Covad Communications Co. v. BellSouth Corp. , 374 F.3d 1044 ( 2002 )

[PUBLISH]
IN THE UNITED STATES COURT OF APPEALS
FOR THE ELEVENTH CIRCUIT
____________________________ FILED
U.S. COURT OF APPEALS
No. 01-16064 ELEVENTH CIRCUIT
December 20, 2002
____________________________ THOMAS K. KAHN
CLERK
D. C. Docket No. 00-03414-CV-BBM-1
COVAD COMMUNICATIONS COMPANY,
DIECA COMMUNICATIONS, INC.,
d.b.a. Covad Communications Company,
Plaintiffs-Appellants,
versus
BELLSOUTH CORPORATION,
BELLSOUTH TELECOMMUNICATIONS, INC.,
Defendants-Appellees.
____________________________
Appeal from the United States District Court
for the Northern District of Georgia
____________________________
(December 20, 2002)
ON PETITION FOR REHEARING
(Opinion Aug. 2, 2002, 11th Cir., 299 F.3d 1272)
Before EDMONDSON, Chief Judge, TJOFLAT, ANDERSON, BIRCH, BLACK,
CARNES, BARKETT, MARCUS and WILSON, Circuit Judges.*
BY THE COURT:
The Court having been polled at the request of one of the members of the
Court and a majority of the Circuit Judges who are in regular active service not
having voted in favor of it (Rule 35, Federal Rules of Appellate Procedure;
Eleventh Circuit Rule 35-5), the Petition for Rehearing En Banc is DENIED.
/s/ J L EDMONDSON
CHIEF JUDGE
*
Judge Dubina and Judge Hull having recused themselves did not participate.
2
TJOFLAT, Circuit Judge, dissenting from the denial of Rehearing En Banc, in
which ANDERSON and BIRCH, Circuit Judges, join:
I. Background
A. Telephone Regulation
Not long after Alexander Graham Bell invented the telephone, government
regulators sought to deal with the public policy issues inherent in a service that was
both considered to be a natural monopoly (due to the economies of scale and
network effects of local telephony) and essential for the day-to-day functioning of
the American public. Prior to 1996, government regulators operated under the
assumption that local exchange carriers (LECs) should not only be rate-regulated,
but also quarantined to the business of local telephony. The latter premise was
embodied by the consent decree that broke up AT&T. In the government’s 1974
antitrust suit against AT&T, the government argued that AT&T (1) discriminated
against rivals who needed access to the local loop (such as long distance
companies or providers of information services) and (2) engaged in predatory
pricing against rivals – a scheme of cross-subsidization that was made more likely
by the fact that AT&T simultaneously operated in both regulated/monopolistic and
unregulated/competitive markets. See Roger Noll & Bruce Owen, The
Anticompetitive Uses of Regulation: United States v. AT&T, in The Antitrust
3
Revolution 290, 295-96 (J. Kwoka & L. White, eds., 1989). District Judge Harold
Greene approved a consent decree between the government and AT&T in the form
of the Modified Final Judgment (MFJ) entered in 1982. See United States v. Am.
Tel. & Tel. Co., 522 F. Supp. 131 (D.D.C. 1982), aff’d, 460 U.S. 1001.1 Judge
Greene retained jurisdiction over the case, and the Department of Justice promised
to report to court every three years regarding the continuing need for the “line of
business” restrictions. With the case on his docket for eighteen years, Judge
Greene in effect became the telecommunications czar of the nation.
1996 marked a paradigm change in telephone regulation; competition, not
quarantine, would best advance the public interest. In that year, Congress passed
monumental legislation, the Telecommunications Act of 1996, Pub. L. 104-104,
110 Stat. 56 (codified at 57 U.S.C. § 151 et seq.). The legislation aimed to spark
competition in the provision of local telephony. Congress also hoped to foster
additional competition in telecommunications markets which had, due the MFJ’s
line-of-business restrictions, been insulated from competition by very important
competitors – namely, the RHCs. See Glen Robinson, The Titanic Remembered:
AT&T and the Changing World of Telecommunications, 5 Yale J. on Reg. 517,
1
The MFJ split AT&T’s local service into seven Regional Holding Companies (RHCs): U.S.
West, Pacific Telesis, Southwestern Bell, Ameritech, Nynex, Bell Atlantic, and BellSouth. The
MFJ also employed various line-of-business restrictions which, for example, precluded the
RHCs from providing long distance service or information services.
