DOJ and New York sue to restore tour bus competition

Last week, the U.S. Department of Justice and State of New York filed an antitrust complaint that seeks to unwind a joint venture formed in 2009 by two competing tour bus operators in New York City.  The tour bus operators supposedly accounted for about 99 percent of the “hop-on, hop-off” bus tour market in New York City and had “engaged in vigorous head-to-head competition” prior to forming the JV.  Soon after forming the JV, the tour bus operators allegedly raised fares by 10%, which one of the operators predicated before the transaction would not have been possible “due to [the other’s] competition.”

According to the complaint, the New York Attorney General issued subpoenas seeking information about the tour bus JV in 2009.  The parties’ responses asserted that the Surface Transportation Board (“STB”) had exclusive jurisdiction to approve and exempt the transaction from the antitrust laws.  The STB reviewed the transaction, but found that “[a]fter unlawfully consummating a joint venture without the required approval, [the parties] belatedly sought [STB] authorization for a transaction that created an entity that dominated the market in which it competes and has the ability to raise rates or reduce service without sufficient competitive restraints.”  The STB ordered the parties to either dissolve the JV, or terminate the minimal interstate operations that provided the basis for STB’s jurisdiction.  The parties chose to eliminate the interstate operations and continue to operate the JV.

How this JV became the subject of an antitrust lawsuit serves as a reminder about the application of antitrust laws to joint ventures.  As with other types of transactions, the Hart-Scott-Rodino Act (“HSR”) may apply to JV formation (and operation).  The value of the transaction matters, but so does the form of the venture (i.e., corporate versus non-corporate) as well as the size of the parties forming the venture.  And, antitrust laws generally apply to ventures that are too small to be reported to government regulators under the HSR.  Moreover, what parties write about transactions matters a lot.

Now after operating the JV for 3 years, the parties must defend their venture in federal court.  Antitrust class actions may well be on the horizon.  All of this drives home the point that you should make sure you do not need to engage antitrust counsel before embarking on a transaction.