Podcast: Download
The guys kick off the week by discussing how an entrepreneur got sued by United and Orbitz for exploiting the hidden city fees in airline tickets.
Full Podcast Transcript
NASIR: Welcome to our podcast where we cover business legal news and that’s it. We no longer answer your questions. Actually, we do. You can send in your questions and ideas at ask@legallysoundsmartbusiness.com. We are changing our format a little bit and – oh, yeah – my name is Nasir Pasha.
MATT: And I’m Matt Staub.
NASIR: Yeah. So, we are changing our format. We’re getting rid of some of the questions, at least not in every episode.
MATT: Yeah, it turns out we answered pretty much every legal question there is. There’s only 136 legal questions – well, more than that because some of those first episodes, I think, had three questions per episode.
NASIR: Yeah, exactly. So, we pretty much exhausted that. No, but we just want to focus in on some of these legal issues. I feel like we don’t have enough time to cover some of these topics and so we’re going to just stick to one topic per episode so, that way, we can talk about it fully. Please send us your ideas and continue to send us your questions because we will be covering them, but we’re going to be consolidating into one episode and one topic.
MATT: Yeah. So, like the times we get off-track or I get us off-track talking about random things that have nothing to do with the story we’re talking about, now we can afford to do that and still cover the legal side of it. So, everybody wins!
NASIR: Exactly.
MATT: If you’re tuning in to listen to your legal analysis or my relation to analogies to TV shows or movies then…
NASIR: Yeah, exactly. We can talk about The Office more. We can talk about the sauce versus crust debate a little bit more in detail. We have more time.
MATT: Speaking of which, I’m going to tell a personal story for our story today because we’re dealing with a lawsuit involving United and Orbitz. So, typically, if I’m looking for flight – unless it’s local – like, in the States then I just pretty much go to Southwest. But, if I’m looking for something outside of the state, I’ll usually go to Orbitz first and see what all the options are and then end up going to the actual airline’s website once I find the flight that works. And so, that’s pertinent to this because there’s this new kid – and he is a kid, he’s 22 years old – that started this site.
NASIR: They call it a kid in the media, though.
MATT: Skiplagged is the name of it. But, basically, I guess I should tell a little backstory on this. I didn’t even know this existed, this hidden fees thing. So, if I was trying to fly to Denver, sometimes it would be cheaper for me to book San Diego to Denver to another city than it would just to be San Diego to Denver which seems crazy but that’s apparently how it works. So, this guy’s website…
NASIR: It seems crazy but it’s true.
MATT: Yeah.
NASIR: Believe it or not.
MATT: So, this guy’s site essentially will produce those, show you those flights that exist and then, I guess, get you out of these hidden fees. So, obviously, Orbitz which is, I assume, the biggest online flight searching tool on the internet. I’m assuming it has a pretty sizable chunk of the market.
NASIR: Yeah, Orbitz I think is huge. I think they even bought out Hotwire a while ago and Travelocity is probably their competitor and I think KAYAK, I think they actually used Orbitz in part of their search engine and so forth. So, I think all these guys are pretty big, but Orbitz is definitely a huge one and United, of course, is definitely one of the biggest airlines.
MATT: Yeah, and that’s who’s suing him – it’s Orbitz and United. So, we’ve got two heavy-hitters going after this 22-year-old kid who apparently doesn’t even have a company which is unfortunate for him.
NASIR: Yeah. Well, if you look at the actual lawsuit, he has been sued personally even though he’s operating Skiplagged, the actual lawsuit is saying that this is a DBA and, if that’s true, that really is something that he probably didn’t anticipate when he created this website in the sense that he should have probably created an entity which I think is an obvious advice that we would give and talked about in the past so I don’t want to dwell on that too much. But just think about this. You start a small project, it became very popular, and now he’s being sued by two big companies, and now he has to defend himself. If he loses, he’s going to be personally liable for that judgment.
MATT: I was wondering if he’s even making money on this.
NASIR: I was thinking the same thing. I don’t think he is because I think, if he was, they would have alleged that the gains that he received are ill-gotten. But it looks like they have a number of complaints against him but the two primary ones are tortious interference of contract and trademark infringement or some kind of copyright or trademark infringement, and the trademark infringement is aspect of that he’s basically creating an affiliation between him United or him and Orbitz which doesn’t exactly exist. Oh, also, breach of contract.
And so, what’s interesting, I think there is some kind of money-making because Orbitz referred to some kind of affiliate program that he may have entered into where, obviously, if he sends traffic over there, he gets a cut, and I think that’s where the issue is, and they’re saying that he violated some of the terms because, okay, Hidden City, this Hidden City concept – and you can learn more about it on the internet – it’s technically not illegal for an individual to enter into this practice with an airline.
