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

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Supreme Court. US

FILED

No. 02-682 |

OFFICE OF THE CLERK |

IN THE

Supreme Court of the United States

VERIZON COMMUNICATIONS INC.,

Petitioner,

LAW OFFICES OF CURTIS V. TRINKO, LLP,

Respondent.

On Wait oF CERTIORARI TO THE

Unitep STATES Court OF APPEALS FOR THE SECOND CIRCUIT

— —— ———_—

—_—_—_

BrieF FOR THE STATES OF New YORK, ARIZONA, CONNECTICUT,

District of CotumBia, Maine, MARYLAND, MICHIGAN,

Minnesota, Missourt, MONTANA, OREGON, Puerto Rico,

VERMONT, West VIRGINIA, AND WISCONSIN AS Amici CURIAE,

-IN SUPPORT OF RESPONDENT

Eviot Spitzer

Attorney General

Jay L. Himes CaITLIn J. HALLIGAN*

Chief, Antitrust Bureau Solicitor General

SUSANNA M. ZWERLING MICHELLE ARONOWITZ

Chief, Telecommunications Deputy Solicitor General

and Energy Bureau DanieL J. CHEPAITIS

RICHARD L. SCHWARTZ Assistant Solicitor General

Karm fH. Gonson 120 Broadway

Assistant Attorneys General New York, NY 10271-0332

(212) 416-8020

* Counsel of Record

Counsel for Amici Curiae

(Additional Counsel Listed Inside Front Cover)

Terry GODDARD

"JEREMIAH W. (Jay) Nixon

Attorney General Attorney General

State of Arizona State of Missouri

1275 West Washington Street Supreme Court Building

Phoenix, AZ 85007-2926 207 West High Street

a en Jefferson City, MO 65101

Attorney General

State of Connecticut - ae ]

110 Sherman Street eaten Sa

Hartf 06 ate of Montana

speciceeenes 215 North Sanders

Rosert J. SPAGNOLETTI Po. Box 201401

Corporation Counsel Helena, MT 59620-1401

District of Columbia

1350 Pennsylvania Avenue, N.W. yy ener ;

Washington, D.C. 20004

- State of Oregon

G. Steven Rowe 1162 Court Street, N.E.

Attorney General Salem, OR 97301

State of Maine

State House Station 6 "au os com

Augusta, ME 04 4

" ” Commonwealth of Puerto Rico

J. JosepH CurRAN, JR. P.O. Box 9020192

Attorney General San Juan, PR 00902-0192

State of Maryland

200 Saint Paul Place Wass Seneett ,

Baltimore, MD 21202 Attorney Genera

State of Vermont

Micuaet A. Cox 109 State Street

Attorney General Montpelier, VT 05609

State of Michigan

P.O. Box 30212 ayn ——- =.

Lansing, MI 48909

~ State of West Virginia

Mike HatcH State Capitol

Attorney General 1900 Kanawha Blvd. E.

State of Minnesota Charleston, WV 25305

102 State Capitol

St. Paul, MN 55155 FRO A, LAADGCR AGE

Attorney General

State of Wisconsin

17 West Main Street

Madison, W1 53702

TABLE OF CONTENTS

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STATEMENT OF INTEREST OF AMICI CURIAE ...

SUMMARY OF ARGUMENT ..............0555:

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Il.

Antitrust And Regulatory Enforcement

Under The 1996 Act Are Complementary .

Means To Achieve The Benefits Of

Competition In Local Telecommunications

Ne ee ee as

A. Congress Expressly Stated its Intent to

Preserve Antitrust Enforcement in

Telecommunications Markets. ........

B. Antitrust Remedies Are Essential to

Police Anticompetitive Behavior by

in REE TEER a ee nn

An ILEC’s Refusal To Deal With Rivals May

Result In Section 2 Liability If The Refusal Is

Likely To Maintain Or Extend The ILEC’s

Monopoly Power And Is Unnecessary To

Achieve Overriding Efficiency Benefits ....

A. Section 2 Precedents Establish the

Need for a Fact-Intensive Inquiry to

Determine Whether Conduct Is

Exclusionary .........00cceeeeeeeees

Contents

B. Verizon's Exclusionary Conduct Test

Finds No Support in Section 2

Precedents or in Underlying Antitrust

PUREED ccccccccccccccccnccesccees

C. Although Verizon's Exclusionary

Conduct Test May Have Limited Value,

Section 2 Claims Are Not Susceptible to

a “One Size Fits All” Approach. ......

D. An ILEC’s Obstruction Of Access to its

Local Exchange May Be Actionable under

the Essential Facilities Doctrine. .......

E. A Monopoly Leveraging Claim Is

Proper When an ILEC Obstructs

Interconnection in Ways That

Unnecessarily Threaten Harm to

Competition and Consumers. ........

CRSCRMMEEIED co cnccccccccececsoccoseossececes

Page

ill

TABLE OF CITED AUTHORITIES

Page

CASES

Ad/Sat v. Associated Press,

181 F.3d 206 (2d Cie. 1999) .... nn rcccccccccess 28, 29

Aspen Skiing Co. v. Aspen Highlands Skiing Corp.,

472 U.S. 585 (1985) .............. 13, 14, 16, 17, 18, 22

Berkey Photo, Inc. v. Eastman Kodak Co.,

603 F.2d 263 (2d Cir. 1979) ... 0.6... c cece eens 28

Brooke Group Ltd. v. Brown & Williamson

Tobacco Corp.,

SP ae SEP CRPUED co cccccsccsveseccesceeseses 19

Cavalier Telegraph Co. v. Verizon Va., Inc.,

330 F. 3d 176 (4th Cir. 2003) ...........-.5545. 10

Covad Communications Co. v. Bell Atlantic Corp.,

201 F. Supp. 2d 123 (D.D.C. 2002), appeal filed,

(May 6, 2002 D.C. Cir. ) ........ ce eeeeeeeeees 10

Covad Communications Co. v. BellSouth Corp.,

299 F.3d 1272 (11th Cir. 2002) ............-505. 10

Directory Sales Management Corp. v.

Ohio Bell Telegraph Co.,

833 F.2d 606 (6th Cir. 1987) ............555005 25

Eastman Kodak Co. v. Image Technical Services,

Be ae Ge GGG ce ccccccccccescccevecess 15, 16, 22

Goldwasser v. Ameritech Corp.,

222 F.3d 390 (7™ Cir. 2000) ..........20 ee eee. 4,10, 27

Cited Authorities

Page

Laurel Sand v. CSX,

56 FAG SEP CGR Cis. BOVE)... ccccccccccccccces 25

Law Offices of Curtis V. Trinko, L.L.P. v.

Bell Atlantic Corp.,

Fe ee Pee 10, 24, 26, 27

Lorain Journal Co. v. United States,

Se CED cocedhnvcasecsecsevecnénses 21

MCI Communications Corp. v. AT&T Co.,

708 F.2d 1081 (7th Cir. 1983) ...............4. passim

MCI Telecomm. Corp. v. FCC,

S08 F.28 SOD OK... Cis. TBV7) 2. nc ccccccccccccses 6

Malden v. Union Electric Co.,

SB7 F.2G 157 Gia Cie. 1909) 2. wc ccccccccccccces 25

Matsushita Electric Industrial Co. v.

Zenith Radio Corp.,

ED Cecncncésccccondoeseceesses 19, 20

McKenzie v. Mercy Hospital,

854 F.2d 365 (10th Cir. 1988) .................. 25

Midwest Gas Services v. Ind. Gas Co.,

Fas CBE FEO GOW, FOOD ccc cccccccccccccecs 25

Otter Tail Power Co. v. United States,

SEED adedeenenccbevecddecasoncds 21, 22

Paladin Associates v. Montana Power Co.,

328 F.3d 1145 (9th Cir. 2003) .................. 25

Cited Authorities

| Page

Reiter v. Sonotone Corp.,

442 US. 330 (1979) ....... cc cece cece ee eeeeeeee 18

Southern Pacific Communications Co. v. AT&T Co.,

740 F.2d 980 (D.C. Cir. 1984) ..... 6... e eee eee 6,7, 26

Spectrum Sports v. McQuillan,

506 US. 447 (1993) .......ccccecccccccccescens 28, 29

Standard Oil Co. v. United States,

221 US. 1 (IGT) ... cc eccccccccccccccccese 13-14, 23

Twin Laboratories, Inc. v. Weider Health & Fitness,

900 F.2d 566 (2d Cir. 1990) ....... 6. . eee eens 25

United States v. Aluminum Co. of America,

148 F.2d 416 (2d Cir. 1945) ...... 2... e eee eee 17

United States v. AT&T Co., :

524 F. Supp. 1336 (D.D.C. 1981) .........-+--. passim

United States v. AT&T Co.,

552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom,

Maryland v. United States, 460 U.S. 1001 (1983)

PETER PORE Terr TT ere rT TTT TIT Ty TTT ttt 8,19

United States v. Colgate & Co.,

250 U.S. 300 (1919) ....... cece cece cece eeeeeees 16

United States v. E.1. du Pont de Nemours & Co.,

351 U.S. 377 (1956) ....... cece cece eee eeeeeees 22

United States v. Griffith,

334 U.S. 100 (1948) ....... 0 cece eee eeees 17, 28

Cited Authorities

Page

United States v. Grinnell Corp.,

SBS UB. SED CAPSS) ccc cccccvcscccsecevcccccess 13

United States v. Microsoft Corp.,

253 F.3d 34 (D.C. Cir. 2001) ........ 2.0 cece eee, 15

United States v. Terminal R.R. Association,

BBO UB. FEO CAGES) oc ccccccccccccccosscccceces 7, 23

United States v. Topco Associates, Inc.,

GED UE FOO GRITS cc vccccccveccescccscccecces q

United States v. United Shoe Machinery Corp.,

110 F. Supp. 295 (D.Mass. 1953), aff'd per curiam,

347 U.S. 521 (1954) ......... TTTITI TTT 16, 17

United States v. Western Electric Co.,

673 F. Supp. 525 (D.D.C. 1987) ...........0005: 7

Verizon Communications, Inc. v. FCC,

ee Os Ge ED Sh ccccccncscccctscsccnteses 5

Virgin Atlantic Airways Ltd. v.

