Speaker 1: This is Bloomberg Law with June Brusso from Bloomberg Radio.
Speaker 2: He's always calling me little Marco an Alam the guy.
Speaker 1: He's taller than me. He's like six to two, which
Speaker 1: is why I don't understand why his hands are the
Speaker 1: size of someone who's five to two.
Speaker 3: Have you seen his hands?
Speaker 4: They're like this, hit my hands.
Speaker 5: I've never heard of this one.
Speaker 2: Look at those hands?
Speaker 6: Are they small hands?
Speaker 1: You may remember seven years ago when Donald Trump and
Speaker 1: Senator Marco Rubio were engaged in locker room talk over
Speaker 1: the size of Trump's hands. Now it's part of the
Speaker 1: case before the Supreme Court. Attorney Steve Elster says he
Speaker 1: has a free speech right to trademark the phrase trump
Speaker 1: too small to use on T shirts. The US Patent
Speaker 1: and Trademark Office disagreed, and it appears that the Supreme
Speaker 1: Court also disagrees. At oral arguments on Wednesday, Justice Is
Speaker 1: across the ideological divide suggested that nying Elster a trademark
Speaker 1: for the phrase does not violate his free speech rights
Speaker 1: for a host of reasons. Justice Katanji Brown Jackson discussed
Speaker 1: the point of trademark law.
Speaker 5: And trademark is not about expression trademark is not about
Speaker 5: the First Amendment and people's ability to speak. Trademark is
Speaker 5: about source identifying and preventing consumer confusion.
Speaker 1: Justice Sonya Sotomayor said that not getting a trademark does
Speaker 1: not infringe on his speech.
Speaker 7: Because you're not talking about stopping the speech. You're talking
Speaker 7: about not receiving government protection for activity that you would
Speaker 7: like to heighten protection for. Doesn't stop you from selling.
Speaker 7: It doesn't stop you from selling anywhere as much as
Speaker 7: you want.
Speaker 1: Justice Neil Gorzitch pointed to history.
Speaker 8: But at the end of the day, it's pretty hard
Speaker 8: to argue that a tradition that's been around a long
Speaker 8: long time since the founding common law type stuff is
Speaker 8: inconsistent with the First Amendment.
Speaker 1: And the Chief Justice said that giving him a trademark
Speaker 1: would have the effect of restricting the speech of other.
Speaker 4: People, because the whole point of the trademark, of course,
Speaker 4: is to prevent other people from doing the same thing.
Speaker 4: So if you win, you know, the slogan trump too
Speaker 4: small or whatever, other people can't use it right.
Speaker 1: Joining me is intellectual property litigator Terence Ross, a partner
Speaker 1: at Katon Euchen Rosenman, Terry tell Us about the procedural
Speaker 1: background of this case.
Speaker 6: Mister Elser thought trademark registration from the United States Trademark Office,
Speaker 6: and the Trademark examiner handling the application denied it as
Speaker 6: a violation of sections ten fifty two A and C
Speaker 6: of the Landham Act, which is the trademark laws here
Speaker 6: in the United States. Mister Elster then appealed within the
Speaker 6: Trademark Office, which confirmed the finding of a denial by
Speaker 6: the Trademark Examiner, and mister Elster took it to the
Speaker 6: United States Court of Appeals for the Federal Circuit here
Speaker 6: in DC. The Federal Circuit unanimously reversed the decision of
Speaker 6: the Trademark Office on constitutional grounds. It found that at
Speaker 6: least as applied in this case, section ten fifty two
Speaker 6: C was unconstitutional in light of the First Amendment, and
Speaker 6: the Trademark Office thereafter decided that this was important enough
Speaker 6: to appeal to the Supreme Court the United States, which
Speaker 6: granted SERTs theri on the case, recognizing it was a
Speaker 6: very significant issue.
Speaker 1: So as just as Sonya Sotomayor pointed out, you don't
Speaker 1: need a trademark to sell T shirts with this phrase
Speaker 1: on it. In fact, they are selling t shirts with
Speaker 1: this phrase on it online, So what would registration of
Speaker 1: the trademark give Elster?
Speaker 2: So this is an important issue that goes back to
Speaker 2: the passage of the Landam Act in nineteen fifty four
Speaker 2: and its predecessors.
