Opposition Brief — MRO Communications, Inc. v. AT&T Corp.

Supreme Court, U.S.

FILED

@ ‘APR 5 - 2000

No. 99-1480

:

IN THE

Supreme Court of the United States

MRO COMMUNICATIONS, INC..,

Petitioner,

V.

AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

NOW AT&T Corp.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF OF AT&T CORP. IN OPPOSITION

LAURA A. KASTER STEVEN M. BIERMAN *

JENNIFER L. LEUBA ALAN M. UNGER

AT&T LITIGATION JOHN J. KUSTER

295 North Maple Avenue SIDLEY & AUSTIN

Basking Ridge, NJ 07920 875 Third Avenue

(908) 221-4838 New York, NY 10022

(212) 906-2000

Counsel for Respondent

Apmil 5, 2000 * Counsel of Record

-—

WILSON-EPES PRINTING Co., INC. — (202) 789-0096 — WASHINGTON, D. C. 20001

QUESTION PRESENTED

Whether MRO Communications, Inc. (“MRO”) properly

stated an antitrust tying claim where MRO failed to allege

that AT&T Corp. (“AT&T”) had any appreciable market

power in the alleged tying product market to force MRO to

accept the purported tying arrangement, and where MRO

failed to allege the existence of any anticompetitive effects in

any relevant market as a result of the purported tying

arrangement?

il

STATEMENT REQUIRED BY RULE 29.6

AT&T has no parent company. No publicly held company

owns 10 percent or more of AT&T's stock.

iii

TABLE OF CONTENTS

Page

QUESTION PRESENTED occ.ccscsssescccossessecessoorscecescoesss i

STATEMENT REQUIRED BY RULE 29.6................. il

TABLE OF AUTHORITIES........ sap biniaiedihaniambeacstatntadisens iv

STATEMENT OF THE CASE ............0.cccccccccsccscssesesses. |

THE DECISIONS BELOW .u..ou.u.o...ccccceccccsscssccsecseceseeees 4

REASONS FOR DENYING THE PETITION.............. 6

ova te tates cau EEE T EEE TCE 18

iv

TABLE OF AUTHORITIES

CASES Page

American Tobacco Co. v. United States, 328

U.S. 781, 66 S.Ct. 1125 (1946) vocccccccccccccccccceceees 12

In re Audio Communication, Inc., 8 F.C.C. Red.

8697, 1993 WL 525815 (F.C.C. Dec. 20,

oP svivichinmsecubistnalshnteakamepiaednlaea tea ncekin eles: 8

Beard v. Parkview Hosp., 912 F.2d 138 (6th Cir.

ei Te ONAN RINE ONL ERE UR aA UE 17

Blue Cross & Blue Shield United of Wisconsin y.

Marshfield Clinic, 65 F.3d 1406 (7th Cir.

1995), cert. denied, 516 U.S. 1184 (1996)......... 12

Borschow Hosp. and Med. Supplies, Inc. v.

Cesar Castillo Inc., 96 F.3d 10 (1st Cir. 1996).. 17

Brokerage Concepts, Inc. v. U.S. Healthcare,

Inc., 140 F.3d 494 (3d Cir. 1998) ....ccccccccccccccce.. 17

In re Dial-It 900 Servs. and Third Party Billing

and Collection Servs., 4 F.C.C. Red. 3429,

1989 WL 512717 (F.C.C. Apr. 12, 1989) .......... 8

Digital Equip. Corp. y. Unig Digital Techs.,

Inc., 73 F.3d 756 (7th Cir. 1996) ....cccccccccccccecsess. 14

Eastman Kodak Co. v. Image Technical Servs.,

Inc., 504 U.S. 451, 112 S.Ct. 2072 (1992)........ passim

Fineman v. Armstrong World Indus. Inc., 980

F.2d 171 (3d Cir. 1992), cert. denied, 507

U.S. 921 (1993)

Grappone, Inc. v. Subaru of New England, Inc.,

858 F.2d 792 (Ist Cir, 1988) ooccccccccccccccececceecese.. 15,17

Jefferson Parish Hosp. Dist. No. 2 y. Hyde, 466

U.S. 2, 104.S.Ct. 1551 (1984) ooo cccccccccccesececeee. 11,16

Lee v. Life Ins. Co. of N. Am., 23 F.3d 14 (Ast

Cir. 1994), cert. denied, 513 U.S. 964 ( 1994)... 14

Mozart Co. v. Mercedes-Benz of N. Am., Inc.,

833 F.2d 1342 (9th Cir. 1987), cert. denied,

488 U.S. 870 (1988) oo. cccccescsssssscssesesececes. 14

Vv

TABLE OF AUTHORITIES—Continued

In re Paul Ondulich, 5 F.C.C. Red. 3190, 1990

WL 603885 (F.C.C. May 22, 1990) wo... 8

PSI Repair Servs., Inc. v. Honeywell, Inc., 104

F.3d 811 (6th Cir. 1997), cert. denied, 520

SD tbs Re CRIED cccictincaitasenlahiceaestabi Siena 14

Queen City Pizza, Inc. v. Domino's Pizza, Inc.,

124 F.3d 430 (3d Cir. 1997), cert. denied, 118

AM. CSE CEPI sscssstticietitideecansaeieeiatn 14

Rebel Oil Co., Inc. v. Atlantic Richfield Co., 51

F.3d 1421 (9th Cir. 1995), cert. denied, 516

Sie EF CRIN ciccsincasaediunaebeuniiedatlacmanel 12

Southern Card & Novelty, Inc. vy. Lawson

Mardon Label, Inc., 138 F.3d 869 (11th Cir.

