Friday, January 22, 2010

Alliance Review

As discussed previously on the blog, see "Finding Approval," the new transpacific tie-ups will have to not only clear the U.S. antitrust immunity regulatory process, but also receive authorization from Japan.  It remains unclear, however, whether this approval will come from the Japanese Fair Trade Commission or another regulatory organ of the Japanese Government.  Unlike the U.S., Japan does not have statutory standards and procedures in place for immunizing alliances from its competition code.  Even so, it's possible that Japan could give tacit approval these link-ups, opting to not enforce any competition rules at all. 

If the JFTC becomes involved in the process, it's likely that it will adopt the consultative process it did with the 2001 merger of JAL and JAS.  See Koki Arai, An Airline Merger in Japan: A Case Study Revealing Principles of Japanese Merger Control, 4 J. Indus. Comp. & Trade 207 (2004).  In that case, the JFTC allowed the airlines to provide a series of commitments aimed at offsetting the competition concerns raised in the JFTC's initial analysis of the merger.  This is not dissimilar from the European Commission's approach to airline alliances which, though "broadly positive" in the past, cf. Competition: Commission Confirms Sending Statement of Objections to Members of SkyTeam Global Alliance, MEMO/96/243 (June 19, 2006) (available here), exhibits a mixture of caution and cooperation.  Cf. Antitrust: Commission Opens Formal Proceedings Against Certain Members of Star and oneworld Airline Alliances, MEMO/09/168 (Apr. 20, 2009).  For example, following its statement of objections to SkyTeam, the Commission was willing to accept the alliance's own proposals to assuage fears that the joint venture would harm compeition.  Commitments made by SkyTeam included making slots available at key EU airports to new entrants; allowing new entrants to share in the alliance's frequent flyer programs; entering into interlining agreements with new entrants; and facilitating intermodal services.  See Antitrust: Commission Market Tests Commitments from Eight Members of SkyTeam Concerning Their Alliance Cooperation, IP/07/1558 (Oct. 19, 2007) (availabale here).  SkyTeam also promised to establish a trustee to monitor the implementation of their commitments.

This approach is rather distinct from what takes place in the U.S. context.  Rather than be subject to direct review from the Department of Justice's Antitrust Division, airline alliances seek refuge under the DOT's broad authority to immunize them from federal competition law.  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).

Whatever similarities may exist with respect to the Japanese and EU competition regimes cannot be easily extended to what takes place before the DOT.  On its face, the DOT is not a competition authority; it is a regulatory agency which happens to hold--in the view of some critics--the shockingly broad authority to dispense antitrust immunity.  While many arguments were made during the heyday of comprehensive common carrier regulation that regulatory agencies such as the Civil Aeronautics Board required antitrust review and immunization powers in order to promote the public interest, they appear--on their face at least--to lose some force in an era of alleged deregulation where market forces, not command planning, are supposed to control the nature of industry.  The DOT's relationship to alliances appears neither adversarial nor consultative, but protective.  It represents, perhaps, an aberration in the contemporary global market where governments are supposed to do little more for their industries than ensure the actors "play by the rules."  At the very least, the application of the DOT's immunization powers to alliances remains a unique, fascinating, and occasionally perplexing facet of aviation law and policy.

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