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Janet L. McDavid Mary Anne Mason

On Jan. 13, the U.S. Supreme Court overturned the 2d U.S. Circuit Court of Appeals in Verizon Communications v. Law Office of Curtis V. Trinko LLP, No. 02-682 (Jan. 13, 2004), a case that has narrowed some of the boundaries of antitrust liability�especially for regulated monopolists. The unanimous ruling raised the bar for plaintiffs seeking redress for aggressive competitive behavior by monopolists. The court’s reasoning also signaled a reluctance to apply � 2 of the Sherman Act in certain circumstances, raising a flurry of speculation about what the decision means for antitrust enforcement against monopolies. Many lawful monopolists have grappled with lawsuits brought by rivals seeking treble-damage awards based on claims of impeded access to “bottleneck” facilities. In certain industries, such as telecommunications, natural gas pipelines and electric power transmission, regulators have required monopolists to grant such access. When regulated access failed to provide what competitors or customers sought, treble-damage antitrust lawsuits followed, as in the dispute that gave rise to Trinko. The Supreme Court may have put an end to many lawsuits of that kind. But it remains to be seen whether the Trinko court’s reasoning will have an impact beyond the circumstance of a regulated monopolist in a regime of forced access. Sec. 2 claims are based on commercial strategies that competitors or customers believe to be “predatory” or “exclusionary.” Sec. 2 has been applied to address a wide variety of behavior by monopolists-from Microsoft’s interoperability practices to a ski resort’s limitations on lift-ticket sales. See United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) (en banc) (per curium); Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). Although Trinko does not solve the vexing question of how to distinguish unlawful predatory behavior, it does suggest at least one benchmark: Evidence that the monopolist sacrificed short-term profits in order to eliminate or harm a competitor would be sufficient to support a � 2 claim. The court explained its ruling in Aspen Skiing by noting that the “defendant’s unwillingness to renew [a joint lift-ticket arrangement] even if compensated at retail price revealed a distinctly anticompetitive bent.” Trinko, at 7. The decision also casts grave doubt on the viability of the “essential facilities” doctrine and eliminates the possibility that plaintiffs can bring a claim of monopoly leveraging without proof of monopolization or attempted monopolization in a second market. The underlying dispute in Trinko involved � 2 claims arising from conduct by Verizon Communications Inc. toward AT&T that allegedly violated the Telecommunications Act of 1996. Verizon and AT&T entered into an interconnection agreement whereby Verizon supplied phone service at a discounted rate to AT&T for resale. Shortly after entering the agreement, AT&T began complaining to regulatory authorities regarding lost and delayed customer orders. Verizon eventually signed a consent decree with the Federal Communications Commission settling the 1996 act charges. A day after the settlement, local phone service customers served by AT&T through Verizon brought a class action against Verizon, alleging that Verizon used its monopoly power in the local phone market so that AT&T’s customers were injured when they were unable to obtain satisfactory local phone service from AT&T. The district court dismissed the � 2 claims, finding that the Sherman Act does not impose a general duty on monopolists to cooperate with their competitors. The 2d Circuit reversed and held that the plaintiffs’ complaint supported an antitrust claim under two different theories of monopoly conduct: a denial of access to essential facilities and monopoly leveraging. Law Offices of Curtis V. Trinko L.L.P. v. Bell Atlantic Corp., 305 F.3d 89, 108 (2d Cir. 2002). A claim under � 2 requires proof of monopoly power-the power to control prices or exclude competition-and the willful acquisition or maintenance of that power by anti-competitive means. Writing for the court, Justice Antonin Scalia emphasized that � 2 requires both monopoly power and anti-competitive conduct. Sec. 2 does not prohibit the acquisition of a monopoly position resulting from “a superior product, business acumen, or historical accident.” United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). Such an interpretation, Scalia wrote, would be antithetical to the principles of antitrust law by stifling the innovation and economic growth that are the goals of a free market system. Thus, he explained, � 2 does not ordinarily require a firm (even a monopolist) to deal with another, noting that compelling a firm with monopoly power to share its infrastructure