4
534-44 (1988). The 1996 Act has three components which are especially
noteworthy. First, the Act made an important change in who regulates the
telecommunications industry. The Act abolished the MFJ, see Pub. L. 104-104,
Title VI, § 601, 110 Stat. 142 (codified at 47 U.S.C. § 152 note),2 and it delegated
to the FCC authority to implement regulations that advance the pro-competition
objectives of the Act, see, e.g., 47 U.S.C. § 251 (d)(1).3 Judge Greene was, in
short, replaced by the FCC.4 Second, the Act substantively changed the way the
telecommunications industry is regulated by imposing various obligations on
incumbent local exchange carriers (ILECs). These obligations are defined by
2
The provision states:
Any conduct or activity that was, before the date of enactment of this Act [Feb. 8,
1996], subject to any restriction or obligation imposed by the AT&T Consent
Decree shall, on and after such date, be subject to the restrictions and obligations
imposed by the Communications Act of 1934 as amended by this Act . . . and
shall not be subject to the restrictions and obligations imposed by such Consent
Decree.
3
The statute provides that “[w]ithin 6 months after February 8, 1996, the Commission shall
complete all actions necessary to establish regulations to implement the requirements of this
section.”
4
As the Seventh Circuit explained:
Long before the 1996 Act was passed . . . it had become clear that comprehensive
regulation of the rapidly advancing telecommunications markets was not a task
well suited to the federal courts. Thus, one of the first things Congress did in the
1996 Act was to shift the remaining authority the district court was exercising
under the MFJ over to the FCC.
Goldwasser v. Ameritech Corp., 222 F.3d 390, 393 (7th Cir. 2000).
5
section 251,5 whereas section 252 governs the implementation of the obligations.
Specifically, section 252(a) provides that ILECs and competitive local exchange
carriers (CLECs) can voluntarily enter into interconnection agreements, and
section 252(b) provides that state public service commissions (PSCs) can fashion
an agreement through arbitration in the event that negotiations stall. The Act thus
contemplates top-down regulation by the FCC, voluntary or arbitrated agreements,6
and resolution of post-agreement disputes in the form of contract adjudication.
Section 252 also covers additional matters, such as the grounds PSCs must give in
order to reject an agreement,7 what happens if a PSC chooses not to make an
approve-or-reject determination at all,8 and how PSC or FCC decisions can be
5
These include: the duty to negotiate interconnection agreements in good faith; the obligation to
interconnect with competitors; the obligation to provide competitors with unbundled access to its
network elements (“UNEs”) at reasonable rates; the duty to offer for resell at wholesale rates any
telecommunications service that the ILEC provides at retail; and the duty to allow collocation of
the CLECs’ equipment on the ILEC’s premises. See 47 U.S.C. § 251(c). The 1996 Act thus
envisions “three entry options: entry through resale, entry through pure facilities-based
competition, and entry via the purchase of unbundled network elements.” Stuart Benjamin,
Douglas Lichtman, & Howard Shelanski, Telecommunications Law and Policy 718 (2001).
6
There are thousands of existing agreements throughout the United States, and over 400 in
BellSouth’s territory.
7
Section 252(e)(2) allows state commissions to reject an interconnection agreement only if the
agreement discriminates against a third-party CLEC or is inconsistent with “the public interest,
convenience, and necessity.”
8
Section 252(e)(5) instructs the FCC to act in the event of a PSC default.
6
appealed to a federal court.9 The final component of the Act is the removal of the
line-of-business restrictions. Some restrictions, for example, sunset automatically.
See, e.g., 47 U.S.C. § 275 (precluding RBOC10 entry into the alarm monitoring
business until 2001). Others are removed only after ILECs prove that they have
fulfilled their obligations under the 1996 Act. See 47 U.S.C. § 271(c)(2)(B)
(establishing a fourteen-point “competitive checklist” that RBOCs must meet
before they may offer in-region long distance service.).
B. This Dispute
Covad is the CLEC in this case; BellSouth is the ILEC. Covad is in the
business of providing DSL service11 – primarily through the use of BellSouth’s
physical plant. BellSouth and Covad entered into an interconnection agreement –
9
Section 252(e)(6), governing federal review of PSCs, provides that “any party aggrieved by
such determination may bring an action in an appropriate Federal district court to determine
whether the agreement . . . meets the requirements of section 251 of this title and this section.”
There is no special review statute for the FCC, which is therefore reviewed by the courts of
appeals pursuant to 28 U.S.C. § 2344.
10
“RBOC” is an acronym for “Regional Bell Operating Company.” RBOCs were the
subdivisions of AT&T that provided local service throughout the nation prior to the MFJ. Under
the MFJ, each RHC consisted of several RBOCs.
