Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP and the Scope of Antitrust Protection for Telecommunications

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1 Todd Lindquist Student Fellow, Institute for Consumer Antitrust Studies Loyola University Chicago School of Law, JD Expected 2005 The controversy in Trinko involved the interplay between the Telecommunications Act of (the Telecom Act ) and the antitrust laws. The Telecom Act was enacted to deregulate the historically monopolized local telecommunications industry. Prior to the act, the now incumbent Verizon Communications and other incumbent local exchange carriers ( ILEC s ) enjoyed the protection of a regulated market and were not required to give other phone companies access to their networks. Under the Telecom Act, the ILEC s are required to share their networks with competitive local exchange carriers ( CLEC s ). The imposition of these duties is to facilitate market entry by the CLEC s and establish a complex regime for monitoring and enforcement 2. Verizon Communications ( Verizon ) is the ILEC that serves the New York state area in which The Law Offices of Curtis V. Trinko, LLP, ( Trinko ) is located. One of the CLEC s for the New York state area is AT&T. Pursuant to the sharing duties imposed under the Telecom Act, AT&T requested a connection with Verizon for access to their network to serve the local telecommunications market in the New York state area. Shortly thereafter, and after compulsory arbitration, Verizon signed an interconnection agreement with AT&T and other CLEC s in Pub. L , 110 Stat. 56, codified at 47 U.S.C. 151 et seq S. Ct. at Id. at 867.

2 The CLEC s, including AT&T, began complaining in late 1999 to regulators that many of the provision of the interconnection agreements entered into with Verizon were not being fulfilled 4. The New York Public Service Commission ( NYPSC ) and the Federal Communications Commission ( FCC ) opened parallel investigations which ended in consent decrees with both the NYPSC and the FCC. The consent decrees, with both the NYPSC and the FCC, were terminated in The day after the consent decree with the FCC, Trinko filed a class action against Bell Atlantic (now Verizon) in the District Court for the Southern District of New York, on behalf of itself and a class of similarly situated customers of AT&T. Trinko s complaint alleged violations of The Communication Act of , The Telecom Act, and 2 of the Sherman Act 7 for failing to give AT&T adequate access to Verizon s network. Trinko claimed that it was harmed by poor telephone as a result of Verizon s actions. The District Court dismissed the complaint in its entirety. The District Court found that Trinko s claims of inadequate assistance to the CLEC s did not satisfy the requirements of a 2 claim, because the antitrust laws do not impose a duty on a monopolist to cooperate with its competitors. The Second Circuit reversed the District Court and reinstated the complaint, including the antitrust claim 8. The Second Circuit explained that a mere allegation of a violation of the Telecom Act is insufficient for a violation of the antitrust laws, but sustained anticompetitive conduct that showed monopolization or attempted monopolization might be sufficent S. Ct. at Id. at Stat. 1064, as amended, 47 U.S.C. 151 et seq U.S.C F.3d 89, 113 (2002). 9 Id. at

3 Specifically, the Second Circuit identified that Trinko could state an antitrust claim under two theories, the essential facilities doctrine and a monopoly leveraging claim 10. The Second Circuit was not the only Court of Appeals to weigh in on the relationship between the Telecom Act and the antitrust laws. The Seventh Circuit, in Goldwasser v. Ameritech Corp 11, dismissed the plaintiff s claim for a violation of 2 of the Sherman Act. Goldwasser is the most factually similar to Trinko of cases from other Court of Appeals, yet the outcome was the opposite. In Goldwasser, the plaintiffs were a class of local telephone users who sued the ILEC, Ameritech, for failing to provide to the ILEC s adequate access to their networks. While the Second Circuit in Trinko found that sustained anticompetitive conduct that showed monopolization or attempted monopolization might be sufficient for an antitrust claim, Goldwasser, announced a per se rule that any conduct implicating a violation of the Telecom Act could never be the basis for antitrust liability. Goldwasser explained that the Telecom Act imposes duties on the ILEC that are not found in the antitrust laws 12. Further, Goldwasser held that the Telecom Act was specific legislation that took precedence over the general antitrust laws 13. The Circuit Courts in Goldwasser and Trinko did agree on at least one principle, Goldwasser like Trinko, found that a mere violation of the Telecom Act would not automatically suffice for a violation of Section violation of 2 of the Sherman Act 14. The Eleventh Circuit weighed in, in Covad Communications Co. v. Bell South Corp. 15. Covad, a DSL service needed access to Bell South s local telephone network to provide DSL 10 Id. at F. 3d 390 (2000). 12 Id. at Id. 14 Id. at F.3d 1272 (2002).

