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The US Government vs. the US Airways Case Study

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Updated: Feb 25th, 2021

Identify and analyze the relevant facts in chronological order of this antitrust case

The defendant and the plaintiffs in the case entered into an agreement. The best-laid plan by the government was to regulate the agreements of the companies to enter into a merger. The conditions for the merger asset in the Justice Department were put across to limit the operation of the companies and to make sure that they were allowed to operate. The fares of the airlines had drastically been increased, and several companies wanted to take advantage of the fares. Seeking to form a merger was one of the key moves to facilitate the true earning of the profits. The connection to the United States markets was geared towards providing nonstop services to the customers. The United States Airlines undercut US Airlines’ targeted its nonstop fares. The conflict between the two companies acted to the benefit of consumers. The airlines were offering a high rate of fares that did not match the services.

It occurred that consumers were not offered an option of a low-cost alternative. It, therefore, meant that consumers were forced to pay a significantly higher amount for the services. The option of low connecting fare was made unavailable to the consumers. Thus the prices kept rising. The most noticeable effect of the high fare prices was the disruption that the fare occasioned to the entire industry. Major frustrations were expressed by the executives of the airlines. The undercutting by other companies was of significant importance in balancing the market dynamics. The US Airlines responded by lowering the fare for their flights in some of the routes. The other viable option was to take up the fight and compete with the competitors in a bid to force them to abandon their strategy. The President of the US Airlines acknowledged that using a different route network was of significant help to the company. The network structure was a key strategy that required proper planning. US Airlines would adopt less nonstop traffic. The profitability of the route was not the main concern of the company, but the essence of reducing the competition within the industry.

The plaintiffs had devised a way of dealing with the problem of low costs in some of the routes. The American executives had allowed and agreed to the advantage fares that were to be eliminated. Coming up with a merger was one of the alternatives the plaintiffs came up with. The large nonstop market was susceptible to the reactionary pricing of other companies that we’re competing with the plaintiff. The American executives were watching the forcing of the prices during a period when the prices were being used to determine the services in the market. Large legacy carriers were another option that the executives were facing. The US Airlines offered an advantage fare to the routes that encouraged nonstop service. Post-merger has its disadvantages, and some of the ones felt encompassed undercutting the company’s nonstop prices. The merger had the effect of eliminating the prices of the competitors. The US Airlines were taking away the value by imposing undercutting on itself. The gains raised a substantial amount of questions towards the essence and the results of undercutting. The advantage of the fares offered after the post-merger was that they had the effect of forcing prices to go up. The fares charged would below, but the costs incurred would go up significantly. The merger had the effect of lowering the prices of million subscribers of the Airlines.

The merger had several foreseeable disadvantages to many of the customers. The most notable one included reducing the prices of the established services. Each of the well-known legacy airlines has faced a substantial break in the move to subsidize the prices according to the industry demands. There has been a substantial reduction in the capacity, which has caused the cancellation of some of the flights. The benefits have been accrued by the industry more than any other party. The airlines have remained the same for the years. The pricing power and the reduction in capacity have been a way of making sure that the prices are lower than the consumer ratings. The capacity checks have found the plaintiff in a position of not keeping in line with the significant steps that are available in a given unit. Many of the American Airlines merged with US Airlines to consolidate their main activities and other factors. The explanation offered for the merger has been pointing to the significant reduction in the prices as opposed to offering standardized services to the customers. The merger has been built on a promise to improve the services, but the operations have proved more self-satisfying. The profit gains associated with the merger have made capacity building a thing of the past. There are significant steps that are designed to enable the merged companies to cut their prices.

Identity which antitrust law(s) were allegedly violated in this antitrust case

The case went in court under strong allegations of its violation of the antitrust laws. It was argued that the merger was a major violation of any antitrust laws, thus it was supposed to be allowed in the given circumstances. The merger was a threat to all the set standards, and allowing the merger to go on was a continued abuse of the due process of the law. The most prevailing threat of the merger was its initial capacity of taking away all the competitor’s customers. The Department of Justice was met with this challenge in consideration of the merger and its importance in the circumstances. The plaintiff, in this case, sought an injunctive order as provided for under section 16 of the Clayton Act. Section 16 provides that any person has a right to sue for injunctive relief in any court in the United States. This relief could be sought in the event that there is a threatened loss or damage that is occasioned by a violation of antitrust laws.

