Supreme Court Holds That There is No Sherman Act Claim in Verizon v. Trinko

January 13, 2004. The Supreme Court issued its opinion [22 pages in PDF] in Verizon v. Trinko, reversing the U.S. Court of Appeals (2ndCir). The Supreme Court held that a claim alleging a breach of an ILEC's duty under the 1996 Telecom Act to share its network with competitors does not state a violation of Section 2 of the Sherman Act. This is a significant victory for the ILECs.

Verizon Communications is an incumbent local exchange carrier (ILEC). AT&T is a competitor of Verizon that took advantage of the provisions of the Telecom Act of 1996 requiring ILECs to share their facilities. Competitive local exchange carriers (CLECs) complained to the FCC and the New York Public Service Commission (PSC) that Verizon failed to provided access to operations support systems (OSS). Both opened investigations. The PSC issued orders, and the FCC entered into a consent decree with Verizon. These orders and consent decree fined Verizon, and subjected it to performance measures and reporting requirements.

The law office of Curtis Trinko was a local phone service customer of AT&T in New York. Trinko (but not AT&T) filed a complaint in U.S. District Court (SDNY) against Bell Atlantic (now Verizon), alleging various claims under the Communications Act and in tort. Trinko also alleged violation of Section 2 of the Sherman Antitrust Act, 15 U.S.C. § 2.

The District Court dismissed Trinko's claims. It held, based upon the Seventh Circuit's opinion in Goldwasser v. Ameritech, reported at 222 F.3d 390 (7th Cir. 2000), that Trinko did not have an antitrust claim. Trinko appealed to the Court of Appeals.

The U.S. Court of Appeals (2ndCir) issued its opinion on June 20, 2002, reversing the District Court's dismissal of the antitrust claim. This Appeals Court opinion is reported at 305 F. 3d 89.

Justice Antonin Scalia wrote the opinion of the Supreme Court. He began by stating that "In this case we consider whether a complaint alleging breach of the incumbent's duty under the 1996 Act to share its network with competitors states a claim under §2 of the Sherman Act".

"To decide this case, we must first determine what effect (if any) the 1996 Act has upon the application of traditional antitrust principles. The Act imposes a large number of duties upon incumbent LECs," wrote Scalia. "Under the sharing duties of §251(c), incumbent LECs are required to offer three kinds of access. Already noted, and perhaps most intrusive, is the duty to offer access to UNEs on ``just, reasonable, and nondiscriminatory´´ terms, §251(c)(3), a phrase that the FCC has interpreted to mean a price reflecting long-run incremental cost. ... A rival can interconnect its own facilities with those of the incumbent LEC, or it can simply purchase services at wholesale from the incumbent and resell them to consumers. ... The Act also imposes upon incumbents the duty to allow physical ``collocation´´ -- that is, to permit a competitor to locate and install its equipment on the incumbent's premises -- which makes feasible interconnection and access to UNEs."

Scalia continued, "That Congress created these duties, however, does not automatically lead to the conclusion that they can be enforced by means of an antitrust claim."

"Indeed, a detailed regulatory scheme such as that created by the 1996 Act ordinarily raises the question whether the regulated entities are not shielded from antitrust scrutiny altogether by the doctrine of implied immunity" Scalia added. "Congress, however, precluded that interpretation. Section 601(b)(1) of the 1996 Act is an antitrust-specific saving clause providing 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.´´"

"But just as the 1996 Act preserves claims that satisfy existing antitrust standards, it does not create new claims that go beyond existing antitrust standards; that would be equally inconsistent with the saving clause's mandate that nothing in the Act ``modify, impair, or supersede the applicability´´ of the antitrust laws." Hence, Scalia next examined whether Verizon violated  "pre-existing antitrust standards".

Scalia noted that "The complaint alleges that Verizon denied interconnection services to rivals in order to limit entry. If that allegation states an antitrust claim at all, it does so under §2 of the Sherman Act, 15 U. S. C. §2, which declares that a firm shall not ``monopolize´´ or ``attempt to monopolize.´´"

He continued that "It is settled law that this offense requires, in addition to the possession of monopoly power in the relevant market, ``the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident.´´"

And, Scalia reasoned, if there is a Section 2 violation, it would be in the nature of a refusal to deal. He then compared the facts of the present case to those of the leading case involving a refusal to deal, Aspen Skiing Co. v. Aspen High-lands Skiing Corp., 472 U. S. 585 (1985), and concluded that "Verizon's alleged insufficient assistance in the provision of service to rivals is not a recognized antitrust claim under this Court’s existing refusal-to-deal precedents."

Then, having decided that pre-existing antitrust standards do not make Verizon's conduct a Section 2 case, Scalia added that the Supreme Court should not now add a new standard. Scalia wrote that "we do not believe that traditional antitrust principles justify adding the present case to the few existing exceptions from the proposition that there is no duty to aid competitors."

