume, in the
absence of any evidentiary support, that
equipment-purchasing decisions are based on an
accurate assessment of the total cost of equipment,
service, and parts over the lifetime of the machine.”'”
And once having purchased the equipment, an owner
may be “locked in” to that purchase if the cost of
switching is high."

Thus, this Court explicitly rejected the notion that
competition in the primary market forecloses market
power in the aftermarket. Moreover, it placed the
burden of proving such a link on the defendant. In the
absence of such proof (and none exists tn this case),

''( continued)
475, 112 S.Ct. at 2086. Emphasis added.

Kodak, at 504 U.S. at 475-476, 112 S.Ct. at
2087.

Kodak, at 504 U.S. at 476, 112 S.Ct. at 2087:
“A second factor undermining Kodak's claim that
supracompetitive prices in the service market lead to
ruinous losses in equipment sales ts the cost to current
owners of switching to a different product.....1f the cost
of switching 1s high, consumers who already have
purchased the equipment, and are thus “lockedi ,” will
tolerate some level of service-price increases before
changing equipment brands.

13

aftermarket antitrust issues are analyzed in exactly the
same manner as are primary market antitrust issues.
“Moreover, on the occasions when the Court has
considered tying in derivative aftermarkets by
‘manufacturers, it has not adopted any exception to the
usual antitrust analysis, treating derivative aftermarkets
as it has every other separate market.”'* In short, once
the relevant market has been determined - primary
market or aftermarket - the antitrust an» ysis is the
same. Imposing additional burdens on a plaintiff,
simply because the relevant market is an aftermarket, is
contrary to this Court’s holding in Kodak. It creates an
unsupported, and unfair, distinction which penalizes
victims of anticompetitive misconduct, based on
nothing more than their misfortune to be producers or
purchasers of a replacement part.

The circuit court sustained the district court’s
ruling strictly because of this additional burden: “Here,
in contrast, Harrison Aire has failed to meet it burden of
dissociating competition in the primary market from

e
°

conditions in the aftermarket....logether, these

Kodak, at 504 U.S. at 479, footnote 29, 112
S.Ct. at 2089.

14

evidentiary failures compel summary judgment for the
defendant.”

The circuit court’s decision is not simply a
misapplication of Kodak’s holding. It is a (perhaps
unintentional) repudiation of that holding. Where this
Court has held that there is no conceptual distinction
between anticompetitive conduct in a primary market,
and anticompetitive conduct in an aftermarket, the
circuit court has now held that there is a significant
distinction, and that the victim of misconduct in the
aftermarket is required to surmount a greater proof
barrier than the victim of misconduct in the primary
market.

This Court has already specifically disapproved
such a distinction, and should disapprove it here.
Competition rights are already expensive to enforce.
Requiring a_ plaintiff to produce proof of the
competitive states of two markets, without some
rational justification, only makes a heavy burden
heavier.

‘Appendix A at 19a, 423 F.3d at 384.

1S

The circuit court’s refusal to allow Plaintiff
favorable inferences on a summary judgment motion
introduced a special burden on plaintiffs facing
summary judgment in antitrust cases, contrary to
the express direction of this Court in Eastman Kodak
Co. v. Image Technical Services, Inc.

This case was decided on a summary judgment
motion. Both sides had submitted extensive evidence
in support of, and in opposition to, that motion.'® The
circuit court held that “{s]ignificantly, however,
‘antitrust law limits the range of permissible inferences’
that can be drawn ‘from ambiguous evidence.......To
avoid deterring pro-competitive behavior, ‘certain
inferences may not be drawn from circumstantial
evidence in an antitrust case."”'’ The circuit court then
viewed much of the evidence in a light more favorable
to the defendants than to the plaintiff. This was
contrary to this Court’s holding in Kodak, which
reaffirmed that traditional Rule 56 standards apply to
antitrust Cases.

The appendix in the Third Circuit was
composed of four volumes.

“Appendix A at 9a, 423 F.3d at 380.

16

The language quoted by the circuit court is
drawn from Matsushita Elec. Indus. Co. v. Zenith Radio
Corp., 475 U.S. 574, 588, 106 S.Ct. 1348, 89 L.Ed.2d
538 (1986). This Court, in Kodak, expressly limited
Matsushita’s language:

The Court's requirement in Matsushita that
the plaintiffs' claims make economic sense
did not introduce a special burden on
plaintiffs facing summary judgment in
antitrust cases. he Court did not hold
that if the moving party enunciates any
economic theory supporting its behavior,
regardless of its accuracy in reflecting the
actual market, it is entitled to summary
judgment. Matsushita demands only that
the nonmoving party's inferences be
reasonable in order to reach the jury, a
requirement that was not invented, but
merely articulated, in that decision. Ifthe
plaintiffs theory is economically
senseless, no reasonable jury could find in
its favor, and summary judgment should
be granted."*

504 U.S. at 468-469, 112 S.Ct. at 2083.
Emphasis added.

This simply restated traditional Rule 56 summary
judgment standards. The Court observed: “Kodak,
then, bears a substantial burden in showing that it is
entitled to summary judgment. It must show that
despite evidence of increased prices and excluded
competition, an inference of market power is
unreasonable.”

The circuit court therefore ignored the
appropriate standard in reviewing Defendants’ motion
for summary judgment. Consequently the circuit court
refused to draw the permissible inference that the high
prices of Raven/Aerostar replacement fabric supported
an inference of market power.’ Indeed, the circuit
court weighed the evidence before it, and drew the

504 U.S. at 469, 112 S.Ct. at 2083. Emphasis
added.

Pies

Harrison Aire contends Aerostar charged
supracompetitive prices for its fabric, based on the
uncontested fact that Aerostar’s fabric 1s more
expensive than that of its aftermarket competitors. But
this alone does not support a reasonable inference of
monopoly "ower. Competitive markets are
characterized by both price and quaiity competition, and
a firm's comparatively high price may simply reflect a
superior product.” Appendix A at 11a, 423 F.3d at 381.
Emphasis added.

1s

opposite inference, that the undisputed high price of
Raven/Aerostar fabric was due to its higher quality.”|
This was error. Harrison Aire was entitled to the
inference that the high price of Raven/Aerostar fabric at

“Appendix A at 12a, 423 F.3d at 381:

Here, the record ts clear that balloon fabric
is a heterogeneous product. Fabric is sold
in various weaves and grades, of differing
strength and durability. The record
demonstrates that Aerostar fabric is of
comparatively high quality. Although
Harrison considered purchasing fabric
from one of Aerostar's aftermarket
competitors, Custom Nine Designs, he
rejected the product because Custom Nine
“didn't prove to me that it wasn't a bogus
part.” Furthermore, Custom Nine's
president acknowledged that Aerostar's
“diamond weave” fabric was a superior
aftermarket product to his own. Because
it is undisputed that balloon fabric, and
particularly Aerostar fabric, is
differentiated by composition and quality,
Aerostar's comparatively high price does
not, by itself, support a reasonable
inference of monopoly power.

19

least was an indicator of market power. It was for the
jury, not for a panel of appellate judges, to resolve the
issue.

As with the previously-discussed aftermarket
burden issue, the circuit court has created a hurdle for
victims of anticompetitive misconduct that this Court
has expressly rejected. In the same manner that this
Court put an end to circuit court creation of “heightened
pleading standards” in $1983 civil’ rights cases,
Leatherman v. Tarrant County Narcotics Intelligence
and Coordination Unit, 507 U.S. 163, 168-169, 113
S.Ct. 1160, 122 L.Ed.2d 517 (1993), it should act now
to prevent similar judicial creation of heightened
summary judgment requirements in antitrust cases.

CONCLUSION

The circuit court’s decision creates a requirement
that a victim of anticompetitive activity in an
aftermarket must affirmatively show, “by hard
evidence,” that the competitive state of the aftermarket
is not the same as the competitive state of the primary
market. This Court has expressly rejected such an
expensive and irrational requirement. Certiorari should
be granted to prevent the hardship which will result, in
this case and in future cases, from the promulgation of

20

such a doctrine, in violation of this Court’s specific
direction.

The circuit court also refused to apply traditional
Rule 56 summary judgment principles to antitrust
matters. Again, this is against the express direction of
this Court. Certiorari should be granted to end this
practice of according more favorable treatment to
antitrust defendants than to defendants in all other
cases.

Respectfully submitted,

JOHN K. WESTON
Counsel of Record
Sacks & Weston

114 Old York Road
Jenkintown, PA 19046
(215) 925-8200

Counsel for Petitioner

APPENDICES

APPENDIX A
PRECEDENTIAL

UNITED STATES COURT OF APPEALS
FOR THE THIRD CIRCUIT

Nos. 04-2904 & 04-3052

HARRISON AIRE, INC.,
Appellant in No. 04-2904

:

AEROSTAR INTERNATIONAL, INC.;
RAVEN INDUSTRIES, INC.,
Appellants in No. 04-3052

On Appeal from the United States District Court
for the Eastern District of Pennsylvania
D.C. Civil Action No. 02-cv-01258
(Honorable Michael M. Baylson)
Argued March 7, 2005

Before: SCIRICA, Chief Judge,
ROTH and BECKER, Circuit Judges

(Filed September 16, 2005)

la

OPINION OF THE COURT
SCIRICA, Chief Judge.

In this antitrust action, we address allegations of
unlawful monopolization and tying in the aftermarket
for replacement hot air balloon fabric. The District
Court granted defendants’ motion for summary
judgment, finding no triable issue of monopoly power
in the relevant product market. We will affirm.

Harrison Aire, a hot air balloon ride operator, alleges
antitrust violations by Raven Industries and its
balloonmanufacturing subsidiary, Aerostar
International. Consistent with our standard of review on
summary judgment, we recount the facts in the light
most favorable to the non-moving party, appellant
Harrison Aire.

Terry Harrison, the sole owner and proprietor of
Harrison Aire, is an FAA-licensed pilot and aircraft
mechanic. After a twenty-three year career at Eastern
Airlines, he retired in 1973 to launch the Harrison Aire
enterprise from an airstrip in central New Jersey. The
company owns and operates several hot air balloons

which it charters for recreational day trips over the New
Jersey countryside. Since the mid 1990s, the business
has suffered cash-flow problems. Harrison Aire blames
its losses, in part, on the prohibitive expense of
replacement balloon fabric, which it contends is a result
of Raven/Aerostar’s monopolization of the relevant
balloon fabric aftermarket.

Raven Industries is a diversified manufacturing
company based in Sioux Falls, South Dakota. From the
1970s through 1986, it manufactured hot air balloons
and replacement balloon fabric. In 1986, Raven formed
Aerostar International as a wholly-owned subsidiary to
take over its balloon business. Aerostar International
manufactures and sells hot air balloons in a market of
at least five competitors and also produces and sells
replacement balloon fabric.

Hot air balloons are regulated from cradle to grave by
the Federal Aviation Administration. The FAA certifies
balloon design and manufacturing standards, 14 C.F.R.
§ 21.11-53, requires the manufacturer to provide a
maintenance manual along with its aircraft, id. § 21.50,
reviews the content of the manual, id. § 31.82, and
certifies replacement part designs for airworthiness, éd.
21.303. The KFAA’s “maintenance manual” and
“replacement part” regulations bear on this appeal.

~
oe

a

Balloon manufacturers are required to provide their
customers with a balloon maintenance manual, known
as an “ICA” (Instructions for Continued Airworthiness),
which sets forth recommended and_ required
maintenance procedures. The manual is in two parts.
The first, known as the “FAA accepted” section,
establishes manufacturer-recommended but not
FAArequired protocols. The second, known as the
“Airworthiness Limitation Section,” establishes FAA
requirements affecting flight safety.

Regulations also govern the manufacture and sale of
replacement balloon parts, including replacement
fabric. All replacement parts must be “of such a quality”
that the repaired balloon is “at least equal to its original
or properly altered condition.” 14 C.F.R. § 43.13(b).
The FAA authorizes third party manufacturers to sell
aftermarket parts, including replacement fabric,
provided they first obtain FAA certification that the
product is equal to or better than the original. /d. §
21.303.

Replacement fabric extends the service life of a hot air
balloon. The top half of the balloon “envelope”’—the
material encapsulating the hot air—tends to deteriorate
more rapidly than the bottom half. By replacing top-
half fabric after 300 to 500 hours of use, balloon
owners are able to extend the aircraft’s service life for

4a

an additional 200 to 300 hours. Generally, it is more
economical to replace fabric in this manner than to
purchase an entirely new envelope. Harrison Aire
followed this practice in maintaining its fleet of
Raven/Aerostar balloons.

