House Judiciary Committee Holds Hearing on Trinko

June 15, 2010. The House Judiciary Committee's (HJC) Subcommittee on Courts and Competition Policy held a hearing titled "Is There Life After Trinko and Credit Suisse?: The Role of Antitrust in Regulated Industries".

See, January 13, 2004, opinion in Verizon v. Trinko, 540 U.S. 398, and story titled "Supreme Court Holds That There is No Sherman Act Claim in Verizon v. Trinko" in TLJ Daily E-Mail Alert No. 815, January 14, 2004.

See also, June 18, 2007, opinion in Credit Suisse v. Billings, 551 U.S. 264, and story titled "Supreme Court Rules in Credit Suisse v. Billing" in TLJ Daily E-Mail Alert No. 1,598, June 20, 2007.

In both Trinko and Credit Suisse, private litigants filed civil actions in federal court alleging violation of antitrust law. In both cases the Supreme Court held that the private actions are precluded by industry specific, statute based, regulatory regimes that address anticompetitive conduct. However, neither opinion stated that governmental antitrust regulators at the Federal Trade Commission (FTC) and Department of Justice's (DOJ) Antitrust Division are not likewise barred.

In Trinko, the telecom case, the law office of Curtis Trinko was a local phone service customer of AT&T in New York. Trinko 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 alleged facts supporting Trinko's antitrust claim related to an alleged breach of the incumbent local exchange carrier's (ILEC), that is Verizon's, duty under the 1996 Act to share its network with competitive local exchange carriers (CLECs), such as AT&T.

Justice Antonin Scalia, who wrote opinion, addressed when industry specific regulation bars recourse to the Sherman Act. "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."

Howard Shelanski (FTC) wrote in his prepared testimony [PDF] for the HJC that "the combined effect of Credit Suisse and Trinko is to make it more difficult than before for either private plaintiffs or public agencies to bring important antitrust cases in regulated sectors of the American economy".

He argued that "the federal courts should not be able to use those decisions to impose an unwarranted bar on public antitrust enforcement in regulated industries".

He explained that "the Court's concern is that antitrust litigation is always costly and in the presence of regulation is likely to have little additional benefit for competition. Treble damages and class action litigation could make erroneous antitrust liability particularly costly in private cases. The government, however, has no reason to use antitrust law against regulated firms unless doing so could yield net benefits on top of those the market already achieves through regulation."

Hence, Shelanski urged the Congress to "clarify that neither Credit Suisse nor Trinko prevents public antitrust agencies from acting under any of the antitrust laws when they conclude that anticompetitive conduct would otherwise escape effective regulatory scrutiny".

Another approach for preserving public antitrust authority, which was not advocated by Shelanski, would be to take away from industry specific regulators their authority to write and enforce rules that are designed to deter and remedy anticompetitive harm, and leave the industry specific regulators, or the FTC and DOJ, with antitrust authority to address those anticompetitive harm. If the Congress were to do this for any industry, Trinko and Credit Suisse would not bar governmental antitrust enforcement.

John Thorn (Verizon) wrote in his prepared testimony [17 pages in PDF] that "Antitrust should not be rewritten or interpreted to encompass specific regulatory requirements", and "Antitrust should not condemn large, successful firms for pro-competitive behaviors".

He also stated that "Trinko would not preclude the bringing of cases like the 1974 government antitrust case that led to the 1982 AT&T Bell System breakup consent decree".

Mark Lemley (Stanford University law school) wrote in his prepared testimony [4 pages in PDF] that "an antitrust law that ignored anticompetitive behavior in any regulated industry would be a law full of holes".

He reasoned that "Absolute antitrust deference to regulatory agencies makes little sense as a matter either of economics or experience. Economic theory teaches that antitrust courts are better equipped than regulators to assure efficient outcomes in many circumstances. Public choice theory -- and long experience -- suggests that agencies that start out trying to limit problematic behavior by industries often end up condoning that behavior and even insulating those industries from market forces. And as history has shown, relying on regulatory oversight alone without the backdrop of antitrust law would leave both temporal and substantive gaps in enforcement, which unscrupulous competitors could exploit to the clear detriment of consumers."

He urged the Congress to "act to preserve the traditional role of antitrust law in the face of regulation". Specifically, he urged the Congress to amend the Sherman Act with the following: "No regulation or Act of Congress shall be interpreted to restrict or repeal the antitrust laws unless it expressly so provides".

Mark Cooper (Consumer Federation of America) wrote in his prepared testimony [7 pages in PDF] that because of big companies, such as "Worldcom, Enron, Lehman Brothers, Goldman Sachs, and BP", "We need every regulatory cop on the beat".

The Supreme Court in Trinko and Credit Suisse, wrote Cooper, "has gone off the deep end". Therefore, "Congress should act swiftly to restore the balance between antitrust and regulation".

On June 24, the American Antitrust Institute (AAI) will host a one day conference titled "Public and Private: Are the Boundaries in Transition?". At 11:00 AM there will be a panel discussion on telecommunications. The speakers will be Jonathan Baker (FCC economist), Joseph Farrell (Director of the FTC's Bureau of Economics), and Marius Schwartz (Georgetown University).