11
“DSL” stands for “digital subscriber line.” DSL is “a high-speed data service provided over
conventional telephone networks. DSL refers to the technology that allows telephone carriers to
attach certain electronics to the telephone line that can transform the copper loop that already
provides voice service into a conduit for high-speed data traffic.” See Stuart Benjamin, Douglas
Lichtman, & Howard Shelanksi, Telecommunications Law and Policy 1048 (2001).
7
ultimately approved by the Georgia PSC – pursuant to 47 U.S.C. § 252. Covad
claims that BellSouth has not fulfilled its obligations under the 1996 Act and the
BellSouth/Covad interconnection agreement. Specifically, Covad argues the
following: BellSouth should have provided UNEs more promptly; BellSouth did
not sufficiently provide space so that Covad could “collocate” its equipment on
BellSouth’s premises; BellSouth engaged in a “price squeeze” by pricing its UNEs
too high while selling its DSL services to consumers at retail prices that are too
low;12 and BellSouth understaffed its wholesale division. The basic theory, then, is
that Covad needs BellSouth’s local loop to compete, and BellSouth has done a
poor job of turning it over. Covad wants access, and it wants access more
promptly and on less costly terms than BellSouth presently provides.13
12
A “price squeeze” claim is premised upon an illegal wholesale/retail differential. For example,
Covad states in its complaint that BellSouth’s retail prices “are set so low related to its
unbundled wholesale loop prices that Covad cannot meet BellSouth’s wholesale or retail prices
and still make a reasonable return on investment.”
13
Covad’s complaint contains twenty-three causes of action. Count one seeks relief under
section 2 of the Sherman Act pursuant to the “essential facilities doctrine.” Count two seeks the
same relief under section 2 of the Sherman Act based upon BellSouth’s alleged
“monopolization.” Count three seeks the same relief under section 2 of the Sherman Act based
upon BellSouth’s alleged “attempted monopolization.” All of the section 2 allegations are thus
folded into count 3. Counts six, seven nine, ten, thirteen, fourteen, sixteen, seventeen, nineteen,
twenty, twenty-two, and twenty-three replicate counts two and three under the laws of the
following states: Alabama, Florida, Kentucky, Louisiana, North Carolina, and Tennessee.
Counts eight, eleven, twelve, fifteen, eighteen, and twenty-one allege that BellSouth interfered
with business relations in violation of the laws of the same six states. Count four is a claim for
breach of contract. Finally, count five asserts a cause of action directly under the
Telecommunications Act of 1996. In the “prayer for relief” at the end of its complaint, Covad
asks for treble damages on its antitrust claims, punitive damages on its state law tort claims,
8
The district court granted a dismissal, pursuant to Fed. R. Civ. P. 12(b)(6),
based upon the reasoning of the Seventh Circuit in Goldwasser v. Ameritech Corp.,
222 F.3d 390 (7th Cir. 2000). A three-judge panel of this Court reversed,
concluding that the obligations of ILECs under the 1996 Act and the Sherman Act
are essentially coterminous, and therefore Covad’s complaint alleges harms that, if
proved, are cognizable under the antitrust laws. See Covad Communications Co.
v. BellSouth Corp., 229 F.3d 1271 (11th Cir. 2002). Specifically, the panel found
that BellSouth’s alleged failure to promptly turn over its network would, if proved,
give rise to liability under the essential facilities doctrine and the refusal-to-deal
doctrine. The panel also held that BellSouth’s allegedly high wholesale prices for
its DSL UNEs, in conjunction with low retail prices on DSL service, states a “price
squeeze” claim under Section 2 of the Sherman Act. This court declined to
reconsider the panel’s decision en banc. I dissent because the panel’s holding has
troubling implications for telecommunications law and, indeed, antitrust law as a
whole. The panel decision took a turn that is bad policy, undermines Congress’s
regulatory scheme, and usurps regulatory power that belongs to the FCC under the
1996 Act by placing it in the hands of federal courts.
compensatory damages on the remaining claims, and “such other and further relief as the Court
deems just and proper.” One must assume that the latter relief would include injunctive orders
necessary to ensure BellSouth’s compliance with the antitrust laws, the 1996 Act, and the
parties’ interconnection agreement.
9
C. Overview
In part II of this opinion, I explain why the duty Covad seeks to impose –
namely, the duty to help one’s competitor – is required by the 1996 Act but not the
antitrust laws. This proposition is supported by traditional antitrust doctrine and
the fact that antitrust suits premised upon forced-access obligations would flout the
intent of Congress. On the latter point, I explain how an overlap between the
antitrust laws and the 1996 Act would make the 1996 Act’s scheme of post-
agreement dispute resolution a nullity and would put federal judges back into the
regulatory mix, micromanaging telecommunications firms far beyond what Judge
Greene could have imagined. Part III examines the panel’s holding regarding
Covad’s “price squeeze” claim, concluding that Covad’s allegations fail to state a
claim under the antitrust laws. This part also explains how the panel’s “price
squeeze” holding will harm consumers and impede the rollout of broadband
Internet access, resulting in considerable tension with FCC policy. Part IV
concludes.
