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

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Amicus Curiae Brief
- **Published:** January 1, 2004
- **Citation:** 540 U.S. 398

## Text

| Supreme Court. US

FILED

JUL 25 2003
No. 02-682 | OPEC Oe bb illabek
IN THE
Supreme Court of the United States

VERIZON COMMUNICATIONS INC.,
Petitioner,
v.
LAW OFFICES OF CURTIS V. TRINKO, LLP,

Respondent.

On Wait oF CERTIORARI TO THE
UNitTep STATES CouRT OF APPEALS FOR THE SECOND CIRCUIT

$$ ——— ————
—

BRIEF FOR COVAD COMMUNICATIONS COMPANY, INC.
AS AMICUS CURIAE IN SUPPORT OF RESPONDENT

MAarGareT A. ROBBINS ALFRED C. PFEIFFER, JR.
Associate General Counsel Counsel of Record

Covap COMMUNICATIONS COMPANY — FRANK M. HINMAN
3420 Central Expressway Marta E. Miyar
Santa Clara, CA 95051 BINGHAM McCutTcHen LLP
(408) 616-6616 Three Embarcadero Center

San Francisco, CA 94111
(415) 393-2000

Attorneys for Amicus Curiae
Covad Communications Company, Inc.

182027 ce

COUNSEL PRESS
(800) 274-3321 + (800) 359-6859

i

TABLE OF CONTENTS

TABLE OF CITED AUTHORITIES ...............

INTEREST OF AMICUS ........cscccccccesevces

SUMMARY OF THE ARGUMENT ...............

P|, PPPPereTerrTTrTTTryrrresrrre eerie

I.

The ILECs Routinely Engage In Exclusionary
Conduct That Harms Competition ........

A.

ILEC Misconduct Affects Far More
Than Local Phone Service Resellers ...

Covad And The Deployment Of DSL
TOCRONORY occ ccccccccccsscecccccens

1. ILECs Suppressed DSL Tech-
CONDE cc ccccccccccccccscseseses

2. The Response to the Threat Posed
Dy COVES occ ccccccccccccecccces

The ILECs’ Campaign To Exclude
CRMPOUIGR 2 oc cccccccccvcceccsecens

1. Outright Denials of Collocation

2. Constructive Denials through
Unreasonable Conditions ........

a. Unreasonable delay ..........

b. Anticompetitive build-out
requirements ..............-.

Page

il
Contents

c. Arbitrary loop policies .......

3. Discrimination Against Rivals ....

D. ILECs All But Destroyed Competition
And Increased Their Monopolies .....

I]. Antitrust Remedies Are Necessary, Proper
And Traditional Means To Combat ILECs’
Anticompetitive Conduct .............+..

A. Traditional Sherman Act Section 2
Doctrines Forbid The ILECs’ Exclusionary

PURSIIOGD .ucccccesveceeneseul

1.

The Unique History of the Regulated

Telecommunications Industry
Demonstrates the Importance of
Antitrust Enforcement ...........

Monopoly-to-Monopoly
Leveraging is Unlawful ...........

The Essential Facilities Doctrine
Properly Applies to the ILECs’
Attempts to Use Their Local
Network Monopolies to Control
Secondary Markets ...............

a. Essential facilities claims involve
extension of a monopoly into a
second market ..............

ili
Contents

b. Essential facilities claims
are especially important in
“natural” monopoly markets ..

B. Even Under The ILECs’ Unfounded
View Of Exclusionary Conduct, Their
Conduct Is Still Exclusionary .........

Conclusion

1.

Verizon and Its Amici Try to Create a
False Predatory Pricing Requirement
for Section 2 Liability ............

Raising Rivals’ Costs Is Exclusionary

ILECs Routinely Forego Profits to
Harm Competition ..............

Page

iv

TABLE OF CITED AUTHORITIES

Page
Cases
Advanced Health-Care Serv., Inc. v. Radford Cmty.
Hosp., 910 F.2d 139 (4th Cir. 1990) ...........-- 23

American Ad Mgmt., Inc. v. General Tel. Co. of Cal.,
190 F.3d 1051 (9th Cir. 1999) ...... 0.0... . ee eees 5

Aspen Highlands Skiing Corp. v. Aspen Skiing Co.,
738 F.2d 1509 (10th Cir. 1984), aff'd on other

grounds, 472 U.S. 585 (1985) ..... 22.6.0 eee eeees 17
Aspen Skiing Co. v. Aspen Highlands Skiing Corp.,

472 U.S. 585 (1985) ..... 2... cece ee eee eee 23, 27, 28, 30
AT&T Corp. v. lowa Utils. Bd., 525 U.S. 366 (1999) .... 25
Ball Mem’! Hosp., Inc. v. Mutual Hosp. Ins., Inc.,

784 F.2d 1325 (7th Cir. 1986) ...........---+55- 28-29
Bell Tel. Co. of Pa. v. F.C.C., 503 F.2d 1250 (3d Cir.

GID ccccccccccescccosncescccccsscesssoceses 18-19
California v. F.C.C., 39 F.3d 919 (9th Cir. 1994) ..... 19
California v. F.C.C., 905 F.2d 1217 (9th Cir.1990) .. 19
City of Malden v. Union Elec. Co., 887 F.2d 157

ths Cle. 19GD) 2... cc cccccccccccccccccccccscces 23
City of Vernon v. S. Cal. Edison Co., 955 F.2d 1361

(9th Cir. 1992), cert. denied, 506 U.S. 908 (1992) .... 23
Copperweld Corp. v. Independence Tube Corp., 467 U.S.

FEED cc ccvcvcccccscescscccesesvceseseses 14

Vv

Cited Authorities
Page
Covad Comm. Co. v. BellSouth Corp., 299 F.3d 1272
(11th Cir. 2002), reh’g denied, 314 F.3d 1282 ..... 1, 23
Delaware & Hudson Ry. Co. v. Consol. Rail Corp., 902
F.2d 174 (2d Cir. 1990), cert. denied, 500 U.S. 928
GEUDED ebecdecccscédvecsesedssddndsecesessiess 23
Directory Sales Mgmt. Corp. v. Ohio Bell Tel. Co.,
833 F.2d 606 (6th Cir. 1987) ..............604.. 23
Eastman Kodak Co. v. Image Technical Services, Inc.,
306 US. 451 (1992) ..... 2.2 ccceees 4,17, 21, 26, 28, 30
Forsyth v. Humana, Inc., 114 F.3d 1467 (9th Cir. 1997),
GG, THB UD. FIO (IDI)... wccccccccccccccccces 29
H&W Indus., Inc. v. Formosa Plastics Corp., U.S.A.,
687 F. Supp. 271 (N.D. Miss. 1988), rev'd on other
grounds, 860 F.2d 172 (5th Cir. 1988) ........... 14
Hecht v. Pro-Football, Inc., 570 F.2d 982 (D.C. Cir.
1977), cert. denied, 436 U.S. 956 (1978) .......... 22
Ideal Dairy Farms, Inc. v. John Labatt, Ltd., 90 F.3d
Fae GG GEEED cecccecesccecesesscocscesess 23
Indeck Energy Services, Inc. v. Consumers Energy Co.,
250 F.3d 972 (6th Cir. 2000) .............000ee 5
Int'l Bhd. of Teamsters v. Phillip Morris, Inc.,
34 F. Supp. 2d 656 (N.D. Ill. 1998), aff'd, 196 F.3d
SEP PENG GUUED ccccccecccccccccctstecesces 6

Interface Group, Inc. v. Mass. Port Auth., 816 F.2d
PE SEED cccunvecesccaseacesedeusscecss 22-23

vi

Cited Authorities
Page
Intergraph Corp. v. Intel Corp., 195 F.3d 1346

PO. GER, BERSD cccccccccccscccceccsesccccesee 23
Law Offices of Curtis V. Trinko v. Bell Atlantic Corp.,

305 F.3d 89 (2d Cir. 2002) ...... 2.60. eee eee eees 3, 23
Leitch Mfg. Co. v Barber Co., 302 U.S. 458 (1938) .... 22
M&M Med. Supplies & Serv., Inc. v. Pleasant Valley

Hosp., Inc., 981 F.2d 160 (4th Cir. 1992) ......... 14
MCI Comm. Corp. v. AT&T Co., 708 F.2d 1081

BUDGE, TEED cccccccccccccccccccens 19, 20, 23, 24, 25
Mid-Texas Communications Sys., Inc. v. AT&T Co.,

615 F.2d 1372 (5th Cir. 1980) .............2045. 23
Multistate Legal Studies, Inc. v. Harcourt Brace

Jovanovich Legal and Prof'l Publications, Inc.,

63 F.3d 1540 (10th Cir. 1995) ............20005. 29
Nat'l Ass’n of Regulatory Util. Comm'rs v. F.C.C.,

737 F.2d 1095 (D.C. Cir. 1984) ...........-..4.- 18
Olympia Equip. Leasing Co. v. Western Union Tel. Co.,

797 F.2d 370 (7th Cir.), reh’g denied, 802 F.2d 217

(1986), cert. denied, 480 U.S. 934 (1987) ......... 28
Southern Pacific Comm. Co. v. AT&T Co., 740 F.2d 980

GEE. GER, BED ccccccccccccccccsvceccccescoce 20, 25

Town of Concord v. Boston Edison Co., 915 F.2d 17
CGH DEUED ccccscccccosecessécesesseccesees 27

vii
Cited Authorities
Page

United States v. Aluminum Co. of America, 148 F.2d

SP NEED Sccaccceectsnccasnccceesesss 28
United States v. AT&T Co., 524 F. Supp. 1336 (D.D.C.

SE ceuneneschencucneenccentéustsiseucoeese 19
United States v. Griffith, 334 U.S. 100 (1948), overruled

on other grounds sub nom. Copperweld Corp. v.

