*1 Suрreme Court has also made clear highly technical upon attacks affida- MCI COMMUNICATIONS CORPORA vits and warrants where sought and used TION and MCI Telecommunications are not to encouraged. Corporation, Plaintiffs-Appellees,
“These decisions recognition reflect the AMERICAN TELEPHONE AND commands, that the Fourth Amendment’s COMPANY, TELEGRAPH like all requirements, constitutional are Defendant-Appellant. practical and not abstract. If the teach- ings of the Court’s cases are to be fol- 80-2171, Nos. 80-2288. lowed and the policy constitutional United Court of Appeals, States served, warrants, affidavits for search Seventh Circuit. such as the here, one involved must be 19, Argued April 1982.* tested and interpreted by magistrates and courts in 12, a commonsense and realistic Decided Jan. 1983. fashion. They are normally drafted 9, As Modified Feb. 1983. nonlawyers in the midst and haste of a As Modified on Denial of Rehearing investigation. criminal Technical re- April 11, 1983.** quirements of elaborate specificity once As Modified After Denial of Rehearing exacted under common pleadings law 18, April 1983.** proper place no in this area. A grudging negative attitude review- 11, 1983. Certiorari Denied Oct. ing courts toward warrants will tend to S.Ct. discourage police officers from submit- ting their judicial evidence to a officer acting.”
before United States v. Ven-
tresca, supra, at
Wherefore, appellant’s conviction is
hereby AFFIRMED. replace hearing argued April disqualified originally this case on
*This case was reargued April Judge panel consisting then him. The case was of Circuit before Wood, Cudahy Wood, Jr., Judges Judge and Fair- Harlington Senior before Circuit Fairchild, Judge Senior District child. Thomas E. Wyatt, District B. of the United States Inzer ** Judge District of New York. for the Southern and Cir- Court WALTER J. CUMMINGS Chief Wyatt subsequently PELL, Judge with- Judges was forced to and RICH- F. Jr. cuit WILBUR orders, physician’s disqualified his draw from the case on themselves ARD A. POSNER Cudahy peti-' Judge was se- participate Richard D. and Circuit consideration did not judges rehearing from the of this court lected lot en banc. tions for *2 Wood, Jr., Judge, Circuit Harlington part part
concurred in and dissented opinion.
filed an *9 Kamin, 111., plain- Chicago, T.
Chester tiffs-appellees. Austin, Trienens, Sidley
Howard J. Ill., defendant-appellant. Chicago, TABLE OF CONTENTS
OPINION OF THE COURT
I. FACTS................................................1092 Background Entry A. and Initial of MCI....................1093 B. Disputes...........................1096 The Interconnection
C. The Execunet Decision................................1097 Pricing D. The Controversies Between AT&T...................................1098 Damage E. MCI’s Evidence...............................1099 II. REGULATION AND THE ANTITRUST LAWS ..............1100 Regulatory
A. The Federal Scheme for Telecommunications ................................1100 Implied Immunity....................................1101 B. Regulation..............................1105 Impact C. The *10 III. PREDATORY PRICING..................................1111 Jury
A. Instructions.....................................1111 Pricing....................................1112 Below Cost B. Defining Measures Cost.............................1114 C. Proper The D. Cost Standard.............................1119 E. Cross-subsidization...................................1123 Insufficiency of F. the Evidence...........................1125 Pre-announcement ...................................1128 G. Telpak Marketing H. Plan................................1130 IV. INTERCONNECTIONS ..................................1131
A. FX-CCSA Interconnections............................1132 The 1. Essential Facilities Doctrine.......:.............1132 Specialized Meaning 2. Common Carrier Decision ................................1133 Application 3. “Retroactive” of Execunet................1136 Regulatory Policy....................1137 4. Instructions on 5. Insufficient Evidence..............................1139 Evidentiary Rulings...............................1141 Impact................................1143 7. Substantial Tying..............................................1144 B. C. Disconnections.......................................1145 D. Denial of Interconnections Service Outside of Distribution Local Areas....................1145 Multipoint E. Service....................................1147 Inappropriate or Inefficient Interconnections F. ..............1150 V. BAD FAITH AND NEGOTIATIONS NOERR-PENNINGTON Filings...............................1153 A. State Tariff Negotiations................................1158 B. Bad Faith C. Other Conduct.......................................1159
VI. DAMAGES.............................................1160 Damages MCI’s Proof A. ..............................1160 Damages.................................1161 B. Causation Assumptions The Flawed C. Lost Study......................................1164 Profits Remand for New
D. a Partial Trial........................1166 VII. THE CONDUCT OF THE TRIAL..........................1169
A. Fair Trial...........................................1169 B. Theories of Defense ..................................1173
VIII. CONCLUSION..........................................1174
DISSENT .......................................................1174
I. AND HI-LO PRICING PREDATORY ......................1175 Inappropriateness Exclusively
A. The Cost-Based Standards...............................1175 History 1. The and Goals of the Act Sherman ............1177 Monopoly LRIC and Consumer Welfare in the Context ....................................... Predatory Pricing...................1184 B. Evidence of AT&T’s II. PRE-ANNOUNCEMENT OF HI-LO .......................1186 III. DAMAGE PROOF.......................................1187 Disaggregation......................................1187
A. Assumptions........................................1192 B. 1. The Assumption...........................1192 Revenue *11 APPENDIX.......................................................1195 Jury
A. Instructions.....................................1195 Special B. Verdict......................................1196 NOTE - Tr., Transcript following are used: Throughout opinion abbreviations Trial the - - - PX, DX, Appendix Opinion App. and of this Defendant’s Exhibit
Plaintiffs Exhibit CUDAHY, under section conspiracy monopolize Circuit to Before WOOD and —all conspiracy in Act3 —and FAIRCHILD, of Sherman Circuit Judges, Senior and 1 of trade —under section restraint of Judge. that AT alleged Act. & Sherman MCI CUDAHY, Judge. Circuit of miscon- twenty-two types committed had duct, categories in- classifiable into several case,1 de- antitrust extraordinary In this denial of inter- cluding predatory pricing, Telegraph American and Telephone fendant connections, negotiation in bad faith and (“AT T”) judg- from a Company appeals & trial, tying. unlawful MCI claimed billion, entered ment in the amount of $1.8 study originally a profits the basis of lost verdict, damage in suit jury a treble on a part financing purposes, in prepared brought by plaintiffs Communications MCI approxi- of damages it had suffered Corporation and MCI Telecommunications of AT & T’s mately million as a result $900 “MCI”) under sec- Corporation (collectively allegedly unlawful actions.4 Act, Clayton 4 of the tion U.S.C. § (1976).2 jury was between The case to tried After 6 and June 1980. com- February