II. The Duty of a Monopolist to Help its Competitors is an Extraordiary Obligation
Imposed by the Telecommunications Act of 1996, but not the Antitrust Laws
The panel apparently believes that the 1996 Act’s unbundling and
interconnection obligations are coterminous with the duties of a monopolist under
10
the antitrust laws. I disagree. Rather, as the Seventh Circuit held in Goldwasser v.
Ameritech Corp., 222 F.3d 390 (7th Cir. 2000), the 1996 Act imposes additional
obligations above and beyond what is required under the antitrust laws.14 I reach
this conclusion for two reasons: (1) antitrust doctrine has not (at least until now)
ever required the sort of forced-access requirements sought by the plaintiff and (2)
suits premised upon a forced-access regime under the antitrust laws would flout the
intent of Congress.
A. Traditional Antitrust Doctrine Regarding Forced Access
1. The Essential Facilities Doctrine
14
The Seventh Circuit clearly articulated what the world would have looked like if,
counterfactually, Congress had opted to choose a “simple antitrust solution” rather than the
extraordinary obligations placed upon ILECs:
It would have been possible for Congress to have passed a statute that simply
lifted the regulatory prohibitions found in sources such as the
Telecommunications Act of 1934, the MFJ, and other sources, that barred
companies in different parts of the telecommunications market (i.e. long distance
and local markets, generally speaking) from entering one another’s domains.
Anyone who wanted to compete with an ILEC would have had the burden of
duplicating its physical infrastructure or of persuading the ILEC to contract with
it on mutually satisfactory terms, but this is the normal way in which competitive
markets work . . . .
In other words, Congress could have chosen a simple antitrust solution to
the problem of restricted competition in local telephone markets. It did not.
Instead, in an effort to jump-start the development of competitive local markets, it
imposed a host of special duties on the ILECs; it entrusted supervision of those
duties to the FCC and the state public utility commissions; and it created a system
of negotiated agreements through which this would be accomplished. These are
precisely the kinds of affirmative duties to help one’s competitors that we have
already noted do not exist under the unadorned antitrust laws.
Goldwasser, 222 F.3d at 399-400 (citations omitted).
11
Antitrust doctrine has never required the extensive, court-administered
forced-access regime that the panel opinion contemplates in its holding regarding
the so-called “essential facilities” doctrine.15 Antitrust law generally poses no
obligation upon firms to deal with competitors or share their capital investments
with rivals. See, e.g., Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472
U.S. 585, 600-01, 105 S. Ct. 2847, 2856, 86 L. Ed. 2d 467 (1985) (“[E]ven a firm
with monopoly power has no general duty to engage in a joint marketing program
with a competitor. . . . The absence of a duty to transact business with another firm
is, in some respects, merely the counterpart of the independent businessman’s
cherished right to select his customers and his associates.”); see generally 3A
Phillip Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 771b (1996) (“Forcing a
firm to share its monopoly is inconsistent with antitrust’s basic goals . . . .”). This
is so for several reasons. The first reason is the fear that new entrants will not
build their own physical plant if they can simply piggyback on the facilities of an
incumbent; there is hardly meaningful competition without facilities-based
competition. A second problem with a broad expansion of the essential facilities
15
The panel, citing MCI Communications v. Am. Tel. & Tel., 708 F.2d 1081, 1132-33 (7th Cir.
1983), held that there are four elements to a claim under the essential facilities doctrine: (1)
control of the essential facility by a monopolist; (2) a competitor’s inability practically or
reasonably to duplicate the essential facility; (3) the denial of the use of the facility to a
competitor; and (4) the feasibility of providing the facility. Covad, 229 F.3d at 1286. The panel
never mentioned the horizontal/vertical distinction that I discuss, infra.
12
doctrine is that it would place trial courts in the role of quasi-regulatory agencies
because they would have to oversee sharing between rivals. Third, the doctrine
creates a disincentive to develop new technologies. If a competitor can simply
utilize a court order to get access to an incumbent’s physical plant, there is less
incentive to create new technologies (such as wireless telephony) to bypass the
perceived “essential facility.” Finally, the doctrine creates little incentive for
incumbents to roll out additional plant or upgrade existing facilities. Why bare all
of the risk, only to have competitors reap the benefits? In sum, there are
convincing reasons why the leading antitrust scholars condemn the essential
facilities doctrine, and why they are steadfast in their argument that the Supreme
Court has never explicitly endorsed the doctrine. See id. at ¶¶ 771b-c (“The
Supreme Court has never articulated or approved the modern version of the
essential facilities doctrine.”).