The section further lists sections 13, 14, 18, and 19 of the Clayton Act, although that does not impose a limitation if the person being sued has violated other antitrust laws. The injunctive relief can also be sought in the event that the conduct is anticipated to cause loss or damage. Courts of equity have the discretion to use the governing procedure and rules to ascertain that the danger is imminent, and the plaintiff is likely to suffer irreparable harm. In the event that the situation is considered by the court, an immediate preliminary injunction is normally granted with the effect of stopping the irreparable harm. In the wording of section 7 of the Clayton Act, there is a measured standard under which the plaintiff must prove to issue the injunction against the defendants. Section 7 prohibits any person engaged in any nature of commerce from indulging in any activity that has the effect of affecting commerce and of acquiring any or part of the stock. The section specifically addresses the effects of acquiring the stock whereby competition is lessened. In the interpretation of section 7, the defendant, in this case, must be engaged in the creation of a monopoly.

Section 7065 of the Federal Rule of Bankruptcy Procedure has a clear address on the nature of injunctive relief. It incorporates the Federal Rule of Procedure 65, which constitutes adversary proceedings. The two provisions of the law provide that a temporary injunction may be issued upon an application of a debtor, trustee, or debtor in possession whereby there is no compliance with section 65(c). The rules strictly require the court to set out the grounds before issuing a temporary injunction. The reasoning ought to be provided in detail. The principle of the temporary injunction was best provided by the case of Sampson v. Murray 415 U.S. 61, 88 (1974). In that case, the court held that for an injunctive order to issue, the plaintiff is under a duty to prove the issue of irreparable harm being occasioned in the event that the order is granted. There were no affidavits to establish that the plaintiff was about to suffer an irreparable loss. The court had no evidence before it to disclose the nature of the plaintiffs. The nature and the true interest in the airline industry of the plaintiffs were not set out. The evidence disclosed no connection between the plaintiff and how the proposed merger would lead to the suffering of irreparable harm. In ignoring that the plaintiffs omitted a major requirement in the application for the relief sought, the court made it clear that for a person applying for a remedy under section 16 of the Clayton Act, he must show a threat of occasioning an antitrust injury.

The claims advanced by the plaintiffs must be considered against the standing requirements under the above-discussed sections of the law. The plaintiffs, in this case, had a motion that contained sweeping allegations against the defendants. It was the plaintiff’s allegations that the merger had the effect of reducing the rate of competition while promoting monopoly at the same time. The allegations do not apportion any harm that the plaintiffs have suffered due to the merger of the defendants. The evidence before the court was insufficient in that it did not demonstrate any harm that would be occasioned on plaintiffs personally. The bracket statements made by the plaintiffs had no evidentiary value in support of an injunction. The capacity reductions, as well as the elimination of advantage fare, were not sufficient in this case. The declaration of an expert was the only strong evidence by the plaintiffs in this case. The expert presented many documents in court, but they were not able to prove the case to the required standard. They substantially failed to establish irreparable harm. The affidavit of the expert simply offered an opinion but no tangible evidence to prove harm.

Identify the validity of the definition of the market for this antitrust case

There are several markets within the operation of any entity. In this case, several definitions of the market will be considered to ascertain whether the market in the case falls under the purview of a market. To start with is the product market. This refers to the specified goods in any operation. In this case, the product market means the range of customers who were enjoying the services of the airlines. The services that the defendant dealt with before the occurrence of the alleged violation of the Clayton Act are, strictly speaking, the product market. In this case, the product market can, as well, mean the goods or any form of services that a person or a company provides. It is also used to mean the recipients of the services. The consumers who were affected by the merger were the initial consumers, and the product market may refer to those taking the flights. The merger interfered with the market product in the sense that competition was highly reduced, and the concentration of the merger was to create a monopoly. Monopoly raises the product market while encouraging the prices to go up at the same time. The competitors are adversely affected by the said actions in that they are pushed away from the market.

Secondly is the geographical market, which mainly focuses on the designated location where the products are sold, in the case of services like in the present case, the geographical market in the area of operation. The operation of the airlines was situated in the United States. However, the customers who used the airlines were global citizens. It, therefore, means that the airlines’ geographical setting was the United States. The established terminals and service providing joints were in the United States. The case by the plaintiff shows that persons from different states were adversely affected by the merger. This presupposes the conclusion that the initial operations of the companies were in the United States. The different points of destination of the defendants were not the right indicators for establishing the geographic market. The initial point of operations and where the company was incorporated served as pointers to the geographical area of operation. In addition, the decision on the merger and the nature of the plaintiffs clearly show that the operations were within the United States geographical market.