I. FACTS chief, the district of MCI’s case in pletion original complaint, MCI’s filed March in favor of & T court directed verdict alleged mo- of separate twenty-two contained four counts: of the acts on seven attempt remaining and fifteen nopolization, monopolize, to misconduct.5 any conspire opinion recognizes debt with other nopolize The author of this his or combine or Wood, any part appreciation Judge persons, monopolize expresses person his to or of and to opinion plowed important among draft of this the several whose the trade commerce ground guilty and formed a what has be- shall of a felo- basis for States ... be deemed Judge majority opinion. Although come disagree Wood and the author on some here, fully points agree at issue about the we against filed AT T also a counterclaim & joint required produce Herculean efforts conspired attempted alleging that MCI and Further, “weighty” product. such a finished actually monopolize the relevant market recognize important we both contributions segment, Louis-Chicago monopolized the St. Judge product. Fairchild to of conspired in relevant mar- to restrain trade ket, wrongfully acquired or share stock Clayton Act, 15§ 2. Section 15 U.S.C. capital corporations, which substan- of other (1976), provides as follows: tially competition. The district court lessened Any person injured who in his shall be go permit any allegations to these did not property by anything business or reason challenge jury, and AT T does not & in sue forbidden the antitrust laws propriety appeal. of that action on United therefor district court of the in the district defendant States in which the a verdict favor 5. The district court directed agent, or is found without resides or has an allegations: following AT T on the seven & respect controversy, amount (1) inducing to file a tariff Western Union damages by shall recover threefold the sustained, him Louis-Chicago charges mirrored the St. suit, including cost of of‘MCI; capacity (2) increasing AT T’s attorney’s reasonable fee. business communications for conduct in data (3) competition; Act, destroying purpose in- § 3. Section Sherman 15 U.S.C. the troducing experimental discourage (1976), provides part: “Every per- service relevant MCI; dealing (4) monopolize, attempt potential mo- who shall customers from son based on section 2 of the Sher- A. charges Background Entry and Initial of MCI —all A jury. man Act —were submitted to Prior to the telecommunications in- special required jury verdict form dustry regulated as a monopoly. lawful separate finding make as to liability Local exchange service was and still is pro- each charges, permitted of the fifteen but exclusively twenty- vided one damages single lump to award in a System three Bell operating companies or sum, apportioning MCI’s claimed without *12 one by independent telephone some 1600 among financial losses AT & T’s various companies, depending upon geographi- the lawful and unlawful acts. The found Long cal area involved.8 distance service in favor of on ten of the fifteen MCI provided by was Long Depart- the Lines submitted, charges damages and awarded ment of equal partnership million —a sum to two thirds AT T in with these $600 figure the damage total claimed in MCI’s operating companies.9 The long network of aggregated profits study.6 lost The district distance transmission facilities was owned award, court re- damage trebled this Lines; in part by substantial Long how- Act, quired 4 of by Clayton section ever, interexchange facilities billion, in a ex- resulting judgment $1.8 telephone companies, local including both clusive attorneys’ of costs and fees. facilities, switching transmission and judgment & T filed motions for not- conjunction used in with Long Lines facili- or, in withstanding the verdict the alterna- required. ties efficiency whenever tive, for a new on 1980. trial June exchange local facilities and switching ma- These opinion motions were denied without belonging chines to the companies local 25, 1980, on August 1980. On July were also used at each end regular long of a & T of appeal. filed notice On Septem- distance call. 8, 1980, ber filed a of cross-ap- MCI notice This same nationwide network was used peal.7 reject this opinion, challenges In we by provide as well AT & T intercity to other to jury findings certain upon which AT & telephone services, including point-to-point based, liability T’s sustain other chal- lines, private lenges, foreign (“FX”) and for a trial exchange remand new lines issue of damages. and switching arrange- common control MCI; disparaging (5) bringing proceed- phones exchange, private sham behind a branch ings judicial designated before certain administrative when a access code such as “9”
bodies; (6) participating public in signal a massive dialed —a is sent central office. MCI; propаganda campaign against conducted switching machine in central office (7) refusing provide (a Telpak Joint responds signal by sending to this a dial tone special tariff) challenge not MCI. does calling party any enables to dial tele- propriety of the district court’s directed phone connected to the switched network with- verdict on of these issues. exchange in that area. DX 1828. Special reprinted Appen 6. The Verdict is in the Long operates 9. in a distance service manner infra, p. dix. See exchange typically similar to local service but Judge Grady 7. Because we hold that did not err two-step process involves a which in the user refusing alleging to admit evidence destruc- gains switching first access to local ma- T, tion of documents AT & we do reach through requests chine tone then dial portion a motion filed AT & to strike a long switching access ma- distance toll reply MCI’s brief on this issue. by dialing plus chine an area code the number telephone calling party wishes exchange telephone 8. Local service is the ordi- reach. If circuit is available handle the nary provided nearly service all homes and call, through calling party’s is routed standpoint, businesses. From a technical it in- nearby, central to a toll office over an office volves a wire connection between the tele- intercity city circuit to a toll office in that is phone switching nearby and a set machine in a called, being finally through the centred telephone company central office which is con- telephone office that serves the called to that switching nected transmission trunks Marshall, telephone. Wade, 3903-04; Tr. Tr. machines other central offices within the 4893; DX exchange telephone area. When the is taken off multiple the hook —or in the case of tele- and its linkage between terminals private MCI’s (“CCSA”). Point-to-point merits city. in each individual customers lines) (also called tie are connections lines require locations that do not between two pro- lengthy In after administrative because switching machines the use of local AT & T and the other ceedings on a to the customer the lines are available ap- opposed service carriers MCI’s general basis. FX and proposal. and exclusive MCI’s continuing plication, approved FCC Communications, Inc., 18 F.C. pur- for tariff Microwave CCSA, although classified 953, 966 (1969); C.2d F.C.C.2d services, require do private line poses as au- (1970).12 specifically The FCC’s decision switching local ma- interconnection with provide only point-to-point thorized MCI to chines.10 connection private requiring line service not Communications, Microwave the nationwide network —that switched MCI,11 Inc., corporation to predecessor is, lines that would connect two or more tie from the Federal requested permission switching the use of ma- locations without (“FCC”) to Communications Commission *13 at 953-54. The FCC chines. 