Harrison Aire purchased its first Raven balloon in 1978.
The parties’ dispute over fabric replacement began
shortly thereafter. According to Terry Harrison, Raven
advised him that he could not purchase replacement
fabric from other manufacturers because installation of
third-party fabric would render the balloon unairworthy.
In 1982, Raven revised its balloon maintenance
manuals to make this policy explicit, warning Raven
balloon owners that “only fabric which has been tested
and approved according to Raven factory standards may
be used for repair of Raven envelopes. Failure to
comply with this requirement constitutes a departure
from type design and renders the balloon unairworthy.”
This language appeared in the FAA-approved, rather
than the FAA-required, section of Raven maintenance
manuals. Reading the manual in the light most
favorable to Harrison Aire, it warned that only Raven-
brand fabric should be used in Raven balloons.

Terry Harrison repeatedly complained to Raven,
believing its insertion of the “warning” into the balloon
manual transformed the fabric policy into an FAA

Sa

-

requirement that legally barred him from obtaining
cheaper fabric elsewhere. On_ several occasions
between 1982 and 1986, Harrison confronted Raven
representatives about the manual language, but was told
that no other aftermarket product was equal to or better
than Raven fabric, and that only Raven fabric was
consistent with airworthiness standards. Harrison
understood this as a representation that he was required
to purchase Raven fabric in order to comply with the
FAA’s “equal to or better” standard for replacement
parts. Harrison Aire contends that from 1978 to 1986,
Raven misled the company into believing the purchase
of Raven fabric was mandated by law, when in fact it
was merely recommended by the manufacturer.

In February 1986, Raven Industries formed Aerostar
International to take over its hot air balloon business.
Aerostar continued Raven’s balloon operation
essentially uninterrupted, and became the new focus of
Harrison Aire’s campaign to purchase fabric from
third-party sources. Shortly after Aerostar was
incorporated, Harrison registered several complaints
with Aerostar about “being forced” to use
Raven/Aerostar fabric. Nevertheless, despite its
understanding that Aerostar balloons required Acrostar
replacement fabric, Harrison Aire purchased a “big
ride” Aerostar balloon in 1986 that is the subject of this
litigation.

6a

By 1995, Harrison Aire’s “big ride” Aerostar balloon
required a major fabric replacement. By this time, two
other manufacturers had received FAA approval to
produce aftermarket fabric for Aerostar balloons. See
14 C.F.R. § 21.303 (authorizing the manufacture of
replacement balloon parts upon receipt of a “Parts
Manufacturer Approval” from the FAA). Harrison
investigated one of the approved sellers, Custom Nine
Designs, but decided against purchasing their fabric
because of concerns that it lacked quality. Harrison
never contacted the other approved supplier, Head
Balloons. Viewing Acrostar-brand fabric as its only
option and as prohibitively expensive, Harrison Aire
retired the “big ride” balloon in 1996 rather than
repairing itt.

Harrison eventually realized that installation of
thirdparty fabric was legally permissible. In July 2000,
following an administrative proceeding between the
FAA and a third-party balloon repair service, an
Administrative Law Judge concluded — the fabric
“warning” found in Aerostar’s maintenance manual
was not legally binding. /n re Braden’s Balloons Aloft,
Inc., FAA No. CP99SWO037 (July 26, 2000).
Harrison contends the Braden's decision provided him
notice, for the first time, that his company was not
required to purchase Aerostar-brand fabric.

7a

In March 2002, Harrison Aire filed suit in federal court,
alleging, inter alia, antitrust injury arising from
Raven/Aerostar’s monopolization of the aftermarket for
replacement Aerostar balloon fabric and from the
unlawful tying of Aerostar-brand fabric to Acrostar
balloons. But for Raven/Aerostar’s allegedly
misleading and exclusionary aftermarket fabric policy,
Harrison Aire contends that its “big ride” balloon would
have been repaired in 1996 and still operational. The
District Court granted summary judgment to
defendants, holding they lacked sufficient market power
in the relevant product market. //arrison Aire, Inc. v.
Aerostar Int'l, Inc., 316 F. Supp. 2d 186 (E.D. Pa.
2004). '

‘Harrison Aire's complaint included both federal
antitrust counts and supplemental claims under state
law. On May 3, 2004, the District Court granted
Raven/Aerostar's motion for summary judgment in part,
dismissing the antitrust counts and ordering trial on the
state law counts. The parties then stipulated to final
judgment with prejudice against Harrison Aire on the
surviving claims, in order to facilitate an immediate
appeal on the antitrust issues. Accordingly, the state
law claims are not at issue and our analysis is confined
to the federal antitrust claims.

Sa

The District Court had jurisdiction under the federal
antitrust laws, 15 U.S.C. § 15 (providing cause of action
and treble damage remedy), and 28 U.S.C. § 1331. We
have jurisdiction under 28 U.S.C. § 1291. Our
summary judgment standard of review ts plenary. /n re
Flat Glass Antitrust Litig., 385 F.3d 350, 357 (3d Cir.
2004) (drawing all reasonable inferences in favor of the
non-moving party).

Significantly, however, “antitrust law limits the range of
permissible inferences” that can be drawn “from
ambiguous evidence.” Matsushita Elec. Indus. Co. v.
Zenith Radio Corp., 475 U.S. 574, 588 (1986); see
also Monsanto Co. v. Spray-Rite Serv. Corp., 465 US.
752, 764 (1984). To avoid deterring procompetitive
behavior, “certain inferences may not be drawn from
circumstantial evidence in an antitrust case.” /n re Flat
Glass Antitrust Litig., 385 F.3d at 357 (quoting
Intervest, Inc. v. Bloomberg, L.P., 340 F.3d 144, 160
(3d Cir. 2003)).

To survive a motion for summary judgment, an antitrust
piaintiff must produce economically plausible evidence
supporting the elements of its claim. See Matsushita,
475 U.S. at 588; Ideal Dairy Farms v. John Labatt,
Lid., 90 F.3d 737, 748-50 (3d Cir. 1996) (applying

9a

Matsushita in section 2 action); Zenith Radio Corp. v.
Matsushita Elec. Indus. Co., 513 F. Supp. 1100, 1140
(E.D. Pa. 1981) (“It is now settled that summary
judgment is appropriate in those antitrust cases where
plaintiffs, after having engaged in extensive discovery,
fail to produce ‘significant probative evidence’ in
support of the allegations in weir complaint.” ) (citations
omitted). “If the plaintiff's theory is economically
senseless, no reasonable jury could find in its favor, and
summary judgment should be granted.” Eastman Kodak
Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 468-69
(1992).

We begin with Harrison Aire’s monopolization claim.
Under section 2 of the Sherman Act, monopolization
consists of: “(1) the possession of monopoly power in
the relevant market and (2) the willful acquisition or
maintenance of that power as distinguished from
growth or development as a consequence of a superior
product, business acumen, or historic accident.” United
States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966);
see also 15 U.S.C. § 2; LePage’s, Inc. v. 3M, 324 F.3d
141 (3d Cir. 2003) (en banc) (reviewing section 2 case
law and explaining the “willful acquisition or
maintenance” element).

Oa

Monopoly power is defined as “the power to control
prices or exclude competition.” United States v. E.1. du
Pont de Nemours & Co., 351 U.S. 377, 391 (1956).
More precisely, it is “the power to charge a price higher
than the competitive price without inducing so rapid
and great an expansion of output from competing firms
as to make the supracompetitive price untenable.” Am.
Academic Suppliers, Inc. v. Beckley-Cardy, Inc., 922
F.2d 1317, 1319 (7th Cir. 1991); see also United States
v. Dentsply Int'l Inc., 399 F.3d 181, 189 (3d Cir. 2005)
(emphasizing a monopolist’s power “to maintain market
share” (emphasis in original) (quoting United States v.
Svufy Enters., 903 F.2d 659, 665-66 (9th Cir. 1990)).

Monopoly power can be demonstrated with either direct
evidence of supracompetitive pricing and high barriers
to entry, see Rebel Oil Co. v. Atl. Richfield Co., 51 F.3d
1421, 1434 (9" Cir. 1995), or with structural evidence
of a monopolized market. Because “direct proof is only
rarely available, courts more typically examine market
structure in search of circumstantial evidence of
monopoly power.” United States v. Microsoft, 253 F.3d
34, 51 (D.C. Cir. 2001) (en banc) (citations omitted).

A.

Harrison Aire contends Aerostar charged
supracompetitive prices for its fabric, based on the

lla

uncontested fact that Aerostar’s fabric is more
expensive than that of its aftermarket competitors. But
this alone does not support a reasonable inference of
monopoly power. Competitive markets are
characterized by both price and quality competition, and
a firm’s comparatively high price may simply reflect a
superior product. Blue Cross & Blue Shield United v.
Marshfield Clinic, 65 F.3d 1406, 1412 (7th Cir. 1995)
(“Generally you must pay more for higher quality.”).
Therefore, “when dealing with a heterogeneous product
or service . . . a reasonable finder of fact cannot infer
monopoly power just from higher prices.” /d. at 1411-
12.

Here, the record is clear that balloon fabric is a
heterogeneous product. Fabric is sold in various
weaves and grades, of differing strength and durability.
The record demonstrates that Aerostar fabric is of
comparatively high quality. Although Harrison
considered purchasing fabric from one of Aerostar’s
aftermarket competitors, Custom Nine Designs, he
rejected the product because Custom Nine “didn’t 12
prove to me that it wasn’t a bogus part.” Furthermore,
Custom Nine’s president acknowledged that Aerostar’ s
“diamond weave” fabric was a superior aftermarket
product to his own. Because it is undisputed that
balloon fabric, and particularly Acrostar fabric, is
differentiated by composition and quality, Acrostar’s

12a

comparatively high price does not, by itself, support a
reasonable inference of monopoly power.

B.

Turning to Harrison Aire’s circumstantial evidence of
monopoly power, we note the structural indicators of a
monopolized market. In a typical section 2 case,
monopoly power is “inferred from a firm’s possession
of a dominant share of a relevant market that is
protected by entry barriers.” Microsoft, 253 F.3d at 51;
see also Fineman v. Armstrong World Indus., Inc., 980
F.2d 171, 201-3 (3d Cir. 1992) (explaining market
share analysis). Plaintiffs relying on market share as a
proxy for monopoly power must plead and produce
evidence of a relevant product market, of the alleged
monopolist’s dominant share of that market, and of high
barriers to entry. Queen City Pizza, Inc. v. Domino's
Pizza, Inc., 124 F.3d 430, 436 (3d Cir. 1997) (market
-definition); Fineman, 980 F.2d at 201-03 (3d Cir. 1992)
(market share); Microsoft, 253 F.3d at 82 (barriers to
entry).

Additional factors are -relevant in the aftermarket
context. Aftermarket monopolization cases require a
more comprehensive analysis, because market share
data standing alone 1s not necessarily a reliable proxy
for monopoly power. SMS Syst. Maint. Servs. Inc. v.

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Digital Equip. Corp., \88 F.3d 11, 16 (1st Cir. 1999).
Many firms supply unique and/or _ proprietary
aftermarket parts and services for their primary market
products. As a result, they “can be expected to have a
very high percentage” share of the relevant aftermarket.
Id. But high aftermarket share is not necessarily
indicative of monopoly power—i.e., the power to
charge and maintain a supracompetitive price-—because
aftermarket behavior generally is disciplined by
competition in the primary product market. If the
primary market is competitive, a firm exploiting its
aftermarket customers ordinarily is engaged in a short-
run game—for when buyers evaluate the “lifecycle”
cost of the product, the cost of the product over its full
service life, they will shop elsewhere. Eventually, the
aftermarket “monopolist” lacks customers to exploit.
See Parts & Elec. Motors, Inc. v. Sterling Elec., Inc.,
866 F.2d 228, 236 (7th Cir. 1988) (Posner, J.,
dissenting) (describing the exploitation of aftermarket
customers as a “suicidal” business practice); SMS, 188
F.3d at 16 (“firms concerned with the long term cannot
afford to bite the hands that feed them”).

This portrayal is conventional antitrust theory. See 2A
Philip E. Areeda & Herbert Fovenkamp, Antitrust Law
{ 564b, at 322-28 (2d ed. 2002). But as explained in
Kodak, it “may not accurately explain the behavior of
the primary and derivative markets for complex durable

i4a

goods” where “significant information and switching
costs” sever the usual link between the primary market
and the aftermarket. 504 U.S. at 473. Information costs
are barriers that prevent primary market consumers
from evaluating the lifecycle costs of a product. /d. at
473-74. For primary market competition to discipline
aftermarket behavior, consumers require information
on, among other things, the expected cost, quality and
availability of aftermarket products such as parts and
service. Perfect information is not required for the
primary market to check the aftermarket. See Jefferson
Parish Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 27
(1984) (holding, in tying case, that imperfect
information does not necessarily “generate the kind of
monopoly power that justifies condemnation”); SMS,
188 F.3d at 19 n.3 (“perfect information about the
aftermarket is not required”). But sometimes lifecycle
pricing information is. particularly — difficult’ or
impossible for primary market customers to acquire, as
in the case of a unilateral change in aftermarket policy
targeting “locked in” customers. Kodak involved this
type of market failure. See Queen City Pizza, 124 F.3d
at 440 (“The Kodak case arose out of concerns about
unilateral changes in’ Kodak’s parts and repairs
policies.)

