Aircraft Check Services Compan v. Verizon Wireless , 782 F.3d 867 ( 2015 )

In the
United States Court of Appeals
For the Seventh Circuit
____________________
No. 14-2301
IN RE: TEXT MESSAGING ANTITRUST LITIGATION
AIRCRAFT CHECK SERVICES CO., et al., individually and on
behalf of all others similarly situated,
Plaintiffs-Appellants,
v.
VERIZON WIRELESS, et al.,
Defendants-Appellees.
____________________
Appeal from the United States District Court for the
Northern District of Illinois, Eastern Division.
No. 08 C 7082—Matthew F. Kennelly, Judge.
____________________
ARGUED FEBRUARY 10, 2015 — DECIDED APRIL 9, 2015
____________________
Before WOOD, Chief Judge, and POSNER and TINDER, Cir-
cuit Judges.
POSNER, Circuit Judge. This class action antitrust suit is be-
fore us for the second time. More than four years ago we
granted the defendants’ petition to take an interlocutory ap-
2 No. 14-2301
peal (see 28 U.S.C. § 1292(b)) from the district judge’s refusal
to dismiss the complaint for failure to state a claim. But we
upheld the judge’s ruling. In re Text Messaging Antitrust Liti-
gation, 630 F.3d 622 (7th Cir. 2010). Three years of discovery
ensued, culminating in the district judge’s grant of the de-
fendants’ motion for summary judgment, followed by entry
of final judgment dismissing the suit, precipitating this ap-
peal by the plaintiffs.
The suit is on behalf of customers of text messaging—the
sending of brief electronic messages between two or more
mobile phones or other devices, over telephone systems
(usually wireless systems), mobile communications systems,
or the Internet. (The most common method of text messag-
ing today is to type the message into a cellphone, which
transmits it instantaneously over a telephone or other com-
munications network to a similar device.) Text messaging is
thus an alternative both to email and to telephone calls. The
principal defendants are four wireless network providers—
AT&T, Verizon, Sprint, and T-Mobile—and a trade associa-
tion, The Wireless Association, to which those companies
belong. The suit claims that the defendants, in violation of
section 1 of the Sherman Act, 15 U.S.C. §§ 1 et seq., conspired
with each other to increase one kind of price for text messag-
ing service—price per use (PPU), each “use” being a mes-
sage, separately priced. This was the original method of pric-
ing text messaging; we’ll see that it has largely given way to
other methods, but it still has some customers and they are
the plaintiffs and the members of the plaintiff class.
The defendants’ unsuccessful motion to dismiss the
complaint—the motion the denial of which we reviewed and
upheld in the first appeal—invoked Bell Atlantic Corp. v.
No. 14-2301 3
Twombly, 550 U.S. 544 (2007), which requires a complaint to
pass a test of “plausibility” in order to avoid dismissal. The
reason for this requirement is to spare defendants the bur-
den of a costly defense against charges likely to prove in the
end to have no merit. We decided that the plaintiffs’ second
amended complaint passed the test; we noted that the com-
plaint
alleges a mixture of parallel behaviors, details of industry
structure, and industry practices, that facilitate collusion.
There is nothing incongruous about such a mixture. If par-
ties agree to fix prices, one expects that as a result they will
not compete in price—that’s the purpose of price fixing.
Parallel behavior of a sort anomalous in a competitive
market is thus a symptom of price fixing, though standing
alone it is not proof of it; and an industry structure that fa-
cilitates collusion constitutes supporting evidence of collu-
sion. … [T]he complaint in this case alleges that the four
defendants sell 90 percent of U.S. text messaging services,
and it would not be difficult for such a small group to
agree on prices and to be able to detect “cheating” (under-
selling the agreed price by a member of the group) without
having to create elaborate mechanisms, such as an exclu-
sive sales agency, that could not escape discovery by the
antitrust authorities.
