A local telephone provider's alleged refusal to deal with an
aspiring competitor in violation of duties established by the 1996
Telecommunications Act cannot form the basis of a monopolization claim
under Section 2 of the Sherman Act unless the conduct would have
amounted to monopolization independent of the Telecom Act, the U.S.
Court of Appeals for the Fourth Circuit held May 20 (Cavalier
Telephone LLC v. Verizon Virginia Inc.,
4th Cir.,
No. 02-1337,
5/20/03).
The Telecom Act did not "immunize" incumbent local
exchange carriers from antitrust claims, but neither did it
"modify" the antitrust laws, Judge Paul V. Niemeyer said.
Therefore, the competitor's allegations that the ILEC breached
affirmative interconnection duties imposed by the Telecom Act but not
by prior antitrust law do not state a claim under the Sherman Act,
even though the competitor alleged that the ILEC thereby sought to
exclude it from the market.
The circuits have split on the interplay between the Sherman Act
and the Telecom Act, and the U.S. Supreme Court will take up the issue
next term in Verizon Communications Inc. v. Law Offices of Curtis
V. Trinko LLP, cert. granted, 71 U.S.L.W. 3576 (U.S. March
10, 2003) (No. 02-682).
This suit was brought by a Virginia local telephone service that
started up in 1998 in the wake of the Telecom Act, which sought to
promote competition in telecommunications markets. The Telecom Act
requires ILECs to enter into interconnection agreements making their
facilities available to competing local exchange carriers on
reasonable terms.
The plaintiff CLEC alleged that the ILEC provided delayed and
inadequate trunk lines; overcharged for, delayed, and needlessly
complicated collocation of equipment space; made procedures for
obtaining copper or fiber-optic wire linking individual homes and
businesses into the network (last-mile facilities) overly complex and
delayed; provided inferior facilities; delayed the CLEC's network
building; and submitted overly complex and erroneous bills. The ILEC's
motive for this conduct, the CLEC alleged, was to exclude it as a
competitor and preserve the monopoly that the ILEC enjoyed before
1996.
The district court dismissed, holding that the CLEC "cannot
state a claim under § 2 of the Sherman Act if it alleges
violations of affirmative duties created by the 1996
Act."
'Special Relationship' of Statutes.
The Fourth Circuit said that the CLEC's complaint "does
conclusorily allege all of the required elements of a monopolization
claim" under Section 2, namely, that the ILEC has monopoly power
in the relevant market that it willfully maintained. But, it noted,
all of the wrongs attributed to the ILEC arose from duties imposed on
it by the Telecom Act. To decide if those allegations state an
antitrust claim, "it is necessary to review the role and scope of
the Telecommunications Act and its special relationship to the Sherman
Act," the court said.
To further local competition, Section 251 of the Telecom Act
imposes affirmative duties on ILECs to interconnect with other
carriers, to follow stated resale rules, and to provide
nondiscriminatory access to telephone numbers and operator services,
poles, ducts, conduits, and rights-of-way. ILECs are also required to
negotiate interconnection agreements with any carrier so requesting,
to provide access to their network elements on an unbundled basis, to
offer retail telecommunications services for resale at wholesale
rates, and to provide for collocation.
These are new duties that were intended to "jump-start"
and "accelerate" the creation of competition in local phone
markets, the court said. These duties would not have existed under
prior antitrust laws, "which alone do not require legitimate
monopolies to give up their monopolies or to help competitors,"
it said.
"Even under the essential facilities doctrine applied in
Otter Tail [Power Co. v. United States, 410 U.S. 366 (1973)], a
legal monopoly cannot be forced to get into a business it was not
traditionally in simply to respond favorably to a new competitor's
demand for use of its facilities," the court said. The ILEC had a
long-standing legal phone service monopoly and was not in the business
of renting its office space, lines, and facilities, and thus it could
legally refuse the CLEC's request to expand into that business without
violating Section 2, the court said.
Independent Enforcement Intended.
That the "idiosyncratic" relationship of the Telecom Act
and Sherman Act requires that they be enforced independently "is
revealed in two ways," the court said. First, Section 601(b)(1)
of the Telecom Act provides that "nothing in this Act …
shall be construed to modify, impair, or supersede the applicability
of any of the antitrust laws." "This may be understood to
mean that just as Congress did not intend that the Telecommunications
Act would immunize conduct illegal under the antitrust laws, it also
did not intend to have the duties imposed by the Telecommunications
Act modify or expand the scope of the Sherman Act," the court
said.
Second, "the procedures and remedies used to enforce each law
are distinct," the court said. The Telecom Act calls for state
regulatory commissions to approve and supervise interconnection
agreements. If Congress had not intended independent enforcement of
those procedures, it would have relied on private enforcement of the
antitrust laws, the court said.
If a complaint alleges facts that state a claim under both statutes
construed independently of each other, it may give rise to relief
under each statute, the court said. But the Telecom Act "imposes
new duties that may be enforced in accordance with its own provisions
but not under the Sherman Act unless the conduct otherwise would have
supported a claim under the Sherman Act absent the authority of the
Telecommunications Act," the court said.
The instant Sherman Act claim alleged only breaches of duties that
did not exist prior to enactment of the Telecom Act and thus was
properly dismissed, the court concluded.
Judge H. Emory Widener Jr. joined the opinion.
Dissenting, Judge Morton I. Greenberg, sitting by designation,
argued that the majority improperly resolved fact issues on a motion
to dismiss by finding that the ILEC had no duty to rent facilities to
its competitors, aborting any claim under the "necessarily
factbound" essential facilities doctrine.
David W. Carpenter, Sidley & Austin, Chicago, argued for the
CLEC. Richard G. Taranto, Farr & Taranto, Washington, D.C., argued
for the ILEC.
Full text at http://pub.bna.com/lw/021337.pdf