Kodak involved a primary market for photocopiers and
an aftermarket for Kodak parts and service. The

1Sa

primary market was competitive. But Kodak controlled
nearly 100% of the parts aftermarket, and 80% to 95%
of the service market. 504 U.S. at 480. Historically,
Kodak’s customers had been able to obtain copier
repair service from independent service organizations
that charged “substantially” less than Kodak. 504 15
U.S. at 457. Later, however, after customers were
locked in to. Kodak copiers, Kodak changed its
aftermarket policy to sell replacement parts only to
those customers who also purchased Kodak service or
who repaired their own machines. /d. at 458. This
policy change led to higher aftermarket prices. /d. at
465. In other words, Kodak used its power in the
replacement parts market to “squeeze the independent
service providers out of the repair market and to force
copier purchasers to obtain service directly from
Kodak, at higher cost.” Queen City Pizza, 124 F.3d at
440.

The Supreme Court held the independent service
organizations’ tying and monopolization claims against
Kodak could not be dismissed on summary judgment
following truncated discovery. Kodak, 504 U.S. at 486.
On the key question of monopoly power in the parts and
services aftermarket, the Court cited evidence of (1)
supracompetitive pricing, id. at 469; (2) Kodak’s
dominant share of the relevant aftermarket, id. at 480:
(3) significant information costs that prevented lifecycle

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pricing by primary market customers, id. at 475; and
(4) high “switching costs” that served to “lock in”
Kodak’s aftermarket customers, id. at 477. Together,
this evidence supported a reasonable inference of
monopoly power in the relevant aftermarket, precluding
summary judgment.

In broad terms, Kodak stands for the proposition that
market reality is the touchstone of antitrust analysis.
Where the plaintiff comes forward with concrete
evidence of a monopolized market, the defendant “bears
a substantial burden in showing that it is entitled to
summary judgment.” 504 U.S. at 469. On the more
specific issue of aftermarket monopolization, Kodak
held that primary market competition does not
necessarily preclude monopoly power in the relevant
aftermarket where a unilateral policy change targets
“locked-in” customers.

But Kodak does not transform every firm with a
dominant share of the relevant aftermarket into a
monopolist. To create a triable question of aftermarket
monopoly power, the plaintiff must produce “hard
evidence dissociating the competitive situation in the
aftermarket from activities occurring in the primary
market.” SMS, 188 F.3d at 17 (Ist Cir. 1999).

17a

In considering the effect of primary market competition
on aftermarket behavior, we address at the outset the
relevant market definition. Some courts have viewed
the primary and aftermarket as comprising a single
relevant product market. See id.; PS] Repair Servs., Inc.
v. Honeywell, Inc., 104 F.3d 811, 820 (6th Cir. 1997).
But this may not always be the case. Relevant market
definition is a function of reasonably available product
substitutes. Du Pont, 351 U.S. at 395 (1956). Products
are included in a single relevant market when they
“have the ability—actual or potential—to take
significant amounts of business away from each other.”
Allen-Mvland, Inc. v. IBM Corp., 33 F.3d 194, 206 (3d
Cir. 1994) (quoting SmithKline Corp. v. Eli Lilly & Co.,
575 F.2d 1056, 1063 (3d Cir. 1978)); see also Rothery
Storage & Van Co. v. Atlas Van Lines, Inc., 792 F.2d
210, 218 (D.C. Cir. 1986). Under this framework, we
believe the relevant market here 1s that for replacement
fabric for Aerostar balloons. The primary balloon
market is distinct from the fabric aftermarket because
fabric is a complement to, not a substitute for, the
primary good. Nevertheless, these complementary
products are linked by consumer demand such that
competition in the foremarket may discipline behavior
in the aftermarket. The proper inquiry, then, focuses on
the existence of monopoly power, i.e., “whether
competition in the equipment market will significantly

lXa

restrain power in the service and parts market.” Kodak,
504 U.S. at 470 n.15.

One important consideration is whether a unilateral
change in aftermarket policy exploits locked-in
customers. Queen City Pizza, 124 F.3d at 440 (3d Cir.
1997); SMS, 188 F.3d at 19 (Ist Cir. 1999); Alcatel
USA, Inc. v. DGI Tech., Inc., 166 F.3d 772, 783 (Sth
Cir. 1999); PSI, 104 F.3d at 820 (6th Cir. 1997). As the
Court of Appeals for the Seventh Circuit has explained:
“The Court did not doubt in Kodak that if spare parts
had been bundled with Kodak’s copiers from the outset,
or Kodak had informed customers about its policies
before they bought its machines, purchasers could have
shopped around for competitive lifecycle prices. The
material dispute that called for a trial was whether the
change in policy enabled Kodak to extract supra-
competitive prices from customers who had already
purchased its machines.” Digital Equip. Corp. v. Uniq
Digital Tech., Inc., 73 F.3d 756, 763 (7th Cir. 1996);
accord SMS, 188 F.3d at 17-19 (1st Cir. 1999); PS/, 104
F.3d at 820 (6th Cir. 1997).

We emphasize, however, that an “aftermarket policy
change” is not the sine gua non of a Kodak claim. An
aftermarket policy change is an important consideration,
but only one of several relevant factors. As noted, the
Kodak plaintiffs came forward with evidence of (1)

19a

supracompetitive pricing, (2) Kodak’s dominant share
of the relevant aftermarket, (3) significant information
costs that prevented lifecycle pricing, and (4) high
“switching costs” that served to “lock in” Kodak’s
aftermarket customers.

Hlere, in contrast, Harrison Aire has failed to meet its
burden of dissociating competition in the primary
market from conditions in the aftermarket. It is
undisputed that the primary balloon market is
competitive. And unlike the plaintiffs in Kodak,
Harrison Aire has failed to produce evidence of
supracompetitive pricing, of dominant aftermarket
share, of information costs preventing lifecycle pricing,
or of achange in aftermarket policy targeting locked-in
customers. Together, these evidentiary failures compel
summary judgment for the defendant.

Harrison Aire purchased its first Raven balloon in 1978.
From that time on, Terry Harrison believed that Raven
required him to use Raven-brand replacement fabric.
Harrison repeatedly complained about this policy.
From 1982, when Raven first published its allegedly
exclusionary “warning” about third-party replacement
fabric, and continuing through 1986, when Raven
formed Aerostar, Terry Harrison on several occasions
confronted Raven representatives about their restrictive
fabric policy. Similarly, immediately after Aecrostar’s

20a

incorporation in February, 1986, Harrison registered
several complaints about “being forced” to buy Aerostar
fabric. Yet knowing Raven/Aerostar’s restrictive fabric
policy, Harrison Aire entered the competitive primary
market in 1986 to purchase the “big ride” Aerostar
balloon that is the subject of this lawsuit.

The transparency of Raven/Aerostar’s aftermarket
fabric policy, and Harrison Aire’s undisputed
knowledge of it, cuts strongly against an inference of
monopoly power. SMS is instructive on this point. Like
Harrison Aire, the plaintiffs in SMS produced some
evidence of switching costs, 188 F.3d at 20, but failed
to come forward with sufficient evidence of
supracompetitive pricing, id. at 24, and significant
information barriers to lifecycle pricing, id. at 18-19, to
survive summary judgment on the issue of monopoly
power. In affirming summary judgment for the
defendant, the court in SMS engaged in a
comprehensive analysis under the relevant Kodak
factors. In particular, SMS emphasized the transparency
of the defendant’s aftermarket policy, explaining that
readily available aftermarket information allows
reasonably diligent primary market customers to
engage tn lifecycle pricing. /d. at 18-19. This, in turn,
checks aftermarket monopolization. See id. at 19
(“[T]Jhe transparency of [defendant's] allegedly

Jla

monopolistic policy represents 2 salient departure from
the Kodak scenario.” ).

Raven/Aerostar’s aftermarket policy was transparent
and known to Harrison Aire at all relevant times.
Neither information costs nor a unilateral change in
aftermarket policy prevented Harrison Aire from
shopping for competitive lifecycle balloon prices when
it purchased the “big ride” balloon at issue in 1986.
Furthermore, after full discovery, Harrison Aire has not
produced other evidence dissociating competitive
conditions in the primary balloon market from
conditions in the aftermarket for replacement fabric.
The record here is clear that Harrison Aire got
precisely the balloon and the aftermarket fabric that it
bargained for in the competitive primary market.

Lacking any evidence of significant information
barriers to lifecycle pricing, or any other evidence
dissociating competitive conditions in the primary
market and the aftermarket, summary judgment ts
proper on Harrison Aire’s monopolization claim.

IV.

Harrison Aire also alleges unlawful tying under section
1. The claim lacks merit. “Tying ts defined as selling
one good (the tying product) on the condition that the

22a

buyer also purchase another, separate good (the tied
product).” 7own Sound &Custom Tops, Inc. v. Chrvsler
Motors Corp., 959 F.2d 468, 475 (3d Cir. 1992) (en
banc). “The antitrust concern over tying arrangements
is limited to those situations in which the seller can
exploit its power in the market for the tying product to
force buyers to purchase the tied product when they
otherwise would not.” Queen City Pizza, 124 F.3d at
442-43 (quoting Town Sound, 959 F.2d at 475); see
also Microsoft, 253 F.3d at 84. Tying requires
“appreciable economic power” in the tying product
market. Kodak, 504 U.S. at 464; Brokerage Concepts v.
U.S. Healthcare, Inc., |\40 F.3d 494, 516-17 (3d Cir.
1998).

Harrison Aire contends Raven/Aerostar unlawfully tied
its hot air balloons (the tying product) to its replacement
fabric (the tied product), but fails to produce any
evidence of appreciable market power in the tying
product market. As noted, it is undisputed that the
primary market for hot air balloons is competitive.
Absent this essential element, we will affirm summary
judgment on the tying claim.

Lf

As an alternative holding, the District Court concluded
Harrison Aire failed to properly allege antitrust injury

23a

under Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc.,
429 U.S. 477 (1977). This was error. Brunswick held
the antitrust laws protect consumers, not competitors,
and that antitrust plaintiffs must show a causal
connection between the defendant’s anticompetitive
conduct and injury to consumers. /d. at 488-89.

Injury to competitors does not suffice. Here, Harrison
Aire is a consumer of balloon fabric, and it claims
antitrust injury in the form of business losses caused by
high fabric prices, which in turn allegedly were caused
by Raven/Aerostar’s exclusionary conduct in the
relevant fabric market. This type of
injury—prohibitively high consumer prices resulting
from allegedly monopolistic behavior—is the type the
antitrust laws are designed to redress. See Town Sound,
959 F.2d at 486 (3d Cir. 1992) (en banc) (explaining
antitrust injury); U.S. Gypsum Co. v. Ind. Gas Co., 350
F.3d 623, 626-28 (7th Cir. 2003) (same).

The District Court concluded that “[a]ny injuries that
Plaintiff suffered would have come from Defendants’
misrepresentations, not from any market power, abuse
of market power or other anticompetitive conduct.” 316
F.Supp.2d at 224. But these purported
misrepresentations are alleged to have had an
anticompetitive effect in the aftermarket—namely the
exclusion of more efficient competitors. Harrison Aire

24a

alleges that Acrostar used misleading manual language,
and the imprimatur of FAA acceptance, to consolidate
its position in the fabric aftermarket. This, in turn,
allegedly prevented Harrison and consumers like him
from purchasing lower-cost fabric from Aerostar’s
competitors. These allegations satisfy the antitrust
injury requirement.

The District Court found antitrust injury lacking
because the manual “did not forbid Plaintiff from
purchasing other manufacturers’ fabric and that a
reasonable investigation on thts point by Plaintiff would
have disclosed . . . that Plaintiff could buy replacement
fabric from anyone who manufactured [it] to the FAA
standards.” /d. at 217. In other words, the District
Court held that no injury to consumers could be shown
because no jury could find that Harrison Aire
reasonably relied on the manual.

It is true that further investigation by Harrison Aire
might have revealed that Aerostar’s replacement-fabric
instructions were not legally binding. But the record is
not clear that Harrison Aire’s reliance on the manual
was unreasonable. Indeed, itappears ‘at the FAA, like
Harrison Aire, viewed Acrostar’s manual as restricting
the use of non-Acrostar fabric in Acrostar balloons.
Not until the Braden’s decision in 2000 did the FAA
recognize the Aerostar manual as non-binding. Since

25a

the FAA itself interpreted Aerostar’s manual as
restricting the use of third-party fabric, the
reasonableness of Harrison Aire’s reliance on that
manual presents a jury question. A jury could have
found that Harrison reasonably believed that Aerostar’s
manuals prevented him from buying lower-priced fabric
from competitors. Because this alleged exclusion of
competitors, to the detriment of consumers, is the sort
of harm the antitrust laws are intended to prevent,
summary judgment was improper on the issue of
antitrust injury. While we hold Harrison Aire’s
antitrust claims ultimately fail for lack of
monopoly/market power in the relevant market, they are
not defective for failure to allege antitrust injury.

