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National policy relating to the desirability of allowing competition in local phone service markets has changed dramatically since the 1982 consent decree in United States v. AT&T, [FOOTNOTE 1]which split AT&T from Bell Telephone Co. and created seven new “Baby Bells” with regional monopolies in local phone service markets. Prior to 1996, Congress allowed monopolies in local phone service markets on the rationale that multiple local providers would lead to unwarranted duplication in the physical connecting wires through which local calls are transmitted. [FOOTNOTE 2]In 1996, however, that policy changed. At that time, in an attempt 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,” [FOOTNOTE 3]Congress enacted the Telecommunications Act of 1996 (1996 Act), [FOOTNOTE 4]which amended the Communications Act of 1934 (1934 Act). [FOOTNOTE 5] FRAMEWORK FOR LOCAL COMPETITION Section 251 of the 1996 Act — entitled “Development of Competitive Markets” — sets forth the framework for creating competition in local telecommunications markets. It imposes on all telecommunications carriers the obligation to interconnect their facilities with the facilities of other telecommunications carriers. [FOOTNOTE 6]In addition, it requires local exchange carriers (LECs) to permit resale of their telecommunications services. [FOOTNOTE 7]The 1996 Act also requires incumbent LECs (ILECs) to interconnect their facilities with the facilities of competing LECs (CLECs) at any technically feasible point within the incumbent’s network. Those interconnection services must be of no less quality as the ILEC itself receives and must be provided on reasonable and nondiscriminatory rates and terms. [FOOTNOTE 8] When ILECs allegedly have failed to fulfill their obligations under the 1996 Act, CLECs and consumers have brought suit against them, alleging violations of the 1996 Act as well as violations of � 2 of the Sherman Act. Much debate has centered on the 1996 Act’s impact on the reach of the antitrust laws. Case law interpreting the 1996 Act generally has favored the ILECs, with most courts refusing to apply antitrust laws to conduct that constitutes a violation of the 1996 Act. The leading case that illustrates this trend is a 7th Circuit U.S. Court of Appeals decision, Goldwasser v. Ameritech Corp., [FOOTNOTE 9]which held that a class of local telephone service end-users could not state a � 2 claim based on allegations that are “inextricably linked” to alleged violations of the 1996 Act. In contrast, a recent decision in the 2nd Circuit, Law Offices of Curtis V. Trinko v. Bell Atlantic Corp., [FOOTNOTE 10]rejected the Goldwassercourt’s holding and, under circumstances that are distinguishable factually from those in Goldwasser,held that a plaintiff could state a � 2 claim based on allegations that might also state a 1996 Act claim. [FOOTNOTE 11] ‘GOLDWASSER V. AMERITECH CORP.’ In Goldwasser, consumers of local telephone services in the five states in which Ameritech, an ILEC, provided local telephone service filed a class action suit alleging that Ameritech violated the 1996 Act and � 2 of the Sherman Act. The alleged 1996 Act violations included failing to provide competitors with the same quality of service as its own customers, denying competitors access to its operational support systems, poles, ducts and conduits, as well as creating undue delays for competitors; the � 2 allegations were based solely on these alleged 1996 Act violations. [FOOTNOTE 12]The district court dismissed the complaint on the basis that the filed rate doctrine barred the claims for damages under the antitrust laws and the 1996 Act. The district court further held that the plaintiffs’ claims for injunctive relief were barred because plaintiffs lacked standing to sue under the antitrust laws. On appeal, the 7th Circuit panel affirmed the dismissal of the 1996 Act claims based on the filed-rate doctrine. It also affirmed the dismissal of the antitrust claims, but on grounds different from the district court. The panel first held that plaintiffs had standing to bring suit under the antitrust laws and turned