Speaker 6: Going back to the late nineteenth century. The argument is
Speaker 6: that there is a benefit to having a registered trademark
Speaker 6: in that your good or service and its identifier in
Speaker 6: the public mind is protected against copying by anyone else
Speaker 6: with respect to that same category of goods and services.
Speaker 6: So it's essentially a government benefit being conveyed upon the registrant.
Speaker 6: That position is not without detractors within the trademark field,
Speaker 6: but that is the way we to this day teach
Speaker 6: law students about trademark law that if you jump through
Speaker 6: all the hoops to get a trademark, you receive this
Speaker 6: government blessing, this advantage in commerce, which is protection in
Speaker 6: a limited way for the trademark that you're using on
Speaker 6: your goods or services.
Speaker 1: Elster's lawyer told the court that the government's sole interest
Speaker 1: in nine the trademark is protecting the feelings of famous people,
Speaker 1: but that's not a legitimate reason to burden protected speech.
Speaker 1: How did his argument strike you. It sort of struck
Speaker 1: me as being weak in many ways.
Speaker 6: I thought it was extraordinarily weak. I mean, I was
Speaker 6: not there in person, and so there is a difference
Speaker 6: in listening to the recording of a Supreme Court argument
Speaker 6: to being there in person. But my reaction was that
Speaker 6: mister Alistair's counsel did not do a very good job.
Speaker 6: It was pointed out in the press that this was
Speaker 6: his very first argument to the Supreme Court, but quite
Speaker 6: frankly came across as a first a pallid argument at
Speaker 6: a sword. And indeed his response to this question was
Speaker 6: really a hail Mary, because he was unable to answer
Speaker 6: a previous question from Justice Kagan. Justice Kagan had asked
Speaker 6: him for any case that he could think of in
Speaker 6: which the conveying of a government benefit in a position
Speaker 6: neutral viewpoint state had been held to be unconstitutional. You know,
Speaker 6: it was crickets in the room. He had nothing, and.
Speaker 1: Nothing except maybe a sinking feeling.
Speaker 6: Yeah, when just so my word asked this, he went
Speaker 6: for his press conference SoundBite, which was, Oh, we can't
Speaker 6: be protecting the feelings of famous people. Oh you know,
Speaker 6: that's actually not what this statute is about. There is
Speaker 6: actually a different provision on that, and it helps sometimes
Speaker 6: to read the actual wording of a statute here fifteen USC.
Speaker 6: Ten fifty two see essentially barge registration of a trademark.
Speaker 6: That quote consists of, or comprises a name, portrait, or
Speaker 6: signature identifying a particular living individual except by his written consent.
Speaker 6: This applies to everybody, applies to you, applies to me,
Speaker 6: applies to the listeners. A living person's name and latest
Speaker 6: can't be used to promote another product, and this is
Speaker 6: fundamental to trademark. Look going back into the common law,
Speaker 6: it was known as passing off. You know, it's claiming
Speaker 6: that some famous person had blessed this product or was
Speaker 6: associated with it. There's a separate provision regarding the name, signature,
Speaker 6: portrait of presidents of the United States, which was not
Speaker 6: an issue here. And so it was very much sort
Speaker 6: of an absurd response to Justice Sodoma Org and really
Speaker 6: reflected a core problem with their argument, which Justice Thomas
Speaker 6: identified quickly at or argument and he asked just straight out,
Speaker 6: what's the burden on free speech here? What is the
Speaker 6: burden on free speech? And really didn't get an answer
Speaker 6: because simple fact that as you said, people are already
Speaker 6: using this slogan everywhere. The fact that you don't get
Speaker 6: registration does not mean you can't use the slogan, and
Speaker 6: mister Elster himself has already been using it. Means is
Speaker 6: that he's been denied the benefit of registration, which is
Speaker 6: the ability to exclude, in certain circumstances, third parties from
Speaker 6: using his slogan.
Speaker 1: And the Chief Justice John Roberts pointed out that giving
Speaker 1: him a trademark would have the effect of restricting speech
Speaker 1: by other people who want to use that slogan.
Speaker 6: And I think it's a fair point to make that
Speaker 6: in effect by granting the trademark registration here because of
Speaker 6: the unique category in which it thought, it really does
Speaker 6: limit other people's free speech, because this slogan Trump too
Speaker 6: Small is apparently commonly used by folks who are opposing
Speaker 6: former President Trump's candidates, So Terry.
