Antitrust Exclusive Dealing Claims Given 'Short-Shrift' In Dismissal. How Long Is Short? An Analysis In Search Of Context

The Federal District Court for the Central District of California, sitting in Santa Ana, recently dismissed antitrust claims in an action between competitors in a market described as the management and distribution of "photographs in rich media content for hotels." As described in the first amended complaint, a hotel wishing to advertise or distribute visual or "rich content" through an online travel agency must use an intermediary, described as a "Global Distribution System" ("GDS") or "Pegasus". Plaintiff Pro Search alleges that defendant VFML violated Sections 1 and 2 of the Sherman Act by entering into exclusive dealing agreements with all of the GDS companies, as well as an exclusive dealing agreement with Pegasus. There are four GDS in the alleged geographic market. The contracts with GDS and Pegasus are alleged to constitute the "core of VFML's monopoly." Pro Search claims that it has been excluded from accessing the GDS and Pegasus, which are described as "essential intermediaries in the industry". Pro Search alleges that VFML has a relevant market share of approximately 80%. The court dismissed the Sherman Act claims with leave to amend. Pro Search Plus, LLC v. VFM Leonardo, Inc., U.S.D.C., Central District of California, Case No. SACV 12-2102-JST (ANx), July 30, 2013.

After the now common commentary on Bell Atlantic Corp. v. Twombly, and Ashcroft v. Iqubal, the court dismissed the exclusive dealing allegations on the ground that the first amended complaint failed to allege sufficient facts to plausibly demonstrate that the effect of the exclusive dealing arrangements was to "foreclose competition in a substantial share of the line of commence affected". The court noted that the duration of the contracts in issue were two to three years for the GDS contracts, and five years for the Pegasus contract. In addition, the contracts were subject to termination upon notice ranging from 30 days to 12 months, to 10 days' notice plus a termination fee. The court held that the contracts were "of short duration and easily terminable". Accordingly, the allegations could not state a claim upon which relief could be granted.

The court noted that the case law generally supports the proposition that exclusive contracts of short duration that are readily terminable do not run afoul of the antitrust laws. Citing Areeda & Hovenkamp, the court noted that "even an exclusive-dealing contract covering a dominant share of a relevant market need have no...