4 service. Covad complained that it was denied adequate access to Bell South s network, and therefore, from Internet markets in which Bell South competed. The District Court dismissed the claims and the Eleventh Circuit reversed. The Eleventh Circuit found the complaint was sufficient to support an antitrust claim under the theories of essential facilities, refusal to deal, price squeezes, and monopoly leveraging 16. In yet another case, MetroNet Services Corp. v. U.S. West Communications 17, the plaintiff filed suit against the defendant, which owns local telephone networks in the Seattle area, for alleged violation of 2 of the Sherman Act. The District Court granted summary judgment for the defendant and the Ninth Circuit reversed finding it a close question 18. The Ninth Circuit found a triable issue on MetroNet s essential facilities doctrine 19. Apart from Goldwasser, there seems to be a pattern developing, the District Court finds for the defendant and the Court of Appeals reversing on varying theories and rationales. The split among the Circuits, both as to whether an antitrust claim could be made under the Telecom Act, and if so, under what theory, seemed ripe for consideration by Supreme Court and that was precisely the purpose of the grant of certiorari to Trinko 20. The controversy as stated by the Supreme Court when it granted certiorari was rather broadly put: Did the Court of Appeals err in reversing the District Court s dismissal of respondents antitrust claims? 21 More narrowly stated the question is whether a party could bring an antitrust claim for injuries as a result of a violation of the Telecom Act. The extent of interest in Trinko extended far beyond the parties involved in the litigation, with nineteen Amicus Curiae 16 Id. at F.3d 1086 (9 th Cir. 2003). 18 Id. at Id. at Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 538 U.S. 905, 123 S. Ct. 1480, 155 L. Ed Id.

5 Briefs filed with the Supreme Court 22. Amicus Curiae briefs were filed on behalf of other telecommunications companies, telecommunications trade associations, individual States, law professors, economic professors, private associations (apart from telecommunications associations), the United States, and the Federal Trade Commission. The opinion was rather short and written by Justice Scalia. The Court first held that a mere violation of the duties imposed by the Telecom Act does not automatically lead to an antitrust claim 23. The Court also held that the ILEC s were not protected from antitrust scrutiny by the doctrine of implied immunity which sometimes attaches itself to entities that are the subject of the severity of a deregulation scheme such as that created by the Telecom Act 24. The Court supported this holding by relying on the savings clause of the Telecom Act 25. The saving clause of the Telecom Act provides that, nothing in this Act or the Amendments made by this Act shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws. 26 The Court found the saving clause to preserve only existing antitrust standards and not create new claims that go beyond existing antitrust standards 27. The next step the Court took was to examine whether the activity which the Law Offices of Curtis V. Trinko complains violates preexisting antitrust standards. The activity complained of, as the Court stated it, was that Verizon denied interconnection services to rivals in order to limit entry [to the local telephone market]. 28 First, the Court stated that if this activity stated any antitrust claim it was under 2 of the Sherman 22 See 124 S Ct., key cite history tab for a full list and citations to all nineteen amicus briefs S. Ct. at Id. 25 Id Stat. 143, 47 U.S.C. 152, note S. Ct. at Id., (brackets added).

6 Act 29. The Court recognized that as a general matter the Sherman Act does not restrict the long recognized right of an entirely private business to freely exercise its own independent judgment as to parties with whom he will deal 30. The Court also recognized that the right to refuse to deal is not unqualified and under certain circumstances a refusal to deal can constitute anticompetitive conduct 31. The Court cited Aspen Skiing Co. v. Aspen Highlands Skiing Corp. 32, as the leading case for 2 liability based on a refusal to cooperate with a rival, but with the caveat that Aspen Skiing was at the outer boundary of 2 liability 33. Nonetheless, Aspen Skiing was found to be distinguishable from Trinko. In Aspen Skiing, the defendant unilaterally terminated a voluntary course of dealing that suggested a willingness to forsake short-term profits to achieve an anticompetitive end 34. In Trinko, the complaint did not allege that Verizon voluntarily engaged in a course of dealing with its rivals, or would have even done so without statutory compulsion, and therefore, it was not clear to the Court what the motivation was for Verizon s to refusal to deal with AT&T 35. The essential facilities doctrine was addressed. First, the Court stated that it has never recognized such a doctrine, and did not find that it needed to recognize it or repudiate it in Trinko 36. Additionally, the Court noted that the extensive provisions in the Telecom Act for 29 Id. 30 Id. at 879 (citing United States v. Colgate & Co., 250 U.S. 300, 307, 39 S. Ct. 465, 63 L. Ed. 992 (1919)). 31 Id, (in part quoting Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, S. Ct. 2847, 86 L. Ed. 467 (1985) U.S. 585, 105 S. Ct. 2847, 86 L. Ed. 467 (1985) S. Ct. at Id. at Id. 36 Id. at