Speaker 1: We always say you can't tell from their oral arguments
Speaker 1: how the Court is going to rule. But it seemed
Speaker 1: to me that justices across the ideological spectrum we're against
Speaker 1: giving this phrase trademark protection.
Speaker 6: I agree with that. My count was that there was
Speaker 6: a clear majority skeptical of granting registration, and I agree
Speaker 6: with your comment. It's hard to always read or arguments,
Speaker 6: but in this case, particularly, the tonalities of the justice's
Speaker 6: questions really reflect it pretty hardened positions antagonistic to any
Speaker 6: type of register. This my count had Justice Thomas, Justice
Speaker 6: Sodomi or Justice Kagan, and Chief Justice Roberts As all skeptical,
Speaker 6: if not outright saying they were opposed to registration here.
Speaker 6: In addition, I had Justice Gorsi and Alito disagreeing with
Speaker 6: mister Elster's council on different grounds. They historically are opposed
Speaker 6: to this notion that trademark confers a government benefit, but
Speaker 6: they would say that they were opposed to this for
Speaker 6: other reasons. So by my count, that's six justices who
Speaker 6: seem pretty firmly opposed to registration of this trademark. And
Speaker 6: I really couldn't count maybe the other justices as being
Speaker 6: in favor. They just seem to not express an opinion
Speaker 6: one way or the other. So sick zippy is a
Speaker 6: pretty good starting point for the government here.
Speaker 1: So that leads me to the question, how did a
Speaker 1: unanimous panel of the Federal Circuit allow this trademark?
Speaker 2: June.
Speaker 6: We could spend a lot of time on decisions by
Speaker 6: the Federal Circuit, where I practice a lot, by the way,
Speaker 6: and the level of disrespect accorded to those decisions by
Speaker 6: the Supring Court in the United States, true, I mean,
Speaker 6: the mere fact that this decision came out of the
Speaker 6: Federal Circuit probably starts off with your points in the
Speaker 6: government's favor here, because the Supreme Court just doesn't respect decisions,
Speaker 6: most significant decisions coming out of the Federal Circuit. The
Speaker 6: history of reversal is just phenomenal. And so I mean
Speaker 6: those of us who as a federal circuit regular basis say, okay,
Speaker 6: you get granted search the or out of the Federal Circuit,
Speaker 6: you got a good chance of winning. And this is
Speaker 6: another great example that the Federal Circuit was three zero
Speaker 6: in favor of mister Elster, and their views were in
Speaker 6: large part based on an attempt to accord their decision
Speaker 6: with what they perceived the Supreme Court wanted based on
Speaker 6: prior cases involving the First Amendment trademark. And it looks
Speaker 6: like once again they just plain got it wrong.
Speaker 1: Coming up a look at recent trademarked decisions by the Court.
Speaker 1: This is Bloomberg. I've been talking to intellectual property litigator
Speaker 1: Terrence Ross of Catain Euchen Rosenman about Supreme Court oral
Speaker 1: arguments this week over trademarking. The phrase trump too small,
Speaker 1: So that brings us to This case is the latest
Speaker 1: to come before the Court involving challenges to trademark denials.
Speaker 1: In the previous cases the most recent so people seeking
Speaker 1: registration have won and the Court has struck down parts
Speaker 1: of the trademark law in favor of more free speech
Speaker 1: protections June.
Speaker 6: It's impossible to understand the Selster case without recognizing that
Speaker 6: it's the third in a trilogy of Supreme Court cases
Speaker 6: of which challenged provisions of the Landom Act on First
Speaker 6: Amendment grounds. And this provision of the Landham Act actually
Speaker 6: contains three distinct prohibitions on registration. The first one is
Speaker 6: trademarks that consist of are comprised immoral or deceptive or
Speaker 6: scandalous matter. The second provision prohibits trademark registration for marks
Speaker 6: that may disparage persons living or dead. And then the
Speaker 6: third one is the one actually in front of the
Speaker 6: court here. You know the use of name, portrait, or
Speaker 6: signature identifying particular living individual. So a few years back
Speaker 6: in a case called Mattel versus ten there was an
Speaker 6: Asian American rock band that had sought trademark registration on
Speaker 6: the term slants slnts, which the Trademark Office I think
Speaker 6: rightly recognized as a slur on Asian Americans, very offensive
Speaker 6: for an Asian Americans, and denied registration on the grounds
Speaker 6: that it was disparaging persons of Asian ethnicity. That case
Speaker 6: went all the way up to the Supreme Court, and
Speaker 6: the Supreme Court reversed the Trademark Office and held this
Speaker 6: particular provision of ten fifty two a unconstitutional in light
Speaker 6: of the First Amendment. The problem with that decision was
Speaker 6: that the Court was Justice cour Sais did not participate
Speaker 6: for some reason in that decision. So you only had
Speaker 6: eight judges and they split evenly four to four. I mean,
Speaker 6: there were a number of concurring opinions, but the core
Speaker 6: decisions were split four to four, and that split was
Speaker 6: centered on whether or not this sort of government benefited
Speaker 6: speech should be subject to heightened scrutiny for First Amendment purposes.
