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January 14, 2004, 9:00 AM ET, Alert No. 815.
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Supreme Court Holds That There is No Sherman Act Claim in Verizon v. Trinko

1/13. 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."

Rep. Billy TauzinTauzin (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.

Lamy Addresses Doha Development Agenda

1/13. EU Commissioner for Trade Pascal Lamy gave a speech regarding the Doha Development Agenda.

The 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.

Pascal LamyLamy (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 statement [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 1, part 2, part 3, part 4, and part 5.

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. 03-266.

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 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 1, part 2, part 3, part 4, 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's Free World Dialup (FWD) is a closed network that uses specialized equipment. Traffic is carried by the users' ISPs using broadband connections. 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.

See also, 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 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 16, 2003.

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, agenda [PDF].

Friday, January 16

9:30 AM. The U.S. Court of Appeals (DCCir) will hear oral argument in Advanced Communications Corp. v. FCC, No. 03-1082. Judges Rogers, Garland and Williams will preside. Location: 333 Constitution Ave. NW.

Deadline to submit comments to the National Institute of Standards and Technology's (NIST) Computer Security Division (CSD) in response to its Change Notice [2 pages in PDF] regarding Federal Information Processing Standard (FIPS) 180-2, the Secure Hash Standard. Comments should be addressed to See also, FIPS 180-2 [75 pages in PDF], released on August 1, 2002.

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 or 703 216-3150. Location: Skadden Arps, 1440 New York Ave., 11th floor.

People and Appointments

1/13. Donna Hansberry was named an Assistant to the Commissioner at the Internal Revenue Service (IRS). See, IRS release.

1/13. Richard Speier was named Deputy Chief, Criminal Investigation at the Internal Revenue Service (IRS). See, IRS release.

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