British Airways PLC,

257 3G 256 ( 2G Cie. BOG) 2. cccccccccccccces 28, 29

William v. Heartland Hospital,

34 F.3d 605 (8th Cir. 1994) ........ ccc cece eeee 25

vil

Cited Authorities

Page

STATUTES

TTT wei ote Gocdeugacesasenesenseseseta passim

BP a BS ooccccvccccvecevtcccvccvovesescess passim

Fe OND be cvvccccescccssnvesscessececoses 3

FF te OF OD bo bee veccccscccvcccedconeccoveses 3,9

FF Pe ED heck cdvccnccccccccenceseesecsnces 9

4) | ot + POPPPPPTTTTTTTTTTTTTTTTTTerT Tri ee 9

DGB. GEG oc ccvccccccccccccccccccscceses 9

FP BEND beck cvccsccdecdvesscccossccees 9

47 U.S.C. § 252(b) .... 1. cee cece cece eee enrenens 9

Ges SED si ccvnccccccccccccccvesceseocs 9

Telecommunications Act of 1996,

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

220 Ill. Comp. Stat. §§ 13-505.1 et seq (1993) ....... 8

vill

Cited Authorities

Page

ADMINISTRATIVE DECISIONS

AND REGULATIONS

Application By Bell Atlantic-New York For

Authorization Under Section 271 of the

Communications Act To Provide In-Region,

InterLATA Services In the State of New York, FCC

Docket No. 99-295, filed Sept. 29,1999 ......... 4,12

Calif. Pub. Utilities Docket No. I.87-11-033,

Alternative Regulatory Frameworks for Local

Exchange Carriers, 33 C.P.U.C.2d 43, 107 P.U.R.4th

DOE 68 ns 5e0ceeseeeusounesasuesasecunsnces 8

Carterfone,

BD FE A.26 GD (BGG) ww ccc ccccccccccss Resceus 6

In re Implementation of the Local Competition Provisions

in the Telecomm Act of 1996, First Rep. and Order

11 F.C.C_.R. 15499 (Aug. 8, 1996) ............... 9,11

In the Applications of NYNEX Corp. Transferor -

and - Bell Atlantic Corp. Transferee, For Consent

to Transfer Control of NYNEX Corp. and Its

Subsidiaries,

12 F.C.C.R. 19985 (Aug. 14, 1997) ............. 5

In the Matter of Application By Bell Atlantic-New York

For Authorization Under Section 271 of the

Communications Act To Provide In-Region,

InterLATA Services In the State of New York, Mem.

Op. and Order,

15 F.C.C.R. 3953 (Dec. 21, 1999) ............. 4,11,12

Cited Authorities

Page

In the Matter of Application by SBC Communications

Inc., et al. Pursuant to Section 271 of the

Telecomm. Act of 1996 To Provide In-Region

InterLATA Services in Texas, Mem. Op. and

Order,

15 F.C.C.R. 18354 (June 30, 2002) .............. 12

In the Matter of Joint Application by BellSouth Corp.,

et al., for Provision of In-Region, InterLATA

Services in Ga. and La., Mem. Op. and Order,

17 F.C.C.R. 9018 (May 15, 2002) ............... 12

In the Matter of Regulatory Treatment of LEC

Provision of Interexchange Services Originating

in the LEC’s Local Exchange Area and Policy and

Rules Concerning the Interstate, Interexchange

Marketplace,

12 F.C.C.R. 15756 (April 17, 1997) ............. 11

Microwave Communications, Inc.,

18 F.C.C.2d 953 (1969), reconsi..cration denied,

Zi POCA TSO (ISTE) 2... ccc ccccccmcccccccees 6

New York Pub. Serv. Comm'n, Proceeding on Mot.

of the Comm'n to Examine Issues Related to the

Continued Provision of Universal Service and to

Develop a Framework for the Transition to

Competition in the Local Exchange Market, Order

Requiring Interim Number Portability, Directing a

Study of the Feasibility of a Trial of True Number

Portability and Directing Further Collaboration,

Case 94-C-0095 1995 N.Y.P.U.C. LEXIS 70 (Mar.

BOOED cccccccecscsecscess PCT TTT TT TT TOT Le 8

Specialized Common Carriers,

29 F.C.C.2d 870 (1971) .... 2... eceecccceeccees 6

Cited Authorities

Page

MISCELLANEOUS

ABA Antitrust Section,

ANTITRUST LAW DevELOPMENTsS 248 (5th ed. 2002)

Sedbnueugsebabesseanekesseceeennseaneeunn 17-18, 22

Philip Areeda,

The “Essential Facility” Doctrine: An Epithet in Need

of Limiting Principles, 58 Antitrust L.J. 841

SEEN Seccscvenccenccncesceveshsncecceneeees 24-25

IA P. Areeda & H. Hovenkamp,

ANTITRUST LAW: AN ANALYSIS OF ANTITRUST

PIPED ctecodevcduncctesdccetcennncs 26

III P. Areeda & H. Hovenkamp,

ANTITRUST LAw: AN ANALYSIS OF ANTITRUST

PREGEEED Sodccnccevsuscnasecscuvesces passim

IIIA P. Areeda & H. Hovenkamp,

ANTITRUST LAW: AN ANALYSIS OF ANTITRUST

PRED Seveusancanteccenscccesenencs 25

VII P. Areeda & H. Hovenkamp,

ANTITRUST LAw: AN ANALysIS OF ANTITRUST

PRED Sancsdéviccccocsucccesecesess 14

W. Baumol & J. Sidak,

TOWARD COMPETITION IN LocaL TELEPHONE (1994) ... 5,6

Stephen Breyer, REGULATION AND Its REFORM (1982)

Cited Authorities

FCC, Local Telephone Competition: Status As

Of December 31, 2002 (Table 6), at http://

www.fcc.gov/ Bureaus/Common_Carrier/

Reports /FCC-State_Link/IAD/1com0603.pdf

Hearing Before the Subcomm. on Communications

of the Sen. Comm. on Commerce, Science and

Transport., 105th Cong. (1998) (statement of

Michael K. Powell, Commissioner, FCC)

SE as SPEED ceccesccccsscccvcdacsees

T. Krattenmaker & S. Salop, Anticompetitive

Exclusion: Raising Rivals’ Costs To Achieve Power

Over Price, 96 YALE L.J. 209 (1986) .............

T. Krattenmaker & S. Salop,

Economic Concepts and Antitrust Analysis:

A Critical Reexamination, 56 Antitrust L.J. 71

SE. «tedcnedndnenctasvededsescnseseeusedes

W. Landes & R. Posner,

Market Power in Antitrust Cases, 94 Harv. L. Rev.

Be GED wrcccncesncessoscosécsesenccocdess

J. Ordover & R. Willig,

Access and Bundling in High-Technology Markets

103-128, in COMPETITION, INNOVATION, AND THE

Microsort Monopo.y: ANTITRUST IN THE DIGITAL

MARKETPLACE (J. Eisenach & T. Leonard eds.

BED hasoncescdddbdvecdoccenseséenneasecesees

J. Ordover & R. Willig,

An Economic Definition of Predation: Pricing

and Product Innovation, 91 Yate L.J.8 (1981) ....

Page

xii

Cited Authorities

Page

R. Pitofsky, D. Patterson & J. Hooks,

The Essential Facilities Doctrine Under U.S. Law,

70 Antitrust L.J. 443 (2002) ..............2005- 25

Zolnierek, Rangos & Eisner,

Industry Analysis Division, Common Carrier

Bureau, FCC Long Distance Market Shares-

Fourth Quarter 1998, March 1999, at http://

www.fcc.gov/Bureaus/Common_Carrier/

Reports/FCC-State_Link/IAD/mksh4q98.pdf

eS ee

The Amici States, through their Attorneys General,

respectfully submit this brief as amici curiae urging

affirmance of the decision below.

STATEMENT OF INTEREST OF AMICI CURIAE

The Attorneys General of the States enforce federal and

state antitrust and consumer protection laws and advocate

on behalf of consumers and businesses within their

States. The States also play an important role in enforcing

the obligations of the Telecommunications Act of 1996,

Pub. L. No. 104-104, 110 Stat. 56 (1996) (the “1996 Act”).

For more than a century, a few firms have dominated

telecommunications markets in the Amici States. As

advocates for consumers and businesses, the Amici States

have worked to overcome the adverse effects of lack of

competition and desire to see the 1996 Act’s goal of

promoting competition realized. These experiences have

confirmed their belief, like that of Congress when it enacted

the 1996 Act, that antitrust remedies must remain available

to further competition in local telecommunications markets.

SUMMARY OF ARGUMENT

Verizon, an incumbent local exchange carrier (“ILEC”),

owns local exchange facilities. Access to those facilities is

essential to providers of telecommunications services in a

wide array of product markets. Verizon also is a competitor

in those markets. The complaints in this and other similar

antitrust actions allege conduct by Verizon and other ILECs

which, if true, could entrench and extend their monopoly

power, allowing them to raise prices and stifle innovation.

