Amicus Curiae Brief — Verizon Communications Inc. v. Law Offices of Curtis v. Trinko, LLP

ourt, U.

FILED

MAY 2 3 2003

No. 02-682 OFFICE OF THE CLERK

Jn the Supreme Court of the Gnited States

VERIZON COMMUNICATIONS INC.,

Petitioner,

Vv.

LAW OFFICES OF CURTIS V. TRINKO, L.L.P.,

Respondent.

On Writ of Certiorari to

the United States Court of Appeals

for the Second Circuit

BRIEF AMICUS CURIAE OF

BELLSOUTH CORPORATION,

SBC COMMUNICATIONS INC., AND

QWEST COMMUNICATIONS INTERNATIONAL

INC. IN SUPPORT OF PETITIONER

STEPHEN M. SHAPIRO

JOHN E. MUENCH

JEFFREY W. SARLES

Counsel of Record

Mayer, Brown, Rowe & Maw

190 South LaSalle Street

Chicago, Illinois 60603

(312) 782-0600

Counsel for the Amici Curiae

[Additional counsel listed on inside cover]

MARC GARY

J. HENRY WALKER

MARC W. F. GALONSKY

BellSouth Corporation

1155 Peachtree Street, N.E.

Atlanta, Georgia 30309

(404) 249-5732

TIMOTHY M. BOUCHER

Qwest Communications International, Inc.

1801 California Street, 38" Floor

Denver, Colorado 80202

(303) 672-2701

JAMES D. ELLIS

PAUL K. MANCINI

WILLIAM M. SCHUR

SBC Communications Inc.

175 E. Houston Street

San Antonio, Texas 78205

(210) 351-3409

i

QUESTIONS PRESENTED

Amici will address (1) whether allegations of

deficiencies in an incumbent telecommunications carrier’s

assistance to competing carriers state a claim under the

antitrust laws, and (2) whether antitrust litigation over

routine performance disputes between carriers would

conflict with and undermine the remedial framework of the

Telecommunications Act of 1996.

QUESTIONS PRESENTED

INTEREST OF THE AMICI CURIAE

TABLE OF CONTENTS

INTRODUCTION AND SUMMARY OF

1.

THE COURT BELOW DISREGARDED

ESTABLISHED LIMITS ON THE SCOPE

OF THE ANTITRUST LAWS ..........:cccccceeeeeeeees

A. Antitrust Law Does Not Govern Routine

B. An ILEC’s Failure To Give Costly

Affirmative Assistance To Rivals In The

Manner They Prefer Is Not A “Refusal To

RR eT” .cccccccssccesescessnesensssesnsssnsnesssnsssesssennssssseoses

C. Respondent’s Allegations Are Not

Actionable Under An “Essential Facilities”

D. Respondent’s Allegations Are Not

Actionable Under A “Monopoly

Levennttngl” TRBGEY ccccccccscssscssscssscssscsscssssesees

PERMITTING ANTITRUST LITIGATION

OVER ROUTINE PERFORMANCE

DISPUTES BETWEEN CARRIERS

WOULD CONFLICT WITH AND

UNDERMINE THE REMEDIAL REGIME

ESTABLISHED BY CONGRESS .................20++.

ili

TABLE OF CONTENTS - continued

Page

. This Court’s Precedents Require A Careful

Evaluation Of The Impact Of Sporadic

Antitrust Adjudication On This Unique

AED 22

. Antitrust Adjudication Of Disputes Arising

Under Interconnection Agreements Would

Create Intolerable Conflicts With The

Act's Remedial Regime .............c..ccccerssessserseeees 24

. The Savings Clause Should Not Be Read

To Undermine The Act’s Remedial

iV

TABLE OF AUTHORITIES

Page(s)

Cases

Alaska Airlines, Inc. vy, United Airlines, Inc.,

948 F.2d 536 (9th Cir. 1991)..........ccccceseeseeeeeeeeenees 11,13

Aspen Skiing Co. v. Aspen Highlands Skiing

Corp., 472 U.S. 585 (1985)......cccccceeseereeeeeeeeees 7, 8, 9, 10

Associated Gen. Contractors v. California

Council of Carpenters, 459 U.S. 519

(BGT D ccceccnccasescnsscnsssnsesccssesensssstnesnsenmnmssessssnssnsesenense 27, 30

AT&T v. Central Office Tel., Inc., 524 U.S.

a 29

AT&T v. FCC, 220 F.3d 607 (D.C. Cir.

a 18, 28

AT&T VY. Iowa Utils. Bd., 525 U.S. 366

1, ee 12,17

Blue Cross & Blue Shield v. Marshfield

Clinic, 65 F.3d 1406 (7th Cir. 1995).........ccccccceeeeeeeees 12

Brooke Group Ltd. v. Brown & Williamson

Tobacco Corp., 509 U.S. 209 (1993) ......ccccseeseenees 7,21

Brown v. Pro Football, Inc., 518 U.S. 231

(a pescedennsinassemunienatmtensimsnccntematennstin 27

Cargill, Inc. v. Monfort of Colo., Inc., 479 -

eee

Vv

TABLE OF AUTHORITIES - continued

Page(s)

Caribbean Broad. Sys. v. Cable & Wireless

PLC, 148 F.3d 1080 (D.C. Cir. 1998) .....ccccccceeeeeees 19

Cavalier Telephone LLC v. Verizon

Virginia, Inc., No. 02-1337 (4th Cir.

ee a a aitsesibcnsieesiiniidaiiciiadiaeihapeanaaicianaes 2, 19, 25, 29

Cipollone v. Liggett Group, 505 U.S. 504

SEE octensreseninniiienenerieneniiinieniiiiaetininabatiantiieaeiaataparannasintisine 27

Copperweld Corp. v. Independence Tube

ge CS Pe iiniearictritierteasitenitsieiiinsesiniicintaiiie 8

Covad Communications Co. v. BellSouth

Corp., 314 F.3d 1282 (11th Cir. 2002) ....0...0.000... passim

Eastman Kodak Co. v. Image Tech. Servs.,

Ee 11

Far East Conf. v. United States, 342 U.S.

I Cer eceetenchieeciserciansiteseiiiiaeniaitiiiinieaiaiiniisiaataas tases 22

Futurevision Cable Sys. v. Multivision

Cable TV Corp., 789 F. Supp. 760 (S.D.

Miss. 1992), aff'd, 986 F.2d 1418 (Sth

FE EU cirvdiccstresretntnnriaciciveenionannisenpnimaanicnssiiaiaamsiiilisiasiain 20

Geier v. American Honda Motor Co., 529

Se ee CI ncscncnissbienennieanesiintenicieeetstteeiniiinitntentsietiaiaiaeiauain 29

Goldwasser v. Ameritech Corp., 222 F.3d

es ME increneiciiuntcineninninntniattananddsiinecei passim

vi

TABLE OF AUTHORITIES -— continued

452 U.S. 378 (1981)..........scsescerreeerrsseresesersssessseesees

Page(s)

Gordon v. New York Stock Exch., 422 U.S.

De 23, 25

Hughes Tool v. TWA, 409 U.S. 363 (1973) .......:-000+ 23, 26

Hunt v. Crumboch, 325 U.S. 821 (1945) ....ccccccccceseeeeseeeeees 7

Ideal Dairy Farms v. John Labatt, Ltd., 90

F.3d 737 (36 Cie. 1996) ...cccccccccccccccccccssovsscccsescesssccssceees 14

Intergraph Corp. v. Intel Corp., 195 F.3d

1346 (Red. Cir. 1999) ....crccccccceccsscccscccscecsccrscccscosssosscsses 13

International Audiotext Network, Inc. v.

AT&T, 62 F.3d 69 (2d Cir. 1995)........cccccccceeeesreeeeereeees 19

Laurel Sand & Gravel, Inc. v. CSX Transp.,

Inc., 924 F.2d 539 (4th Cir. 1991).......cccccccceeseeeeeeeees 14

Lorain Journal Co. v. United States, 342

UB. 1499190 CIDE 1) ..cccccccccscccecccceccccsvccssccensoscosesesees 9,11

MCI v. AT&T, 462 F. Supp. 1072 (N.D. Til.

