Petition — American Telephone & Telegraph Co. v. Phonetele, Inc.

Supreme Court of the United States

October Term, 1981

AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

WESTERN ELecTRIC COMPANY, INC., and BELL TELEPHONE

LABORATORIES, INC.,

Petitioners,

against

PHONETELE, INC.

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

PETITION FOR WRIT OF CERTIORARI

HOWARD J. TRIENENS

Counsel of Record for Petitioners

195 Broadway

New York, New York 10007

(212) 393-5111

Of Counsel:

Jim G. KILPATRIC

WILLIAM J. JONES

ANDREW M. WHITE

WYMAN, BAUTZER, ROTHMAN,

KUCHEL & SILBERT

JUNE 25, 1982

i

No. 81-

IN THE

Supreme Court of the United States

October Term, 1981

AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

WESTERN ELecTRIC COMPANY, INC., and BELL TELEPHONE

LABORATORIES, INC.,

Petitioners,

-against-

PHONETELE, INC.,

Respondent.

ON PETITION FOR A WRIT OF CERTIORARI TO THE UNITED

STATES COURT OF APPEALS FOR THE NINTH CIRCUIT

Petitioners’ pray that a writ of certiorari be issued to review the

judgment and opinion of the United States Court of Appeals for

the Ninth Circuit, which reversed a judgment of the United

States District Court for the Central District of California dis-

missing this private treble damage antitrust action. The District

Court had found that because petitioners’ tariffs and related con-

duct at issue here are regulated by the Federal Communications

Commission (“FCC”) under a public interest standard that is

inconsistent with the pure competition standard of the antitrust

iaws, that conduct has been impliedly immunized from antitrust

1. Pursuant to Rule 28.1 of the Rules of this Court, petitioners set

forth below the names of all parent companies, subsidiaries (except

wholly owned subsidiaries) and affiliates of the petitioners:

Cincinnati Bell Inc.

Cuban American Telephone and Telegraph Company

Gold Star Semiconductor Limited

The Southern New England Telephone Company.

attack. The Court of Appeals reversed, holding that implied

antitrust immunity is unavailable to petitioners in this case

because the subject tariffs were initiated by petitioners, rather

than by the FCC, and were subsequently disapproved by that

agency (even though such disapproval was prospective only, and

followed the institution of an FCC-administered alternative pro-

gram to petitioners’ tariffs). The Court of Appeals also con-

cluded that antitrust immunity does not attach in this case

because the conduct at issue here was not mandated by the perva-

sive scheme of common carrier regulation to which petitioners are

subject.

Question Presented

Whether the district court may assert jurisdiction over an anti-

trust complaint charging restraint of trade in, and monopoliza-

tion of, telecommunications services and equipment that

petitioners provide through affiliated operating telephone com-

panies solely as pervasively reguiated common carriers under

Title Il of the Communications Act of 1934, which prescribes a

public interest standard governing the challenged conduct incon-

sistent with that of the antitrust laws.

TABLE OF CONTENTS

SUIT oo snaananensteninieliensiigtidaleniabdabipgenens

IID <inccincsrenintancsencctennnsiienntniitiagienhitintianahien

SE ITI "ins snspnipniiddnmesiiisiddseseaniapetnsbanbiinnibeietieens

BITE TEIIIIED “cizncsticdncsnsevintosessssessipeseouocstinnapbienditigtidnianitn

SITTIN ‘arnttetiasittintdinvensahinennsniineucecibitniaiabigianbasenmmnstaledgincens ;

Statutory Provisions Involved ...............cccccceseeeeeeeseeeeenees

STATEMENT OF THE CASE o..0.....cccccccscesseeseeeeeeeees

PD TIED cncititincnnsinscssscskapeiiccsncenninnietnnencennees

The Regulatory Context of the Case «0.0.0...

A. The Establishment of Common Carrier Re-

sponsibility and the Regulation of Interconnec-

Raa rey EE le ok

B. The Introduction of Terminal Equipment Com-

INE ctdaccitcnnicniditisiinsdciaaicinnstsagisinenieianmniisinnetinens

ITD | crtptinininncsenininiseomasenesisetnnseniansemmnnntinneinin

The Decision Below Misconstrues And Conflicts With

Controlling Decisions By This Court On Implied Anti-

EE CTD wccccrncisesctcnccassninnniepeeninnnpiisiniemnesnintansctinane

A. Immunity Must Be Found Because of the In-

consistency Between the Antitrust and Regula-

SI IED \ccepncstincecinioniciningieneeemmiines

B. Immunity Must Be Found Because of Perva-

SD FID epencecsseincccenecescctnctetenstentemanesenines

CONCLUSION ...........0000: sieeapidiansnpimmaytaspieepinimanesenataes

20

25

iv

TABLE OF AUTHORITIES

PAGE

Cases:

American Society of Mechanical Engineers, Inc. v.

Hydrolevel Corp., 50 U.S.L.W. 4512 (U.S. May 18,

TENSEI sasidditieestsctcnstnplatbecdaevniinennssteiineiaidiipenatiaiiebunpeietgnnn 10

American Tel. & Tel. Co. v. FCC, 487 F.2d 865 (2d Cir.

SPC cccsissheleblaaieihiimniiasatinrntaienvinenipaiaienninenenneaion 19

California v. FPC, 369 U.S. 482 (1962) ....cccccccccecceeeeee 21

Carter v. American Tel. & Tel. Co., 365 F.2d 486 (Sth

Cir. 1966), cert. denied, 385 U.S. 1008 (1967) ........ 8, 22

FCC v. RCA Communications, Inc., 346 US. 86

SEINE ‘idenetbebenissedéecbinsetisddivetinitecunasedinsinéjitanennitignppiodet 7, 16, 18

Gordon v. New York Stock Exchange, Inc., 422 U.S. 659

EURO cinntniesnintisincguscsetiaininiereneetnenentestieneiines 5, 14, 15, 17

18, 19, 23

Hawaiian Tel. Co. v. FCC, 498 F.2d 771 (D.C. Cir.

TUITE cin -cunavensciimsnessseniebaetsbdninsenerinnietidtitmepamasan 16

Hughes Tool Co. v. Trans World Airlines, Inc., 409 U.S.

PITTED. Sininhshlecsdindstdtommenempsinnebnieseigiapenieiniesconen 20, 21, 23

Interconnect Planning Corp. v. American Tel. & Tel. Co.,

46S F. Supp. 811 (S.D.N.Y. 1978) .....ccccccccccsescseceeeees 19

Jarvis, Inc. v. American Tel. & Tel. Co., 481 F. Supp. 120

SEs UIOUIEE ddinneisaistenesiidemenentaibitienteaanminditenen 19

Litton Systems, Inc. v. American Tel. & Tel. Co., 487

fe SR GS ee 19

New England Tel. & Tel. Co. v. Department of Pub. Util.,

262 Mass. 137, 159 N.E. 743 (1928) .......cccccccceeeeees

Otter Tail Power Co. v. United States, 410 U.S. 366

TEEPE councscusniidhsioteessendnddadscinteniaiieniuiinimnticbepmatsiepinnineestes 21

Pan American World Airways, Inc. v. United States, 371

Ss ME ENUIIETD sescstebiinseateomseneninetebsnatbiinenientenpevenn 20, 21, 23

Phonetele, Inc. v. American Tel. & Tel. Co., 435 F. Supp.

207 (C.D.Cal. 1977), rev'd, 664 F.2d 716 (9th Cir.

1981) modified March 15, 1982 (9th Cir.) .............. 1,3,4

Phonetele, Inc. v. American Tel. & Tel. Co., 664 F.2d 716

(9th Cir. 1981) modified March 15, 1982 (9th

TEED: Seetenucstesbibinseesionanieiisacnipiaddiniabbiataiensiiblantdbieentite 1, 4, 5, 16, 17

18, 21, 22, 23

PAGE

Radiant Burners, Inc. v. Peoples Gas Light & Coke Co.,

Pe Ws GE CURRED ncrisusinsiptinnatiinanee 10

Silver v. New York Stock Exchange, 373 US. 341

CUI . esvicessvetysecsoccnsenstaninesiecesactaiansaniainienamimtiade 21

Sound, inc. v. American Tel. & Tel. Co., 631 F.2d 1324

ae een ae 19

Terminal Warehouse Co. v. Pennsylvania R.R., 297 US.