Verizon and its amici propose a rigid, categorical test

for exclusionary conduct under Section 2 of the Sherman

Act, 15 U.S.C. § 2, which would permit dismissal of such

complaints on their face, without any factual inquiry into

whether a threat to competition — and hence, to consumers

— exists. The novel standard that Verizon and its amici urge

departs markedly from the Section 2 analysis developed by

this Court and applied by the lower courts. If adopted,

their proposal would significantly limit the availability

of Section 2 as a means to protect competition not only

in telecommunications markets, but in markets generally.

In Point I, Amici States demonstrate that antitrust

enforcement has a well-established and vital role to play —

expressly recognized by Congress when it enacted the 1996

Act — in guarding against anticompetitive refusals to deal by

ILECs in local telecommunications markets. History

demonstrates that an ILEC’s control of a local exchange confers

significant opportunities to harm rivals and — in turn —the

competitive process that benefits the public at large.

In Point II, the Amici States explain that, under this Court's

precedents, an ILEC’s refusal to deal with rivals may result in

Section 2 liability if the refusal is likely to maintain or extend

the ILEC’s monopoly power and is unnecessary to achieve

overriding efficiency benefits. The limits on Section 2 that

Verizon and its amici would impose are unwarranted.

In particular, the notion that a monopolist may engage in any

conduct that makes “business sense” apart from enhanced

monopoly returns is directly contrary to this Court's Section 2

precedents and would immunize conduct that plainly harms

consumers.

Point II also responds to Verizon and the United States’

arguments that the Section 2 theories cited by the Second

Circuit — essential facilities and monopoly leveraging —

cannot support liability under Section 2 where an ILEC has

allegedly refused to deal with rivals. Point II shows that where

such allegations are properly made, these theories of liability

have a legitimate role to play in identifying exclusionary

conduct.

ARGUMENT

I. Antitrust And Regulatory Enforcement Under The 1996

Act Are Complementary Means To Achieve The Benefits

Of Competition In Local Telecommunications Markets

A. Congress Expressly Stated its Intent to Preserve

Antitrust Enforcement in Telecommunications

Markets.

When it enacted the 1996 Act, Congress expressed its intent

to preserve antitrust remedies in local telecommunications

markets in unmistakable language: “[N]othing in this Act or

the amendments made by this Act shall be construed to modify,

impair, or supersede the applicability of any of the antitrust

laws.” 1996 Act, supra, § 601, 110 Stat. at 143, 47 U.S.C. § 152

(note). The 1996 Act also provides: “This Act and the-

amendments made by this Act shall not be construed to modify,

impair, or supersede Federal, State or local law unless expressly

so provided in such Act or amendments.” Id.

Just as the 1996 Act's antitrust savings clause leaves no

room to argue an implied repeal of the antitrust laws, so too

the Act's express purpose precludes any assertion that its

objectives conflict with those of antitrust enforcement.

Emphasizing the common purpose that the antitrust laws and

the 1996 Act share, Congress stated that the Act is designed to

“promote competition and reduce regulation in order to secure

lower prices and higher quality services for American

telecommunications consumers and encourage the rapid

deployment of new telecommunications technologies.”

1996 Act, supra (title).

In regulatory proceedings, Verizon itself has emphasized

that antitrust laws continue to apply to local interconnection

disputes. In obtaining FCC approval of its application to serve

the long distance market in New York, Verizon argued against

more stringent regulatory safeguards, acknowledging that if

it “were nevertheless to engage in anticompetitive conduct,

carriers would of course be able to resort to private remedies

under generally applicable statutes, including the treble-damages

remedy of the federal antitrust laws.” ' The FCC specifically noted

Verizon's admission in approving the application.’

B. Antitrust Remedies Are Essential to Police

Anticompetitive Behavior by ILECs.

Despite Congress’ explicit rejection of antitrust immunity,

Verizon argues that denials of, and interference with, access

to local exchanges are a concern only of telecommunications

regulation. According to Verizon, duties to permit access to

local exchanges are the “novel” creation of the 1996 Act and

do not otherwise exist under the “unadorned” antitrust laws

(See Pet. Br. at 9 (quoting Goldwasser v. Ameritech Corp., 222

F.3d 390, 399-400 (7 Cir. 2000)); id. at 16-17).

In fact, the opposite is true. The antitrust laws are the

preeminent legal tool to promote and protect marketplace

competition — “the Magna Carta of free enterprise.”

United States v. Topco Assocs., Inc., 405 U.S. 596, 610 (1972).

In telecommunications markets, in particular, antitrust

tribunals played a vital role in introducing the very

competition that the 1996 Act seeks to expand. Drawing on

Sherman Act Section 2 standards, discussed further in Point

IL, infra, antitrust courts properly recognized a duty to provide

access to local exchanges where essential to achieve

competition in long distance and equipment markets. Indeed,

the history of telecommunications markets teaches that

regulatory attempts to introduce competition are aided — not

impaired — by the existence of flexible antitrust responses to

threats to competition. That is why Congress expressly

preserved antitrust remedies when it adopted the 1996 Act.

1. The network character of telecommunications markets and

ILEC control of local exchanges pose threats to competition for

1. Application By Bell Atlantic-New York For Authorization Under Section

271 of the Communications Act To Provide In-Region, InterLATA Services In the

State of New York, FCC Docket No. 99-295, filed Sept. 29, 1999, at 71

[hereinafter “Bell Atlantic-New York § 271 Application”| (emphasis added).

2. In the Matter of Application By Bell Atlantic-New York For Authorization

Under Section 271 of the Communications Act To Provide In-Region, InterLATA

Services In the State of New York, Mem. Op. and Order, 15 F.C.C.R. 3953,

— 21, 1999) [hereinafter “Bell Atlantic-New York § 271

MO ae

which there is no single, obvious legal response. The incentive

and opportunities for an ILEC to harm competition in

telecommunications markets through refusals to deal are

well-recognized. Telecommunications markets are network

markets. In general, purchasers of telecommunications services

buy the ability to connect with all other users of the network.

Accordingly, a provider of telecommunications services must

interconnect to other providers’ customers. The need to

interconnect eliminates the possibility of completely

independent rivalry because rivals must cooperate in order to

provide customers with the network connection they require.

See Stephen Breyer, REGULATION AND ITs REFORM 287-314 (1982)

(discussing centrality of “joint costs” in telecommunications

markets). This inescapable market condition creates significant

potential for an ILEC to interfere with its competitors.”

Virtually all telecommunications roads lead to and

through an ILEC’s local exchange network facilities.

Competitors need access to, for example, switches (equipment

directing calls to their destinations), local loops (wires

connecting switches to telephones), and transport trunks

(wires carrying calls between switches). As this Court has

explained, “ [i]t 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.” Verizon Communications, Inc. v. FCC, 535 U.S. 467, 490

(2002). Thus, ILECs have unparalleled opportunities for

anticompetitive behavior.

Moreover, because ILECs almost always compete in

final product markets — they provide telephone services

and generally seek to compete in other emerging

telecommunications markets — they also have strong incentives

to engage in anticompetitive behavior. As one commentator

3. For a fuller description of the market characteristics that have

contributed to lack of competition in telecommunications markets, see, ¢.g.,

PCC, In the Applications of NYNEX Corp. Transferor - and - Bell Atlantic Corp.

Transferee, For Consent to Transfer Control of NYNEX Corp. and Its Subsidiannes,

12 F.C.C.R. 19985, | 133 (Aug. 14, 1997); W. Baumol & J. Sidak, Towarp

ComPéEriTion In Locat TELEPHONY (1994).

aptly put it, the “fundamental complicating phenomenon” in

achieving competition in telecommunications markets is that

the local exchange facilities, controlled by ILECs, “constitute

inputs for the activities of the rivals of these firms in other

arenas — inputs without which the rivals cannot hope to

operate”; unconstrained by legal rules, an ILEC could “force

rivals to bend to its will or . . . destroy those rivals altogether.”

Baumol & Sidak, supra n.3, at 7.

2. Antitrust actions played an important role in opening up

long distance and equipment markets to competition. The history

of incumbent resistance to competition in long distance and

equipment markets is well known. Certain points bear

emphasis, however, as they demonstrate the preeminent role

antitrust tribunals played in opening telecommunications

markets and underscore the dangers of relying on a single

approach to achieve competition in this area.

After the FCC lowered regulatory barriers to competition in

long distance and equipment markets, AT&T, then-owner of most

local exchanges, allegedly used its control of those

to raise rivals’ costs in those markets. The FCC attempted

to address competitors’ concerns, using its regulatory tools.‘

When regulatory processes proved incapable of overcoming

AT&T’s opposition to competition, the United States and

private parties used the antitrust laws to challenge entry

barriers that AT&T had erected. See S. Pac. Communications Co.

v. AT&T @., 740 F.2d 980 (D.C. Cir. 1984); MCI Communications

Corp. v. AT&T Co., 708 F.2d 1081 (7* Cir. 1983); Linited States

v. AT&T Co., 524 F. Supp. 1336 (D.D.C. 1981) .

In those actions, evidence showed that, although

regulatory processes had been relatively effective in

4. See, e.g., Carterfone, 13 F.C.C.2d 420, 423-25 (1968) (declaring

unlawful practice of prohibiting interconnection to customers who used

competitors’ equipment); Microwave Communications, Inc., 18 F.C.C.2d 953

(1969), reconsideration denied, 21 F.C.C.2d 190 (1970) (permitting private line

services); Specialized Common Carriers, 29 F.C.C.2d 870 (1971) (declaring that

there should be open competition in markets for certain “specialized”

services). The FCC’s market required some judicial

prompting. See MCI Telecomm. Corp. v. FCC, 561 F.2d 365, 380 (D.C. Cir.

