Baseball Crank
Covering the Front and Back Pages of the Newspaper
January 26, 2004
LAW: Mistrust of Antitrust

I didn't really see this get much attention around the blogosphere: the Supreme Court's opinion two weeks ago in Verizon Commun., Inc. v. Law Offices of Curtis Trinko, LLP, No. 02-682 (U.S. Jan. 13, 2004). The Court's decision was interesting enough, for those who closely follow antitrust law: the Court unanimously rejected an attempt by a customer of a long-distance telephone company (AT&T) to sue the local exchange carrier, or "LEC" (Verizon) under the Sherman Antitrust Act on the theory that Verizon harmed long-distance competition (and thus the customer and a putative class) by failing to provide AT&T with sufficient access to Verizon's facilities pursuant to the 1996 Telecommunications Act. Justice Scalia, writing for 6 members of the Court, found that the plaintiff failed to meet fit within the narrow class of cases where antitrust law imposes a duty on companies to assist their rivals, given that the alleged duty to do so arising from the Telecommunications Act was a creature of statute:

In the present case, by contrast, the services allegedly withheld are not otherwise marketed or available to the public. The sharing obligation imposed by the 1996 Act created “something brand new”-“the wholesale market for leasing network elements.” . . . The unbundled elements offered pursuant to §251(c)(3) exist only deep within the bowels of Verizon; they are brought out on compulsion of the 1996 Act and offered not to consumers but to rivals, and at considerable expense and effort. New systems must be designed and implemented simply to make that access possible . . .

(Citation omitted). (Justices Stevens, Souter and Thomas thought that the case should have been dismissed because the plaintiff lacked standing to sue). The Court also refused to embrace or reject the so-called "essential facilities" doctrine (a controversial doctrine of antitrust law, never directly ruled upon by the Supreme Court, under which it is sometimes argued that access to private facilities like railway switching stations -- or desktop operating systems -- are so essential to competition that all competitors must be given access). The Court reasoned that the plaintiff had failed to state a claim under the doctrine in light of the fact that the fact of federal legislation showed that the facilities could be accessed by means other than recourse to antitrust law -- in other words, if Congress can regulate the facility directly, it isn't so essential that only antitrust law can do so.

What really makes the Verizon opinion interesting, though, was Justice Scalia's strongly-worded expression of skepticism (still joined in by a 6-Justice majority) about the value of extending antitrust law to create duties of companies to aid their rivals in already-regulated industries:

One factor of particular importance is the existence of a regulatory structure designed to deter and remedy anticompetitive harm. Where such a structure exists, the additional benefit to competition provided by antitrust enforcement will tend to be small, and it will be less plausible that the antitrust laws contemplate such additional scrutiny. Where, by contrast, “[t]here is nothing built into the regulatory scheme which performs the antitrust function,” the benefits of antitrust are worth its sometimes considerable disadvantages. Just as regulatory context may in other cases serve as a basis for implied immunity, it may also be a consideration in deciding whether to recognize an expansion of the contours of §2.

The regulatory framework that exists in this case demonstrates how, in certain circumstances, “regulation significantly diminishes the likelihood of major antitrust harm.” Consider, for example, the statutory restrictions upon Verizon’s entry into the potentially lucrative market for long-distance service. To be allowed to enter the long-distance market in the first place, an incumbent LEC must be on good behavior in its local market. Authorization by the FCC requires state-by-state satisfaction of §271’s competitive checklist, which as we have noted includes the nondiscriminatory provision of access to UNEs. Section 271 applications to provide long-distance service have now been approved for incumbent LECs in 47 States and the District of Columbia.

* * *

Against the slight benefits of antitrust intervention here, we must weigh a realistic assessment of its costs. Under the best of circumstances, applying the requirements of §2 “can be difficult” because “the means of illicit exclusion, like the means of legitimate competition, are myriad.” United States v. Microsoft Corp., 253 F.3d 34, 58 (CADC 2001) (en banc) (per curiam). Mistaken inferences and the resulting false condemnations “are especially costly, because they chill the very conduct the antitrust laws are designed to protect.” The cost of false positives counsels against an undue expansion of §2 liability. One false-positive risk is that an incumbent LEC’s failure to provide a service with sufficient alacrity might have nothing to do with exclusion. Allegations of violations of §251(c)(3) duties are difficult for antitrust courts to evaluate, not only because they are highly technical, but also because they are likely to be extremely numerous, given the incessant, complex, and constantly changing interaction of competitive and incumbent LECs implementing the sharing and interconnection obligations. Amici States have filed a brief asserting that competitive LECs are threatened with “death by a thousand cuts,” Brief for New York et al. as Amici Curiae 10 (internal quotation marks omitted)-the identification of which would surely be a daunting task for a generalist antitrust court. Judicial oversight under the Sherman Act would seem destined to distort investment and lead to a new layer of interminable litigation, atop the variety of litigation routes already available to and actively pursued by competitive LECs.

Even if the problem of false positives did not exist, conduct consisting of anticompetitive violations of §251 may be, as we have concluded with respect to above-cost predatory pricing schemes, “beyond the practical ability of a judicial tribunal to control.” Effective remediation of violations of regulatory sharing requirements will ordinarily require continuing supervision of a highly detailed decree. We think that Professor Areeda got it exactly right: “No court should impose a duty to deal that it cannot explain or adequately and reasonably supervise. The problem should be deemed irremedia[ble] by antitrust law when compulsory access requires the court to assume the day-to-day controls characteristic of a regulatory agency.” Areeda, 58 Antitrust L. J., at 853. In this case, respondent has requested an equitable decree to “[p]reliminarily and permanently enjoi[n] [Verizon] from providing access to the local loop market … to [rivals] on terms and conditions that are not as favorable” as those that Verizon enjoys. App. 49-50. An antitrust court is unlikely to be an effective day-to-day enforcer of these detailed sharing obligations.

(Emphasis added; citations omitted). The Court clearly 'gets it': in fast-moving markets, the blunt instrument of antitrust law is usually more trouble than it is worth (note the citation to the DC Circuit's Microsoft opinion). And where regulatory agencies already tread, adding private treble damages litigation to the mix is likely to reduce, rather than enhance, free and open competition.

Posted by Baseball Crank at 7:58 AM | Law 2002-04 | Comments (0) | TrackBack (0)
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