FEE COWIE corsviinesoresvesenapsnsintsnssesieateinniiinipadineitiinesdata 20, 23

United States v. American Tel. & Tel. Co., 461 F. Supp.

BOSS Caen FRUUD sescereeiisenintintensescmnaiiieenin 19

United States v. National Association of Securities Deal-

ers, Inc., 422 U.S. 694 (1975) ....ccccccccseeseeseees 5, 14, 15, 17, 18

19, 20, 21, 22, 23

United States v. Philadelphia Nat'l Bank, 374 US. 321

EUTED caccsssssnseneensececenenineneneitesnniantinmnniidamanenanés 21

United States v. Radio Corp. of America, 358 U.S. 334,

a I hE 21

Regulatory Proceedings:

AT&T “Foreign Attachment” Tariff Revisions, 15

F.C.C. 2d 605 (1968), reconsideration denied, 18

Fides GD OTe CODED consnncensiieamnsninneats 9,10, 11

Carterfone, 13 F.C.C. 2d 420, reconsideration denied, 14

Picts Ge O08 CUCGE) cnesiinminmineinimel 9,12

City of Los Angeles v. Southern Cal. Tel. & Tel. Co., 2

P.U.R. (N.S.) 247 (Cal. R.R. Comm'n 1933) ......... 7

Hotel Sherman Co. v. Chicago Tel. & Tel. Co., P.U.R.

1915F 776 (Ill. Pub. Util. Comm’n 1915) ................ 7

Hush-A-Phone Corp., 20 F.C.C. 319 (1955), rev'd on

other grounds, 238 F.2d 266 (D.C. Cir. 1956) ......... )

In Re Bluffs & Winchester Tel. Co., P.U.R. 1915A 928

(Til. Pub. Util. Commm’n 1915) .....ccccccccceeccceceeeeeeeeeee 7

Interstate and Foreign MTS and WATS

55 FIC. BB Fae COR Gee.. cunccanisininisinitinnin 11

G® FEA. 36 FES CUBS ccteccsssesecncusenntenenininns 11,12

56 F.C.C. 2d 593 (1975), 58 F.C.C. 2d 716 (1976),

58 F.C.C. 2d 736 (1976) aff'd sub nom. North

Carolina Utils. Comm'n vy. F.C.C., 552 F.2d 1036

(4th Cir. 1976), cert. denied, 434 U.S. 874

COD TED <nscccssseomessennsnecesientesnsinennipantiennasintebiniaias 12,13

59 F.C.C. 2d 83 (1976), 64 F.C.C.2d 1058 (1977),

GF PICA. BE TSaD CR PCD cnasteicnetetnenanenic 12

“ot v. Mosier Valley Tel. Co., P.U.R. 1918E 425

¥ ff: fh eae 7

Re Curtis Tel. Co., P.U.R. 1917A 674 (Neb. R.R.

CARRIED TOUCGR ccvevicctinisticcctsmeneensinsiidediinniinaliatiaiiiaiitias 7

vi

PAGE

Re Franksville Tel. Co., P.U.R. 1917A 270 (Wis. R.R.

IS RES eS Se ere 7

Re Springs Mut. Tel. Co., P.U.R. 1918A 488 (S.D. Bd.

CIID GIT cncintnceciintestahnaenertenetesemnnnmiesscsginense 7

Telerent Leasing Corp., 45 F.C.C. 2d 204 (1974), aff'd

sub nom. North Carolina Utilities Comm'n v. F.C.C.,

hy 787 (4th Cir.), cert. denied, 429 U.S. 1027

CE RE A Peo nes 13

Western States Tel. Co. v. American Tel. & Tel. Co., 19

I 10

Federal Statutes:

Clayton Act, 15 U.S.C. § 12 ef seg. (1976) 0.00.00. l

<a SRS: nee 1

8 Ee eee 2

Communications Act of 1934, 47 U.S.C. § 151 ef seq.

III Sates eitenrneeneendnenntgedemmeussateimmmbebensmestpusnscsrmnncceuntns 1,2,8

AOR aRicens SO .

(A il TE IE ac CTD 6, 15, 22

ST schasidechtiscnnatedndniiiasbaiiachidestantaatincatiibtipapedemmmecssecennsenens 6, 15,2

STITT eisai denna nantiainaaipanatennnencants

STII siicuinesdainciitadatdbieesinnaetniemenetibiedinteneecmnneasiastinee 6,

TT Tin tcieeinaeihhenint a titeaineeiamamemmnmmmneninans

ea eee l

Interstate Commerce Act, 49 U.S.C. § | ef seq. (1976)

Maloney Act, 15 U.S.C. § 780-3 (1976) .o....cccccccccceeees

Mann-Elkins Act of 1910, 36 Stat. 539 (1910) ............

Sherman Act, 15 U.S.C. § 1 ef seg. (1976) oo...

IED is I. cantsevnceenccnscscennscecsnsdudevnsssneccnsscssescsscessencscensesece

Transportation Act of 1920, 41 Stat. 456.000.000.000

RB ee

Federal Regulations:

TR 12

State Statutes:

Cal. Pub. Util. Code § 451 (West 1975) c.cccccccssssveen 5,6

Cal. Pub. Util. Code §§ 701, 728-729, 761-762, 766-769

CURED CRUD) cccnccsssecssscesvenssvesrsssnenesventheennsescesessesvenecsssees 6

N

— NN RK KF INN K AMWANADA A DW

vil

PAGE

GN Se

FF ee Fe fF ee

Md. Ann. Code art. 78, § 28 (1980) .0........ccccccccceeeeeeees

Md. Ann. Code art. 78, § 75 (1980) ........cccccccccccceeeeeeee

SS

Neb. Rev. Stat. ch. 75, arts. 1, 6-8 (1976) 0.00.0...

Neb. Rev. Stat. ch. 75, art. 6, § 609 (1976) ................

Neb. Rev. Stat. ch. 75 art. 6, § 611 (1976) .................

N.Y. Pub. Serv. Law art. 5 (McKinney 1955) ............

N.Y. Pub. Serv. Law § 91 (McKinney 1955) ............... 5,

Ohio Rev. Code Ann. tit. 49, chs. 4901, 4903, 4905, 4909,

8 ie 5 ne a AR

Ohio Rev. Code Ann. tit. 49, § 4905.21 (Page 1977) ..

Ohio Rev. Code Ann. tit. 49, § 4905.22 (Page 1977) ..

Tex. Rev. Civ. Stat. Ann. art. 1446c (Vernon 1980) ...

bay Civ. Stat. Ann. art. 1446c, §§ 35, 38 (Vernon

IPT vininderanentiacaseentnnsnesaeiimanssnpenniabeiiiiamstntentsaiiibitatimiataians

Tex. Rev. Civ. Stat. Ann. art. 1446c, § 58 ( Vernon 1980)

Congressional Materials:

ae a of a Study of Securities Markets of the

EC Doc. No. 95, pt. 4, 88th Cong., Ist Sess.

(1963). sureattansentinenaguanaidatiesiteassitiiiaitidintiitabinpdinicne 22

S. Rep. No. 781, 73rd Cong., 2d Sess. (1934) ............. x

H.R. Rep. No. 1850, 73rd Cong., 2d Sess. (1934) ...... 7

Miscellaneous:

1 P. Areeda & D. Turner, Antitrust Law, 4 224(d)

AE SEE Eas SAL owen 17

Computer Science and Engineering Board of the Nation-

al Academy of Science, Technical Analysis of Common

Carrier/User Interconnection (1970) ........00eeeeoees 11

Memorandum for the Civil Aeronautics Board as Amicus

Curiae, Hughes Tool Co. v. Trans World Airlines,inc.,

GE 23

ann aAanen DAPAAYWAAAYUDA DW

Opinions Below

The initial opinion of the Court of Appeals, filed December 3,

1981, is officially reported at 664 F.2d 716. The March 15, 1982,

opinion of the Court of Appeals, modifying in part its initial

decision, is not yet reported. The opinion of the District Court,

filed July 26, 1977, is officially reported at 435 F. Supp. 207.