1977) (setting aside decision of FCC and permitting MC] to offer competitive

services).

overcoming AT&T's categorical opposition to network access

by competitors, the regulatory regime was unable to deal with

AT&T's broader pattern of low-level conflict with potential

competitors over access. See United States v. W. Elec. Co., 673 F.

Supp. 525, 530-531 (D.D.C. 1987). The MCI case, for example,

demonstrated that despite regulatory oversight, AT&T refused

to permit long distance carriers to interconnect to local

exchanges; where AT&T permitted access, it imposed

unnecessary or unwarranted costs on competitors; and it used

regulatory processes to impose costs on competitors by raising

groundless objections. See 708 F.2d at 1145-1153, 1156-1159.

Similarly, in United States v. AT&T, the United States introduced

evidence that AT&T had imposed unnecessarily expensive

requirements on customers who sought to use competitors’

phones or other equipment, 524 F. Supp. at 1348-1352, and on

customers who sought to use rival long distance providers.

Id. at 1353-1357. Federal antitrust enforcers also demonstrated

that AT&T had delayed competitors’ entry through groundless

objections in regulatorily mandated negotiations over

interconnection. See id. at 1356.

In response to such evidence, the courts drew on cases

going back to this Court's decision in United States v. Terminal

R.R. Ass’n, 224 U.S. 383 (1912), to recognize that antitrust law

may impose affirmative duties to deal where such dealing is

necessary to protect competition. See S. Pac., 740 F.2d at 1008-

1009; MCI, 708 F.2d at 1132-1133; United States v. AT&T, 524 F.

Supp. at 1352-53.

In MCI, the Seventh Circuit adopted workable distinctions

to identify those instances in which refusals to deal posed a

sufficient threat to competition to be subject to antitrust, as

mae mae hn cen scrutiny. The court held that access

was essential to ition in long distance

aan and that AT&T's denial of access undermined

competition without overriding business justification. 708 F.2d

at 1133. Thus, the court invoked antitrust law to order

interconnection. Id. At the same time, it declined to require

AT&T to share its long distance lines, finding that competitors

could build their own lines and that AT&T's denial of access

therefore did not undermine competition. Id. at 1148. In the

United States’ action, a consent decree was entered which sought

to address anticompetitive incentives and access issues in long

distance and equipment markets. See United States v. AT&T Co.,

552 F. Supp. 131 (D.D.C. 1982), aff'd sub nom., Maryland v. United

States, 460 U.S. 1001 (1983). Only after these cases did wide-spread

competition develop in long distance and equipment markets.

3. As Congress anticipated, antitrust can play an essential

role in introducing and safeguarding competition in local

telecommunications markets. Efforts to jumpstart competition

in local telecommunications markets began in earnest in the

early 1990s. Inspired by the success of antitrust law in

introducing competition into long distance and equipment

markets, state legislators and regulators sought to transform

local telephone service monopolies into competitive markets.

Illinois passed a statute mandating that ILECs price unbundled

wholesale services at long-run incremental prices and make

them available to competitors on a nondiscriminatory basis.°

Similarly, the New York State Public Service Commission

required ILECs to develop a means to enable consumers to

retain their telephone numbers when changing local service

providers.’

The 1996 Act continues the process of promoting

competition in telecommunications markets. Building on

affirmative duties of access recognized in MCI and other

antitrust decisions, Congress created a regulatory scheme to

codify duties of access to local exchanges. Among other things,

5. See, e.g., Zolnierek, Rangos & Eisner, Industry Analysis Division,

Common Carrier Bureau, FCC, Long Distance Market Shares-Fourth Quarter

1998, March 1999, at http:/ / www.fcc.gov/ Bureaus/Common_Carrier/

Reports / FCC-State_Link/IAD/mksh4q98.pdf (detailing entry by ATT&T’s

competitors from July 1984 through December 1998).

©. See 220 Ill. Comp. Stat. §§ 13-505.1, et seq. (1993); see also Calif. Pub.

Util. Comm'n, In the Matter of Alternative Regulatory Frameworks for Local

Exchange Carriers, 33 C.P.U.C.2d 43 (1989).

7. New York Pub. Serv. Comm'n, Proceeding on Mot. of the Comm'n to

Examine Issues Related to the Continued Provision of Universal Service and to

Develop a Framework for the Transition to Competition in the Local Exchange

Market, Order Requiring Interim Number Portability, Directing a Study of the

Feasibility of a Trial of True Number Portability and Directing Further

Collaboration, Case 94-C-0095, 1995 N. Y.P.U.C. LEXIS 70 (Mar. 8, 1995).

the 1996 Act requires ILECs to provide access to local exchange

facilities on negotiated terms, 47 U.S.C. § 251(b) and (c); grants

the FCC and state commissions the power to review terms of

access, id. § 252(b); and provides aggrieved parties with a

variety of remedies while specifically preserving antitrust

claims, see id. §§ 152 (note), 206, 207; see also In re Implementation

of the Local Competition Provisions in the Telecomm. Act of 1996,

First Rep. and Order, 11 F.C.C.R. 15499, § 124-129 (Aug. 8, 1996)

[hereinafter “FCC First Rep. and Order”.

The evidence on entry by competitors under the 1996 Act

is mixed and inconclusive, however. In several major

metropolitan markets, increased competition in services for

large businesses has been encouraging, but the results in other

markets are less impressive. Of the 38 states for which the latest

FCC report provides data, ILECs’ share of end-user switched

access lines is still as high as 96% in one state (Kentucky) and

over 90% in eleven others (Alabama, Connecticut, Indiana,

Louisiana, Maryland, Mississippi, North Carolina, Ohio,

Oregon, South Carolina, and Tennessee). New York, Rhode

Island, and Michigan have experienced the highest levels of

entry by competitors, but even in those states, ILECs’ shares

remain at 75%, 78%, and 79%, respectively.’ Equally important,

in those states where there has been notable entry by

competitors, gains have been heavily concentrated in limited

geographic areas.” The States, however, have a vital interest

in seeing that all their citizens benefit from competition in

telecommunications markets, whether they live in smaller

towns and cities or major metropolitan areas, and whether

8. FCC, Local Telephone Competition: Status As Of December 31, 2002

(Table 6), at http:/ / www.fcc.gov/Bureaus/Common_Carrier/ Reports /

FCC-State_Link/IAD/1com0603.pdf.

9. Id.

10. See id. (map showing zip code areas where competitors have

challenged ILECs and the number of competitors operating within those

areas). Disparities in entry in different regions do not consistently follow

population density patterns. Id. at 3 (noting that entry was more significant

in Rhode Island, New Hampshire, Nebraska, and Utah than in California,

Florida or Ohio).

they are residential telephone customers or businesses seeking

high-end services.

Anticompetitive conduct may account for the mixed

performance reflected in the data. A large number of antitrust

actions have been filed alleging persistent anticompetitive

behavior by ILECs." The allegations are of a piece with those

found to have had substance in the MCI and AT&T cases.

In this case, for example, Respondent alleges that Verizon

engaged in unjustified delays in establishing connections to

the local exchange for competitors’ customers. See Law Offices

of Curtis V. Trinko, L.L.P. v. Bell Atl. Corp., 305 F.3d 89, 95 (2d

Cir. 2002). In Covad Communications Co. v. Bell Atlantic Corp., a

Verizon competitor alleges that when it sought to compete in

providing high-speed network and data services, Verizon,

among other things: fraudulently claimed that there was no

room to collocate Covad’s equipment in Verizon's central

offices; required Covad to build unnecessary special rooms

before collocating; delayed providing loops to Covad; and

abused the regulatory and negotiation process to impede

Covad’s entry. 201 F. Supp. at 129-130 nn.10-17.

Competitors, in short, have alleged “death by a thousand

cuts” at the hands of the ILECs. Even with the 1996 Act's

prophylactic tools, ILECs can frustrate competition by raising

the costs of rivals who seek access to local exchanges — as

alleged in this and other cases — just as AT&T did a generation

earlier when threatened by competition in long distance and

equipment markets.

Although the 1996 Act provides regulatory means

to address conduct that raises the costs of access to local

exchanges, there are limits to what the regulatory process can

be expected to accomplish. As the current Chairman of the

FCC has recognized, delays in regulatory action often “hinder[]

companies from improving their existing offerings or from

entering new markets that lie outside their traditional

11. See, e.g., Cavalier Tel. Co. v. Verizon Va., Inc., 330 F.3d 176 (4® Cir.

2003); Goldwasser, 222 F.3d 390; Covad Communications Co. v. BellSouth Corp.,

299 F.3d 1272 (11" Cir. 2002); Covad Communications Co. v. Bell Atl. Corp.,

201 F. Supp. 2d 123 (D.D.C. 2002), appeal filed, (May 6, 2002 D.C. Cir.

(No. 02-7057). alata me

eee - -

A a BP rk i ge OO egg ee

Brees 0 ae ae

regulatory boundaries.” '* Federal and state regulators

therefore face a difficult trade-off. On the one hand, they can

quickly review applications and resolve discrete disputes

between ILECs and competitors so that the parties can carry

on with the business of competing. Or, they can devote the

time and resources necessary to resolve complex technical and

economic disputes with sufficient certainty to ensure that the

ILEC does not impose unjustified costs on competitors.

As Congress recognized, the availability of antitrust

enforcement helps to resolve this dilemma. With antitrust

remedies available, regulators may, if appropriate within the

parameters of their statutory and regulatory duties, limit

certain proceedings. At the same time, if an ILEC’s overall

conduct is anticompetitive, government enforcers and

aggrieved parties may bring an antitrust action. This

complementary role has been recognized since the inception

of the 1996 Act. In implementing the Act, the FCC explicitly

stated that “predatory behavior . . . can be adequately

addressed through our complaint process and enforcement of

the antitrust laws.” * In implementing Sections 251 and 252 of

the 1996 Act, the FCC emphasized that “parties have several

options for seeking relief if they believe that a carrier has

violated the standards under section 251 or 252,” including

“the ability of persons to seek relief under the antitrust laws.” FCC

First Rep. and Order, supra, 4 124-129 (emphasis added).