Independence Tube Corp., 467 U.S. 752 (1984) .... 22
United States v. Grinnell Corp., 384 U.S. 563 (1966) ... 26
United States v. Microsoft, 253 F.3d 34 (D.C. Cir.)

(en banc), cert. denied, 534 U.S. 952 (2001) ...... 6, 27
United States v. Paramount Pictures, 334 U.S. 131

DEED Saveuddededendanbdscddandbansedesencee 22
United States v. Terminal R.R. Ass’n of St. Louis,

PPD whncecsccccccaseseséicceses 19
United States Telecom Ass‘n v. F.C.C., 290 F.3d 415

PERUSE cboccccedesccccceséeceesecécne 20
Verizon Communications, Inc. v. F.C.C., 535 U.S. 467

ME osdecusesciedecusséessucdeusssescces 20, 25, 30
Statutes
Telecommunications Act of 1996,

47 USC. $6 151, ef 90g. 0... .cccccccceccccess passim

vill

Cited Authorities
Page
Agency Materials

In the Matters of Amendment of Sections 64.702 of the
Commission's Rules and Regulations, 2 F.C.C.R.
3072 (May 22, 1987) .......-0cee cece cece eeeees 19

In the Matter of Establishment of Policies and Procedures
for Consideration of Application to Provide
Specialized Common Carrier Services in the Domestic
Public Point-to-Point Microwave Radio Service and
Proposed Amendments to Parts 21, 43, and 61 of the
Commission's Rules, 29 F.C.C.2d 870 (1971) ..... 18, 19

Second Report and Order, In the Matter of
Implementation of the Telecommunications Act of
1996, 13 F.C.C.R. 17,018 (July 14, 1998) ......... 8, 21

Other Authorities

Big is Better, The Investment Dealer's Digest,
November 19, 2001... 0.0... cc cece cece ee eeeees 10, 16

Brief for the United States and Federal
Communications Commission as Amici Curiae
in Support of Appellants, Intermedia Comm., Inc.
v. BellSouth Telecomm., Inc., No. 01-10224-JJ
(11th Cir. filed Mar. 28, 2001) .............555- 30

Brief for the United States and the Federal Trade
Commission as Amici Curiae, Verizon Comm., Inc.
v. Law Offices of Curtis V. Trinko, On Petition for
a Writ of Certiorari, No. 02-682 (filed Dec. 2002)

ix
Cited Authorities

Complaint, Covad Comm. Co. v. BellSouth Corp.,
No. 1:00-CV-3414 (N.D. Ga. Dec. 22, 2000) ..... 7

David Rohde, Bells Are Failing to Compete As They
Promised, Network World, Inc., Mar. 5, 2001
available at http:// www.nwfusion.com/news/
2001/0305bellcomp.html ............6.00 eens 16

F. Scherer & D. Ross, Industrial Market Structure and
Economic Performance (3d Ed. 1990) ............ 21

DSL FAQ: Why is a line sharing install easier?,
BroadbandReports.com, available at http:/ /
www.dslreports.com/faq/402 .............65. 14

Herbert Hovenkamp, Federal Antitrust Policy:
The Law of Competition and Its Practice § 7.7a
PGE DEED escoccccccscccvccesocesccecsess 25

Herbert Hovenkamp, Post-Chicago Antitrust:
A Review and Critique, 2001 Colum. Bus. L. Rev.
BOP GEENED cc cvccccccesccesccenseeeeoccovesess 28

Jason Krause, Dawn of the Big Bells, The Industry
Standard, April 20, 2001, available at http:/ /
www.thestandard.com/ article
©1902, 25671 OO. Dtml 2.0... eee cccccceccccccees 15, 16

Letter from Chairman Powell to House and Senate
Appropriations Committees of 5/4/01 ........ 21

P. Areeda & D. Turner, Antitrust Law (1978) .... 27
Phillip E. Areeda, Essential Facilities: An Epithet in

Need of Limiting Principles, 58 Antitrust L.J. 841
GREUED ccccccccvccvcccccccceveccovevescosecees 25

x

Cited Authorities

Phillip E. Areeda & Herbert Hovexkamp,
Antitrust Law 2d (2002) .........0e eee ec neeee

Plaintiff's Memorandum in Opposition to
Defendant's Motion for Involuntary Dismissal
Under Rule 41(b), United States v. AT&T Co.,
No. 74-1698 (D.D.C., filed Aug. 16, 1981) .......

R. Bork, The Antitrust Paradox, 138 (1960) .........

Second Amended Complaint, Covad Comm. Co. v.
Bell Atlantic Corp., No. 1:99-CV-01046 (D.D.C.
RM, TE, BESGD cesssccnccsvoescesscct Resaceses

Stephen P. Pizzo, Why is Broadband So Narrow?,
Forbes, Inc., Sept. 10, 2001 ............- eee eee

Steven C. Salop, Economic Concepts and Antitrust
Analysis, 56 Antitrust L.J. 57 (1987) ............

Thomas G. Krattenmaker & Steven C. Salop,
Anticompetitive Exclusion: Raising Rivals’ Cost to
Achieve Power Over Price, 96 Yale L.J. 209 (1986)

eeeeveeveeoeeeeeveeeeeeeeeeeeeeeeeeeeeeeeeeeee eee eo @

Todd Wallack, Covad Knows How To Saree.
ey EE EE oo cn cccdctéectencesedee

Todd Wallack, Covad Makes A Comeback From
Bankruptcy, S.F. Chron., Sept. 6, 2002 ..........

1

INTEREST OF AMICUS

Amicus Covad Communications Company (“Covad”) is
a competitive local exchange carrier (“CLEC”). Covad is the
largest independent provider of digital subscriber line (“DSL”)
service, a low-cost means of providing high-bandwidth
internet access to businesses and consumers. Covad provides
DSL service to the public through a combination of its own
extensive network facilities and discreet, nonduplicable
elements of the monopoly local telephone networks of
incumbent local exchange carriers (“ILECs”) such as Verizon."

Covad has experienced first hand ILEC anticompetitive
conduct of the type that is the subject of this action. Covad
has been and continues to be severely harmed by that conduct
while other DSL providers, and numerous other CLECs, have
been driven out of business altogether.

Covad has two pending antitrust actions against ILECs
for this very conduct now before the Courts of Appeals for the
Eleventh Circuit (against BellSouth) and the District of
Columbia Circuit (against Verizon). In both actions, the ILECs
moved to dismiss at the pleading stage and Covad appealed.
The District of Columbia Circuit has stayed Covad’s appeal
pending a decision in this case. Covad Communications Co. v.
Bell Atlantic Corp., No. 02-7057. The Eleventh Circuit reinstated
Covad's claims against BellSouth. Covad Communications Co.
v. BellSouth Corp., 299 F.3d 1272, reh’g denied 314 F.3d 1282 (11th
Cir. 2002). The case is stayed while BellSouth’s Petition for a
writ of certiorari to the Eleventh Circuit is pending before this
Court. BellSouth Corp. v. Covad Communications Co.,
No. 02-1423 (petition filed Mar. 20, 2003).

1. Pursuant to Supreme Court Rule 37.6, Covad states that no counsel
for any party authored this brief in whole or in part, and that no person or
entity, other than Covad and its counsel, contributed monetarily to the
preparation or submission of this brief.

The parties have consented to the filing of all amicus briefs. Pursuant
to Supreme Court Rule 37.3, letters evidencing these consents have been
filed with the Clerk.

2

SUMMARY OF THE ARGUMENT

More than seven years have passed since Congress enacted
the Telecommunications Act of 1996, 47 U.S.C. §§ 151, et seq.
(the “1996 Act”), which was designed to bring true competition
to local telecommunications markets. But as the United States
observes, “[s]ince then, the incumbent local exchange carriers
(ILECs), such as the Bell Companies that inherited AT&T's
local telephone franchises, have remained dominant.” Brief
for the United States and the Federal Trade Commission as
Amici Curiae Supporting Petitioner (“US/FTC Br.”), 2.
Competition has not materialized because the ILECs have
manipulated the competitive and regulatory landscapes to
extend their long-sanctioned, rate-payer funded local
telephone monopolies into monopolies over other, emerging
markets, including the markets for Internet access, in which
Covad competes. The ILECs’ persistent misconduct has
devastated the competitive landscape. Many competitors have
been forced out of business altogether and others, such
as Covad, have been grievously injured. The ILECs’
determination to exclude competition, and their success in
doing so, despite the provisions of the 1996 Act, make clear
the need for antitrust enforcement to bring an end to their
exclusionary practices. Without such enforcement, competition
will never develop.

1. The ILECs are engaged in a pattern of conduct
that has been designed to and does devastate competition.
They routinely proffer outright denials of access to their
networks, engage in effective denials through the mechanism
of conscious, unreasonable delays even when ostensibly
deigning to provide access, and take countless steps to raise
their rivals’ costs so as to drive out competition (including by
implementation of an anticompetitive price squeeze with
regard to DSL). Through this course of conduct they have
succeeded both in destroying most market entrants, and also
in consolidating and expanding their own monopoly power.

2. The ILEC conduct about which Respondent and Covad
complain is not novel territory unrecognized by the antitrust
laws. Rather, traditional antitrust doctrines developed over

3

many decades preclude the precise type of misconduct in
which the ILECs are engaged, precisely because it harms
competition.

