Could Trinko bring down the Bells? What began as an ordering mishap between Bell Atlantic and AT&T has turned into a Supreme Court case that could have significant implications for telecom regulation

America's Network, April 1, 2003 by Shira Levine

Until last month, only diehard antitrust experts knew much about Trinko vs. Bell Atlantic, an obscure antitrust case that had reached the 2nd Circuit Court in New York.

Back in March 2000, the former Bell Atlantic encountered problems with one of its operations support systems that accepted orders from competitors. The Federal Communications Commission issued a consent decree in which Bell Atlantic agreed to pay $10 million in compensation to affected competitive local exchange carriers (CLECs). One day later, however, attorney Curtis Trinko, a customer of AT&T, filed a lawsuit against the Bell on behalf of AT&T consumers, claiming that it was harming customers by denying AT&T access to Bell Atlantic's network.

Trinko lost his first legal round, when the district court of New York ruled that because he was not the directly affected party, he lacked standing to sue for antitrust violations. The 2nd District Court of New York disagreed, ruling that consumers could indeed sue Bells under antitrust law, a decision that Verizon appealed to the Supreme Court. The Court agreed to hear the case last month.

IS IT A CASE?

The issue before the Supreme Court is that of standing--whether the case should have been heard at all.

Verizon and its Bell brethren argue that consumers cannot sue them for antitrust violations because they are not directly affected.

"The Trinko case was brought by a consumer who didn't have any direct contractual relationship with the service provider," says Larry Sarjeant, vice president of regulatory affairs for the United States Telecom Association. "There should have been no cause of action in antitrust to begin with."

But antitrust experts and other industry members hope the Court will go beyond standing and settle other long-running debates, particularly the question of where competition-related disputes should be settled.

In one of telecom's earlier antitrust cases, MCI Communications Corp. vs. AT&T, the 7th Circuit applied to the telecommunications industry the "essential facilities doctrine," an antitrust tenet that holds that a company that controls a facility essential to its competitors may be guilty of monopolization if it refuses to allow them access to that facility.

At issue is whether the Telecom Act of 1996 was intended to eliminate antitrust litigation in the telecom industry. The Act codified principles that were set out in the Modified Final Judgment in 1982, such as the assertion that the regional Bell operating companies could not offer long-distance service because they had bottleneck control over the local market, and took those principles further, laying out the path by which the Bells could enter the long-distance market by opening their networks to competitors.

THE FINE PRINT

Some argue that by passing the Telecom Act, Congress intended the Federal Communications Commission and state regulatory bodies to handle competition-related disputes, not the courts. Goldwasser vs. Ameritech, a 2000 circuit court decision, seemed to back that claim by ruling that telecom antitrust claims fall under the jurisdiction of the FCC.

"There is no precedent in antitrust law for having to assist your rivals, as opposed to simply not interfering with your rivals," says Verizon's Thorney. "The 1996 Telecom Act requires companies to do that sort of affirmative assistance and put the FCC in charge of overseeing it."

But language is buried in the Telecom Act that could render that argument moot. Section 601b1 of the Act is a "savings clause," which states that nothing in the Act "should be contributed to modify, impair or supercede the applicability of the antitrust laws."

Tony Epstein, partner in the antitrust and telecommunications groups at law firm Steptoe & Johnson, believes that the savings clause clears the way for antitrust lawsuits against the Bells.

"Only a lawyer could love the argument that this doesn't mean what it says," he says. "I think the 1996 Act is clear that Congress intended to give competitive telephone companies and consumers of local telephone service the right to sue under antitrust laws."

Epstein also points out that competitive carriers, if wronged, should be entitled to collect damages from the offending ILEC, a process that the already overworked FCC is ill-equipped to handle. "The FCC isn't really set up to process large numbers of cases where people are seeking damages," he says. "The enforcement bureau has limited resources, and they can't sit down and figure out what the damages are that a specific company suffered."

Until now, only a handful of antitrust cases have come against the Bells, but the CLEC community has embraced antitrust litigation as a strategy to gain market share. The Bells worry that if the Supreme Court affirms the Trinko decision, it will open a floodgate of antitrust cases against them--a fear that Kaufman Bros. managing director Vik Grover believes may be well-founded.

"This could theoretically lead to a flood of new antitrust litigation," he says. "The Bells have hidden behind Goldwasser for years, and if the Court says that FCC policy does not supercede antitrust law, the incumbents are facing exposure. Ultimately, the Bells could be imploded by this--it's like asbestos litigation."