CONCLUSION

For the reasons set forth, we will affirm the judgment of
the District Court.

26a

APPENDIX B
IN THE UNITED STATES DISTRICT COURT
FOR THE EASTERN DISTRICT OF
PENNSYLVANIA
HARRISON AIRE, INC.
vi

AEROSTAR INTERNATIONAL, INC. and
RAVEN INDUSTRIES, INC.

No. 02-1258
MEMORANDUM

BAYLSON, District Judge.

{. Jurisdiction, Procedural Background, and
Summary

Plaintiff Harrison Aire, Inc., an owner and operator of
hot air balloons, filed this action on March 12, 2002,
alleging that Defendants Aerostar International, Inc.
and Raven Industries, Inc. (Acrostar's corporate parent)
operated their hot air balloon business in violation of
Sections | and 2 of the federal antitrust laws. 15 U.S.C.

27a

§$$1 & 2. Plaintiff also makes state law allegations of
fraud and negligence. This Court has jurisdiction over
Plaintiff's claims under 28 U.S.C. §$1331, 1332, and
1337 and 15 U.S.C. $15. Venue is proper under 28
U.S.C. §1391(b). Presently before the Court ts
Defendants’ Motion for Summary Judgment (Docket
No. 12). The Court held oral argument on January 27,
2004, and the parties submitted supplemental briefs on
April 2, 2004.

Defendants move for summary judgment on three
grounds. For the reasons which follow, Defendants’
motion will be granted, and the Court summarizes its
rulings as follows:

One: Defendants’ contention that Plaintiff's antitrust
claim is barred by the four-year statute of limitations
applicable to antitrust claims is rejected as presenting
an issue of fact. (See infra pp. 202-203.)

Two: Defendants claim that summary judgment is
warranted upon application of implied immunity to
Plaintiff's antitrust claims is rejected as a matter of law.
(See infra pp. 205-206.)

Three: Defendants argue that Plaintiff cannot succeed
in proving the requisite clements for tts antitrust, fraud,
or negligence claims, thus justifying summary judgment

28a

against Plaintiff. The Court concludes that Plaintiff has
not adduced sufficient facts to warrant a trial on its
antitrust claims and the Court will grant summary
judgment for Defendants, as to Counts I and HH. (See
infra pp. 213-224.)

Il. Factual Background
A. Description of Parties and Ballooning Industry’

Plaintiff Harrison Aire, Inc. isa New Jersey corporation
in the business of providing commercial balloon hot air

‘The record on Defendants’ Motion consists of
excerpts of depositions of Plaintiff's President,
Defendar s' employees, three Federal Aviation
Administration officials, and three other witnesses with
experience in the hot air balloon industry. Defendants
have submitted excerpts of their hot air balloon
maintenance manuals, some correspondence between
the FAA and a third party (Ronald DiGiovanni), a
recent company newsletter, and a letter subsequently
sent to the newsletter’'s mailing list that listed
corrections to the newsletter. Defendants also have
filed two affidavits both sworn by Mark West, President
of Aerostar. Plaintiff has submitted an actuarial-
economic consultants’ report. Plaintiff has not filed any
affidavit.

29a

rides, aircraft maintenance, and pilot training for hot air
balloons and fixed wing aircraft. (Defs.’ Undisputed
Facts 42.) Its sole owner and proprietor is Terry
Harrison.” Defendant Aerostar International, Inc. is a
hot air balloon manufacturer located in South Dakota.
Aerostar International is a wholly owned subsidiary of
Raven Industries.’ Raven Industries preceded Aerostar

*Mr. Harrison has been involved in aviation for
several decades. He holds a variety of licenses and
certifications qualifying him to fly hot air balloons and
fixed wing aircraft. Mr. Harrison is a former flight
engineer and co-pilot for Eastern Airlines. He 1s a
licensed FAA Airframe and Powerplant mechanic with
inspection authority. This certification authorizes him
to perform maintenance work on many types of aircraft,
including hot air balloons. He served ten years as an
accident prevention counselor and designated pilot
examiner. (Harrison Dep., Defs.’ Ex. B, at 12-16;
Defs.' Undisputed Facts 43.)

‘Although no suggestion has been made that
Aerostar and Raven have conspired to violate the
antiirust laws, the Court notes that a parent company
and its wholly owned subsidiary are incapable of
conspiring with each other for antitrust purposes.
Copperweld Corp. v. Independence Tube Corp., 467

(continued...)

30a

International in the manufacture of hot air balloons, but
formed Aerostar International in 1986 for the purposes
of undertaking the hot air balloon aspect of the
company's business. (/d. 4] 6.) Raven Industries has not
manufactured hot air balloons since February 1986;
rather, Aerostar International, as its wholly owned
subsidiary, has fulfilled that role. (Compl.§| 14.)
During the 1970s and 1980s, Harrison Aire purchased
hot air balloons for its flight operations from Raven
Industries, and subsequently from Aerostar Industries.

Hot air balloons are comprised of three principal
components: the basket (which contains the balloon's
instruments and occupants); the fuel and heater system
(which produces the hot air); and the envelope (which
contains the hot air). (Compl.{] 10.) With use and age,
balloon envelopes deteriorate, with the top hemisphere
of the envelope deteriorating much more quickly than
the lower hemisphere. (/d. {| 12.) After approximately
300-500 hours of use (actual mileage may vary),
because of this deterioration, at least the upper portion
of the envelope must be replaced in order to continue
piloting safely. (/d.) This replacement typically extends
the life of the envelope for another 200-300 hours. (/d.)
In general, replacement of the fabric in the upper

‘(...continued)
U.S. 752, 104 S.Ct. 2731, 81 L.Ed.2d 628 (1984).

31a

hemisphere of the envelope is significantly less costly
than replacement of the entire envelope. Because of
design and wear patterns, replacement of up to 80% of
the envelope fabric (somewhat more thn the top half
ofthe envelope) is generally most practical and
economical. (/d. 4 13.)

B. Federal Regulations Applicable to Hot Air
Ballooning

At the heart of this case are issues regarding
replacement fabrics for the envelope for Raven/Aerostar
hot air balloons. Although these issues were present in
the 1980s, the present case centers on events beginning
in late 1995 or early 1996. Plaintiff needed to buy
replacement fabric for one of its Raven/Aerostar
balloons, and believed the balloon's accompanying
manual restricted its abilities to purchase replacement
fabric. The plaintiff contends that the defendants issued
fraudulent statements that purportedly required the
users and owners of Defendants’ hot air balloons to buy
replacement fabric from the defendants, whose fabric
was more expensive than third-party fabric. The
defendants, on the other hand, assert that federal
regulations did require that owners of Raven/Acrostar
hot air balloons had to purchase replacement fabric
from either Defendants or a limited number of entities
that made replacement fabric in satisfaction of

32a

Defendants’ standards. ‘Thus, in understanding the
regulatory parameters of this case, the Court first sets
out the federal regulations at issue.

1. Manufacturer-Provided Instructions for
Balloon Owners: Instructions for Continued
Airworthiness and Airworthiness Limitations

Section

Ballooning in the United States is regulated by the
Federal Aviation Administration, which has
promulgated regulations-the Federal Aviation
Regulations or the Federal Rules of Aviation (“FARs”)-
that apply inter alia to the replacement of balloon
envelope fabric. The regulations generally require that
major balloon repairs, such as the replacement of
significant areas of envelope fabric, be performed by a
repairman or mechanic certified by the FAA. Since
1980, FAA regulations require balloon manufacturers
to publish a maintenance manual for their product; this
manual is known as “Instructions for Continued
Airworthiness” (“ICA”). 14 C.F.R. § 31.82.7 Section
31.82 provides:

The applicant must prepare Instructions

‘The regulations cited within this section have
been in effect since 1980 or earlier.

33a

for Continued Airworthiness in
accordance with Appendix A to this part
that are acceptable to the Administrator.
The instructions may be incomplete at type
certification if a program exists to ensure
their completion prior to delivery of the
first balloon or issuance of a standard
certificate of airworthiness, whichever
occurs later.

Id. A hot air balloon manufacturer must provide this
model-specific ICA to each purchaser of its product. 14

The aircraft manufacturer holds the “type
certificate” for the aircraft, which constitutes the FAA's
approval of the design of the aircraft. (PI.'s Undisputed
Facts *| 49.) The FARs establish the procedure for
securing type certification for new aircraft designs,
from the manufacturer's own analysis and testing of the
design to the FAA's review of those engineering data
before determining airworthiness. 14C.F.R §§ 21.11-
21.53. “[E]very aircraft that's out there with an
airworthiness that's flying around needs to be type
certificated or receive a type certificate from the FAA,
essentially saying that the design complies with the
airworthiness regulation.” (Michalik Dep., Pl.'s Ex. D
& Defts.’ Ex. G, at 9.)

34a

C.F.R. § 21.50. Section 21.50 provides in pertinent
part:

(b) The holder of a design approval,
including either the type certificate or
supplemental type certificate for an
aircraft ... shall furnish at least one set of
complete Instructions for Continued
Airworthiness, prepared in accordance
with [§ 31.82] to the owner of each type
of aircraft ... upon its delivery, or upon
issuance of the first standard airworthiness
certificate for the affected aircraft,
whichever occurs later, and thereafter
make those instructions available to any
other person required by this chapter to
comply with any of the terms of these
instructions.

Id.

Generally, the maintenance standards and procedures
specified in the ICA are permissive in nature (“FAA
accepted }én that maintenance personnel may substitute
other “FAA accepted” maintenance standards and
procedures. 14C.F.R. § 43.13. Section 43.13 provides
in relevant part:

(a) Each person performing maintenance,
alteration, or preventive maintenance on
an aircraft, engine, propeller, or appliance
shall use the methods, techniques, and
practices prescribed in the current
manufacturer's maintenance manual or
Instructions for Continued Airworthiness
prepared by its manufacturer, or other
methods, techniques, and __ practices
acceptable to the Administrator, except as
noted in § 43.16...

(b) Each person maintaining or altering, or
performing preventive maintenance, shall
do that work in such a manner and use
materials of such a quality, that the
condition of the aircraft, airframe, aircraft
engine, propeller, or appliance worked on
will be at least equal to its original or
properly altered condition ....

Id. (emphasis added).

However, 1f a manufacturer or the FAA chooses to
require a particular maintenance standard or procedure,
that particular standard or procedure must be published
in a separate and distinct portion of the ICA, known as
the Airworthiness Limitations Section (“ALS”). Part
A31.4 of Appendix A to Part 31-Instructions for

36a

Continued Airworthiness defines the ALS portion and
specifies how the manufacturer should present the ALS
to the balloon owner. Part A31.4 reads:

The Instructions for Continued
Airworthiness must contain a section titled
Airworthiness Limitations that is
segregated and clearly distinguishable
from the rest of the document. This
section must set forth each mandatory
replacement time, structural inspection
interval, and related structural inspection
procedure, including envelope structural
integrity, required for type certification. If
the Instructions for Continued
Airworthiness consist of multiple
documents, the section required by this
paragraph must be included in_ the
principal manual. This section must
contain a legible statement in a prominent
location that reads: “The Airworthiness
Limitations section is FAA approved and
specifies maintenance required under § §
43.16 and 91.403 of the Federal Aviation
Regulations.”

Id. (emphasis added). In contrast to an ICA's
maintenance standards, which may be replaced by other

27a

“FAA accepted” maintenance procedures, maintenance
personnel are required to adhere strictly to the
provisions of an Airworthiness Limitations Section, if
one exists. 14 C.F.R. § 43.16. Section 43.16 states in
relevant part, “Each person performing an inspection or
other maintenance specified in an Atrworthiness
Limitations section of a manufacturer's maintenance
manual or Instructions for Continued Airworthiness
shall perform the inspection or other maintenance in
accordance with that section ....” /d.

2. Replacement Parts for Hot Air Balloons

The FAA also has instituted a regulatory scheme that
governs the manufacture and sale of replacement parts.
When the FAA approves an aircraft, it issues a type
certificate under Part 23 of its regulations. 14 C.F.R §
§ 21.11-21.53. For example, as a type certificate would
be for the whole aircraft (e.g., Waligunda Dep., PI.'s Ex.
F, at 21)°, Defendants would hold the type certificate

"Robert Waligunda was a distributor for
Defendants for a number of years. Defendants
terminated him allegedly because he “blew the whistle”
regarding Defendants’ purportedly deceptive manual.
(Waligunda Dep., PI.'s Ex. F, at 66.) Mr. Waligunda is
an experienced hot air balloonist, having been involved

(continued...)