One need venture no further than the history of the
telecommunications industry itself to reject the ILECs’ notion
that their conduct is beyond the reach of the antitrust laws.
Their duty to provide reasonable access to their monopoly
networks was expressly codified by the 1996 Act, but long
predated it under the antitrust laws. AT&T’s divestiture
resulted directly from anticompetitive tactics virtually
indistinguishable from those now perpetrated by its corporate
progeny. Those practices have been recognized as unlawful
under a number of traditional antitrust doctrines, long before
the 1996 Act. The ILECs’ attacks on antitrust doctrines such as
essential facilities and monopoly leveraging simply ignore this
Court's teachings in a misguided focus on labels. Whatever
label is applied, this Court has long and consistently held that
a monopolist violates Section 2 of the Sherman Act when it
extends its monopoly over one market into monopoly power
over another market. That is precisely what the ILECs stand
accused of doing.

3. Verizon and its amici propose a new and unfounded
test for Section 2 liability involving refusals to deal among
competitors. They propose importing a quasi-predatory
pricing standard, by which conduct is only unlawful if a
monopolist has forsaken otherwise profitable sales to drive
away competition. The Court has never adopted such a
standard, and should not do so. Conduct need not involve a
sacrifice of profits to be exclusionary. Rather, any conduct that
excludes competition on a basis other than efficiency is
exclusionary when engaged in by a monopolist. For example,
monopolists in control of a nonduplicable network are
uniquely positioned to exclude competition without ever
sacrificing profits, merely by raising their rivals’ costs.

Even if Section 2 liability depended on a showing that a
monopolist has forsaken profits, the ILECs would be liable
here and in the cases Covad has brought. Covad, like the CLEC
in this case, does not seek to take any element of the ILECs’

4

networks for free. Rather, the 1996 Act incorporates a pricing
structure that is, by law, profitable. Thus, each time the ILECs
refuse to deal with CLECs such as Covad, they fail to utilize
unused capacity on their networks. They thereby turn away
profits and fail even the ILECs’ imagined test for Section 2
liability.
ARGUMENT
I. The ILECs Routinely Engage In Exclusionary Conduct
That Harms Competition

The antitrust laws and the 1996 Act have the same express
goal - promoting competition. Section 2 prohibits exclusionary
conduct that harms competition: the use of monopoly power
“to foreclose competition, gain a competitive advantage, or
destroy a competitor.” Eastman Kodak Co. v. Image Technical
Services, Inc., 504 U.S. 451, 482-83 (1992) (quoting United States
v. Griffith, 334 U.S. 100, 107 (1948)). Verizon turns the law and
the facts upside down, claiming Section 2 should ignore
whether “competitors remain viable” because competition
itself “harms all rivals” and can “lead to a monopoly market.”
Brief for Petitioner (“Verizon Br.”), 25. Section 2, however,
evaluates both the means employed and the effects on
competition. What a firm may acquire by means of fair
competition is quite distinct from what a firm may do while
wielding pre-existing monopoly power.

Verizon and its fellow ILECs have not engaged in fair
competition. Their success is not due to “innovation or
economies of scale or scope” as Verizon contends, Verizon Br.
25, but to their misuse of their historical monopoly of the local
telephone network - which competitors must access to
compete. They use their control over the local network to starve
out their rivals and gain long-term competitive advantages.
Verizon and its ILEC amici attempt to dismiss protests about
their misconduct as mere quibbles about the particulars of
contract performance. See, e.g., Brief Amicus Curiae of
BellSouth Corporation, SBC Communications, Inc., and Qwest
Communications International, Inc. in Support of Petitioner
(“BellSouth Br.”), 2 (claim “based on routine performance
disputes between contracting parties”). Their misconduct goes

5

far beyond mere technical breaches of contracts. It was and is
intentional, so pervasive as to become institutionalized, and,
unfortunately, highly successful. The ILECs have not only
harmed competition, they have crippled it and, if left
unchecked, fully intend to eliminate it.

A. ILEC Misconduct Affects Far More Than Local
Phone Service Resellers

Respondent presents a compelling case that Verizon's
exclusionary practices have harmed competition for the
provision of basic local telephone service. But Covad addresses
an even more serious problem. The ILECs have used, and
continue to use, their control over the local telephone network
facilities not merely to dominate the local telephone service
market, but to gain and maintain monopoly power over
entirely distinct markets. Covad participates in such markets,
for local Internet access, and has experienced firsthand the
ILECs’ unlawful practices.” Verizon and the other ILECs are
engaged in a pattern of conduct designed to exclude Covad
and other competitors from competing with the ILECs for
customers who want to connect to the Internet.

2. The Second Circuit chose not to address the potential antitrust
claims of CLECs in the context of the 1996 Act. See Law Offices of Curtis V.
Trinko v. Bell Atlantic Corp., 305 F.3d 89, 113 n.19 (2d Cir. 2002). However, to
the extent the Court reaches the issue in this case, it is clear Covad, itself
injured and participating in a market where the ILECs have successfully
driven out all other non-ILEC competitors (see pp. 15-16 post), if anything
has a substantially stronger claim of antitrust injury than even Respondent.
See, e.g., American Ad Mgmt., Inc. v. General Tel. Co. of Cal., 190 F.3d 1051,
1058 (9th Cir. 1999) (“[I]t is not the status as a consumer or competitor that
confers antitrust standing, but the relationship between the defendant's
alleged unlawful conduct and the resulting harm to the plaintiff.”);
Indeck Energy Services, Inc. v. Consumers Energy Co., 250 F.3d 972, 977
(6th Cir. 2000) (” Although antitrust actions may, of course, be initiated by
marketplace competitors, those actors in the economic forum must at least
allege that exclusion of the competitor from the marketplace results in the
elimination of a superior product or a lower-cost alternative”). Here, Covad
has a direct relationship with the ILECs and its alleged injury results directly
from the ILECs’ exclusionary conduct. Whatever derivative injury
consumers incur by reason of the harm to Covad may be worthy of redress,
but certainly no more so than Covad’s direct injuries.

6

Covad is a facilities-based CLEC. It independently owns,
operates and maintains its own telecommunications
transmission and related facilities instead of simply reselling
the ILECs’ telecommunications services. Verizon relies heavily
on the inaccurate notion that its competitors simply resell its
services. See, e.g., Verizon Br. 3 (rivals “resell [ILECs’] services
as mere marketers and middlemen’ ), 26 (disputing obligation
to sell to “mere resellers”), 30 (“the rival simply resells the
incumbent's service”); Brief of United Parcel Service, Inc.,
Honeywell International Inc., Visa U.S.A., Inc., and Eastman
Kodak Company as Amici Curiae in Support of Petitioner
(“UPS/ Kodak Br.”), 21 (rivals “resell the product or service at
retail in direct competition with the firm”). Verizon is wrong.
Facilities-based CLECs like Covad are not “mere resellers” of
ILEC services. Covad undertook the massive investment to
develop, build and support its own network. Thus, when
Verizon and other ILECs refused to deal with Covad, they were
not merely maintaining their existing monopoly but
attempting to extend it into markets where access to the local
telephone network was essential to competition. That conduct
violates the antitrust laws, and always has.

B. Covad And The Deployment Of DSL Technology

The story of the ILECs’ anticompetitive campaign against
Covad and other DSL providers begins with the classic
symptom of monopolistic complacency: suppression of
innovation. Actions that “suppress alternative technology
undeniably quash market competition which hurts consumers
in a manner prohibited by the antitrust laws.” Int’l Bhd. of
Teamsters v. Phillip Morris, Inc., 34 F. Supp. 2d 656, 663 (N.D.
Ill. 1998), aff'd, 196 F.3d 818 (7th Cir. 1999); see also United States
v. Microsoft, 253 F.3d 34, 76-78 (D.C. Cir.) (en banc), cert. denied,
534 U.S. 952 (2001) (Microsoft violated the Sherman Act
by, among other things, suppressing Java technology
development by competitors).

1. ILECs Suppressed DSL Technology
ILECs had DSL technology and the capability to deploy it

for years before the 1996 Act but suppressed its development
and deployment and withheld it altogether from the

7

consuming public to gain further monopoly profits from more
expensive, less efficient, internet access services.’

At the time, due to the rapid acceleration of Internet use,
the Internet access market was ripe for an affordable high-
speed alternative technology. To fill that void, Covad
introduced DSL, a “dedicated” local communications service
that does not travel on the public, switched telephone network.
Unlike switched offerings, dedicated services operate directly
between two set points, provide high speed digital connections
(as much as 50 times faster than the standard 28.8k modem
used for dial-up internet access), and are continually
connected. Thus, DSL customers get fast service, do not need
to dial up every time they want to utilize the service, and they
pay a flat, monthly fee, regardless of the amount of time they
actually spend using the service. DSL technology is also
affordable, because it operates over existing copper phone lines
~ the same ones ILECs use to provide voice telephone service
and much slower or less cost-effective internet access services
- obviating special trenching or cable installation that, until
then, was necessary to get high-speed dedicated connectivity.‘

DSL technology had been available for a number
of years, Verizon and other ILECs suppressed it because they
did not want to reduce their revenues from more profitable
services. Specifically, ILECs offered: 1) POTS (“plain old
telephone service” ), the basic analog local telecommunications
service used for voice calls and for dial-up connections to the
Internet via modems, 2) ISDN (“Integrated Services Digital
Network”), a digital dial-up telecommunications service that
Sena See came telephone Rinse and infeestructare that ts

3. Complaint, Covad Comm. Co. v. BellSouth Corp., No. 1:00-CV-3414,
{15 (N.D. Ga. Dec. 22, 2000) (“BellSouth Compl.”); Second Amended
Covad Comm. Company v. Bell Atlantic Corp., No. 1:99-CV-01046,
q 45 (D.D.C. Aug. 10, 2000) (“Verizon Compl.”). We expect the ILECs may
dispute some of the facts asserted here. But because Covad’s cases against
ILECs such as Verizon and BellSouth are challenged, like Respondent's
claims, at the pleading stage, it is the complaints’ allegations, and not the
ILECs’ denials, that matter.