RFE socececscvssescscesssccesssscecvesnssnevessoosenscsnsossonssnssesssosnonceses 15

MCI v. AT&T, 708 F.2d 1081 (7th Cir.

14, 15

_ Midwest Gas Servs. v. Indiana Gas Co., 317

F.3d 703 (7th Cir. 2003).........sccscccssesereereeeseeresensesenennes 19

National Gerimedical Hosp. v. Blue Cross, -

Vii

TABLE OF AUTHORITIES - continued

Page(s)

Norcen Energy Resource Ltd. v. Pacific Gas

& Elec. Co., 1994 WL 519461 (N.D. Cal.

es Py Pa niehtchtieitindensiieiihdceeeniaeaatiinaaiaien 20

NYNEX Corp. v. Discon, Inc., 525 U.S. 128

Soa ecistaidcaenidatinnacecninmnsinaatcameemasiensntsaiarinitiiaa init 7

Olympia Equip. Leasing Co. v. Western

Union Tel. Co., 797 F.2d 370 (7th Cir.

SED srinceiscriceisnsencesieeeheeeininemmnnesiniateatatsinpsenniaitnidaaciobcenieaeiiausiaiiad 8

Otter Tail Power Co. v. United States, 410

ee a eeihicninieniineemneiadabiperiniiticinaitiiatieas 9, 10, 11, 16

Pan Am. World Airways, Inc. v. United

States, 371 U.S. 296 (1963) ......sccccccsee seseeeeeee 22, 25, 29

San Diego Bldg. Trades Council v. Garmon,

gg REET SES a eee 27

Southern Pines Chrysler-Plymouth v.

Chrysler Corp., 826 F.2d 1360 (4th Cir.

STi isscsieiaceiaineiatireieibiaiainiaieaniaeitcititaliitnisaeanntenes 7

Spectrum Sports v. McQuillan, 506 U.S. 447

Rae ve ee Oe 20

State Oil Co. v. Khan, 522 U.S. 3 (1997).....ccccccccccccsseeeees 21

TV Communications Network, Inc. v. Turner

Network Television, Inc., 964 F.2d 1022

a: Sa icciseiiericteaatiateiettieetidiaiiaicineeatieasartiptsinninns 20

Vill

TABLE OF AUTHORITIES -— continued

Page(s)

United States v. AT&T, 604 F. Supp. 316 "

(D.D.C. 1985).....sccssscsseseeeseseseeenensssseenetessenesnenennenenanens

United States v. NASD, 422 U.S. 694 (1975) .....---+++ 23, 25

United States v. Otter Tail Power Co., 331

F. Supp. 54 (D. Minn. 1971), aff'd in ,

relevant part, 410 U.S. 366 (1973) .......:cssessseesseeeneesenenes

United States Nav. Co. v. Cunard S.S. Co., P

284 U.S. 474 (1932) ....ccesccsseescesseeseeeeeneneenenstersensensnensees

United States Telecom Ass'n v. FCC, 290 .

F.3d 415 (D.C. Cir. 2002) .........cccceseeseeseessesenseneneenennens

Verizon Communications Inc. v. FCC, 535 —

U.S. 467 (2002) .......sccsccscseessesseensnneereennsnnssnnenneens 9, 10,

Verizon Maryland Inc. v. Public Serv. -

Comm'n, 535 U.S. 635 (2002) .......cccseeceseeerseeeeeneenennes

Wojcieszek v. New England Tel. & Tel. Co., “

977 F. Supp. 527 (D. Mass. BOF) ccccecnscecnscrescsscescoseece

Statutes

AT U.S.C. § 152 ..ccsccssssesseseseseesenenenensensnenennensenenenenannenenenens 28

AT U.S.C. § 251 .nccscesccsssseeseeseeneenssensennsnnnensnsenensnnens 8, 16, 24

AT U.S.C. § 252 ..cccccssssssscsseeresssnensesenennenenensennsnannennanes 24, 27

16

GT UBC. © ZTVANG aa assssesenernnnsnnnnressessnesensnnnnnsnsnensnstsnene

ix

TABLE OF AUTHORITIES - continued

Page(s)

Telecommunications Act of 1996, Pub. L.

No. 104-104, 110 Stat. 56 (1996) .....cccccccccccccceeeeee. passim

Other Authorities

2 Areeda et al., ANTITRUST LAW (2d ed.

SR ee ERE a ee ee 29

3A Areeda & Hovenkamp, ANTITRUST LAW

ESL a passim

Areeda, Essential Facilities: An Epithet in

Need of Limiting Principles, 58 Antitrust

F_UN 13

Bell System Tariff Offerings of Local

Distribution Facilities for Use by Other

Common Carriers, 46 F.C.C.2d 413

Sater riciheaehseiniiesteitiieiniamtcsi tains 15

FCC, Local Telephone Competition: Status

as of June 30, 2002, Table 7 (Dec. 2002) ......ecccececeesees 28

Final Opinion, Re Performance Measures

Remedies, 2002 WL 32063827 (Pa.

A a 5 24

First Report and Order, 11 FCC Red 15499

SP eilacitadintaehienntneiiaeiimiiala aii 26

H.R. Conf. Rep. No. 104-458 (1996) .eccccccssccceceeeeeccccccce 8

Xx

TABLE OF AUTHORITIES - continued

Page(s)

Hovenkamp, The Monopolization Offense,

61 Ohio St. L.J. 1035 (2000)...........:cccceeeeeeeeeeeeeeeeeenneees 17

In re Application by Bell Atlantic New York

for Authorization Under Section 271 of

the Communications Act to Provide In-

Region, InterLATA Service in the State of

New York, 15 FCC Red. 3953 (1999) .......ccceceeeeeeereees 15

In re Investigation into the Establishment of

Operations Support Systems Permanent

Performance Measures for Incumbent

Local Exchange Telecommunications

Companies, 2003 WL 1040595 (Fla.

-P.S.C. Feb. 28, 2003) ........cccccssccccccosssseesersercssesssssnsoeees 24

In the Matter of Core Communications, Inc.,

No. EB-01-MD-017 (FCC rel. Apr. 20,

Joseph Kattan, The Decline of the Monopoly

Leveraging Doctrine, 9-Fall ANTITRUST

AL (1994) 0... ceccessssseeseessersensseneenssneesersnssnnsserennsnnesanens 20

Opinion, Order Instituting Rulemaking on

the Commission's Own Motion into

Monitoring Performance of Operations

Support Systems, 2002 WL 1899988

(Cal. P.U.C. June 27, 2002) .........:ssssseesssessseeesenreneenenes 25

Dak <e

PRIA Se

xi

TABLE OF AUTHORITIES - continued

Page(s)

Order Concerning Performance

Measurements and Enforcement

Mechanisms, 2002 WL 1448773 (N.C.

Utils. Comm’n May 22, 2002)

Order, In re Performance Measures for

Telecommunications Interconnection,

Unbundling and Resale, 2002 WL

32071549 (Ga. P.S.C. Dec. 17, 2002)

Order, In the Matter of Qwest’s

Performance Assurance Plan, 2002 WL

31954217 (Minn. P.U.C. Nov. 26, 2002)

R. Posner, Antitrust in the New Economy, 68

Antitrust L.J. 925 (2001) .........ccecscescecccccecseoseeceeseesece,

Charles F. Rule, Antitrust and Bottleneck

Monopolies: The Lessons of the AT&T

Decree, reprinted in TELEMATICS, Dec.

EN Soe ae ae

Sullivan & Grimes, THE LAW OF ANTITRUST

aa 8

Third Report and Order, 15 FCC Red. 3696

(1999)

INTEREST OF THE AMICI CURIAE

Amici BellSouth Corporation, SBC Communications

Inc., and Qwest Communications International Inc. are

incumbent local exchange carriers (“ILECs”) in their

respective regions. Amici have entered into thousands of

interconnection and resale agreements with competing

local exchange carriers (“CLECs”) pursuant to the

Telecommunications Act of 1996 (“1996 Act”).

Because the parties to these agreements are

competitors, disputes frequently arise between them over a

host of technical details—ranging from the terms of

equipment collocation to the price, quality, and speed of

unbundling network elements and processing customer

orders. Most of these disputes are resolved informally or,

where necessary, before the state commissions that oversee

relations between local telecommunications carriers.