38a

for each of their separate hot air balloon designs. The
FAA must also approve modifications to a particular
aircraft, whether designed by the original manufacturer
or a third-party, after which the FAA issues a
supplemental type certificate (“STC”). 14 C.F.R. §
21.113. An STC would enable its holder to manufacture
a component or a part for a balloon system, e.g., a
balloon envelope. (Waligunda Dep., PI.'s Ex. F, at 20;
DiGiovanni Dep., PI.’s Ex. B, at 26-27.) Any person, in
addition to the original manufacturer, may petition the
FAA for a Parts Manufacturer Approval (“PMA”),
which allows the holderio manufacture and sell specific
replacement parts directly to aircraft owners. 14C.F.R.
§21.303 (“[N]Jo person may produce a modification or
replacement part for sale for installation on a type
certificated product unless it is produced pursuant to a
Parts Manufacturer Approval ....”). A PMA covers a
part, such as the balloon fabric itself. (Waligunda Dep.,
Pl.’s Ex. F, at 21; DiGiovanni Dep., PI.’s Ex. C, at 27-
28.)

The Court concludes that the regulatory language
makes clear the FAA has created a mechanism by which
third-parties can be approved to manufacture and sell

"(...continued)
in the industry for thirty-five years and having logged
over 5000 hours in flight. (/d. at 19-20.)

Wa

replacement parts for hot air balloons. The FARs do
not mandate that replacement fabric has to be of the
same manufacture as the balloon, nor could any
manufacturer impose such a requirement in their ICAs,
given that the ICAs need not be followed strictly by
their owners. The Court presumes that were a hot air
balloon manufacturer to place such restrictions in its
ALS, which is not the case here, the balloon's owner
then would be obligated to follow that language.

In this case, Defendants’ ICA purportedly implied that
only replacement parts approved for use by
Raven/Aerostar could be used in_ repairing
Raven/Aecrostar hot air balloons.’ As stated above,
there is no requirement in the FARs that replacement

“Mr. Waligunda testified that sometime before
May 1982, concerned that its competitors would
produce replacement envelopes for Raven balloons,
Raven allegedly “made [its] manual stronger” by
seemingly telling Raven owners that they had to buy
Raven fabric exclusively. (Waligunda Dep., PI.’s Ex. F,
at 17-19.) Because only the manual's ICA portion was
changed-a non-mandatory section-Raven knew that its
customers would remain technically free to purchase
third-party parts; Raven allegedly hoped, though, that
the limitation would appear mandatory to the
uneducated person. (/d. at 24.)

40a

envelope material be tested in accorcance with the
manufacturer's standards. In fact, before Defendants
even published their ICA, the FAA already had set forth
its own standards for strength and safety, 14 C.F.R. § §
31.21-31.27, which must be met by all manufacturers
and replacement parts manufacturers, including holders
of STCs and PMAs. As the parties have not submitted
copies of Defendants’ ALS and as the parties have
focused their arguments on perceptions surrounding
Defendants’ ICA, the Court presumes that any and all
allegedly offensive, restrictive language is contained tn
the ICA and that there are no restrictions on third-party
fabric whatsoever in Defendants’ ALS.

C. Chronology of Events
1. Plaintiff's Business

Harrison Aire is a corporation which derives its income
from selling hot air balloon rides to members of the
general public. (Harrison Dep., Defs.’ Ex. B, at 28.) In
the late 1970s, Mr. Harrison purchased his first Raven-
made balloon. (Harrison Dep., Pl.'’s Ex. H, at 154.) In
1986, he purchased the “Big Ride” balloon from
Defendants. (Actuarial-Economic Consultants Report,

dla

Pl.'s Ex. A, at 2.)° Since 1986, Plaintiff has had five or
six conversations with Defendants’ agents about the
language in their ICAs restricting third-party fabric,
and each time Defendants responded with the same
“buy our fabric” answer. (Ilarrison Dep., PI.'s Ex. H, at
159-61.) In the late 1980s, having considered the
venture, Mr. Harrison decided not to enter the
replacement fabric business himself. (Harrison Dep.,
Defs.' Ex. D & PI.'s Ex. I, at 48-49.)

Plaintiffs “Big Ride” balloon needed repairs to its
envelope in 1995, which would have extended the life
expectancy of the balloon another ten years. (PI.'s
Undisputed Facts, 4 8; Defs.’ Undisputed Facts 4 8.)
Plaintiff earlier had stockpiled sufficient amounts of
Defendants’ balloon fabric (purchased at 50% of cost
from Raven/Aerostar distributors) for use when any of
his balloon envelopes became unairworthy (Defs.'
Undisputed Facts 4, 7), but had exhausted his stockpiled
resources when his “Big Ride” balloon required repairs.
(/d.% 8; Harrison Dep., Defs.’ Ex. B, at 112-13.)

‘The Court cites this expert report, which is not
sworn testimony but is undisputed in the record, to
connect Plaintiff's retired “Big Ride” balloon to
Defendants. The parties have not identified-and the
Court has not located-any sworn testimony that links
Plaintiff's balloon with Defendants.

4?a

Plaintiff claims it could not afford to purchase
Defendants’ fabric at this time, and instead investigated
buying less-expensive third-party parts. (Harrison
Dep., Defs.’ Ex. C, at 35; Harrison Dep., Defs.’ Ex. D,
at 67.) According to Robert Waligunda, a former
Raven/Aerostar distributor, Defendants’ fabric was
more expensive than any other fabric on the market.
(Waligunda Dep., PI.'s Ex. F, at 67.)

Plaintiff long had criticized Defendants’ ICA for
purportedly implying that only replacement parts
approved for use by Raven/Aerostar could be used in
repairing Raven/Aerostar hot air balloons. In meetings
with Defendants and their representatives, Mr. Harrison
frequently inquired whether this policy had changed
and was repeatedly informed that Defendants’ stance
remained firm. Regarding Plaintiff's interaction with
Raven in_ particular, Mr. Harrison's deposition
proceeded as follows:

Q. What was your particular complaint to Raven then if
you didn't believe it was misleading? What was your
particular complaint?

A. The complaint mwas if-if the manufacturer is
providing or a supplier ts providing the same materia!
to Raven, and it's available directly at half the cost to
someone else, same fabric, and the same factory is
saying, “We make it for Raven, and the same specs

43a

coming off the same mills, the same run, the same
colors and everything. We'll provide it to you directly.”
Q. Would it be - go ahead. You finish.

A. And Raven said, “No. You can't do that.”

Q. Did you ever get any resolution of that issue that you
took with Raven from Raven?

A. No.

(Harrison Dep., Pl.’s Ex. H, at 157-58.) Regarding
Plaintiff's interaction with Aerostar in particular, Mr.
Harrison's deposition proceeded as follows:

Q. When you received your first Aerostar manual, did
it have the same type of provision regarding
replacement fabric that you complained about with
Raven?

A. Yes

(. Do you remember what your specific complaint to
| Aerostar] was?

4. | had two or three items, maintenance items that |
wanted to discuss that | was having problems with.
(hen when I brought those items up, I just want to see
if their position was stil the same on the fabric.... So
there's probably been through the years five or six
conversations that | had over other things, and at the

44a

end | always said, “By the way, has your position on
fabrics changed?”

Q. And the answer was?

A. “As long as you buy the fabric, we don't care what
you do,” basically. The emphasis, “buy the fabric.”
Q. In any event, is it fair to say that you registered the
complaint with Aerostar at its inception or shortly
thereafter, within a year or two, that you did with Raven
and didn't get any change

A. Correct.

Q. Okay. And that particular complaint, and correct me
if I'm wrong, but the particular complaint was that the
manual required you to purchase fabric from Aerostar
or Raven before it and only Aerostar or Raven before
it?

A. Correct.

(/d. at 159-62.)

In 1995, there were only three possible purveyors for
fabric sales: Defendants (the manufacturer); Custom

Nine Designs, run by Ronald DiGiovanni;’ and Head
Balloons;'” these were the only lawful market options
available to Harrison Aire. (Dets.’ Undisputed Facts {|
* 9-10.) Mr. Harrison met with Mr. DiGiovanni in
1995 or 1996 to discuss purchasing replacement fabric
for Plaintiff's Raven/Aerostar balloons. (Ud. 11.)
Plaintiff decided not to purchase Mr. DiGiovarni's
fabric-which was “much cheaper” than Defendants’ own
(Waligunda Dep., PI's Ex. F, at 28)-concluding that any
purchase would conflict with the Defendants’ ICA
restrictions on third-party fabric, even though Plaintiff
knew the FAA had certified Mr. DiGiovanni to produce
and sell Raven/Aerostar fabric. (Defs.’ Undisputed
Facts 4 12-14; Harrison Dep., Dets.’ Ex. B, at 124-

“In 1994, Ron DiGiovanni started Custom Nine
Designs, a competitor of Defendants authorized by the
KAA to sell replacement fabric for certain balloons
manufactured by Defendants. (Waligunda Dep., PI.'s
Ex. F, at 26.) The record inciudes excerpts of Mr.
DiGiovanni's deposition.

Head Balloons joined the market — in
approximately 1984. (West Aff. of Nov. 2003 4 13.)
Hlead Balloons, run by Tarp Head and based in Georgia,
has an STC to produce replacement fabric. (Waligunda
Dep., Pl.’s kx. Fy at 21-22.) There ts no testimony tn the
record from Head Balloons.

tha

28.) Mr. Harrison provided two reasons for not
purchasing Mr. DiGiovanni's fabric, notwithstanding
Mr. DiGiovanni's apparent FAA authorization to sell
the replacement parts: One, that Mr. DiGiovanni could
not confirm that his fabric was “equal to or better” than
Defendants’ fabric, as Mr. Harrison — believed
Defendants’ manual required (Harrison Dep., Defs.’ Ex.
B, at 127); and two, that Mr. DiGiovanni was involved
in a “bait and switch” ruse in which he had secured
FAA approval with one product, but then switched the
product with a substandard “knock off,” selling the
shoddy substitute to unknowing, less discerning
customers (Harrison Dep., Defs.’ Ex. D, at 36-37).

Without replacement fabric, Plaintiff retired the “Big
Ride” balloon in 1996, never to use it again
commercially (Defs.' Undisputed Facts © 17), and
Plaintiff seeks damages for the alleged inability to use
it, due to Defendants’ misconduct.

In 2001 or 2002, Plaintiff noticed that the Defendants’
manual specifically allowed for third-party replacement
fabric, mentioning only that SEC holders (but not PMA
holders) may repair Raven/Acrostar hot air balloons.
(PI.'s Undisputed Facts 4 35.)"'

‘According to Plaintiffs Statement = of
(continued...)

2. Defendants' Business

Defendants manufacture and sell hot air balloons, cold
air inflatables, helium inflatables, remote control
blimps, inflatable costumes and mascots, and specialty
sewn products. http://www.aerostar.com. In 1981,
Raven first made replacement fabric specifically for a
competitor's balloon. (Waligunda Dep., PI.'s Ex. F, at

(continued)

Undisputed Facts, “{Mr.] Harrison has testified that he
did not realize that he was not required to use Aerostar
fabric until {Mr.} DiGiovanni told him about the result
in Braden's [Bailoons].” (ld.% 84.) Braden's Balloons
is discussed below at Section II.-C.3. However, the
Court notes that Plaintiff fails to cite any testimonial
evidence supporting this contention, and upon
independently reviewing the excerpts of Mr. Harrison's
depositions submitted to the Court, the Court concludes
that the record does not support this assertion.
Notwithstanding this discrepancy, the relevant date for
purposes of this Motion, as discussed below in the
“Statute of Limitations” section, is the date on which
Defendants removed their allegedly restrictive ICA
language and not the date on which Plaintiff actually
learned about third-party fabric alternatives.

48a

11.)'° In 1982, Raven introduced new language into its
balloon owners’ manual that required owners either to
buy replacement fabric from Raven itself or to secure
Raven's approval in advance if purchasing third-party
fabric. (Waligunda Dep., Pl.'s Ex. F, at 18-19.)
Plaintiff complained to Raven, some time before 1986,
about the ICA language. (Harrison Dep., P1.'s Ex. H, at
156-58.) Raven formed Acrostar International in 1986
for the purposes of taking over the hot air balloon
aspect of Raven's business. Raven Industries has not
manufactured hot air balloons since February 1986;
rather, Aerostar International, as its wholly owned
subsidiary, has fulfilled that role. (Compl.414.) After
the inception of Aerostar, the Defendants’ ICA language
read as follows:

WARNING

Only fabric which has been tested and
approved according to AEROSTAR
(Raven) factory standards may be used tor
repair of AEROSTAR (Raven) envelopes.

The parties dispute whether Raven's decision
conflicted witha gentlemen's agreement among balloon
manufacturers not to produce replacement parts for a
competitor’s product. (PL.’s Mem. at 5; Dets.’ Reply
Mem. at 4; see also Waligunda Dep., PL’s kx. FF, at 13.)

49a

Failure to comply with this requirement
constitutes a departure from type design
and renders the balloon unairworthy.

(Defs.' Supplemental Ex. B.)'’

In 1993, Defendants revised the language in their ICAs.
(West Aff. of Nov. 2003 49.) In 1993, the ICA
language read as follows, in pertinent part:

6.0 STANDARD PROCEDURES FOR
REPAIR AND REPLACEMENT
WARNING
Improper repairs will render the
aircraft unairworthy until repaired
properly.
Likewise, repair/replacement
materials must be obtained
from Aerostar to. be
considered a “certified part”.
In the event that repair
materials are obtained, the
supplying company or the
repair station performing the
repair must act to “certify”

‘See supra text accompanying note 7

SOla

the material and part as equal
to or better than the original
equipment."

