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ASSOCIATION OF RETAIL TRAVEL AGENTS v. AIR TRANSP.

December 3, 1985

ASSOCIATION OF RETAIL TRAVEL AGENTS, LTD. (ARTA), Plaintiff,
v.
AIR TRANSPORT ASSOCIATION OF AMERICA (ATA), et al., Defendants



The opinion of the court was delivered by: OBERDORFER

 For reasons stated in the accompanying Memorandum, it is this 3rd day of December, 1985, hereby

 ORDERED: that plaintiff's cross-motion for summary judgment is hereby DENIED; and it is further

 ORDERED: that defendants' cross-motion for summary judgment is hereby GRANTED; and it is further

 ORDERED: that the parties shall attend a status conference at 9:30 A.M. on December 12, 1985, in Courtroom No. 3. MEMORANDUM

 I.

 This action is brought by the Association of Retail Travel Agents, Ltd. (ARTA), against the Air Transport Association of America (ATA), its member air carriers, and members of the ATA board of directors. The Airlines Reporting Corporation (ARC) program is run by ATA and coordinates the dealings between the airline members and the travel agencies with which the members deal. ARTA alleges that aspects of the ARC program are anti-competitive and in violation of federal antitrust laws. Because of the complex issues presented in this case, the Court adopted a "wave" discovery plan. The Court's Second Wave Discovery Order (filed May 29, 1985) directed the parties to conduct discovery and file dispositive motions on the per se issues raised by plaintiff's complaint. The action is now before the Court on the parties' cross-motions for summary judgment on the per se issues.

 Plaintiff claims that two general types of provisions of the ARC program constitute price fixing and are therefore per se illegal. First, plaintiff challenges the requirement that travel agencies participating in the ARC program pay "a variety of application and other fees." Memorandum of Points and Authorities in Support of Motion for Summary Judgment (Plaintiff's Mem.) at 22-25 (filed Aug. 30, 1985). Specifically, these uniform fees and charges include a $150 annual administrative fee and a $20 requisition fee to cover handling and shipping costs of the blank standard ticket stock ordered from ARC. Second, plaintiff contests the requirement of the Area Settlement Plan that participating agencies pay ARC for their sales on a weekly basis. Id. at 9-13. *fn1"

 Currently, the ARC program is a joint venture of 167 airlines. Joint Stipulation (Joint Stip.) at para. 6 (filed June 11, 1985). The program structures the airlines' dealings with approximately 19,500 travel agencies in 26,100 travel agency locations. Joint Stip. at para. 10. The ARC program has two main functions. See generally Joint Stip. at Attachments C-F. The first is an accreditation function. By way of accreditation, ARC requires potential travel agencies to file an application to demonstrate financial stability. Those agencies approved by ARC become recognized travel agents on the Agency List. Although airline members of ARC can technically refuse to deal with agents on the List, as a practical matter a travel agent on the List becomes authorized to deal with all ARC member airlines. The second function, embodied in the Area Settlement Plan, is to regulate accounting and payment between the airlines and the travel agencies. The Area Settlement Plan requires travel agents to report and pay weekly for all sales of airline services. The agent can submit all its transactions on a single list to ARC. ARC then computes the amount due from each agent and the amount owed each airline, and distributes the necessary payments. ARC also monitors the reporting process and imposes sanctions, including removal from the Agency List of agents who do not pay weekly or otherwise fail to comply with the requirements of the ARC program.

 The ARC program has been in operation only since the beginning of 1985 and grows out of the recent deregulation of the airline industry. Prior to ARC, the Air Traffic Conference of America (ATC) operated a travel agency program with the formal approval of the Civil Aeronautics Board (CAB). The formal approval of the CAB afforded the ATC participants immunity from the federal antitrust laws.