The panel relied on two cases to support its expansive view of the essential
facilities doctrine. The first is Consolidated Gas Co. of Fla., Inc. v. City Gas Co.
of Fla., 880 F.2d 297, 301 (11th Cir. 1989), on reh’g en banc, 912 F.2d 1262 (11th
Cir. 1990), vacated and remanded, 499 U.S. 915 (1991), on remand, 931 F.2d 710(11th Cir. 1991). That case was wrong because it failed to grasp a fundamental
point: to the extent that the essential facilities doctrine is viable at all, it is a
13
doctrine concerned with vertical foreclosure. The leading antitrust scholars
confirm this view: “It should be clear from the outset that the essential facility
doctrine concerns vertical integration – in particular, the duty of a vertically
integrated monopolist to share some input in a vertically related market, which we
call market #1, with someone operating in an upstream or downstream market,
which we call market #2.” See 3A Areeda & Hovenkamp, Antitrust Law ¶ 771a;
see also Consolidated Gas, 912 F.2d at 1291-92 (Tjoflat, C.J., dissenting) (arguing
that the defendant’s refusal to deal was justified on the basis that it was not a
wholesaler, but rather a retailer similar to the plaintiff/competitor). Indeed, Covad
concedes that my dissenting opinion was correct. See Covad Br. at 27 n.14. In this
case, BellSouth was in the business of providing DSL services via its local loop.
Covad is similarly in the business of DSL provision (via BellSouth’s local loop).
The two entities are thus horizontal competitors. Moreover, Covad does not want
merely to interconnect its own facilities with BellSouth’s network; it wants the
facilities of BellSouth so that it can sell DSL services. The 1996 Act imposes this
novel obligation; the antitrust laws do not. A reading of the essential facilities
doctrine that stands for the proposed proposition – namely, that horizontal
competitors that find it financially inconvenient to build their own physical plant
14
may simply tap the resources of the incumbent/monopolist or else sue for treble
damages – is a dangerous expansion of the antitrust laws indeed.16
The Seventh Circuit decision in MCI Communications v. AT&T Tel. & Tel.
Co., 708 F.2d 1081, 1132 (7th Cir. 1983), makes this point clear (although the
Covad panel somehow uses that case to support its position). In that case, the court
held that there was no liability for AT&T’s failure to provide access to its long-
distance network. It was only in the vertical context that the essential facilities
doctrine was implicated: MCI was entitled to interconnect its long distance
network with AT&T’s local exchanges. The court held that because MCI was
seeking to compete with AT&T in the long-distance market, it was not entitled to
rely on AT&T’s existing long-distance facilities to enhance its ability to compete.
As the Seventh Circuit later stated: “AT&T’s refusal to voluntarily assume ‘the
extraordinary obligation to fill in the gaps in its competitor’s network,’ did not
suffice to support a finding that it was trying to maintain its monopoly of long-
16
We rejected a similar claim in another case:
This argument reveals the heart of the plaintiffs’ claim: they want the right to
benefit from [the defendant’s] economies of scale. The plaintiffs are seeking a
“free ride” – since they do not have a large enough operation to produce
significant economies of scale and are unable, or unwilling, to finance the growth
necessary to achieve these economies, they want to use, to their benefit, [the
defendant’s] size and the capital outlays used to achieve it . . . .
The plaintiffs then are asking us to equip them with [the defendant’s] competitive
advantage. This is not a function of the antitrust laws. The antitrust laws are not
intended to support artificially firms that cannot effectively compete on their own.
Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555, 1572-73 (11th Cir. 1991).
15
distance telephone service by anticompetitive means.” State of Ill., ex. rel. Burris
v. Panhandle E. Pipe Line Co., 935 F.2d 1469, 1484 (7th Cir. 1991) (quoting MCI,
708 F.2d at 1149). The MCI court held that “as pure matter of antitrust law . . . we
decline to hold AT&T liable for a refusal to make available its full nationwide
network to a competitor.” MCI, 708 F.2d at 1149. The analogy between MCI and
AT&T’s long-distance division is similar to the analogy between BellSouth and
Covad: each is a horizontal competitor of the other. Accordingly, the same result
should obtain: the essential facilities doctrine should not be used to give the
horizontal competitor access.