4. See BellSouth Compl., ¢{ 7, 14, 18-21; Verizon Compl., ¢€ 46-48.

used to provide POTS, and for which customers pay per
minute charges; and 3) T-1 and Frame Relay, dedicated high-
speed services run on (expensive) lines specially-installed for
the individual user, usually a large business.°

2. The Response to the Threat Posed by Covad

Covad and other CLECs formed to take advantage of the
DSL technology the ILEC » iad suppressed.* When that
competitive threat emergea, '».wever, the ILECs immediately
raised significant barriers to impede competitive entry. In so
doing, the ILECs delayed the initial commercial offering of
DSL to the public (and competitive entry into the market)
by more than a year, made impossible the widespread
dissemination of DSL by CLECs, and guaranteed for
themselves continued monopoly profits from other services.’
More importantly, the delay gave the ILECs the time necessary
to develop and deploy their own DSL offerings without fear
of losing any competitive advantage to earlier entrants.*
In the process, ILECs enacted arbitrary policies +. rem | only
to CLECs that further raised CLEC costs for
Tiss wean passe esky beumme@n aCoomentins ebay
component to DSL delivery that competitors could not
duplicate: the ubiquitous local telephone network.

Covad and other DSL CLECs need access to the local
telephone network to provide DSL service. In particular, Covad
must “collocate” - physically place equipment in ILEC facilities

5. See BellSouth Compl., {4 15, 17-22; Verizon Compl., ¢{ 55-59.

6. See Verizon Compl., {{ 45, 69; BellSouth Compl., { 14.

7. See Verizon Compl., ¢¢ 69-70, 97; BellSouth Compl., {{ 1,
45-46, 57.

8. All technology-focused industries place a great premium on being
first to market. See Verizon Compl., ¢ 67. Once a system is up and running,
it is more difficult for a competitor to get a potential customer to undergo
the trouble and inconvenience of switching to another provider. See 1d.
Therefore, “even minor delays” in interconnecting with an ILEC “can
represent a serious and damaging business impediment to competitive
market entrants.” Second Report and Order, In the Matter of Implementation
of the Telecommunications Act of 1996, 13 F.C.C.R. 17,018, { 3 July 14, 1998).

9

such as “central offices”* (“COs”) - to connect to the existing
telephone network.” It must also have access to the copper
telephone wires (called “local loops”) that connect
businesses and residents to COs, and “transport” facilities,
which are broadband transmission pipes that connect
various COs to one another.”

C. The ILECs’ Campaign To Exclude Competition

At every turn, ILECs have taken advantage of their
control over the local telephone network to exclude Covad
and other Internet access competitors - at first, by outright
denials and subsequently, by imposition of unreasonable
and expensive requirements and conditions, thereby raising
CLEC costs. The ILECs, however, do not impose similar
requirements, expenses, or delays on their own retail DSL
operations. Instead, they allocate costs in such a way as to
price their DSL offerings too low for rivals to match and
still cover the high start-up costs the ILECs impose on rival
operations.

1. Outright Denials of Collocation

The ILECs begin their exclusion of facilities-based
CLECs such as Covad by simply shutting the gates. They
routinely deny Covad and other CLECs collocation in
numerous COs within their local service territories,
unilaterally - and falsely - declaring that no space is
available.”* Because each collocation denial effectively
prohibits Covad and other CLECs from serving that CO’s

9. Central offices are the facilities where all of the residential and
business telephone lines for a given geographic area come together and
where the ILECs’ telecommunications equipment (such as switches) is
located. See Verizon Compl, {{ 61-62; BellSouth Compl., ¢ 24. Each state
has several hundred COs and none overlap in geography or customers.
See id. California, for example, has more than 600. See id.

10. See Verizon Compl., ¢{ 71, 91-92; BellSouth Compl., ¢ 31.
Tl. See Verizon Compl, {{ 5, 63-64; BellSouth Compl., ¢¢ 25-44.
12. Physical collocation makes little demand on space. Covad’s
equipment, for example, typically occupies between two and four bays in
the CO. Each bay of equipment is approximately seven feet high and two
feet wide. See Verizon Compl., { 93.

10

market, the ILECs have controlled whether, when and in
which markets CLECs can enter and deploy DSL in
competition with the slower or more expensive ILEC
services and, later, the ILECs’ own DSL offering.”

For example, Covad requested collocation in a CO in
the District of Columbia metropolitan area. Bell Atlantic
(“Verizon”)'* denied collocation, representing to both
Covad and the state commission that the CO was a two-
story building with very little unused, conditioned space.
In fact, the CO has four floors and plenty of unused space
suitable for collocation. In this false manner, Verizon has
denied Covad collocation in many critical market COs
within its territory, including Arlington, Crystal City,
Tyson’s Corner, and the Dulles Corridor, in Washington
D.C., and Wayne, Conshohocken, Bryn Mawr, King of
Prussia, and Landsdale in Pennsylvania. All of these are
business centers with large communities of potential Covad
small business customers." The experience was the same
around the country, no matter the ILEC."*

During that one year plus delay when the ILECs
claimed there was “no space” for Covad, the ILECs found
sufficient space in those COs to install the collocation
equipment of their own retail DSL subsidiaries.” Indeed,
despite the fact that Covad was by far first to market, the
ILECs often ended up rolling out their own DSL offering in
those disputed CO markets before Covad or any other
CLEC.

13. See BellSouth Compl, ¢ 24.

14. Verizon was formed from the merger of GTE Corp. and Bell
Atlantic Corp. See Big is Better, The Investment Dealer's Digest, November
19, 2001, at 30-35.

15. See Verizon Compl., ¢¢ 99-103.

16. For example, Covad’s experience in BellSouth's territory was no
different. See BellSouth Compl, ¢¢ 47-49.

17. See Verizon Compl., ¢ 104.

11

2. Constructive Denials through Unreasonable
Conditions

The ILECs’ denials of access through control of
collocation space have come at a high price for Covad and
other CLECs in terms of time, resources, and delayed market
entry. But even when ILECs have nominally granted access
for collocation, they have taken advantage of every step of
the process to create delay and impose additional
unreasonable and unwarranted expenses on their rivals,
creating an artificial and competitive advantage for their
own unburdened DSL products.

a. Unreasonable delay

When ordering collocation, Covad has experienced
unreasonable delay at every stage of the collocation request
and provisioning process. Covad has often waited upwards
of 120 days just to get a price quote for collocation.” Once
Covad receives the price quote, places the firm order, and
pays the required deposit, all that remains is for the ILEC
to provision the collocation space. But at that point, the
ILECs have again resorted to systematic delay tactics. For
example, Covad waited 221 days for space in the Newman,
Ga. CO, 228 days for space in Fort Lauderdale, Fla., 247 days
in Hollywood, Fla., and in Atlanta, Covad waited more than
120 days for space in 17 of the first 35 COs in which it
ordered space.'* The process, from application to
provisioning, took as much as 375 days in Georgia, 244 days
in North Carolina, and 323 days in Florida.”

b. Anticompetitive build-out requirements

Even where the ILECs agreed to provide Covad with
physical collocation, they have hindered Covad’s ability to
provide competing services by insisting that Covad

18. See BellSouth Compl., ¢¢ 50-53.

19. See id., ¥ 54-57.

20. See id., ¢ 57. Other ILECs implemented similar delay tactics in the
collocation application and provisioning process. See Verizon Compl, ¢ 124.

12

purchase what is known as a collocation “cage”” and
inflating the costs of collocation. Since the ILECs actually built
the cages, they also set the (often exorbitant) fees for that build.
Verizon, for example, required much more than expensive
cages; it required CLECs including Covad to build separate
corridors, entrances, staircases, and even a bathroom before
providing collocation.” Indeed, to build out in a single CO,
Verizon quoted Covad physical collocation prices as high as
$412,226 in Virginia, $368,141 and $252,300 in New Jersey,
$115,900 in Pennsylvania, $115,543 in Delaware, and $154,711
in Maryland.”

For Covad and other CLECs, the “ price-discounted” access
Verizon complains of, Verizon Br. 10, 11, has yet to materialize.
Verizon not only passed all its costs on to the CLECs attempting
to collocate, it charged CLECs as much as five times Verizon's
costs. In Bethesda, Maryland, for example, Verizon incurred
$62,389 in collocation costs for the CO, however, it billed Covad
and the other collocating CLECs more than $320,000 in deposits
(i.e. 50% of the collocation price).

c. Arbitrary loop policies

Once Covad has surmounted the first hurdle and
collocated in a central office, it then encounters the ILECs’
attempts to prevent it from buying and installing local loops.
The ILECs have implemented arbitrary loop policies and
procedures to limit the type of service CLECs could offer,

21. The collocation cage is a metal cage-like barrier that separates the
physical space allotted to the CLECs equipment from the remainder of the
CO. See Verizon Compl, ¢§ 73, 105.

22. See Verizon Compl., ¢{ 105-10, 257-59.

23. See Verizon Compl., 44 105-10. In other states, such as
Massachusetts and New York, commissions supervised collocation practices
more closely, and the average cost for collocation was much lower ($35,000
in Massachusetts and $43,814 in New York). See id., ¢ 111.

24. See id., 4 250. Verizon's over-pricing practice was not unique to
Bethesda. Verizon demanded, and received, more than $200,000 (for $67,531
in costs) for its Moorestown, N.J. CO, more than $270,000 (for $61,000 in
costs) for its Hackensack, N.J. CO, more than $140,000 (for $43,663 in costs)
for its Columbia, Md. CO, more than $378,000 (for $154,904 in costs) for its
Laurel, Md. CO, and more than $153,000 (for $66,125 in costs) for its Marlton,
NJ. CO. See id., ¥§ 251-56.