Town Sound and Custom Tops, Inc. v. Chrysler

Motors Corp., 959 F.2d 468 (3d Cir. 1992),

cert. denied, 506 U.S. 868 (1992) oo... 15,17

Twin City Sportserv., Inc. v. Charles O. Finley

& Co., Inc., 512 F.2d 1264 (9th Cir. 1975)........ 12

United Farmers Agents Ass'n vy. Farmers Ins.

Exch., 89 F.3d 233 (Sth Cir. 1996), cert.

denied, 519 U.S. 1116 (1997)...cccccccssesssseeesssseeen 17

United States v. United States Steel Corp., 251

U.S. 417, 40 S.Ct. 293 (1920) oceans 12

STATUTES AND RULES

bo RT sot E Bapaeeeee aaa neers aera eee a 4,5

ID Ristasssdenintentidseniaiediaeeeeens 4

SF UK. COE 0 Oi vice covavantiinmuadoaans 2

I EE Wisineiniakinassadanisccieiaaasaniemanelatoas 4

Pe Wis Ss ei ers icmsiiccteabatatekiee 4

OTHER AUTHORITIES

Areeda & Turmer, Antitrust Law, | 518.3c ........... 12

IN THE

Supreme Court of the United States

No. 99-1480

MRO COMMUNICATIONS, INC.,

Petitioner,

Vi.

AMERICAN TELEPHONE AND TELEGRAPH COMPANY,

NOW AT&T Corp.,

Respondent.

On Petition for a Writ of Certiorari to the

United States Court of Appeals

for the Ninth Circuit

BRIEF OF AT&T CORP. IN OPPOSITION

STATEMENT OF THE CASE

Contrary to MRO’‘s contention, the “heart of this case” is

not an antitrust claim. (Pet. at 4.) MRO’s action against

AT&T stems from its decision to do business with AT&T

rather than AT&T's vigorous and major competitors, MCI

and Sprint, and MRO’s own subsequent failure to abide by

the terms of its contract with AT&T. This case is at most a

private contract dispute that does not involve any issues of

national concern, and the Ninth Circuit's unpublished

>

decision dismissing MRO‘s antitrust claim presents no

conflict with any other circuits, nor any issue beyond the

correctness of the application of well-established antitrust

law to the particular facts of this case.

In May 1989, MRO subscribed to AT&T's 900 number

transport service, whereby calls to MRO's 900 number

programs were carried on AT&T's network to MRO’'s

facilities pursuant to AT&T Tariff No. 1, filed with the

Federal Communications Commission (“FCC”). MRO and

AT&T also entered into a separate, non-tariffed Billing

Service Agreement (“BSA”), which was not subject to

regulation under the Federal Communications Act, 47 U.S.C.

§ 101 er seg. (the “Communications Act”). Under the BSA,

AT&T billed callers who called MRO‘s 900 number

programs and collected charges from those callers in

exchange for a 10 percent fee. While AT&T provided the

physical means to transport calls to MRO’s programs, and

billed callers and collected charges from them, MRO

provided all the program content, set the pay-per-call price

the caller was to be charged, and conducted all of the

advertising for its programs. (See Pet. at 5: Pet. App. at 38a

((10).)

Before selecting AT&T in May 1989, MRO knew it could

choose from a number of companies that provided both

tariffed transport services afd non-tariffed billing services.

Indeed, in its First Amended Complaint MRO stated that it

received offers from Sprint and MCI for both transport and

billing services comparable to AT&T's offer. (Pet. App. at

41a (q 17).) MRO asserted that it did not accept the offers

from either MCI or Sprint because AT&T allegedly

misrepresented that it had better rates than its competitors —

not because AT&T's services were somehow unique or

otherwise superior. (See Pet. App. at 40a-41a (q¥ 14-18).)

MRO initially had only one 900 program with AT&T, but

Over time executed a series of “Additional Pages” (one for

each additional 900 program) to the BSA, greatly increasing

3

the number of 900 programs for which it utilized AT&T's

services. (See Pet. App. at 42a ({ 19).) In part, MRO elected

to increase its business with AT&T because in April 1991 it

extracted a volume discount from AT&T whereby AT&T

lowered the billing services fee it charged to MRO by 20

percent. (App. at 7a (q 60).)'

