On March 31, 2003, the Ninth Circuit added its voice to the chorus of uncertainty over whether competitive local exchange carriers ("CLEC") can pursue antitrust claims under the Sherman Antitrust Act against incumbent local exchange carriers ("ILEC"). MetroNet v. USWest, 2003 WL 1618668 (9th Cir. 2003). The Circuit Courts are split over the issue of whether the 1996 Telecommunications Act ("1996 Act") provides sole administrative rights and remedies for alleged violations by incumbent telephone companies that prevent a competitor from fully interconnecting, or whether antitrust remedies, such as treble damages and injunctive relief, also are available.

The Supreme Court has recently agreed to hear Verizon v. Trinko, 123 S. Ct. 1480 (2003). In Trinko, a New York attorney filed an action under Section 2 of the Sherman Antitrust Act against Verizon, contending that his firm was without phone service because Verizon allegedly gave his local provider, AT&T, a difficult time interconnecting. Trinko argued that the firm suffered as a result of Verizon's antitrust violations. The District Court dismissed Trinko's claims, but the Second Circuit Court of Appeals reversed and ruled that a consumer or competitor could sue Verizon for antitrust damages, in addition to any causes of action under the 1996 Act. This is the primary issue before the Supreme Court.

By way of background, the 1996 Act mandates a fundamental restructuring of the local telephone markets in all fifty states. See AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371 (1999). Importantly, Section 251(c) of the 1996 Act imposed new duties on ILECs to share their networks with new CLECs. There are three ways in which a CLEC may access an ILEC's network: (1) purchase local telephone service at wholesale rates; (2) lease elements of the ILEC's network on a unbundled basis; and (3) interconnect its own facilities with the ILEC network. A series of cases emerged involving consumers and competitors challenging the behavior of ILECs that allegedly impeded new competition in violation of the 1996 Act, as well as the antitrust laws.

The division among the Circuit Courts originated from the Seventh Circuit's holding in Goldwasser v. Ameritech, 222 F.3d 290 (7th Cir. 2000). The Seventh Circuit ruled that under the preemption doctrine, the 1996 Act's express redress for challenges against an ILEC's interconnection conduct supersedes relief available under the Sherman Act. Goldwasser involved a consumer class action alleging that Ameritech had violated the 1996 Act by blocking new entry in a local phone service area, which constituted unlawful monopolization under the Sherman Act. The Seventh Circuit's holding intimates that a violation of the 1996 Act could never be an antitrust violation. Both the Second Circuit in Trinko and the Eleventh Circuit in Covad Communications v. BellSouth, 299 F.3d 1272 (11th Cir. 2002) disagreed, finding that suits by consumers and competitors may proceed where they allege both regulatory violations of the 1996 Act and antitrust claims.

In the March 31, 2003 decision, the Ninth Circuit, agreeing with the Second and Eleventh Circuits, held that MetroNet Services Corporation had established triable issues of monopoly power to proceed on antitrust claims against the seller, Qwest, formerly known as USWest. Qwest had sold to MetroNet, a reseller of phone line access, a product called Centrex that entailed bulk discounted phone lines access. In turn, MetroNet resold Centrex to small businesses with 20 or fewer phone lines in the Seattle/Tacoma area. In 1997, Qwest altered the pricing structure and required that each location receiving Centrex service have at least 21 lines, disqualifying most of MetroNet's customers from benefiting from the volume discount features.

MetroNet claimed that Qwest's new pricing requirement violated Section 2 of the Sherman Antitrust Act by illegally monopolizing the small business market in the Seattle/Tacoma area. Qwest, relying on Goldwasser, argued that the 1996 Act gave the company implied immunity from MetroNet's antitrust claims because federal field preemption supersedes general antitrust laws covering the same field. The Ninth Circuit, however, disagreed and found no immunity for Qwest, instead finding sufficient evidence to support MetroNet's antitrust claims. The Ninth Circuit also noted that the Supreme Court strongly disfavors repeals of the antitrust laws by implication from a regulatory statute, unless there is plain repugnancy between the two laws. In addition, the 1996 Act contains a savings clause, which explicitly provides that there is no repugnancy between the 1996 Act and antitrust statutes.

The split among the Circuit Courts should ultimately be resolved when the Supreme Court hears the Trinko case in October. The only catch is that there are some apparent pleading infirmities in Trinko's complaint, which could muddy the issue at the Supreme Court. The Supreme Court should issue a decision late this year or early next year.

For more information go to: http://caselaw.lp.findlaw.com/data2/circs/9th/0135406p.pdf
http://laws.lp.findlaw.com/2nd/017746v3.html

Submitted by: Elise Dang, 202.463.4380