 During the movement toward deregulation of the airline industry, the CAB evaluated the ATC program in light of its antitrust implications. According to the Board:

 
Economic regulation by the Board is yielding to competitive discipline by the marketplace. To date, our efforts to direct and effect this transformation have focused primarily on the producers. However, neither the air transportation industry nor the consumers it serves will experience the greatest benefits if competition is limited solely to the air carriers. Therefore we have decided to extend our reappraisal to the marketing of air transportation in the U.S. By this order we are initiating an investigation to determine how competition can best be introduced into the entire marketing system.

 The ensuing evaluation was called the Competitive Marketing Investigation. The CAB first appointed an administrative law judge (ALJ), who issued a 213-page decision. Joint Stip. at Attachment L. The Board then reviewed the ALJ's decision and issued its own 137-page decision. Joint Stip. at Attachment M. The Board concluded that absent the exclusivity features, which prevented member airlines from independently dealing with travel agencies, the agreements as structured between ATC and travel agents "do not substantially reduce competition." Id. at 122. Specifically, the CAB found the accreditation requirement, and the uniform remittance procedures of the Area Settlement Plan, necessary to the program's efficient operation and thus not violative of the antitrust laws. Id. at 65-71, 101-104. The Board declined to extend antitrust immunity beyond an initial two-year period, on the grounds that "exposure to antitrust laws is most consistent with an industry controlled by competition." Id. at 130. The CAB also noted that the program would not be subject to serious antitrust challenge. Id. at pp. 124, 130-32. The Court of Appeals affirmed the Board's decision to terminate antitrust immunity at the end of two years. Republic Airlines v. Civil Aeronautics Board, 756 F.2d 1304, 1316-17 (8th Cir. 1985).

 After the CAB's decision, ATC began to develop the ARC program to replace the ATC program. Plaintiff in this case opposed formation of the ARC program and, after filing suit in this Court, petitioned the CAB to extend antitrust immunity for an additional six months to give the industry more time to develop a fair program. Plaintiff alleged that the ARC program contained many features found by the CAB to be anticompetitive in its review of the ATC program. It further alleged that the ARC program would:

 
enable "a relatively small group" of carriers to gain exclusive control over the industry travel agent program, for no travel agent and no carrier except ATA members will own stock in ARC.

 Joint Stip. at Attachment O, p. 2. The CAB denied plaintiff's petition, reiterating that "ending antitrust immunity is the best means for keeping the domestic carriers from using their control of travel agents to restrain competition." Id. at p. 6.

 After formation, ARC submitted its proposed program to the Department of Justice for antitrust clearance pursuant to the Department's Business Review Procedures. 28 C.F.R. § 50.6. The Department approved the planned ARC program. According to the Department's letter, it expected the program to "achieve substantial efficiencies in accreditation, ticket sales and in reporting sales and remitting funds." Joint Stip. at Attachment I, p. 6. The Department "evaluated the[] restraints under a rule of reason analysis and . . . concluded that the restraints notwithstanding, the overall purpose and effect of the ARC plan is to enhance efficiency in the distribution of airline retailing services." Id.

 II.

 A.

 In support of its motion, plaintiff argues that the uniform fees and charges used to offset the cost of ARC are anticompetitive, since "in the absence of ARC, . . . the allocation of costs associated with the purchase of ticket sales services by the carriers would be determined in the price paid by carriers individually and competitively for such services." Plaintiff's Mem. at 22-23. Plaintiff contends that the collective establishment of fees and charges by ARC allows the airline members to shift costs from themselves to travel agents. This cost-shifting, argues plaintiff, was rejected by the CAB in the airlines' regulated era. See ATC Application and Agency Fees, Docket No. 20650, 63 C.A.B. 681, 682 (1973). Now, plaintiff contends, the airlines "are clearly using their collective economic power to distort market allocations of the price they would competitively pay for agent services." Plaintiff's Mem. at 24.

 Plaintiff contends that the two functions of the reporting plan -- accounting and payment -- are severable. Plaintiff does not dispute the efficiencies of the centralized accounting ...


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