The third is the spot market, which refers to any market that is yet to be identified. In this case, the spot market has a direct connection to potential customers. In the spot market, several analyses are required. They have the effect of providing a clear trend of growth in a market. This case provided many spot markets. The seller has the discretion to identify a spot market or focus his attention on the available markets. If the existing market is satisfying, the seller has no point in looking for a spot market. In this case, the airlines were the sellers, and the plaintiffs were the buyers. The spot market, in this case, was the market that was not identified yet. For instance, those states that the operations of the airlines had not reached were spot markets. Once identified, the spot market becomes a product market. The spot market exists in the minds of the airline executives, and it is put into operation if the company wants to expand its services.

Fourthly, the buyers and the sellers in the foregoing discussion were either actual or potential market. In the given case, actual buyers mean any person who takes part in the real buying of the products. Actual buyers work hand in hand with actual sellers to sustain the product market. On the other hand, the potential buyers are made reference to in cases where there is a need to expand the services. To open up the market and identify the spot market, potential buyers are the key target. Once the functioning of the market is fully defined, the potential customers become actual customers. In any event, there are several ways in which the markets relate to each other. Similarly, the customers in the markets are the same people who are considered in the markets. It is very crucial to ascertain the type of market before defining the customers who will be found in it. The guiding principle is that products that are new in the market will normally land on the product market. The markets in the above-discussed case were the product market, the geographical market, and the spot market. The merger was designed to target potential buyers in the spot market. The customers, in this case, were the plaintiffs and other individuals in the United States. The services were not restricted to persons in the United States because other persons from different countries were customers. The merger was a widespread way of netting the entire market and opening up a possibility for expansion and providing exceptional services.

Summary judgment in this antitrust case

The plaintiffs, in this case, sought a restraining order. The restraining order was under the provision of section 16 of the Clayton Act. The temporary restraining order was geared towards stopping the defendant from entering into the merger. Section 16 of the Clayton Act provided a place for any person who was aggrieved by the violation of any antitrust law and where there was a threatened danger to the rights of an individual. It is a clear provision that the plaintiffs relied on. Section 7 of the Clayton Act also provides that a party aggrieved may as well couple the two provisions in the quest for the injunction. The court interpreted the provisions of the two sections of the law. In the wording of the court, there was an established standard set out in sections 7 and 16 of the Clayton Act.

The sections provide for the nature of the evidence that a plaintiff needs to prove before a restraining injunction is issued. Three salient elements must be proved in order to get the remedy of the injunction. The probability of success in the main suite is a key consideration before a court can issue an injunction in the nature that the plaintiffs prayed for. Secondly, the plaintiff must prove serious questions regarding the merits of the case because courts of law cannot issue an injunction on frivolous matters. The courts decide the matter on a balance of convenience depending on the hardship that the plaintiff goes through. The court held that an injunction was an extraordinary remedy that must be founded on a real threat. This meant that the plaintiff was under a duty to lay out the clear burden of persuasion. The court has an exercise of broad discretion when issuing an injunction.

The first element of consideration was whether the plaintiffs demonstrated a possibility of suffering irreparable harm. The court stated that the issuing of an injunction highly depended on the plaintiffs’ ability to prove that the threat was likely to occasion irreparable harm. It is one of the most important prerequisites, and a plaintiff who fails to prove it does not get the relief. The injury that the plaintiff claims will cause irreparable harm must be likely and imminent. It should not be remote or based on speculation. The court further considers whether the injury is likely to be remedied by monetary compensation. It has been established that mere injuries, no matter how substantial they are, cannot be grounds enough to issue an injunction unless one shows that there is a likelihood of the injury not being adequately compensated by damages. The point of proof before the court is that the irreparable damage is not able to be compensated by the award of damages. The court applied the above tests to ascertain whether the plaintiffs had proved their case. On the request of granting the plaintiffs an injunction, the court held that the plaintiffs had failed to meet the threshold. The court held that the plaintiffs had failed to demonstrate irreparable loss to themselves due to the acts of the defendants.