Beginning in July 1991 and continuing through October

1992, however, AT&T discovered that MRO was using

sexually charged advertisements for its 900 programs in

direct violation of the express provisions that appear in the

BSA, which permitted AT&T to terminate billing services

for any 900 programs whose content or advertising could

adversely affect AT&T's public image or good will. As a

result, and in accordance with the terms of the BSA, AT&T

terminated its billing and collection services for those 900

programs for which MRO was using improper sexually

oriented advertisements. AT&T offered to permit MRO to

continue its tariffed service for each 900 program for which

billing services was terminated using a different 900 number,

but MRO declined. (See Pet. App. at 43a ({ 23), 47a-48a

({ 32).)

MRO commenced this action in July 1993. MRO claimed

in its original complaint only that AT&T had improperly

calculated the amounts of money owed to MRO from the

charges collected from callers to MRO’s 900 programs, and

improperly withheld other payments when MRO filed for

bankruptcy in November 1992. MRO also asserted that it

was entitled to an accounting. It was only after MRO was

sold to a new company — and more than three years after the

last time AT&T terminated billing services for any of

MRO's 900 programs — that MRO first asserted that AT&T

' MRO set forth only excerpts from its 28-count First Amended

Complaint. AT&T has included the remainder of MRO‘s First Amended

Complaint as Appendix A hereto (App. 1a-30a), which demonstrates that

the “heart” of MRO’s case was not its antitrust claim. MRO’s original

complaint is attached hereto as Appendix B (App. 31a-42a.)

4

somehow had violated either the Communications Act or the

Sherman Antitrust Act. (See App. 31a-42a). In fact, MRO’s

new management asserted 28 claims against AT&T, only

one of which was an antitrust claim. (See App. at la-30a;

Pet. App. at 50a-5 la (44 146-147).)

THE DECISIONS BELOW

Through a series of pretrial and trial rulings, the district

court dismissed each and every one of MRO’s claims. In its

March 20, 1996 Order, the district court adopted in full the

Magistrate Judge's Report and Recommendation to grant

AT&T's motion for partial summary judgment dismissing all

of MRO’s claims under the Communications Act arising

prior to April 1993, because those claims were time-barred

under the two-year statute of limitations set forth in 47

U.S.C. § 415. (See Pet. App. at 16a.) The district court also

dismissed all of MRO’s claims in which MRO asserted that a

breach of the BSA could constitute a violation of the

Communications Act, because the FCC previously had ruled

that billing and collection services were not subject to the

Communications Act. (See Pet. App. at 17a-18a.)

On July 9, 1996, the district court granted AT&T's motion

for judgment on the pleadings pursuant to Fed. R. Civ. P.

12(c) dismissing MRO’s antitrust claim, holding that MRO‘s

allegations failed to set forth any violation of the Sherman

Antitrust Act, either under 15 U.S.C. §§ | or 2. The district

court held that MRO had failed to allege that AT&T had

sufficient power in the billing services market to force MRO

to accept the purported tying of billing and _ transport

services. This holding was based on MRO’s admission that,

before entering into the BSA, MRO had offers from AT&T's

vigorous competitors, MCI and Sprint, which MRO would

have accepted but for AT&T's alleged misrepresentations

about the rates of its 900 number services. MRO thus con-

ceded that the market for the alleged “tying product” was

competitive. The district court further found that MRO had

DR mS STG wel gs PIT Fa EOL IPT NEE te, OS

5 :

not alleged a post-contract legally relevant market, and

therefore stated no illegal post-contract tie or lock-in, and

that MRO had not stated a cognizable monopolization claim.

(See Pet. App. at 22a-32a.)

In an unpublished decision, the Ninth Circuit affirmed the

district court's dismissal of each of MRO’s claims. With

respect to MRO’s antitrust claim, the Ninth Circuit held, as

had the district court, that “taking all the allegations in the

pleadings as true, AT&T was entitled to judgment as a

matter of Jaw.” (Pet. App. at 2a.) The Ninth Circuit first

analyzed MRO’s § 2 claims. In so doing, it rejected MRO’s

contention that merely by alleging a 50 percent market share

in the purported relevant markets (here, the billing and

transport services markets) its claim was sufficient, because

(1) MRO’s own complaint demonstrated that there was

significant competition in those markets, (2) “MRO did not

allege any barriers to entry or expansion in the billing or

transport services markets,” (3) there were no allegations that

AT&T had a “specific intent to control prices or destroy

competition,” and (4) MRO did not allege that AT&T had

engaged in “predatory or anti-competitive conduct directed

at accomplishing that purpose.” (Pet. App. at 4a-5a.) The

Ninth Circuit also found MRO’s allegation that AT&T had a

higher quality of service insufficient to show barriers to

entry. (Pet. App. at 5a.)

Similarly, the Ninth Circuit found that MRO failed to state

any tying claim under 15 U.S.C. § 1. The Ninth Circuit held

that MRO had not alleged that AT&T had sufficient market

power to “force” MRO to purchase a second product, given

that “[b]y its own account, MRO could have contracted with

either MCI or Sprint for billing and transport services but

chose to contract with AT&T. MRO’s allegation that it

chose to contract with AT&T because it believed AT&T

would deliver better service is not enough to support an

inference of market power.” (Pet. App. at Sa). The Ninth

Circuit also specifically considered and rejected MRO‘s

6

contention that “AT&T's practice of assigning new 900

numbers to existing customers was a form of unlawful tying”

Where customers like MRO had developed equity in their

specific 900 numbers (Pet. App. at 6a), as MRO had argued

in citing to this Court's decision in Eastman Kodak Co. v.

