Tuesday, May 20, 2003

Antirust News: Verizon Wins a Round

In the fall, the U.S. Supreme Court will hear an antitrust appeal brought by telephone giant Verizon over a Second Circuit decision forcing the company to stand trial over antitrust charges brought by a competitor’s disgruntled customers. Today, >another antitrust case against Verizon went better for the company:

A divided federal appeals court on Tuesday upheld a judge's dismissal of Cavalier Telephone's $635 million antitrust lawsuit against Verizon Virginia.

Cavalier, a Richmond-based company that sells local telephone service in competition with Verizon, alleged that Verizon had engaged in anticompetitive conduct aimed at reducing or eliminating Cavalier's ability to reach customers and raising its costs of competing with Verizon.

U.S. District Judge James R. Spencer dismissed the lawsuit in March 2002, ruling that the conduct cited by Cavalier amounted to federal Telecommunications Act violations "dressed up in antitrust garb." The 1996 Telecommunications Act laid the groundwork for competition for local telephone service.

In a 2-1 ruling, a panel of the 4th U.S. Circuit Court of Appeals agreed with Spencer. Judge Paul V. Niemeyer wrote in the majority opinion that "Cavalier's recourse is to the procedures and remedies afforded by the Telecommunications Act, not to those afforded by the antitrust laws."

Judge Morton I. Greenberg, a member of the 3rd U.S. Circuit Court of Appeals who was called in to hear the case, dissented. He wrote that while he agreed with much of the majority's opinion, Cavalier stated a claim that warranted further court proceedings.

Cavalier had alleged that Verizon was violating various federal anti-monopoly laws and telecommunications regulations and had breached an interconnection agreement. The lawsuit also claimed violations of the state's Uniform Trade Secrets Act, interference with contracts and economic advantage, and intentional misrepresentation.

There is an underlying conflict between the 1996 Telecommunications Act and the antitrust laws, the result of Congress’ deliberate decision not to incorporate an antitrust exemption into the 1996 law. This has led to significant confusion among the federal courts on whether violating the 1996 law—which imposes a number of burdens on the “Baby Bells” to open their networks to competitors—can justify an antitrust claim. In 2000, the Seventh Circuit in Chicago dismissed an antitrust complaint against Ameritech, holding that the antitrust allegations were inseparable from the Telecommunications Act allegations, and that alone could not sustain the antitrust claim. This ruling was something of a judicial standard until the Second Circuit’s contradictory decision in the Verizon case now before the Supreme Court.

In one sense, it would actually be better if Verizon loses its Supreme Court case, because then Congress would be forced to deal with the mess it created. The antitrust establishment already recognizes the potential disaster that would result if telecommunications companies were subject to antitrust suits for alleged violations of the 1996 Act. The Federal Trade Commission, in fact, filed an amicus brief with the Supreme Court calling for the Second Circuit’s decision to be reversed, citing concern that the lower court’s precedent would “improperly trivialize the antitrust laws” by encouraging parties to “seek antitrust remedies for ordinary commercial and regulatory disputes.” This is an odd charge coming from an agency that routinely pursues trivial matters, such as the ethics codes of private honorary societies.

Of course, what the FTC really means to say is that only they should engage in such trivial pursuits; letting everyone in on the fun would simply paralyze our court system, and by extension our economy.

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