Of note is the allegation in the complaint that the de-
fendants belonged to a trade association and exchanged
price information directly at association meetings. This al-
legation identifies a practice, not illegal in itself, that facili-
tates price fixing that would be difficult for the authorities
to detect. The complaint further alleges that the defend-
ants, along with two other large sellers of text messaging
services, constituted and met with each other in an elite
“leadership council” within the association—and the lead-
4 No. 14-2301
ership council’s stated mission was to urge its members to
substitute “co-opetition” for competition.
The complaint also alleges that in the face of steeply fall-
ing costs, the defendants increased their prices. This is
anomalous behavior because falling costs increase a seller’s
profit margin at the existing price, motivating him, in the
absence of agreement, to reduce his price slightly in order
to take business from his competitors, and certainly not to
increase his price. And there is more: there is an allegation
that all at once the defendants changed their pricing struc-
tures, which were heterogeneous and complex, to a uni-
form pricing structure, and then simultaneously jacked up
their prices by a third. The change in the industry’s pricing
structure was so rapid, the complaint suggests, that it
could not have been accomplished without agreement on
the details of the new structure, the timing of its adoption,
and the specific, uniform price increase that would ensue
on its adoption. …
What is missing, as the defendants point out, is the
smoking gun in a price-fixing case: direct evidence, which
would usually take the form of an admission by an em-
ployee of one of the conspirators, that officials of the de-
fendants had met and agreed explicitly on the terms of a
conspiracy to raise price. The second amended complaint
does allege that the defendants “agreed to uniformly
charge an unprecedented common per-unit price of ten
cents for text messaging services,” but does not allege di-
rect evidence of such an agreement; the allegation is an in-
ference from circumstantial evidence. Direct evidence of
conspiracy is not a sine qua non, however. Circumstantial
evidence can establish an antitrust conspiracy. … We need
not decide whether the circumstantial evidence that we
have summarized is sufficient to compel an inference of
conspiracy; the case is just at the complaint stage and the
No. 14-2301 5
test for whether to dismiss a case at that stage turns on the
complaint’s “plausibility.” …
The plaintiffs have conducted no discovery. Discovery
may reveal the smoking gun or bring to light additional
circumstantial evidence that further tilts the balance in fa-
vor of liability.
In re Text Messaging Antitrust Litigation, supra, 630 F.3d at627–29; see also, for example, White v. R.M. Packer Co., 635
F.3d 571 (1st Cir. 2011).
In short, we pointed to the small number of leading firms
in the text messaging market, which would facilitate con-
cealment of an agreement to fix prices; to the alleged ex-
changes of price information, orchestrated by the firms’
trade association; to the seeming anomaly of a price increase
in the face of falling costs; and to the allegation of a sudden
simplification of pricing structures followed very quickly by
uniform price increases.
With dismissal of the complaint refused and the suit thus
alive in the district court, the focus of the lawsuit changed to
pretrial discovery by the plaintiffs, which in turn focused on
the alleged price exchange through the trade association and
the sudden change in pricing structure followed by uniform
price increases. Other factors mentioned in our first opin-
ion—the small number of firms, and price increases in the
face of falling costs—were conceded to be present but could
not be thought dispositive. It is true that if a small number of
competitors dominates a market, they will find it safer and
easier to fix prices than if there are many competitors of
more or less equal size. For the fewer the conspirators, the
lower the cost of negotiation and the likelihood of defection;
and provided that the fringe of competitive firms is unable
6 No. 14-2301
to expand output sufficiently to drive the price back down to
the competitive level, the leading firms can fix prices with-
out worrying about competition from the fringe. But the
other side of this coin is that the fewer the firms, the easier it
is for them to engage in “follow the leader” pricing (“con-
scious parallelism,” as lawyers call it, “tacit collusion” as
economists prefer to call it)—which means coordinating
their pricing without an actual agreement to do so. As for
the apparent anomaly of competitors’ raising prices in the
face of falling costs, that is indeed evidence that they are not
competing in the sense of trying to take sales from each oth-
er. However, this may be not because they’ve agreed not to
compete but because all of them have determined inde-
pendently that they may be better off with a higher price.
