Virtual Skies: Not So Friendly

Dallas-based Southwest Airlines filed a false advertising and
unfair competition lawsuit against the new Orbitz.com travel Web site, which
is sponsored by a consortium of rival airlines including American, United,
Northwest, Delta and Continental.

The lawsuit, filed in federal court in California, claims Orbitz, which is up
in beta, is currently using proprietary information with respect to
Southwest’s fares and schedules without Southwest’s permission.

Southwest, known as a low fare carrier, said its suit also claims that Orbitz
“has refused to eliminate false and misleading information from its Web site
concerning Southwest’s schedules, fares and routes.”

Orbitz, however, in a letter sent today to Southwest, said that it will
“continue to display publicly available fare and schedule information.”

The letter, signed by Orbitz general counsel Gary R. Doernhoefer, said Southwest currently provides this information to the standard airline fare and schedule clearinghouses and that Orbitz pays a fee to license this data with the right to offer it online.

Doernhoefer wrote that “there are no legal restrictions on the use of
public information showing Southwest’s schedules and fares on the Orbitz Web
site.” He did, however, indicate a willingness to work things out with
Southwest and said that Orbitz already has fixed three of the five issues
raised in an initial letter from Southwest.

The lawsuit, which seeks unspecified damages and injunctive relief, claims
that although Orbitz advertises the lowest fares, it fails to include many of
Southwest’s lowest fares, which are often lower.

“We can easily address the concern that Orbitz may not be displaying the
lowest Southwest fares,” Doernhoefer wrote. “We would be happy to display
lower Southwest fares not made available through airline clearinghouses We
doubt very much that the threatened litigation is a better way to resolve the
remaining differences.”

The stakes are high as online travel has proved to be one of the most viable segments of the business-to-consumer e-commerce industry as evidenced by the recent success of Priceline.com, Travelocity and Expedia.

Southwest said the industry-dominated Orbitz is essentially anti-competitive
and will eventually lead to further consolidation of the airline industry.

“We have chosen not to sell our seats through Orbitz because … we do not want
to become dependent on a means of distribution that is owned by our largest
competitiors … all we want is for them just leave us alone,” Jim Parker,
Southwest’s vice president and general counsel and future vice chairman and
CEO, told InternetNews.com.

Orbitz is scheduled to launch formally in June and says that an April 16 U.S.
Department of Transportation decision green-lighting the operation “concluded
that ‘Orbitz may lead to substantial consumer benefits by establishing
another major competitor in the comprehensive online travel agency
marketplace.'”

The
DOT began its investigation due to concerns that Orbitz would unfairly reduce
competition in the airline and airline ticket distribution businesses. In
a letter to the company outlining the status of its investigation, the
department said that it had concluded it did not have evidence that would
justify stopping the company from beginning operations.

“It is with great regret that Southwest must take the extraordinary step of
legal action,” Parker said. “… we were not able to convince
Orbitz to cease and desist from its misleading, untrue and harmful
representations with respect to Southwest’s service, schedules, and fares.”

“Most observers believe that the airline industry needs to be more
competitive,” Parker said. “Orbitz is a step in the wrong direction.”

In part the success of the suit may depend on whether airline fare and
schedule data is considered proprietary information. Parker said he thinks
Southwest’s fares and schedules are indeed proprietary.

Mark Lemley, a professor of law at the Boalt Hall School of Law, University
of California at Berkeley, said that “Like all false advertising claims, the
outcome depends on the facts. If Southwest can prove that Orbitz is indeed
misrepresenting its fares, it may have a good case.”