Scalia reached this conclusion, in part, because of the existing state and federal regulatory schemes already in place. "One factor of particular importance is the existence of a regulatory structure designed to deter and remedy anti-competitive harm. Where such a structure exists, the additional benefit to competition provided by antitrust enforcement will tend to be small, and it will be less plausible that the antitrust laws contemplate such additional scrutiny."

Justice Stevens wrote a separate opinion "concurring in the judgment" of the Supreme Court. Justices Souter and Thomas joined. Stevens wrote that it was AT&T, and not Trinko, who was injured by Verizon's conduct, and therefore, under the Sherman and Clayton Acts, only AT&T has standing to raise the antitrust claim. Stevens concluded "I would not decide the merits of the § 2 claim unless and until such a claim is advanced by either AT&T or a similarly situated competitive local exchange carrier."

There remains that possibility that the Congress could pass legislation that would create an antitrust remedy for claims such as Trinko's. For example, on November 19, 2003, the House Judiciary Committee held an oversight hearing titled "Saving the Savings Clause: Congressional Intent, the Trinko Case, and the Role of the Antitrust Laws in Promoting Competition in the Telecom Sector".

Rep. James Sensenbrenner (R-WI), the Chairman of the House Judiciary Committee, said in his prepared statement that "If Trinko is overturned, the historic role of the antitrust laws in promoting competition in the telecom sector and the clear intent of Congress will be judicially subverted. If this occurs, a swift and decisive legislative correction will be necessary and it will be forthcoming. Everyone can rest assured that the antitrust laws will continue to apply to this industry."

The House Judiciary Committee has jurisdiction over antitrust laws, and oversight authority over the Antitrust Division of the Department of Justice. In contrast, the House Commerce Committee has jurisdiction over communications laws, and oversight authority over the FCC. Many members of the House Commerce Committee do not share Rep. Sensenbrenner's enthusiasm for antitrust litigation in the communications industry.

Rep. Billy Tauzin (R-LA), the Chairman of the House Commerce Committee, stated in a release on January 13, that "Hopefully, this decision will put an end to frivolous lawsuits seeking to delay full implementation of the Telecommunications Act of 1996. The Act established a very comprehensive regime governing the relationship between incumbent local exchange carriers (ILECs) and competitive local exchange carriers (CLECs). The Act imposes numerous obligations on ILECs and establishes a mechanism for enforcing those obligations."

Tauzin (at right) continued that "As the Supreme Court recognized, while the Act does not provide an implied immunity from the antitrust laws, the Act also does not expand the antitrust laws and the grounds upon which an antitrust suit can succeed.  I hope that this decision sends a clear signal that complaints arising from an ILEC's alleged failure to comply with the Act's interconnection and access requirements are properly addressed to the FCC and to State Public Utility Commissions (PUCs)."

Rep. Tauzin concluded that "In 1996, Congress ended Judge Greene's iron-handed supervision over the telecommunications industry.  The Supreme Court decisively reiterated today that the regulation of the telecommunications industry should be the purview of the FCC and the State PUCs rather than judges all across the country. I could not agree more."

Russell Frisby, CEO of the CompTel/ASCENT Alliance, stated in a release that "While we are disappointed in the Supreme Court's decision in this particular case, we believe it does not foreclose the ability of competitive service providers to pursue antitrust actions against the Bell companies, though under narrower circumstances than we believe warranted."

"In its decision, the Court wrote that the additional benefit provided by antitrust enforcement tends to be small when there is a regulatory structure designed to deter and remedy anticompetitive behavior. Experience under the Telecom Act, however, confirms that the regulatory structure has not been fully up to the task of eliminating monopolies that formed during nearly a century of government protection. That is why Congress, we believe, intended the antitrust laws to apply in precisely this context and why we are so disappointed by this decision."

For more coverage of this case, see, story titled "Supreme Court Grants Certiorari in Verizon v. Trinko", March 10, 2003, also published in TLJ Daily E-Mail Alert No. 620, March 11, 2003; and story titled "FTC and DOJ Support Grant of Certiorari in Verizon v. Trinko Antitrust Case" in TLJ Daily E-Mail Alert No. 570, December 18, 2002.

In addition to the Goldwasser case, cited above, there are other more recent related cases. For example, on May 20, 2003, the U.S. Court of Appeals (4thCir) issued its split opinion [27 pages in PDF] in Cavalier Telephone v. Verizon Virginia, another appellate opinion addressing alleged violations of the interconnection provisions of the Telecom Act of 1996, and violations of Section 2 of the Sherman Act. See, story titled "4th Circuit Rules on Relation of Telecom Act to Antitrust Law" in TLJ Daily E-Mail Alert No. 667, May 22, 2003.

Also, on May 21, 2003 the U.S. Court of Appeals (9thCir) issued its amended opinion [47 pages in PDF] in MetroNet Services v. U S West. See, story titled "9th Circuit Rules on Antitrust Immunity of ILECs" in TLJ Daily E-Mail Alert No. 634, April 1, 2003.