That higher price, moreover—the consequence of parallel
but independent decisions to raise prices—may generate
even greater profits (compared to competitive pricing) if
costs are falling, provided that consumers do not have at-
tractive alternatives.
Important too is the condition of entry. If few firms can
or want to enter the relevant market, a higher price generat-
ing higher profits will not be undone by the output of new
entrants. Indeed, prospective entrants may be deterred from
entering by realization that their entry might lead simply to
a drastic fall in prices that would deny them the profits from
having entered. And that drastic fall could well be the result
of parallel but independent pricing decisions by the incum-
bent firms, rather than of agreement.
The challenge to the plaintiffs in discovery was thus to
find evidence that the defendants had colluded expressly—
that is, had explicitly agreed to raise prices—rather than tac-
No. 14-2301 7
itly (“follow the leader” or “consciously parallel” pricing).
The focus of the plaintiffs’ discovery was on the information
exchange orchestrated by the trade association, the change in
the defendants’ pricing structures and the defendants’ ensu-
ing price hikes, and the possible existence of the smoking
gun—and let’s begin there, for the plaintiffs think they have
found it, and they have made it the centerpiece—indeed, vir-
tually the entirety—of their argument.
Their supposed smoking gun is a pair of emails from an
executive of T-Mobile named Adrian Hurditch to another
executive of the firm, Lisa Roddy. Hurditch was not a senior
executive but he was involved in the pricing of T-Mobile’s
products, including its text messaging service. The first of
the two emails to Roddy, sent in May 2008, said “Gotta tell
you but my gut says raising messaging pricing again is noth-
ing more than a price gouge on consumers. I would guess
that consumer advocates groups are going to come after us
at some point. It’s not like we’ve had an increase in the cost
to carry message to justify this or a drop in our subscription
SOC rates? I know the other guys are doing it but that
doesn’t mean we have to follow.” (“SOC” is an acronym for
“system on a chip,” a common component of cellphones.)
The second email, sent in September 2008 in the wake of a
congressional investigation of alleged price gouging by the
defendants, said that “at the end of the day we know there is
no higher cost associated with messaging. The move [the lat-
est price increase by T-Mobile] was colusive [sic] and oppor-
tunistic.” The misspelled “collusive” is the heart of the plain-
tiffs’ case.
It is apparent from the emails that Hurditch disagreed
with his firm’s policy of raising the price of its text messag-
8 No. 14-2301
ing service. (The price increase, however, was limited to the
PPU segment of the service; we’ll see that this is an im-
portant qualification.) But that is all that is apparent. In em-
phasizing the word “col[l]usive”—and in arguing in their
opening brief that “Hurditch’s statement that the price in-
creases were collusive is thus dispositive. Hurditch’s state-
ment is a party admission and a co-conspirator statement”—
the plaintiffs’ counsel demonstrate a failure to understand
the fundamental distinction between express and tacit collu-
sion. Express collusion violates antitrust law; tacit collusion
does not. There is nothing to suggest that Hurditch was re-
ferring to (or accusing his company of) express collusion. In
fact the first email rather clearly refers to tacit collusion; for
if Hurditch had thought that his company had agreed with
its competitors to raise prices he wouldn’t have said “I know
the other guys are doing it but that doesn’t mean we have to
follow” (emphasis added). They would have to follow, or at
least they would be under great pressure to follow, if they
had agreed to follow.
As for the word “opportunistic” in the second email, this
is a reference to the remark in the first email that T-Mobile
and its competitors were seizing an opportunity to gouge
consumers—and in a highly concentrated market, seizing
such an opportunity need not imply express collusion.
Consider the last sentence in the second, the “colusive,”
email: “Clearly get why but it doesn’t surprise me why pub-
lic entities and consumer advocacy groups are starting to
groan.” This accords with another of Hurditch’s emails, in
which he predicted that the price increase would cause “bad
PR [public relations].” Those concerns would be present
No. 14-2301 9
whether the collusion among the carriers was tacit or ex-
press.