The plaintiffs’ pleadings seemed to be speculative. The plaintiffs described themselves as mere purchasers of the defendant’s tickets. Further, the plaintiffs asserted that they had purchased the defendant’s tickets in the past, and they will be likely to purchase them in the future. The plaintiffs’ counsel argued that they were not just mere plaintiffs. He described them as people who had been in the industry and knew how the industry worked. Despite the allegations put forth by the plaintiffs, there was no evidence put forth to support the prayer for injunctive relief. There was no evidence to prove who the plaintiffs were and the nature of the harm they were likely to suffer. The allegation ought to have been supported by evidence indicating the nature of the claim and how the plaintiffs were to be affected by the merger. In failing to provide evidence, the claim became mere speculation, and the court could not issue an injunction based on speculation. The plaintiffs introduced evidence from an expert who did not offer any evidence but made opinions in a declaratory nature. The expert was not versed with the requirements of evidence for his declaration to have the desired probative weight. The plaintiffs had made declarations that were not strongly supported. Each element in seeking an injunction was supposed to be proved. In addition, the plaintiffs failed to prove that there was a likelihood of success in the main suit. The proof of merits in the main suit was lacking, thus the court rejected the speculations of the plaintiffs.

The prayers for the injunction were denied in the final determination of the matter. The court rejected issuing a temporary restraining order. Secondly, approving the settlement was recommended by the United States of Justice settlement, which was held to be consistent with the original plan. The court held that the plaintiffs had failed to establish the standard of proving irreparable harm. They also failed to prove the success of the main suit by merits.

The defendant’s side (rebuttal judgment)

The court raised several issues for its determination. The biggest point as to the court’s rejection of an injunction against the plaintiff was based on the evidence that was given by the plaintiff was insufficient. The court cited a lack of evidence to prove that the plaintiffs were likely to suffer injuries that could not be adequately compensated by monetary compensation. The merger was, in the defendant’s opinion, designed to offer more advanced services to the customers. The fact that the defendant was opposed to the merger clearly did not warrant an injunction. The court seemed to have completely ignored the harm that the violation of the antitrust laws would have occasioned. The Clayton Act was under threat, and most of the remedies needed to correct the situation could be provided for by the court.

The plaintiffs argued that the merger was designed to increase the productivity of the services and their value. The merger agreement had the effect of restructuring the alternatives that were needed in the process of making the airlines get more profits. Seen from another point, the merger was designed to promote monopoly while ensuring that the competitors were pushed out of the industry at the same time. The monopoly due to the strength of the defendants and their wide operations was worth being put to a halt by the court. It was the plaintiffs’ case that they had purchased the tickets before, and they could predict that the merger was going to have adverse effects on their daily lives. The decision by the court supported the fact that the defendant did not have enough evidence for the injunction that he sought.

Courts of law have several duties. The first duty is to make sure that justice is achieved by both parties, irrespective of their financial or economic status. It has been in the best interest of justice for the court to overlook some of the principles of procedure. The need to achieve substantive justice should be without undue regard for technicalities of procedure. The procedure should be the handmaiden of justice and not a tool to deny the parties their remedies. Courts of law have, in several cases, used the technicalities of the procedure to deny the parties their remedies. In the instance case, an injunction is an equitable remedy, and courts of law ought to avoid the rigidity of common law when they are applying an equitable remedy. It is the backbone of equitable remedies that courts of law enjoy full discretion in matters where a plaintiff is praying for an equitable remedy. The court ought to have applied the principles of equity in reaching the decision. In the exercise of the court’s discretion, it was imperative to hold in favor of the defendants.

The discretion of the court was abused by letting the bigger companies merge when the customers were completely opposed to the merger. In the case, the court was incomplete abuse of the rules of equity by not holding in favor of the defendant. The court should have considered the public interest before reaching the present decision. Violation of antitrust laws affects the public more. Thus there should be a way of the courts restoring the hope of the helpless citizens. In this regard, the court was under a sole duty to protect the helpless citizens. The public interest requires courts to put the public interests first to an extent that they should override personal interests. The interests of the American Airways and the United Stated Airways were private interests to merge to maximize their profits. A violation of the public interest, such as the antitrust laws, was a grave violation that should have been prevented. The court erred in law in stating that the plaintiffs failed to prove the salient elements of an award of an injunction. The strict rules of procedure are essential in achieving justice, but they should not be used by one party to the detriment of the other.

