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This One Cool Trick to… Get Sued by an Airline

· January 8, 2015

Buying airfare online is a complicated and frequently fraught experience.  You can buy your ticket directly from the airline of your choice, from online travel booking sites, or even via travel metasearch engines—and your purchase price might be different depending on the time of day or day of the week you choose to shop.  All of that is to say that airline pricing structures are very complex, and a cottage industry has grown out of consumers’ demonstrated demand for better tools to navigate air travel booking.

At first glance, Skiplagged would seem to be just that—another tool for consumers to parse the secretive pricing strategies of airlines.  The website takes advantage of an obscure quirk of airline pricing: trips that include a stopover in a high-demand destination prior to a final leg to a less-frequented one are regularly cheaper than direct flights to the same high-demand destination.  So a prospective traveler (without checked baggage) looking to fly to San Francisco from DC might book a trip to Lake Tahoe with a stopover in SFO and then skip the final leg of the trip to take advantage of the lower total fare for the Tahoe itinerary.  Skiplagged shows consumers these “hidden city” deals and directs them to the travel booking sites from which they can be purchased.

United Airlines and Orbitz did not take kindly to what they describe as “Point Beyond Ticketing,” and filed suit against Skiplagged.  They both allege trademark violations for the use of their respective logos in Skiplagged’s search results and tortious interference with contracts.  In United’s case, it claims that Skiplagged is knowingly enabling ticket purchasers to breach their carriage contracts with the airline whose “hidden city” ticket they buy because those contracts include prohibitions on intentional “Point Beyond Ticketing.”  Orbitz similarly asserts that Skiplagged is intentionally interfering with Orbitz’s contracts with air carriers, which prohibit it (and other travel agencies) from selling “hidden city” tickets to consumers.  Orbitz and United also claim that Skiplagged’s operator went back on prior promises to cease linking to their services and airfares.

Though travelers have long taken advantage of the “hidden city” quirk in airline pricing as detailed on travel forums, this appears to be the first suit filed against a third party for helping consumers use that knowledge.  That fact, along with the claims of tortious interference with contract, bear some similarity to the early stages of the Lexmark v. Static Control Components case dealing with recycled printer toner cartridges, part of which the Supreme Court decided earlier this year.

What do “hidden city” ticketing and printer ink have in common?  A surprising amount, at least when it comes to litigation.  Static Control Components (SCC) designed and sold microchips to “Rechargers” of ink cartridges that allowed the cartridges those companies refilled for consumers to be used in Lexmark branded printers.  While Lexmark never filed suit against consumers who purchased these recycled ink cartridges, it did bring a number of claims against SCC and the Rechargers (surprisingly, not an ‘80s prog-rock band), primarily based on copyright infringement and DMCA circumvention.  Lexmark also initially alleged, as part of a patent claim, that the production and sale of SCC chips induced Lexmark customers to breach the Prebate/Return Program agreement that was shrinkwrapped to certain toner cartridges.

Ultimately, Lexmark voluntarily dismissed any contract claims against SCC, lost its preliminary injunction on appeal, and SCC was found by the Supreme Court to have standing to bring a Lanham Act claim against Lexmark.  So Lexmark spilled a lot of ink for little gain (pun intended).

United and Orbitz, like Lexmark before them, have reacted to a third party product that helps consumers get around their industry’s arcane and seemingly arbitrary restrictions by—how else—suing.  A key claim is that Skiplagged has caused irreparable harm to the air travel industry’s relationship with those same consumers, and by extension, damaged its business model.  Of course, United and Orbitz do not acknowledge that their relationships with consumers are defined by a distinct information imbalance that enables the airlines to engage in maximum price discrimination.  Airfare price structures only appear arbitrary—in fact, their obscurity and complexity are a key feature of the airlines’ business models, just as the high cost of toner is actually is where the profit margins in the printer business lie.

Skiplagged seems to be in the business of providing consumers with actionable knowledge and a tool to take advantage of what they’ve learned.  United and Orbitz are concerned that Skiplagged’s service will allow consumers to navigate a small portion of their pricing schemes at scale.  While Skiplagged’s business practices may leave a bit to be desired, it doesn’t follow that the service it provides is necessarily bad—giving consumers more information tends to increase efficiency in markets in the long run and can eventually lead to prices that better reflect what consumers are willing to bear.

Competition

Some, if not all of society’s most useful innovations are the byproduct of competition. In fact, although it may sound counterintuitive, innovation often flourishes when an incumbent is threatened by a new entrant because the threat of losing users to the competition drives product improvement. The Internet and the products and companies it has enabled are no exception; companies need to constantly stay on their toes, as the next startup is ready to knock them down with a better product.

Intellectual Property

The Internet enables the free exchange of ideas and content that, in turn, promote creativity, commerce, and innovation. However, a balanced approach to copyright, trademarks, and patents is critical to this creative and entrepreneurial spirit the Internet has fostered. Consequently, it is our belief that the intellectual property system should encourage innovation, while not impeding new business models and open-source developments.