Copies of the foregoing opinions appear in Appendices A, B and

C hereto.’

Jurisdiction

The judgment of the Court of Appeals was entered on Decem-

ber 3, 1981. A timely petition for rehearing and suggestion for

rehearing en banc was denied by order filed March 31, 1982

(Appendix D hereto), and this petition for certiorari was filed

within 90 days of that date. This Court's jurisdiction is invoked

under 28 U.S.C. § 1254(1).

Statutory Provisions Involved

The pertinent portions of the Sherman Act (26 Stat. 209, as

amended, 15 U.S.C. § | et seg.), the Clayton Act (38 Stat. 730,

as amended, 15 U.S.C. § !2 et seq.), and the Communications

Act of 1934 (48 Stat. 1064, as amended, 47 U.S.C. § 151 et seq.)

are set forth in Appendix E hereto.

STATEMENT OF THE CASE

Proceedings Below

This petition arises out of the dismissal of a complaint charging

that, by filing, implementing, and enforcing tariffs that set forth

terms and conditions for the interconnection of customer-pro-

vided telephone equipment, petitioners have violated sections |

and 2 of the Sherman Act (15 U.S.C. §§ 1, 2) and section 3 of the

Clayton Act (15 U.S.C. § 14).

2. Because the Appendices to this Petition are voluminous, a7 are

being separately presented herewith pursuant to Rule 2!.1(k) of this

2

Petitioners American Telephone and Telegraph Company,

Western Electric Company, Inc., and Bell Telephone Laborato-

ries, Inc., together with their twenty-three affiliated operating

telephone companies, are part of an integrated telecommunica-

tions common carrier enterprise known as the Bell System. In

cooperation with some 1,400 independent telephone companies,

the Bell System owns, operates, and manages the nationwide

telecommunications network under a pervasive scheme of regula-

tion established by the Communications Act of 1934 (47 U.S.C.

§ 151 et seg.) and comparable state regulatory statutes in each of

the contiguous forty-eight States and the District of Columbia.

Bell System companies are required by law to provide terminal

equipment to their customers as a part of the telecommunications

service they provide under tariffs on file with the appropriate

regulatory agencies in the jurisdictions in which they operate.

Throughout the period involved in this case, the Bell System's

interconnection tariffs also set forth the terms and conditions

upon which customer-provided devices could be interconnected to

the nationwide telecommunications network.

Respondent Phonetele, Inc., is engaged in the manufacture and

sale of a device known as the “Phonemaster,” which, when con-

nected to telephone lines, monitors dialing signals and permits or

restricts transmission of telephone calls to predetermined calling

areas. Phonetele is not licensed to provide, and does not provide,

telephone service. Instead, Phonetele sells its Phonemaster

device directly to members of the general public, who then con-

nect that device to the nationwide telecommunications network

over which telephone service is provided by telecommunications

common carriers. In 1974, Phonetele initiated this action in the

United States District Court for the Central District of Califor-

nia, purporting to base jurisdiction upon section 4 of the Sherman

Act (15 U.S.C. § 4) and sections 4, 15 and 16 of the Clayton Act

(15 U.S.C. §$§ 15, 25 and 26).

The complaint in this case (Appendix F hereto) constitutes a

direct attack upon the filing, implementation, and enforcement of

the Bell System's interconnection tariffs. Thus, the complaint

3

alleges as an antitrust violation that petitioners “caused to be

filed” tariffs pertaining to the interconnection of customer-pro-

vided equipment (Complaint 132; A-104), that petitioners

“actively enforce” these tariffs (Complaint 133; A-105), and

that the tariffs were “interpreted” by petitioners to apply to

respondent's Phonemaster device (Complaint § 34: A-105). The

remaining conduct alleged in the complaint also relates to the

implementation of these interconnection tariffs. Thus, Phonetele

alleges that the protective connecting arrangements required by

these interconnection tariffs were “needlessly expensive” in Cali-

fornia (Complaint 1 35; A-105), were even more costly in New

York (Complaint 1 39; A-106), and were not always available

when requested (Complaint 1% 36-38; A-105-106). Phonetele

also alleges that the Bell System's provision of telephone equip-

ment to its customers as a part of the telecommunications service

provided in accordance with its tariffs constitutes an unlawful tie-

in of telephone equipment with “telephone lines” in violation of

the antitrust laws (Complaint 17 41-42; A-106-107).

In granting petitioners’ motion to dismiss the complaint, the

District Court held that these claims are not properly cognizable

under the antitrust laws because the regulatory program estab-

lished by Congress in the Communications Act vests “compre-

hensive jurisdiction” over the terms, implementation, and

enforcement of tariffs pertaining to the interconnection of cus-

tomer-provided equipment in the Federal Communications Com-

mission (“FCC”) pursuant to a “public interest standard” and

that the public interest standard under which this regulatory

jurisdiction is exercised is fundamentally different from, and

inconsistent with, “the antitrust goals of encouraging free com-

petition.” 435 F. Supp. at 210-211; A-71-73. After carefully

analyzing both the FCC’s broad regulatory powers and the spe-

cific exercise of those powers in connection with the particular

interconnection tariffs at issue in this case, the District Court

determined that the antitrust laws and the laws governing the

regulation of interconnection “are sufficiently mutually repug-

nant to compel the inference that Congress intended to repeal the

4

antitrust laws otherwise applicable to the area of interconnection”

(435 F. Supp. at 212; A-74) and concluded that immunity from

the antitrust laws must obtain to “prevent the application of

conflicting statutory standards to the [petitioners] and . . . [to]

protect the integrity of the regulatory program that Congress

established in the Communications Act” (435 F. Supp. at 214; A-

76).

The Court of Appeals, in a 2-1 decision, reversed. The panel

majority's opinion at the outset briefly described the regulatory

scheme embodied in the Communications Act and went on to

review the historical background of petitioners’ interconnection

tariffs and the FCC’s actions and decisions regarding intercon-

nection. 664 F.2d at 721-26; A-4-8.° The majority opinion cited

as “critical” the fact that the interconnection tariffs and related

conduct at issue here were “initiated by [petitioners] and not the

FCC.” Jd. at 727 n.32; A-32. The panel majority then ruled

that a necessary prerequisite for implied antitrust immunity is the

existence of an “inconsistency between the challenged conduct

and an express policy of the governing agency,” rather than an

inconsistency between the legal standard of the antitrust laws and

that of the regulatory statute. /d. at 732; A-14. The majority

went on to conclude that, because the FCC in 1975, seven years

after the tariffs were filed, ultimately found petitioners’ intercon-

nection tariffs to be unreasonable for the future in view of the

establishment of an alternative, FCC-prescribed approach to

interconnection, “this case involves no conflict between pro-com-

petitive antitrust policies and agency policies.” /d. at 733; A-16.

The panel majority also declined to find petitioners’ intercon-

nection practices impliedly immunized from antitrust liability by

the pervasive scheme of common carrier regulation embodied in

the Communications Act. /d. at 728-30; A-11-13. The panel

majority concluded that, in contrast to cases in which such perva-

sive regulation has been found to give rise to implied antitrust

3. Aaditional facts een to the regulation of petitioners’ inter-

ee agency action thereon are described at pages 9-

13, infra.