Emboldened by the decision below and lured by the

prospect of treble damages, CLECs and consumers have

filed numerous antitrust suits over the same issues. Amici

agree with petitioner that the scope of the antitrust laws

should not be expanded to encompass carrier performance

issues and that antitrust adjudication of such issues is

incompatible with the remedial framework prescribed by

Congress in the 1996 Act.'

INTRODUCTION AND SUMMARY OF

ARGUMENT

By ignoring established limits on the reach of the

antitrust laws, the Second Circuit has opened the door to

' This brief was not written in whole or in part by any party and

no one other than the amici made a monetary contribution to its

preparation. The written consents of the parties to the filing of this

brief have been filed with the clerk.

2

unprecedented and burdensome antitrust litigation in the

federal courts. This Court’s precedents bar antitrust claims

based on routine performance disputes between

contracting parties and recognize that even monopolists

have no antitrust duty to assist their competitors except in

narrow circumstances not present here. Where, as here,

the performance disputes are grounded in duties imposed

by regulatory laws, and a federal statute clearly assigns

responsibility to expert agencies to define, adjust, and

remedy violations of new duties specially crafted for a

single industry, there is even less occasion for the

involvement of antitrust courts in these disputes.

Respondent’s allegation that Verizon sometimes failed

to process orders of AT&T and other CLECs “in a timely

manner” (Am. Cmplt. 421) does not support an antitrust

claim. The antitrust laws do not require Verizon to assist

its rivals and are not concerned with such run-of-the-mill

performance disputes. As the Seventh Circuit held in

Goldwasser v. Ameritech Corp., 222 F.3d 390 (7th Cir.

2000), the antitrust laws may not be invoked to generate a

supplementary, common-law body of network sharing

obligations and affirmative assistance to rivals. Accord

Cavalier Telephone LLC v. Verizon Virginia, Inc., No. 02-

1337, slip op. at 18 (4th Cir. May 20, 2003). The

regulatory issues raised by respondent fit precisely into the

remedial framework created by Congress in the 1996 Act.

The unprecedented regulatory regime created by

Congress in the 1996 Act requires an incumbent carrier to

share its network and facilities with competitors to help

them enter and gain market share in the local telephone

business, affirmative assistance not required by the

antitrust laws. The sharing obligations prescribed by the

Act would be unthinkable as antitrust duties imposed

generally on American industry. To implement these new

3

extraordinary duties, the Act prescribes an elaborate

system of compulsory negotiation and arbitration, with full

enforcement by state and federal administrators. That

remedial framework cannot be reconciled with the holding

of the court below that alleged shortfalls in performing

these new duties—even if already addressed pursuant to

the administrative scheme of the 1996 Act—may give rise

to lawsuits under the antitrust laws.

The district court properly recognized that respondent’s

allegations failed to state an antitrust claim. In contrast, the

Second Circuit has radically extended the scope of federal

antitrust litigation by broadly sanctioning monopolization

suits under the “essential facilities” doctrine, by adopting

an unwarranted extension of this Court’s narrow “duty to

deal” decisions, and by reviving a discredited version of

the monopoly leveraging doctrine. Nothing in the 1996

Act suggests that Congress ever intended to have the Act’s

novel and far-reaching duties serve as the predicate for

antitrust liability. To the contrary, Congress expressly

provided that the Act’s newly articulated administrative

standards would not “modify” or otherwise extend the

federal antitrust laws. See infra pp. 28-29.

Within the 1996 Act’s comprehensive framework,

carriers have negotiated thousands of interconnection

agreements specifying their rights and obligations, many

of which require alternative dispute resolution and specify

sanctions for breach. The decision below renders all this

for naught. Any dissatisfied CLEC or consumer may take

performance disputes to court and demand treble damages,

even if the directly affected carriers have resolved their

differences to their complete satisfaction, as AT&T and

Verizon did here. The practical result is that lay juries will

be invited to second-guess expert agencies over complex

regulatory policy issues, generating conflicting standards

4

and imposing duplicative damage awards for violations

already remedied (as here, by a $10 million award to

AT&T and other CLECs and a $3 million award to the

government).

These questions were correctly resolved by the Seventh

Circuit in Goldwasser, 222 F.3d at 395, an analogous case

in which telephone consumers alleged “undue delays” by

an ILEC in providing network access to its competitors.

The Goldwasser opinion, authored by Judge Diane Wood,

an antitrust scholar and former antitrust enforcement

official at the Department of Justice, sensibly evaluates the

intersection between antitrust and telecommunications

law: the “affirmative duties to help one’s competitors”

imposed by the 1996 Act “do not exist under the

unadorned antitrust laws.” 222 F.3d at 399-400. And the

Fourth Circuit recently reached the identical conclusion,

noting that “if a company such as Verizon * * * were

asked to share its office space and to rent its telephone

lines and other facilities to a competitor when it was not

already in the business of renting office space, lines, or

facilities, it could have legally refused the request to

expand into such a business without violating § 2 of the

Sherman Act.” Cavalier, slip op. at 18.

To “equate a failure to comply with the 1996 Act with

a failure to comply with the antitrust laws,” would be

illogical. Goldwasser, 222 F.3d at 400. Moreover,

Congress “entrusted supervision” of interconnection duties

to expert regulatory agencies and “created a system of

negotiated agreements through which this would be

accomplished.” Jd. at 399-400. As a practical matter, the

court explained, the 1996 Act’s procedures are not

“compatible” with antitrust resolution of performance

claims: “The elaborate system of negotiated agreements

and enforcement established by the 1996 Act could be

5

brushed aside by any unsatisfied party with the simple act

of filing an antitrust action,” and “[cJourt orders in those

cases could easily conflict with the obligations the state

commissions or the FCC imposes under the § 252

agreements.” /d. at 400-401.

The principles articulated by Judge Wood apply

directly here. As the Solicitor General stated in his brief

supporting the petition (at 8), “[t}he Second Circuit’s

decision is erroneous”. because it “dramatically expands

antitrust liability for failure to assist rivals.” Dissenting

from a similarly erroneous decision by the Eleventh

Circuit, Judges Tjoflat, Anderson, and Birch explained that

permitting such “forced-access” under the antitrust laws

represents “bad policy [and] undermines Congress’s

regulatory scheme.” Covad Communications Co. v.

BellSouth Corp., 314 F.3d 1282, 1286 (11th Cir. 2002).

This Court should adopt the views of the Seventh Circuit,

the Fourth Circuit, the Solicitor General, and the dissenting

judges in Covad and reverse the decision below.

ARGUMENT

I. THE COURT BELOW DISREGARDED

ESTABLISHED LIMITS ON THE SCOPE OF

THE ANTITRUST LAWS.

The Second Circuit erred as a matter of law when it

| reinstated respondent’s Section 2 claim. Respondent

alleged no more than a breach of performance duties set

forth in the interconnection agreement executed by

Verizon and AT&T pursuant to the 1996 Act. The antitrust

laws generally do not require firms to assist rivals at all,

much less impose performance standards on such

assistance. The court speculated that respondent might be

able to show that Verizon’s conduct amounted to an

unlawful refusal to deal (under the so-called “essential

6

facilities” doctrine) or unlawful monopoly leveraging.

Neither theory was articulated in respondent’s complaint,

and neither theory, even if valid, would apply to the

provisioning issues raised by respondent.

A. Antitrust Law Does Not Govern Routine

Performance Disputes Between Contracting

Competitors.

Respondent’s allegations that Verizon failed to fill

CLEC orders “in a timely manner” and failed “to inform

CLECs of the status of their customers’ orders” (Am.

Cmplt. 921) do not state a claim for unlawful

monopolization but at most suggest a breach of contract.

Verizon had no antitrust duty to meet AT&T’s preferred

timetable.

An ILEC’s.obligations to process CLEC orders derive

solely from its interconnection agreements (and ILECs

enter into those agreements solely because the 1996 Act

mandates that they do so). Verizon’s interconnection

agreement with respondent’s carrier, AT&T, was replete

with performance standards and penalties and specified

ADR procedures as the “exclusive remedy” for any

complaints about contractual performance. Pet. App. 5a.

