Court clears path for antitrust suits

The U.S. Court of Appeals for the Second Circuit has ruled that consumers have the right in certain circumstances to bring antitrust actions against incumbent carriers. But it also said that an alleged violation of an interconnection agreement between incumbent and competitive carriers does not by itself provide the grounds for an antitrust action.

The Second Circuit, which covers New York, Connecticut and Vermont, affirmed in part and vacated in part a district court ruling on a class action suit brought against Bell Atlantic. The suit accused Bell Atlantic, which later merged with NYNEX to form Verizon Communications, of causing harm to AT&T customers by allegedly failing to live up to an interconnection agreement between the carriers.

Verizon argued that such an alleged breach should be remedied through the administrative process prescribed by the Telecom Act and that allowing an antitrust action based on the allegation would disrupt the regulatory process.

The district court agreed and dismissed the class action suit in its entirety. In its decision, the court determined that plaintiffs could not bring antitrust action against Bell Atlantic because the damage suffered was the result of an indirect purchase of services from AT&T. It cited the doctrine of prudential standing, which prevents third parties from asserting the rights of others. In other words, AT&T could sue Bell Atlantic over an alleged violation of an interconnection agreement, but AT&T’s customers had no rights to sue.

The appeals court ruled that the lower court erred in dismissing the case based on that doctrine, citing Section 206 of the Communications Act of 1934, which holds common carriers liable to persons injured by the carrier’s violation of the Act, and Section 207, which gives persons damaged under Section 206 the right to bring action in federal court.

The appeals court also ruled that the plaintiffs could bring an antitrust claim against an incumbent when actions meant to harm a competitor also directly harms consumers doing business with the competitor.

This ruling contradicted the Seventh Circuit’s Goldwasser decision, which held that the Telecommunications Act of 1996 superceded and provided immunity from antitrust laws. The Second Circuit determined that the Telecom Act does not provide “implicit immunity” from antitrust laws. Moreover, it said antitrust laws might be necessary to supplement the regulatory process in order to bring competition to local markets.

“The record does not allow us to conclude that the regulatory process has successfully eliminated the risk of anticompetitive behavior in this particular market,” wrote Judge Robert A. Katzman.

However, the appeals court let stand the lower court’s decision that plaintiffs cannot bring an antitrust claim based solely on an alleged violation of an interconnection agreement. The court reasoned that once an incumbent carrier entered into an interconnection agreement, it was then regulated by that agreement. The court said Congress envisioned that negotiated parts of an interconnection agreement could “result in a different set of duties than those defined by the statute,” and that forcing incumbents to adhere to the “broadly worded language” of Section 251 of the Telecom Act would make negotiating interconnection agreements “superfluous.”

The Second Circuit’s affirmation of consumers’ antitrust rights potentially could have a significant impact on incumbents, as antitrust damages are trebled. However, John Thorne, deputy general counsel for Verizon, said the ruling, when taken on the whole, means consumers will be able to file antitrust suits against incumbents “only in very special cases.”