18 F.C.C.2d operate long distance tele- construct and jurisdiction appropri- to order also retained Chicago between phone system St. ate local interconnections. proposed system The consisted of a Louis. deluge in a The decision resulted MCI city terminal in each and microwave radio authority to the FCC for applications new relay connecting towers the terminals. operate spe- facilities for to construct and Through system, pro- this MCI intended to MCI filed common carrier services. cialized distance, long private telephone vide line authority provide spe- for to applications industrial subscrib- service to business and than 100 among services more cialized justified ers whose needs exclusive appli- filed similar companies cities. Other long tele- semi-exclusive use distance which, cations, creating a situation phone sought line. MCI also interconnec- instances, carrier was many more than one ordinary tions from its terminals to local over seeking provide specialized to services facilities, telephone principally telephone situation, with this the same route. To deal running wires in conduits beneath rulemaking in- the FCC instituted a broad interconnections were essen- street. These consideration in quiry designed permit business, tial to do since ability policy questions MCI’s one proceeding applications. they provided telephone computer by raised these numerous personal standpoint, 10. From a FX mini version of the nation- technical and CCSA to obtain exchange telephone services are similar to local service in The FTS line that wide network. they provide switching a connection into a government offices is one ex- connects federal telephone company machine in a central office ample CCSA-type of a service. responds requests for network access by sending distinguishing as- opinion, a dial tone. The In Microwave Communica- pect switching of FX ma- service tions, Inc., corpora- its as well as successor telephone chine to which the is connected is tions, collectively as are referred to MCI. nearby telephone company located in the office, as, central office but is in a distant argued general that the service carriers example, telephone Chicago where a located in entry specialized carriers into the common switching is connected to a machine in New industry would be con- telecommunications City. arrangement permits York Such an trary public telecommu- interest because user make and receive calls in the distant provided be more eco- nications services could i.e., city though calls, they as if were local single supplier; nomically by a because addi- telephone the subscriber had a local in the duplicative systems microwave would be tional reason, city. distant For this FX service is wasteful; specialized carriers and because frequently used such businesses as airlines responsibilities general service would without agents. and hotel reservation averaged existing rate struc- “cream-skim” advantage CCSA service offers a similar selectively competing only along ture large flung subscribers who wish to link far routes, profitable long thus im- distance most private branches or offices to each other via density posing a heavier rate burden on low telephone through lines connected switches in telephone users. and local telephone company the local office. In es- sence, large CCSA service allows a subscriber Carriers, Specialized provided Common F.C.C.2d such facilities to Western Union, (1970) (Notice of Inquiry). under a longstanding contract be- tween those two carriers. AT T& disa- In June the FCC handed down its greed, claiming that the contract then in Specialized decision, Common ap- Carriers effect with Western Union did not reflect proving principle entry of specialized costs, T’s& current price and that long carriers into distance telecommuni- charged to MCI for local distribution facili- field, declaring cations as a matter of ties should set so toas recover AT T’s& policy that there be open competition should costs on a current basis. specialized services to which the deci- September AT & T entered into applied: sion F.C.C.2d 870 Be- interim contracts with defining T, cause AT & its reversing position, earlier kinds interconnections that AT T& agreed negotiate with MCI and other provide would for MCI’s initial Chicago-St. interconnections, new entrants for local route establishing price Louis FCC elected to defer consideration of MCI’s those interconnections. These contracts did claim that AT & T misusing power was not permit switched network connections telephone over local service gain com- services,, for FX or type CCSA nor petitive advantage potential specializ- over price set the contracts for local distribu- competitors. ed comparable tion facilities to that charged to Specialized FCC’s Common Carriers Western Union. hardly decision was a model of clarity.13 During this same period, time the original The decision did not specialized define the joined MCI investors forces with William *14 referred, services to which it nor did it McGowan, an experienced business execu- define the corresponding obligations that engineer, tive and to form a venture that expected the FCC general the (pri- carriers envisioned the eventual construction and marily T) AT & to assume in order to assist operation long of nationwide tel- distance contended, the new carriers. AT T& both ephone system. scrutiny After the of mar- at the time the FCC decision and ket it believed opened by had been the throughout pendency lawsuit, the of this Specialized decision, Common Carriers MCI Specialized Common Carriers deci- 74,000 created a plan contemplating sales of sion only authorized point-to-point private (leased telephone lines) circuits having an line services not requiring switched net- length average per circuit, of 500 miles or connections, work obligations and that million approximately 37 circuit by miles14 of the Bell System only provid- extended to the end of 1975. According plan, ing local distribution facilities for these expected MCI average its revenues to $1.00 point-to-point private MCI, line services. per circuit mile excluding AT & T’s local contrast, by has consistently taken the posi- connection charges, which MCI intended tion that Specialized Common Carriers pass Projected on its customers. annual decision authorized it provide FX and revenues for 1975 approximately were $350 services, type CCSA well as point-to- projections, million. Armed with these point private lines, and that AT T & had MCI proceeded by to raise million June $110 corresponding obligation to provide it with 1972, making largest start-up it one of the the switched network required connections history ventures in Wall Street. The contended, for these services. MCI also analysis funds were raised after review and both before and after Specialized Com- by leading large equipment lenders and decision, mon Carriers T AT & was suppliers who either lending were the funds obligated provide it with local distribu- underwriting guaranteeing or the financ- tion at facilities the same ing. rate which AT Indeed, judge
13.
the district
in this case charac-
14.
miles
Circuit
measure the total distance cov-
by
given
terized
decision as an “abomination”
and
all lines
ered
leased
customers
legal
McGowan,
examples
“one of the worst
draftsman-
month.