6.1.2 Fabric Repair and Replacement
WARNING

Only fabric which has been tested and
approved according to AEROSTAR
(Raven) factory standards may be used
for repair of AEROSTAR (Raven)
envelopes. Failure to comply with this
requirement constitutes a departure

It appears obvious that the two sentences in this
paragraph are contradictory. In 1995, the second
sentence of this paragraph was changed to read, “In the
event that non-Aerostar repair materials are obtained
elsewhere, the supplying company or the repair station
performing the repair must act to ‘certify’ the material
and part as equal to or better than the original
equipment.” (West Aff. of Nov. 20034 9 & Ex. B.)
Even with the correction, these two sentences reniain
contradictory.

from type design and renders the
balloon unairworthy.

Note

Fabric replacement is normally limited to
35% of the surface area of the envelope
within a period of 100 flight hours or one
year, (whichever comes first), except for
additional minor patches and _ repairs.
Deviation from this procedure up to 65%
total fabric replacement may be approved
after consultation with the AEROSTAR
(Raven) factory. Such extensive
replacement may only be undertaken if
approved in writing by AEROSTAR
(Raven). To protect the integrity of
manufacturers’ type designs, “100%
rebuilding” of balloon envelopes is
expressly prohibited according to FAR
43.13.

FOR APPROVAL TO REPLACE MORE
THAN 35% OF THE ENVELOPE
FABRIC, please contact:

Dee M. Rose
Aerostar International, Inc.

52a

Customer Service

1812 “kL” Avenue, PO Box 5057
Sioux Falls, SD 57117-5057
605/331-3500 Fax 605/331-2547

(Dets.’ Supplemental Ex. C.)

According to Plaintiff, Defendants again changed their
ICA language in 2001, removing the language that
required Defendants’ permission before replacing more
than 35% of the envelope fabric and the “WARNING”
that failure to use fabric which has been tested and
approved according to Aerostar factory standards would
make the balloon unairworthy. (PI.'s Mem. Opp'n
Summ. J. at 13.)

3. Braden's Balloons and Ronald DiGiovanni

In 1996, Braden’s Balloons Aloft, inc., an FAA-
approved repair station, replaced between 54% and 64%
of a Raven/Aerostar balloon's envelope fabric with
material from Custom Nine Designs without first
obtaining Defendants’ written permission. /n re
Braden's Balloons Aloft, Inc.. FAA Docket No.
CP99SWO037, at *1 (Wluly 26, 2000) (Defs." Ex. O)
[hereinafter Braden's Balloons}. The FAA prosecuted
Braden's in an administrative civil penalty action, on the
theory that Braden's had violated various regulations by

S3a

failing to follow Defendants’ ICA requirement that
maintenance personnel secure written permission betore
performing the replacement. Even though Mr.
DiGiovanni, President of Custom Nine Designs, has no
formal legal training, Mr. DiGiovanni represented
Braden’s in the administrative action.

The Administrative Law Judge dismissed the FAA's
complaint, concluding that the FAA had failed to allege
facts that, if proved, would have established the
elements of the violations of the FARs with which
Braden's had been cited. For example, the FAA
complained that Braden's failed to comply with
Defendants’ ICA by replacing the envelope fabric
without Defendants’ permission, but the FAA had failed
to allege that Braden's replaced the fabric in a manner
not otherwise acceptable to the FAA, a fatal pleading
detect considering that procedures listed in a balloon's
ICA (unlike those in the balloon's ALS) may be
substituted for other FAA-accepted methods. Braden's
Balloons, supra, at *6. In his opinion supporting
dismissal, the ALJ observed:

[ lhe Complaint lists an alleged violation
of FAR § 43.16. This section requires
that, if one performs an inspection or
maintenance specified in an Airworthiness
Limitations section of a manufacturer's

Sta

maintenance manual or Instructions for
Continued Airworthiness, such = an
inspection or maintenance must conform
to that Airworthiness Limitations section.
Thus, unless the requirement that Braden's
receive written permission for the
extensive envelope repair it performed on
N57199, is contained tn the Airworthiness
Limitations section of the maintenance
manual or Instructions Continued
Airworthiness promulgated by Acrostar
(Raven), Braden's would not be required
to comply with such a requirement.

The Complaint does not state whether or
not such a requirement ts contained in the
Airworthiness Limitations section of the
maintenance manual or the Instructions for
Continued Airworthiness. It merely states
that such a requirement is a part of the
Instructions for Continued Airworthiness,
without making clear, one way or another,
whether it is specifically located in the
Airworthiness Limitations Section. The
difference 1s important, as whether it 1s
required or not hinges on its location. If
located within the Airworthiness
Limitations section, it is approved by the
Administrator and a person performing an

SSa

inspection or maintenance must follow its
prescription. See 14 C.F.R. Part 31, App.
A, § <A31.4. However, if not located
within the Airworthiness Limitations’
section, the inspection and maintenance
information is only accepted by the
Administrator, and there is no requirement
to follow the manufacturer's instructions.
A deviation from those instructions will
not result ina violation in § 43.16 so long
as the inspection or maintenance falls
under the “other methods, techniques, and
practices acceptable to the Administrator”
language of FAR § 43.13(a). Because the
Complaint fails to specifically allege that
the requirement, that Braden's consult with
Aerostar (Raven) prior to performing the
fabric replacement, ts found in_ the
Airworthiness Limitations section of the
Aerostar (Raven) Instructions for
Continued Airworthiness, this claim must
also fail.

(Braden's
removed).

Balloons, supra, at *7-8) (emphasis
Defendants downplay the relevance and

applicability of Braden's Balloons to the instant case by
referring to Braden's Balloons as an “irrelevant,”
“unrelated, insignificant administrative action.” (Defs.’

S6a

Reply Br. at 5 & n. 2.) While the Court recognizes that
the ALJ dismissed the case for defects within the
pleadings, it is important to note the distinction which
the ALJ made between the mandatory Airworthiness
Limitations Section (ALS), and the Instructions for
Continued Airworthiness, which may be substituted by
alternate methods, techniques, and practices acceptable
te the Administrater. As explained below, this
distinction ts of great relevance to the claims and issues
presented in this case.

Mr. DiGiovanni had taken it upon himself to inform the
ballooning community of the case's result and of his
interpretation of the case's precedential value, most
notably through his privately maintained website, http:/
home.earthlink.net/~aironon, which chronicles the
Braden's Balloons saga. In a September 7, 2000
response to Mr. DiGiovanni's trumpeting, Defendants
made the following representation in a letter to
Raven/Acrostar owners:

We are extremely concerned with the
recent mailing which claims that the ruling
in FAA v. Bradens “effectively nullifies
the Aerostar Instructions for Continued
Airworthiness manual.” This is patently
false and seems to suggest ignoring the
Airworthiness Manual which would pose

S7a

possible significant risk to balloon owners,
operators and passengers. The ruling in
this case was, simply, that the FAA had
not met the correct technical pleading
requirements in its complaint and,
accordingly, the complaint was dismissed.
The ruling did not nullify the Aerostar
Instructions for Continued Airworthiness
manual and we urge you to follow the
procedures contained in the manual as
well as all applicable FAA rules and
directives. We have been in contact with
various offices within the FAA and have
heir full agreement, based on the FAR's
and the requirements within the FAA Type
Certificate Data Sheet that “all
inspections, repairs, and replacements
must be accomplished in accordance with
the latest issue of Aerostar Instructions for
Continued Airworthiness.”

(Pi.'.s Mem. Opp'n Summ. J. at 14-15, emphasis
removed; also available at
http://home.earthlink.net/~airoron/new page 8Q.htm.)
According to Plaintiff, Mr. Harrison has testified that he
did not realize he was not required to use Aerostar

S8a

fabric until Mr. DiGiovanni told him about the result in
Braden's Balloons. (P\.'s Undisputed Facts 4} 84.)'”

According to Plaintiff, Defendants changed their ICA
language in 2001, removing the language that required
Defendants’ permission before replacing more than 35%
ofthe envelope fabric and the “WARNING” that failure
to use fabric which has been tested and approved
according to Aerostar factory standards would make the
balloon unairworthy. (/d. at 13.) Plaintiff suggests that
Defendants undertook these revisions at the stern
request of the FAA, supposedly “stung by the result in
Braden's ” and “prodded unmercifully by Custom
Nine.” (/d., citing Michalik Dep., Pl.'s Ex. D, at 72.)

Il. Plaintiff's Allegations

Plaintiff brings four counts against Defendants
(Antitrust-Monopolization; Antitrust-Tying
Arrangement; Fraud; and Negligence). As stated
above, Plaintiff is a corporation that derives its income
from selling hot air balloon rides to the public. Plaintiff
alleges that Raven Industries consciously developed
and implemented severa! schemes to deceive balloon
owners and to convince them that federal law required
the exclusive use of Raven Industries fabric in the

Iso .
See supra text accompanying note 11.

59a

repair and replacement of hot air balloon envelopes
originally purchased from Raven. (Compl. 4 19; see
also Waligunda Dep., PI.'s Ex. F, at 24-25.) Plaintuff
alleges that after its incorporation, Aerostar
International assumed continued responsibility for
implementing and maintaining the original schemes,
with the full knowledge, participation, and consent of
the directors and officers of Raven, its parent
corporation. (Compl.§| 19.) Asa direct and proximate
result of Defendants’ behavior (to be detailed below),
Plaintiff claims it could not afford to purchase
replacement envelope fabric directly from Defendants
for one of its hot air balloons-its “big ride” balloon-and
was therefore unable to utilize that particular balloon
commercially after 1996. (/d. 4 28.) Plaintiff
apparently could have afforded to replace the envelope
fabric had Plaintiff thought it was permitted to use
third-party fabric, and Plaintiff contends that it would
have indeed purchased the third-party fabric if the
defendants had not implemented the scheme described
above. (/d. 4 29.) Plaintiff claims economic losses
totaling $35,000 per year (at least) from 1996
continuing through the present. (/d. 4 30; Actuarial-
Economic Consultants Report, Pl.'s Ex. A.)

60a

A. Defendants’ Alleged Schenies

In its complaint, Plaintiff describes three schemes
purportedly undertaken by Defendants that constitute a
violation of federal antitrust law.

1. Scheme One

According to Plaintiff, Raven Industries officers
expressed their interest and desire in controlling the
replacement fabric market at various meetings between
Raven Industries and its distributors during the 1980s.
At one meeting, shortly before Raven Industries created
Acrostar International, Raven Industries officers
allegedly advised the attendees, among whom was at
least one distributor, that its maintenance manual
(“Instructions for Continued Airworthiness” or “ICA”)
would be changed in order to control the replacement
fabric market. (Compl. | 20.B; see also Waligunda
Dep., Pl.'s Ex. F, at 14-19.)

Plaintiff avers that Raven Industries deliberately
inserted language into its ICA that appeared to require
balloon owners either to use only Raven/Aerostar
replacement fabric or to secure Raven/Aerostar
approval before obtaining replacement fabric elsewhere.
Plaintiff contends that at this meeting, at least one
distributor in attendance raised concerns that the

61a

proposed manual language would run afoul of federal
antitrust laws, and that Raven Industries officers replied
that the inserted language would simply “imply” that
federai regulations required the owners to use Raven
replacement fabric. (Compl. {| 20.C; see also
Waligunda Dep., PI.'’s ox. F, at 23-25.) These officers
allegedly told the attendees that because the inserted
language appeared tn the ICA (which would not require
strict compliance), and not in the Airworthiness
Limitations Section (which would have required strict
compliance), there would be no actual antitrust
violation. (/d.) Plaintiff claims that this scheme was
implemented in 1986, ten days after the incorporation
of Aerostar International.

As stated above, Section 43.13 of the FARs requires
that with limited exceptions, all repairs of any type be
performed consistent with the ICA. That ts, according
to this FAR, a hot air balloon repairman should follow
the methods listed in the manufacturer's ICA or an
alternative method acceptable to the FAA. 14 C.F.R.§
43.13. Furthermore, this FAR directs a hot air balloon
repairman to use materials that equal or surpass the
manufacturer-supplied originals in order to create a
(repaired) balloon that will be at least equal to its
original condition. /d.