5

immunity (e. g., United States v. National Association of Securi-

ties Dealers, Inc., 422 U.S. 694 (1975) ), the legislative history of

the Communications Act showed no congressional awareness of

the practices at issue here (id. at 729; A-12); that there was no

“specific statutory authorization” for petitioner's interconnection

tariffs, and that the “crucial factor” of sanction of those practices

by the FCC was absent (id. at 730; A-13); and that the FCC's

regulatory responsibility under the Communications Act “differs

decisively” from that of the agencies in cases in which implied

immunity has been found (id.).

The Regulatory Context of the Case

As petitioners demonstrate below, the only facts relevant to

determining implied immunity under the governing legal stan-

dard are those pertaining to the nature and scope of regulatory

authority. For that reason, it is necessary to address the regula-

tory context within which the conduct at issue in this case arose.

Regulatory statutes, rules, orders, and other matters of record in

administrative proceedings are subject to judicial notice by this

Court. See Gordon v. New York Stock Exchange, Inc., 422 US.

659, 686 (1975) (“We have before us the detailed experience of

the [agency] regulatory activities, and we have the debates in the

Congress. . . . This information is sufficient to permit an

informed decision as to the existence of an implied repeal.” )

A. The Establishment of Common Carrier Responsibility

and the Regulation of Interconnection

The state regulatory statutes that were enacted in the late

nineteenth and early twentieth centuries dealing with the provi-

sion of telecommunications services provided that telephone com-

panies should be treated as common carriers, thereby imposing a

whole range of service responsibilities. A common carrier has an

obligation to provide reasonably adequate service at reasonable

rates within its geographic areas‘ and it must continue to provide

4. See, e.g., Cal. Pub. Util. Code § 451 (West 1975); Md. Ann.

Code art. 78, § 28 (1980); N.Y. Pub. Serv. Law § 91 (McKinney

1955); Neb. Rev. Stat. ch. 75, art. 6, § 609 (1976); Ohio Rev. Code

6

such service unless and until it receives authority to abandon

service from the responsible regulatory agency.” These common

carrier obligations are monitored and enforced by regulatory con-

trols over every aspect of the telecommunications business,

including controls over the rates and profits of the carriers, over

the kinds, quality, and availability of the service offered by the

carriers, over the relationships between carriers, and over entry

into and exit from any segment of the industry."

By 1910, nearly every State in the country had enacted

legislation of this kind to govern the provision of telecommunica-

tions services,’ and the common carrier responsibilities imposed

by these statutes upon the telephone companies—particularly

statutes relating to the obligation of the companies to provide

end-to-end service—were vigorously enforced. For example,

when some independent telephone companies permitted users to

provide their own equipment, state regulatory agencies ordered

the telephone companies involved to purchase that equipment

from their customers so as to make clear the companies’ obliga-

tion to protect the integrity of the network by timely and proper

maintenance and replacement of all equipment connected to the

Ann. tit. 49, § 4905.22 (Page 1977); Tex. Rev. Civ. Stat. Ann. art.

1446c, §§ 35, 38 (Vernon 1980). Common carriers have the same

obligation in furnishing interstate telecommunications service. See 47

U.S.C. §§ 201, 214(d).

5. See, e.g., Cal. Pub. Util. Code § 451 (West 1975); Md. Ann.

Code art. 78, § 75 (1980); N.Y. Pub. Serv. Law § 91 (McKinney

1955); Neb. Rev. Stat. ch. 75, art. 6, § 611 (1976); Ohio Rev. Code

Ann, tit. 49, § 4905.21 (Page 1977); Tex. Rev. Civ. Stat. Ann. art.

1446c, § 58 (Vernon 1980). Cf. 47 U.S.C. § 214(a) (imposing require-

ment with respect to interstate telecommunications service).

6. See, e.g., Cal. Pub. Util. Code §§ 701, 728-729, 761-762, 766-769

( West 1975); Md. Ann. Code art. 78 (1980); N.Y. Pub. Serv. Law art.

5 (McKinney 1955); Neb. Rev. Stat. ch. 75, arts. 1, 6-8 (1976); Ohio

Rev. Code Ann. tit. 49, chs. 4901, 4903, 4905, 4909, 4931 (Page 1977);

Tex. Rev. Civ. Stat. Ann. art. 1446c (Vernon 1980); cf. 47 U.S.C.

§§ 201-203, 205, 213-215.

7. In 1879, Connecticut and Missouri became the first States to

regulate telephone companies as public utilities (Conn. Pub. Acts 1879,

ch. 36; Mo. Rev. Stat. 1879 § 883). Today every State comprehen-

sively regulates telecommunications service in accordance with common

carrier principles.

5

network.” These state regulatory agencies also consistently

rejected requests by customers for permission to interconnect

their own equipment to the lines of the telephone company.’

The first statute establishing federal regulation of telecommu-

nications, the Mann-Elkins Act of 1910 (36 Stat. 539), subjected

telecommunications common carriers to regulation by the Inter-

state Commerce Commission under the Interstate Commerce Act

(49 U.S.C. § | et seg. (1976) ) on substantially the same basis as

railroads. When the Interstate Commerce Act was amended by

the Transportation Act of 1920 (41 Stat. 456) to reflect an

important shift in federal regulatory policy “from one of prohibit-

ing restraints on competition to one of providing relief from the

rigors of competition,” that shift in policy was, therefore, fully as

applicable to telecommunications common carriers as it was to

railroads. FCC v. RCA Communications, Inc., 346 U.S. 86, 92

(1953). Subsequently, in order to close the “many important

gaps”"’ that existed in the federal regulation of the telecommuni-

cations industry under the Interstate Commerce Act, Congress

8. See, eg. In re Bluffs & Winchester Tel. Co., P.U.R. 1915A 928

(1H. Pub. Util. Comm'n 1915); Re Franksville Tel. Co., P-U.R. 1917A

270 (Wis. R.R. Comm'n 1916); Re Curtis Tel. Co., P.U.R. 1917A 674

(Neb. R.R. Comm'n 1916); Re Springs Mut. Tel. Co., P.U.R. 1918A

488 (S.D. Bd. R.R. Comm'rs 1917); Littlepage v. Mosier Valley Tel.

Co., P.U.R. 1918E 425 (Or. Pub. Serv. Comm'n 1918).

9. See, e.g., City of Los Angeles v. Southern Cal. Tel.Co., 2 P.U.R.

(N.S.) 247, 5 9, 251-252 (Cal. R.R. Comm'n 1933); Hotel Sherman

Co. v. Chicago Tel. Co., P.U.R. 1915F 776, 782-83 (Ill. Pub. Util.

Comm'n 1915); New England Tel. & Tel. Co. v. Department of Pub.

Util., 262 Mass. 137, 159 N.E. 743 (1928).

10. The legislative history of the Communications Act makes clear

the purpose of that Act to establish a comprehensive and pervasive

scheme of regulation:

[T]he [Interstate Commerce] Act never has been perfected to

—— mee regulation of communications, but has

really been an adaption of railroad regulation to the communica-

tions field. As a consequence, there are many inconsistencies in

the terms of the act and also many important gaps which hinder

effective regulation. In this bill the attempt has been made to

preserve the value of court and commission interpretation of that

act, but at the same time modifying the provisions so as to

provide adequately for the regulation of communications com-

mon carriers.

H.R. Rep. No. 1850, 73rd Cong., 2d Sess. at 4 (1934).

enacted the Communications Act of 1934 (47 U.S.C.

§ 151 et seq. (1976)), which removed telecommunications com-

mon carriers from the jurisdiction of the Interstate Commerce

Commission and subjected them to regulation by a new agency,

the Federal Communications Commission, having comprehensive

jurisdiction over the industry'' and substantial “additional

authority”. The Communications Act of 1934 expressly pre-

served state jurisdiction over certain aspects of the telecommuni-

cations industry while establishing comprehensive federal

jurisdiction over the remaining aspects of the industry, thus creat-

ing an “intricate statutory structure in which scarcely a single

business act is free from continuous regulation or at least admin-

istrative governmental review.”

The plan of regulation embodied in the Communications Act

was identical to that already in effect in most of the states: tele-

communications common carriers were required to offer to the

public “all instrumentalities, facilities, apparatus, and services”

necessary to provide telecommunications service (47 U.S.C.