The discretionary powers of the court are unfettered and they should have been applied in that sense without introducing stringent factors to hinder justice. The court ought to have used the justice requirement to facilitate the desired point whereby both parties are not aggrieved. The main suit had several meritable issues that the court should have considered. The judge was under a strict duty to uphold justice, given that the plaintiff was not in a position to present evidence to support the injunction in the event that the violation was gross and other companies were being pushed out of the industry. The monopoly of the airlines was a major violation of the Clayton Act and it should not have been let to continue under the guise that the evidence presented was not enough. The consideration of maintaining the status quo of the subject matter ought to have been in the forefront of the judge’s exercise of discretion. The judgment was a complete ignorance of the rules of equity. It was also clear that there was a major violation of the Clayton laws.

Identify the factors in this antitrust case that impede a decentralized market economy to organize economic activity

The duty of the court was put to test in the decision. It was one of the moments whereby the court was expected to create a balance between the rights of individuals and the economic effects of the court’s decision. The most fundamental reasoning of the holding was stating that the merger was not in violation of the antitrust laws. The economic significance of the decision was that it imposed detrimental effects on the economic stakeholders. The main issue that generated the concerns of negative economic effects is allowing the merger of the two companies. It has been stated that the merger was a major breach of the antitrust laws in existence. The two companies were making other small parties in the industry face unhealthy competition. It is through the unfair competition that some of the companies could not remain in the market for a long period. The merger between the companies created a strong monopolistic power that was hard to for new entrants into the market to overcome. Moreover, the consumers of the flight services were held hostage by the merger because they had very limited options. This meant that customers had to go with the fares set by the companies. It is always in the best interest of the economic situations to ensure that there is a balanced level, whereby all parties in the market can compete freely. Courts are not supposed to reach decisions that are not suitable and in the best interest of the economic times. It is the courts’ duty to uphold the rule of law.

The court in this case helped the two companies in the merger to push away their competitors. It is in this spirit that the monopoly was created, which had the effect of making smaller companies to exit the market. The prices of the flight tickets continued to go up. The Advantage Fare was slowly pushed away from the market. The small entrants could not get their way in the market because prices were set on a higher scale that they could not match. The monopoly created by the companies was greatly felt by the entire public. Though the plaintiffs were affected, the decision was to the detriment of the public. The court should have considered the anticipatory effects of the decision with regard to the economic effects. The decision was not made with prior consideration of the effects. It is in the best interest of the public for courts of law to let some of the decisions go for arbitration before the court making the decision. The most unfair part of the decision was when the court held that the plaintiffs were not entitled to an injunction. The fact that the decision was designed to deny the plaintiff an injunction was a set precedent that was, for all intents, detrimental to the economy.

Economic times have dictated that all parties should be allowed to sell their products. The prices of the products should be in a way that they are not calculated to give one party an unfair advantage over others. The Department of Justice should have considered the following before allowing the two companies to form a merger. In an event that the Department of Justice makes a mistake courts, should be ready to rectify that mistake by not allowing the merger. The decision largely promoted the abuse of the antitrust laws. A free or centralized market is a market that is regulated by the forces of demand and supply. The parties in the market should be allowed to sell their products freely without any form of control. A decentralized economy has the effect of making all parties in the market to compete from the same standpoint.

It was erroneous for the judge to fail to issue an injunction to prevent the American Airlines and US Airlines. The merger created a monopoly, which was a drawback against a decentralized economy. The supply and demand in this case fell in the hands of the two companies in that they would ascertain the factors that would lead to the increase in the prices. The unhealthy competition was not only detrimental to the public, but it also imposed a condition that was favorable for the companies, thereby fostering monopoly. There are several ways in which the judge in the case would have changed the situation. The application of the rules of equity and a strict following of the Clayton law would have aided in the decentralization of the economy. The reasons for the holding suggest a disregard for the rule of public policy. In the given circumstances, the court indirectly allowed the two mighty companies to continue exercising monopoly. The decision had the effect of out competing small companies that could not match the financial might of the two merging companies. The market became fully centralized, with the two companies setting the space and the prices to be charged. It was a wrong precedent set by the court and it should be overturned to suit the economic conditions.

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