7 providing access to Verizon s networks made it unnecessary to invoke a doctrine of forced access 37. Two additional arguments, monopoly leveraging and the contention that The Law Offices of Curtis V. Trinko lacked standing, were met and rejected in two footnotes. First, the monopoly leveraging theory was rejected in Footnote 4, with the Court stating that leveraging presupposes anticompetitive conduct, which in this case could only be the refusal-to-deal claim we have rejected. 38 The standing issue was addressed in Footnote 5. The Court simply stated that it found it unnecessary to deal with the standing issue since the antitrust claims were rejected 39. Several carefully crafted policy issues were also advanced by the Court as reasons not to support the antitrust claims. First, the Court noted that the particular industry at issues needs to be taken into account when doing antitrust analysis 40. The telecommunications industry has undergone significant deregulation that has been entrusted to a significant regulatory structure which was designed to deter and remedy anticompetitive harm 41. The Court noted that additional antitrust scrutiny would add little benefit to competition 42. The second policy issue advanced by the Court is the cost and likelihood of mistaken inferences and the resulting false condemnations 43. For example, the Court stated that an ILEC s failure to provide a service may be due to alacrity and not a policy of exclusion 44. In that situation, the mistaken inference and false condemnation would chill the very conduct the 37 Id. at Id. at Id. 40 Id. at Id. 42 Id. 43 Id. at Id.

8 antitrust laws are designed to protect 45. The third policy issue advanced by the court is the difficulty an antitrust court would have in evaluating the highly technical and numerous violations of the Telecom Act 46. Simply put, the Court stated that, [a]n antitrust court is unlikely to be an effective day-to-day enforcer of these detailed sharing obligations. 47 The concurrence by Justice Stevens was rather short and simple and started out by finding that, [i]n complex cases it is usually wise to begin by deciding whether the plaintiff has standing to maintain the action. 48 The concurrence found that the plaintiff did not have standing and declined to decide the merits of the 2 claims 49. The antitrust claim was found to be derivative of the injury that AT&T suffered and ran the risk of duplicative injuries and complex apportionment of damages 50. AT&T was the direct victim of the alleged misconduct and was in the best position to vindicate the public interest in the enforcement of the antitrust laws 51. Therefore, the concurrence did state that if either AT&T or a similarly situated ILEC filed a 2 claim it would decide the merits of such a claim 52. Two cases mentioned earlier from the Second and the Eleventh Circuit, felt the immediate impact of the ruling in Trinko. In BellSouth Corp. v. Covad Communications Co. 53, and Qwest Corp. v. MetroNet Services Corp. 54, the Court granted the petitions for certiorari and reversed and remanded both cases to their respective courts for reconsideration in light of Trinko. In yet another case, Cavalier Telephone v. Verizon Virginia Inc. 55, the Court denied certiorari of 45 Id. 46 Id. at Id. at Id. at 884 (Stevens, J., concurring). 49 Id. 50 Id. 51 Id. 52 Id. at No , 2004 WL 76680, remand ordered (U.S. 2004). 54 No , 2004 WL 76682, remand ordered (U.S. 2004). 55 No , 2004 WL 76690, cert. Denied (U.S. Jan 20, 2004).

9 the case seeking review of the decision by the Fourth Circuit, which affirmed that claims of violations of the Telecom Act were not sufficient to sustain claims of antitrust violation against Verizon Virginia by one of its rivals. Based on the denial of certiorari in Cavalier Telephone, Trinko also applies to a direct claim by a CLEC against an ILEC. What Trinko made clear is that any action brought by a private consumer who is injured by a violation of the Telecom act, must be brought under the Telecom Act, not the antitrust laws. The Trinko Court found no 2 liability on behalf of the ILEC s for failing to cooperate with its competitors, because the Telecom Act did not create new claims that go beyond existing antitrust standards. What is not clear is extent of the general parameters of 2 liability when there is a statutorily imposed duty on a monopolist to cooperate with its competitors. A narrow reading of Trinko would limit the decision to only highly regulated industries, like the telecommunications industry. A broad reading of Trinko would close the door on any antitrust liability for a statutorily imposed duty on a monopolist to cooperate with its competitor.