Speaker 6: And whenever you have a type of speech that the
Speaker 6: government is trying to regulate and you apply heightened scrutiny.
Speaker 6: It's almost a certainty that's going to be held to
Speaker 6: be unconstitutional. And Justice Kennedy, Ginsburg, Soda, Mayori, and Kagan
Speaker 6: all felt that you applied heightened scrutiny here, and therefore
Speaker 6: the provision was unconstitutional. Chief Justice Roberts, Justice Alito, Justice Pomis,
Speaker 6: and Justice Bryer fought that you did not apply heightened scrutiny,
Speaker 6: but it was still unconstitutional because there was no demonstrable
Speaker 6: benefit to the government to impose this sort of burden
Speaker 6: on free speech. So it was struck down eight to zero,
Speaker 6: but with two really different basis for a decision. A
Speaker 6: couple of years later comes along in case Ionku versus Brunetti,
Speaker 6: looking at the second prohibition here in ten fifty two,
Speaker 6: which is immoral or scandalous trademarks. And in that case
Speaker 6: we had a registrant trying to get a trademark register
Speaker 6: in the term suc T and the trademark office refused
Speaker 6: to accept that as immoral or scandalous, and there is
Speaker 6: a long history of variations of that particular mark being rejected.
Speaker 6: This one also went up to the Supreme Court, and
Speaker 6: again it was struck down, and the particular provision was
Speaker 6: held in constitutional in the first minute. But you had
Speaker 6: a combination of Justice Kagan, Justice Thomas, Justice Thelido importantly
Speaker 6: Justice Course Such and Justice Kinsburg. Just Kavanaugh also not
Speaker 6: participate because it wasn't on the court yet, and they
Speaker 6: made the argument that this was viewpoint based discrimination by
Speaker 6: the government. The government was making a decision that the
Speaker 6: particular use of foul language or in moral words is
Speaker 6: the Statute says, was the government trying to dictate how
Speaker 6: people can speak, and therefore that was unconstitutional. So if
Speaker 6: you look at those two cases, even though there was
Speaker 6: sort of a scattered decision making, you would have come away,
Speaker 6: as the Federal Circuit did, thinking that the Supreme Court
Speaker 6: dislikes limits on trademarks relating to some form of speech,
Speaker 6: even if that speech is really distasteful. And in both
Speaker 6: those cases it was very distasteful. And yet the Federal
Speaker 6: Circuit clearly misread what had happened before, in part because
Speaker 6: you have this floating cast of justices with different points
Speaker 6: of view, and they just plane got it wrong here.
Speaker 1: How do you think the Court's going to rule?
Speaker 6: I'm pretty confident June that the Federal Circuit decision is
Speaker 6: going to be reversed, and the Court will then send
Speaker 6: it back for a decision on the te tabs ruling
Speaker 6: of non registration, and at the end of the day
Speaker 6: may take a couple procedural hurdles, but this mark is
Speaker 6: not going to get registered. The real question is what's
Speaker 6: the decision tree going to be like here? I think
Speaker 6: you will, once again, as in the Caam case and
Speaker 6: the Brunet Any case, have a fractured Supreme Court unless
Speaker 6: one of these justices, Justice Barrack, who really didn't give
Speaker 6: away where she was coming from, Let's say they join
Speaker 6: with several other justices to create a five judge majority.