Tr. 355-56.
ship I have ever seen.” Tr. for FX
CCSA serv-
network
its Chi-
switched
operations over
commenced
MCI
service to cus-
1,1972.
point-to-point
In
ices and
January
cago-St. Louis route
distribution
outside
local
tomers located
began construction
the fall of
MCI
service;16
area,15
multipoint
including
system,
its
segment
nationwide
first
original
extending east and south from
being
was
(2)
claimed that
it
MCI
ex-
initially
route. MCI
Chicago-St. Louis
discriminatory
charged excessive
of its
portion
the first
pected
complete
facilities
prices for
local distribution
and commence customer
national network
System;
Bell
by the
provided
major parts
system
service over
being
it
ha-
(3)
claimed that
was
MCI
Expansion to a second
late
summer
employees
Bell
System
rassed
cities was
group
and a third
smaller
of local distribution facilities
provision
years. MCI
follow over the next
three
installation, im-
through delays, improper
expenditures
planned
capital
to fund these
proper maintenance and other similar
capitalization,
its
million
initial $110
practices.
fi-
anticipated
from substantial additional
charges. Both
AT & T
each of these
denied
revenues.
operating
and from
nancing
dealings with MCI
in its direct
members,
T
FCC staff
AT &
responses to
Disputes
B. The Interconnection
Specialized
position
that the
adhered to
was
During late
while construction
authorized
decision
Common Carriers
progressing,
negotiations
into
MCI entered
switched
requiring
service not
private line
T
provision by
T
AT &
with AT & over the
AT T also contend-
network connections.
of interconnections and local distribution
with
providing
MCI
all
ed
system. Be-
expanded
facilities on the
MCI
was entitled
interconnections to
experienced diffi-
previously
cause MCI had
prices
charging
it was
and that
culty obtaining satisfactory interconnec-
those
not excessive
interconnections
segment,
Chicago-St.
tions for its
Louis
unfair.
experienced lawyer-negotia-
MCI hired an
negotiations
still
August
tor
to secure a national
interconnection
MCI,
informing
AT &
pending, and without
T
agreement
permit
with AT & that would
forty-nine
to file with
decided
*15
MCI
serve
entire market
believed
to
it
interconnection
utility
state
commissions
had
These
opened.
negotiations
FCC
applicable to
equally
tariffs that would be
1972,
began
September
in
and continued
MCI and Western
including
all carriers —
nine
progress
with little
for
the next
interconnection tariffs
By filing
Union.
months.
than with
with the state commissions rather
During this
MCI
to
period,
appealed
same
it
FCC,
& T made more difficult
AT
it
help
breaking
the FCC for
in
down what
since,
tariffs,
to
in
oppose
MCI
negotiat-
viewed as
& T’s unreasonable
official, the
AT & T
intercon-
words of one
ing
Through
stance.
of informal
series
spread
would
“controversy
nection
staff,
complaints and conferences with FCC
af-
2148 at 2031. Even
jurisdictions.” PX
treating it
charged
MCI
that AT
T was
&
decision,
making
ter
this unilateral
tariff
question
on the
of interconnec-
unfairly,
“negotiate”
T
with MCI.
AT & continued
tions,
respects:
in at least three
accidentally learned of
state
After MCI
however,
formally
T
(1)
plan,
unlaw-
tariff
&
MCI claimed that AT & was
negotiations.
broke off all contract
fully denying it interconnections
dispute
re-
to an interconnection between
15. The
local
areas
entitled
over
geographic
distribution
City
within
B
lated to the
boundaries
AT & T
its terminal and the
terminal
provide
obligated
direct,
local
which AT & T was
MCI-
could obtain
so that the customer
infra, pp.
City
City
facilities
provided
MCI.
1145-1147.
"A and
C.
service between
City
City
segment
A to
B
for the
Revenues
Multipoint
service involves
situation
would,
course,
AT & T. See
redound to
private line
has
AT T
which a customer
&
infra, pp. 1147-1150.
B,
private
A and
and an
between Cities
MCI
B
line between
and C. MCI claimed
Cities
16, 1974,
early
top
April
several
MCI On
despite
October
assurances that
Strassburg,
met with Bernard
officials
the FCC’s “show cause” decision was ex-
Bureau,
Common Carrier
Chief of
FCC
now,”
pected “any day
and despite FCC
plan
designed
to discuss a
resolve
warnings that disconnection of MCI’s cus-
interconnection controversies between MCI
tomers would violate the Communications
plan,
and AT & T. Pursuant
to this
FCC Act, AT & T
its
operating
ordered
local
4, 1973,
Burch, on October
issued
Chairman
companies to disconnect MCI’s customers on
Commission,
reject-
a letter
behalf of the
twenty-four
alleged
hours notice. MCI
ing
regulatory
AT & T’s resort
to state
resulting
caused
disconnections
turmoil
agencies
asserting
as unlawful and
exclu-
among
seriously
its customers and
damaged
jurisdiction
sive FCC
over the interconnec-
reputation
April
reliable service. On
thereafter,
dispute.
tion
MCI
Shortly
23,1974 eight days after the Third Circuit
—
wrote to Mr.
as
Strassburg, inquiring
injunction
had vacated
obtained
scope
nature and
the services that MCI
issued a
ordering
MCI —the FCC
decision
provide
was authorized
and for which AT
disputed
AT & T to
provide
intercon-
obliged
T was
to supply
&
interconnections
nections.17 Bell System Tariff Offerings
the Specialized
under
Carriers de-
Common
Local Distribution Facilities for Use
cision.
Strassburg replied by
Mr.
letter
Carriers,
Other Common
46 F.C.C.2d
19, 1973,
dated October
these services
FCC,
Bell Telephone
aff’d sub nom.
Co. v.