Image Technical Servs., Inc., 504 U.S. 451, 112 S.Ct. 2072

(1992). The Ninth Circuit found that, unlike Aodak, there

Was no relevant lock-in or aftermarket analysis applicable in

this case, because “the advantage AT&T acquires over its

900 number customers is unrelated to market power and

instead arises out of the nature of the business relationship.

A service provider with a tiny share of the billing and

transport. services markets would acquire this same

advantage over its customers.” (Pet. App. at 7a.)

This case involves AT&T's decision to protect its public

image by disassociating its non-tariffed billing services from

a customer, MRO, that used sexually graphic advertising to

promote its programs on AT&T's 900 numbers. MRO tried

to trump up its private contract dispute with AT&T into an

antitrust claim, but was properly rebuffed by the courts

below. Clearly, there is no public policy or issue of national

concern at stake here, and contrary to MRO’s suggestion

otherwise, nothing in the Ninth Circuit's opinion exempts

telecommunications companies from antitrust scrutiny, nor

in any way excuses their compliance with the Communi-

cations Act. Moreover, the unpublished decision of the

Ninth Circuit presents no conflict with any decision of any

other court. MRO raises no issues beyond the correctness of

the Ninth Circuit's application of settled antitrust law to the

specific facts of this case. Simply put, this is not a case

worthy of this Court's review.

REASONS FOR DENYING THE PETITION

1. MRO argues that the Court should review the Ninth

Circuit's dismissal of its tying claim because it is important

to the “growing telecommunications industry” that AT&T

5

not be allowed to tie its non-tariffed billing and tariffed

transport services. MRO contends that AT&T's competitors

in tariffed transport services (which does not include MRO)

will be harmed because AT&T will have a “leg up” on those

competitors as a result of the tie. (Pet. at 15.) While MRO

grossly misstates the import of the decision below in an

effort to manufacture issues of purported national concern,

MRO never advanced any arguments below that a valid tying

claim could be stated based on the regulated/non-regulated

nature of the alleged products.

Nonetheless, in affirming the dismissal of MRO‘s tying

claim, the Ninth Circuit assumed in its analysis that both

AT&T's tariffed and non-tariffed services could constitute

an improper tying arrangement. The Ninth Circuit then

applied well-established antitrust law to the facts MRO sei

forth in its First Amended Complaint before properly

concluding that MRO failed to state a valid tying claim.

Indeed, far from alleging that AT&T had any unfair

advantage from its purported tying arrangement, MRO

admitted that there was vigorous competition for its business

among AT&T and its major rivals, MCI and Sprint (Pet App.

at 41a ({ 17)), and failed to allege facts establishing the

purported tying arrangement had any anticompetitive effects.

(See Pet. App. at 4a-Sa.)

MRO’s charge that the Ninth Circuit's ruling would allow

AT&T to “defeat Congress's attempts to deregulate and

promote competition in tariffed services” and allow AT&T

to avoid the provisions of the Communications Act and

regulation by the FCC (Pet. at 15) is ludicrous. As an initial

matter, the Ninth Circuit dismissed MRO’‘s claims. that

AT&T's conduct somehow violated the Communications

Act for the simple reason that they were time-barred, which

in no way undermines any Congressional attempts to

deregulate the telecommunications industry.

Further, MRO provides no support for its sweeping

pronouncement, and all the evidence below is to the

a

8

contrary. AT&T's practice of offering both its tariffed and

non-tariffed services together has been the subject of FCC

review on several occasions, and on each one of them the .

FCC has squarely rejected the notion that there is any harm

to competition or consumers. See, e.g., In re Dial-It 900

Servs. and Third Party Billing and Collection Servs., 4

F.C.C. Red. 3429, 3434 at 9 34, 37, 1989 WL 512717

(F.C.C. Apr. 12, 1989) (concluding that “tariff regulation

Was unnecessary to control anticompetitive behavior” of

carriers providing billing services because of the existence of

a “competitive market” that included “credit card companies,

among others,” providing those services); Jn re Paul

Ondulich, 5 F.C.C. Red. 3190, 1990 WL 603885 (F.C.C.

May 22, 1990) (holding that Communications Act claim

based on the supposed “bundling” of billing and transport

services “cannot lie,” and reaffirming Dial-/t); In re Audio

‘Communication, Iné., 8 F.C.C. Red. 8697, 1993 WL 525815

(F.C.C. Dec. 20, 1993) (“the billing and collection services

provided by IXCs [interexchange carriers like Sprint, MCI

and AT&T] for IPs is subject to even more competition than

the billing and collection services provided by LECs in the

Detariffing Order and by AT&T in the AT&T Dial It Order

and thus there is even less reason to treat it as common

carriage.”). Indeed, as MRO itself acknowledges in its

petition, the very practice about which MRO is complaining

~ that AT&T changes a 900 number upon termination of

billing services — is currently before the FCC in a proceeding

brought by counsel for Petitioner. (Pet. at 15 n.7.)