§ 153(a), (b) (1976)); and the FCC was given broad powers to

assure the availability and quality of the equipment needed to

make available that service, including the power to “require by

order any carrier . . . to provide itself with adequate facilities for

the expeditious and efficient performance of its service as a com-

mon carrier .. .” (id. § 214(d)). Where state and federal

regulatory statutes imposed common obligations, the telephone

companies generally filed the same tariffs with the FCC as were

filed with the state regulatory agencies. Hence, the tariffs

accepted by the FCC following the enactment of the Communica-

tions Act contained provisions generally prohibiting the intercon-

nection of customer-provided equipment in terms essentially

identical to those embodied in state tariffs.

11. See S. Rep. No. 781, 73rd Cong., 2d Sess. at 3 (1934).

12. 47 USC. § 151 (1976).

13. Carter v. American Tel. & Tel. Co., 365 F.2d 486, 495 (Sth Cir.

1966), cert. denied, 385 U.S. 1008 (1967).

9

B. The Introduction of Terminal Equipment Competition

In Carterfone, 13 F.C.C.2d 420, reconsideration denied, 14

F.C.C.2d 571 (1968), the FCC embarked upon a new regulatory

policy with respect to the interconnection of customer-provided

equipment to the telephone network. In that decision, which

dealt only with an acoustically-connected device that did not

duplicate or replace any equipment provided by the telephone

companies, the FCC invalidated those provisions in the telephone

companies’ tariffs that had traditionally prohibited the attach-

ment of customer-provided equipment to the network and ordered

that the interconnection of such equipment should henceforth be

allowed “so long as the interconnection does not adversely affect

the telephone company’s operations or the telephone system’s

utility for others.” 13 F.C.C.2d at 424.

In announcing this new policy, the Commission specifically

pointed out that the carriers “were in no wise precluded from

adopting reasonable standards to prevent harmful interconnec-

tion.” 14 F.C.C.2d at 572. Its decision left “to the initiative of

the telephone companies” the problem of reconciling the conflict

between the new policy of allowing the attachment of customer-

provided equipment to the telephone network and the concern for

network safety and efficiency. Jd.‘ Moreover, this conflict had

to be resolved by the carriers at a time when even the Commission

was openly acknowledging that it was then “in no position to

determine the extent to which” interconnection of customer-pro-

vided equipment could properly be permitted “consistent with

efficient and economic telephone service... .”. AT&T “Foreign

Attachment” Tariff Revisions, 15 F.C.C.2d 605, 610 (1968),

14. Consistent with the long line of state regulatory decisions dis-

cussed at p. 7, nn. 8-9 above, recognizing the complete, end-to-end-

service responsibility of telephone common carriers, the FCC had earlier

determined that telephone companies have a — and responsibility”

under the Communications Act “to prevent the harmful effects of

improper devices or customer practices from being introduced into the

system.” Hush-A-Phone Corp., 20 F.C.C. 391, 424-25 (1955), rev'd

on other grounds, 238 F.2d 266 (D.C. Cir. 1956).

10

reconsideration denied, 18 F.C.C. 2d 871, 873 (1969); Western

States Tel. Co. v. American Tel. & Tel. Co., 19 F.C.C.2d 1068,

1072 (1969).

The Bell System responded to the Commission’s new policy by

filing the so-called post-Carterfone tariffs which Phonetele seeks

to attack under the antitrust laws in this case. These tariffs went

beyond Carterfone by permitting the direct electrical connection

to the telephone network, through a network control signaling

unit and protective connecting arrangement provided, installed

and maintained by an operating telephone company, of any cus-

tomer-provided cquipment which met certain minimal technical

standards set forth in the tariffs. The Bell System could riot file

tariffs requiring the FCC to adopt and administer a program

imposing standards on interconnected equipment (also referred

to as a certification program). The only certification alternative

available in 1968 would have been for the Bell System to devise,

impose and enforce standards on its own, a course which would

have placed it in the untenable position of setting standards for

the business activities of its competitors, thereby exposing it to

potential antitrust liability. See Radiant Burners, Inc. v. Peoples

Gas Light & Coke Co., 364 U.S. 656 (1961); see also American

Society of Mechanical Engineers, Inc. v. Hydrolevel Corp., 50

U.S.L.W. 4512 (U.S. May 18, 1982).

Immediately after their filing in 1968, the FCC undertook an

intensive investigation of the new tariffs—an investigation in

which virtually everyone interested in the interconnection ques-

tion (including Phonetele) participated. The Commission con-

cluded that the new tariffs should be permitted to go into effect,

and in so doing the FCC specifically pointed out that the tariffs

were “not in conflict with [the] Carterfone ruling.” AT&T

“Foreign Attachment” Tariff Revisions, \5 F.C.C.2d 605, 610

(1968), reconsideration denied, \8 F.C.C.2d 871, 872 (1969).

However, the FCC declined formally to approve the tariffs and

maintained its option to decide thereafter that a regulatory

approach different from that reflected in the post-Carterfone tar-

iffs might ultimately be found to serve the public interest better

for the future. 15 F.C.C.2d at 610-11.

The FCC’s acceptance of the post-Carterfone tariffs was only

the beginning of an intensive period of regulatory activity con-

cerning the interconnectio : of terminal equipment to the tele-

phone network. Contemporaneously with its acceptance of the

post-Carterfone tariff revisions, the FCC commissioned a study

by the National Academy of Science of the “complex scientific

and technical issues” raised by its new interconnection policy.

AT&T “Foreign Attachment” Tariff Revisions, \8 F.C.C.2d 871,

875 (1969)."° The Commission later initiated an informal inves-

tigation of interconnection by the Chief of its Common Carrier

Bureau, in an effort to determine the feasibility of other

approaches to the interconnection of customer-provided equip-

ment “without impairing the functioning of the basic nationwide

telephone network” and without causing “adverse effects upon. . .

services provided to the public generally.” Interstate and For-

eign MTS and WATS, 35 F.C.C.2d 539, 540 (1972). The FCC

also instituted Docket 19528, a Federal-State Joint Board inves-

tigation of interconnection, in cooperation with the state regula-

tory agencies under section 410(c) of the Communications Act

(47 U.S.C. § 410(c) (1976)), in order to decide whether “to go

beyond what we ordered in Carterfone . . . and, if so, what terms

and conditions should apply to protect the telephone system and

services of others.” 35 F.C.C.2d at 542."

15. The Academy subsequettly concluded that “uncontrolled inter-

connection to the common carrier network as it now exists would be

harmful,” and that the PCA, or a certification program properly autho-

rized and enforced by a tomy ecg agency, were reasonable methods

of protecting the network from harm. Computer Science and Engineer-

ing Board of the National Academy of Science, Technical Analysis of

Common Carrier/User Interconnection, at ii (1970).

16. The FCC thereafter continued to express its uncertainty as to

whether alternatives to petitioners’ post-Carterfone tariffs were in the

public interest. In its First Suppiemental Notice in Docket 19528,

released in April, 1973, the FCC acknowledged that the threshhold

question involved in the proceeding was

whether the telephone companies . . . should be required or

permitted to make further significant revisions in their . . . tariffs

12

In 1975, seven years after Carterfone, the FCC established a

registration program under which most types of terminal equip-

ment may be submitted to the FCC for registration under a

detailed set of technical criteria prescribed by the Commission to

protect against network harm." If registered with the FCC, such

equipment no longer requires a protective connecting arrange-

ment."* However, recognizing the risks of harm to the network

from uncontrolled interconnection, the registration orders specifi-

cally required the continued use of a protective connecting

arrangement for the interconnection of equipment not registered

with the FCC. Interstate and Foreign MTS and WATS, 56

F.C.C. 2d 593, 599 (1975), 58 F.C.C. 2d 736, 747 (1976), 67

F.C.C. 2d 1255, 1272 n.21 (1978). In view of its prescription of

a registration program as an alternative “effective means for

preventing such harms,” the FCC found the post-Carterfone tar-

iffs, which required the use of PCAs for all interconnections, to be

prospectively unreasonable. 56 F.C.C. 2d at 598-99. Finally,

SO as to give customers options that they do not now have there-

under, namely that of being able generally to provide their own

network control signalling units ( CSUs} and any needed con-

necting arrangements (CAs), or the functional equivalent

thereof, in lieu of using telephone company-provided NCSUs

and CAs as is now required under the tariffs in all interconnec-

tion situations involving direct electrical connections. The sec-

ond basic issue is to determine what terms and conditions should

govern if we should decide to extend such options to customers.