CCSA,
included FX and
as well
services
(3d Cir.1974),
(D.C.Cir.1980), broadly deaveraged national rate structure. L.Ed.2d deButts, Tr. 4038-39. 20. AT & T had initiated studies to consider a projections 21. The revenue for the “undam- deaveraged early rate structure as as aged” adjusted MCI were downward shortly approval after the of MCI’s FCC’s Chi- delays account some and uncertainties cago-St. proposal Louis line. The initial result- fairly MCI officials felt were not attributable to ing “excep- from those studies was a so-called Uhl, 3228-37; AT & T. Tr. PX 1203. tion tariff’ which would have matched MCI’s Chicago-St. rate over the Louis as route soon operations. MCI assumed that the effects of AT & T’s MCI commenced Warned allegedly complete- exception economic advisors that such an unlawful conduct would be tariff perceived ly could be as violative of the antitrust eliminated as *18 laws, against approach T& decided
1100 rates, or un- unjust discrimination private in without profitability achieved have not, how- Act did business, including preference.25 and CCSA line even FX due for services services, ever, MCI’s costs such indus- subject since the telecommunications & T the rates AT substantially exceeded regulatory juris- and try to the broad tariff users charging large its business was then over railroads. enjoyed by diction the ICC to AT Telpak According tariff. under the Systems Essential Communications See T, MCI’s profits study lost showed & MCI’s T, 1114, (3d Cir. F.2d 1117-19 AT & 610 month per per costs to be circuit mile $.63 1979) early of telecom- (detailing regulation distribu- assuming that could obtain local industries). munication and railroad at con- tion facilities the Western Union Competition telephone among services per mile per tract rates and circuit $.74 was, early same in the geographic area month, if it had to for those facilities pay Thus, century, of life. part a fact charged prices on the basis of the current enactment, 1914, Act’s Clayton basis, by AT T. AT & & On either antimerger provisions26 a serious presented argued substantially that MCI's costs integrat- development obstacle of an hence, and, in excess of the rates Telpak Willis- telephone ed national network. The could these not undercut au- problem by Act addressed this Graham rates still have covered its costs.23 AT thorizing approve consolida- the ICC argued ordinary & T because also its into company properties of telephone tion na- long averaged distance rates are on a was if consolidation single companies such basis, tionwide and because state and feder- to whom ser- advantage persons “of re- regulatory policy traditionally al has public vice is to be rendered and quired long T to rates AT & set its distance 1921, Act ch. interest.” Willis-Graham high enough to profitable subsidize less 20, 47 (1921) (current 27 version at Stat. service, spe- telephone local MCI and other 221(a) (1976)). grant- carriers, U.S.C. by competing exclusively § cialized statute markets, express from the antitrust long immunity in the most lucrative distance ed artificially Id. easily could undercut AT & T’s laws such consolidations. long rates. elevated distance Thus, 1921, recognized law as of federal industry as a com- telecommunications AND THE II. REGULATION carrier, pro- subject mon to the consumer ANTITRUST LAWS provisions tection non-discrimination Regulatory A. The Federal Scheme anti- exempt Act the Mann-Elkins Telecommunications compet- liability trust for consolidations respects, ing systems. local In other service govern- The first venture the federal however, subject industry regulation ment into the of telecommunica- Indeed, 1914, govern- antitrust laws. tions Act was sectiоn of the Mann-Elkins de- ment suit consent produced antitrust 1910,24 telephone tele- added against AT & T. Essential Com- cree See graph list of car- companies common munications, n. 19. 610 F.2d at & riers regulated the Interstate Commerce enforce jurisdiction the ICC’s (“ICC”). The Act Aside from Commission Mann-Elkins AT & obligations, imposed com- AT & T’s common carrier upon newly-designated rates, its own mon ser- T was free to determine obligation provide carriers obliga- service upon request just on investment and vice and reasonable return 7, 309, 1910, by arguing, ch. § 23. Act MCI countered this contention 24. Mann-Elkins alia, Telpak computa- 539, (1910). inter that AT T’s Stat. rate applicable tions did include termination charges they 7, and that failed to for the account See §§ 25. Mann-Elkins Act of ch. actually percentage capacity of base used Stat. (the factor”). infra, pp. “fill customer 1165- Act, 323, 7, (1914) Clayton ch. 38 Stat. 731 § (1976)). (current 18§ version at 15 U.S.C. *19 1101 tions. Federal law did even it impose may prescribe not a “just and reasonable” AT an upon obligation substitute, & T to interconnect or set maximum and/or mini- other with communications common carri- 205; charges mum to be observed. Id. § ers, AT although & T’s local subsidiaries see Broadcasting Companies American v. subject regulation were at the state lev- FCC, 818, (D.C.Cir.1980). 822 Any el. Id. at 1119. carrier knowingly obey fails to FCC order issued under this is section liable 1934, Congress In enacted the Federal for per a fine of per day. violation Act, $1000 47 Communications 151 et U.S.C. § addition, any (1976), common carrier which or seq. which constitutes the does primary- regulatory federal for causes to be any mechanism the tele- done act or prohibited today. industry communications The 1934 declared unlawful the Communications regulation Act severed telephone, Act shall be person liable “to the or persons telegraph and radio industries from the so injured thereby for full amount of ICC, regulatory jurisdiction and vested over damages,” plus attorneys’ fees. 47 U.S.C. those industries in newly created Feder- 206 § al Communications Commission. The Act forward,
carried
verbatim,
almost
many
B.
Implied Immunity
provisions of the Mann-Elkins Act of 1910—
T& contends that the
example,
district court
just and
tariff
reasonable
should have dismissed this suit on its
requirement
prohibition
and the
motion
against un-
just
because the
regulatory
or unreasonable
FCC’s
control
discrimination.27 The
over
1934 Act
imposed
obliga-
also
certain new
& T’s conduct
AT T
renders
& immune
industry—
tions
the telecommunications
from antitrust
The trial
liability.28
court
example,
the requirement
that regulat-
denied the
motion
a well-reasoned memo-
ed
carriers
interconnect
or
establish
opinion.
randum
MCI Communications
through routes with other common carriers.
T,
Corp. AT
F.Supp.
(N.D.Ill.
& 462
201(a) (1976).
See U.S.C. §
1978). Judge Grady
legislative
traced the
Act,
history of the Federal Communications
respect
tariffs,
With
the 1934
con-
Act
and concluded that while AT
is subject
& T
the prior practice
tinued
tariffs be
regulatory
considerable
control and su-
generated,
instance,
at least in the
first
pervision, there is no indication that the Act
the carriers
themselves. Under
section
was meant
immunize
carrier such as
Act,
203(a) of the
these tariffs must be filed
AT &
antitrust
laws. 462
FCC,
with
give
carriers must
Moreover,
F.Supp.
1086-87.
he conclud-
public
FCC and the
ninety days notice of
ed,
regulatory
scheme to which AT T&
any proposed changes.
203(a)
47 U.S.C. §
subject
wholly
so
is not
inconsistent with
(1976);
(West
203(b)
U.S.C.A.
Supp.
§
immunity.
1982).
require
antitrust
laws as to
charge may
No
or
demanded
collected,
subject
conflicting
AT & T is not
require-
rendered,
except
service
ments,
nor would
be held liable for deci-
203(c).
accordance with a filed tariff.
