Supreme Court Will Hear Telecommunication Collusion Case

On June 27, the U.S. Supreme Court agreed to hear arguments from Verizon Communications Inc., AT&T Inc., BellSouth Corp., and Qwest Communications International, Inc. in a case that may either help companies' efforts to fight off antitrust law suits, or promote consumers challenges to what appears to be illegal coordination of activities by competing companies in concentrated markets that keep prices high.
The Supreme Court will review the Second Circuit's decision that reinstated class action plaintiff lawyers' allegations that the telecommunication providers agreed not to compete with one another for customers in the local-phone business. A federal district court judge in New York dismissed the case for failing to state a claim for which relief could be granted. The district court judge ruled the lawsuit failed to allege sufficient facts from which a conspiracy could be inferred. The Second Circuit ruled the judge had used the wrong standard in reviewing the sufficiency of the allegations and sent the case back for further proceedings. The Second Circuit's decision allowed the suit to proceed to the discovery stage, meaning the companies would have to answer questions about their business practices and provide internal company documents and emails to the plaintiffs. The Second Circuit rejected the companies' arguments that the complaint should be dismissed on grounds that it wasn't specific enough about the alleged collusion.

The consumer class action suit against the phone companies contends that the companies conspired not to compete against one another in their respective geographic markets for local telephone and high-speed Internet services and prevented competitors from entering those markets. From the plaintiffs' perspective the conduct appears to be against each company's economic interest. The Telecommunications Act of 1996 sought to encourage new competition in the local-phone business. The largest telecommunication companies, however, have for the most part been reluctant to compete significantly with each other. Nonetheless, the companies argue that while the lawsuit alleges that the companies engaged in parallel conduct and participated in a conspiracy, it failed to include any allegations that would establish the existence of a conspiracy under the applicable legal standard.

Representatives of pharmaceutical, oil, chemical, airline, auto manufacturers and building products industries all urged the Supreme Court to reverse the Second Circuit's ruling. The telecommunications companies argued in their appeal that the Second Circuit's decision could lead to an escalation of claims for otherwise legitimate unilateral business decisions.

The Second Circuit's decision was a major victory for plaintiff antitrust lawyers, who file antitrust complaints. The telephone companies contend that the Second Circuit incorrectly loosened the requirements for lawsuits alleging trade restraints by not requiring specific allegations of collusion. The companies contend that each has an independent reason for not seeking to enter new local-phone markets because to do so would require significant investments in new equipment. The Supreme Court's decision will have a huge impact on the future of collusion cases.

Authored by

Andre P. Barlow
202-589-1838
abarlow@dbmlawgroup.com