Public Statements about Pricing Changes May Create Antitrust Litigation Risk
A federal court in Georgia recently refused to dismiss antitrust claims against Delta and AirTran based on public comments that airline representatives made in quarterly earnings calls and industry meetings. In re Delta/AirTran Baggage Fees, No. 10-md-2089 (N.D. Ga. Aug. 2, 2010), is a strong reminder that antitrust liability—or at least the expense of disproving that liability in court—can be triggered without unlawful collusion. What is most disturbing about this case is that several of the allegedly incriminating comments were not planned statements—they were responses to questions from analysts. Corporations, particularly those in consolidated industries, should take this opportunity to review their policies regarding public comment about forthcoming business decisions that could impact competition.
Action Plan for Avoiding Antitrust Litigation
In re Delta/AirTran shows that public statements, not just clandestine conversations in smoke-filled rooms, can lead to costly antitrust litigation. Companies seeking to avoid inadvertent exposure to antitrust liability must use caution in all settings where competitors have access to their statements. Take this opportunity to remind your executives of these best practices:
Plan your words. Statements made in response to questions can have the same evidentiary effect as prepared statements. Company representatives should therefore avoid making off-the-cuff comments about collective industry action or about what they think others in the industry should do.
Watch your timing. Changing previously stated plans shortly after other industry players announce their intentions can raise suspicions of collusion.
State your reasons. Where parallel industry action is necessary, as it often is, companies should be sure to document and explain the legitimate business reasons for their actions and timing.
It is not illegal for competitors to monitor the market and to decide—independently and unilaterally—to follow the actions of other industry players. But the court’s recent decision shows that companies cannot count on winning early dismissal by claiming a “conscious parallelism” defense if there is some evidence that companies used public statements to signal each other about potential actions and to gauge the likelihood that others would follow.
It is also not illegal to make public statements about pricing and capacity. And, although companies are not under obligation to speak in response to questions from analysts during earnings calls, federal securities laws require that any communication to analysts or the public be free from misleading material statements or omissions of material fact.
Mere proof that industry members had the “opportunity to collude” because they learned of each other’s plans through public statements and attendance at the same industry conferences won’t get a lawsuit off the ground. Yet, the convergence of public statements, parallel action, and suspicious timing can be dangerous. Although the court in In re Delta/AirTran was careful to say that the plaintiffs may not ultimately be able to prove an antitrust violation at later stages of the case when higher standards of proof will apply, losing a motion to dismiss means incurring all the expense of discovery.
Delta’s and AirTran’s troubles began when rising oil costs in 2008 put the profitability of their business models in jeopardy. Using a series of statements about the importance of reducing flight capacity out of Atlanta that Delta and AirTran executives made in a series of earnings calls and industry meetings, the plaintiffs pieced together a plausible argument that Delta and AirTran agreed to cut capacity. And AirTran’s statement that it preferred to be a follower on the baggage-fee issue—followed by Delta’s imposing a first bag fee and AirTran’s then doing the same (with the new fee to take effect on the same day as Delta’s)—was enough to create a plausible claim in the court’s view that Delta and AirTran agreed on baggage fees as well.
But would-be antitrust plaintiffs will not be able to attack just any player in a concentrated industry by claiming parallel conduct and mining a few choice comments from public disclosure statements and media reports. A Delaware court recently rejected such an attempt. In Superior Offshore International v. Bristow Group, No. 09-cv-438-LDD (D. Del. Sept. 14, 2010), the court held that evidence of parallel price increases in the highly concentrated Gulf Coast helicopter transportation industry was not enough to support an antitrust claim. Although the plaintiffs pointed, among other things, to public acknowledgement by a company leader that increased price and reduced capacity in the industry had been good for profitability—and an expression of concern that new competitors could enter the market and put downward pressure on rates—the court held that these statements were as consistent with lawful conduct as with unlawful conduct.
Companies should therefore approach public statements about pricing and capacity not with fear, but with caution—keeping in mind that agreements between competitors about pricing and capacity may be illegal whether they are made explicitly behind closed doors or whether they are the result of intentional public signaling with no express promises on either side.