Both regulators and regulated firms, in proceedings under

Section 271 of the 1996 Act, have acknowledged this connection

between regulatory efficiency and the availability of antitrust

enforcement. As the FCC explained in approving Verizon's

Section 271 application for New York State:

[I]t is important to evaluate the benefits of these

reporting and enforcement mechanisms in the

12. Hearing Before the Subcomm. on Communications of the Sen.

Comm. on Commerce, Science and Transport., 105" Cong. (1998) (statement

of Michael K. Powell, Commissioner, FCC) , 1998 FCC LEXIS 2764, at *9.

13. In the Matter of Regulatory Treatment of LEC Provision of Interexchange

Services Originating in the LEC’s Local Exchange Area and Policy and Rules

Concerning the Interstate, Interexchange Marketplace, 12 F.C.C.R. 15756, 15831

(April 17, 1997) (emphasis added).

context of other regulatory and legal processes that

provide additional positive incentives to Bell

Atlantic [i.e., Verizon]. . . . [W]e recognize that the

Commission's enforcement authority under section

271(d)(6) already provides incentives for Bell

Atlantic to ensure continuing compliance with its

section 271 obligations. We also recognize that Bell

Atlantic may be subject to payment of liquidated

damages through many of its individual

interconnection agreements with competitive

carriers. Furthermore, Bell Atlantic risks liability

through antitrust and other private causes of action if it

performs in an unlawfully discriminatory manner."

Verizon shared this view when, in its Section 271 application

for New York, it opposed more stringent regulatory restrictions

and assured the FCC that competitors could resort to antitrust

enforcement if the proposed safeguards did not prevent it from

harming competition."®

II. An ILEC’s Refusal To Deal With Rivals May Result In

Section 2 Liability If The Refusal Is Likely To Maintain

Or Extend The ILEC’s Monopoly Power And Is

Unnecessary To Achieve Overriding Efficiency Benefits

The court of appeals held that, assuming the truth of the

allegations, Verizon might be found to have violated Section 2

by engaging in exclusionary or predatory conduct to maintain

its monopoly power over local telecommunications markets.

In particular, the court found that the allegations in the

complaint are consistent with an exclusionary refusal to deal

under either the essential facilities doctrine or a monopoly

leveraging theory.

14. Bell Atlantic-New York § 271 Order, supra n.2, at J 430 & n.1320

(emphasis added). The FCC reiterated this position in Section 271 approvals

in other States. See, e.g., In the Matter of Application by SBC Communications

Inc., et al. Pursuant to Section 271 of the Telecomm. Act of 1996 To Provide In-

Region InterLATA Services in Texas, Mem. Op. and Order, 15 F.C.C.R. 18354,

{ 421 & n.1222 (June 30, 2000); In the Matter of Joint Application by BellSouth

Corp., et al., for Provision of In-Region, InterLATA Services in Ga. and La., Mem.

Op. and Order, 17 F.C.C.R. 9018, | 296 & n.1144 (May 15, 2002).

15. Bell Atlantic-New York § 271 Application, supra n.1, at 71.

Recognizing that Respondent's claim cannot be dismissed

on the pleadings using the fact-specific criteria for exclusionary

conduct developed by this Court, Verizon and the United

States propose a new test. Unilateral conduct, they contend,

may not be condemned as exclusionary unless it “make[s]

no business sense apart from enabling monopoly returns”

(Pet. Br. at 20; U.S. Br. at 15-17). By ignoring the potential impact

on consumers and the market, and by focusing entirely on

whether Verizon could have a lawful business objective —

specifically, whether the refusal to deal could be profitable

apart from enabling monopoly returns — the proposed test

ignores nearly a century of Section 2 jurisprudence. lf adopted,

Verizon's test would undermine the central objective of

antitrust law itself — enhancing consumer welfare.

A. Section 2 Precedents Establish the Need for a Fact-

Intensive Inquiry to Determine Whether Conduct

Is Exclusionary

Unlawful monopolization under Section 2 requires proof

of two elements: “(1) the possession of monopoly power in

the relevant market; and (2) the willful acquisition or

maintenance of that power as distinguished from growth or

development as a consequence of a superior product, business

acumen, or historic accident.” United States v. Grinnell Corp.,

384 U.S. 563, 570 (1966). The first element is not at issue here.

Conduct that satisfies the second element is variously referred

to as “exclusionary ... or anticompetitive .. . or predatory.”

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585,

602 (1985).

“[A]nticompetitive strategic behavior by dominant firms

comes in many kinds, many of which may not be known or

even anticipated today.” III P. Areeda & H. Hovenkamp,

ANnTiTRusTt Law: AN ANALYSIS OF ANTITRUST PRINCIPLES 4 651i, at 88

(2002). Appropriately then, the test for exclusionary conduct

is fact-specific. Early in the Sherman Act's history, this

Court recognized that Section 2 was “intended to supplement

[Section 1 of the Sherman Act, 15 U.S.C. § 1] and to make sure

that by no possible guise could the public policy embodied in

the first section be frustrated or evaded.” Standard Oil Co.

v. United States, 221 U.S. 1, 60 (1911). As in Section 1 cases,

“the criteria to be resorted to in any given case for the purpose

of ascertaining whether violations of [Section 2] have been

committed[] is the rule of reason.” Id. at 62.

Reflecting the parallels between rule of reason analysis

under Sections 1 and 2, in determining whether conduct

violates Section 2, this Court has instructed courts “to consider

its impact on consumers and whether it has impaired

competition in an unnecessarily restrictive way.” Aspen Skiing,

472 U.S. at 605. Merely showing that a challenged practice

harms individual rivals, or even that it reduces the overall

level of competition, is not sufficient to prove a Section 2

violation, just as it is insufficient to establish Section 1 liability.

The challenged practice may have pro-competitive benefits.

It may offer product improvements or choice, or increase

economic efficiency, thus rendering markets more, rather than

less, competitive. Nevertheless, conduct may be condemned

as exclusionary if it achieves pro-competitive benefits “in an

unnecessarily restrictive way.” Id. at 605 n 32 (quoting III

Areeda & Turner, supra, at 78 (1978)). Under the rule of reason

standards that underpin both Section 1 and Section 2, the

inquiry focuses on “the competitive effects of challenged

behavior relative to such alternatives as its abandonment or a

less restrictive alternative.” VI] Areeda & Hovenkamp, supra,

{ 1500, at 336-37 (2003).

Thus, the proper standard is appropriately summarized

as follows:

Exclusionary conduct is acts that (1) are reasonably

capable of creating, enlarging, or prolonging

monopoly power by impairing the opportunities

of rivals; and (2) that either ... do not benefit

consumers at all, or ... are unnecessary for the

particular consumer benefits that the acts produce,

or ... produce harms disproportionate to the

resulting benefits.

Ill Areeda & Hovenkamp, supra, 4 651), at 88-89. Applying

this analytical framework, the courts of appeals have detailed

the burdens of proof that it suggests: (1) a plaintiff is required

ee meme SR Sa

to demonstrate anticompetitive effect; (2) if the plaintiff does

so, the burden shifts to the defendant to demonstrate a pro-

competitive justification; and (3) if the defendant does so, the

plaintiff may still prevail if it demonstrates that the challenged

conduct is not necessary to achieve the consumer benefits

conferred or that the harm to competition is disproportionate

to the benefit conferred. See, e.g., United States v. Microsoft Corp.,

253 F.3d 34, 58-59 (D.C. Cir. 2001) (en banc).

Under this analytical approach, properly plead allegations

that an ILEC is interfering with a rival's access to a local

exchange so as to raise the rival's costs — and thereby maintain

or extend power over price — cannot be dismissed on the

pleadings. See Eastman Kodak Co. v. Image Technical Servs., 504

U.S. 451, 468-69 (1992); see generally T. Krattenmaker & S. Salop,

Anticompetitive Exclusion: Raising Rivals’ Costs To Achieve Power

Over Price, 96 YALE L.J. 209, 234-35 (1986).

B. Verizon’s Exclusionary Conduct Test Finds No

Support in Section 2 Precedents or in Underlying

Antitrust Principles

In an attempt to secure dismissal without any examination

of market conditions or a determination that the challenged

conduct is necessary to achieve overriding pro-competitive

justifications — matters that cannot be resolved on the face of

a complaint — Verizon and the United States urge this Court

to discard the existing analytic framework developed under

Section 2. They propose, instead, to replace this Section 2

jurisprudence with a new test: Unilateral conduct, they

contend, may not be condemned as exclusionary unless it

“make[s] no business sense apart from enabling monopoly

returns” (Pet. Br. at 20).!° Restating its proposed test, Verizon

writes: “[i]f the conduct is sustainable by the defendant

16. Strictly speaking, the United States refers to conduct that

_ lacks business sense “apart from its tendency to impair competition,” or

“to eliminate or lessen competition” (U.S. Br. at 17, 19). Whether this is

intended to express something different than Verizon's “enabling monopoly

returns” characterization is unclear, but we assume no difference.

Also, perhaps recognizing the novelty of the test, the United States would

limit it to the context in which the alleged exclusionary conduct is a refusal

to deal with rivals (U.S. Br. at 17).

without monopoly profits, i.e., it makes business sense without

the prospect of monopoly profits, then it is ‘valid,’ ‘normal’

conduct” (Pet. Br. at 22-23; see also U.S. Br. at 17).