MRO'’s efforts to invoke this Court's decision in Eastman

Kodak v. Image Technical Servs., 504 U.S. 451 (1992) -— a

case in- which this Court held that’ under certain

circumstances, relevant market power can be found in an

“aftermarket” of a single product brand that has derivative

products (there, the parts and services for Kodak's photo-

copy machines) — also is unavailing. (Pet. at 17.) Tellingly,

MRO concedes that it was unable to find “a reported

appellate decision” suggesting that there is a “stronger rea-

0 en

9

son” to find market power in an aftermarket where tariffed

(i.¢c., regulated) telecommunications services are at issue.”

(/d.) The reason no such decision exists declaring that an

aftermarket should be found whenever the telecommun-

ications industry 1s involved is that whether an aftermarket

exists is a fact-based inquiry to be determined on a case-by-

case basis. Kodak, 504 U.S. at 482, 112 S.Ct. at 2090. Here,

the Ninth Circuit reviewed the facts as alleged by MRO and

properly concluded that no such aftermarket existed in this

case. (See, e.g., Pet. App. at 4a-5a.) Clearly, no broad

public policy issue is in any way involved in this action, nor

implicated by the Ninth Circuit's opinion below.

2. MRO also contends that the Ninth Circuit's decision

below is contrary to this Court's holding in Kodak for two

additional reasons. First, MRO argues that the Ninth Circuit

wrongly concluded that MRO’s allegation that AT&T had a

50 percent market share in the non-tariffed billing services

market was insufficient to establish that AT&T had any

appreciable market power. (Pet. at 18.) The Ninth Circuit

reviewed MRO’s allegations and held that, while an

allegation of a high share of a relevant market “may raise an

inference of monopoly power,” without more, an allegation

of 50 percent market power is insufficient to state a § 2

monopolization claim, particularly where “[t}here is evi-

dence of the defendant's inability to control prices or exclude

competitors.” (Pet. App. at 3a-4a.) The Ninth Circuit ex-

plained that MRO’s own allegations that both MCI and

~ MRO suggests there is one case — the Ninth Circuit's opinion in this

case (Pet. at 17) - but nowhere did the Ninth Circuit give special

consideration in its antitrust analysis to the fact that regulated

telecommunications services were at issue. In any event, while MRO

contends the Ninth Circuit's opinion may be relied upon as the harbinger

of things to come because it is published on the internet as well as legal

research services such as WESTLAW and LEXIS/NEXIS (id.), there is

no cause for such alarm. It is an unreported opinion, and thus has’ no

precedential value (other than for res judicata and law of the case

purposes) under the Ninth Circuit's Local Rule 36-3.

10

Sprint offered the same services as AT&T, and that MCI and

Sprint both had provided MRO with viable bids, provided

“compelling evidence” that AT&T did not possess the re-

quisite monopoly power for a § 2 monopolization claim.

The Ninth Circuit also held that MRO failed to state an

attempted monopolization claim, because MRO’s First

Amended Complaint contained no allegations of any barriers

to entry or expansion in the billing or transport services

markets, no allegations that AT&T had a specific intent to

control prices or destroy competition, and no allegations that

AT&T had engaged in “predatory or anti-competitive con-

duct directed at accomplishing that purpose.” (Pet. App. at

4a-5a.)

These particular findings, while clearly dispositive of

MRO’'s § 2 claims, render Kodak inapposite. The respon-

dents in Kodak, tor example, had not conceded that a robust,

competitive market existed among large rival companies

such that they had viable bids from three such companies,

any one of which they were free to choose. On the contrary,

in Kodak respondents alleged that petitioner (Kodak) had

gone out of its way to engage in activities designed to put

rivals out of business. See Kodak, 504 U-S. at 477, 112 S.Ct.

at 2087-88."

MRO contends that the Ninth Circuit. improperly ignored its

allegations that AT&T's practices were of “no useful benefit to AT&T

other than to exact a penalty” from customers, that the restriction on

portability of a 900 number trom one carrier to another represented a

barner to entry, and that AT&T's practices increased transport services

costs by at least 10 percent. (Pet. at 11.) These allegations, even if true,

change nothing. MRO simply cannot overcome its admissions that (i)

there were large, rival companies of AT&T in both the billing and

transport markets, MCI and Sprint, (ii) MRO had viable bids from all

three of these major and intense rivals; (iii) these facts disclosed a robust,

highly competitive market, as the FCC on numerous occasions has

found: (iv) MRO paid lower prices for its billing services by 20 percent

atter entering into the BSA; and (v) MRO was free to go to any one of

AT&T's rivals tor 900 number services for its second, third, hundredth

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Sebo CAEP Nt iE gt aT

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4

;

11

The two passages in the Kodak decision upon which MRO

relies underscore the correctness of the Ninth Circuit's

opinion. The first passage from Kodak merely states that

market power is essential for any tying claim: this Court

made no mention of what might or might not constitute suf-

ficient market power. (Pet. at 18 (citing Kodak, 504 U.S. at

462.)) The Ninth Circuit correctly found that MRO’s ad-

missions established that AT&T had no appreciable market

power. (Pet. App. at 5a.)