Nothing in any of Hurditch’s emails suggests that he be-
lieved there was a conspiracy among the carriers. There isn’t
even evidence that he had ever communicated on any sub-
ject with any employee of any of the other defendants. The
reference to “the other guys” was not to employees of any of
them but to the defendants themselves—the companies,
whose PPU prices were public knowledge.
The plaintiffs make much of the fact that Hurditch asked
Roddy to delete several emails in the chain that culminated
in the “colusive” email. But that is consistent with his not
wanting to be detected by his superiors criticizing their
management of the company. The plaintiffs argue that, no,
the reason for the deletion was to destroy emails that would
have shown that T-Mobile was conspiring with the other
carriers. If this were true, the plaintiffs would be entitled to
have the jury instructed that it could consider the deletion of
the emails to be evidence (not conclusive of course) of the
defendants’ (or at least of T-Mobile’s) guilt. But remember
that there is no evidence that Hurditch was involved in, or
had heard about, any conspiracy, and there is as we’ve just
seen an equally plausible reason for the deletion of the
emails in question. There’s nothing unusual about sending
an intemperate email, regretting sending it, and asking the
recipient to delete it. And abusing one’s corporate superi-
ors—readily discernible even in Hurditch’s emails that were
not deleted—is beyond intemperate; it is career-
endangering, often career-ending. Hurditch and Roddy
acknowledged in their depositions that at least one of the
deleted emails had criticized T-Mobile’s senior management
10 No. 14-2301
in “emotional” terms. Furthermore, if T-Mobile destroyed
emails that would have revealed a conspiracy with its com-
petitors, why didn’t it destroy the “smoking gun” email—
the “colusive” email?
Even if the district judge should have allowed the jury to
draw an adverse inference from the destruction of the
emails, this could not have carried the day for the plaintiffs
or even gotten them a trial. T-Mobile’s Record Retention
Guidelines indicate that Hurditch and Roddy had no obliga-
tion to retain their correspondence, because the guidelines
state that employees need not retain “routine letters and
notes that require no acknowledgment or follow-up” as dis-
tinct from “letters of general inquiry and replies that com-
plete a cycle of correspondence.” Hurditch’s emails to Rod-
dy were not inquiries; they were gripes and worries. Nor can
a subordinate employee’s destruction of a document, even if
in violation of company policy, be automatically equated to
a bad-faith act by the company.
The problems with the plaintiff’s case go beyond the in-
conclusiveness of the “colusive” email on which their briefs
dwell at such length. The point that they have particular dif-
ficulty accepting is that the Sherman Act imposes no duty on
firms to compete vigorously, or for that matter at all, in
price. This troubles some antitrust experts, such as Harvard
Law School Professor Louis Kaplow, whose book Competi-
tion Policy and Price Fixing (2013) argues that tacit collusion
should be deemed a violation of the Sherman Act. That of
course is not the law, and probably shouldn’t be. A seller
must decide on a price; and if tacit collusion is forbidden,
how does a seller in a market in which conditions (such as
few sellers, many buyers, and a homogeneous product,
No. 14-2301 11
which may preclude nonprice competition) favor conver-
gence by the sellers on a joint profit-maximizing price with-
out their actually agreeing to charge that price, decide what
price to charge? If the seller charges the profit-maximizing
price (and its “competitors” do so as well), and tacit collu-
sion is illegal, it is in trouble. But how is it to avoid getting
into trouble? Would it have to adopt cost-plus pricing and
prove that its price just covered its costs (where cost includes
a “reasonable return” to invested capital)? Such a require-
ment would convert antitrust law into a scheme resembling
public utility price regulation, now largely abolished.