The essential facilities doctrine should not be applied in Covad for another
reason. Covad seeks to force BellSouth to make extensive modifications to its
network to accommodate Covad. See Plaintiff’s Complaint, R1-1, ¶¶66, 70, 88
(complaining that BellSouth failed to provide a transport line, to “develop[]
automated electronic interfaces,” and “to develop any mechanism by which Covad
can offer an existing BellSouth ADSL customer a seamless transfer to Covad.”).
The antitrust laws do not require this. See 3A Areeda & Hovenkamp, Antitrust
Law ¶773e, at 214 (“No case has suggested that the monopolist must build new
capacity to satisfy a would-be sharer.”). The 1996 Act may require such
alterations, but that is another matter. The antitrust laws do not require BellSouth
16
to promptly develop software and modify its facilities in order to meet Covad’s
business needs. Nor do the antitrust laws require, as Covad complains, that
BellSouth add personnel to its wholesale division in order to meet BellSouth’s
regulatory obligations.
2. The Refusal-to-deal Doctrine
The refusal-to-deal doctrine is unavailing for the same reasons that its
cousin, the essential facilities doctrine, is unavailing. Because this doctrine of
forced-access is used for the same purpose as the essential facilities doctrine, all of
the problems discussed above apply. If one persists on using a different analytical
hat for essentially the same conduct, however, none of the refusal-to-deal cases
countenance the bold extension proffered by the panel. The touchstone refusal-to-
deal case is the much-criticized Aspen Skiing, supra. Liability was imposed in
that case because the defendant terminated a mutually beneficial, pre-existing
business arrangement. The case hinged on the fact that Aspen did not engage in
“competition in the merits”; rather, it chose to forego “short-run benefits and
consumer goodwill in exchange for a perceived long-run impact on its smaller
rival.” Aspen Skiing, 474 U.S. at 610-11, 105 S. Ct. at 2861. In this case, there
was no preexisting business arrangement that BellSouth once thought to be
mutually beneficial. Moreover, Covad cannot possibly claim that the obligation it
17
seeks to impose with the antitrust laws – forced sharing – serves BellSouth’s
interests. Its decision not to share is perfectly legitimate competition on the merits.
B. The Undermining of the 1996 Act
The position taken by the panel – namely, that the 1996 Act does not require
obligations above and beyond those required by the antitrust laws but rather
overlaps with the antitrust laws – results in a regulatory scheme that is in
considerable tension with the regulatory scheme envisioned by Congress. First, the
panel’s holding makes the 1996 Act’s post-agreement enforcement scheme a
nullity. This is because breach-of-contract claims would become secondary to
antitrust claims, and the contract claims would be adjudicated under the
supplemental jurisdiction of federal district courts (rather than by state courts or
PSCs). Why would a CLEC ever sue only in contract when it can jettison the
regulatory scheme and sue for treble damages in federal court? After all, ILECS
are all monopolists, and virtually anything they do that breaches an interconnection
agreement can be the subject of an antitrust suit under the theory that the breach is
done to protect the ILEC’s market position.17 On this point, I agree with the
17
The panel maintained that before a complaint can pass Rule 12(b)(6) muster, it must allege
more than monopoly power and breach of contract; it must also allege that the defendant
engaged in conduct “with an intent to monopolize.” I cannot think of a situation, however, in
which an ILEC would be liable in breach and yet a creative plaintiff’s lawyer could not also
18
Seventh Circuit that “[t]he elaborate system of negotiated agreements and
enforcement established by the 1996 Act would be brushed aside by any
unsatisfied party with the simple filing of an antitrust action.” See Goldwasser,
222 F.3d 390, 400-01 (7th Cir. 2000).
Second, the panel’s holding undermines Congress’s efforts to place
regulatory authority in the hands of the FCC – an expert agency – rather than the
courts. Prior to the panel’s decision, the FCC (and, to some extent, PSCs) had
exclusive authority to implement the 1996 Act’s interconnection and unbundling
requirements. If the panel is correct in its conclusion that Covad has made out an
antitrust claim under the essential facilities doctrine, will federal district courts
issue injunctions18 requiring ILECs to undertake obligations above and beyond
those required by the 1996 Act? Even if district courts refrain from issuing forced-
access injunctions (with their concomitant price terms) under the theory that
regulatory bodies have already been established to set interconnection terms and
UNE rates, courts will no doubt enjoin ILECs from engaging in future
anticompetitive behavior. And since the claims of anticompetitive conduct made
allege that the breach was made with an eye toward benefitting the ILEC and thus preserving the
ILEC’s position in the relevant market.
18
Covad did not specifically ask for injunctive relief in is complaint, although it requested
“[s]uch other relief as the Court deems just and proper.”