Speaker 6: I think one of the core issues here is the
Speaker 6: position that Justice Course suching Justice Alito have. They clearly
Speaker 6: expressed to the government lawyer that they don't believe in
Speaker 6: the government benefits argument. What they essentially said is they
Speaker 6: wanted the decision to be grounded in the history of
Speaker 6: trademark law in this country and pointed specifically to the
Speaker 6: historical protection that has been allowed for certain types of trademarks,
Speaker 6: such as geographic marks. The trademark law atlantamac accords special
Speaker 6: protection to various things. For example, the Olympics the US
Speaker 6: Olympic Committe gets special protection, and unless you're running a
Speaker 6: business within a certain distance of Olympia, Washington, you don't
Speaker 6: get to use the word Olympic in any sense. But
Speaker 6: those sorts of historically allowed prohibitions on trademarks. So I
Speaker 6: think that they're going to insist that the decision be
Speaker 6: grounded on the historical record of trademark law in this country,
Speaker 6: which by the way, is consistent with their views that
Speaker 6: you have to look at the historical development of the
Speaker 6: law and find something back in the historical records that
Speaker 6: allows you to regulate. And here they would say that
Speaker 6: there's a historical recognition that the government has been allowed
Speaker 6: to regulate speech in the context of certain types of trademarks,
Speaker 6: and that's how they're going to ground their decision. And
Speaker 6: quite frankly, that might also pick up at least one
Speaker 6: other justice. So right there you have three justices with
Speaker 6: this splintered decision. I think Chief Justice Roberts might also
Speaker 6: be inclined to something like that, whereas you're going to
Speaker 6: have this group justice sot of Major Justice Kagan. I
Speaker 6: think Justice Thomas at a minimum all arguing that this
Speaker 6: is not viewpoint discrimination and that the First Bendment only
Speaker 6: applies when it's in the context of viewpoint discrimination. I
Speaker 6: would like to see a clearer decision, and I may
Speaker 6: be proven wrong, but I think we're going to get
Speaker 6: one of these four three two or three three three
Speaker 6: type decisions like we've had so often of late. The
Speaker 6: interesting part of it is you and I've discussed the past, June,
Speaker 6: so in the intellectual property field, you don't see the
Speaker 6: ideological split that you do. I mean, if you look
Speaker 6: at all three of these cases, the so called liberals
Speaker 6: and the so called conservatives are all together in different blocks.
Speaker 6: So it's sort of interesting that respect.
Speaker 1: Thanks so much, Terry. That's Terrence Ross of Captain Eugen Rosenman.
Speaker 1: Coming up next on the Bloomberg Lawn Show. The government
Speaker 1: is trying to stop the merger of Jet Blue and
Speaker 1: Spirit Airlines. I'm June Grosso and you're listening to Bloomberg.
Speaker 1: The US crackdown on airline consolidation faces a new test
Speaker 1: this week, as the government tries to stop Jet blues
Speaker 1: three point eight billion dollar takeover of Spirit Airlines, arguing
Speaker 1: that the merger would reduce competition and boost fares for passengers.
Speaker 1: Trials started Tuesday before a federal judge in Boston, and
Speaker 1: it comes at a critical time for the industry where
Speaker 1: domestic low cost carriers have cut service as fare slide
Speaker 1: and travel slows. Joining me from Boston is Bloomberg Intelligence
Speaker 1: senior litigation analyst Jenniferree, who's covering the trial. Jen, this
Speaker 1: isn't Jet blues first run in with antitrust regulators. Why
Speaker 1: is the government trying to stop this merger?
Speaker 3: Well, you know, the government really sees this as reducing
Speaker 3: output and increasing prices, or at least a deal that
Speaker 3: would have the potential to do that in the industry.
Speaker 3: Because Spirit is what's considered an ultra low cost airline
Speaker 3: that offers a la carte options, and so if a
Speaker 3: consumer wants to fly and really get the very lowest
Speaker 3: price they can, they have the option of doing that
Speaker 3: on Spirit and not buying the extras the food or
Speaker 3: the water or the inflight entertainment. Whereas Jet Blue has
Speaker 3: a different kind of a model, and so Jet Blue,
Speaker 3: if it takes over Spirit intends to change everything over
Speaker 3: to its own model. All the airplanes would be retrofitted,
Speaker 3: so there'd be fewer seats, so that means reduced output.
Speaker 3: And it would likely mean increase fares because Jet Blue's
Speaker 3: average fares tend to be over spirits. So overall, putting
Speaker 3: aside sort of the city routes in which these two
Speaker 3: airlines compete, overall, the Department of Justice is concerned about
Speaker 3: the removal of this option of this a la carte
Speaker 3: ultra low cost option that's in the marketplace.