13

hamper CLECs’ ability to determine the availability of service
to customers at the ordering stage, and add significant delay
to the loop (and, thus, overall DSL service) delivery process.
Because the ILECs’ own retail DSL operations are not subject
to these policies, the ILECs created an artificial competitive
advantage over CLECs.

BellSouth, for example, implemented a manual loop
ordering process for CLECs that is, by design, inept and
calculated to produce delay, human error and uncertainty at
every turn. The ILEC requires, for example, that each order be
typed on a (complicated and confusing) request form and
submitted manually via facsimile to BellSouth where an
employee manually retypes the information into BellSouth’s
system. BellSouth often rejects (without notice to the CLEC)
thousands of orders because the facsimile renders the
transmission illegible or it claims the form is improperly filled
out.” For its own DSL products, by contrast, BellSouth uses
an electronic pre-ordering and ordering system which it does
not make accessible to CLECs.”

Verizon similarly uses loop pre-qualification to impede
competition. Verizon initially tied its willingness to provide
loop information to its own ability to provide DSL services;
when it was not offering DSI. service, it simply refused to
provide Covad or other CLECs with any loop information.
Once Verizon deployed its own DSL service, it would only
provide loop information for those locations where it provided
DSL. In those locations, Verizon would only tell Covad the
loop length, omitting other conditions such as load coils or
bridged taps that could affect DSL transmission over that loop.
In locations where Verizon was not providing DSL, Verizon
subsequently claimed that it would only look up the pertinent
information manually (even though Verizon had an automated
loop information system) and provide it to Covad on a loop-
by-loop basis, a time-consuming and ineffective method for

25. See BellSouth Compl., ¢{ 67-68. BellSouth has at times turned off
its facsimile machines without notice, and has changed facsimile numbers
without notice, later contending that large numbers of orders were never
received. See id.

26. See id., ¥§ 70-71.

14

handling the volume of loop orders Covad placed with
Verizon. Under Verizon's system, therefore, Covad - unlike
Verizon - could not guarantee its customers in advance what
speed service they would get or when.”
3. Discrimination Against Rivals

The ILECs also discriminate against CLECs, and in favor
of the ILECs’ own retail DSL operations by dictating the very
technology CLECs can use to provide DSL services. ILECs do
this for no technologically sound reason, but rather to gain
competitive advantages in, and therefore dominate, the
Internet access markets.” “[A] parent corporation may favor
its subsidiary so long as it does not lead to control of the
relevant market.” H&W Indus., Inc. v. Formosa Plastics Corp.,
U.S.A., 687 F. Supp. 271, 276 (N.D. Miss. 1988), rev'd on other
grounds, 860 F.2d 172 (5th Cir. 1988); see also M&M Med. Supplies
& Serv., Inc. v. Pleasant Valley Hosp., Inc., 981 F.2d 160, 166-68
(4th Cir. 1992) (vacating summary judgment in Section 2 action
alleging hospital monopolized medical equipment market by
marketing only its medical equipment subsidiary’s products).

The ILECs have blatantly engaged in discrimination
regarding a particularly promising technology for delivering
DSL service, known as “line sharing.” Line sharing permits a
single local loop to carry both basic voice telephone service
and DSL service to a customer, simultaneously.” A customer
receiving DSL service via line sharing, therefore, does not need
a second local loop.” But instead of permitting Covad and

27. See Verizon Compl., ¥4 125-130.

28. Relying ona Robinson-Patman Act discussion in a treatise, Verizon
suggests a Section 2 action cannot be sustained when the allegation is that
a parent company discriminated between its subsidiary and unrelated
companies. Verizon Brief 18-19 & n.15. Unlike the Robinson-Patman Act
(and Section 1 of the Sherman Act), Section 2 combats both unilateral and
concerted actions that cause monopolization. See Copperweld Corp. v.
Independence Tube Corp., 467 U.S. 752, 776-77 (1984) (“ Any anticompetitive
activities of corporations and their wholly owned subsidiaries meriting
antitrust remedies may be policed” by Section 2).

29. See BellSouth Compl., § 84; Verizon Compl., {{ 180-81.

30. See, e.g., DSL FAQ: Why is a line sharing install easier?, Broadband
Reports.com, available at http:/ / www.dslreports.com/faq/402.

15

other CLECs to use existing voice lines to provide digital
service, Verizon and BellSouth have required Covad to procure
a second line - that is, a new loop - to offer DSL service. At the
same time, their own DSL operations utilize line-sharing.”!
By forcing CLECs to purchase a second loop to service
their customers and manipulating the process of allocating
the cost of those local loops, the ILECs achieve an anticompetitive
price squeeze. To price their retail DSL service, the ILECs attribute
only a negligible portion of the cost of the local loop to DSL
and other data services, attributing the overwhelming
majority of the cost to the analog voice service they provide
on the same line. The ILECs then set the retail prices for their
DSL services at or below the price they charge CLECs for
the wholesale unbundled loop ILECs require CLECs to
purchase to offer DSL. Unable to match the ILEC DSL retail
price and make a reasonable return on their investment,
CLECs are trapped between the price they must pay as ILEC
customers for the loop and the DSL retail price set by ILECs as
competitive DSL providers. The ILECs thus extend their
monopoly over local loops into control over DSL service as well.
D. ILECs All But Destroyed Competition And
Increased Their Monopolies
By means of this intentional pattern of conduct, ILECs
successfully eliminated or seriously injured their rival CLECs
and expanded the scope and reach of their monopolies. As
one commentator aptly described the current situation:
What's left of Ma Bell’s progeny - BellSouth, Qwest,
SBC, and Verizon - have maintained their lock on
local phone service and driven most of their
newfangled rivals to the hills. They’ve moved
successfully into new markets like wireless and
broadband Net access.
Jason Krause, Dawn of the Big Bells, The Industry Standard,
April 20, 2001, available at http://www.thestandard.
com/article/0,1902,23871,00.html. Indeed, the ILECs’

31. See BellSouth Compl., ¥ 85; Verizon Compl., { 181.
32. See BellSouth Compl., ¥ 84-86; Verizon Compl., ¥ 179-84.

16

anticompetitive conduct “effectively dr[ove] every major [DSL]
competitor except Covad out” of business. Id. All three of the
prominent CLECs offering DSL service in direct competition
with ILEC internet access offerings - Covad, Rhythms, and

Northpoint - were forced into bankruptcy; all but Covad

ceased doing business altogether. See Todd Wallack, Covad

Knows How To Survive, S.F. Chron., Feb. 10, 2003, at E1; Todd

Wallack, Covad Makes A Comeback From Bankruptcy, S.F. Chren.,

Sept. 6, 2002, at B1; see also Stephen P. Pizzo, Why is Breadband

So Narrow?, Forbes, Inc., Sept. 10, 2001, at 50.

The ILECs reduced not only the ranks of their competitors,
but their own ranks, via merger, thereby enhancing their
already enormous monopoly power. The 1984 break-up of AT&T
resulted in seven Regional Bell Operating Companies
(“RBOCs,” i.e. ILECs); now, as a result of several recent mergers,
there are only four: Verizon (the largest), SBC, Ameritech, and
Qwest. See Big is Better, ante. These four mega-ILECs dominate
local telephone network facilities in enormous multi-state
regions, and provide DSL and other Internet access services to
an overwhelming percentage of the population in those states.

That intense consolidation was permitted only on the
premise of the ILECs’ ongoing obligations to open their
networks to competition under the 1996 Act and further
obligations assumed by the merging ILECs to compete with
one another. See David Rohde, Bells Are Failing to Compete As
They Promised, Network World, Inc., Mar. 5, 2001, at 1, available
at http:/ / www.nwfusion.com/news/2001/0305bellcomp.
html. None of this promised competition has materialized.
See id.; see also Krause, Dawn of the Big Bells, ante. As a result,
the ILECs have taken the benefits of the 1996 Act with none of
its burdens. The Act guards against this by means of antitrust
enforcement.

Il. Antitrust Remedies Are Necessary, Proper And
Traditional Means To Combat ILECs’ Anticompetitive
Conduct
Verizon and its amici have mythologized the antitrust laws

to create the appearance that access to their state-created,

ratepayer-funded local monopoly networks would never be
appropriate under the “unadorned antitrust laws.” In reality,

17

many decades of antitrust law, in both regulated and
unregulated industries, make clear that no monopolist may
engage in the type of exclusionary conduct the ILECs have
practiced so relentlessly for the past seven years. The claims
against Verizon in this case are nothing new. Rather, they arise
from the same conduct - abuse of the unique monopoly power
inherent in the local telephone network - that led to the
breakup of the old AT&T Bell System twenty years ago.