And might not entry into concentrated markets be de-
terred because an entrant who, having successfully entered
such a market, charged the prevailing market price would be
a tacit colluder and could be prosecuted as such, if tacit col-
lusion were deemed to violate the Sherman Act? What could
be more perverse than an antitrust doctrine that discouraged
new entry into highly concentrated markets? Prices might
fall if the new entrant’s output increased the market’s total
output, but then again it might not fall; the existing firms in
the market might reduce their output in order to prevent the
output of the new entrant from depressing the market price.
If as a result the new entrant found itself charging the same
price as the incumbent firms, it would be tacitly colluding
with them and likewise even if it set its price below that of
those firms in order to maximize its profit from entry yet
above the price that would prevail were there no tacit collu-
sion.
Further illustrating the danger of the law’s treating tacit
collusion as if it were express collusion, suppose that the
firms in an oligopolistic market don’t try to sell to each oth-
12 No. 14-2301
er’s sleepers, “sleepers” being a term for a seller’s customers
who out of indolence or ignorance don’t shop but instead
are loyal to whichever seller they’ve been accustomed to buy
from. Each firm may be reluctant to “awaken” any of the
other firms’ sleepers by offering them discounts, fearing re-
taliation. To avoid punishment under antitrust law for such
forbearance (which would be a form of tacit collusion, aimed
at keeping prices high), would firms be required to raid each
other’s sleepers? It is one thing to prohibit competitors from
agreeing not to compete; it is another to order them to com-
pete. How is a court to decide how vigorously they must
compete in order to avoid being found to have tacitly col-
luded in violation of antitrust law? Such liability would, to
repeat, give antitrust agencies a public-utility style regulato-
ry role.
Or consider the case, of which the present one may be an
exemplar, in which there are four competitors and one raises
its price and the others follow suit. Maybe they do that be-
cause they think the first firm—the price leader—has in-
sights into market demand that they lack. Maybe they’re
afraid that though their sales will increase if they don’t fol-
low the leader up the price ladder, the increase in their sales
will induce the leader to reduce his price, resulting in in-
creased sales by him at the expense of any firm that had re-
fused to increase its price. Or the firms might fear that the
price leader had raised his price in order to finance product
improvements that would enable him to hold on to his exist-
ing customers—and win over customers of the other firms. If
any of these reflections persuaded the other firms—without
any communication with the leader—to raise their prices,
there would be no conspiracy, but merely tacit collusion,
No. 14-2301 13
which to repeat is not illegal despite the urging of Professor
Kaplow and others.
Competitors in concentrated markets watch each other
like hawks. Think of what happens in the airline industry,
where costs are to a significant degree a function of fuel
prices, when those prices rise. Suppose one airline thinks of
and implements a method for raising its profit margin that it
expects will have a less negative impact on ticket sales than
an increase in ticket prices—such as a checked-bag fee or a
reservation-change fee or a reduction in meals or an increase
in the number of miles one needs in order to earn a free tick-
et. The airline’s competitors will monitor carefully the effects
of the airline’s response to the higher fuel prices afflicting
the industry and may well decide to copy the response
should the responder’s response turn out to have increased
its profits.
The collusion alleged by the plaintiffs spanned the period
2005 to 2008 (the year the suit was filed), and we must con-
sider closely the evolution of the text messaging market in
that period. Text messaging (a descendant of the old telex
service) started in the 1990s and started slowly. In 2005, 81
billion text messages were sent in the United States, which
sounds like a lot; in fact it was peanuts—for by 2008 the
number had risen to a trillion and by 2011 to 2.3 trillion. One
reason for the rapid increase was the advent and increasing
popularity of volume-discounted text messaging plans.
These plans entitled the buyer to send a large number of
messages (often an unlimited number) at a fixed monthly
price that made each message sent very cheap to the sender.
We’ll call these plans “bundles,” and ignore the fact that of-
ten a text messaging bundle includes services in addition to
14 No. 14-2301
text messaging, such as voice and video messaging. The
pricing of text messaging bundles (for example charging a
fixed monthly rate for unlimited messaging) largely replaced
the original method of pricing text messages, which had
been price per use (PPU), that is, price per individual mes-
sage, not per month or per some fixed number of messages.