Interstate and Foreign MTS and WATS, 40 F.C.C.2d 315 (1973)

(emphasis supplied).

17. The regulations for the Commission's registration program, 47

C.F.R. pt. 68, comprise more than a hundred pages of ures and

technical specifications or performance criteria.

18. See Interstate and Foreign MTS and WATS, 56 F.C.C .2d 593

(1975) (First Report and Order in Docket No. 19528), 58 F.C.C.2d 716

(1976) (Memorandum Opinion and Order in Docket No. 19528), 58

F.C.C.2d 736 (1976) (Second Re and Order in Docket No. 19528),

aff'd sub nom. North Carolina Utils. Comm'n v. FCC, 552 F.2d 1036

(4th Cir. 1976), cert. denied, 434 U.S. 874 (1977); Interstate and

Foreign MTS and WATS, 59 F.C.C.2d 83 (1976) (Memorandum Opin-

ion and Order in Docket No. 19528), 64 F.C.C.2d 1058 (1977) (Mem-

orandum Opinion and Order in Docket No. 19528), 67 F.C.C.2d 1255

(1978) (Third Report and Order in Docket No. 19528).

13

the FCC made clear that its activity in the interconnection area

by no means ended with the promulgation of the registration

program:

[A]s the registration program established herein is new,

we believe it should be subject to continuing review and

modification, if necessary, as actual experience under the

program warrants.

56 F.C.C.2d at 613.

The FCC's regulatory authority extended to the Bell System's

conduct in implementing and enforcing the post-Carterfone tar-

iffs. Thus, as the FCC expressly pointed out in Telerent Leasing

Corp., 45 F.C.C.2d 204 (1974), aff'd sub nom. North Carolina

Utilities Comm'n v. FCC, 537 F.2d 787 (4th Cir.), cert. denied,

429 U.S. 1027 (1976):

We have also been monitoring the manner and effective-

ness with which the telephone companies are administer-

ing their tariff regulations, with particular reference to the

availability and efficiency of the interface protective

arrangements required by such tariffs. We would expect

the State commissions to do likewise in discharging their

responsibilities with respect to the maintenance of efficient

intrastate service.

45 F.C.C.2d at 222 (emphasis supplied).

In short, the history of interconnection shows a consistent pat-

tern of active and pervasive regulation by the FCC under the

public interest standard. As the Commission itself put it in

Telerent:

The Commission's powers to regulate interstate and for-

eign communications services are comprehensive and per-

vasive and embrace the terms and conditions under which

customers shall be reasonably permitted to use their own

equipment in connection with such services.

Id. at 217.

14

ARGUMENT

The Decision Below Misconstrues And Conflicts With Controlling

Decisions By This Court On Implied Antitrust Immunity

The court below erroneously reversed the District Court's dis-

missal of a complaint charging that the filing, implementation

and enforcement of tariffs setting forth the terms and conditions

for the interconnection to telephone company lines of customer-

provided equipment are in violation of the Sherman Act. In

ruling that the conduct in question was not impliedly immune

from the antitrust laws, the lower court misconstrued this Court's

decisions in Gordon v. New York Stock Exchange, Inc., 422 US.

659 (1975) and United States v. National Association of Securi-

ties Dealers, Inc., 422 U.S. 694 (1975), holding that implied

antitrust immunity is based upon inconsistent statutory standards

or pervasive regulation. Because the conduct at issue is subject

to a public interest standard which is inconsistent with the com-

petitive standard of the antitrust laws, and the Federal Communi-

cations Commission pervasively regulates such conduct, the court

below is in error and should be reversed. This action is only one

of a number of pending cases which raise the issue of implied

antitrust immunity for the interconnection-related conduct of

regulated telecommunications common carriers, and granting

review to resolve that important jurisdictional question in this

action will promote judicial economy in those other litigations.

A. Immunity Must Be Found Because of the Inconsistency

Between the Antitrust and Regulatory Standards

This Court has held that immunity from the antitrust laws will

attach where the standard of a federal regulatory system is incon-

sistent with the competitive standard of the antitrust laws.

United States v. National Association of Securities Dealers, Inc.,

422 U.S. 694 (1975) (“NASD”); Gordon v. New York Stock

Exchange, Inc., 422 U.S. 659 (1975). As the Court has recog-

nized, finding immunity in such a situation is essential to protect

15

the regulated company from being obligated simultaneously to

pursue the conflicting objectives of the antitrust and regulatory

regimes.

The antitrust claim in Gordon challenged certain commission

rate practices of the New York and American Stock Exchanges.

The Court reasoned that whereas “the sole aim” of the antitrust

laws is “to protect competition,” 422 U.S. at 689, the practices at

issue in Gordon were subject to regulation under a public interest

standard which required the SEC to consider factors i.. addition

to competition in determining where the public interest lies.

Accordingly, the Court concluded that applying the antitrust

laws to these practices would unfairly and improperly subject the

defendants to conflicting standards. /d.

NASD reinforced the holding of Gordon. The Court con-

cluded that the SEC’s authority to review certain secondary mar-

ket constraints under a standard different from and inconsistent

with the free competition standard embodied in the antitrust laws

“necessarily” compelled the conclusion that the challenged

restraints were impliedly immune from the antitrust laws. 422

U.S. at 721-22. Once again, the Court focused upon the incon-

sistency between the regulatory and antitrust standards:

In this instance, maintenance of an antitrust action .. .

poses a substantial danger that appellees would be sub-

jected to duplicative and inconsistent standards. This is

hardly a result that Congress would have mandated.

Id. at 735.

The application of the foregoing principle to the instant case

compels a finding of immunity because petitioners’ intercennec-

tion-related conduct is regulated by the FCC under a public

interest standard different from and inconsistent with the pure

competition standard of the antitrust laws. There can be no

dispute that the FCC regulates petitioners’ conduct under a pub-

lic interest standard. See, e.g., 47 U.S.C. §§ 201, 214 (1976).

Competition is one relevant factor in appraising how best to serve

the public interest, but, as the court below found,

16

determinations of whether a company’s practices are in

the public interest as defined by the [Communications]

Act require FCC consideration of factors other than com-

petition. Such factors include network safety and effi-

ciency, the need of the public for reliable service at

reasonable rates, the proper allocation of the rate burden,

the financial integrity of the carriers, and the future needs

of both users and carriers.

664 F.2d at 722; A-4 (footnote omitted).

In FCC v. RCA Communications, Inc., 346 U.S. 86 (1953),

this Court held that the FCC had erred in basing a decision

entirely on enhancing competition rather than by considering all

aspects of the public interest standard of the Communications

Act. The Court explained:

[A]s to the industry before us in this case, there has been

serious qualification of competition as the regulating

mechanism. The very fact that Congress has seen fit to

enter into the comprehensive regulation of communica-

tions embodied in the Federal Communications Act of

1934 contradicts the notion that national policy unquali-

fiedly favors competition in communications. ... In this

field, . . . encouragement of competition as such has not

been considered the single or controlling reliance for safe-

guarding the public interest.

Id. at 93; accord, Hawaiian Tel. Co. v. FCC, 498 F.2d at 771, 777

(D.C. Cir. 1974) (FCC may not “automatically equate the pub-

lic interest with additional competition”). Thus, petitioners are

compelled to consider factors other than competition in filing

tariffs and determining how to discharge their obligations under

the Communications Act.