Relying on this premise, Verizon asserts that its denial to

a rival of access to a local loop could never violate Section 2

because “[w]hat is challenged is Verizon's alleged failure to

provide adequate access at forced discounts to rivals . . . to

help them sever Verizon's relationship with its retail customers

.... tis granting ... access, with the ensuing severance of -

important customer relationships, that requires a sacrifice that

no ordinary competitor would freely make” (Pet. Br. at 26, 27).

Having thus offered “economic sense” - that is, a colorable

motive - for its refusal to deal, according to Verizon, the case

is over (see also U.S. Br. at 20 (“a refusal to sell an input to a

rival when it requires an incumbent to forfeit profits would

make obvious business sense” )). This argument ignores nearly

a century of Section 2 jurisprudence.

1. Verizon's proposed test ignores the special concern this

Court has shown for unilateral conduct by a dominant firm.

This Court has recognized that “the right of a monopolist to

deal with whom he pleases” is “qualif[ied].” Aspen Skiing, 472

U.S. at 603; see United States v. Colgate & Co., 250 U.S. 300, 307

(1919). Thus, “practices that harm rivals unnecessarily may

be violations of § 2 when committed by a dominant firm, even

though they would not be violations of other provisions when

no dominant firm is involved.” III Areeda & Hovenkamp,

supra, | 651h, at 87; see also Kodak, 504 U.S. at 488 (Scalia, J.,

dissenting) (recognizing that “[b]ehavior that might otherwise

not be of concern to the antitrust laws — or that might even be

viewed as procompetitive — can take on exclusionary

connotations when practiced by a monopolist”).

Judge Wyzanski’s seminal monopolization opinion in

United States v. United Shoe Machinery Corp., 110 F. Supp. 295

(D. Mass. 1953), aff'd per curiam, 347 U.S. 521 (1954), illustrates

the shortcomings of Verizon's test. There, the court reviewed

United Shoe’s restrictive leasing practices for shoe-

manufacturing machinery, which it found to be “the sorts of

ne rere

activities which would be engaged in by other honorable firms.”

Id. at 344. Judge Wyzanski nevertheless held the practices illegal

because, when engaged in by a monopolist, “they unnecessarily

exclude actual and potential competition.” Id. at 345.

Under Verizon's test, the anticompetitive effect of United

Shoe’s leasing practices would have been irrelevant; the fact

that the defendant's conduct made “business sense” would

almost certainly have shielded it from Section 2 liability. See also

United States v. Gnffith, 334 U.S. 100, 108-09 (1948) (acknowledging

that “[ljarge-scale buying is not . . . unlawful per se” because

it “may yield price or other lawful advantages to the buyer,”

but holding that such large-scale buying by a motion picture

circuit violated Section 2 because it extendeci monopoly power).

2. Verizon's proposal also disregards prevailing law on

intent in Section 2 cases. ihe test's leading academic

proponents acknowledge that an approach that focuses on

whether the conduct could be profitable apart from monopoly

returns is designed to isolate circumstances where the only

possible conclusion is “that the firm's. . . action was motivated

by the desire for the monopoly profits attendant on the exit of

the rival.” J. Ordover & R. Willig, An Economic Definition of

Predation: Pricing and Product Innovation, 91 Yate L. J. 8, 13

(1981). The test would therefore insulate a monopolist from

any monopolization claim unless the plaintiff could plead facts

establishing a sole and specific intent by the monopolist to

exclude competition or control price.

But in United States v. Aluminum Co. of America (“Alcoa”),

the Second Circuit, in a decision by Judge Hand, declined to

limit Section 2 violations to conduct “actuated solely by a desire

to prevent competition.” 148 F.2d 416, 431 (2d Cir. 1945). This

Court has since agreed: although in an attempted

ization case, “it is necessary to prove a ‘specific intent’

to accomplish the forbidden objective — as Judge Hand

explained, ‘an intent which goes beyond the mere intent to do

the act” — in an actual ization case, “evidence of

intent is merely relevant to the question whether the

conduct is fairly characterized as ‘exclusionary.’”

Aspen Skiing, 472 U.S. at 602 (quoting Alcoa, 148 F.2d at 432);

see generally ABA Antitrust Section, ANtiTRUstT Law

DEVELOPMENTS 248 (5" ed. 2002) (“[MlJore recent decisions focus

on intent only as bearing on probable effect”).

3. The test proposed here would undermine the central

objective of antitrust law itself — enhancing consumer welfare.

See generally Reiter v. Sonotone Corp., 442 U.S. 330, 343 (1979)

(explaining that “Congress designed the Sherman Act as a

‘consumer welfare prescription.’”) (quoting R. Bork,

THe ANTRITRUST PARADOX 66 (1978)). As this Court instructed in

Aspen Skung, “impact on consumers” is relevant to determine

whether challenged conduct is exclusionary. 472 U.S. at 605.

Yet the test here is indifferent to the real-world impact of the

challenged conduct on prices to consumers; it applies “despite

the fact that consumers are worse off as a result.” ”

By way of hypothetical, suppose that an ILEC redesigns

the interfaces of its switching equipment at a cost of $5,000

per switch, but is able to sell the new equipment for $6,000

per switch. Assume further that the change will cost

rivals, who must access its switches, $50,000 per switch, an

amount that puts rivals at an insurmountable competitive

disadvantage. Because the only question that Verizon's test

would address is whether the investment is profitable for

the ILEC apart from enabling monopoly returns — and on

these facts, itis — a Section 2 challenge would necessarily fail.

Our hypothetical is analogous to what AT&T did when it

required customers of rival equipment manufacturers to lease

prohibitively expensive “ protective connecting arrangements”

before connecting to the local exchange network. See, ¢.g.,

United States v. AT&T, 524 F. Supp. at 1349. According to

Verizon and its amici, no amount of harm to competition or

consumers would condemn the conduct in this scenario.

The United States, by contrast, acknowledges that as a

general matter, exclusionary conc.uct may be found where “the

harm to competition” is “disproportionate to consumer

benefits (in terms of providing a superior product, for example)

17. J. Ordover & R. Willig, Access and Bundling in High-Technology

Markets 103-128, at 112, im CompPetTrTion, INNOVATION, AND THE MICROSOFT

Monopoty: ANTITRUST IN THE Dicrtat Marxertptace (J. Eisenach & T. Leonard

eds. 1999) (emphasis added).

i me ms,

and to the economic benefits to the defendant (aside from

benefits that accrue from diminished competition)” (U.S. Br.

at 14). But, according to the United States, when a defendant

is alleged to be under a duty to deal with a rival, “the inquiry

into whether conduct is ‘exclusionary’ or ‘predatory’ requires

a sharper focus” (id. at 15). Then, the United States argues,

“conduct is not exclusionary or predatory unless it would

make no economic sense for the defendant but for its tendency

to eliminate or lessen competition” (id. at 15). This radical

change in Section 2 standards is warranted, the United States

asserts, because exposing monopolists to liability for refusing

to deal with rivals rarely offers procompetitive benefits, while

frequently risking collusion and the dampening of incentives

for investment (id. at 17).

The history of anticompetitive conduct and antitrust

enforcement in telecommunications markets undercuts the

United States’ unsupported assertions. The findings in

antitrust actions in this area demonstrate that unjustified

refusals to deal by ILECs have served to maintain monopoly

power. And the remedies afforded in those actions opened

markets to investment and competition without requiring

unnecessary sharing of facilities. See United States v. AT&T,

552 F. Supp. at 226-234 (approving consent decree opening long

distance markets to investment); MCI, 708 F.2d at 1133, 1148

(drawing the line between necessary and unnecessary sharing).

Because the test proposed by the United States disregards this

Court's Section 2 standards and antitrust law's core goal, it

does not sharpen — it dulls —the necessary inquiry.

4. As support for their exclusionary conduct test, both

the United States and Verizon cite the test for predatory pricing,

adopted by this Court in Matsushita Elec. Indus. Co. v. Zenith

Radio Corp., 475 U.S. 574 (1986), and Brooke Group Ltd. v. Brown

& Williamson Tobacco Corp., 509 U.S. 209 (1993) (U.S. Br. at 16;

Pet. Br. at 22). The predatory pricing analogy, however, is

unpersuasive.

eal na is

As the Matsushita Court noted, “cutting prices . . . [is] the

very conduct the antitrust laws are designed to protect.”

475 US. at 594. Every price cut confers immediate benefits on

consumers. At the same time, the price cutter — who is, in the

predatory pricing model, selling below cost — must endure

on-going and mounting economic loss until rivals are

eventually driven from the market. A failed effort is, therefore,

costly to the perpetrator. See id. at 595. Even the ultimate result

is uncertain because, after bearing the economic pain along

the way, when the predator finally excludes rivals and achieves

the theoretical opportunity to raise prices, it is gambling that

doing so will not induce entry by excluded or, indeed, new

rivals. For all these reasons, there is “a consensus among

commentators that predatory pricing schemes are rarely tried,

and even more rarely successful.” Id. at 589.

By contrast, the consumer benefits of a dominant firm's

refusal to deal with rivals cannot properly be assessed without

analyzing market conditions. Depending on the context, a

refusal to deal may entrench or extend monopoly power

without offering significant pro-competitive benefits. Equally

important, the dominant firm can realize immediate revenue

from the refusal to deal, and thus is in a fundamentally

different position than a predatory pricer. See T. Krattenmaker

& S. Salop, Economic Concepts and Antitrust Analysis: A Critical

Reexamination, 56 Antitrust L. J. 71, 73 (1987) (“In contrast to

predatory pricing, where the dominant firm loses money faster

than its smaller victims, [refusals to deal by the dominant

firm] can raise rivals’ costs disproportionately.”). Accordingly,

predatory pricing schemes bear no comparison to refusals to

deal and offer no support for Verizon's arguments.

