|Supreme Court Holds That There is No Sherman
Act Claim in Verizon v. Trinko
1/13. The Supreme Court issued
[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
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)
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
"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
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".
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
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
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
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
For more coverage of this case, see,
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
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
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.
|Lamy Addresses Doha Development Agenda
1/13. EU Commissioner for Trade
Pascal Lamy gave a
regarding the Doha Development Agenda.
World Trade Organization (WTO) launched a new round of trade negotiations in
Doha, Qatar in 2001. The Fifth Ministerial Conference of the WTO in Cancun, Mexico
concluded without reaching a consensus. It met from September 10-14, 2003. The
Cancun ministerial meeting was to have specified the negotiating frameworks for
attaining the Doha Development Agenda by 2005.
The U.S. State Department has stated that the Cancun ministerial
"collapsed" because of an impasse over whether to move ahead on negotiations
involving what are called the "Singapore issues": investment, competition,
transparency in government procurement, and trade facilitation. See, story titled
"WTO Negotiations Collapse in Cancun" in
TLJ Daily E-Mail
Alert No. 739, September 15, 2003.
Lamy (at right) stated that
"In line with the Union's stance in other areas of foreign
policy, we remain firmly attached to multilateralism in trade matters. At the
same time we pursue bilateral agreements in so far as they are consistent with
the priority we accord to multilateral progress at the WTO."
Lamy continued that "We are ready to modify our approach on, for
instance, the Singapore issues.
We are now offering much greater flexibility for WTO members. Indeed we are
ready to remove as many as four of these issues from the single undertaking and
leave other WTO members completely free to decide whether they negotiate and
sign such agreements. We have also adopted a much more flexible approach on
geographical indications and the environment in order to facilitate continued
negotiations on these issues."
"We are now in far better shape than at the
end of the Cancún conference. All WTO members have publicly expressed clear and
firm support for the continuation of the negotiating process."
"That said, though the WTO members have
gone a long way to getting the negotiations back on track, we are not yet at the
stage of the formal resumption of negotiations. And the Union is almost alone in
showing signs of flexibility on matters of substance. Unless all WTO members
display true flexibility, there can be no real negotiations. It is simply not
enough for one or a few members to be flexible", said Lamy.
On January 12, 2004, the Office of the U.S.
Trade Representative (USTR) released a
[PDF] regarding the Doha Development Agenda. See, story titled "USTR Releases Statement on Doha
Development Agenda" in TLJ Daily E-Mail Alert No. 814, January 13, 2004.
|Level 3 Files VOIP Petition With FCC
1/13. On December 23, 2003, Level 3
Communications filed a petition with the
Federal Communications Commission (FCC)
requesting that it forebear from applying the requirements of
Section 251(g) and
FCC rules to the extent that they might be interpreted to allow local exchange
carriers (LECs) to impose interstate or intrastate access charges on internet
protocol (IP) traffic that originates or terminates on the public switched
telephone network (PSTN), or on PSTN-PSTN traffic incidental thereto.
The Level 3 petition is published in the FCC web site in five parts in PDF. See,
part 4, and
On January 13, 2004, the FCC published a
notice in the Federal Register summarizing the petition and setting
deadlines for public comments. The FCC notice is published at Federal Register,
January 13, 2004, Vol. 69, No. 8, at Pages 1983 - 1984. Comments are due by
March 1, 2004. Reply comments are due by March 31, 2004. This is WC Docket No.
Level 3's petition states that it "files this petition requesting that the
Commission forbear from enforcing its governing statute and rules to the extent
that they could be interpreted to permit Local Exchange Carriers (``LECs´´) to impose
interstate or intrastate access charges on Internet Protocol (``IP´´)
-- Public Switched Telephone Network (``PSTN´´) traffic and on
certain PSTN-PSTN traffic that is incidental thereto. The requested forbearance
would extend not just to Level 3, but also to all other carriers handling
Voice-embedded IP communications that originate or terminate on the PSTN. Level
3 excludes from this forbearance request areas other than those served by an
incumbent local exchange carrier (``ILEC´´) that is exempt from Section 251(c)
pursuant to Section 251(f)(l)." (Footnotes omitted.)
Level 3 added that "Forbearing, and ending the current legal uncertainty regarding
access charges, will ensure that Voice-embedded IP applications and services can
develop without needing to retrofit to accommodate the piecemeal and obsolete
interstate and intrastate access charge systems. Forbearance will allow
innovative Voice-embedded IP applications to continue to blossom and flourish,
increase investment, spur product and technological innovation, and drive
deployment and demand for advanced services."
James Crowe, CEO of Level 3, stated in a
release that "In granting
this petition, the FCC would foster development and growth of new VoIP
applications by reducing the regulatory uncertainty that currently surrounds
Voice over IP". He added that "The existing intercarrier compensation regime is
based on implicit subsidies and obsolete conceptions of network architecture and
technology ... Indeed, the FCC has already recognized that we need to reform
today’s incoherent patchwork of interconnection rules, which treat various
carriers differently and which have little basis in underlying costs. It simply
does not make sense to compound that system's complexity by forcing VoIP into an
already illogical regulatory framework."
|Summary of Other VOIP Proceedings at the FCC
1/13. In addition to the Level 3 Communication petition, there are other proceedings currently pending at the
Federal Communications Commission (FCC) regarding
voice over internet protocol (VOIP),
including an AT&T petition, a Pulver.com petition, and a Vonage petition.