Once text messaging bundles became popular, the PPU
market shrunk to the relative handful of people who send
text messages infrequently. The collusion alleged in this case
is limited to that market.
In 2005 the price per use was very low—as low as 2 cents,
though more commonly 5 cents. But between then and late
2008 all four defendant companies, in a series of steps (10
steps in all for the four companies), raised each of their PPUs
to 20 cents. The increase attracted congressional concern and
an investigation by the Justice Department’s antitrust divi-
sion, but neither legislative nor prosecutorial action result-
ed—only the series of class actions suits consolidated in 2009
in the suit before us.
The popularity of text messaging bundles took a big bite
out of the PPU market. The consumers left in that market
were as we said those who sent very few messages. The total
cost to such users was very low. Each defendant company
made, so far as appears, an independent judgment that PPU
usage per customer was on average so low that the customer
would not balk at, if he would even notice, an occasional in-
crease of a few cents per message. Suppose a grandparent
living in Florida sends one text message a week to his
grandchild in Illinois at a cost of 5 cents a message. That
adds up to roughly 4 messages a month, for a total of 20
cents. The text messaging service now doubles the price, to
No. 14-2301 15
10 cents a message. The monthly charge is now 40 cents. Is
the customer likely to balk? When in 2006 Sprint raised its
PPU from 10 cents to 15 cents, it estimated that the average
result would be an increase of 74 cents a month in the cost of
the service for the vast majority of its PPU customers. Nei-
ther in our hypothetical example nor in Sprint’s real-world
analysis is a competing carrier likely to spend money adver-
tising that its PPU price is 5 cents lower than what the com-
petition is charging.
Our earlier discussion of “sleepers” is relevant here. As
heavy users of text messaging switched from PPU to bun-
dles, the PPU market was left with the dwindling band of
consumers whose use of text messaging was too limited to
motivate them to switch to bundles or to complain about
small increases in price per message. And they certainly
weren’t going to undergo the hassle of switching companies
just because they would be paying a few dollars a year more
for text messaging. This is no more than a plausible interpre-
tation of the motive for and character of the price increases
of which the plaintiffs complain, but the burden of establish-
ing a prima facie case of explicit collusion was on the plain-
tiffs, and as the district judge found in his excellent opinion
they failed to carry the burden.
Granted, the defendants overstate their case in some re-
spects. They point out that each company conducted inde-
pendent evaluations of the profitability of raising their PPUs,
but one would expect such “independent” evaluations even
if the firms were expressly colluding, as the “independent”
evaluations would disguise what they were doing. The firms
contend unnecessarily that the evaluations showed that the
contemplated price increases would be profitable even if
16 No. 14-2301
none of the other three carriers raised its PPU. That is over-
kill because it is not a violation of antitrust law for a firm to
raise its price, counting on its competitors to do likewise (but
without any communication with them on the subject) and
fearing the consequences if they do not. In fact AT&T held
back on raising its PPU for several months, fearing that
Sprint’s increase would have a bad effect on public opinion,
and raised its own price only when the bad effect did not
materialize.
The plaintiffs point out that the existence of express col-
lusion can sometimes be inferred from circumstantial evi-
dence, and they claim that they produced such evidence,
along with Hurditch’s emails, which they term direct evi-
dence of such collusion—which, as we know, they are not.
Circumstantial evidence of such collusion might be a decline
in the market shares of the leading firms in a market, for
their agreeing among themselves to charge a high fixed price
might have caused fringe firms and new entrants to increase
output and thus take sales from the leading firms. Circum-
stantial evidence might be inflexibility of the market leaders’
market shares over time, suggesting a possible agreement
among them not to alter prices, since such an alteration
would tend to cause market shares to change. Or one might
see a surge in nonprice competition, a form of competition
outside the scope of the cartel agreement and therefore a
possible substitute for price competition. Other evidence of
express collusion might be a high elasticity of demand
(meaning that a small change in price would cause a sub-
stantial change in quantity demanded), for this might indi-
cate that the sellers had agreed not to cut prices even though
it would be to the advantage of each individual seller to do
No. 14-2301 17
so until the market price fell to a level at which the added
quantity sold did not offset the price decrease.
