Tech Law Journal Daily E-Mail Alert
December 20, 2001, 9:00 AM ET, Alert No. 332.
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7th Circuit Upholds Dismissal of Private Antitrust Action Against Merging RBOCs
12/19. The U.S. Court of Appeals (7thCir) issued its opinion in South Austin Coalition v. SBC, affirming the dismissal of a private antitrust action challenging the SBC Ameritech merger. The Appeals Court held that this action is barred by Section 7 of the Clayton Act.
The plaintiffs, the South Austin Coalition Community Council (a Chicago area group), and others, sought to stop the merger of SBC and Ameritech. Ameritech and SBC were two of the original Regional Bell Operating Companies (RBOCs) formed by the break up of the Bell system in the 1980s. They merged in 1999, with the approval of the Department of Justice's Antitrust Division and the FCC. See, DOJ/ATR pleadings. The plaintiffs filed a complaint in U.S. District Court (NDIll) against SBC alleging violation of federal antitrust laws. They argued that had SBC and Ameritech not merged, each would have entered the other's core markets and created extra competition to consumers' benefit.
District Court. The District Court dismissed the complaint on the grounds that the plaintiffs lacked standing. The Court reasoned that the allegations in the complaint were too speculative and vague to justify putting the administrative conclusions to the test. This appeal followed.
Appeals Court: Standing and Pleading Requirements. The Appeals Court affirmed the dismissal, but on other grounds. First, the Appeals Court held that the plaintiffs do have standing to maintain the suit. It wrote that FRCP 8 sets out the minimal pleading requirements, and the plaintiffs met those by alleging facts amounting to injury in fact (satisfying the Article III standing requirement) and antitrust injury (satisfying the antitrust statutory requirement). The Court noted that Rule 8 sets out special pleading requirements for some types of cases, and the Congress has established requirements in others, such as the Private Securities Litigation Reform Act (PSLRA). However, there are no special pleading requirements for private antitrust actions.
Appeals Court: Clayton Act. The Appeals Court affirmed the dismissal on the basis of an obscure Clayton Act exemption. It held that this action, as plead,  is barred by Section 7 of the Clayton Act, codified at 15 U.S.C. 18, which creates an antitrust merger exemption for common carriers "where there is no substantial competition".
15 U.S.C. 18, 4. This section provides that "Nor shall anything herein contained be construed to prohibit any common carrier subject to the laws to regulate commerce from aiding in the construction of branches or short lines so located as to become feeders to the main line of the company so aiding in such construction or from acquiring or owning all or any part of the stock of such branch lines, nor to prevent any such common carrier from acquiring and owning all or any part of the stock of a branch or short line constructed by an independent company where there is no substantial competition between the company owning the branch line so constructed and the company owning the main line acquiring the property or an interest therein, nor to prevent such common carrier from extending any of its lines through the medium of the acquisition of stock or otherwise of any other common carrier where there is no substantial competition between the company extending its lines and the company whose stock, property, or an interest therein is so acquired."
This section was enacted by the Congress in 1914 with regulated railroads in mind. Nevertheless, the Appeals Court held that its language is broad enough to encompass telecommunications carriers, and that it remains in effect today, notwithstanding telecom deregulation. The Court further suggested that the statute is obsolete, but added that its repeal is a job for the Congress, not the judiciary.
The opinion of the three judge panel was written by Judge Frank Easterbrook, a leading authority on antitrust law.
Insider Trading
12/29. The SEC filed a civil complaint in U.S. District Court (DDC) against Sean Price and Benjamin Maldonado alleging insider trading. The two simultaneously consented to entry of judgment restraining them from violation of federal securities laws, ordering disgorgement of loses avoided, and ordering payment of civil penalties. Price is an SVP of Safenet, an Internet security company. Maldonado was previously a stockbroker in the Washington DC office of Merrill Lynch. The complaint alleges that Price tipped Maldonado in advance of a Safenet announcement that the company expected to report quarterly financial results below analysts' expectations, and that Maldonado subsequently sold 29,500 shares that were owned by him and members of his family. See also, SEC release.
House Subcommittee Holds Hearing on Electronic Communications Networks
12/19. The House Commerce Committee's Subcommittee on Commerce, Trade, and Consumer Protection held a hearing titled "Electronic Communications Networks in the Wake of September 11th".
Rep. Cliff Stearns (R-FL), the Chairman of the Subcommittee, presided. He said in his opening statement that "a company like Ebay is an ECN because it facilitates the meeting of buyers and seller without the intervention of a middleman. More specialized ECNs, like our witness today, specialize in facilitating markets in stock by causing buyers and seller to meet electronically using private electronic networks. ECNs are electronic networks that do not have physical trading locations. Therefore, they are somewhat less susceptible to disruption of service stemming from events in a particular location." However, he pointed out during the question and answer session that some of this advantage is lost by the fact that most of the offices of ECNs involved in securities trading are located in Manhattan.
Rep. Billy Tauzin (R-LA), the Chairman of the full committee, submitted a statement for the record. He said that "As our economy continues to evolve into an electronic marketplace, the fundamental principle of commerce that we must protect is the ability to exchange information as efficiently and reliably as possible. Continuity of operations is part of this equation. ... The purpose of the hearing today is to identify any barriers that may prevent the technology at our witnesses' disposal from being used more broadly to the benefit of investors. As the world leader of free markets, the United States must make sure that regulation serves to make technology an asset to strong markets not stand as an impediment."