C. Although Verizon's Exclusionary Conduct Test May

Have Limited Value, Section 2 Claims Are Not

Susceptible to a “One Size Fits All” Approach.

The exclusionary conduct test offered here would radically

depart from Section 2 precedents. That is not to say, however,

that it is devoid of all value. The showing that the test

contemplates may well be sufficient to establish liability.

But, as we have demonstrated, any attempt to use the test to

create a necessary condition of Section 2 liability is untenable,

even if, as the United States proposes, the new test were limited

to refusals to deal with rivals.

There may be circumstances in which the monopolist can

be proven to have engaged in conduct that has no colorable

business explanation, except to enable monopoly returns.

Where those are the facts, liability under Section 2 should

generally follow. Otter Tail Power Co. v. United States, 410 US.

366 (1973), can be viewed as such a case. There, the Court

upheld Section 2 liability on the basis of a lower court finding

that the defendant power company’s sole motive for refusing

to deal was “to prevent the municipal power systems from

eroding its monopolistic position.” Jd. at 378. Because the court

found that its only business objective was to obtain monopoly

returns, the power company’s refusal to deal flunks the test

proposed by Verizon and the United States. Section 2 liability

was properly imposed.

Otter Tail reflects that the proposed test can identify cases of

clear illegality. But even so, the test raises significant questions

that neither Verizon nor the United States address. For example,

neither commits itself clearly on whether, in going through the

necessary analysis, one includes, as a justifiable benefit to the

monopolist, profits from customer sales that the monopolist’s

exclusionary conduct captures from the injured rival. Verizon

suggests that it may include these profits on the theory that

“sever|ing] .. . important customer relationships . . . requires a

sacrifice that no ordinary competitor would freely make”

(Pet. Br. at 27). However, if this were the correct analysis, then

even the naked refusal to deal in Lorain Journal Co. v. United States

would escape condemnation. In that case, the monopolist

newspaper had “practically indispensable coverage” of those

persons whom an advertiser would want to reach in the relevant

market, and its pages were therefore “essential” for many

advertisers. 342 U.S. 143, 148, 149-50 (1951). The newspaper

refused to deal with advertisers who used the services of its

potential rival, a newly established radio station, thereby assuring

itself of continued profits from advertisers captured from

its excluded rival. Because there was no countervailing

procompetitive justification for the newspaper's conduct, to

allow it to use these captured profits to escape Section 2 liability

would denude the statute of serious content in the refusal to deal

context. Indeed, were profits captured by means of the challenged

conduct allowable as a justifiable benefit to the monopolist, Otter

Tail itself would have been decided differently, for the justification

which Verizon here proposes — retaining customers — is

the justification rejected by this Court in Otter Tail. See Otter Tail,

410 US. at 380 (rejecting Otter Tail’s justification that “without

the weapons which it used, more and more municipalities

will turn to public power and Otter Tail will go downhill”).

Similarly, neither Verizon nor the United States explain

whether application of the test requires exclusion of the

incremental profit to the monopolist that comes frorn protecting

an existing monopoly price against erosion from competition

by the excluded rivals."* Yet, like captured profits this

exclusion from the profit analysis is necessary. Profits

captured by nakedly exclusionary conduct, such as protecting

an existing monopoly price, cannot justify otherwise anti-

competitive conduct. A business justification “does not succeed

{in avoiding Section 2 liability] merely because it is profitable, for

one can profit from both competitive and monopolistic acts.”

Ill Areeda & Hovenkamp, supra, § 658i, at 131.

While the test may have some uses, if it had been a necessary

criteria for exclusionary conduct, many of this Court's Section 2

cases likely would have been decided differently. The monopolist

in Aspen Skiing put forward potentially plausible business

justifications for its conduct, which the jury rejected at trial.

See 472 US. at 608-11. Kodak did as well, and secured a favorable

summary judgment that this Court reversed. See 504 U.S. at 482-

86. Under Verizon's and the United States’ exclusionary conduct

18. Failure to recognize this profit element would be akin to adopting

the “Cellophane Fallacy,” see United States v. E.]. du Pont de Nemours & Co.,

351 U.S. 377 (1956), where the Court used elasticity of demand at current

prices — without regard for whether the defendant already priced at

levels — in the market definition analysis. See generally W. Landes

& R. Posner, Market Power in Antitrust Cases, 94 Harv. L. Rev. 937, 961, 970-

71 (1981); Kodak, 504 U.S. at 471 ("The existence of significant substitution

in the event of further price increases or even at the current price does not

tell us whethe- the defendant already exercises significant market power.’”)

(quoting Areeda & Kaplow, supra, | 340(b)); ABA Antitrust Section, supra,

at 542 n.56 (citing additional authorities).

test, it is doubtful that either case could have survived a motion

to dismiss. Thus, Verizon's test would provide cover for a broad

range of practices that this Court has determined may maintain

or extend monopoly power.

In sum, the exclusionary conduct test could be a useful

analytic tool for a limited number of situations where the

conduct at issue is necessarily pernicious to competition.

In this respect, the test might be thought of as identifying a

kind of per se Section 2 violation — a rough analog to the per

se rule of Section 1. But while the test can discern naked

anticompetitive conduct, where a dominant firm’s refusal to

deal is not demonstrably senseless except to enable monopoly

returns — and most Section 2 cases are likely to fall within

this category — the test offers no help. It does not assist in

resolving Section 2 claims where the motive for the

exclusionary conduct includes both pro- and anti- competitive

elements, and where the marketplace effects are similarly

mixed. For that, the lower courts need what this Court has

already developed: a fact-based inquiry that enables the court

to probe both anticompetitive consequences — which may

include, but are not limited to, foregoing short-term revenue

for the long-term objective of monopoly returns — and

procompetitive benefits. Verizon's exclusionary conduct test,

by contrast, would discard Standard Oil and the many decisions

since then, which emphasize the complementary relationship

between Sections 1 and 2 and the parallel fact-based inquiries

applicable under each statute. The lawfulness of Verizon's

conduct may, of course, be established on summary judgment

or at trial. However, as the court of appeals below recognized,

at this juncture in the case, dismissal is inappropriate.

D. An ILEC’s Obstruction Of Access to its Local

Exchange May Be Actionable under the Essential

Facilities Doctrine.

This Court's decision in Terminal R.R. Ass'n, 224 U.S. 383,

is the foundation for the essential facilities doctrine. It identifies

a circumstance in which a monopolist’s refusal to deal

threatens to harm competition unnecessarily and may

therefore be exclusionary under Section 2. The Seventh Circuit

in MCI more specifically articulated the doctrine’s elements:

(1) control of an essential facility by a monopolist; (2) a

competitor’s inability practically or reasonably to duplicate

the essential facility; (3) denial of the facility to a competitor;

and (4) the feasibility of providing the facility. See 708 F.2d at

1132-1133. The Second Circuit drew on these authorities in

sustaining Respondent's claim. Trinko, 305 F.3d at 107-08.

The United States criticizes (U.S. Br. at 20-23) the Second

Circuit's reliance on the essential facilities doctrine because

its ruling allegedly “dispense[d]” with Section 2’s exclusionary

conduct requirement. Verizon argues (Pet. Br. at 41-42) that

the doctrine should be limited to situations where the

defendant voluntarily provides access to some, but not all,

competitors. The Second Circuit allegedly erred by ignoring

this limitation and then, left without a benchmark against

which to measure exclusionary conduct, by substituting the

regulatory duties required under the 1996 Act.

However, as applied here, the essential facilities doctrine

comports with established Section 2 analysis and is well suited

to discern anticompetitive conduct in the telecommunications

market. Moreover, the Second Circuit did not blindly import

regulatory duties into Section 2; it left the reasonableness of

the specific terms of network access that might be required

under antitrust law, as well as the accommodation between

the 1996 Act and antitrust duties in general, for the district

court to resolve on rernand.

1. As MCI and United States v. AT&T illustrate, the

essential facilities doctrine is suited for telecommunications

markets because dominant firms control inputs (local

exchanges), which can be essential to any competition, and

access to those inputs need not burden the dominant firms

unduly. See MCI, 708 F.2d at 1133; United States v. AT&T, 524

F. Supp. at 1353.

While the essential facilities doctrine is not without

critics, its value in addressing unique conditions in

telecommunications network markets is generally

acknowledged. For example, the late Professor Areeda wrote

that MCI, “which rests on the essential facilities notion, is

probably correct.” Philip Areeda, The “Essential Facility”

Doctrine: An Epithet in Need of Limiting Principles, 58 ANTITRUST

L. J. 841 (1989); see also IIIA Areeda & Hovenkamp, supra,

{ 787c1 (2002) (noting the doctrine’s “relevance in regulated

monopolies when it serves to limit the monopolist’s power to

expand the monopoly into ‘adjacent’ unregulated (or less

regulated) markets”).

While the doctrine is useful in identifying exclusionary

conduct, it is applied with great restraint: “[c]ourts rarely

impose liability . . . , in large part because the doctrine requires

a showing that the facility controlled by the defendant firm is

truly essential to competition — i.e., constitutes an input

without which a firm cannot compete with the monopolist.”

R. Pitofsky, D. Patterson & J. Hooks, The Essential Facilities

Doctrine Under U.S. Law, 70 Antitrust L. J. 443 (2002).