Speaker 1: So Jet Blues lawyers said that it's the first time
Speaker 1: that the government has ever challenged a merger of two
Speaker 1: small airlines on antitrust grounds. The companies account for just
Speaker 1: eight percent of industry revenue, so even after the merger,
Speaker 1: Jet Blue's market share would rise to just seven percent
Speaker 1: from five percent. I mean, is the government going after
Speaker 1: them because they haven't gone after the airlines before. I mean,
Speaker 1: this seems like they're trying to compete with the big airlines.
Speaker 3: Well, I have a couple things to say about that.
Speaker 3: I Mean, I first, I think, look that that's a
Speaker 3: good argument by Jet Blue, But I think it's sort
Speaker 3: of a red herring because at the end of the day,
Speaker 3: that national competition, that combined national share isn't really relevant
Speaker 3: to the anti trust inquiry. Because the anti trust inquiry
Speaker 3: looks at options for consumers, and consumers that are trying
Speaker 3: to fly from let's say Boston to Santa Fe, they
Speaker 3: don't care about the fact that, combine they're small nationally.
Speaker 3: If they have a reduced option when they're shopping for
Speaker 3: their flights, and they have fewer options when they're shopping
Speaker 3: for that flight, and now the prices have gone up,
Speaker 3: those consumers care about that. So really, with airline deals,
Speaker 3: they have to be looked at from city to city
Speaker 3: and which airlines are competing on each of those routes.
Speaker 3: So it's kind of like a lot of mini mergers.
Speaker 3: And it's also not necessarily true that the Department of
Speaker 3: Justice hasn't challenged small deals. You know, there have been
Speaker 3: deals where an airline was trying to just buy a
Speaker 3: few slots, let's say, at an airline, and the Department
Speaker 3: of Justice voiced some opposition and the airline abandoned that deal.
Speaker 1: Well, what do you think Jet Blue's best argument was
Speaker 1: in the openings?
Speaker 3: Well, I think that their best argument is and they've
Speaker 3: done a good job with it. That Look, at the
Speaker 3: end of the day, we are going to increase competition
Speaker 3: because we have a really tough time fighting against the
Speaker 3: big legacy carriers Delta, American and United, and you can
Speaker 3: throw Southwest in there too, that actually, combined account for
Speaker 3: about eighty percent of air travel and cost a lot
Speaker 3: of money. We have lower farars than they do. And
Speaker 3: by increasing Jet Blue, by making Jet Blue a bigger,
Speaker 3: more viable competitor, we can exert more competitive pressure on
Speaker 3: those legacy airlines and it pulls down their prices. It's
Speaker 3: something that the Department of Justice has acknowledged called the
Speaker 3: Jet Blue effect, and I think that the lawyers have
Speaker 3: so far, we're just at the beginning, effectively laid that
Speaker 3: out and made that argument. And I think it's a
Speaker 3: good argument because what it does is force us the
Speaker 3: judge to kind of say, which is the better side,
Speaker 3: you know, which is the bigger harm or the lesser harm?
Speaker 3: Is it better to remove this ultra low cost option
Speaker 3: for some real bargain conscious consumers, but end up, you know,
Speaker 3: exerting more of a competitive influence on the legacy carriers.
Speaker 3: Which side is stronger is part.
Speaker 1: Of the equation for the judge. I mean, from what
Speaker 1: I've read, if Jet Blue loses in court, it's survival
Speaker 1: becomes an open question.
Speaker 3: Yeah, you know, the interesting thing that again, we're just
Speaker 3: at the beginning, right so we have yet to get
Speaker 3: into really the bulk of this trial. But so far,
Speaker 3: what we've heard more is that it's actually Spirit that's
Speaker 3: in a little bit of trouble, that they are not operating,
Speaker 3: they're operating at a loss right now, and that they
Speaker 3: have been for a couple of years since COVID, and
Speaker 3: that they didn't quite have the bounce back that some
Speaker 3: airlines did and that they expected in the post COVID
Speaker 3: travel boom, And so they're the ones that are struggling
Speaker 3: a little bit right now. You know, I haven't heard
Speaker 3: an argument an anti trust. There's something called a failing
Speaker 3: firm or a flailing firm argument that you know, but
Speaker 3: for the deal, one off the companies will exit the
Speaker 3: market and that would be a worse outcome than allowing
Speaker 3: a deal to go forward. I haven't really heard that yet,
Speaker 3: and those are very tough standards to meet. But because
Speaker 3: you know, generally we do know that both Spirit and
Speaker 3: Jet Blue are struggling a little bit now. I certainly
Speaker 3: think it's something the judge is going to take it
Speaker 3: into account.