However, it is commonly, and from my understanding, pretty much every airline has this provision which prohibits you by contract from doing so, and the ramifications of that, if you get caught, apparently, is that they could cancel your fare and different things like that. I don’t know if they actually do that, but the point is that, from the airline’s perspective, they’re losing money because of this because they want to fill their flights and fill these different legs and obviously these passengers would be paying more if they were to pay the full price.
So, this interference with contract concept is that this Skiplagged site basically is contributing to these passengers from actually breaching their contract and so, therefore, they’re liable which is, it’s a sound concept, you know? Intentional tortious interference of a contract is a cause of action that is kind of thrown in at the last second because you may not have anything else there.
MATT: Yeah.
NASIR: But, in this case, they may have something.
MATT: Well, I’ll get to that in a second. But, just from a logistical standpoint, the only way you can make this work would be is if you had carry-on, you couldn’t check any bags, right?
NASIR: And, also, you have to buy one-way tickets, too. And so, being in Houston, I think it’s pretty common because Houston’s a pretty big hub and they have two pretty good-sized airports here and a lot of people that I know, they do a leg between, if they want to fly back to Houston, they do it to Dallas so they fly United or some other site that goes to Houston where United is based and then goes to Dallas but then they just off in Houston. But, obviously, you don’t want to end up in Dallas so you have to buy two one-way tickets in order to make it work.
MATT: Yeah, the thing with this is, you know, it talked about unfair competition and, you know, you think, from their perspective always is offering consumers a better deal and who cares? But I think the problem with why they’re so upset is, so he’s offering these cheaper flights and then, instead of having to go through him, it’s actually redirecting or connecting to a United or an Orbitz to actually book the flights through them. That’s the big problem that they have and I think that’s what they’re going to hang their hat on in terms of the unfair competition and the interference of contract. The contract is the terms and conditions of the site, not any contract that he’s signed with something else.
NASIR: Exactly. And so, right now, I wanted to see how they were responding to it. The only response they’ve done is they filed a motion to quash basically saying that either they filed in the wrong venue or the service was not correct, most likely it’s because of the actual location. I think it’s a different location than where he lives. So, we’ll see where that goes. But what’s interesting too is that, in order for him to actually fund this, he went to the internet, went to Reddit, and kind of painted himself a little bit as a victim – I don’t know what your thoughts on that are, Matt, if he really is a victim here – and actually did a FundMe campaign to fund his legal fees.
MATT: Yeah, which is becoming a more and more popular thing, it seems like. I mean, it’s a very obvious choice here. Who are people going to side with? This 22-year-old who came up with a cheaper way to book flights or airlines which people hate? So, it’s obvious they’re going to back this kid or this guy pretty heavily and he was trying to raise $65,000 and he’s just, I mean, as of the recording here, he’s just a little bit under. I bet, by the time this comes out, he’ll be well over his $65,000.
NASIR: Yeah, this lawsuit is going to be pretty expensive for him, I would assume. You know, from a United and Orbitz perspective, I was trying to think, could they have handled this in a better way? But the problem that they have is that they don’t have a mechanism to really prevent passengers from doing so because I don’t think you can make them get on the next flight necessarily because it’s just logistically impossible.
MATT: Yeah, and I don’t know if there’s… I haven’t read through nor do I really want to read through their terms and conditions on whether… Do you say they technically say you can’t do this process?
NASIR: They say that you can’t do this but, as far as enforcement, I haven’t actually heard of airlines actually going after their passengers for doing this because I’ve heard that even companies that do this on a regular basis for their employees that travel quite a bit and they save quite a bit of money. So, they could track it. They could see that the person didn’t get on the flight so it’s easy to determine, I would suppose. But, if they started enforcing, right? That would be pretty bad publicity as well.
MATT: Yeah. Well, American Airlines said it suggested it might have to raise its fares if it keeps losing money from people doing this which would be pretty ridiculous.
NASIR: Yeah. Well, the reality is that they have to close the loophole by pricing it as such that no longer is there an advantage and I think, in some ways, they do that already by increasing the rate of the one-way ticket versus the two-way ticket. But, still, it ends up being less expensive somehow.
MATT: Yeah, I might actually try this in the future.
NASIR: Well, I know a website that you could use. What do you think about this 22-year-old? Is he a victim? What should he have done in order to protect himself a little bit?
MATT: Well, the obvious first thing is set up a company instead of just having it individual. That’s obviously going to be a problem. But, on the flipside, unless he’s independently wealthy, it’s not really going to harm him too much.
NASIR: He’s probably young and doesn’t have much assets but, of course, he doesn’t want to have to file bankruptcy at age 22 either.
MATT: Yeah, it’s tough because, initially, I wanted to say he’s definitely the victim. Like I said, people are going to side with anyone. If the choice is between an airline and anything else for the most part, they’re going to side with anything else. But the thing that it really hinges on is the fact that he’s directing, you know, he’s offering these deals and then directing them to United and Orbitz, and I think that’s where it’s pretty difficult for him.
NASIR: Yeah.
