# 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

No. 02-682 |
|

OFFICE OF THE CLERK |

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
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

ee

-_

i

TABLE OF CONTENTS

rr ee cc cceneeesecees

STATEMENT OF INTEREST OF AMICI CURIAE ...

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

TET T TT TT TTTTT TTT TTT Tee

1.

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

12

ll
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

20

23

27

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

iv

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

v
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

vi
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

ix

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

x

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)

xi

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

11

15

20

22

18

17

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

a

eS ee

1

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

2

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.

3

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

4

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

5

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).

6

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).

7

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

8

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).

a

9

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).

10

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

11

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).

12

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.

13

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,

14

“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

15

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).

16

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

17

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

18

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,

19

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

20

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

21

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

22

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).

23

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

24

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”

25

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).

26

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”).

27

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

28

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.

29

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.

}

30

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)

y

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Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385014_0617%3A25. Public record. Not legal advice.