Purchasers commonly demand faster and better service,

but “{i]t is not an antitrust purpose to regulate ordinary

business contracts.” 3A Areeda & Hovenkamp,

ANTITRUST LAW § 782m, at 282 (2d ed. 2002) (citing

cases). Allowing such contract disputes to be bootstrapped

into antitrust claims would overwhelm the courts and

inflict a pointless waste of private and judicial resources.

As Judge Tjoflat warned, “I cannot think of a situation [in]

which an ILEC would be liable in breach and yet a

creative plaintiff's lawyer could not also allege that the

breach was made with an eye toward * * * preserving the

7

ILEC’s position in the relevant market.” Covad, 314 F.3d

at 1290 n.17.

Even if there were something “unfair” about Verizon’s

alleged treatment of CLEC orders (see Am. Cmplt. § 21),

“business behavior that is improper for various reasons” is

not the proper focus of “treble-damages antitrust cases.”

NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 137 (1998).

The Sherman Act “does not purport to afford remedies for

all torts.” Hunt v. Crumboch, 325 U.S. 821, 825-826

(1945) (affirming dismissal of antitrust suit). Antitrust law

does not police “unfair competition.” Brooke Group Ltd. v.

Brown & Williamson Tobacco Corp., 509 U.S. 209, 225

(1993). Conduct that is “punishable under more common

state remedies, including contract and tort remedies[,] does

not require the powerful prohibition of the antitrust laws.”

Southern Pines Chrysler-Plymouth v. Chrysler Corp., 826

F.2d 1360, 1363 (4th Cir. 1987). In short, allegations of

garden-variety deficiencies in performance of

interconnection agreement duties do not state an antitrust

claim.

B. An ILEC’s Failure To Give Costly Affirmative

Assistance To Rivals In The Manner They

Prefer Is Not A “Refusal To Deal.”

As this Court has recognized, the general rule under

antitrust law is that firms, including purported

monopolists, have no duty to cooperate or share their

resources with competitors. See Aspen Skiing Co. v. Aspen

Highlands Skiing Corp., 472 U.S. 585, 600 (1985); see 3A

Areeda & Hovenkamp, ANTITRUST LAW 4 773a, at 196

(there is no “general duty to share one’s resources”).

Antitrust law encourages firms to compete against, not

assist, competitors. The rationale is that vigorous

competition, not compelled sharing of resources, yields

output and prices that optimally benefit consumers. See ~—,

Copperweld Corp. v. Independence Tube Corp., 467 U.S.

752, 767-768 (1984). Thus, even a monopolist has “no

duty to extend a helping hand to new entrants.” Olympia

Equip. Leasing Co. v. Western Union Tel. Co., 797 F.2d

370, 376 (7th Cir. 1986) (Posner, J.).

An ILEC’s affirmative duties to share its resources

with rivals derive not from antitrust law but from the 1996

Act and the interconnection agreements it mandates. The

Act requires ILECs to provide rivals with access to their

network elements and services on uniquely favorable

terms. 47 U.S.C. § 251(c)(2) and (3). These “special

duties” designed to “jump-start the development of

competitive local markets” “go well beyond anything the

antitrust laws would mandate on their own.” Goldwasser,

222 F.3d at 399-400; see also H.R. Conf. Rep. No. 104-

458, at 123 (1996) (“Conf. Rep.”) (these “new obligations

flow only from the statute”). The court below improperly

conflated the jump-starting duties imposed by the 1996

Act with antitrust duties. See United States Nav. Co. v.

Cunard S.S. Co., 284 U.S. 474, 485 (1932) (affirming

dismissal of antitrust claims that alleged “violations of

[statutory] provisions or are so interrelated with such

charges as to be in effect a component part of them”).

This Court has recognized a narrow “refusal to deal”

exception to the general antitrust rule against forced

cooperation. Aspen Skiing, 472 U.S. at 603. But this Court

has never employed the “refusal to deal” rationale to

require a defendant to act irrationally, that is, to sacrifice

its own business interests in order to aid a rival. A

monopolist’s refusal to deal may be unlawful under the

antitrust laws only if it is “predatory,” i.e., not based on

“efficiency,” and has no purpose other than harm to

competition. Aspen Skiing, 472 U.S. at 602-603.

9

In Aspen Skiing, 472 U.S. at 608, the defendant

“elected to forgo * * * short-run benefits because it was

more interested in reducing competition in the Aspen

market over the long run by harming its smaller

competitor.” Similarly, in Lorain Journal Co. v. United

States, 342 U.S. 143, 148 (1951), the defendant newspaper

refused to accept fully-paid advertisements from

companies that submitted ads to a rival, thereby sacrificing

its short-term economic interest in maximizing its

advertising revenues. The defendant in Otter Tail Power

Co. v. United States, 410 U.S. 366, 378 (1973), refused to

transmit power to the requesting cities on the same

profitable terms on which it regularly transmitted such

power to others “solely to prevent” competitors from

gaining market share. See also Otter Tail, 331 F. Supp.

54, 57 (D. Minn. 1971) (Otter Tail “regularly engages in

the business of wheeling power”), aff'd in relevant part,

410 U.S. 366 (1973). In each of these cases, the refusal to

sell a facility or service to a competitor that the defendant

was profitably selling to others raised a presumption of

predatory conduct. That presumption was heightened

where the defendant long had provided the item that it later

refused to provide, as in Aspen Skiing, 472 U.S. at 603,

and Lorain Journal, 342 U.S. at 146-148.

Verizon’s alleged failure to provide the speed and

quality of access demanded by AT&T and other CLECS

cannot be deemed irrational. The 1996 Act, as

implemented by the FCC, requires ILECs “to give aspiring

competitors every possible incentive to enter local retail

telephone markets, short of confiscating the incumbents’

property.” Verizon Communications Inc. v. FCC, 535 U.S.

467, 489 (2002). ILECs must “share their own facilities”

with competitors and supply them with packages of

elements and services at a price lower than the ILEC

would obtain if it sold that package directly to a retail

10

customer. Jd. at 476. No rational business would ever

supply vital elements and services to competitors at near-

confiscatory rates. It would be irrational—indeed,

commercially suicidal—for a firm charging a retail

customer $100 a month to provide subsidized inputs that

enable rivals to offer that customer the same service at $60

a month.

While the 1996 Act requires such business practices

(within regulatory limits), antitrust law does not. See

Verizon Communications, 535 U.S. at 528 (competitor

access to network facilities was “something brand new

under the 1996 Act”); United States v. AT&T, 604 F. Supp.

316, 324 (D.D.C. 1985) (AT&T divestiture decree did not

seek “artificial creation of competition by enabling [rival]

interexchange carriers to share AT&T's interexchange

capabilities and facilities”). Until now, no antitrust court

ever has required a firm to give up profitable retail sales in

order to make less profitable (much less near-confiscatory)

sales to rivals. In Aspen Skiing, for example, this Court did

not require the defendant to provide access to its ski

mountain at a discount so that the plaintiff could undercut

the defendant’s prices and divert its customers. And the

decree in Otter Tail required the defendant to transmit

power at the same “compensatory” rates that were

voluntarily offered to others. See 410 U.S. at 375.

Respondent has not alleged—nor can it allege—how it

would make economic sense for Verizon to assist rivals in

taking away Verizon’s customers. Thus, even if the

complaint had alleged an actual refusal to deal, and not

merely deficiencies in performance, it would not state a

monopolization claim.

Respondent has not alleged an actual refusal to deal

within the scope of the Court’s decisions. In Aspen Skiing,

472 US. at 610, the defendant absolutely refused to

continue its profitable joint marketing venture with the

plaintiff. Similarly, the unlawful conduct in Lorain

Journal, 342 U.S. at 150, was an attempt to completely

exclude a radio station from access to vital advertising and

thereby cause “the complete destruction and elimination”

of the station. In Eastman Kodak Co. v. Image Tech.

Servs., Inc., 504 U.S. 451, 458 (1992), ISOs were totally

excluded from the market for fixing Kodak copiers. In

Otter Tail, 410 U.S. at 371, the defendant “simply refused”

to transport any power to municipalities competing with it

at the retail level.”

By contrast, pursuant to the 1996 Act, AT&T and other

CLECs are using facilities and services provided by the

ILECs to actively compete with Verizon and other ILECs.