Matthew Andresen of The Island ECN said in his opening statement that "we should eliminate any barriers that inhibit fair competition between electronic and traditional markets. Currently, there are two main market structure changes that must be immediately pursued to ensure such fair competition. First, ECNs must be permitted to freely disseminate their market data to investors without sacrificing the very qualities that make ECNs compelling alternatives to traditional markets. Second, since all markets are competing in the same securities for the same customers, all markets must be permitted to operate under the same ground rules in the same manner."
See, prepared testimony of witnesses: Steven Randich (NASDAQ), Matthew Andresen (The Island ECN), Catherine Kinney (NYSE), Kim Bang (Bloomberg Tradebook), Kevin O'Hara (Archipelago), Joel Steinmetz (SVP of Instinet), and Keith Jamiatis (NYFIX Millennium).
Tech Companies Oppose Ultrawideband Delay
12/19. Representatives of Intel, IBM, Texas Instruments, Sharp Labs and Siemens wrote a letter to FCC Chairman Michael Powell, and the other Commissioners, "regarding the Commission's removal of the ultra wideband (UWB) item from its December 12, 2001, open meeting agenda." See, FCC notice of deletion of UWB item from agenda. (This is ET Docket No. 98-153.)
They wrote that "We are concerned that a short delay could be extended, which in turn would be a substantial setback to the timely development and deployment of UWB services. This could have a negative impact on current industry momentum focused on building UWB technology and products. This proceeding is more than three years old with almost 800 comments, notices, and technical studies on the docket. UWB proponents have filed detailed technical analyses showing that operation of their devices will not cause harmful interference to other users of the spectrum, both government and non-government. These analyses also explain why studies that purport to show harmful interference gave incorrect results. It is time to issue a decision."
UWB devices, which use very narrow pulses with very wide bandwidths, have potential applications in both radar and communications technologies. It has been argued that UWB devices can use large portions of already allocated spectrum with minimal or no interference to incumbent users.
Intel submitted a comment [PDF] to the FCC back on November 27, 2000, in which it stated that "Intel believes that UWB is a very promising technology for enabling short distance, high data rate connections that can support new and innovative applications, and Intel supports the FCC in the formation of regulations for UWB transmissions in order to bring these benefits to the marketplace in a timely manner."
See also, NTIA Report 01-383 titled "The Temporal and Spectral Characteristics of Ultrawideband Signals" and dated January 2001; NTIA Report 01-384 titled "Measurements to Determine Potential Interference to GPS Receivers from Ultrawideband Transmission Systems" and dated February 2001; and NTIA Report 01-45 titled "Assessment of Compatibility between Ultrawideband (UWB) Systems and Global Positioning Systems (GPS) Receivers" and dated March 2001.
AT&T Broadband and Comcast to Merge
12/19. AT&T announced that the Boards of Directors of AT&T and Comcast "approved a definitive agreement to combine AT&T Broadband with Comcast ... The new company ... will have approximately 22 million subscribers ... 2.2 million high speed data customers and one million cable telephony customers." AT&T added that it "will spin off AT&T Broadband and simultaneously merge it with Comcast, forming a new company to be called AT&T Comcast Corporation." See, AT&T release. See also, Comcast release.
The merger requires antitrust and FCC review, and approval by both companies' shareholders. The law firm of Wachtell Lipton Rosen & Katz represents AT&T. Davis Polk & Wardwell represents Comcast.
Thursday, Dec 20
CANCELLED. 10:00 AM. The Senate Judiciary Committee will hold a business meeting. Location: Room 226, Dirksen Building.
1:30 PM. The U.S. International Telecommunication Advisory Committee (ITAC) will hold a meeting regarding preparations for the 2002 World Telecommunication Development Conference (WTDC). See, notice in Federal Register. Location: State Department, Room 1408.
Friday, Dec 21
8:30 AM. Federal Trade Commission (FTC) Chairman Timothy Muris will speak at the Brookings Institute roundtable titled "Trade and Investment Policy." Location: Brookings Institute, Falk Auditorium, 1775 Massachusetts Avenue, NW, Washington DC.
Monday, Dec 24
The FCC will be closed.
The USPTO will be closed. Any any action or fee due Saturday, December 22, Sunday, December 23, Monday, December 24, or Tuesday, December 25, will be considered as timely on Wednesday, December 26, 2001. See, USPTO release.
Christmas Schedule
The Tech Law Journal Daily E-Mail Alert will not be published on Monday, December 24, Tuesday, December 25, or Wednesday, December 26.
People and Appointments
12/19. Suzanne Tetreault was named Associate Bureau Chief and Chief of Staff of the FCC's Enforcement Bureau. She has been with the FCC since 1991. See, FCC release.
12/19. President Bush announced his intention to nominate John Rogers to be a U.S. Circuit Judge for the Sixth Circuit. See, White House release.
12/19. President Bush announced his intention to nominate Timothy Stanceu to be Judge of the U.S. Court of International Trade. See, White House release
More News
12/19. The USPTO published an announcement in its web site that it "now accepts maintenance fee payments by deposit account over the Internet."
Correction
The Wednesday, December 19, 2001, issue of the TLJ Daily E-Mail Alert incorrectly stated the oral argument in the Festo case is scheduled for January 3. The Supreme Court is scheduled to hear oral argument on January 8. (Festo Corporation v. Shoketsu Kinzoku Koygo Kabushiki, No. 00-1543, a case regarding the doctrine of equivalents in patent law.)
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