The predicament the Bell System faced in formulating its inter-

connection tariffs confirms the wisdom of this Court's conclusion

that regulation under an inconsistent standard confers antitrust

immunity. Petitioners were obligated to consider factors such as

whether interconnection would jeopardize the technical integrity

of the telephone network and thereby imperil their ability to

17

discharge their common carrier obligation to furnish telephone

service without posing dangers to their customers or employees or

impairing the quality of service. Thus, petitioners were not able

simply to follow the rules that govern unregulated markets; they

were required to pursue policies that best served the public

interest.

In the instant case, the Court of Appeals acknowledged that the

FCC regulates petitioners’ conduct under a public interest stan-

dard rather than a pure competition standard. 664 F.2d at 722;

A-4. It also recognized that Gordon and NASD held that anti-

trust immunity must be found for conduct regulated under a

standard inconsistent with that of the antitrust laws. /d. at 726;

A-9. Nevertheless, the court below concluded that immunity

cannot obtain in this case because the FCC subsequently disap-

proved petitioners’ post-Carterfone tariffs and therefore “this

case involves no conflict between pro-competitive antitrust poli-

cies and agency policies.” 664 F.2d at 733; A-16. This test

fundamentally distorts the standard for a finding of implied

immunity prescribed by this Court's decisions.

As demonstrated above, both Gordon and NASD held that

implied antitrust immunity attaches by reason of a conflict

between the legal standards of the regulatory statute and the

antitrust laws, without regard to the particular policies that may

be adopted from time to time by the regulatory agency pursuant

to its legislative mandate. Sve | P. Areeda & D. Turner, Anti-

trust Law 1224(d), at 149-53 (1978). Thus, in Gordon this

Court held that the defendants’ fixed commission rate structure

was immune from antitrust attack, notwithstanding that the SEC

had specifically stated that it had “not approved” the practice in

question and that it had subsequently disapproved the practice as

contrary to the public interest. 422 U.S. at 672-75, €77. Simi-

larly, NASD held impliedly immune from antitrust attack restric-

tive practices in the marketing of mutual fund securities which

had subsequently been disapproved by the SEC. 422 USS. at

727-28. Indeed, in NASD this Court explicitly stated that its

finding of implied immunity was not affected by the SEC's deci-

sion “to introduce a controlled measure of competition into the. . .

market.” /d. at 734. Thus, Gordon and NASD hold that the

repugnancy between the antitrust laws and the regulatory scheme

required for a finding of antitrust immunity is inconsistency

between the antitrust and regulatory standards prescribed in

those statutes.

The court below also concluded that antitrust immunity is

unavailable because petitioners’ interconnection tariffs were car-

rier-initiated rather than agency-initiated. /d. at 727 n.32, 733;

A-15-16, A-32. In holding that carrier-initiated conduct cannot

be impliedly immune from the antitrust laws, the Court of

Appeals imposed a requirement that has never been adopted by

this Court, that is irreconcilable with its implied immunity deci-

sions, and that subverts the fundamental policy objectives that

underlie those decisions.

The court below was unable to point to any language in Gordon

or NASD that even hinted that action must be initiated or man-

dated by the regulatory agency in order to qualify for implied

immunity. This failure is not surprising, because the conduct

held to be immune in each of those cases was initiated by the

regulated entities. In Gordon, this Court held that the defend-

ants’ fixed commission rate structure was immune from the anti-

trust laws even though it had been voluntarily established by the

stock exchanges and their member firms. 422 U.S. at 663-64,

672-75. Similarly, the restrictive practices in the marketing of

mutual fund securities attacked under the antitrust laws in

NASD were held impliedly immune from such attack even

though they had been voluntarily initiated by the NASD and its

members. 422 U.S. at 718 n.31, 727-28.

The agency-initiation and agency-approval requirements that

the court below has engrafted upon Gordon and NASD would be

unworkable and unfair to regulated common carriers. As this

Court recognized in FCC v. RCA Communications, Inc., 346

U.S. at 90, and as the court below acknowledged (664 F.2d at

722; A-4), Congress has decided that decisions pertaining to the

19

telephone network should be based on a public interest standard.

Because of the overwhelming number of decisions that must be

made in relation to the telephone network and to other public

utilities that are governed by a public interest standard, it wouid

not be feasible to have regulatory agencies conceive all policies

and propose all programs in the first instance. See American Tei.

& Tel. Co. v. FCC, 487 F.2d 865, 880 (2d Cir. 1973). The

regulatory system therefore depends upon carrier initiation of

tariffs designed to achieve the public interest, subject, of course,

to regulatory scrutiny. If antitrust liability were to turn on

whether conduct were initiated by the regulatory agency, or

whether the carrier correctly guessed the ultimate agency deter-

mination of its proposals, carriers would be deterred from propos-

ing rules that served the public interest but might be inconsistent

with unrestricted competition, and would propose only policies

which enhanced competition, whether or not they served the pub-

lic interest standard of the Communications Act."* This would

clearly not permit the Communications Act to function as envi-

sioned by Congress.

The test articulated in Gordon and NASD requires that peti-

tioners’ interconnection tariffs and interconnection-related con-

duct be held impliedly immune because they are governed by a

public interest standard that is inconsistent with the pure compe-

tition standard of the antitrust laws. In concluding that immu-

nity is precluded by carrier initiation of the subject tariffs and by

the FCC’s ultimate disapproval of those tariffs seven years after

they were filed and after an alternative means of interconnection

19. The same fundamental misreading of Gordon and NASD also

permeates the decisions of other lower courts which have held that

a * conduct is not impliedly immune from antitrust attack

use it was carrier-initiated. See Sound, Inc. v. American Tel. &

Tel. Co., 631 F.2d 1324 (8th Cir. 1980). See also Litton Systems, Inc.

v. American Tel. & Tel. Co., 487 F. Supp. 942 (S.D.N.Y. 1980); Inter-

connect 19785 Corp. v. American Tel. & Tel. Co., 465 F. Supp. 811

(S.D.N.Y. 1978); Jarvis, Inc. v. American Tel. & Tel. Co., 481 F. Supp.

120 (D.D.C. 1978); United States v. American Tel. & Tel. Co., 461 F.

Supp. 1314 (D.D.C. 1978).

20

was in place, the court below imposed requirements not contem-

plated by, and inconsistent with, this Court’s controlling

decisions.

B. Immunity Must Be Found Because of Pervasive

Regulation

This Court has also ruled in a consistent line of cases that the

existence of pervasive federal regulatory authority—especially

common carrier regulation—immunizes conduct subject to such

regulation from antitrust liability. In Pan American World Air-

ways, Inc. v. United States, 371 U.S. 296 (1963), this Court held

that the Civil Aeronautics Board’s regulatory authority over

route allocations among airlines precluded the application of the

antitrust laws. The Court based its conclusion upon the fact that

the matters at issue had been committed by Congress to “perva-

sive regulation . . . designed to change the prior competitive

system.” /d. at 300-01.” Similarly, in Hughes Tool Co. v.

Trans World Airlines, Inc., 409 U.S. 363 (1973), the Court ruled

that the antitrust laws were inapplicable to the defendant’s

alleged use of its control over the plai:.tiff to dictate the plaintiff's

procurement and financing policies. The Court based its decision

squarely upon the fact that the conduct in question “is subject to

pervasive control by the CAB.” /d. at 387. This line of author-

ity was most recently reinforced by this Court in NASD. There,

the Court held that certain activities that were not explicitly

embraced by the regulatory statute involved were nonetheless

immune from the antitrust laws because the agency’s regulatory

authority was “sufficiently pervasive to confer an implied immu-

nity.” Jd. at 730.

Significantly, in virtually every case in which this Court has

declined to find implied immunity and has upheld antitrust juris-

diction over a complaint involving conduct by a regulated com-

pany, it has based its holding upon the fact that the regulatory

20. See also Terminal Warehouse Co. v. Pennsylvania R.R., 297

U.S. 500 (1936) (rates applicable to services ancillary to freight ware-

housing held not subject to the antitrust laws because they were an

integral part of the common carrier function regulated by the ICC).