62a

The parties do not dispute that the FAA has regulated
the repairs of hot air balloons. (Tr. at 18.) What the
parties do dispute, and what centrally defines Plaintiff's
action against Defendants, is whether Defendants acted
appropriately in 1993 and 1995 (see supra pp. 14-16
and notes 7 & 13) by inserting language that required
Raven/Aerostar balloon owners either to use
Defendants’ own fabric in repairs or to secure
Defendants’ written permission before using third-party
fabric. According to Plaintiff, nothing in the FARs
requires a balloon owner to use the manufacturer's own
fabric in repairs or to secure the manufacturer's written
approval before using third-party fabric. (Compl.
20.F.) Plaintiff criticizes Defendants’ WARNING
language, which specified that, under penalty of
unairworthiness, Raven/ Aerostar factory standards were
to be applied when testing third-party fabric, especially
since the FAA regulations provide separate standards
for strength and safety, 14 C.F.R. § § 31.21-31.27,
which must be met by all manufacturers and
replacement parts manufacturers, including holders of
STCs and PMAs.

Plaintiff further contends that Defendants inserted
language that appeared to require, at penalty of
violation of law, that owners get specific approval from
Defendants in advance before replacing more than 35°%
of envelope fabric, and which prohibited replacement of

63a

more than 65% of envelope fabric without the
defendants’ approval. (Compl.£20_E.) Plaintiff alleges
that Defendants had arranged the language in such a
manner, and with such authority, that it reasonably
appeared to balloon owners that federal law and
regulations required compliance with these restrictions
on envelope fabric replacement. (/d. 420.G.)

According to Plaintiff, Defendants purposely misled
Mr. Harrison-and, by implication, all other
Raven/Aerostar balloon owners (see, e.g., Waligunda
Dep., Pl.'s Ex. F, at 25)-regarding his nghts and
alternatives on the matter of repairing envelope fabric
for Raven/Aerostar balloons. Plaintiff contends that in
practice, and in furtherance of the foregoing scheme,
Defendants refused to approve any replacement that did
not utilize Raven/Aerostar fabric. (Compl 420.H.) In
order to reinforce its deception of fabric purchasers,
Defendants allegedly contacted FAA officials and
persuaded them to initiate the administrative
prosecution ofa certified repairman (Braden's Balloons
Aloft, Inc.), who had failed to obtain Defendants’ pre-
approval before replacing more than 35% of a balloon
envelope's fabric. (/d. 420.1.)

64a

2. Schemes Two and Three

Next, as Plaintiff contends, in order to deal with balloon
owners and repairmen not fooled by the foregoing
scheme, Defendants’ manuals required that third-party
fabric be subjected to highly-destructive “tear testing”
before the fabric could be used as replacement fabric on
Defendants’ balloons; this fabric was later subjected to
the same testing procedure annually. (/d. 4 20.J.)
Defendants allegedly did not require their own fabric to
undergo such testing until it had nearly reached the end
of its useful life. (/d.) Because the test procedure
required that relatively large pieces of fabric be
removed for testing and then replaced, both the labor
costs involved and the resulting unsightly patches in the
envelope deterred owners and repairmen from using
third-party fabric, and increased the probability that
Aerostar International fabric would be used in the
replacement process. (/d.)

Third, in order to discourage balloon owners from
purchasing third-party fabric, Defendants allegedly
defamed at least one third-party manufacturer (Custom
Nine Designs, Inc.) by publishing an article in their
newsletter reporting fabric strength tests purportedly
demonstrating that Custom Nine Designs fabric was
unsuitable for use in Raven/Acrostar envelopes. (/d. 4
20.K.) Plaintiff contends that Defendants knew their

65a

article was untrue and that Defendants refused to retract
or correct the story even when its falsity was brought to
their attention. (/d.)'°

The parties have not developed their contentions
regarding Schemes Two and Three in the summary
judgment context. Plaintiff does not even explain how
these acts would constitute antitrust violations.
Therefore, for purposes of this Memorandum, the Court
mentions these schemes in the interest of describing
Plaintiff's allegations in the entirety, but will focus
predominantly on Scheme One, finding that the parties
have largely ignored Schemes Two and Three.

In either 1999 or 2000, Defendants published
their testing standards for fabric in their manual. (West
Dep., Pl.'s Ex. G, at 131.) Defendants started subjecting
competitors’ fabric along with their own to these newly
announced testing standards, and published the results
in a newsletter mailed to Raven/Aerostar owners in
either 1999 or 2000. (/d.) A typo in the newsletter
misrepresented the results for fabric produced by Ron
DiGiovanni and Custom Nine Designs and indicated
that that fabric is unsafe for use with Raven/Aerostar
balloons. Defendants claims they corrected any error
by subsequently ma'!'ng a correction letter to the same
mailing list three r «» vas later. (West Aff. of Jan. 2004
4 5.)

66a

B. Plaintiff's Counts Against Defendants
1. Count One: Antitrust-Monopolization

Plaintiff asserts that Defendants possessed monopoly
power in the Raven/Aerostar hot air balloon
replacement fabric market in the United States.
(Comp!.432.) Inthe alternative, even if Defendants had
not actually possessed monopoly power tn the relevant
market, their acts were intended as an attempt to
monopolize the Raven/Aerostar envelope replacement
fabric market. (/d. 934.) Defendants’ alleged acts
supposediy constituted impermissible exclusionary
practices under Section 2 of the Sherman Act, practices
which were designed by Defendants to strengthen and
to perpetuate their monopoly position. According to
Plaintiff, Defendants’ acts directly and proximately
restrained trade, and directly and proximately caused
Plaintiff's damages.

2. Count Two: Antitrust-Tying Arrangement

According to Plaintifi, Defendants possessed monopoly
power in the market for the tying product (1.¢., hot air
balloons) and used this moncpoly power to restrain
trade in the tied product (i.e., replacement fabric for
balloon envelopes). (CompI.438.) This alleged tying

67a

arrangement supposedly substantially affected-and
continues to affect-interstate commerce. (/d. 439.)
Defendants’ acts, as alleged, directly and proximately
restrained trade, and directly and proximately caused
Plaintiff's damages. (/d. { 940, 42.)

3. Count Three: Fraud

Defendants allegedly intended that Plaintiff and all
other Aerostar International balloon owners rely upon
these supposed misrepresentations. (Compl.4/44.)
Plaintiff contends that it justifiably relied upon these
misrepresentations, and that its damages were a direct
and proximate result of its ‘ustifiable reliance upon the
misrepresentations. (/d. 4 445-46.) Additionally, as
represented by Plaintiff, Defendants’ conduct was
outrageous and warrants the imposition of punitive
damages. (/d. $47 )

4. Count Four: Negligence
Plaintiff alleges that Defendants’ conduct was negligent

and that its damages were a direct and proximate result
of said negligence, (Compl.4| £49-50.)

6Xa

IV. Defendants’ Motion for Summary Judgment

Defendants have moved for summary judgment.
Summary judgment is appropriate “if the pleadings,
depositions, answers to interrogatories, and admissions
on file, together with the affidavits, if any, show that
there is no genuine tssue as to any material fact and that
the moving party is entitled to a judgment as a matter of
law.” FED. R. CIV. P. 56(c). An issue ts “genuine” if
the evidence ts such that a reasonable jury could return
a verdict for the non-moving party. Anderson v. Liberty
Lobby, Inc., 477 U.S. 242, 248, 106 S.Ct. 2505, 91
L.Ed.2d 202 (1986). A factual dispute is “material” if
it might affect the outcome of the case under governing
law. dd.

A party seeking summary judgment always bears the
initial responsibility for informing the district court of
the basis for its motion and identifying those portions of
the record tha it believes demonstrate th. absence of a
genuine issue of material fact. Celotex Corp. v. Catrett,
477 U.S. 317, 322, 106 S.Ct. 2548, 91 L.Ed.2d 265
(1986). Where the non-moving party bears the burden
of proof on a particular issue at trial, the moving party's
initial burden can be met simply by “pointing out to the
district court that there is an absence of evidence to
support the non-moving party's case.” /d. at 325, 106

69a

S.Ct. 2548. After the moving party has met its initial
burden, “the adverse party's response, by affidavits or as
otherwise provided in this rule, must set forth specific
facts showing that there is a genuine issue for trial.”
FED. R. CIV. P. 56(e). Summary judgment is
appropriate if the non-moving party fails to rebut by
making a factual showing “sufficient to establish the
existence of an element essential to that party's case,
and on which that party will bear the burden of proof at
trial.” Celotex, 477 U.S. at 322, 106 S.Ct. 2548. Under
Rule 56, the Court must view the evidence presented on
the motion in the light most favorable to the opposing
party. Anderson, 477 U.S. at 255, 106 S.Ct. 2505.

Defendants move for summary judgment on three
grounds. One: Defendants contend that Plaintiff's
antitrust claim is barred by the four-year statute of
limitations applicable to antitrust claims. Two:
Defendants claim that summary judgment is warranted
upon application of implied immunity to Plaintiff's
antitrust claims. Three: Defendants argue that Plaintiff
cannot succeed in proving the requisite elements for its
antitrust, fraud, or negligence claims, thus justifying
summary judgment against Plaintiff. The Court will
discuss these arguments seriatim.

70a

A. First Argument: Statute of Limitations
1. Parties' Contentions

A plaintiff's claim 1s viable under the federal antitrust
provisions only if suit is “commenced within four years
after the cause of action accrued,” 15 U.S.C. § 15(b),
plus any additional number of years during which the
statute of limitations is tolled. Zenith Radio Corp. v.
Hazeltine Research, Inc., 401 U.S. 321, 338, 91 S.Ct.
795, 28 L.Ed.2d 77 (1971). Generally, a cause of action
accrues and the statute begins to run when a defendant
commits an act that injures a plaintiff's business. /d.
According to Defendants, the four-year limitations
period commenced in 1996 when Plaintiff's “big ride”
balloon was no longer in service and its commercial
losses began to accrue.

Defendants note that Plaintiff did not file its complaint
until March 2002, almost six years beyond the time
Plaintiff claims to have first suffered a loss. Moreover,
Defendants contend that Plaintiff's actual knowledge
about the source of any losses-i.c., the “restrictive”
manual-well predated the retirement of the big ride
balloon. Defendants state that Mr. Harrison repeatedly
expressed his complaints about the Raven/Aerostar
ianguage in the 1970s, 1980s, and 1990s, and contend
that Mr. Harrison should not now be heard regarding -

Tla

damages that would have begun accruing in 1995 and
1996. Further, Defendants argue that given his 1995-
1996 visit with its competitor for replacement fabric,
Custom Nine Designs, Inc. and Mr. Harrison's general
familiarity with the FARs, Plaintiff clearly knew or
should have known its legal avenues for fabric
replacement as set forth within the FARs.

Defendants emphasize that Mr. Harrison testified that in
the late 1980s, he contemplated going into business as
a manufacturer of replacement fabric, but did not do so,
at least in part duc to the allegedly restrictive language
within Defendants' ICA. Mr. Harrison opted not to
pursue that venture believing that he could not
effectively compete with Defendants for business.
(Harrison Dep., Defs.’ Ex. D & PI.'s Ex. I, at 48-49.)
With Mr. Harrison's longstanding knowledge of
Defendants’ stance on replacement fabric, Defendants
contend that Plaintiff's Complaint-filed more than six
years after the retirement of the big ride balloon and
decades after his complaints and aborted enterprise-
must be dismissed as untimely. Moreover, Mr.
Harrison conceded that certain language in Aerostar's
ICA indicates that balloon owners could purchase
replacement fabric from third-party sources provided

that the third-party held an STC or a PMA," and Mr.
Harrison testified that such language would imply that
third-party fabric, if so certified, was acceptable.
(Harrison Dep., Defs.’ Ex. B & PI.'s Ex. H, at 164-65.)
While Mr. Harrison stated that he did not first notice
this language until 2003, Defendants argue that such
language had been printed tn their ICA as early as 1993,
thus placing Mr. Harrison on constructive notice since
that time. Defendants conclude that Mr. Harrison had
everything necessary to pursue his claim in 1996.

Plaintiff alleges that Defendants engaged in fraudulent
misrepresentation; to succeed on this claim, Plaintiff
must demonstrate that Defendants fraudulently
concealed their own unlawful activities and that
Plaintiff did not discover these facts despite the exercise
of due diligence. E.g., /n re Linerboard Antitrust Litig.,
203 F.R.D. 197 (E.D.Pa.2001). Plaintiff claims that
equitable tolling applies and would have extended

'"As explained above at pages 7-8, a hot'air
balloon envelope can only be repaired with FAA
approved replacement parts (fabric falls under the
category of “parts”) from either: (a) the manufacturer
of the product; (b) the holder of a Supplemental Type
Certificate (“STC”); or (c) an entity with Parts
Manufacturing Approval (“PMA”). 14 C.F.R. §
21.303.

73a

Plaintiff's deacline for suit past its original date.
Defendants disagree, arguing that Plaintiff's pre-
existing knowledge of the allegedly wrongful conduc!
defeats its attempt to establish equitable tolling.
Defendants also emphasize that Plaintiff failed to
exercise any form of due diligence to pursue the alleged
wrong. Plaintiff supposedly did nothing between 1996
and 2002 to pursue its legal remedies following the loss
of use of his “big ride” balloon and his alleged inability
to have it repai~ed, notwithstanding his longstanding
complaints about the manufacturers’ language,
notwithstanding changes in the Aerostar ICA which
alerted the owner to the validity of other replacements,
and notwithstanding Mr. Harrison's knowledge of, and
access to, the federal regulations that govern this field.
Defendants claim there were no efforts to seek redress
with calls to the manufacturer, no calls to the FAA, no
independent research, no calls for any form of legal
representation or advice. Defendants also argue that
Plaintiff cannot display any active conduct by the
Defendants which would reveal fraudulent concealment
or an intention to mislead. Defendants contend that
Plaintiff cannot cite one conversation with the
defendants, one passage of deposition testimony, one
documert, or any other evidence that bespeaks
fraudulent intentions.