The problem is that these phenomena are consistent with
tacit as well as express collusion; their absence would tend
to negate both, but their presence would not point unerring-
ly to express collusion. And anyway these aren’t the types of
circumstantial evidence on which the plaintiffs rely. Rather
they argue that had any one of the four carriers not raised its
price, the others would have experienced costly consumer
“churn” (the trade’s term for losing customers to a competi-
tor), and therefore all four dared raise their prices only be-
cause they had agreed to act in concert. For that would min-
imize churn—PPU customers would have no place to turn
for a lower price. There is, however, a six-fold weakness to
this suggested evidence of express collusion:
First, a rational profit-maximizing seller does not care
about the number of customers it has but about its total rev-
enues relative to its total costs. If the seller loses a third of its
customers because it has doubled its price, it’s ahead of the
game because twice two-thirds is greater than one (4/3 > 3/3).
Second, in any case of tacit collusion the colluders risk
churn, because no one would have committed to adhere to
the collusive price. And yet tacit collusion appears to be
common, each tacit colluder reckoning that in all likelihood
the others will see the advantages of hanging together rather
than hanging separately.
Third, the four defendants in this case did not move in
lockstep. For months on end there were price differences in
their services. For example, during most of the entire period
at issue (2005 to 2008) T-Mobile’s PPU was 5 cents below
18 No. 14-2301
Sprint’s. To eliminate all risk of churn the defendants would
have had to agree to raise their prices simultaneously, and
they did not.
Fourth, while there was some churn, this does not imply
that each defendant had decided to raise its price so high as
to drive away droves of customers had the other defendants
not followed suit. T-Mobile, for example, appears not to
have gained a significant number of customers from charg-
ing less for PPU service than Sprint. (As one internal T-
Mobile email puts it, “we should seriously consider raising
our pay per message rate … . [F]or having the lowest mes-
saging rates on the planet, we are not necessarily receiving a
more favorable share of the market. I’m thinking we can
move to 10c[ents] with little erosive concerns.”) One reason
is that, as noted earlier, while 5 cents can make a large per-
centage difference in this market, it is such a small absolute
amount of money that it may make no difference to most
consumers, especially when a nickel or a dime or 20 cents is
multiplied by a very small number of monthly messages.
More important, as a customer’s monthly messaging in-
creases, and also the price per message (as was happening
during this period), the alternative of a text messaging bun-
dle plan becomes more attractive. A company that stands to
lose some PPU customers because of a price increase may be
confident that they will not abandon the company for anoth-
er but instead sign on to the company’s text messaging bun-
dle plan. Put differently, there is no evidence that PPU pric-
ing is a major determinant of consumers’ choice of carrier.
Fifth, the period during which the carriers were raising
their prices was also the period in which text messaging
caught on with the consuming public and surged in volume.
No. 14-2301 19
Many PPU customers would have found that they were text
messaging more, and the more one text messages the more
attractive the alternative of a bundle plan. The defendants
wanted their PPU customers to switch to bundles; as an in-
ternal T-Mobile email in the plaintiffs’ appendix explains,
“the average cost to serve an ‘Unlimited SMS’ [i.e., a bun-
dled short-message service at a fixed price regardless of the
number of messages, “short message” referring to a simple
text message, rather than a message having voice or video
content] customer paying $9.99 [per month] is $1.90 per
month and [we make] a profit of $8.09 per sub[scriber].”
And sixth, if the carriers were going to agree to fix prices,
they wouldn’t have fixed their PPU prices; why risk suit or
prosecution for fixing such prices when the PPU market was
generating such a slight—and shrinking—part of the carri-
ers’ overall revenues? The possible gains would be more
than offset by the inevitable legal risks. Furthermore, since
an agreement to fix prices in the PPU market would have left
the carriers free to cut prices on the bulk of their business
(for they are not accused of fixing bundle prices), the slight
gains from fixing PPU prices would be negated by increased
competition in the carriers’ other markets.