MATT: Would it be different if he didn’t direct them to the actual sites and just showed options?
NASIR: Perhaps. I don’t think so because that interference of contract issue still could be there.
MATT: Yeah.
NASIR: In other words, if he was getting a lot of traffic, they would still go after him. I think that’s the lesson of the story. Even if United and Orbitz doesn’t have a strong case, this 22-year-old cannot defend it without this FundMe campaign, right? That’s the bottom-line and so that’s the advantage that these big companies have. I think that this website is a perfect example of a naïve individual entrepreneur that wants to create a site and not thinking about the full ramifications of it whereas, if you compare that to Uber, right? Or AirBNB – these are companies that are really disrupting the market, getting into legal trouble, and other start-up individuals are like, “Oh, so we can think of that stuff too,” but the difference is that they have a legal purse of funds in order to defend and prosecute lawsuits whereas, if you were just a small little company, you’ve got to think about legal liability here, especially if this is the premise of your business.
MATT: Yeah, it’s definitely right and it’ll definitely be a lesson, I’m trying to guess, I think this guy’s probably going to eventually come up with something pretty successful down the road.
NASIR: His next venture, right?
MATT: Yeah.
NASIR: I wouldn’t be surprised and I know we say this all the time, we should follow up on this but we never do but let’s try to make sure we do.
MATT: Never.
NASIR: Never. No, we’ve had one follow-up episode but we should start keeping track of the ones that we want to follow up with. Let’s make a note about that. But I wouldn’t be surprised if this site went away eventually – whether it’s by settlement or what-have-you. If I was Orbitz and United, I would try to make a deal with him and like, “Look, just take your site down, let’s do another project together or a joint venture,” and that would obviously be a positive way to do that.
MATT: Yeah.
NASIR: But, how realistic that is, obviously, that’s a little idealistic from my part.
MATT: I was going to say, I would think that Orbitz and United would be happy with him just taking the site down but the problem is the damage is done because more people know about this.
NASIR: That’s true.
MATT: So, you can’t do anything to prevent, like said myself, I probably won’t end up doing it because it might take too much time to find a cheaper flight.
NASIR: It’s too much time, yeah.
MATT: Assuming his site gets taken down.
NASIR: Absolutely right. If you go to his Reddit, most of the questions were, like, “Okay, how exactly does this work?” and that’s what spread like wildfire. They’re like, “Oh, you can do this?” and I doubt United or Orbitz is even paying him anything even if he has an affiliate link because of this lawsuit. They’re probably refusing to do so.
MATT: So, they’re claiming, both of them an alleging unfair competition demanding $75,000 each in lost revenue.
NASIR: Or at least $75,000. They did that because of the federal jurisdiction diversity because I think it says “at least” $75,000.
MATT: Ah, yeah.
NASIR: There’s no way they’re suing for that amount, yeah.
MATT: Yeah.
NASIR: Must be more. The reality is they don’t know how much they lost.
MATT: I would think that $75,000 is just like a drop in the bucket for companies like that.
NASIR: That’s like a couple of months in legal fees for them.
MATT: A couple of days, probably.
NASIR: A couple of minutes.
MATT: Our prediction’s what? That ultimately he’s going to have to take his site down.
NASIR: Yeah, I think he’s raised $45,000 in legal fees which, if he has the right kind of lawyer to defend him on this, $45,000 is not enough. If he’s just hired any other attorney – and I don’t know who they are, I think there’s a few attorneys on the case – it’s nowhere close to what he’s going to need. So, I think he’s going to either run out of money to defend or maybe these attorneys want the publicity or whatever but whatever happens, at the end of the day, I think he’s going to lose – maybe not in the law but in a settlement. He’s going to be beaten down on legal fees. That’s the unfortunate part but it is what it is.
MATT: I guess that’s what happens. I mean, there’s always going to be the young guy who thought he was doing something, and he was doing it, I mean, reality is he is doing something beneficial to society for the most part in helping them save money on these weird fees that exist.
NASIR: He’s helping people find inefficiencies in the market and that’s perfectly fair but it’s also pushing people to breach their contract with their carrier. By the way, I’m going to create a Google News Alert on this so that we’re informed when this actually gets updated. We should do that more often. I don’t know why we don’t.
MATT: Actually, when you mentioned it, I thought about that’d probably be the easiest way to do it. And, if you see his pic, like, I called him a kid. I mean, he says 22 but he could be, like, 16. He looks pretty young. I don’t know if you looked at his picture.
NASIR: I didn’t see his picture. When I see his picture, I feel bad for him, so I don’t want to have too much sympathy.
MATT: Ah.
NASIR: It’s like looking at the animal that you’re about to eat when they’re alive or something.
All right. So, okay… Well, that was a nice episode. We got some time in there to talk about it in full so let us know if you like the new format as well. If you don’t, then too bad; we’re keeping this.
MATT: Oh, that’s me. Keep it sound and keep it smart.