The second passage upon which MRO relies (Pet. at 18

(citing Kodak, 504 U.S. at 464)) actually defeats MRO’s

tying claim. In that passage, the Court explained that

appreciable market power must exist to state a valid tying —

claim, and reiterated that such market power is “the power to

‘force a purchaser to do something that he would not do in a

compet-itive market.” Kodak, 504 U.S. at 464 n.9, 112

S.Ct. at 2080 n.9 (quoting Jefferson Parish Hosp. Dist. No. 2

v. Hyde, 466 U.S. 2, 14, 104 S.Ct. 1551, 1558 (1984))." The

Ninth Circuit reviewed MRO’s complaint in which MRO

pleaded facts establishing that it was not “coerce{d]”

or four-hundredth 900 program. (Pet. App. at 40a-41a (44 14-18). App.

at 7a (q 60).) More-over, the lack of 900 number portability is a red

herring. Portability of a 900 number from one carrier to another arises

only after a party enters into a contract with a carrier, and is a fact of

doing business with any and all carriers in the market. (Pet. App. at 45a-

46a (¥ 27).) Nothing prevents any potential customer from shopping

around among the carriers that provide 900 number billing and transport

900 services before deciding which of them to use.

* The Court in Kodak went on to quote the entire passage from

Jefferson Parish, wherein the Court explained that “the essential

characteristic of an invalid tying arrangement lies in the seller's

exploitation of its control over the tying product to force the buyer into

the purchase of a tied product that the buyer either did not want at all, or

might have preferred to purchase elsewhere on different terms. When

such ‘forcing’ is present, competition on the merits in the market for the

tied item is restrained and the Sherman Act is violated.” Kodak, 504

U.S. at 464 n.9, 112 S.Ct. at 2081 n.9 (quoting a iabieae Parish, 466 U.S.

at 12, 104 S.Ct. at 1558)).

}?

select AT&T's services, because “[b]y its own account,

MRO could have contracted with either MCI or Sprint for

billing and transport services but chose to contract with

AT&T.” (Pet. App. at 5a.) MRO cites to absolutely no

authority to support its contention that the Ninth Circuit's

analysis of MRO’s insufficient market power allegations was

in any way incorrect. In fact, there 1s ample authority

demonstrating that allegations of a 50 percent market share,

without more, is insufficient to establish market power.”

Second, MRO also asserts that the Ninth Circuit failed to

apply Kodak's holding that it is possible to state an antitrust

claim based on a single brand market where a defendant's

100 percent control of its own product may create relevant

market power in an “aftermarket” of derivative products.

(Pet. at 11, 18); see Kodak, 504 U.S. at 481-82, 112 S.Ct. at

* See, e.g., American Tobacco Co. v. United States, 328 U.S. 781.

811-14, 66 S.Ct. 1125, 1139-41 (1946) (noting that “it is doubtful

whether 60 or 64 percent [market share] would be enough” to establish

monopolization claim): United States v. United States Steel Corp., 251

U.S. 417, 40 S.Ct. 293 (1920) (SO percent market share not sufficient to

establish monopolization claim): Blue Cross & Blue Shield United of

Wisconsin v. Marshfield Clinic, 65 F.3d 1406. 1411 (7th Cir. 1995), cert.

denied, 516 U.S. 1184 (1996) (“Fifty percent [market share] is below any

accepted benchmark for inferring monopoly power from market share”).

Rebel Oil Co.. Inc. v. Atlantic Richfield Co., 51 F.3d 1421, 1438 (9th Cir.

1995) (“[Njumerous cases hold that a market share of less than 50

percent is presumptively insufficient to establish market power .. . [A]

market share of 44 percent is sufficient as a matter of law to support a

finding of market power, if entry barners are high and competitors are

unable to expand their output in response to supracompetitive pricing.”):

Fineman yv. Armstrong World Indus., Inc... 980 F.2d 171, 201 (3d Cir.

1992), cert. denied, 507 U.S. 921 (1993) (fifty-five percent market share,

absent other factors, is insufficient to constitute monopoly power): 7win

City Sportserv., Inc. v. Charles O. Finley & Co., Inc., 512 F.2d 1264,

1274 (9th Cir. 1975) (*[O]n several occasions courts have considered a

50% share of the market as inadequate to establish a proscribed

monopoly”). see also Areeda & Turner, Antitrust Law, 9 518.3¢ (there is

a substantial merit in a presumption that market shares below 50 or 60

percent do not constitute monopoly power”).

| |

13

2090. Here, MRO contends that once it entered into the con-

tract with AT&T, it essentially was “locked-in” to retaining

AT&T's services for particular 900 numbers, because if it

did not, the contract mandated that upon termination of

billing services AT&T would change the 900 number as-

signed to MRO, thereby causing MRO to lose the good will

it developed in marketing its 900 number programs. (Pet. at

18).