74a

2. Analysis

Generally, a cause of action accrues-and the statute of
limitations begins to run-when a defendant commits an
act that injures a plaintiff. In the context of a
continuing antitrust violation, each time a plaintiff is
injured by the act of the defendant, a cause of action
accrues to the plaintiff to recover damages caused by
that act.

However, a suit may be brought more than
four years after the events that initially
created the cause of action if the defendant
commits “an act that by its very nature
constitutes a ‘continuing antitrust
violation.’ ” Zenith Radio Corp. v.
Hazeltine Research, Inc., 401 U.S. 321,
338 n. 2, 91 S.Ct. 795, 28 L.Ed.2d T7
(1971). An act constitutes a “continuing
antitrust violation” if it injures the plaintiff
over a period of time. See Hanover Shoe,
Inc. v. United Shoe Machinery Corp., 392
U.S. 481, 502 n. 5, 88 S.Ct. 2224, 20
L.Ed.2d 1231 (1968). Antitrust law
provides that in the case of a continuing
antitrust violation each overt act that 1s
part of the violation and that injures the
plaintiff, “starts the statutory period

\

75a

running again, regardless of the plaintiff's
kr . ‘edge of the alleged illegality at
mu... earlier times.” Klehr v. A.O. Smith
Corp., 521 U.S. 179, 189, 117 S.Ct. 1984,
138 L.Ed.2d 373 (1997); see also
Hanover Shoe, 392 U.S. at 502, 88 S.Ct.
2224.

In re Linerboard Antitrust Litig., MDL No. 1261, 2000
WL 1475559, at *4, 2000 U.S. Dist. LEXIS 14433, at
*16-17 (E.D.Pa. Oct. 5, 2000).

[A] new cause of action may arise from
later overt acts in furtherance of a
challenged conspiracy or from each injury
resulting from a continuing violation.
However, to trigger a new cycle of the
limitations period, the overt act must
specifically affect the plaintiff and not be
merely a continuation of the conspiracy. If
the plaintiff suffered injury at the
beginning of the continuing conspiracy but
not thereaiter, the plaintiff may not enjoy
the benefits of an extended limitations
period.

76a

ABASECTION OF ANTITRUST LAW, ANTITRUST
LAW DEVELOPMENTS 893-94 (Sth ed.2002)
(footnotes omitted) [hereinafter ABA ANTITRUST].

Defendants thoroughly chronicle Plaintiff's actions
since the 1970s that potentially indicate Plaintiff's
longstanding awareness of any allegedly offensive
behavior, and Defendants essentially argue that
Plaintiffs claim should not be considered timely
considering its decades-old knowledge of the offending
behavior and overall inactivity until only recently.
(Harrison Dep., Defs.’ Ex. B & PI.'s Ex. H, at 150-54,
156-58, 159-62; Harrison Dep., Defs.' Ex. D & PI.'s Ex.
I, at 43-44, 46, 47-48.) Defendants claim that in 1993,
their ICA first alerted balloon owners that they could
purchase third-party replacement fabric instead of
directly from Raven/Aerostar. Therefore, even though
Mr. Harrison testified that he had not read this language
until 2003, Defendants argue that Plaintiff had been on
notice of its expanded alternatives for nearly ten years
before filing this suit. In 1993, a portion of the relevant
ICA language read, “[R]epair/replacement materials
must be obtatned from Aerostar to be considered a
‘certified part’. In the event the: repair materials are
obtained, the supplying company or the repair station
performing the repair must act to ‘certify’ the material
and part as equal to or better than the original
equipment.” (Defs.’ Supplemental Ex. C.) The Court

cannot conclude that this language necessarily placed
Raven/Aerostar balloon owners on notice that they
could purchase third-party replacement fabric, given
that the first and second sentences appear to contradict
each other. As Defendants point out, balloon owners
are notified that third-party fabric must be certified
before use, thus indicating that third-party fabric is
acceptable material; however, the preceding sentence
states that only materials supplied by Defendants are
considered certified. Given that the Court must give the
benefit of the doubt to Plaintiff, as the non-moving
party, the Court cannot conclude as a matier of law that
this language placed Plaintiff and other Raven/Acrostar
balloon owners on notice regarding their ability to
purchase third-party fabric.

Here, Plaintiff has presented facts that Defendants’
predatory acts continued unabated through 2001, at
which time Defendants changed the ICA language.
According to Plaintiff, it has been harmed by
Defendants’ antitrust activity continuously until the ICA
change, because the company has lost income which it
otherwise would have earned had Plaintiff repaired its
most profitable balloon.'* It is undisputed between the

“Had Plaintiff repaired its “big ride” balloon, the
balloon would have remained aloft and commercially
(continued...)

78a

parties that the written change allegedly removing the
language offensive to Plaintiff occurred in 2001. Given
that Plaintiff filed the instant suit less than four years
following Defendants’ rewriting of the ICA, there is an
issue of fact for trial as to whether the applicable statute
of limitations had expired.

In light of case law such as Linerboard and Klehr,
supra, which held that, in the context of a continuing
antitrust violation, each overt act starts the statutory
period running again “regardless of the plaintiff's
knowledge of the alleged illegality at much earlier
times,” Linerboard, 2000 WL 1475559, at *4, 2000
U.S. Dist. LEXIS 14433, at *17, even though Plaintiff
might have realized that it suffered injury each year,
assuming Plaintiff filed this case within four years of its
last alleged injury, its case is timely and the statute of
limitations will not bar these claims from continuing.
The Court cannot resolve this issue as a matter of law at
this time. Thus, summary judgment will be denied on
these grounds.

'X(...continued) ;
viable until 2006, its next anticipated repair date.
Plaintiff has submitted 2a expert report that details the
company's economic losses following the retirement of
its “big ride” balloon. (Actuarial-Economic
Consultants Report, Pl.'s Ex. A.)

79a

B. Second Argument: Implied Immunity
1. Parties' Contentions

The doctrine of implied immunity arises where an
alleged violator of the law has acted pursuant to
congressional or regulatory authority that conflicts with
conduct alleged to be in violation of the antitrust laws.
See generally ABA ANTITRUST, supra, at 1238-40.
Because the hot air balloon industry is heavily
regulated, Defendants argue that their actions and
activities undertaken pursuant to congressional or
regulatory authority should be entitled to implied
immunity from the federal antitrust laws. Defendants
‘assert they developed their ICAs jointly with the FAA,
as they were obligated to do by operation of FAA
guidelines, and each successive year after this initial
acceptance by the FAA, the ICA remained subject to
FAA oversight.

In developing and maintaining their ICAs pursuant to
the direct obligation imposed by the FAA, and having
worked both with and under the direction of the FAA in
creating their ICAs, Defendants contend that they
cannot now be held liable in antitrust. At a minimum,
Defendants claim they had a reasonable belief that their
actions vis-a-vis Plaintiff were appropriate if not

80a

necessary in complying with regulatory and
administrative mandates, confirmed by the FAA itself.
According to Defendants, to hold them accountable in
antitrust would subject them to severe liability for
conduct they took in order to ensure aviation safety for
hot air ballooning.

2. Analysis

This case features the friction that occasionally arises
when Congress establishes a regulatory regime which
appears inconsistent with the vigorous competition also
mandated by Congressional statutes. An express
exemption to antitrust liability exists wherever
Congress explicitly states that the antitrust laws will not
apply to the conduct authorized by the legislation, either
in general, or under the specific circumstances
enumerated in the legislation. See generally ABA
ANTITRUST, supra, at 1238. By contrast, where a
Congressional statute mandates certain behavior, but
omits to exempt the behavior expressly from the
purview of the antitrust laws, an exemption might need
to be implied in order to preserve Congress's regulatory
intentions. /d. In this case, where the relevant statutes
contain no express exemption, Defendants argue that
this Court should find that the regulations that

Sla

mandated their conduct, now challenged by Plaintiff
contain an implied exemption that would insulate
Defendants’ behavior from antitrust liability.

Defendants have a heavy burden to prove an implied
immunity. “Implied antitrust immunity is not favored,
and can be justified only by a convincing showing of
clear repugnancy betw en the antitrust laws and the
regulatory system.” United States v. Nat'l Ass'n of Sec.
Dealers, Inc., 422 U.S. 694, 719, 95 S.Ct. 2427, 45
LL.Ed.2d 486 (1975): see also United States v. Phila.
Nat'l Bank, 374 U.S. 321, 348, 83 S.Ct. 1715, 10
L..Fd.2d 915 (1963). Implied antitrust immunity ts
restricted only to the activity challenged, and will not
extend to conduct otherwise overseen by the regulatory
agency. See generally ABA ANTITRUST, supra, at
1238. In conformance with these principles, while the
Supreme Court has recognized implied immunity from
certain prosecutions under the antitrust laws, the Court
has steadfastly held that the Federal Aviation Act does
not completely displace the antitrust laws. /Zughes Tool
Co. v. Trans World Airlines, Inc., 409 U.S. 363, 387, 93
S.Ct. 647, 34 L.Ed.2d 577 (1973); Pan Am. World
Airways, Inc. v. United States, 371 U.S. 296, 305, 83
S.Ct. 476, 9 L.Ed.2d 325 (1963).

Whether Defendants are entitled to implied antitrust
immunity because they developed, drafted, and

Ra

promulgated their ICAs in conjunction with the FAA
appears to be a matter of first impression. Only where
Congress has invested pervasive supervisory authority
in a regulatory agency should a court conclude that
Congress intended to ease liability under the Sherman
Act. See, e.g., Nat'l Ass'n, supra. The Court concludes
that Defendants have not established a sufficiently
coherent and pervasive theory of regulation, nor do they
document any congressional intent that companies in
the balloon industry are immune from. antitrust
litigation by virtue of collaboration with the FAA in
drafting and promulgating their ICAs.

a. Federal Regulations Applicable to Hot Air
Ballooning

As discussed above in Section I1.B, there are numerous
federal regulations that apply inter alia to the
manufacture and sale of both hot air balloons and
replacement _ parts. To summarize, balloon
manufacturers are required to distribute to their
customers ICAs, which are model-specific maintenance
manuals that detail standards and procedures to be used
during maintenance, alteration; or preventive
maintenance of the aircraft. These methods or practices
gencrally may be substituted by other maintenance
methods or practices acceptable to the FAA. The ICA

83a

might contain a segregated section of additional
techniques, known as the ALS, from which
maintenance personnel may not deviate. Replacement
parts may be manufactured and sold by the aircraft's
original manufacturer or by a third-party that holds
either an STC or PMA, documents which indicate that
the FAA has approved the third-party's product.
However, these regulations did not require the conduct
which Plaintiff contends violated the antitrust laws: for
example, no federal regulation requires that a hot air
balloon owner first secure the original manufacturer's
permission to use third-party fabric before repairing the
balloon envelope.

It appears clear from the record that although
Defendants’ ICA implied that only Defendants-
approved replacement parts could be used, there is no
requirement in the ARs that replacement envelope
material be tested in accordance with the
manufacturer's standards. In fact, the FAA has set forth
its own standards for strength and safety, 14 C.F.R. § §
31.21-31.27, which must be met by all manufacturers
and replacement parts manufacturers, including holders
of STCs and PMAs. Thus the Court concludes that both
Plaintiffand Defendants have overstated the case. The
regulations do not require the defendants to do what
they did, and what Plaintiffclaims is unlawful under the

84a

antitrust laws. Nonetheless, the Court will review the
applicable case law.

b. Relevant Case Law

The starting point in the case law on implied immunity
are two Supreme Court opinions that hold that implied
immunity from the antitrust laws is to be sparingly
inferred from the enactment ofa regulatory statute: Pan
American World Airways v. United States, supra, and
Hughes Tool Co. v. Trans World Airlines, supra. The
Court notes that neither Pan American nor Hughes Tool
Co. give Defendants any specific support regarding
ICAs and implied immunity.

In Pan American, supra, the United States brought a
civil antitrust action against Pan American World
Airways, W.R. Grace & Company, and their jointly-
owned subsidiary, Pan American-Grace Airways
(“Panagra”). When Pan American and Grace organized
Panagra, the companies agreed that Panagra and Pan
American would not parallel each other's air routes, a
combination and conspiracy allegedly in restraint of
trade and monopolization and_ attempted
monopolization of air transportation between the United
States and South America. The United States further
alleged that Pan American had used its control ov

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40386016_0710%3A1. Public record. Not legal advice.