The Justice Department is heading to federal court in an attempt to derail a $360 million merger between two airline booking companies, Sabre Corp. and Farelogix Inc.
U.S. District Court Judge Leonard Stark will assess the government’s case in a trial starting Monday in Wilmington, Del. The DOJ contends that Farelogix is trying to stomp out competition in the travel industry by buying up a disruptive and innovative rival in Sabre.
Sabre and Farelogix, which announced their deal in 2018, say they don’t compete with one another directly and that the DOJ has “artificially cherry-picked” one small aspect of the travel industry: booking services.
The suit is a high stakes one for the DOJ, which hasn’t been back to court to block a merger since it failed to undo AT&T Inc.'s acquisition of Time Warner in February 2019.
“If Justice can’t win this case, it will be a major setback,” said Robert Litan, a former DOJ antitrust official who is a partner at Korein Tillery LLC.
The DOJ may have an easier time proving its case than with AT&T-Time Warner because the Farelogix-Sabre merger, as defined by the government, is horizontal, combining two companies operating in the same industry. Courts generally are more skeptical of horizontal deals and give deference to a government challenge.
The critical piece will be for the DOJ to convince the judge that the government’s view of the market is the correct one.
“More often than not the government wins on product market definition,” Benjamin Sirota, a former DOJ antitrust prosecutor, said.
“Particularly if there are business documents that support the way the government has defined the relevant market, it tends to be hard for the parties to rebut the government’s approach,” said Sirota, an attorney at Kobre & Kim LLP.
Sabre and Farelogix in pretrial briefs have attempted to undercut the government’s market definition by saying their deal is actually a vertical merger that combines two companies in different parts of a distribution chain.
Farelogix only provides software to airlines that’s used to connect an airline’s internal booking system to travel agents and other third-party travel sites.
Sabre, on the other hand, is a full-service company doing business not only with major U.S. airlines like Delta and American, but also connects travel agents, hotels, car rentals, and airlines with one another.
The “DOJ’s product markets defy economic reality and precedent” because they include only one function of Sabre’s services—airlines bookings—the companies said in a pretrial brief.
Vertical deals are generally much harder to block, as shown in the AT&T-Time Warner suit. Courts and federal antitrust enforcers often believe such mergers are pro-competitive, as they make companies more efficient, therefore leading to lower prices for consumers.
But the DOJ says Sabre and Farelogix compete head-to-head on airline booking services, and that Farelogix has disrupted the industry and forced Sabre to lower its prices.
Documents obtained by the government, which include texts between Sabre executives, confirm that Sabre views Farelogix as a direct threat to its business model and that such an acquisition would “eliminate important competition,” the DOJ said in pretrial briefs.
Airline executives, who are slated to testify at the trial, will demonstrate that Farelogix’s presence in the industry has forced Sabre to offer significantly lower prices and better terms for booking services, the DOJ says.
Such testimony will be critical, Litan says.
“It’s going to come down to customer testimony and how much other evidence the DOJ can muster to show that they are really competitors,” he said.
The case also carries significant weight for the DOJ because of its ability to lead to new antitrust case law that could impact future merger suits, said Andrea Murino, a former DOJ antitrust attorney and partner at Goodwin Procter LLP.
Stark, who will unilaterally decide the merger’s fate, has overseen 24 antitrust cases since taking the bench, according to Bloomberg Law’s Litigation Analytics.
Stark oversaw former New York Attorney General Andrew Cuomo’s 2009 suit against Intel Corp., in which the chipmaker was accused of threatening computer makers and paying billions in kickbacks in order to cement its market stronghold.
The judge made the case harder for the government when he ordered that New York couldn’t seek triple damages. The case eventually was dropped after Intel and New York agreed to a $6.5 million settlement.
“There are still very few cases that lead to a trial, so if there’s any chance there will be the creation of new antitrust doctrine, that’s critical and the government will approach the case with that mindset,” Murino said.
The case is United States of America v. Sabre Corp. et al., D. Del., No. 1:19-cv-01548, trial 1/27/20