with a competitor is “in some tension with the underlying purpose of antitrust law” because it lessens the incentive of the monopolist to create these superior facilities. Trinko, at 4. For this reason, exceptions to the right of a monopolist to refuse to deal with its competitors are rarely recognized. The court cited Aspen Skiing as the leading case requiring a firm to cooperate with a rival. The court distinguished Verizon’s behavior from that in Aspen Skiing, noting that the defendant in Aspen Skiing had voluntarily forsaken revenue from the plaintiff at prices charged to the general public-refusing to continue a practice in which the plaintiff’s ski area and the defendant’s three facilities offered a daily pass to all four mountains-in hopes of charging monopoly prices in the future, thus sacrificing short-term profit for long-term monopoly gains. The court believed that Verizon’s reluctance to make significant expenditures in aid of its competitors did not “shed light” on Verizon’s motives in the same way that a decision to terminate a profitable joint offering of ski tickets had done in Aspen Skiing. Although the court did not expressly adopt this “sacrifice test” as necessary to prove anti-competitive animus, it signaled that such a showing would be sufficient. The decision leaves open the question of what other kinds of conduct short of a sacrifice of short-term profits would be sufficient to condemn a monopolist’s behavior as predatory under the court’s refusal-to-deal precedents. The court seized the opportunity presented by Trinko to clarify two areas of � 2 jurisprudence that have given rise to inconsistent decisions from lower courts. First, it volunteered that the decision would be unchanged “even if we considered to be established law the ‘essential facilities doctrine’ “-taking pains to point out that the doctrine had been “crafted by some lower courts” but never recognized by the Supreme Court. Since Verizon had been required by a federal agency to provide access to its facilities, the “indispensable requirement” of unavailability of access under the lower court doctrine was not met. Nevertheless, the court affirmatively ruled that essential-facilities claims must be denied “where a state or federal agency has effective power to compel sharing and to regulate its scope and terms.” Trinko, at 5-6. The court also overturned the 2d Circuit’s monopoly-leveraging theory, which defined the practice as use of monopoly power in one market to “gain competitive advantage in another.” See Berkey Photo Inc. v. Eastman Kodak Co., 603 F.2d 263, 275 (2d Cir. 1979). The court explained that the 2d Circuit erred when it dispensed with the requirement that there be a “dangerous probability of success” in monopolizing a second market. The Trinko opinion concluded with a sweeping statement by Scalia, who wrote that the “Sherman Act is indeed the ‘Magna Carta of free enterprise,’ ” but that “ it does not give judges carte blanche to insist that a monopolist alter its way of doing business whenever some other approach might yield greater competition.” Id. at 7. Although the decision has specific application only to refusals to deal by regulated monopolists, the concluding section has led some antitrust practitioners to wonder whether it could lead to less aggressive enforcement of � 2′s prohibition on monopoly conduct. Bruce McDonald, deputy assistant attorney general for regulated industries, hailed the Trinko decision as a victory for the “good guys.” He noted that although the decision did not expressly adopt the government’s proposed test for exclusionary or predatory conduct, it validated the Justice Department’s position as expressed in amicus briefs submitted to the court. Congressional reaction to the Trinko decision was mixed. House Judiciary Committee Chairman F. James Sensenbrenner Jr., R-Wis., said that the ruling “will be perceived as giving a green light to all manner of anticompetitive behavior” by the regional Bell telephone companies. John Conyers, D-Mich., was “disheartened” by the ruling, calling it “a serious blow to competition in the telecommunications industry.” He called for bipartisan legislation to address the “Supreme Court’s serious blunder.” Others praised the ruling, claiming such frivolous lawsuits have delayed full implementation of the 1996 act. It remains to be seen whether Congress will try to overturn Trinko. But it is clear that Trinko has changed the antitrust landscape for lawful monopolists and for plaintiffs who would use � 2 to restrict their behavior. Janet L. McDavid and Mary Anne Mason are partners at Washington’s Hogan & Hartson. David J. Michnal, an associate, assisted in writing this article. All three are members of the firm’s antitrust, competition and consumer protection practice group.

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