Id. §
judg-
sions which were not its own
Section
of the Act
business
further authorizes
FCC,
either
ment. The district court noted that
sponte
upon
sua
request,
to conduct a
FCC
hearing concerning the
did
sanction AT & T’s conduct
lawful-
ness
the rates
with
proposed
regard
embodied in a
interconnections nor dictate
Thus,
suspend operation
tariff and to
of the tariff
tariffs.
while certain actions
for up to five
might
months.
Id.
If the
ultimately
subject
agen-
been
§
review,
Commission
cy
determines that
the new tariff
initial
decisions
Act,
does not meet the requirements of the
product
private
judg-
AT & T’s
business
Compare
1910,
309,
acknowledge
Mann-Elkins Act of
ch.
28. We
the brief on this issue
7, 12,
539, 544,
(1910)
36 Stat.
§§
the United States as amicus curiae.
Communications Act of
ch.
§§
(1934) (current
43 Stat.
version
201(b), 202(a) (1976)).
at 47 U.S.C. §§
*20
Only where
ment,
heavily regulated
casually
not
as
not
to be allowed.
and were
so
T’s
to
them
AT &
control.
between the
‘plain repugnancy
remove
from
there is a
will re-
regulatory provisions’
antitrust and
appeal, AT & T contends that
On
v. New York
peal
implied.” Gordon
be
incorrectly focused
district court’s decision
682,
659,
95
Exchange, 422
S.Ct.
Stock
U.S.
than immunity
on
rather
immunity
blanket
2598,
(1975)
2611,
(quoting
1105
-
(8th
comprehensive
Cir.1982),
denied,
The less than
nature
79
cert.
U.S.
-,
authority
814,
the FCC’s
over tariffs is
103
(1983)
further
74
S.Ct.
L.Ed.2d 1013
(no
for
huge
immunity
filing
reinforced
volume
tariff
rate
under similar
filings
provisions
received
During
Act);
Commission.
of Federal Power
City
period
Septem-
twelve month
between
Mishawaka
Michigan
Indiana &
Elec
Co.,
ber
August
example,
1974 and
for
tric
560
(7th
F.2d
1318-21
1,371
Cir.1977),
FCC received
filings, totaling
tariff
U.S.
S.Ct.
11,491 pages.
volume,
(1978)
Because
L.Ed.2d 765
(denying immu-
to investigate only
per-
nity
price squeeze
was able
a small
claim
arising out
centage
relationship
utility’s
tariffs filed.
United
between electric
filed
T,
wholesale
rates);
States v. AT &
at
and retail
F.Supp.
cf. Cantor v.
Co.,
Detroit
Recognizing
practical
these
Edison
limitations on
3110, 49
(1976) (denying
L.Ed.2d 1141
regulatory jurisdiction, the FCC has ac-
state
immunity
action
knowledged,
light-bulb-exchange
antitrust case involving
program contained in tariff
implied immunity questions
approved by
similar to those
public utility
state
commission).
here,
at
issue
that “rate filings generally
proceed from the
independent
carrier’s
C.
Impact
Regulation
...”
judgment
(quoting
Id.
Memo-
FCC,
30, 1975,
randum
filed December
Our conclusion that
& T
is not
pp. 19-20). Moreover, the FCC has consist-
entitled to antitrust
immunity
the in
ently maintained —in contrast to the
SEC
stant ease
does
mean that AT & T’s
exchange
the stock
cases relied
upon
regulated
status as a
common carrier
& T—that antitrust
pre-
enforcement is not
irrelevant
our
evaluation of AT & T’s
*23
cluded in this area.31
v. AT
United States
conduct.
the contrary,
industry’s
On
T,& 461 F.Supp. at
Finally,
regulated
as is the
important
status is an
“fact of
context,
case in the
life,”
interconnection
the ac- market
impact
pricing
of which on
tual FCC decisions
pricing
relevant
competitive
other
decisions “is too obvi
policies
as
challenged
predatory in the in-
ignored.”
ous to be
ITT v. General Tele
of,
stant ease
913,
have tended to disapprove
phone and
Corp.,
Electronics
518 F.2d
rather
than support,
policies.32
(9th
(footnote omitted).
those
We
Cir.1975)
935-36
where,
here,
reason,
thus conclude that
as
the pric-
Supreme
For this
Court has
ing
complained
decisions
of
recognized
are more the
repeatedly
that consideration of
result
business judgment
regulatory
than
regulation may
federal and state
be proper
coercion, and the FCC has neither
immunity
dictated
even after
issue
of antitrust
nor approved
decisions,
of those
the chal- has been resolved. United
v. Marine
States
lenged
filings
627,
rate
not
Bancorporation,
602,
are
immune from
418
94
U.S.
S.Ct.
scrutiny.33
City
antitrust
2856, 2872,
(1975)
See
“must
into account the
federal
take
con-
ute.
and state restraints
[defendant’s
mis-
produce
to do so would
Failure
duct].
Turner,
Law
Antitrust
1 P.
& D.
Areeda
go
the heart of the
conceptions that
(1978).
¶ 223d
itself”);
v.
York
see
New
doctrine
Silver
not,
in a
context or
regulated
Whether
341, 360-61,
373
83
Exchange,
Stock
U.S.
monopo-
the offense of
outline of
broad
1246, 1258-1259, 10
(1963)
L.Ed.2d 389
S.Ct.
recently,
Most
lization is well understood.
applicable statutory scheme
(although
stated:
Supreme
Court has
sufficiently pervasive to create antitrust
under
2 of
monopoly
The offense
§
regula-
acts of self
immunity, particular
(1) the
elements:
Act has two
Sherman
if in restraint of
be
tion —even
trade —
the rele-
monopoly power
in
possession
scheme);
justified with
to that
reference
acquisi-
381,
(2)
market and
willful
Tail,
93
1031
vаnt
Otter
410 U.S. at
S.Ct. at
(court,
remedy,
power
of that
fashioning
antitrust
or maintenance
tion
impervious
[regulated
develop-
“should
distinguished
growth
[not]
utility’s]
compulsory
assertion that
inter-
superior prod-
consequence
ment as
wheeling
will erode its inte-
connection
acumen,
uct,
or historic accident.
business
grated
capacity
system
threaten
563,
Grinnell,
v.