The CLECs’ own websites proclaim their success in using

their access to ILEC networks to compete for local

telecommunications customers. AT&T declared in March

2003 that “[mJore than 2.5 million households and half a

million small businesses are alreac, enjoying the benefits

of competition through AT&T Local Service.”

http://www.att.com/news/item/0, 1847,11519,00.html. MCI

publicly advertises “the industry’s first truly any-distance,

all-inclusive offering combining local and nationwide long

distance calling.” http://global.mci.com/about/company.

And Covad states that its services are “currently available

in 96 of the country’s top Metropolitan Statistical Areas.”

http://www.covad.com/companyinfo. All of these service

offerings are made possible by the network access that

> As one court of appeals has described Otter Tail, it was “an

extreme case” in which the defendant “baldly refused to deal”

rather than “merely impose[d] some handicap on -potential

competitors.” Alaska Airlines, Inc. v. United Airlines, Inc., 948

F.2d 536, 543 (9th Cir. 1991).

12

Verizon and other ILECs provide to CLECs like AT&T,

MCI and Covad pursuant to the 1996 Act. In short, there

has been no refusal to deal.’

C. Respondent’s Allegations Are Not Actionable

Under An “Essential Facilities” Theory.

The court below relied on an “essential facilities”

variant of this Court’s narrow refusal to deal exception to

the general rule against forced access. This Court has

“never adopted” the “essential facilities” doctrine, AT&T

v. Iowa Utils. Bd., 525 U.S. 366, 428 (1999) (Breyer, 5

concurring), which has been widely and sharply criticized.

Judge Posner has condemned the essential facilities

doctrine as “having nothing to do with the purposes of

antitrust law.” Blue Cross & Blue Shield v. Marshfield

Clinic, 65 F.3d 1406, 1412-1413 (7th Cir. 1995). Other

“scholars have raised very serious questions about the

wisdom of the essential facilities doctrine as a justification

for judicial mandates of competitor access.” United States

Telecom Ass'n v. FCC, 290 F.3d 415, 427 n.4 (D.C. Cir.

2002).

That skepticism is well-founded. Permitting

competitors to take a free ride on a purported monopolist’s

3 It is conceivable that, in some contexts, the terms on which a firm

offers to deal may be so onerous that the offer itself is tantamount

to an actual refusal to deal. But that is not this case. Indeed, any

such claim would be foreclosed by the 1996 Act itself. For, if a

CLEC deems the terms and conditions on which an ILEC offers

access to its network unacceptable, the CLEC has a right to

arbitrate those terms and conditions and to seek federal court

review of any adverse arbitral determination. Likewise, if an ILEC

fails to perform in accordance with its interconnection agreement

obligations, the CLEC may invoke state commission jurisdiction to

compel such performance.

13

investment reduces their incentives to build their own

facilities and thus is more likely to stunt than promote

competition. As Judge Tjoflat put it, antitrust law does not

permit “horizontal competitors that find it financially

inconvenient to build their own physical plant [to] simply

tap the resources of the incumbent/monopolist or else sue

for treble damages.” Covad, 314 F.3d at 1288. For that

reason, leading commentators urge that “the essential

facility doctrine is both harmful and unnecessary and

should be abandoned.” 3A Areeda & Hovenkamp,

ANTITRUST LAW 4 771c, at 173. Similarly, the purported

monopolist’s incentives to invest in facilities will be

reduced if it is required to share those facilities. The

reliance of the court below on this discredited theory offers

this Court an opportunity to reject it once and for all.

At a minimum, the risk of undermining the bedrock

purpose of the antitrust laws—spurring investment and

innovation so as to lower producer costs and align

consumer prices and costs—counsels against expanding

this problematic and controversial doctrine. See Intergraph

Corp. v. Intel Corp., 195 F.3d 1346, 1357-1358 (Fed. Cir.

1999) (“an unwarranted extension” of essential facilities

doctrine risks harm to competition); Areeda, Essential

Facilities: An Epithet in Need of Limiting Principles, 58

Antitrust L.J. 841 (1989). Nor is there any need to do so.

As the FCC has explained, the 1996 Act “plainly imposes

on incumbent LECs a broader duty to deal with

competitors than does the essential facilities doctrine.” See

Third Report and Order, 15 FCC Red. 3696, § 60 (1999).

The decision below stretches the essential facilities

doctrine beyond recognition. Even those cases accepting

the essential facilities doctrine have not applied it when the

plaintiff has access to the facility and complains only

about the terms of such access. See Alaska Airlines, Inc. v-

14

United Airlines, Inc., 948 F.2d 536, 543-545 (9th Cir.

1991) (rejecting essential facilities claim where defendants

“never refused any of the plaintiffs access” to their

computer reservation systems and plaintiffs complained

only about the terms); /deal Dairy Farms v. John Labatt,

Ltd., 90 F.3d 737, 748 (3d Cir. 1996) (business that

utilized defendant’s premises but complained about terms

“was not denied use [of] facilities”); Laurel Sand &

Gravel, Inc. v. CSX Transp., Inc., 924 F.2d 539, 545 (4th

Cir. 1991) (where defendant offered to ship competitor’s

goods on defendant’s track, essential facilities doctrine did

not require defendant to lease track to enable rival to earn

higher profit). Respondent has not alleged a denial of

essential facilities but only a failure to perform as quickly

as demanded by Verizon’s competitors.

Respondent and its amici have relied heavily on MCI v.

AT&T, 708 F.2d 1081 (7th Cir. 1983), which held that

AT&T had unlawfully monopolized based on the essential

facilities doctrine. In that case, AT&T “refused to

interconnect MCI with the local distribution facilities of

Bell operating companies” (id. at 1132), “never challenged

the assertion that it had denied MCI access to the local

distribution network” (id. at 1133), and “dismantled all the

interconnections” it had previously provided (id. at 1134).

Respondent alleges no remotely comparable denial of

access by Verizon.

Furthermore, AT&T denied MCI a private line service

that AT&T voluntarily sold others pursuant to tariff. As

the FCC explained in an order quoted by the district court

and relied on by the court of appeals, “Bell presently has

arrangements * * * with numerous independent telephone

companies for access to its local distribution facilities for

the purpose of enabling Long Lines and the independent

telephone companies to provide FX and CCSA services.”

OEE

we

15

MCI v. AT&T, 462 F. Supp. 1072, 1092 (N.D. Ill. 1978),

quoting Bell System Tariff Offerings of Local Distribution

Facilities for Use by Other Common Carriers, 46 F.C.C.2d

413, 426 (1974); see also MCI, 708 F.2d at 1097. What is

more, AT&T admitted that it denied MCI the required

access solely to harm a disfavored competitor: “With

respect to its arrangements with the independent telephone

companies for FX and CCSA services, Bell states that the

independent companies do not operate on parallel routes or

duplicate Bell's facilities and are therefore not

competitors.” 46 F.C.C.2d at 428.

In contrast, competitors have been favored by Verizon

and other ILECs. Due to the mandates of the 1996 Act and

its implementing regulations, competitors obtain

unbundled network elefments that are unavailable to

noncompetitors and entire services at prices far below

what retail customers pay. In particular, competitors have

access to the Unbundled Network Element Platform

(“UNE-P”), which enables competitors to resell the

incumbent’s telephone service at cost-based UNE rates

rather than at the retail-based resale rates specified by

Congress.‘ The essential facilities doctrine has never

required, and should not now be expanded to require, a

firm to sell services to rivals at prices substantially below

what it charges others for those same services. As the

Seventh Circuit held in Goldwasser, dismissing claims like

those of respondent is fully consistent with that court’s

prior ruling in MCI.

* See In re Application by Bell Atlantic New York for

Authorization Under Section 271 of the Communications Act to

Provide In-Region, InterLATA Service in the State of New York, 15

FCC Red. 3953, 4 193 (1999).

16

Furthermore, the essential facilities theory has never

been applied where a statute guaranteed access to the very

facilities that plaintiff claims to be essential and gave

regulators responsibility and power to enforce the access

rights in question. Under the 1996 Act, the CLECs

themselves hold the keys to resolving any access problem.

Unlike the situation in Otter Tail, where the Federal Power

Commission had “no authority” to order a utility to

transmit electric power over its transmission lines to

requesting municipalities (410 U.S. at 375), the state

commissions are fully authorized to resolve such issues.

