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Cell phone users seeking to switch service providers have long faced a frustrating expense: Their old phones become useless as many of the largest wireless companies require customers to use specific makes of phones. In April 2002, several wireless customers filed suit in federal court, alleging that the wireless companies’ practice of requiring customers to purchase specific phones constituted an unlawful “tying” arrangement, in violation of the Sherman Act. On Tuesday, Southern District Judge Denise Cote dismissed the case, granting the summary judgment motion filed by T-Mobile, Sprint Spectrum, Cingular Wireless, Verizon Wireless and AT&T Wireless Services, among others. “[T]o show anticompetitive effects in the handset market from a defendant’s practice of tying the sale of service to the purchase of a locked handset, the plaintiffs must show that an individual defendant’s practice has injured a company competing in the handset market, created barriers to entry into that market or otherwise injured competition in the tied product market,” Judge Cote wrote in her 64-page decision, In Re Wireless Telephone Services Antitrust Litigation, 02 Civ. 2637. “They have not done so,” she concluded. Wireless service providers sell their services and phones as a package, subsidizing the cost of the phone to coax users into the market, according to Judge Cote’s decision. The plaintiffs allege that the defendant phone companies “tied” or “locked” the phones into use for their respective networks, in order to prevent customers from switching networks. The plaintiffs brought the action on behalf of people who have purchased services from the defendants since 1998. They alleged that “each of the Defendants possesses sufficient market power such that its tying arrangement adversely affects competition in the tied market.” (The plaintiffs also unsuccessfully tried to add a second claim, which alleged the defendants collectively have significant market power. Their motion for leave to amend was denied.) Under the Sherman Act, “tying” is “an agreement by a party to sell one product but only on the condition that the buyer also purchase a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier,” according to Cote. She added, “When a consumer is forced to purchase a tied product when the consumer would not do so in a competitive market, a tying arrangement is unlawful.” One of the elements of a tying claim is that the defendant possesses sufficient market power “to force a purchaser to do something he would not do in a competitive market,” according to the judge. The legal definition of such power is still developing, she added. The defendants moved for summary judgment, arguing that the plaintiffs failed to present evidence raising a question of fact that any defendant had sufficient market power in the wireless market to force consumers to purchase unwanted handsets. Cote agreed, and dismissed the case. “None of the defendants enjoys a market share that would, standing alone, permit an inference of market power to be drawn, and the plaintiffs have not shown that questions of fact exist with respect to any other issue which, when combined with a defendant’s market share, would allow a finding of market power,” she wrote. Between 1998 and 2003, no defendant ever possessed more than 24 percent of the wireless market. (However, Cingular and AT&T, which merged in 2004, constituted a total of 29 percent in 2003.) New York counsel for the plaintiffs included Faruqi & Faruqi; Hunton & Williams; and the Law Offices of Scott A. Bursor. New York counsel for the defense included Anderson Kill & Olick for Sprint and Sidley Austin Brown & Wood for T-Mobile.

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