384 U.S.
United States
adequately
public”).
serve
570-71,
1698, 1703-1704, 16L.Ed.2d
86 S.Ct.
decisions of the
Similarly, several recent
Photo, Inc. v. East
(1966);
Berkey
see
appeals involving regulated
courts of
indus-
263,
Co.,
(2d
F.2d
274-76
man Kodak
sig-
tries
emphasized
“continuing
have
denied,
Cir.1979),
al-
regulation”
evaluating
nificance of
Such
reliance on
heavy
market
likely
share statistics is
to be
inaccurate
Although the district court’s instruc
or misleading
“monopoly pow
indicator of
might
tions in this area
have been more
er”
a regulated setting.
regu
In many
described,
helpful if
had
they
in more de
industries,
service,
lated
each purveyor of
tail,
specific regulatory
scheme to which
size,
regardless of
a monopoly
absolute
is in
Mid-Texas,
subject,
AT & T was
see
position
regard to
its customers.
In
1386-87,
instructions,
F.2d at
we believe the
deed,
a regulated
while
firm’s dominant
whole,
taken as a
adequately apprised the
share of
typically explains why
the market
jury of its
“to take
duty
into account the
subject
it is
regulation,
the firm’s statis
unique
regulatory
federal and state
re
tical dominance
also be the result of
subject.
straints”
& T was
Id.
regulation.
See United States v. Marine
We, therefore,
at
reject
AT & T’s
Bancorporation,
at
at
contention that
trial
court’s instructions
reasons,
regu
2875. For these
size
on
jury
this issue left
without
company’s
lated
market share should consti meaningful way
impact
to assess the
tute, most,
point
departure
in assess
regulation on the existence or non-existence
ing
power.
of monopoly
existence
Ulti
of AT & T’s
and constitut
monopoly power
mately,
analysis
directly
must focus
on ed reversible error.
ability
regulated
of the
company to
regulated
AT & T’s status as a
prices
competition
control
or exclude
—an
public utility also bears
the second ele
which,
turn,
requires
assessment
close
ment
monopolization
offense:
will
scrutiny
regulatory
quest
scheme in
maintenance of
acquisition
monopoly
ful
ion.34
power.
precise
dimensions of the “will
case,
In the instant
court
district
subject
fulness”
standard
been
that,
properly
instructed the
in deter
considerable
formula
litigation
varying
mining
possessed monopo
whether AT T&
involving unregulated
tions even
cases
*25
market,
ly power in the relevant
courts, building upon
industries.
Some
opinion
you may
Judge
consider the effect of the FCC’s
Learned Hand’s noted
America,
regulatory authority
exercise of
over United
v. Aluminum Co. of
States
Cir.1945),
prices
entry,
(2d
and
interconnec-
148
416
including
F.2d
concluded
Similarly,
monopolistic
presumed
tion.
that
can
you may consider
conduct
be
of
by
regulatory
possession monopoly
effect
the exercise
state
from the
of
un
power
agencies
regulatory authority
affirmatively
of
over
less the
firm
demon-
accused
See, e.g.,
actively
Insurance Co.
Blue
Travelers
v.
since rates
controlled and
re
were
Cross,
774,
(W.D.Pa.1972),
by
commission).
F.Supp.
361
780
viewed
state insurance
Cf.
aff’d,
denied,
(3d Cir.),
Railways
v.
1108
a
provide
its investors with
has been
of services
monopoly position
its
that
strates
432;
return, we believe that
it.” Id. at
see American
rate of
upon
“thrust
reasonable
States, 328 U.S. at
v. United
general
Tobacco Co.
more
intent should
something
than
at
Under
813-14, 66
1140-1141.
S.Ct.
Act
to establish a Sherman
required
be
conduct
ordinary
if the
business
of
analysis,
Brunner,
&
See also Watson
violation.”
acquisition
firm leads to the
or
a dominant
regulated
(willfulness by
574-79
supra,
that con-
monopoly power,
maintenance
only by
should
monopoly
be demonstrable
requisite
reflect
presumed
duct
ex-
predatory
conduct
other
evidence
monopolistic intent.
mer-
willful
Whatever
public policy).
acts
clusionary
contrary
may have in other con-
presumption
it this
and,
holding
our
in Mishawaka
reaffirm
We
texts,35
inap-
particularly
we believe
is a
therefore, reject
contention
cross-
MCI’s
monopolistic
propriate
identifying
means
requir-
erred in
that
trial court
appeal
regulated utility
or common
conduct
allegedly anti-
prove
MCI to
that each
ing
industries, anticipating
For these
carrier.
act
attributed to AT
competitive
practice
meeting all reasonable demands for
done with the intent maintain
& T was
obliga-
explicit statutory
is often an
service
in the relevant market.36
monopoly
See,
201(a) (1976)
e.g., 47
tion.
U.S.C. §
was also an
impact
regulation
common
every
be the
(“It
duty
shall
element of AT & T’s defense in
important
to furnish such communication
carrier
...
with
Particularly
regard
case.
the instant
therefor.”).
upon
request
reasonable
service
controversy,
T
the interconnection
AT &
the Alcoa
to such
apply
presumption
To
dealings
with MCI were
argued that
to holding
conduct would
tantamount
they represented
reasonable
regulatory
to a
obli-
that adherence
firm’s
could,
itself,
improper
comply
AT &
gation
good
attempt
constitute
faith
monopolization
in a section 2
under
201
regulatory obligations
willfulness
section
T’s
case.
Act.
&
Communications
instructions im-
claims that
trial court’s
has
declined to en
already
This circuit
prevented
consider-
properly
City
dorse such an anomalous result.
defense,
the instructions
ing this
Co.,
v.
Electric Power
Mishawaka American
concerning the overall
fatally
“silent
976,
(7th Cir.1980),
985
cert. de
616 F.2d
Act, the
structure of
Communications
892,
nied,
1096,
449
101
66
U.S.
under which
public interest standards
held
(1981),
specifically
824
we
L.Ed.2d
Act are administered
regu-
provisions
of a
particular
circumstances
“[i]n
carriers are
and to which common
utility ... entitled to recover its cost
the FCC
lated
1125,
United States v.
