Monday, August 3, 2009

The Law of Antitrust Immunity for Alliances

In his guest post to the Aviation Law Prof Blog last week, see here, airline analyst Hubert Horan responded to the apparent misconception of some that the 2007 U.S./EC Air Transport Agreement, 2007 O.J. (L 134) 4 [hereinafter Air Transport Agreement], "require[s] approval" of antitrust immunity applications for U.S. and EU alliance partners.  According to Horan:

That’s certainly what the applicants are claiming, but if it did the State Department would have said so, and that would have saved DOT and DOJ the need to undertake detailed reviews. I didn’t see anything in the treaty limiting the application of US antitrust laws and precedent, and I think the claim that it did would stir up vigorous opposition on Capitol Hill.

But is that "what the applicants are claiming"?  A perusal of the recently approved application for Continental Airlines to join the Star Alliance reveals the carriers relying on the Department of Transportation's history of "consistently . . . predicat[ing] its willingness to approve and grant antitrust immunity for alliances on the effectiveness of an open skies agreement in the relevant markets."  Joint Application to Amend Order 2007-2-16 (Public Version), Dkt. No. DOT-OST-2008-0234 (July 23, 2008), at 50.  After 1992, open skies bilaterals inter alia with Austria, Belgium, France, Germany, the Netherlands, and Switzerland were each accompanied by antitrust immunity for alliances linking the national carriers of those countries with U.S. airline partners.  The 2007 U.S./EC Agreement, in its Memorandum of Consultations, specifically confirms DOT policy that antitrust immunity will only be extended to agreements involving foreign carriers whose home States have concluded open skies agreements with the United States.  See supra, Memorandum of Consultations, para. 48.  Indeed, the 2007 Agreement does not "limit[] the application of U.S. antitrust laws and precedent," but rather reaffirms longstanding DOT administrative precedent with respect to an open skies agreement being the necessary (though not sufficient) prerequisite for antitrust immunity.  Cf. Joint Application . . . to Amend Order 2007-2-16, Dkt. No. OST-2008-0234, Final Order (July 10, 2009), at 2 (stating that "[u]nder the Department's established policy, the existence of an 'open-skies' regulatory framework between the U.S. and foreign carriers' homelands is a necessary predicate to our consideration of requests for antitrust immunity"). 

Nowhere, does it seem, are alliance applicants seriously asserting that an open skies treaty is anything more than a conditio sine qua non.  There are still U.S. statutory standards which must be satisfied.  The 1979 International Air Transportation Competition Act allows for crossborder intercarrier agreements such as alliances to be filed before the DOT for approval and antitrust immunity.  See 49 U.S.C. §§ 41308-09.  Under the statute, the DOT shall approve such agreements so long as they are "not adverse to the public interest."  § 41309(b).  Applying the standard Clayton Act test, however, the DOT "shall disapprove . . . an agreement . . . that substantially reduces or eliminates competition," § 41309(b)(1), unless "the agreement . . . is necessary to meet a serious transportation need or to achieve important public benefits (including international comity and foreign policy considerations)," § 41309(b)(1)(A).  The DOT must also apply the so-called Bank Merger Act escape clause to find that "the transportation need cannot be met or those benefits cannot be achieved by reasonably available alternatives that are materially less anticompetitive."  § 41309(b)(1)(B).  Only after winning DOT approval can an agreement receive antitrust immunity "to the extent necessary to allow [the applicants] to proceed with the transaction specifically approved . . . and with any transaction necessarily contemplated by the [approval] order" if the DOT "decides it is required by the public interest."  See § 41308(b).  While there are two "public interest" tests bundled in the DOT's alliance approval and immunization jurisprudence, the DOT "has always recognized that the public interest standard [for antitrust immunity] is a much more stringent standard than [the alliance approval] public interest standard."  Joint Application . . . to Amend Order 2007-2-16, Dkt. No. OST-2008-0234, Order 2009-4-5 (Apr. 7, 2009) (internal quotation marks ommitted).

There are, of course, critics who believe that the DOT's application of the statutory standards has not been robust.  Indeed, Horan has characterized the DOT's "recent airline competition policy as 'rubber stamp whatever proposal the airlines bring us as long as there isn't serious industry opposition.'"  That may be, but it is a separate issue from any misapprehension that international agreements automatically trump domestic law with respect to international intercarrier agreements.

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