to “the more fundamental question whether [plaintiffs] have stated a Section 2 claim at all against Ameritech when they accuse it of failing to comply with its myriad duties under [the 1996 Act].” [FOOTNOTE 13] The panel stated that “the fundamental fallacy in the plaintiffs’ theory is that the duties the 1996 Act imposes on ILECs are coterminous with the duty of a monopolist to refrain from exclusionary practices. They are not.” [FOOTNOTE 14]The panel held that the special duties imposed on Ameritech by the 1996 Act are much more onerous than those imposed by the antitrust laws, because the antitrust laws do not impose such affirmative duties to help one’s competitors, even on monopolists. Indeed, the panel stated that, “the antitrust laws would add nothing to the oversight already available under the 1996 law.” [FOOTNOTE 15]The panel made clear, however, that it was not holding that the 1996 Act confers implied immunity on behavior that otherwise would violate the antitrust laws. It simply was ruling that, because the 1996 Act imposes duties on ILECs beyond those required by the antitrust laws, a plaintiff cannot state a claim for a � 2 violation based solely on alleged violations of the 1996 Act. Further, although the Goldwasserplaintiffs argued that the complaint stated an independent essential facilities claim, the panel found that the allegations pointed to by plaintiffs “appear[ed] to be inextricably liked to the claims under the 1996 Act” and properly were dismissed by the district court. [FOOTNOTE 16] Recently, in Law Offices of Curtis V. Trinko v. Bell Atlantic Corp., [FOOTNOTE 17]a 2nd Circuit panel rejected the Goldwasserreasoning and ruled that the antitrust laws may be applicable to situations in which a plaintiff alleges conduct by the ILEC that also would constitute a violation of the 1996 Act. In Law Offices of Curtis V. Trinko v. Bell Atlantic Corp., the plaintiff brought a class action lawsuit on behalf of customers who resided in a region serviced by Bell Atlantic, but received their local phone service from a company other than Bell Atlantic. [FOOTNOTE 18]The plaintiff, a customer of AT&T, alleged that Bell Atlantic was required by the 1996 Act to provide AT&T and other CLECs with equal access to its network, and its failure to do so resulted in those CLEC’s customers receiving poor local phone service. More specifically, the complaint alleged that Bell Atlantic filled local phone service orders of CLEC customers after filling those of its own, failed to fill CLEC orders in a timely manner or, in some cases, did not fill them at all, and failed to inform CLECs of the status of their customers’ orders with Bell Atlantic. The plaintiff also claimed that Bell Atlantic’s actions violated the 1934 Act and � 2 of the Sherman Act, and constituted tortious interference with contract. The District Court for the Southern District of New York granted Bell Atlantic’s motion to dismiss all of the plaintiff’s federal claims and declined to retain supplemental jurisdiction over the plaintiff’s state law tortious interference claim. [FOOTNOTE 19]The court dismissed the � 2 claim, holding that the plaintiff’s allegations were based solely on alleged violations of the 1996 Act and therefore were insufficient to support an independent antitrust claim. [FOOTNOTE 20]The court relied on the 7th Circuit decision in Goldwasser, and stated that “the affirmative duties imposed by the [1996] Act are not coterminous with the duty of a monopolist to refrain from exclusionary practices.” [FOOTNOTE 21]The court held that the plaintiff did not have standing to bring the 1996 Act claims. It determined that under � 251 of the 1996 Act, an ILEC owes a duty only to CLECs, and therefore the plaintiffs impermissibly were asserting the rights of Bell Atlantic’s competitor, AT&T. [FOOTNOTE 22]Similarly, it found that the plaintiff lacked standing to assert claims under � 202(a) of the 1934 Act because that provision imposes affirmative duties on a carrier only with respect to its own customers. Therefore, only Bell Atlantic customers would be permitted to bring suit against Ameritech under � 202(a). [FOOTNOTE 23] On