In Kodak, respondents alleged tying arrangements between

parts and services in an aftermarket for Kodak photocopiers.

Id. at 455, 112 S.Ct. at 2077. Kodak imposed the tie

requiring purchase of replacement parts and services after its

customers had purchased the copiers. This constituted a

potential “lock-in” because the customers did not know at

the time of contracting that they would be required to

purchase both service and parts from Kodak, and by the time

the policy was announced, the customers could not easily

“switch” to other copiers because of the high cost of the

investment. /d. at 476-78, 112 S.Ct. at 2087-88.

The Ninth Circuit properly rejected MRO’s contention that

a post-contractual aftermarket akin to the one at issue in

Kodak was present in this case. MRO identified no deriv-

ative products or services; to the contrary, everything ident-

ified by MRO — billing and collection services, the assign-

ment of a 900 number, and the change in 900 number upon

termination of billing services — was set forth in the BSA and

known to MRO before it executed that contract. (See Pet. at

5.) Unlike Kodak, the alleged tie here was created upon

entering the contract, not after the contract already was

signed and being performed. While MRO claimed that

AT&T possessed a 100 percent share of the market for 900

numbers that it had previously provided to MRO, it cited to

no authority to support its theory that a relevant market can

be defined solely by the telephone number provided under

contraet or tariff. In rejecting MRO’s argument, the Ninth

Circuit properly found that the relevant market inquiry was

14

at the pre-contractual stage, because the “power” alleged was

attained solely by virtue of entering into the contracts, not

market power in any relevant market for products or

services. (Pet. App. at 6a (citing Mozart Co. v. Mercedes-

Benz of N. Am., Inc., 833 F.2d 1342, 1346-47 (9th Cir.

1987), cert. denied, 488 U.S. 870 (1988)).°

Because MRO knew before it entered into the BSA that

AT&T sold its billing and transport services together and

could have chosen to obtain its services elsewhere based on

that competitive information, Kodak is not implicated. The

circuit courts are uniform in rejecting the kind of “after-

market” argument proffered by MRO. See, e.g., Queen City

Pizza, Inc. v. Domino's Pizza, Inc., 124 F.3d 430 (3d Cir.

1997), cert. denied, 118 S.Ct. 1385 (1998) (rejecting lock-in

claim be-cause the purported market was created by virtue of

the franchise agreements plaintiffs freely entered); PS/

Repair Servs., Inc. v. Honeywell, Inc., 104 F.3d 811, 820 (6th

Cir. 1997), cert. denied, 520 U.S. 1265 (1997) (rejecting

plaintiffs’ claim that Kodak aftermarket analysis applied

where defendart-did not change its policy after the purported

lock-in of some of its customers, and no information

regarding policies was withheld); Digital Equip. Corp. vy.

Unig Digital Techs., Inc., 73 F.3d 756, 763 (7th Cir. 1996)

(rejecting argument that lock-in was evidence of monopoly

power where customers could “shop _around” beforehand);

Lee v. Life Ins. Co. of N. Am. 23 F.3d 14, 19-20 (Ist Cir.

1994), cert. denied, 513 U.S. 964 (1994) (students’

allegations of illegal tie between a college education and on-

campus health insurance stated no claim despite assertion

° MRO contends that the Ninth Circuit relied on cases “holding that

the tied and tying products constituted one market.” (Pet. at 11.) MRO

is wrong. The Ninth Circuit did nor conclude that there was only one

market. Rather, it relied upon the fact that the purported “power”

identified by MRO was derived from the method of doing business. not

from any alleged market power in the tying product, and cited to a case

that so held. (See Pet. App. at 6a.)

EE

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15

that they were “locked-in” to accepting the tie during later

semesters because students “know before their matriculation _

that they are buying a ‘package’ that includes at least two

‘ued” products”). There simply is nothing that warrants

revisiting the factual basis for dismissing MRO‘s misguided

antitrust allegations.

Even if MRO were correct that the Ninth Circuit failed to

recognize the existence of a relevant market based on the

facts alleged by MRO, there is no reason to suggest that any

prospective guidance is required from this Court on how to

define a relevant market. MRO points to no circuit split on

the issue, and indeed, there is_none. That is because the

definition of whether an aftermarket is or is not_a relevant

market is a fact-bound determination. See Kodak, 504 U.S.

at 467-69, 112 S.Ct. at 2082-83. Nothing in the Ninth

Circuit's reasoning in its unpublished (and non-precedential )

decision even remotely suggests that the Ninth Circuit

departed from the holding in Kodak that it is possible to state

an antitrust tying claim that is predicated on an aftermarket.

Nor did the Ninth Circuit enunciate any new standards for

analyzing tying claims or determining market power. In-

deed, MRO’s arguments fail to raise any issues concerning

longstanding antitrust jurisprudence. Rather, they simply

expose the true nature of MRO’s uncertworthy petition: to

have this Court correct a purported error made by the Ninth

Circuit which held that there was no factual basis in MRO's

allegations to support an antitrust tying claim.

