Tuesday, January 13, 2004

Antitrust News: Verizon and the Magna Carta

Today the Supreme Court issued its first antitrust decision of the Term, Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP. In a victory for opponents of antitrust expansion (that includes CAC), the Court unanimously reversed the Second Circuit’s opinion that allowed a class action antitrust case against Verizon to proceed. The case, initiated by a New York antitrust law firm, claimed that Verizon violated the antitrust laws by providing bad phone service.

Verizon operated New York State’s portion of the old Bell telephone monopoly. In 1996, Congress passed the Telecommunications Act, which required local telephone monopolies to give competitors access to their networks. The plaintiffs here were customers of AT&T, a Verizon rival. They claimed Verizon failed to meet its obligations under the 1996 Act to give AT&T timely access. As a result, the plaintiffs said they were the victim of Verizon’s deliberate efforts to maintain their local telephone monopoly.

The Court rejected this argument, reaffirming the traditional antitrust principle that merely refusing to deal with a competitor--in this case, Verizon’s alleged refusal to give AT&T access--does not itself violate the Sherman Act. Justice Scalia, writing for the court, said Verizon’s “prior conduct sheds no light upon the motivation of its refusal to deal upon whether its regulatory lapses were prompted not by competitive zeal but by anticompetitive malice”.

Scalia also noted that the 1996 Act imposed numerous regulatory burdens upon Verizon and other telephone companies, and that enforcement of those obligations would likely be undermined if the antitrust laws were thrown into the mix. Still, Scalia insisted on repeating the late Thurgood Marshall’s adage that the Sherman Act is the “Magna Carta of free enterprise”. Justice Marshall’s quote in its entirety, taken from U.S. v. Topco Associates, is notable for its deluded view of capitalism:
Antitrust laws in general, and the Sherman Act in particular, are the Magna Carta of free enterprise. They are as important to the preservation of economic freedom and our free-enterprise system as the Bill of Rights is to the protection of our fundamental personal freedoms. And the freedom guaranteed each and every business, no matter how small, is the freedom to compete - to assert with vigor, imagination, devotion, and ingenuity whatever economic muscle it can muster. Implicit in such freedom is the notion that it cannot be foreclosed with respect to one sector of the economy because certain private citizens or groups believe that such foreclosure might promote greater competition in a more important sector of the economy.
Unfortunately, Justice Marshall failed to recognize that when the government decides to protect the “freedom to compete,” it does so by taking away the rights of others to compete. When the government sets antitrust policy, it creates a fixed standard for conduct, any deviation from which can be condemned as a Sherman Act violation. Marshall also fails to distinguish the Bill of Rights--a limit on the powers of government--from the antitrust laws, a limit on the individual rights of man. Even the Magna Carta was a document designed to limit government power, not that of “private individuals or groups”.

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