By requiring both that an input be essential and that the

competitor be unable practically or reasonably to duplicate

the facility, courts filter out cases where harm to competition

is unlikely. See, e.g., Paladin Assocs. Inc. v. Montana Power Co.,

328 F.3d 1145, 1163 (9" Cir. 2003) (noting that to be “essential,”

the facility must afford “the power to eliminate competition

in a downstream market”). Accordingly, the lower courts

frequently grant summary judgment or dismissal on this

basis,’* or where denial of access was necessary for the

defendant to compete on the merits.” Dismissal is not

warranted here, however, because the claimed harm to

competition is not facially implausible; nor is it self-evident

that Verizon's business needs justify denying access.

19. As illustrations of non-essential facilities, see Twin Laboratories,

Inc. v. Weider Health & Fitness, 900 F.2d 566, 568-70 (2d Cir. 1990) (advertising

space in leading magazine); Laurel Sand v. CSX, 924 F.2d 539, 544-45

(4 Cir. 1991) (lease terms for railroad track usage); Directory Sales

Management Corp. v. Ohio Bell Tel. Co., 833 F.2d 606, 612-13 (6" Cir. 1987)

(telephone company’s directory delivery, billing, and classification systems);

Midwest Gas Servs. v. Ind. Gas Co., 317 F.3d 703, 713-14 (7" Cir. 2003) (gas

pipeline); Paladin Assoc., 328 F.3d at 1163 (pipeline); Malden v. Union Elec.

Co., 887 F.2d 157, 161-62 (8 Cir. 1989) (power lines); McKenzie v. Mercy

Hospital, 854 F.2d 365, 370-71 (10" Cir. 1988) (emergency room facilities).

20. See, e.g., William v. Heartland Hosp., 34 F.3d 605, 612-13 (8 Cir.

1994) (terminating physician's staff privileges was based on reasonable

needs); Laurel Sand, 924 F.2d at 545 (access to a railroad line was inconsistent

with defendant's efficient business operations).

2. Verizon also argues that the doctrine should not apply

where the defendant denies access to the essential facility to

all those seeking access, but instead only where a monopolist

discriminates — voluntarily providing access to some, but not

to others. This would turn basic antitrust on its head. Where

other competitors receive access to the essential facility, the

likely harm to competition of denying access to one more

competitor would not seem as great as when all competitors

are denied access. Applying the doctrine in these circumstances,

while rejecting it where the essential facility is closed to all

competitors — as Verizon urges — would surely not improve

on the current state of affairs. See MCI, 708 F.2d at 1133.

3. The United States argues that in applying the essential

facilities doctrine, the court of appeals equated regulatory

duties under the 1996 Act with conduct required by the

antitrust laws. Specifically, the court of appeals is said to have

equated the “reasonable terms” applicable to access under the

essential facilities doctrine with the access terms mandated

by the 1996 Act. This, the United States maintains, could not

be sound: The 1996 Act requires ILECs to grant access to local

network facilities at rates below the monopoly prices that

ILECs otherwise could charge, whereas a monopolist’s refusal

to sell below the monopoly price would not “ordinarily” be

actionable (U.S. Br. at 3 n.1, 23).

The court of appeals, however, merely recognized that the

reasonableness of local network access, as well as the

accommodation between the 1996 Act and antitrust duties,

implicate fact issues, which a Rule 12(b)(6) motion is unsuitable

to resolve. See Trinko, 305 F.3d at 108. To decide such questions,

the district court needs the benefit of evidence probative of

the conduct alleged to be exclusionary, the conditions

associated with access, the justifications for its denial, and the

impact of the 1996 Act regulatory scheme itself. See [A Areeda

& Hovenkamp, supra, J 240(d), at 15, 17 (1997) (“even when

conduct is not exempt from antitrust laws, regulation of a

market can bear heavily on the application of antitrust

principles”); S. Pac., 740 F.2d at 1001 (holding that the district

court erred “in failing to consider the realities of the regulatory

scheme ... [which] leaves pricing and interconnection

decisions to AT&T in the first instance”).

The United States advocates shortcutting this necessary

factual inquiry, citing the approach taken in Goldwasser, 222

F.3d 390. There, the Seventh Circuit dismissed at the pleading

stage a complaint comparable to the complaint in this case.

Although the Goldwasser court recognized that the 1996 Act

affords no antitrust immunity, it nevertheless dismissed on

the ground that the 1996 Act imposes “affirmative duties to

help one’s competitors that ... do not exist under the

unadorned antitrust laws.” Id. at 400 (citations omitted). That

approach insulates interconnection disputes from antitrust

review just as effectively as a statutory or implied immunity

would. It gives dispositive effect to judicially noticed “facts”

about the conduct alleged and the regulatory environment,

which cannot be determined on the pleadings alone, and it

relies on unprecedented restrictions on Section 2’s scope.

The Goldwasser approach would dismantle the

complementary system that Congress erected in the 1996 Act

to promote competition in local telecommunications markets.

Virtually any monopolization claim arising from an ILEC’s

denial of access to its local exchange networks would be subject

to a Rule 12(b)(6) dismissal. That is not what Congress —

mindful of the lessons of history — intended. In cases such as

this, the essential facilities doctrine is reasonably calculated

to identify denials of access by regulated monopolists that are

likely to harm competition unnecessarily and are therefore

exclusionary.

E. A Monopoly Leveraging Claim Is Proper When an

ILEC Obstructs Interconnection in Ways That

Unnecessarily Threaten Harm to Competition and

Consumers.

Verizon and the United States criticize (Pet. Br. at 26-27;

US. Br. at 26-27) the Second Circuit's monopoly leveraging

ruling because it allegedly imposes liability for the mere “use”

of monopoly power, and fails to require exclusionary conduct.

See Trinko, 305 F.3d at 108. But when an ILEC obstructs access

to the local loop through anticompetitive conduct, thus

threatening to raise costs or to decrease quality or output of

retail telephone service in downstream markets, a monopoly

leveraging claim may be pled. The ILEC’s conduct is

appropriately actionable because it threatens the very harm

that Section 2, and its exclusionary conduct requirement, seek

to prevent.

“Tangible harm” to competition and consumers may occur

even absent circumstances that reflect actual or probable

monopoly power in a secondary market. If

the defendant uses monopoly power in [market]

A to place rivals in [market] B at a competitive

disadvantage, perhaps by raising their costs or

making their offerings less attractive ... the

defendant does not threateri a market share that we

ordinarily associate with monopoly, but it clearly

threatens those things commonly identified as

economic monopoly, namely higher prices or

reduced output or quality.

III Areeda & Hovenkamp, supra, ]652c, at 96. Those effects

may well occur where an ILEC, by anticompetitive means,

frustrates a competitor's interconnection efforts.

The court of appeals thus correctly invoked the monopoly

leveraging doctrine, as developed in two recent circuit

decisions. See Virgin Atl. Airways Ltd. v. British Airways PLC,

257 F.3d 256, 272-73 (2d Cir. 2001); Ad/Sat v. Associated Press,

181 F.3d 216, 230 (2d Cir. 1999). Both cases heeded the teaching

of Spectrum Sports v. McQuillan, 506 U.S. 447, 559 (1993), and

limited the leveraging doctrine accordingly.” In Virgin Atlantic,

on which the court of appeals principally relied, the Second

Circuit ruled that a monopoly leveraging claim required a

showing that monopoly power was used to gain a competitive

advantage in a distinct market which “threatened the [second]

market with the higher prices or reduced output or quality

associated with the kind of monopoly that is ordinarily

accompanied by a large market share.” 257 F.3d at 272 (quoting

III Areeda & Hovenkamp, supra, ¥ 652). The Second Circuit

has also made clear that the doctrine requires “predatory

or anticompetitive conduct,” rather than actions which

21. The monopoly leveraging doctrine itself traces its origins to

Griffiths, 334 U.S. 100, and Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d

263, 275 (2d Cir. 1979), which the court below did not cite.

presuppose only efficient size or integration. Id. at 273. In

AD/Sat, the Second Circuit similarly limited the doctrine

“to those circumstances where the challenged conduct

actually injures competition, not just competitors, in the

second, non-monopolized market.” 181 F.3d at 230. In view

of these limitations on the doctrine’s scope, the United

States’ argument (U.S. Br. at 27) that the Second Circuit's

ruling below would proscribe “the use of monopoly power

as such” is strained.

In sum, a monopoly leveraging claim thus

circumscribed is consistent with this Court's statement in

Spectrum Sports that Section 2 “makes the conduct of a single

firm unlawful only when it actually monopolizes or

dangerously threatens to do so.” 506 U.S. 447, 459 (1993).

The Court was not there addressing whether an “actual

monopolist violates § 2 by conduct bringing a non-

monopolistic advantage in a secondary market.” III Areeda

& Hovenkamp, supra, § 652. Where an actual monopolist,

such as an ILEC, obstructs its competitors’ interconnection,

it can inflict substantial injury on consumers in downstream

markets, where the ILEC itself competes. These are market

conditions to which monopoly leveraging applies because

the harm is of the type that the antitrust laws are intended

to prevent.

}

CONCLUSION

For the foregoing reasons, the judgment of the court of

appeals should be affirmed.

Jay L. Himes

Chief, Antitrust Bureau

SUSANNA M. ZWERLING

Chief, Telecommunications

and Energy Bureau

RICHARD L. SCHWARTZ

KeiTH H. GoRDON

Assistant Attorneys General

Respectfully submitted,

E.iot Spitzer

Attorney General

CaITLin J. HALLIGAN*

Solicitor General

MICHELLE ARONOWITZ

Deputy Solicitor General

DanieL J. CHEPAITIS

Assistant Solicitor General

120 Broadway

New York, NY 10271-0332

(212) 416-8020

* Counsel of Record

Counsel for Amici Curiae

(Additional Counsel Listed Inside Front Cover)

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.