19
by CLECs will essentially track the many contractual obligations that ILECs must
undertake pursuant to their interconnection agreements,19 the district courts will
essentially oversee ILEC compliance under their contempt power. For every
alleged violation of an interconnection agreement, the ILEC will have to show
cause why it should not be held in contempt and sanctioned. Thus, the federal
courts will be charged with closely monitoring ILEC compliance with the many
requirements of the ILEC/CLEC interconnection agreements. This was not what
Congress envisioned when it replaced Judge Greene with the FCC.
III. Price Squeeze
The panel’s holding that Covad’s “price squeeze” claim is cognizable under
the antitrust laws is suspect because, as the district court noted, there is no
allegation that BellSouth set below-cost retail prices for its DSL services. The
wholesale prices that BellSouth charges are set by state commissions or by
voluntary agreement; that is, a CLEC either agrees to the wholesale price and
cannot be heard to complain, or else the wholesale rate is nondiscretionary. Covad
has a remedy for its claim that the state commission set a wholesale rate that was
19
In this case, for example, the alleged anticompetitive acts of BellSouth could easily be
mistaken for breaches of the Covad/BellSouth interconnection agreement.
20
too high: judicial review under 47 U.S.C. § 252(e)(6).20 It cannot acquiesce in the
state commission’s wholesale rate and turn around and sue BellSouth because
BellSouth is not charging consumers enough at retail. See Brooke Group Ltd. v.
Brown & Williamson Tobacco Corp., 509 U.S. 209, 223, 113 S. Ct. 2578, 2588,
125 L. Ed. 2d 168 (1993) (rejecting “the notion that above-cost prices that are
below . . . the costs of a firm’s competitors inflict injury to competition cognizable
under the antitrust laws.”). If the district court grants injunctive relief, will it order
BellSouth to charge Covad a wholesale price that is lower than that set by the state
commission? Will it order BellSouth to charge DSL customers a price that is
higher than the present price (even though the present price is presumably above
cost)? Assuming Covad’s allegations are true, what should BellSouth have charged
DSL customers in hindsight? I can think of nothing more antithetical to the
consumer welfare aims of antitrust law, and to FCC efforts to hasten the rollout of
broadband services, than to send the message that ILECs should charge DSL
customers prices that are not only above cost, but substantially above cost so that
CLECs can have large profit margins. There is nothing “factual” about this claim
20
This is true if the BellSouth/Covad agreement was the product of arbitration before the PSC. It
is unclear from the complaint whether the agreement was voluntary or arbitrated.
21
that must await summary judgment. The law simply does not recognize the alleged
facts as an actionable price squeeze.
IV. Conclusion
Much more could be said about the panel opinion, such as (1) when it was
issued, two of the key decisions it relied on (BellSouth21 and Consolidated Gas) had
been vacated; (2) the panel set up a straw man with its belabored argument in
support of the unexceptional proposition that “in enacting the 1996 Act, Congress
did not explicitly supersede the salience of the antitrust laws in the
telecommunications industry,”22 Covad, 299 F.3d at 1280; and (3) the decision will
21
See BellSouth Telecomm., Inc. v. MCImetro Access Transmission Servs. Inc., 278 F.3d 1223(11th Cir. 2002).
22
The panel made this argument in the context of its discussion of the 1996 Act’s antitrust
savings clause. See Telecommunications Act of 1996 § 601(b)(1), codified at 47 U.S.C. § 152note (“[N]othing in this Act or the amendments made by this Act shall be construed to modify,
impair, or supersede the applicability of the antitrust laws.”). No one has ever contended that “in
enacting the 1996 Act, Congress did not explicitly supersede the salience of the antitrust laws in
the telecommunications industry.” Judge Wood of the Seventh Circuit, who is a former antitrust
professor and high-ranking attorney with the U.S. Department of Justice Antitrust Division,
never made that argument. Neither do I. Rather, we contend that the 1996 Act established a
regulatory scheme that went beyond anything required by the antitrust laws. It is likely that
Congress perceived the 1996 Act as imposing additional obligations, and that Congress therefore
wanted to bring home the point that pre-1996 obligations under the antitrust laws continue to
have vitality in the post-1996 world. The panel, on the other hand, evidently believes that the
1996 Act is merely a more specific application of the forced-accessed requirements that
ordinarily would be required by the antitrust laws.
22
trigger an avalanche of complex litigation in the district courts.23 I stop with the
antitrust issues, however, because that is where the panel opinion wreaks the most
havoc on the law. First, the decision thwarts Congress’s chosen regulatory scheme.