Speaker 1: Spirit tried to merge before. Was it Spirit that tried
Speaker 1: to merge with Frontier.
Speaker 3: Well, they were talking about so they were balancing a
Speaker 3: Frontier offer versus a Jet Blue offer. So originally they
Speaker 3: were in an offer with Frontier, but they were able
Speaker 3: to entertain a superior offer, and they judged Jet Blue's
Speaker 3: offer when it came in later to be a superior offer.
Speaker 3: So they were looking at both at one point and
Speaker 3: ended up going with Jet Blue.
Speaker 1: And Jet Blue what happened with its alliance with American Airlines.
Speaker 3: So the alliance they had in the Northeast with the
Speaker 3: American was challenged by the Department of Justice and they
Speaker 3: it went to trial and the company is lost and
Speaker 3: they were ordered to unwind that alliance. I went to
Speaker 3: that trial and I was a little surprised by that verdict.
Speaker 3: I did think that the alliance would be paired back
Speaker 3: a little bit by the judge, that some aspects of
Speaker 3: it might be paired back, but that they'd be able
Speaker 3: to keep at least the core sort of the code sharing.
Speaker 3: But the judge actually said they have to unwind it completely.
Speaker 3: Now I think American has gone ahead and appealed that.
Speaker 3: But Jet Blue was able under their agreement to walk
Speaker 3: away because they had hit their end date. And so
Speaker 3: Jet Blue did walk away from that agreement.
Speaker 1: It can't walk away from this agreement, can it. It
Speaker 1: has a breakup fee.
Speaker 3: There's a breakup fee. So this agreement has an end
Speaker 3: date that I believe is in March. The way that
Speaker 3: works is neither company can walk away yet without being
Speaker 3: in breach of the agreement unless there's some legal impediment
Speaker 3: to them closing as of that their end date. Now,
Speaker 3: once an end date hits and they're not closed both
Speaker 3: and usually they aren't closed by an end date because
Speaker 3: there's still some legal impediment to closing at that point,
Speaker 3: either side has the option to walk away. There is
Speaker 3: a breakup bee. If this deal fails because anti trust
Speaker 3: got in its way, then you hit that end date
Speaker 3: and you still haven't gotten cleared. There tend to be
Speaker 3: a couple different options. I mean, the companies can renegotiate
Speaker 3: that's out there. They can extend that endate, they can
Speaker 3: even renegotiate terms. But spirit also has the option as
Speaker 3: avet endate of choosing not to renegotiate or extending it,
Speaker 3: walking away and collecting.
Speaker 6: Their breakup fee.
Speaker 1: So if an airline could have a persecution complex, it
Speaker 1: seems like jet Blue would have one. It's the second
Speaker 1: time that antitrust enforcers have stepped into a Jet Blue deal.
Speaker 1: Why is the government going after Jet Blue when it's
Speaker 1: number six trying to compete with the four biggest airlines,
Speaker 1: you know, I.
Speaker 3: Think that it's the types of deals essentially that Jet
Speaker 3: Blue has ended into. So you know, if you looked
Speaker 3: at the deal with American, the partnership deal, it could
Speaker 3: have been a different kind of partnership. Jet Blue does
Speaker 3: have a partnership with Alaska Airlines out in the West
Speaker 3: that had different sorts of terms, and I think that
Speaker 3: the partnership in the Northeast went a little bit too far.
Speaker 3: They were also collaborating on capacity, and they were collaborating
Speaker 3: on revenue rather than just code sharing, and I think
Speaker 3: that that was kind of what doomed that. I think
Speaker 3: that if it had been a more limited partnership, it
Speaker 3: may have had less opposition from the Department of Justice
Speaker 3: and maybe you know, no lawsuit at all. So I
Speaker 3: think that was one problem. And I also think it's
Speaker 3: possible that there are other airlines that Jet Blue might
Speaker 3: be able to acquire and with some divestitors clear through
Speaker 3: the DOJ. But I think this one is particularly sensitive
Speaker 3: for the agency because it does hit low consumer passengers.