A. Traditional Sherman Act Section 2 Doctrines Forbid

The ILECs’ Exclusionary Practices
This Court has long held that there are defined limits ona
monopolist’s privilege not to deal with its rivals:
It is true that as a general matter a firm can refuse
to deal with its competitors. But such a right is not
absolute; it exists only if there are legitimate
competitive reasons for the refusal.
Kodak, 504 U.S. at 483 n.32 (1992); Aspen Skiing Co. v.
Aspen Highlands Skiing Corp., 472 U.S. 585, 601 (1985) (“right
to refuse to deal with other firms does not mean that the right
is unqualified”). As in Kodak, the conduct alleged here, which
involves “market foreclosure,” is “facially anticompetitive and
— the harm that antitrust laws aim to prevent.” 504 U.S.
at :

Verizon and its amici rely heavily on critiques from various
commentators to mask the lack of legal precedent for what
their position truly represents: a dramatic change in how the
antitrust laws treat exclusionary conduct by vertically
integrated monopolists. But the Court has long recognized that
the value of such theoretical economic constructs is limited,
particularly where, as here, the Court is reviewing the case

_ without benefit of a developed factual record. See, e.g., Kodak.,

504 U.S. at 486 (“In the end, of course, Kodak’s arguments
[about interbrand competition logically disciplining
intrabrand market power] may prove to be correct. . . . But we
cannot reach these conclusions as a matter of law on a record
this sparse”). Covad’s claims, like Respondent's, are challenged
on the pleadings, not after development of facts through

18

discovery. At the pleading stage, the claims asserted by
Respondent (and.those asserted against the ILECs by Covad)
state well recognized violations of Section 2 of the Sherman Act.
1. The Unique History of the Regulated
Telecommunications Industry Demonstrates
the Importance of Antitrust Enforcement
The 1996 Act may indeed have been “something brand new”
when it was enacted seven years ago. Verizon Br. 2. But the need
to restrain exclusionary abuses by those who control the local
telephone network is nothing new. Local telephone monopolists
have long been using their control over the nonduplicable local
network - a network that literally connects by wire all end users
in a given geographic region - to exclude competition in other
markets that depend on access to that monopolized local network.
Verizon’ s amici assert that an “ILEC’s affirmative duties to share
its resources with rivals derive not from antitrust law but from
the 1996 Act.” BellSouth Br. 8. They ask the Court to ignore the
history of the antitrust laws, and in particular the painful history
of anticompetitive conduct by local monopolists in the
telecommunications industry.
The requirement to provide reasonable access to elements
of the local telephone network did not originate with the 1996
Act but existed decades before it. Local telephone monupolists
have long been required to provide competitors full access to
their local networks, through a process called interconnection.
See In the Matter of Establishment of Policies and Procedures for
Consideration of Application to Provide Specialized Common Carrier
Services in the Domestic Public Point-to-Point Microwave Radio
Service and Proposed Amendments to Parts 21, 43, and 61 of the
Commission's Rules, 29 F.C.C.2d 870, 940, 4 157 (1971)
(“Specialized Common Carrier”). The FCC regulated that

interconnection duty and AT&T was famously found to have _

violated the antitrust laws for failing to comply with it.
Interconnection is not one duty, but a set of duties. It has
long included the obligation to lease local loops to competitors,
who are entitled to full use of them. See, e.g., Nat'l Ass’n of
Regulatory Util. Comm'rs v. F.C.C., 737 F.2d 1095, 1106 (D.C.
Cir. 1984); Bell Tel. Co. of Pa. v. F.C.C., 503 F.2d 1250, 1259

rr ee -

19

(3d Cir. 1974); MCI Comm. Corp. v. AT&T Co., 708 F.2d 1081,
1140 & n.88 (7th Cir. 1983); Specialized Common Carrier, 29
F.C.C.2d at 938, 940, |] 151, 157; see also MCI, 708 F.2d at 1133
(finding MCI’s request to lease local loops was not a request
to abandon facilities). Interconnection also obliged local
monopolists to provide physical connection between the local
network and competing networks - the same duty embraced
under the 1996 Act by collocation. See United States v. AT&T
Co.,524 F. Supp. 1336, 1352-53 (D.D.C. 1981) (“AT&T”) (“Long
distance and other intercity lines are essentially useless unless
they can be connected to the local switches.”). Those duties
expressly applied to ensure reasonable access for competitors
providing advanced services, such as the DSL service Covad
provides. See California v. F.C.C.,39 F.3d 919, 929 (9th Cir. 1994)
(recognizing pre-1996 FCC order that “BOCs must provide
other enhanced service providers the same interconnections
the BOCs use in providing their own services”); see also In the
Matters of Amendment of Sections 64.702 of the Commission's Rules
and Regulations, 2 F.C.C.R. 3072, 3080, § 61 (May 22, 1987)
(“carriers must provide efficient nondiscriminatory access to
the basic service facilities necessary to support their
competitors’ enhanced services”).

The ILECs’ pre-1996 obligations included not just the duty
to provide access, but to do so on “just and reasonable terms”
that would place competitors on “as nearly as equal plane as
may be.” AT&T, 524 F. Supp. at 1353 (quoting United States v.
Terminal R.R. Ass’n of St. Louis, 224 U.S. 383, 411 (1912));
California v. F.C.C., 905 F.2d 1217, 1229 (9th Cir. 1990) (noting
FCC's pre-1996 “open-network policy of requiring the BOCs
to make the telephone networks as accessible to competitors
as they are to the BOCs themselves”). Indeed, AT&T was found
liable under the Sherman Act some twenty years ago for forcing
interconnections to take place by means of “inappropriate or
inefficient equipment or procedures.” MCI, 708 F.2d at 1150.

Beyond its straight refusals to provide reasonable access
to its monopoly local network, AT&T also took advantage of
the regulated nature of the industry to impede competition:

Finally, and most importantly, the filings with the
state commissions (as a culmination of the

20

negotiations) added additional months of delay
before MCI could enter the market. The combined
effect of the bad faith negotiations and the filing of
the state tariffs may have cost MCI one and a half
years of time and revenue while it fought for
interconnections, first with AT&T at the bargaining
table and later in the FCC and the courts.
MCI, 708 F.2d at 1158.

The same pattern of obstruction and delay has continued
under the 1996 Act, as described in detail above. See pp. 6-16,
ante. As this Court has recognized, ILECs have caused
competitively meaningful delays through refusals to comply
with the 1996 Act:

A separate rate for an unbundled element is not

much good if ... the incumbents refuse to allow

the leased elements to be combined with a

competitor’s own equipment. And this is just what

was happening before the FCC devised its

combination rules. Incumbents, according to the

FCC’s findings, were refusing to give competitors’

technicians access to their physical plants to make

necessary connections.
Verizon Comm., Inc. v. F.C.C., 535 U.S. 467, 532 (2002). Indeed,
just as the old AT&T did, the ILECs are actively using the
litigation process to delay whatever administrative
enforcement might otherwise apply. Fully seven years after
the 1996 Act was enacted, the basic rules under which it will
be administered are still yet to be finally resolved. See, e.g.,
United States Telecom Ass’n v. F.C.C., 290 F.3d 415 (D.C. Cir.
2002) (remanding implementation order to FCC for a third
round of reconsideration, six years after 1996 Act enacted).
That conduct frustrates competition. See, e.g., Southern Pac.
Comm. Co. v. AT&T Co., 740 F.2d 980, 1001-02 (D.C. Cir. 1984)
(cost and delay inherent in regulatory process “clearly
constitute barriers to entry”).

The FCC has observed that even minor delays in providing
interconnection to local telephone networks “can represent a
serious and damaging business impediment to competitive
market entrants” such as Covad and AT&T, the CLEC serving

21
Respondent. Second Report and Order, In the Matter of
Implementation of the Telecommunications Act of 1996, 13 F.C.C.R.
17,018, { 3 (July 14, 1998). FCC and state administrative
agencies simply do not have the power to deter such conduct,
nor to compensate its victims. The FCC acknowledges this.
FCC Chairman Michael Powell has told Congress that “[g]iven
the vast resources of many of the nation’s ILECs,” the FCC’s
current fining authority of $1.2 million per offense
“is insufficient to punish and deter violations in many
instances.” Letter from Chairman Powell to House and Senate
Appropriations Committees of 5/4/01. Antitrust remedies,
including treble damages and attorneys’ fees, are necessary to
make the ILECs, with their vast resources, obey the law.
2. Monopoly-to-Monopoly Leveraging is
Unlawful
Verizon and its amici attempt to present the concept of
monopoly leveraging as somehow beyond the realm of the
“real” antitrust laws. See, e.g., Verizon Br. 43 (monopoly.
leveraging theory is “largely discredited”); BellSouth Br. 20
(monopoly leveraging theory “conflicts with established limits
on antitrust law”). That argument is impossible. Decades of
this Court’s decisions have expressly upheld liability for
monopoly leveraging. As the Court observed in Kodak, it
“has held many times that power gained through some natural
and legal advantage such as a patent, copyright, or business
acumen can give rise to liability if ‘a seller exploits his
dominant position in one market to expand his empire into
the next.” Kodak, 504 U.S. at 479-80 n.29 (citing cases). That is a
point on which the Kodak majority and dissent agreed. 504
U.S. at 498 (“The Court correctly observes that the antitrust
laws do not permit even a natural monopolist to project its
monopoly power into another market”) (Scalia, J., dissenting)
(emphasis in original).*
There can be no question, at this point, that monopoly
leveraging is a well-established Section 2 violation. See, e.g,

33. See also 504 US. at 476 n.23 (“A firm can exact leverage whenever
other equipment is not a ready substitute. F. Scherer & D. Ross, Industrial
Market Structure and Economic Performance 16-17 (3d ed. 1990)”). There is no
substitute, ready or otherwise, for critical elements of the ILECs’ local
telephone network, such as local loops.

-_

22

United States v. Griffith, 334 U.S. 100, 108 (1948) (monopoly
power cannot be used “to beget monopoly”), overruled on other
grounds sub nom. Copperweld, 467 U.S. at 764 n.8; United States
v. Paramount Pictures, 334 U.S. 131, 174 (1948). And the
attempted extension of even a lawful monopoly is improper
“whatever the nature of the device by which” the monopolist
attempts to extend its monopoly. Leitch Mfg. Co. v Barber Co.,
302 U.S. 458, 463 (1938). Even those ingenious enough to
develop a lawfully patented product cannot seek to leverage
or extend their monopolies. Id. As an historically state-
supported and ratepayer-funded monopoly, Verizon has, if
possible, even less justification for extending its monopoly
power into other markets.