In the states of Florida, Georgia, and Alabama, CLECs will have no incentive to use
the post-agreement enforcement process envisioned by the 1996 Act. From now on
they will simply run to federal court, seeking treble damages and injunctions that
are potentially inconsistent with the 1996 Act’s requirements.24 Along the way,
regulation of the telecommunications industry will shift from the FCC back to the
federal courts. Although Judge Greene may not have had the expertise of the FCC,
at least the public law litigation he presided over involved a single monopolist
(AT&T) and the government rather than what will ensue in the wake of the panel’s
23
This proposition stems from several observations. First, there are thousands of interconnection
agreements and thus potentially thousands of Covad-like antitrust cases lurking across the
Circuit (and, indeed, the United States). Second, many parties will be involved in the litigation.
In Goldwasser, for example, consumers (not CLECs) were the plaintiffs. There might well be
multiple consumer class actions in future cases. Moreover, the panel’s “price squeeze” holding,
which will compel BellSouth to raise the retail price of its DSL service, will affect existing
contracts. DSL customers must therefore be joined as indispensable parties – possibly in the
form of another class action. If one adds to this picture the problem of apportioning damages,
see, e.g., Todorav v. DCH Healthcare Auth., 921 F.2d 1438, 1451-52 (11th Cir. 1991), and the
issue of state court proceedings (which obviously cannot be consolidated), then the drain on
scarce judicial resources becomes apparent. I do not suggest that otherwise meritorious lawsuits
should be dismissed merely because their complexity will drain judicial resources; rather, I
contend that the drain ought to at least provoke a second look as to whether these suits are really
meritorious in the first place.
24
CLECs also have an incentive to delay the negotiation of interconnection agreements, for any
damages CLECs sustain because of an ILEC’s failure to yield access to its network will
potentially be subject to trebling by a district judge.
23
ruling: multiple private disputes. And at least at the time of the AT&T litigation,
Congress had not explicitly chosen to vest the FCC with the regulatory authority
assumed by Judge Greene. The panel thus undermines the wishes of Congress –
first by getting the federal courts into the business of micromanaging ILEC
compliance with interconnection agreements, and second by enabling CLECs to
sidestep the 1996 Act’s regulatory scheme with the filing of antitrust suits.
The panel also embarked upon a new journey in antitrust law, the likes of
which have not been seen since the inconsistent and discredited antitrust
jurisprudence of the Warren Court era embodied by cases such as Brown Shoe Co.
v. United States, 370 U.S. 294, 320, 82 S. Ct. 1502, 1521, 8 L. Ed. 2d 510 (1962)
(“It is competition, not competitors, which the Act protects. But we cannot fail to
recognize Congress’ desire to promote competition through the protection of viable,
small, locally owned businesses. Congress appreciated that occasional higher costs
and prices might result from the maintenance of fragmented industries and markets.
It resolved these competing considerations in favor of decentralization.”). See
generally Robert Bork, The Antitrust Paradox: A Policy at War With Itself (rev. ed.
1993). The panel’s novel extension of the essential facilities doctrine, for example,
will enable any new entrant to tap the assets of its (monopolistic) horizontal
competitor if the assets are “essential” for the new entrant to compete. This broad
24
principle has never been the law. In the same vein, the panel decision will force
ILECs to raise the retail prices of DSL services or else face “price squeeze” claims
– even if the ILEC already prices its DSL services above cost and even though the
FCC has been eager to hasten deployment of broadband technology rather than
decrease it.
The aftershocks of the panel opinion well be felt far beyond the
telecommunications industry. Are all firms that traditionally have been thought to
be natural monopolies, such as pipeline companies and energy producers, now
supposed to let competitors resell their assets, with the incumbent monopolists
having the additional duty to charge their customers a price that is high enough so
that new entrants can have hefty profit margins? After all, the panel purported to
apply general principles of antitrust law to the facts of the case; there is nothing that
is telecom-specific in its holding.
Rule 35(b) of the Federal Rules of Appellate Procedure instructs that cases to
be heard en banc are those which “present a question of exceptional importance.”
The panel decision – traveling on an Eleventh Circuit essential facilities case that
has been vacated by the Supreme Court – departs from settled antitrust doctrine,
undermines the operation of 1996 Act, and invites the filing of hundreds of complex
25
cases in the district courts throughout the circuit.25 This case is extremely
important. Accordingly, I am compelled to dissent from the court’s failure to
reconsider the case en banc.
25
I suggest that CLECs filing suit against BellSouth in the district courts of the Fourth, Fifth,
and Sixth Circuits may invoke the doctrine of collateral estoppel in response to BellSouth’s
argument that federal antitrust claims such as those Covad presents in this case are not
cognizable under section 2 of the Sherman Act. In short, the panel’s decision is not only of
“exceptional importance” in the Eleventh Circuit, it will be of importance to the courts and
litigants in these other circuits as well.
26