The Supreme Court was recently required to reconcile the tension, if any, between the Telecommunications Act of 1996 and the U.S. antitrust laws in Verizon Communications, Inc. v. The Law Offices of Curtis V. Trinko, LLP, 2004 U.S. LEXIS 657. Opinion writer Justice Antonin Scalia first observed that had there been no savings clause to preserve conventional antitrust enforcement in the telecommunications industry, it would have been an easy matter to dispatch plaintiff’s complaint. However, when faced with the statute’s explicit statement of intention to preserve the right for a “victim” to so litigate, the Court nonetheless sided with the Telecommunications Act, holding that its pervasive regulation provided sufficient means to ensure adequate competition, so that the risk of a “false positive” from the unbridled enforcement of the Sherman Act could be avoided. The Court concluded, “In short, the [regulatory] regime was an effective steward of the antitrust function.”

Trinko’s complaint alleged that Verizon discriminatorily filled orders of local exchange carrier competitors (like AT&T) only after filling those for its own local phone service and that it otherwise provided poor service to those customers employing such carriers. However, the Court concluded that Trinko’s alleged problems had already been resolved by prior action of the FCC and the New York Public Service Commission. In fact, the Telecommunications Act prohibits, and provided an effective governmental remedy for, the very discrimination of which Trinko complained. Thus, Trinko’s claims were essentially deemed moot.

The Court’s opinion also touched on the so-called “essential facilities” doctrine, which posits that when a competitor has a “facility” needed by others to compete, it must make that facility available to all comers on a nondiscriminatory basis. Justice Scalia first noted that this doctrine had never been recognized by the U.S. Supreme Court. Then, he explained, in the context of the Telecommunications Act, “where a state or federal agency has effective power to compel sharing and to regulate its scope and terms,” the essential facilities doctrine does not apply. Here “the 1996 Act’s extensive provision for access makes it unnecessary to impose a judicial doctrine of forced access.” The Supreme Court’s decision was unanimous, though just five other justices signed on to Justice Scalia’s opinion. (The other three justices would not have reached the merits, believing that Trinko lacked standing to recover ab initio.)

There may be a certain irony here, insofar as a conservative majority of the Supreme Court came to the view that governmental “intrusion” into the otherwise free market is worthy of preemptive respect over presumably riskier private antitrust enforcement. Alternatively, the recognition of preemption by a pervasive regulatory regime may be the only way of providing this complex industry with predictable guidance as to the rules that apply. Other similarly regulated industries may similarly benefit by this precedent.

Submitted by: Martin J. Thompson, 714.371.2530