appeal, a 2nd Circuit panel reversed the district court’s dismissal of both the antitrust and 1934 Act claims, but affirmed its dismissal of the 1996 Act claim. It held that the plaintiffs had standing under the 1934 Act because �� 206 and 207 of the act confer upon any plaintiff the right to bring an action to recover for its injuries incurred due to a violation of the 1934 Act or the 1996 Act. Because Bell Atlantic did not dispute that there arguably was a violation of � 202(a) with respect to its dealings with AT&T, the plaintiff had standing as an entity that contended it was injured by this alleged violation. [FOOTNOTE 24] The 2nd Circuit panel also affirmed the district court’s dismissal of the 1996 Act claim, but on different grounds. It noted that � 251 of the 1996 Act allows an ILEC to satisfy its obligations under subsections (b) and (c) by entering into interconnection agreements with CLECs seeking to enter the local phone service market. In this manner, the ILEC and CLEC may “contract around” the statutory obligations. After the state commission approves such an agreement, that agreement governs the ILEC’s duties, rather than the general duties outlined in subsections (b) and (c) of � 251. [FOOTNOTE 25]The panel reasoned that to read the 1996 Act as the plaintiff requested “would make the option of negotiating interconnection agreements without regard to subsections (b) and (c) of � 251 superfluous.” [FOOTNOTE 26]Here, Bell Atlantic and AT&T entered into an interconnection agreement and, although Bell Atlantic’s conduct might have violated that agreement, it no longer could violate � 251 of the 1996 Act. [FOOTNOTE 27] Finally, the 2nd Circuit panel reversed the dismissal of the plaintiff’s antitrust claim, disagreeing with the district court’s conclusion that the plaintiff solely alleged a breach of � 251 of the 1996 Act. Indeed, the panel noted that the plaintiff did not mention � 251 at all in its antitrust allegations. The panel determined that the allegations described conduct by Bell Atlantic that could be sufficient to support an independent antitrust claim under at least two theories. First, the plaintiff could allege an “essential facilities” claim — e.g., that Bell Atlantic denied its competitors access to its network, which is essential to compete effectively in the market due to the prohibitive costs of creating independent facilities. Second, the plaintiff could assert a “monopoly leveraging” claim – e.g., that Bell Atlantic possessed monopoly power in the relevant market and used that power to gain a competitive advantage in another market, thereby causing injury to the plaintiff. [FOOTNOTE 28] The panel began its analysis of the antitrust claims with the general proposition, as announced by the 7th Circuit panel in Goldwasser, that a � 2 claim based exclusively on an alleged breach of � 251 is not sustainable. It then disagreed with the Goldwasserpanel’s conclusion that antitrust claims that are “inextricably linked” to allegations of a violation of � 251 must be dismissed. The 2nd Circuit reasoned that, absent a “plain repugnancy” between the 1996 Act and the antitrust laws, there is no reason why an otherwise valid � 2 claim must be dismissed if it relies on allegations that also might state a claim under � 251. Because the 1996 Act contains a specific savings clause that states that “nothing in this Act or the amendments made by this Act … shall be construed to modify, impair, or supersede the applicability of the antitrust laws,” the panel held that there was no “plain repugnancy” between the Act and the antitrust laws. [FOOTNOTE 29] Although it disagreed with the panel’s analysis in Goldwasser, the 2nd Circuit panel distinguished the plaintiff’s claims from the seemingly similar claims made in that case. Here, because the ILEC and the CLEC had entered into an interconnection agreement and their relationship no longer was governed by � 251, this particular plaintiff had no remedy under the 1996 Act for a violation of � 251. Therefore, the panel reasoned that, “the antitrust laws are the only place where [the plaintiff] has a remedy for damage caused by the allegedly anticompetitive