See Part Il, infra. In other words, ILECs cannot refuse

CLECs access to loops or other facilities without the

approval of the designated regulators. Under section

251(c), an ILEC must negotiate in good faith with CLECs

to provide access to loops and other facilities, and should

the ILEC refuse to provide such access (or refuse to

provide it on terms the CLEC believes reasonable) the

CLEC can force the ILEC into arbitration before the state

commission under section 251(b). See 47 U.S.C. § 251.

Should a CLEC believe that an ILEC is not providing the

access mandated by a state commission pursuant to the

1996 Act, it can seek relief from the state commission, or

seek revocation of an ILEC’s long distance authorization

or other sanctions from the FCC. See 47 USC.

§ 271(d)(6). These regulatory remedies assure that neither

valid interconnection requests nor access to any “essential

facilities” will be denied. In other words, the “control”

element of an essential facilities claim cannot as a matter

of law be satisfied in this context.

AT&T took full advantage of the 1996 Act’s regulatory

machinery to resolve its grievances with Verizon,

obtaining a consent decree and millions of dollars in

damages. Pet. App. 5a. Respondent’s antitrust complaint

raises the very same issues resolved by the consent decree

17

and alleges injury that is entirely derivative of the injury

previously asserted by AT&T. The heavy artillery of

antitrust is not required to compel the very same

affirmative assistance that Congress directed state and

federal agencies to oversee. In industries subject to

extensive regulation, “relief for arbitrary refusals to deal

should be left to common law remedies [or] legislation.

*** It is well within the province of the courts in

determining the scope of § 2 to leave such matters to

them.” 3A Areeda & Hovenkamp, ANTITRUST LAW

| 770e, at 169. Because the 1996 Act already conveys

highly favorable access to the ILECs’ facilities, there is no

independent role for the essential facilities doctrine to

play.

Extending the essential facilities doctrine to inter-

carrier performance issues would violate the antitrust

principle that courts should not assume the role of industry

regulators. See Hovenkamp, The Monopolization Offense,

61 Ohio St. LJ. 1035, 1044 (2000) (“antitrust courts are

not public utility agencies”). Prohibiting a particular form

of anticompetitive conduct (such as price-fixing or a

horizontal boycott) is quite different from imposing an

affirmative obligation to deal with rivals. As Justice

Breyer has observed, “fe]ven the simplest kind of

compelled sharing * * * means that someone must oversee

the terms and conditions of that sharing.” Jowa Utils. Bd,

525 U.S. at 428. Requiring a defendant “to deal with

outsiders requires some mechanism for supervising and

adjusting the price and other terms.” 3A Areeda &

Hovenkamp, ANTITRUST LAW 4 787c, at 305. Must the

defendant share with one rival, with several, with all?

What prices may the defendant charge? How much of its

physical plant must it turn over? How much sharing is

optimal? Must the defendant build new facilities or retrofit

existing facilities? To what degree must it unbundle

complex network facilities? These are but some of the

questions that an antitrust court (and jury) would have to

address.

These concerns are underscored by the technicality and

complexity of the access and provisioning issues raised by

respondent. See R. Posner, Antitrust in the New Economy,

68 Antitrust LJ. 925, 937 (2001) (“communications

technology [is] much more difficult [than] the average

body of scientific or engineering knowledge that lay

judges and jurors are asked to absorb”). As the D.C.

Circuit has observed, “there are many different types of

loops, including two-wire loops, four-wire loops, analog

loops, digital loops, fiber loops, and copper loops,” as well

as “countless uses to which loops can be put, including

residential service, business service, voice service, data

service, alarm service, and so on.” AT&T v. FCC, 220 F.3d

607, 624 (D.C. Cir. 2000). Determining the practical need

for and feasibility of sharing inputs in an industry with

daily-innovations, the adequacy of computerized ordering

systems serving multiple carriers, and workable solutions

to provisioning delays is not within the province of the

courts. Judge Tjoflat properly concluded that ‘rial courts

should not serve as “quasi-regulatory agencies [to] oversee

sharing between rivals.” Covad, 314 F.3d at 1288. The

“intensely practical difficulties” of resolving disputes in

this area are best left to the expert regulators. Verizon

Communications, 535 U.S. at 502.

Permitting CLECs to demand better provisioning via

the essential facilities doctrine also would require ILECs to

cede, expand, or alter their existing facilities to

accommodate such demands. Neither the essential

facilities doctrine nor any other antitrust principle requires

a firm to fundamentally alter its business, develop costly

new systems, deploy new facilities, or abandon existing

-

oe

EI merry

19

facilities “to satisfy a would-be sharer.” 3A Areeda &

Hovenkamp, ANTITRUST LAW 4773e, at 210 (citing

cases). As the Fourth Circuit recently noted, the essential

facilities doctrine does not compel a firm “to get into a

business it was not traditionally in simply to respond

favorably to a new competitor’s demand for use of its

facilities.” Cavalier, slip op. at 17.

. Requiring overburdened federal courts to police the

highly technical terms of interconnection performance

would reimpose the “government by consent decree” that

Congress rejected in the 1996 Act. See 110 Stat.at 143, §

601(a); Conf. Rep. at 198-201. As described by then

Assistant Attorney General Charles Rule, head of the

Antitrust Division, the “choice of the Department and

decree court as substitutes” for “state regulators” was a

“big mistake” because regulating inter-carrier performance

required “technical expertise, regulatory experience, and a

set of administrative procedures.” Antitrust and Bottleneck

Monopolies: The Lessons of the AT&T Decree, reprinted

in TELEMATICS, Dec. 1988, at 16. Congress put an end to

this “big mistake.” As described in Part Il, authorizing

multiple antitrust courts and juries to oversee inter-carrier

relationships would make a dead letter of the 1996

legislation.

For all these reasons, the court below had no ground

for reinstating respondent’s Section 2 claim based on the

“essential facilities” doctrine. As many courts have

recognized, futile essential facilities claims should be

dismissed at the pleading stage.° ,

In addition to Goldwasser, see, e.g, Midwest Gas Servs. v

Indiana Gas Co., 317 F.3d 703, 714 (7th Cir. 2003) ; International

Audiotext Network, Inc. v. AT&T, 62 F.3d 69, 72 (2d Cir. 1995):

| Caribbean Broad. Sys. v. Cable & Wireless PLU, 148 F.3d 1080

20

D. Respondent’s Allegations Are Not Actionable

Under A “Monopoly Leveraging” Theory.

The Second Circuit’s second ground for authorizing

respondent’s antitrust claim — its monopoly leveraging

theory — also conflicts with established limits on antitrust

law. That theory would make unlawful a firm’s use of its

market power in one market to obtain a “competitive

advantage” in a second market, even when there is no

prospect of achieving a monopoly in the second market.

Such a theory cannot be reconciled with this Court’s

holding in Spectrum Sports v. McQuillan, 506 U.S. 447,

459 (1993), that unilateral conduct violates Section 2 “only

when it actually monopolizes or dangerously threatens to

do so.” Based on Spectrum Sports, conduct that leads to a

“competitive advantage” in the second market does not

violate Section 2 because it represents neither actual

monopolization nor the dangerous threat required for

attempted monopolization. See generally Joseph Kattan,

The Decline of the Monopoly Leveraging Doctrine,-9-Fall

ANTITRUST 41 (1994).

Far from barring efforts to obtain a competitive

advantage in other markets, antitrust law encourages

“dominant firms to engage in vigorous competition.”

Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 116

(1986). Firms may seemingly obtain an “unfair” advantage

through innovations and efficiencies that benefit

(D.C. Cir. 1998); TV Communications Network, Inc. v. Turner

Network Television, Inc., 964 F.2d 1022 (10th Cir. 1992);

Wojcieszek v. New England Tel. & Tel. Co., 977 F. Supp. 527, 534

(D. Mass. 1997); Norcen Energy Resource Lid. v. Pacific Gas &

Elec. Co., 1994 WL 519461 (N.D. Cal. Sept. 19, 1994);

Futurevision Cable Sys. v. Multivision Cable TV Corp., 789 F.

Supp. 760 (S.D. Miss. 1992), aff'd, 986 F.2d 141 8 (Sth Cir. 1993).