Vonage seeks a ruling that its service is an "information service" and that
federal policy preempts state action in this area. Vonage filed its petition on September 22, 2003. See,
part 5, and
part 6. This is WC Docket No. 03-211.
Vonage has also litigated this issue. On October 16, 2003, the
U.S. District Court (DMinn) issued its
Memorandum and Order [PDF] in Vonage v. Minnesota Public Utilities
Commission, holding that Vonage is
an information service provider, and that the MPUC cannot apply state laws that
regulate telecommunications carriers to Vonage. The Court wrote that "State
regulation would effectively decimate Congress's mandate that the Internet
remain unfettered by regulation."
See, story titled "District Court Holds that Vonage's VOIP is an Information
Service" in TLJ
Daily E-Mail Alert No. 760, October 17, 2003.
AT&T seeks a ruling that access charges do not apply to its service in which
calls originate and terminate on circuit switched PSTN facilities, but are
routed on internet backbone. AT&T filed its
petition [37 pages PDF] on October 18, 2002. This is WC Docket No. 02-361
Pulver.com's Free World Dialup (FWD) is a closed network that uses
specialized equipment. Traffic is carried by the users' ISPs using broadband
connections. Pulver.com seeks a ruling that its service is neither
"telecommunications" nor a "telecommunications service". It filed its
petition [11 pages in PDF] on February 5, 2003. This is WC Docket No. 03-45.
The FCC may also soon initiate a VOIP related rule making proceeding. The FCC
held a one day forum on VOIP on December 1, 2003. At that event, FCC Chairman
Michael Powell again
stated that the FCC will issue a Notice of Proposed Rulemaking (NPRM) "to
inquire about the migration of voice services to IP-based networks and gather
public comment on the appropriate regulatory environment for these services".
See also, FCC
release of November 6, 2003. However, he declined to offer a prediction
about when the FCC will release this NPRM.
The FCC has released the agenda for its January 15, 2004 meeting. It does not
list consideration of a VOIP related NPRM.
story titled "FCC Holds VOIP Forum", December 1, 2003, also published in
TLJ Daily E-Mail
Alert No. 790, December 2, 2003.
|Washington Tech Calendar
New items are highlighted in red.
|Wednesday, January 14
The House is in adjournment. (It will convene on January 20, 2004.)
The Senate is in adjournment. (It will convene on January 20, 2004.)
10:30 AM - 12:00 NOON. The
Center for Strategic and International Studies
(CSIS) will host a program titled "Trade With China After WTO".
The speakers will be Robert
Cassidy (former Assistant U.S. Trade Representative) and Tian Jun (Minister Counselor
for Economic Policy, Embassy of China). See,
notice [PDF]. For more information, contact Mark Schoeff at
202 775-3242 or firstname.lastname@example.org. Location: CSIS,
1800 K Street, NW, B-1 Conference Level.
12:30 PM. Federal
Communications Commission (FCC) Chairman
Michael Powell will
give a luncheon speech. For information about prices and reservations, call
202 662-7501. Location: Ballroom, National
Press Club, 529 14th St. NW, 13th Floor.
Deadline to submit comments to the
Federal Communications Commission (FCC) in response
to its Further Notice of Proposed Rulemaking (FNPRM) regarding revisions to the FCC's
high cost universal service support mechanism. This is FCC 03-249 in CC Docket No.
96-45. This is also known as the "10th Circuit Remand". See,
notice in the Federal Register, December 15, 2003, Vol. 68, No. 240, at
Pages 69641 - 69647. See also, stories titled "FCC Announces Order on Remand
Regarding High Cost Universal Service Support Mechanism" in
TLJ Daily E-Mail
Alert No. 761, October 20, 2003, and "FCC Publishes Notices Regarding 10th
Circuit Universal Service Remand" in TLJ Daily E-Mail Alert No. 800, December
|Thursday, January 15
9:30 AM. The Federal Communications
Commission (FCC) will hold a meeting. The event will be webcast. Location: FCC, 445 12th Street, SW,
Room TW-C05 (Commission Meeting Room). See,
|Monday, January 19
Martin Luther King Day.
Iowa Presidential Caucuses.
|Tuesday, January 20
The House and Senate will return from recess.
|Wednesday, January 21
12:00 NOON - 1:45 PM. The AEI-Brookings Joint Center
for Regulatory Studies will host a panel discussion titled "What's Right and
What's Wrong with Corporate Finance Governance in the U.S. Today?". The
speakers will be Robert Hahn (AEI-Brookings),
Randall Kroszner (University
of Chicago), Paul
Atkins (SEC Commissioner), and
Steven Kaplan (University
of Chicago). See,
notice. Location: American Enterprise
Institute, Twelfth floor, 1150 17th St., NW.
12:00 NOON. The
Federal Communications Bar Association's (FCBA)
Transactional Practice Committee will host a brown bag lunch. The topic will be
contract enforceability and dispute resolution provisions, including arbitration
versus judicial resolution, choice of law, and choice of forum. For more information,
contact Laurie Sherman at
email@example.com or 703 216-3150. Location: Skadden Arps, 1440
New York Ave., 11th floor.
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