In reality, the ILECs are merely using perceived infirmities
in the Second Circuit Court of Appeals’ particular formulation
of the monopoly leveraging test to eliminate-leveraging
liability altogether. There is no basis to do so. Whether the
Court adopts the Second Circuit’s view that gaining a
“competitive advantage” in the secondary market suffices, or
the more stringent view requiring at least a dangerous
probability of obtaining a monopoly in the secondary market,
the ILECs fail the test. They have “exploited [their] dominant
position” over the local telephone network to gain monopolies,
not merely competitive advantage, in a number of additional
markets - including, in the case of Covad, the market for
Internet access. See pp. 15-16, ante. Whatever leveraging
standard the Court applies, the ILECs’ conduct violates the
antitrust boundaries this Court long ago established.

3. The Essential Facilities Doctrine Properly
Applies to the ILECs’ Attempts to Use Their
Local Network Monopolies to Control
Secondary Markets

Verizon and its amici criticize the essential facilities
doctrine at length, pointing out that this Court has never
“recognized” the doctrine. See, e.g., Verizon Br. 40; US/FTC
Br. 21. But they cannot dispute that all thirteen Courts of
Appeal recognize the doctrine, and agree as to its elements.

34. See, e.g., Hecht v. Pro-Football, Inc., 570 F.2d 982, 992-93 (D.C. Cir.

1977), cert. denied, 436 U.S. 956 (1978); Interface Group, Inc. v. Mass. Pont d)

23

And so did the United States in its brief in support of Verizon's
petition for a writ of certiorari in this matter. The United States
described the principle behind “the leading case,” the Seventh
Circuit's decision in MCI, 708 F.2d at 1132-33 as follows:
“a monopolist may be required to assist rivals by sharing a
facility if the monopolist can ‘extend monopoly power from
one stage of production to another.” Brief For The United
States And The Federal Trade Commission As Amici Curiae,
Verizon Comm., Inc. v. Law Offices of Curtis V. Trinko, On Petition
for a Writ of Certiorari, No. 02-682 (filed Dec. 2002) at 12

(quoting MCI, 708 F.2d at 1132-33).° In other words, the
essential facilities doctrine as exemplified by

addresses one situation where an unchecked monopolist ==

would otherwise extend its monopoly into a secondary market
- conduct the “Court has held many times” is unlawful. Kodak,
504 U.S. at 479-80 n.29.
a. Essential facilities claims involve extension
of a monopoly into a second market
The essential facilities claim asserted against ILECs by
Covad, even more so than the claim asserted by Trinko, fits

(Cont'd)

816 F.2d 9, 12 (1st Cir. 1987); Delaware & Hudson Ry. Co. v. Consol. Rail Corp.,
902 F.2d 174, 179-80 (2d Cir. 1990), cert. denied, 500 U.S. 928 (1991); Ideal
Dairy Farms, Inc. v. John Labatt, Ltd., 90 F.3d 737, 748 (3d Cir. 1996); Advanced
Health-Care Serv., Inc. v. Radford Cmty. Hosp., 910 F.2d 139, 150 (4th Cir. 1990);
Mid-Texas Comm. Sys., Inc. v. AT&T Co., 615 F.2d 1372, 1387 n.12 (5th Cir.
1980); Directory Sales Mgmt. Corp. v. Ohio Bell Tel. Co., 833 F.2d 606, 612 (6th
Cir. 1987); MCI Comm. Corp. v. AT&T Co., 708 F.2d 1081, 1132-33 (7th Cir.
1983); City of Malden v. Union Elec. Co., 887 F.2d 157, 160 (8th Cir. 1989);
City of Vernon v. S. Cal. Edison Co., 955 F.2d 1361, 1366-67 (9th Cir. 1992),
cert. denied, 506 U.S. 908 (1992); Aspen Highlands Skiing Corp. v. Aspen Skiing
Co., 738 F.2d 1509, 1520 (10th Cir. 1984), aff'd on other grounds, 472 U.S. 585
(1985); Covad Comm. Co. v. BellSouth Corp., 299 F.3d 1272, 1285-88 (11th Cir.
2002), reh’g denied, 314 F.3d 1282; Intergraph Corp. v. Intel Corp., 195 F.3d
1346, 1356-57 (Fed. Cir. 1999).

35. Verizon mistakenly asserts that all CLEC claims seek affirmative
“assistance” and to force ILECs to “share” their resources. See, e.g., Verizon
Br. 11, 27. That is not what Covad seeks. Rather, the ILECs are refusing to
lease to Covad elements of their networks that by definition they are not
otherwise using, and from which they are not otherwise deriving the income
Covad would provide. See pp. 26-30, post.

24

perfectly the MCI essential facilities test. MCI distinguished
between two sets of demands for network access by MCI.
The Seventh Circuit found MCI stated an essential facilities
claim when it sought access to elements of AT&T’s monopoly
local telephone neiwork that could not reasonably be
duplicated, to use those elements to provide a separate and
distinct product, long distance service. MCI, 708 F.2d at 1132-
33. By contrast, the Seventh Circuit found MCI had not proved
an essential facilities claim when it sought access to elements
of AT&T's long distance network, in part because MCI had
not proved the elements it sought to lease were essential
(MCI having shown the ability to duplicate them), id. at 1147-
48, and, given the elements were not essential, MCI could not
claim a right to unfettered access to AT&T's entire network
merely to provide the same service AT&T was providing. Id.
at 1149. Verizon has focused on the latter component of the
Seventh Circuit's analysis in isolation, to argue that there can
be no essential facilities claim when the competitor merely
provides the same service as the incumbent whose facilities it
seeks to share. Verizon Br. 42. But that is not what MCI held,
nor would it be a coherent result; if a plaintiff meets the four
well-established elements of the essential facilities doctrine,
there is no reason to import a new unspoken element that the
competitor must participate at a different level of the market
than the monopolist.

In any event, even if the essential facilities doctrine were
somehow inapplicable to those who resell a monopolist’s
products in the same market, that would not justify the ILECs’
plea to do away with the essential facilities doctrine altogether.
It is true that some CLECs merely resell local service they buy
from ILECs at wholesale. But many other CLECs, including
Covad, use interconnection with and elements of the
monopoly local telephone networks to provide competition
to the ILECs in markets other than the market for local
telephone service. This Court's long-standing Section 2
precedents - whether labeled under the essential facilities
doctrine or not - confirm that it is unlawful to wield monopoly
power where doing so extends that monopoly power into other
markets. See pp. 26-30, post.

25

b. Essential facilities claims are especially
important in “natural” monopoly markets
Even Verizon’s amici concede that an essential facilities
approach to refusals to deal is most necessary where the
monopolist controls a “natural monopoly.” See UPS/ Kodak
Brief 25. Academic commentators have agreed. See, e.g., Phillip
E. Areeda, Essential Facilities: An Epithet in Need of Limiting
Principles, 58 Antitrust L.J. 841, 853 n.21 (1990) (MCI “is
probably correct [in holding] a monopolist must, when
feasible, make its essential facility available to a competitor
who is unable to duplicate it.”); Herbert Hovenkamp, Federal
Antitrust Policy: The Law of Competition and Its Practice § 7.7a,
274 (2d ed. 1994) (courts have regularly found to be essential
“structures, plants or other valuable productive assets that
were created as part of a regulatory regime, whether or not
they are properly natural monopolies” ).
The local telephone network has long been recognized as
a paradigm of a “natural” monopoly. See AT&T Corp. v. lowa
Utils. Bd., 525 U.S. 366, 371 (1999) (“States typically granted
[the ILECs] an exclusive franchise in each local service area”).
As this Court has found, because each local telephone network
involves a set of literally many millions of telephone wires
connecting each home and business in the region, duplication
of that network is impracticable in the extreme. See Verizon,
535 U.S. at 490 (“It is easy to see why a company that owns a
local exchange ... would have an almost insurmountable
competitive advantage not only in routing calls within the
exchange, but, through its control of this local market, in the
markets for terminal equipment and long-distance calling as
well.”).
The courts have consistently found - long before the 1996
Act - that this “natural” monopoly power carries with it an
obligation that the local telephone monopolists provide
reasonable access to those local network facilities. MCI, 708
F.2d at 1133, 1138, 1140-41; AT&T, 524 F. Supp. at 1353 (“clear
that the local facilities controlled by Bell are ‘essential facilities’
within the meaning of these decisions”); Southern Pac. Comm.,
740 F.2d at 1008 (finding “the Bell operating companies’ local
distribution facilities are ‘essential facilities’” and that the

26

antitrust laws “prohibit AT&T from unreasonably and
discriminatorily restricting access to these essential facilities”);
see also Phillip E. Areeda & Herbert Hovenkamp, 3A Antitrust
Law 2d 4 772, 175 (2002) (“whether or not local ‘hard-wired’
telephone service is best delivered by a monopoly, it would
be unwise to allow that monopoly to obstruct free competition
in long distance services or telephone instruments, where
competition is clearly possible”).

B. Even Under The ILECs’ Unfounded View Of
Exclusionary Conduct, Their Conduct Is Still
Exclusionary

Verizon and its amici argue for a special, heightened

pleading standard for Section 2 refusal to deal claims against
vertically integrated monopolists. That position is at odds with
their repeated assertions that there are no subcategories of
Section 2 offenses - i.e., essential facilities does not exist as an
independent claim; monopoly leveraging does not exist, and
so on. All Section 2 claims, however labeled, have just two
necessary elements: “(1) the possession of monopoly power
in the relevant market and (2) the willful acquisition or
maintenance of that power.” Kodak, 504 U.S. at 481 (quoting
United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966)). The
conduct the ILECs are alleged to have engaged in more than
satisfies that pleading test, the only one this Court has ever
said applies to refusal to deal claims. Verizon's proposed test
would immunize conduct recognized by established antitrust
principles as anticompetitive. In any event, even if the Court
adopted the new “predatory pricing” standard Verizon urges,
Verizon would still fail the test because it routinely foregoes

profits when it refuses to deal with CLECs such as Covad.
1. Verizon and Its Amici Try to Create a False
Predatory Pricing Requirement for Section 2

Liability

As the Court put it in Kodak, what Verizon and its amici
seek here would be “a radical departure in this Court's antitrust
law.” 504 U.S. at 479-80 n.29. They seek the creation of a new
pleading rule, one that essentially imposes a predatory pricing
requirement before a monopolist may be found to have
engaged in an actionable refusal to deal. That proposed

ow een

27

amendment to the Sherman Act is both unfounded and ill-
advised.