21

consumers. But the antitrust laws “do not create a federal

law of unfair competition.” Brooke Group, 509 U.S. at

225. This Court accordingly should reject the Second

Circuit’s monopoly leveraging rationale.

F urthermore, even when accepted, the monopoly

leveraging doctrine has never been applied to the

wholesale and retail sides of a single business. The

implications of such an extension of the monopoly

leveraging doctrine are startling. It would preclude an

upstream monopolist from selling its product exclusively

through its own distribution system based on the potential

adverse impact on independent distributors reselling the

product to consumers. But it is virtually always lawful

under the antitrust laws for a firm to sell what it makes,

even if it does so exclusively and disadvantages

unintegrated rivals. See State Oil Co. v. Khan, 522 U.S. 3,

15 (1997); 3A Areeda & Hovenkamp, ANTITRUST LAW

{ 764c. The cost savings from such vertical integration

benefit consumers. See 3A Areeda & Hovenkamp, supra,

ba | 757-758. This Court therefore should reject any

extension of monopoly leveraging theory to restrict an

integrated firm’s freedom to sell its services directly to

retail customers.

Finally, as with the essential facilities doctrine,

administering the monopoly leveraging doctrine in this

context would create an administrative nightmare for the

federal courts. Courts are poorly equipped to evaluate

whether a manufacturer must supply product to

independent resellers and other competitors and, if so, how

much, at what price, and on what terms. See 3A Areeda &

Hovenkamp, ANTITRUST LAW 4 774e, at 224 (“courts are

not well equipped to deal with [terms of forced access]”).

The technical complexities of telecommunications

22

products and markets underscores the impropriety of

assigning such a task to antitrust courts and lay juries.

Il. PERMITTING ANTITRUST LITIGATION

OVER ROUTINE PERFORMANCE DISPUTES

BETWEEN CARRIERS WOULD CONFLICT

WITH AND UNDERMINE THE REMEDIAL

REGIME ESTABLISHED BY CONGRESS.

If the antitrust laws were stretched to supervise

interconnection performance in the manner advocated by

respondent, that would undermine the regulatory

framework established by Congress in the 1996 Act.

A. This Court’s Precedents Require A Careful

Evaluation Of The Impact Of Sporadic

Antitrust Adjudication On This Unique

Regulatory Scheme.

This Court consistently has sought to protect the

integrity of the regulatory process and to avoid the conflict

and confusion that may result frem permitting parallel

antitrust and regulatory challenges to the same conduct. In

these types of cases, the Court analyzes the regulatory

scheme and gauges the practical consequences of antitrust

adjudication on effective administrative supervision. See

Sullivan & Grimes, THE LAW OF ANTITRUST § 14.5, at 746

(2000) (listing cases). An important factor in that analysis

is the Court’s longstanding recognition that expert

agencies often “are better equipped than courts by

specialization, by insight gained through experience, and

by more flexible procedure” to resolve intra-industry

disputes. Far East Conf. v. United States, 342 U.S. 570,

574-575 (1952).

For example, in Pan Am. World Airways, Inc. v. United

States, 371 U.S. 296, 305 (1963), the Court found that

some practices regulated by a federal agency were subject

23

to antitrust review but not those “basic in this regulatory

scheme.” In Hughes Tool v. TWA, 409 U.S. 363, 385 &

n.14, 387 (1973), the Court upheld dismissal of an antitrust

claim because subjecting conduct that is “under the

surveillance” of an expert agency to “the sanctions of the

antitrust laws” was inappropriate. The Court reaffirmed

this approach in Gordon v. New York Stock Exch., 422

U.S. 659, 684-686 (1975), explaiuing that deference to an

“oversight” agency is appropriate to “take advantage of its

special expertise” and avoid “any conflict arising between

the regulatory scheme and the antitrust laws.” And in

United States vy. NASD, 422 U.S. 694, 734-735 (1975), the

Court affirmed dismissal of an antitrust claim because,

“[iJn this instance, maintenance of an antitrust action for

activities so directly related to the SEC’s responsibilities

poses a substantial danger that [the industry] would be

subjected to duplicative and inconsistent standards.”

Accord National Gerimedical Hosp. v. Blue Cross, 452

U.S. 378, 393 n.18 (1981).

As shown below, this careful, case-by-case approach to

applying the antitrust laws with due consideration for their

relationship with federal remedial statutes is especially

warranted here. In 1996, Congress imposed upon ILECs

unprecedented duties to cooperate with their competitors —

duties never contemplated by, and in many ways foreign

to, the antitrust laws. The expert agencies charged by

Congress with responsibility for enforcing 1996 Act

requirements, unlike antitrust courts, must do so in the

broader context of a regulatory scheme that compels them

to consider diverse areas of telecommunications regulatory

policy—including, for example, requirements that carriers

meet service quality commitments to retail customers,

provide service as carriers of last resort to end users who

cannot be economically served, and support the national

defense. This comprehensive regulatory framework must

=

24

be considered when determining the propriety of antitrust

resolution of particular types of disputes.

B. Antitrust Adjudication Of Disputes Arising

Under Interconnection Agreements Would

Create Intolerable Conflicts With The Act’s

Remedial Regime.

In the 1996 Act, Congress entrusted supervision of

interconnection duties to state and federal administrative

bodies and directed that disputes arising under

interconnection agreements be addressed through the Act’s

dispute resolution process. See 47 U.S.C. §§ 251-252;

Verizon Maryland Inc. v. Public Serv. Comm'n, 535 U.S.

635, 642-643 (2002). State commissions have actively

exercised their authority to supervise local carrier

relationships and to enforce performance obligations under

the 1996 Act and interconnection agreements. In additien,

virtually all state commissions have formulated

performance plans, standards, and penalties to test ILECs’

performance against literally thousands of performance

measures and to assist in the identification and resolution

of any performance deficiencies.° The FCC’s resolution of

® E.g., Order Concerning Performance Measurements and

Enforcement Mechanisms, 2002 WL 1448773 (N.C. Utils.

Comm’n May 22, 2002); Notice, In re Investigation into the

Establishment of Operations Support Systems Permanent

Performance Measures for Incumbent Local Exchange

Telecommunications Companies, 2003 WL 1040595 (Fla. P.S.C.

Feb. 28, 2003); Order Amending Performance Assurance Plan,

2003 WL 721469 (N.Y.P.S.C. Jan. 24, 2003); Order, In re

Performance Measures for Telecommunications Interconnection,

Unbundling and Resale, 2002 WL 32071549 (Ga. P.S.C. Dec. 17,

2002); Order, In the Matter of Qwest’s Performance Assurance

Plan, 2002 WL 31954217 (Minn. P.U.C. Nov. 26, 2002); Final

Opinion, Re Performance Measures Remedies, 2002 WL

A

25

the ordering delay issue in this case shows that it actively

exercises its authority in this area as well.’

In light of the remedial regime that Congress created to

resolve interconnection disputes, “[i]f the courts were to

intrude independently with their construction of the

antitrust laws, two regimes might collide.” Pan Am., 371

U.S. at 309-310. Allowing antitrust lawsuits to proceed in

tandem with the regulatory proceedings in this context

would disrupt the elaborate administrative scheme that

Congress delineated. Lay juries would be asked to second-

guess expert agency decisions with respect to

exceptionally complex and technical issues. Such an

incoherent process inevitably would impose “duplicative

and inconsistent standards” on the affected parties. NASD

422 U.S. at 735; Gordon, 422 U.S. at 689. That AT&T

already has raised and resolved through the regulatory

process before the FCC the very issues raised by

respondent underscores the seriousness of this conflict. If

those same disputes also become subject to antitrust

adjudication, the lure of treble damages will lead claimants

to bypass the agencies designated to resolve them, and “the

procedures and remedies specified by Congress for

violations of the Telecommunications Act would become

subservient to, indeed overrun by, the Sherman Act.”

Cavalier, slip op. at 21.

32063827 (Pa. P.U.C. Nov. 21, 2002); Opinion, Order Instituting

Rulemaking on the Commission’s Own Motion into Monitoring

Performance of Operations Support Systems, 2002 WL 1899988

(Cal. P.U.C. June 27, 2002).