The plaintiffs argue that many of the price increases were
forced by senior management on the middle managers who
would ordinarily be responsible for pricing decisions. The
claim is that it would be the senior officials, few in number,
at each company who would have negotiated the actual col-
lusive agreement that the plaintiffs must prove. But what the
record shows is merely (as in the Hurditch emails) that there
was disagreement within each company about the optimal
price to charge, obviously a speculative matter since no one
20 No. 14-2301
could be certain how either competitors or consumers would
react to any price change. There was plenty of evidence that
proposals for price increases came from middle manage-
ment. An economist would say (one of the defendants’ eco-
nomic experts did say) that as the price-sensitive users
moved off PPU to bundles, leaving PPU to the sleepers, the
overall demand for PPU became less elastic, meaning that a
given percentage increase in the price of PPU service had a
smaller negative effect on the demand for the service. That
made raising the PPU a revenue winner.
It remains to consider the claim that the trade association
of which the defendants were members, The Wireless Asso-
ciation (it has a confusing acronym—CTIA, reflecting the
original name of the association, which was Cellular Tele-
phone Industries Association), and a component of the asso-
ciation called the Wireless Internet Caucus of CTIA, were
forums in which officers of the defendants met and con-
spired to raise PPU prices. Officers of some of the defend-
ants attended meetings both of the association and of its
caucus, but representatives of companies not alleged to be
part of the conspiracy frequently were present at these meet-
ings, and one of the plaintiffs’ expert witnesses admitted that
in the presence of non-conspirators “the probability of collu-
sion would go away.” Still, opportunities for senior leaders
of the defendants to meet privately in these officers’ retreats
abounded. And an executive of one of the defendants
(AT&T) told the president of the association that “we all try
not to surprise each other” and “if any of us are about to do
something major we all tend to give the group a heads
up”—“plus we all learn valuable info from each other.” This
evidence would be more compelling if the immediate sequel
to any of these meetings had been a simultaneous or near-
No. 14-2301 21
simultaneous price increase by the defendants. Instead there
were substantial lags. And as there is no evidence of what
information was exchanged at these meetings, there is no
basis for an inference that they were using the meetings to
plot prices increases.
This and other circumstantial evidence that the plaintiffs
cite are almost an afterthought. They have staked almost
their all on Hurditch’s emails—the name “Hurditch” recurs
more than 160 times in the plaintiffs’ opening and reply
briefs. It’s a mystery to us that the plaintiffs have placed
such weight on those emails, thereby wasting space in their
briefs that might have been better used. The plaintiffs greatly
exaggerate the significance of the emails, but apart from the
emails the circumstantial evidence that they cite provides
insufficient support for the charge of express collusion.
It is of course difficult to prove illegal collusion without
witnesses to an agreement. And there are no such witnesses
in this case. We can, moreover, without suspecting illegal
collusion, expect competing firms to keep close track of each
other’s pricing and other market behavior and often to find
it in their self-interest to imitate that behavior rather than try
to undermine it—the latter being a risky strategy, prone to
invite retaliation. The plaintiffs have presented circumstan-
tial evidence consistent with an inference of collusion, but
that evidence is equally consistent with independent parallel
behavior.
We hope this opinion will help lawyers understand the
risks of invoking “collusion” without being precise about
what they mean. Tacit collusion, also known as conscious
parallelism, does not violate section 1 of the Sherman Act.
Collusion is illegal only when based on agreement. Agree-
22 No. 14-2301
ment can be proved by circumstantial evidence, and the
plaintiffs were permitted to conduct and did conduct full
pretrial discovery of such evidence. Yet their search failed to
find sufficient evidence of express collusion to make a prima
facie case. The district court had therefore no alternative to
granting summary judgment in favor of the defendants.
AFFIRMED.