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Harrison Aire, Inc. v. Aerostar International

September 16, 2005

HARRISON AIRE, INC., APPELLANT IN NO. 04-2904
v.
AEROSTAR INTERNATIONAL, INC.; RAVEN INDUSTRIES, INC., APPELLANTS IN NO. 04-3052



On Appeal from the United States District Court for the Eastern District of Pennsylvania. D.C. Civil Action No. 02-cv-01258. (Honorable Michael M. Baylson).

The opinion of the court was delivered by: Scirica, Chief Judge.

PRECEDENTIAL

Argued March 7, 2005

Before: SCIRICA, Chief Judge, ROTH and BECKER, Circuit Judges

OPINION

In this antitrust action, we address allegations of unlawful monopolization and tying in the aftermarket for replacement hot air balloon fabric. The District Court granted defendants' motion for summary judgment, finding no triable issue of monopoly power in the relevant product market. We will affirm.

I.

Harrison Aire, a hot air balloon ride operator, alleges antitrust violations by Raven Industries and its balloon-manufacturing subsidiary, Aerostar International. Consistent with our standard of review on summary judgment, we recount the facts in the light most favorable to the non-moving party, appellant Harrison Aire.

Terry Harrison, the sole owner and proprietor of Harrison Aire, is an FAA-licensed pilot and aircraft mechanic. After a twenty-three year career at Eastern Airlines, he retired in 1973 to launch the Harrison Aire enterprise from an airstrip in central New Jersey. The company owns and operates several hot air balloons which it charters for recreational day trips over the New Jersey countryside. Since the mid 1990s, the business has suffered cash-flow problems. Harrison Aire blames its losses, in part, on the prohibitive expense of replacement balloon fabric, which it contends is a result of Raven/Aerostar's monopolization of the relevant balloon fabric aftermarket.

Raven Industries is a diversified manufacturing company based in Sioux Falls, South Dakota. From the 1970s through 1986, it manufactured hot air balloons and replacement balloon fabric. In 1986, Raven formed Aerostar International as a wholly-owned subsidiary to take over its balloon business. Aerostar International manufactures and sells hot air balloons in a market of at least five competitors and also produces and sells replacement balloon fabric.

Hot air balloons are regulated from cradle to grave by the Federal Aviation Administration. The FAA certifies balloon design and manufacturing standards, 14 C.F.R. § 21.11-53, requires the manufacturer to provide a maintenance manual along with its aircraft, id. § 21.50, reviews the content of the manual, id. § 31.82, and certifies replacement part designs for airworthiness, id. 21.303. The FAA's "maintenance manual" and "replacement part" regulations bear on this appeal.

Balloon manufacturers are required to provide their customers with a balloon maintenance manual, known as an "ICA" (Instructions for Continued Airworthiness), which sets forth recommended and required maintenance procedures. The manual is in two parts. The first, known as the "FAA accepted" section, establishes manufacturer-recommended but not FAA-required protocols. The second, known as the "Airworthiness Limitation Section," establishes FAA requirements affecting flight safety.

Regulations also govern the manufacture and sale of replacement balloon parts, including replacement fabric. All replacement parts must be "of such a quality" that the repaired balloon is "at least equal to its original or properly altered condition." 14 C.F.R. § 43.13(b). The FAA authorizes third-party manufacturers to sell aftermarket parts, including replacement fabric, provided they first obtain FAA certification that the product is equal to or better than the original. Id. § 21.303.

Replacement fabric extends the service life of a hot air balloon. The top half of the balloon "envelope"-the material encapsulating the hot air-tends to deteriorate more rapidly than the bottom half. By replacing top-half fabric after 300 to 500 hours of use, balloon owners are able to extend the aircraft's service life for an additional 200 to 300 hours. Generally, it is more economical to replace fabric in this manner than to purchase an entirely new envelope. Harrison Aire followed this practice in maintaining its fleet of Raven/Aerostar balloons.

Harrison Aire purchased its first Raven balloon in 1978. The parties' dispute over fabric replacement began shortly thereafter. According to Terry Harrison, Raven advised him that he could not purchase replacement fabric from other manufacturers because installation of third-party fabric would render the balloon unairworthy. In 1982, Raven revised its balloon maintenance manuals to make this policy explicit, warning Raven balloon owners that "only fabric which has been tested and approved according to Raven factory standards may be used for repair of Raven envelopes. Failure to comply with this requirement constitutes a departure from type design and renders the balloon unairworthy." This language appeared in the FAA-approved, rather than the FAA-required, section of Raven maintenance manuals. Reading the manual in the light most favorable to Harrison Aire, it warned that only Raven-brand fabric should be used in Raven balloons.

Terry Harrison repeatedly complained to Raven, believing its insertion of the "warning" into the balloon manual transformed the fabric policy into an FAA requirement that legally barred him from obtaining cheaper fabric elsewhere. On several occasions between 1982 and 1986, Harrison confronted Raven representatives about the manual language, but was told that no other aftermarket product was equal to or better than Raven fabric, and that only Raven fabric was consistent with airworthiness standards. Harrison understood this as a representation that he was required to purchase Raven fabric in order to comply with the FAA's "equal to or better" standard for replacement parts. Harrison Aire contends that from 1978 to 1986, Raven misled the company into believing the purchase of Raven fabric was mandated by law, when in fact it was merely recommended by the manufacturer.

In February 1986, Raven Industries formed Aerostar International to take over its hot air balloon business. Aerostar continued Raven's balloon operation essentially uninterrupted, and became the new focus of Harrison Aire's campaign to purchase fabric from third-party sources. Shortly after Aerostar was incorporated, Harrison registered several complaints with Aerostar about "being forced" to use Raven/Aerostar fabric. Nevertheless, despite its understanding that Aerostar balloons required ...


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