3. Finally, MRO conjures up a supposed split between the

Ninth Circuit and two of its sister courts, the First and Third

Circuits. According to MRO, the Ninth Circuit “did not

directly deal with the difference between yer se and ‘Rule of

- Reason’ tying, but did require a showing of per se market

power,” something that both the First and Third Circuits did

not require. (Pet. at 13, 19 (citing Grappone, Inc. v. Subaru

of New England, Inc., 858 F.2d 792 (1st Cir. 1988) and

Town Sound and Custom Tops, Inc. v. Chrysler Motors

16

Corp., 959 F.2d 468, 482 (3d Cir. 1992), cert. denied, 506

U.S. 868 (1992)). MRO further contends that the Ninth

Circuit “refused to consider the ‘Rule of Reason’

alternative,” which MRO argues would have permitted its

tying claim to survive. (Pet. at 13.)

There is no such circuit split. Nowhere in its opinion did

the Ninth Circuit set forth a rule requiring “per se market

power” even under the rule of reason. The Ninth Circuit

based its decision on the fact that MRO failed not only to

allege any appreciable market power, but also failed to allege

any anticompetitive effect on competition that would be act-

ionable under either the per se or the “rule of reason”’ tests.

The Ninth Circuit correctly found that MRO admitted that it

received viable bids for the services at issue from AT&T,

MCI and Sprint, but simply chose to contract with AT&T.

(See Pet. App. at 5a.) Not only did MRO admit that there

was no “forcing” present and that a robust competitive

market was at work, but it also conceded that despite the

presence of the purported “tying” arrangement, MRO was

able to extract a 20 percent discount off of AT&T's fees.

(App. at 7a (4 60).) Moreover, MRO made no allegations of

any barriers to entry or the inability of AT&T's rivals to

expand in the relevant markets. (Pet. App. at 4a-5a.) Such

allegations — particularly that customers were free to choose

among rival firms for the allegedly tied products and services

~— doom any antitrust tying claim under the rule of reason.

Indeed, that is precisely what this Court found in Jefferson

Parish. See id., 466 U.S. at 31, 104 S.Ct. at 1568 (rejecting

tying claim under rule of reason analysis where, inter alia,

customers had the “freedom to select” services despite

presence of alleged tying arrangement).

That outcome — the failure of MRO’s tying claim under

both a per se and rule of reason analysis — also would be the

outcome in both the First and Third Circuits. For example,

in Grappone, the First Circuit not only found that there was

no appreciable market power to state a claim under the per se

ui

17

test, but that even under the rule of reason analysis no

“anticompetitive effect in the tied product market” was

present. Grappone, 858 F.2d at 790-99. Similarly, the Third

Circuit held that the plaintiff failed to allege sufficient

market power under the per se test, and then examined

whether under a rule of reason analysis there was any actual

anticompetitive conduct caused by the tying arrangement,

concluding that there was not. Town Sound, 959 F.2d at

486-87. Indeed, appellate courts routinely reject tying

claims under both the per se and rule of reason tests where

plaintiffs (like MRO here) fail to establish appreciable

market power in the tying product market or any adverse

effect on competition.’ Thus, even if a “split” between the

Courts of Appeal existed regarding whether market power in

the tying product was a prerequisite for any antitrust tying

claim whether under the pér se or “rule of reason” tests, this

case is not the proper vehicle for resolving the issue because

MRO’s antitrust tying claim fails under both approaches.

” See. e.g.. Southern Card & Novelty, Inc. v. Lawson Mardon Label,

Inc., 138 F.3d 869, 876-77 (11th Cir. 1998) (affirming dismissal of tying

claim under both per se and rule of reason tests); Brokerage Concepts,

Inc. v. U.S. Healthcare, Inc., 140 F.3d 494, 502 (3d Cir. 1998)

(upholding judgment as a matter of law dismissing tying claim where no

appreciable market power was demonstrated and no evidence that

competition was adversely effected); United Farmers Agents Ass'n \.

Farmers Ins. Exch., 89 F.3d 233, 235-39 (Sth Cir. 1996), cert. denied,

519 U.S. 1116 (1997) (dismissal of tying claim upheld under both per se

and rule of reason analysis where defendant had insufficient market

power in relevant market and otherwise no adverse effect on competition

alleged): Borschow Hosp. and Med. Supplies, Inc. v. Cesar Castillo Inc.,

96 F.3d 10, 16-18 (Ist Cir. 1996) (no “forcing” alleged to sustain per se

tying claim, and allegations insufficient under rule of reason), Beard v.

Parkview Hosp., 912 F.2d 138, 140-44 (6th Cir. 1990) (tying claim failed

under both per se and rule of reason tests).

18

CONCLUSION

The petition for a writ of certiorari should be denied.

LAURA A. KASTER

JENNIFER L. LEUBA

AT&T LITIGATION

295 North Maple Avenue

Basking Ridge, NJ 07920

(908) 221-4838

Respectfully submitted,

STEVEN M. BIERMAN *

ALAN M. UNGER

JOHN J. KUSTER

SIDLEY & AUSTIN

875 Third Avenue

New York, NY 10022

(212) 906-2000

Counsel for Respondent

April 5, 2000

* Counsel of Record _