The United States argues that the Court should analyze
claims against ILECs using the same “sort of analysis
[it employs] with respect to predatory pricing.” US/FTC
Br. 16. That would be a massive change to, not an application
of, the antitrust laws. It is true the courts “have recognized
that conduct is exclusionary where it involves a sacrifice of
short-term profits or goodwill that-makes sense only insofar
as it helps the defendant maintain or obtain monopoly power.”
Id. But that is not the only form of conduct that qualifies as
exclusionary. Rather, the Section 2 jurisprudence of this Court
and the lower courts recognizes that “the means of illicit
exclusion, like the means of legitimate competition, are
myriad.” Id., 14 (quoting Microsoft, 253 F.3d at 58).

That is why courts analyzing claims of exclusionary
conduct have focused not on attempts to establish a list of
practices that are (or are not) exclusionary, but have analyzed
instead the “anticompetitive effect” of the challenged conduct.
Microsoft, 253 F.3d at 58. Thus, conduct is exclusionary if it
“harms the competitive process.” Town of Concord v. Boston
Edison Co., 915 F.2d 17, 21 (1st Cir. 1990) (Breyer, J.). Contrary
to Verizon's suggestion, Aspen Skiing Co. v. Aspen Highlands
Skiing Corp., 472 U.S. 585 (1985), did not require, to state a
refusal to deal claim, that a monopolist forego profits or change
a prior policy of dealing with competitors. To the contrary,
Aspen recognized the broad and flexible nature of exclusionary
conduct: “If a firm has been ‘attempting to exclude rivals on
some basis other than efficiency,’ it is fair to characterize
its behavior as predatory.” 472 U.S. at 605 (quoting R. Bork,
The Antitrust Paradox, 138 (1960)). Aspen went on to quote
the Areeda and Turner definition of exclusionary conduct:
“behavior that not only (1) tends to impair the opportunities
of rivals, but also (2) either does not further competition on
the merits or does so in an unnecessarily restrictive way.”
Id. at 605 n.32, (quoting P. Areeda & D. Turner, 3 Antitrust Law
{| 626b, 78 (1978)). While the fact pattern in Aspen certainly

28

met that test, the Court has never - in Aspen, Kodak or elsewhere
- pronounced that only forsaking profits would do so.*
2. Raising Rivals’ Costs Is Exclusionary

Verizon's proposed test is obviously flawed because it
exempts from liability any anticompetitive conduct that does
not involve the sacrifice of profits. Among other things, it thus
immunizes the well-recognized propensity of monopolists to
destroy competition without ever foregoing a cent of profit,
by raising their rivals’ costs. See generally Thomas G.
Krattenmaker & Steven C. Salop, Anticompetitive Exclusion:
Raising Rivals’ Cost to Achieve Power Over Price, 96 Yale L.J. 209,
224 (1986) (“Raising rivals’ costs can be a particularly effective
method of anticompetitive exclusion. This strategy need not
entail sacrificing one’s own profits in the short run... .”);
see also Herbert Hovenkamp, Post-Chicago Antitrust: A Review
and Critique, 2001 Colum. Bus. L. Rev. 257, 318-23 (2001)
(discussing economic logic behind raising rivals’ cost theory).
Raising rivals’ costs has been a primary mechanism by which
ILECs have destroyed competition.

Where, as here, a monopolist controls inputs that are
necessary to competition, it can thwart that competition by
raising its rivals’ costs of obtaining them. That may happen
directly, as with the type of price squeeze condemned in the
landmark Alcoa case, United States v. Aluminum Co. of America.
148 F.2d 416, 437-38 (2d Cir. 1945); see also Steven C. Salop,
Economic Concepts and Antitrust Analysis, 56 Antitrust L.J. 57,
58-59 (1987) (evil of price squeeze is not predatory pricing;
“rather, it is a claim that firms exclude rivals and gain power
over price by raising their rivals’ costs”). Monopolists have
also found more subtle means to inflate their competitors’
costs. See, e.g., Ball Mem’! Hosp., Inc. v. Mutual Hosp. Ins., Inc.,

36. Indeed, the Seventh Circuit has interpretéd Aspen to mean
“a monopolist may be guilty of monopolization if it refuses to cooperate
with a competitor in circumstances where some cooperation is indispensable
to effective competition.” Olympia Equip. Leasing Co. v. Western Union
Tel. Co., 797 F.2d 370, 379 (7th Cir.) (Posner, J.) reh’g denied, 802 F.2d 217
(1986), cert. denied, 480 U.S. 934 (1987). That is precisely what Respondent,
and CLECs such as Covad, have alleged. The ILECs refuse to deal with
CLECs with the specific knowledge that their refusal makes it impossible

to compete.

29

784 F.2d 1325, 1339-40 (7th Cir. 1986) (“When a firm finds a
way to confront its rivals with higher costs, it may raise its
own prices to consumers without drawing increased output
from them.”); Forsyth v. Humana, Inc., 114 F.3d 1467, 1478
(9th Cir. 1997), aff'd, 525 U.S. 299 (1999) (reversed summary
judgment; policy raised factual question of whether conduct
raised competitor’s costs); Multistate Legal Studies, Inc. v.
Harcourt Brace Jovanovich Legal and Prof! Publications, Inc., 63
F.3d 1540, 1553 n.12 (10th Cir. 1995) (raising rival's costs “would
qualify as anticompetitive conduct unless [defendants] could
demonstrate a legitimate business justification for it”).
Verizon and its fellow ILECs have perpetrated both types

of raising-rivals’-costs schemes - especially against facilities-
based CLECs such as Covad. The ILECs have engaged in direct
price squeezes, see p. 15, ante, and routinely employ countless
mechanisms to make the interconnection process as time-
consuming and costly as possible, see pp. 12-14, ante, all with
no purpose but to extend their monopoly over the local
telephone network into monopoly power over downstream
markets such as the market for Internet access. The United
States emphasized the exclusionary effects of just such a
strategy, when used by AT&T:

Even with respect to those limited facilities AT&T
agreed to provide, it imposed a number of
cumbersome and unnecessary technical and
operational practices on its competitors which
increased their costs and lowered the quality of
their service, in marked contrast to the efficient
interconnection arrangements made available to
AT&T's own intercity private line connections.
Plaintiff's Memorandum in Opposition to Defendant's Motion
for Involuntary Dismissal Under Rule 41(b), at 79, United States
v. AT&T Co., No. 74-1698 (D.D.C., filed Aug. 16, 1981). Yet the
approach suggested by Verizon and the United States, which
would require predatory pricing to state a refusal to deal claim,
would place all that plainly anticompetitive conduct beyond
the reach of the antitrust laws. That would indeed be a “radical
departure” in the law.

30

The United States’ position also appears to be a radical and
unexplained departure from its prior position concerning CLEC
antitrust claims against ILECs. The United States (together with
the Federal Communications Commission) opined to the Court
of Appeals for the Eleventh Circuit in 2001 that a CLEC’s
allegations of an ILEC’s “failure to provide reasonable
interconnection” under the 1996 Act - remarkably similar to the
allegations asserted by Respondent here and by Covad in its
lawsuits against ILECs - sufficiently “allege[d] exclusionary
conduct by a firm with monopoly power that lacks business
justification and that harms competition.” See Brief for the United
States and Federal Communications Commission as Amici
Curiae in Support of Appellants, Intermedia Comm., Inc. v. BellSouth
Telecomm., Inc., No. 01-10224-J] (11th Cir. filed Mar. 28, 2001)
25-26. Verizon and its amici offer no explanation how the antitrust
laws have changed since then, so that such conduct is no longer
exclusionary, as a matter of law.

3. ILECs Routinely Forego Profits to Harm
Competition

Even if the Court adopted the new “predatory pricing”
test proposed by Verizon and the United States, Verizon and
its fellow ILECs would still be liable under it. Just as in Aspen
and Kodak, to exclude their CLEC competitors, the ILECs are
foregoing profits, by refusing to engage in what would
otherwise be profitable sales. CLECs, after all, do not buy
unbundled network elements from ILECs for free or even, as
Verizon falsely suggests, at cost. Rather, the FCC has mandated
that states price unbundled network elements using the Total
Element Long Run Incremental Cost (“TELRIC”) methodology,
which expressly covers both the ILECs’ costs and a reasonable
profit. Verizon, 535 U.S. at 493, 500 n.19. Indeed, given that
most elements of the local telephone network (including,
notably, the many millions of essential local loops controlled
by the ILECs) have been in place and funded by ratepayers
for many decades, it is hard to imagine how the ILECs could
claim the transactions are unprofitable.

CONCLUSION

For the foregoing reasons, the Court should affirm the

judgment of court of appeals.

Respectfully submitted,
MarGareT A. RosBINs ALFRED C. PFEIFFER, JR.
Associate General Counsel Counsel of Record
Covap COMMUNICATIONS FRANK M. HINMAN
COMPANY Marta E. Miyar
3420 Central Expressway BINGHAM McCutTcHen LLP
Santa Clara, CA 95051 Three Embarcadero Center
(408) 616-6616 San Francisco, CA 94111

(415) 393-2000

Attorneys for Amicus Curiae
Covad Communications Company, Inc.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0617%3A24. Public record. Not legal advice.