” The FCC has asserted “concurrent” authority to regulate and

impose damages for a breach of interconnection duties. See Jn the

Matter of Core Communications, Inc., No. EB-01-MD-017, 4 13-

17 (FCC rel. Apr. 20, 2003).

26

The 1996 Act procedures would be rendered incapable

of resolving simple carrier-to-carrier disputes if CLECs or

consumers are permitted to file claims based on identical

disputes, engage in lengthy antitrust litigation, and years

later obtain a jury verdict at odds with the administrative

ruling. As Judge Tjoflat pointedly asked, “Why would a

CLEC ever sue only in contract when it can jettison the

regulatory scheme and sue for treble damages in federal

court?” Covad, 314 F.3d at 1290. Under the Second

Circuit’s ruling, a party could file an antitrust suit “the day

after” agency resolution of interconnection disputes, an

absurd result. Hughes Tool, 409 U.S. at 388. Congress

cannot have intended to authorize such redundancy, which

can only promote conflict and obstruct the 1996 Act’s

dispute resolution machinery.

The fact that Congress modeled the 1996 Act’s

administrative framework on collective bargaining

confirms this conclusion. See First Report and Order, \1

FCC Red. 15499, 15577 n.292 (1996) (citing NLRB

precedent to explain the 1996 Act’s good-faith bargaining

requirement). As in collective bargaining, CLECs have

every opportunity to demand contractual protections in

case an ILEC does not perform as promised. They may

® In fact, respondent filed this action immediately after the

“exclusive remedy” specified in the Verizon-AT&T agreement

produced a negotiated resolution of their interconnection dispute.

It would be perverse for ILECs that have elected to settle

intercarrier performance disputes through the appropriate

regulatory processes to find that those settlements are meaningless,

serving only as the opening salvo in protracted antitrust litigation.

If the “settled” issues are litigated before antitrust courts and juries

rather than expert commissions, an ILEC’s incentive to settle will

be significantly lessened, and the regulatory mechanisms designed

to resolve this sort of dispute expeditiously will be bypassed.

27

seek mandatory penalties for unsatisfactory performance

and demand arbitration if the ILEC does not agree to such

provisions. See 47 U.S.C. § 252. Good-faith negotiations

and contractual performance standards would be rendered

meaningless if a party could seek treble antitrust damages

whenever it became dissatisfied with the progress of

negotiations or performance under resulting agreements.

To prevent such a result, this Court long has held that

antitrust litigation should not be permitted to disrupt good-

faith bargaining governed by federal regulation. See

Brown v. Pro Football, Inc., 518 U.S. 231, 242 (1996);

Associated Gen. Contractors v. California Council of

Carpenters, 459 U.S. 519, 526-527 (1983). The same

principle applies under the 1996 Act.

The Second Circuit denied that there was any risk of

“conflic[t] with the regulatory framework” arising from an

action for damages, as opposed to injunctive relief. Pet.

App. 38a-39a. But it is well established that “regulation

can be as effectively exerted through an award of damages

as through some form of preventive relief.” San Diego

Bldg. Trades Council v. Garmon, 359 U.S. 236, 247

(1959); accord Cipollone v. Liggett Group, 505 U.S. 504,

521 (1992). Allowing consumers to bring treble damage

class actions based on CLEC grievances over ILEC

provisioning would have the same disruptive effect as a

judicial injunction. The Second Circuit also suggested a

two-track process through which CLECs could resort to

regulatory relief while CLEC customers file antitrust suits.

This impractical scheme would simply allow CLECs to

use consumers as stalking horses and thereby exacerbate

the conflict between antitrust adjudication and the

regulatory regime.

As explained in the amicus brief filed by SBC,

BellSouth, and USTA at the certiorari stage in this case (at

28

15-16 n.3), the foregoing concerns are confirmed by the

extraordinary proliferation of class action litigation that

has come in the wake of the decision below. A cottage

industry is rapidly developing within the plaintiffs’ bar

devoted to monitoring disputes between ILECs and

CLECs and racing into court with antitrust complaints that

demand treble damages and attorneys’ fees. In addition to

undermining the regulatory process, these actions threaten

unconstrained damage awards that will force costly

settlements regardless of the merits of the claims and

impose serious burdens on the courts.

These opportunistic suits are not driven by any

downturn in competition. As early as 2000, the D.C.

Circuit noted “the evidence of growing competition in the

New York local telephone market.” AT&T v. FCC, 220

F.3d at 633. In fact, CLECs now control 25% of the local

telephone market in New York. FCC, Local Telephone

Competition: Status as of June 30, 2002, Table 7 (Dec.

2002). Nationwide, the FCC’s latest statistics show that the

number of local telephone lines served by CLECs jumped

from 8.2 million in December 1999 to 21.6 million in June

2002. Jd. Table 1. Those same statistics show rapid growth

in competition in those states that CLECs have chosen to

target, such as Michigan, where CLEC market share grew

from 3% in December 1999 to 18% in June 2002. This

objective evidence of imcreased local exchange

competition confirms that the existing scheme of

regulation of ILECs’ performance under interconnection

agreements represents no threat to competition.

C. The Savings Clause Should Not Be Read To

Undermine The Act’s Remedial Scheme.

The court below relied on the antitrust savings clause

in the 1996 Act, 110 Stat. 56, 143, § 601(b)(1), reprinted

as note to 47 U.S.C. § 152, to authorize adjudication of

29

carrier performance disputes. But that provision only

confirms that it was improper for the court to “modify”

established limits on the scope of the antitrust laws. As

demonstrated above, respondent is seeking an enormous

“modification” of existing antitrust law by treating 1996

Act duties as if they were antitrust duties, contrary to the

unambiguous prohibition in the savings clause against

“—y modification of antitrust law. See Cavalier, slip op.

at 19.

The Second Circuit also relied on the Act’s savings

clause to undermine regulatory procedures established in

that very statute. Yet this Court repeatedly has cautioned

that savings clauses in regulatory statutes may not be

construed to undermine the regulatory scheme. On that

basis, dismissal of an antitrust claim was upheld in Pan

Am. World Airways, notwithstanding the existence of a

broadly worded savings clause. 371 U.S. at 310; id. at 321

(Brennan, J., dissenting); see also Geier v. American

Honda Motor Co., 529 U.S. 861, 870 (2000) (refusing to

“give broad effect to saving clauses where doing so would

upset the careful regulatory scheme established by federal

law”); AT&T v. Central Office Tel., Inc., 524 U.S. 214,

228 (1998). As explained above, allowing antitrust suits

over ordering delays and other performance issues would

disrupt the 1996 Act’s remedial scheme.

ese ee *

These are not issues that must await discovery and the

compilation of a summary judgment record. See note 5

supra; 2 Areeda et al., ANTITRUST LAW 4 307c, at 68, 71

(2d ed. 2000) (claims of a duty to deal and monopoly

leveraging present questions of legal “policy, not of fact”).

Allowing these costly and burdensome cases to lumber

forward through discovery and possibly to trial would

conflict with this Court’s admonition that courts should

30

dismiss deficient antitrust claims at the pleading stage

rather than allow “a_ potentially massive factual

controversy to proceed.” Associated Gen., 459 U.S. at 528

n.17. Because the antitrust laws do not extend to routine

performance disputes between ILECs and CLECs, and

because antitrust litigation over those disputes would

conflict with and undermine the remedial framework of the

1996 Act, the court below should not have reinstated

respondent’s antitrust claims.

CONCLUSION

The decision of the Second Circuit should be reversed.

Respectfully submitted.

MARC GARY STEPHEN M. SHAPIRO

J. HENRY WALKER JOHN E. MUENCH

MARC W. F. GALONSKY JEFFREY W. SARLES

BellSouth Corporation Counsel of Record

1155 Peachtreet Street, N.E. Mayer, Brown, Rowe &

Atlanta, Georgia 30309 Maw

(404) 249-5732 190 South LaSalle Street

Chicago, Illinois 60603

(312) 782-0600

TIMOTHY M. BOUCHER JAMES D. ELLIS

Qwest Communications PAUL K. MANCINI

International, Inc. WILLIAM M. SCHUR

1801 California Street, SBC Communications Inc.

38" Floor 175 E. Houston Street

Denver, Colorado 80202 San Antonio, Texas 78205

(303) 672-2701 (210) 351-3409

MAY 2003