21

statute involved did not subject the defendants to pervasive com-

mon carrier or public utility-type regulation with respect to the

particular matters alleged in the complaint. See, e.g., Otter Tail

Power Co. v. United States, 410 U.S. 366, 373-74 (1973); United

States v. Philadelphia Nat'l Bank, 374 U.S. 321, 352 (1963);

Silver v. New York Stock Exchange, 373 U.S. 341, 360-61

(1963); California v. FPC, 369 U.S. 482, 485 (1962); United

States v. Radio Corp. of America, 358 U.S. 334, 348-50

(1959).*" Thus, contrary to the view of the court below, Otter

Tail and kindred cases implicitly hold that common carriers are

not subject to the antitrust laws with respect to activities within a

pervasive scheme of regulation. Taken together with the explicit

holdings of this Court in Pan American, Hughes and NASD,

these cases unquestionably establish the broad applicability of

this principle to regulated communications carriers such as

petitioners.

The court below predicated its contrary holding in this case in

part upon the ground that aithough the statutes involved in the

NASD line of cases reflect a congressional intention to vest the

regulatory agency with authority over the challenged conduct,

“[t] here is no corresponding legislative history in the case before

21. Otter Tail involved an antitrust complaint charging monopoliza-

tion of and attempt to monopolize the retail distribution of electric

power by refusals to sell power at wholesale to proposed municipal

systems, by refusals to “wheel” power to such systems, and by other

conduct allegedly designed to discourage municipalities from taking

over the distribution of electric power within their boundaries. 410

U.S. at 368. In holding that the antitrust laws could properly be

applied to such activities in the interstate electric power transmission

field, this Court specifically pointed out that Congress had considered

and rejected the suggestion that the interstate transmission of electric

power should be subject to pervasive common carrier regulation. 410

U.S. at 373-74. The plain implication of the majority opinion in Otter

Tail thus is that the antitrust laws would not have been applicable to the

activities involved in that case had Congress chosen to impose pervasive

common carrier regulation upon the interstate transmission of electric

power. Ironically, Otter Tail was relied upon by the Court of Appeals

to justify its conclusion that petitioners’ conduct here, which is perva-

sively regulated under such common carrier principles, is not immu-

nized from antitrust attack. See 664 F.2d at 729; A-12.

22

us.” 664 F.2d at 729; A-12. The Communications Act, how-

ever, confers upon the FCC even broader authority over the con-

duct at issue here than the securities laws’ relatively limited grant

of authority to the SEC over the conduct in NASD. Under the

Communications Act, common carriers are required to offer to

the public “all instrumentalities, facilities, apparatus and ser-

vices” necessary to provide telecommunications service, 47

U.S.C. § 153(a), (b) (1976), and the FCC is directed to super-

vise that conduct under a public interest standard, see id. §§ 201,

214. Pursuant to its broad grant of authority, the FCC has for

nearly three decades exhaustively exercised its regulatory powers

over ir. «connection of equipment to the telephone network. See

pp. 9-13, supra. The rationale adopted by the court below would

have the ironic and wholly unjustified result of denying implied

immunity under circumstances where the grant of regulatory

authority under common carrier principles is broadest and most

comprehensive.

The court below alse grounded its decision upen its conclusion

that the scope of the FCC’s regulatory authority under the Com-

munications Act “differs decisively” from that exercised by the

SEC in NASD under the Investment Company and Maloney

Acts. 664 F.2d at 730; A-13. The latter statutes, as the court

below recognized, establish a pattern of self-regulation for the

mutual fund industry, subject only to general oversight by the

SEC. /d. at 729 n.35; A-33. As the SEC itself has observed

with respect to the Maloney Act, such a regulatory scheme is less

than comprehensive.” By contrast, petitioners as telecommuni-

cations common carriers are governed by a regulatory scheme “in

which scarcely a single business act is free from continuous regu-

lation or at least administrative governmental review ...” Carter

v. American Tel. & Tel. Co., 365 F.2d 486, 495 (Sth Cir. 1966),

cert. denied, 385 U.S. 1008 (1967).

22. “It was thought that this kind of self-regulation was far prefera-

ble to detailed and pervasive regulation by the Government which

might be overly burdensome to business and Government alike.”

Report of Special Study of Securities Markets of the SEC, H.R. Doc.

No. 95, pt. 4, 88th Cong., Ist Sess. (1963) at 606 (emphasis supplied).

23

Finally, the court below refused to find petitioners’ conduct

impliedly immune because in NASD the regulatory agency had

“continued to sanction” the challenged practice, which it asserted

was a “crucial factor . . . conspicuously absent from this case.”

664 F.2d at 730; A-12-13. Although the Court cf Appeals’

characterization of the FCC’s actions with respect to petitioners’

interconnection tariffs in the post-Carterfone period is demon-

strably incorrect (see pp. 9-13, supra), even were its perception

of that agency's decisions accurate it would afford no basis for

denying immunity. This Court’s decisions on pervasive regula-

tion impose no requirement that the regulatory agency expressly

or impliedly approve of the challenged conduct. Thus, in NASD

the SEC ultimately disapproved the restrictive practices adopted

by the defendants. 422 U.S. at 718 n.31, 727-28. In like man-

ner, in Pan American this Court applied the doctrine of implied

antitrust immunity, even though the CAB had so strenuously

disapproved of the defendant carriers’ agreement on division of

territories that it actually requested the Department of Justice to

bring that antitrust suit for the specific purpose of terminating the

agreement. Similarly, in Hughes this Court found implied

immunity from the antitrust laws even though the CAB, in its

amicus curiae brief, stated that it had never mandated or sanc-

tioned the conduct at issue there. See Memorandum for the Civil

Aeronautics Board as Amicus Curiae at 10. Finally, in Terminal

Warehouse the Court reached the same result with respect to

contracts that had been specifically found by the ICC to be

unlawful under the Interstate Commerce Act.

In sum, the pervasive regulation of petitioners’ interconnec-

tion-related conduct by the FCC immunizes that conduct from

antitrust attack. In declining to find immunity the court below

imposed a set of requirements for immunity that conflicts with

this Court’s decisions.

* * *

As petitioners have demonstrated above, the decision of the

court below conflicts both with the Court’s decisions in Gordon

and NASD establishing implied antitrust immunity based upon

24

inconsistent statutory standards and with its line of decisions

recognizing such implied immunity for pervasively regulated

common carrier activity. While this conflict would, in itself,

warrant granting review here (cf. S. Ct. R. 17.1(c)), there are

further considerations beyond the confines of this case which

warrant such review. The decision of the court below raises an

important question concerning the relationship between the Sher-

man Act and the Communications Act and comparable state

regulatory statutes which is presently at issue in a number of

other private antitrust suits pending in five different circuits, all of

which are based upon the post-Carterfone tariffs. These cases

are, like the present action, complex antitrust cases, including

several purported class actions, which will almost certainly

require many years and many millions of dollars to prepare, and

which will unquestionably consume massive amounts of judicial

resources to adjudicate. A resolution by this Court of the juris-

dictional question involved here and in all of these pending cases,

which has never been directly addressed by this Court as to

telecommunications common carriers, would save the courts and

the parties from the many lengthy and expensive trials that would

be a waste of resources if petitioners’ position on this issue is

correct.

25

CONCLUSION

For the reasons stated above, a writ of certiorari should

issue to review the judgment and opinion of the United

States Court of Appeals for the Ninth Circuit.

Dated: June 25, 1982

Respectfully submitted,

HOWARD J. TRIENENS

Counsel of Record for Petitioners

195 Broadway

New York, New York 10007

(212) 393-5111

Of Counsel:

Jim G. KiLPATRIC

WILLIAM J. JONES

ANDREW M. WHITE

WYMAN, BAUTZER, ROTHMAN,

KUCHEL & SILBERT