behavior described in the amended complaint. … [I]n this case [, in contrast to Goldwasser,] the antitrust laws serve the purpose of affording the consumer compensation that the [1996] Act does not provide.” [FOOTNOTE 30] CONCLUSION There may now be a split between the circuits as to whether allegations that are “inextricably linked” to claims under the 1996 Act also may state an antitrust claim. Perhaps we will hear further on this subject from the Supreme Court. We will keep the line open for you. Neal R. Stoll and Shepard Goldfein are partners at Skadden, Arps, Slate, Meagher & Flom ( www.skadden.com). Karen M. Hoffman, an associate of the firm, and David Burns, a summer associate with the firm, assisted in the preparation of this article. ::::FOOTNOTES:::: FN 1 See47 USC �152, note (a)(1) (2000). The decision adopting the consent decree is reported at 552 F. Supp. 131 (D.D.C. 1982), affirmed sub nom. Maryland v. United States, 460 US 1001 (1983). FN 2 See AT & T Corp. v. Iowa Utils. Bd., 525 US 366, 413-14 (1999) (Breyer, J., concurring in part, dissenting in part). FN 3 SeeH.R. Rep. No. 104-458, at 1 (1996), reprinted in 1996 USCCAN 124. FN 4Telecommunications Act of 1996, Pub. L. No. 104-104, 110 Stat. 56 (1996), codified at 47 USC �151 et seq. (2000). FN 5Communications Act of 1934, ch. 652, 48 Stat. 1064 (1934) (codified as amended in scattered sections of 47 USC). FN 647 USC �251(a) (2000). FN 7 Id.� 251(b). FN 8 Id.� 251(c). FN 9222 F.3d 390 (7th Cir. 2000). But see, e.g., Davis v. Pacific Bell, Nos. C 01-0260 & C 01-585 (N.D. Cal. Jan. 10, 2002); MGC Communs. Corp. v. Sprint Corp., No. CV-S-00-0948-PMP (D. Nev. Dec. 12, 2000); Bell Atlantic Network Servs., Inc. v. Ntegrity Telecontent Servs., Inc., No. 99-5366 (AET) (D.N.J. Nov. 1, 2000); CalTech Int’l Telecom Corp. v. Pacific Bell, No. C97-2105-CAL (N.D. Cal. Oct. 25, 2000); Electronet Intermedia Consulting, Inc. v. Sprint-FLA., Inc., No. 4:00-CV-0176-RH (N.D. Fla. Sept. 20, 2000). FN 10(10 No. 01-7746, 2002 WL 1339131 (2d Cir. June 20, 2002). FN 11 Id.at *15-16. FN 12 Goldwasser, 222 F.3d at 394-95. FN 13 Id.at 399. FN 14 Id. FN 15 Id.at 401. FN 16 Id.Virtually every other district court to address this issue has relied upon the 7th Circuit’s decision in Goldwasser and dismissed antitrust claims when defendant’s conduct allegedly violates duties imposed upon ILECs by the 1996 Act. See Covad Communications Co. v. Bell Atlantic Corp., 201 F. Supp. 2d 123, 128 (D.D.C. 2002); Cavalier Communications, LLC v. Verizon Va. Inc., No. 3:01CV736 (E.D. Va. Mar. 27, 2002); Stein v. Pacific Bell, 173 F. Supp. 2d 975 (N.D. Cal. 2001) (consumer did not state antitrust claim against ILECs to the extent that he relied solely on alleged violations of duties imposed on ILECs under 1996 Act); MGC Communications, Inc. v. Bell S. Telecommunications, Inc., 146 F. Supp. 2d 1344, 1350-52 (S.D. Fla. 2001) (although CLEC broadly alleged in its complaint that ILEC sought to leverage its monopoly power in one market into artificially enhanced market power in another market, such claims were inextricably intertwined to claims under 1996 Act); Covad Communications Co. v. BellSouth Corp., No. 1:00-CV-3414 (N.D. Ga. July 6, 2001); Building Communications, Inc. v. Ameritech Servs., Inc., No. 97-CV-76336 (E.D. Mich. June 21, 2001); Supra Telecommunications & Info. Sys., Inc. v. BellSouth Telecommunications, Inc., No. 99-1706-Civ (S.D. Fla. June 8, 2001); Intermedia Communications, Inc. v. Bell S. Telecommunications, Inc., 173 F. Supp. 2d 1282, 1285 (M.D. Fla. 2000). But seecases cited supra n.9. FN 17No. 01-7746, 2002 WL 1339131 (2d Cir. June 20, 2002). FN 18 See id.at *1. FN 19 Law Offices of Curtis V. Trinko, LLP v. Bell Atlantic Corp., 123 F. Supp. 2d 738, 745 (S.D.N.Y. 2000). FN 20 Id.at 742. FN 21 Id. FN 22 See id.at 744. FN 23 See id.at 744-45. FN 2447 USC �206 (1934). FN 25 Law Offices of Curtis V. Trinko, LLP v. Bell Atlantic Corp., No. 01-7746, 2002 WL 1339131, at *14 (2d Cir. June 20, 2002). FN 26 Id.at *11. FN 27 See id.at *12. FN 28 See id.at *17. FN 29 Id.at *15-16 (quoting 47 USC �152). FN 30 Id.at *16.

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