Speaker 1: So let's talk about the first witnesses who've testified.
Speaker 3: Yeah, the Spirit CEO was the very first witness and
Speaker 3: that's been most of trial so far, and another employee
Speaker 3: of Spirit testified today. Primarily so far, we've heard from
Speaker 3: the CEO, and it was a lot about Spirit and
Speaker 3: Spirit's profitability, the negotiations with Frontier and the negotiations with
Speaker 3: Jet Blue, and why they decided to go with Jet Blue,
Speaker 3: and what was Spirit talking about when they themselves publicly
Speaker 3: said that they thought there could be antitrust problems with
Speaker 3: a Jet Blue Spirit combination and they were concerned about that.
Speaker 1: Why did they say that in public.
Speaker 3: Because at the time they were preferred the Frontier offer.
Speaker 1: Because it's like I'm going to permit a crime.
Speaker 3: Perhaps, Well, you know, according to them, they weren't really saying, hey,
Speaker 3: this is an illegal deal. They were saying, we just
Speaker 3: have some concerns about regulatory pushback, and we would need
Speaker 3: Jet Blue. I mean, this is what they're saying now,
Speaker 3: we would need Jet Blue to come up with a
Speaker 3: better commitment to us about what they'd be willing to
Speaker 3: do to resolve concerns of the DOJ a larger commitment
Speaker 3: in term of what they'd be willing to divest. We
Speaker 3: need a bigger breakup fee to protect us from risk,
Speaker 3: et cetera. So they're kind of saying, well, look, it
Speaker 3: was a bargaining chip in order to get some better
Speaker 3: terms out of Jet Blue.
Speaker 1: And they did propose divestitures, didn't they. But the federal
Speaker 1: government didn't think they went far enough right.
Speaker 3: They proposed our vestitures I think in Newark, LA, Guardia, Boston,
Speaker 3: and Fort Lauderdale, and these are some really big airports
Speaker 3: for Jet Blue and for Spirit, the Spirits focus airports
Speaker 3: and Jet Blue's focus airports. The agency doesn't think it
Speaker 3: goes far enough. They think that there are other problematic
Speaker 3: airports and other problematic routes. And I think the agency
Speaker 3: is also concerned about routes where the companies don't overlap
Speaker 3: at all, routes that Spirit flies that Jet Blue doesn't fly,
Speaker 3: because in those cases that's where Jet Blue would retrofit
Speaker 3: those Spirit planes, turn them into the Jet Blue type
Speaker 3: plane and the Jet Blue model, and theoretically, for those routes,
Speaker 3: consumers would lose that ultra low priced option.
Speaker 1: So jen is the only resolution of this, either to
Speaker 1: stop the merger or allow it to go forward. Is
Speaker 1: there any middle ground that the judge could order?
Speaker 3: You know, I don't think so. I think at this
Speaker 3: point more divestitures doesn't do the trick. I think that
Speaker 3: this is basically either the judge is going to rule
Speaker 3: against the airlines or it's going to rule for the airlines.
Speaker 3: And if it rules for the airlines, they'll be able
Speaker 3: to go ahead and close the deal.
Speaker 6: If it rules.
Speaker 3: Against the airlines, I think they'll probably appeal. But I
Speaker 3: don't really think there's some other remedy or concessions they
Speaker 3: could throw out there that would lead to some resolution
Speaker 3: or a settlement.
Speaker 1: And how long is the trial expected to last.
Speaker 3: It's expected to be finished on December fifth. It's kind
Speaker 3: of long actually for a Department of Justice or permanent
Speaker 3: injunction merger trial. But it's not going consecutive days. There
Speaker 3: are a couple days in there the judge has to skip.
Speaker 3: He's only going up till one o'clock every day, and
Speaker 3: then Thanksgivings in the middle there. So I think probably
Speaker 3: going to get a ruling in January. Originally that I've said,
Speaker 3: he's really going to try hard to rule in December,
Speaker 3: but that was when the trial was supposed to start
Speaker 3: much earlier in October. It got pushed back a few times,
Speaker 3: so at this point I think probably January's likely.
Speaker 1: Thanks so much, Jen, Enjoy Boston. That's Bloomberg Intelligence Senior
Speaker 1: Litigation analyst Jenniferree. For more of Jen's analysis, you can
Speaker 1: go to Bigo on the Bloomberg terminal. And that's it
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