(1946);
Although many
reference to Al-
MCI must prove' however, than reject F.2d at 1389. We the fact that T’s conten AT & T to provide refused tion that provide the trial court’s failure to you know, interconnections. As exposition T more detailed & contends that it standards provide refused connections it contained Act because believed that it Communications con so, had not been reject ordered to do that MCI stitutes reversible error. We also service, was not MCI’s counter-argument authorized to the district provide and that it would have violated court’s instructions improperly estab- area regulatory lished policies placed upon for MCI re- disproving the burden of ceive the If subjective connections. AT & refused AT & T’s good faith. Cali the interconnections because rea- Products, of such Computer fornia Inc. v. IBM sons, believing good they faith that Corp., (9th Cir.1979) (hold justified refusal, then the refusal to ing that a verdict must be directed in favor provide the interconnections was not of defendant when plaintiff’s evidence is anti-competitive conduct be and cannot insufficient to establish that defendant act considered engaged conduct unreasonably). ed In the particular context purpose of maintaining monopoly. an industry subject to extensive and demands,
MCI has the proving rapidly changing regulatory burden of that in we refusing FX and is CCSA interconnec- believe an antitrust defendant enti tions AT & T acted with anti-competitive tled both to raise and to have jury Moreover, the trial court assured the business and on of de- decisions the merits services, fendant’s defendant cannot unlawfully found to a mo- maintained regulated the Sherman Act allows a firm plaintiffs nopoly. if hurt This so even monopoly power compete vigorously sought competition and defendant competition. whenever be faced with possible. retain as of its business as much long competitive So as the defendant’s re- App. sponses plaintiffs legitimate 1199-1200. were based on *27 economic, political social conse- and regula- adherence good
consider its
faith
transforming the telecommuni-
quences
antitrust
legitimate
as a
tory obligations
—is
Mid-Texas,
industry.
at
1389-
cations
defense. See
90;
Mishawaka,
Finally, we believe of anti- objectives the the meeting of broadest analysis relevant to our anti- lation is effectively they another, laws at least as as more trust principles trust subtle pursued by case. T, this court this way. might & the dominant firm in AT as the has under powers FCC exercised its regulated recently opened part The industry dual, Act and has instituted and Communications subject some- competition, changes in the pro-competitive regulatory sweeping principles times of conflicting, indicated, industry we accommo- already and As telecommunications antitrust law. demands of national commu- reconciled date the broad properly believe the trial court of We also note the role policy. AT nications by allowing these bodies of law & T and & T itself Department, its the Justice present good evidence as to faith belief in the consent federal district court require- in its with compliance regulatory recently & T addition, entered between AT regula- the fact of FCC decree ments. District government in the Court tion affects our view of the and to some extent of the District of Columbia. See United proper scope and appropriate purposes T, (1982). F.Supp. v. AT & 552 present spe- antitrust law in the States context — T ac- restructuring massive of we should focus our ex- The cifically, whether in that decree is additional efficiency complished amination on and con- economic which the through avenue issues sumer benefit or whether we should more Bell power economic in the expansively political and social concentration of consider power, are' System, political as well as consequences bigness or concentration Bork, Compare being R. addressed. power. economic Posner, (1978) R. Antitrust Paradox and popu- acknowledge approval We Sullivan, (1976) Antitrust Law with L. well as the antitrust laws as origins list of the Law of Antitrust Handbook § as Act preeminent role Sherman (1977) Pitofsky, and Political Content we of economic freedom.38 But charter Antitrust, (1979) 127 U.Pa.L.Rev. out, that, pointed as we have also believe Schwartz, and and Other Non- “Justice” pro-competitive about broad larger concerns Antitrust, Economic Goals of 127 U.Pa.L. political economic concentration and policy, (1979). Rev. 1076 very been, being and at this power have are regu- moment, effectively by the addressed may distinguish Certain tend to factors Congress. lators, possibly cases. ordinary monopolization this from Hence, appro- tended believe it subject to we have public utility public AT & T is a and in this case priate to at this time regulation, place in the focus occupying unique of economic effi- specific issues upon To extent American industrial scene. di- benefit which are ciency and consumer enjoyed economies of scale Thus, resolution resources, rectly presented. our technological and significant and un- allegations predatory pricing political until regulatory judgment, MCI to Bell’s failure to interconnect political has lawful recently, been to tolerate facilities has centered local distribution and social of its size in consequences prices whether cover costs reliable, questions interest of effective and ostensible are essential. whether denied facilities Now economic telecommunications service. are, course, to broader not insensitive been We regulatory judgment has drasti- indicated, issues, modified, political but all its social and cally competition —with Ry. 38. See Northern Pacific Co. United L.Ed.2d 1, 4, 514, 517, 2 States.
lili think our is to principal we that task deal to look at all the evidence and decide specific questions presented. with which depth truly the is the cost that reflects the of producing
actual cost the service. III. PREDATORY PRICING for determining test whether Hi- trial that alleged
At
MCI
AT & T had
the
predatory
Lo was
same as for Tel-
engaged
predatory pricing
of both its
question
it is a
pak. Again,
whether
Telpak
long
and Hi-Lo services for
distance
price
you
the
covered what
the
consider
jury
business communications. The
found
did,
it
applicable cost.
If
you may not
Telpak was lawfully priced,
that
but that
not,
intent.
If
did
predatory
you
infer
it
Hi-Lo was priced
fully
below its
distributed
may
predatory
infer
intent.
predatory.
disapprove
costs and was
We
finding
to Hi-Lo because
respect
result,
a
Tr. 11486-87.39 As
the special
instructions,
of erroneous
the use of an
jury
verdict
the
check
required
to
improper cost standard and
insufficiency
cost standard it felt was appropriate and
jury’s
the
We
the
disapprove
evidence.
also
prices
then decide whether AT & T’s
finding
unlawfully pre-an-
that
& T
below that measure of cost: either
or
LRIC
Further,
nounced its Hi-Lo tariff.
we re- FDC.
ject MCI’s cross-appeal on Telpak’s market-
This we hold to be error. The
ing plan
sustain
jury’s finding
the
that
of a
choice
cost-based standard
evaluat
Telpak
lawfully priced
was
and marketed.
ing
predatory
claims of
is a
pricing
question
of law to
trial
judge.
be decided
the
Jury
A.
Instructions
Thus, while several courts have
that
stated
One
the crucial issues
at
presented
appropriate cost-based standard for pre
the
proper
trial concerned the
de-
standard for
dation
may
depending
differ
on
facts of
termining predatory pricing.
parties
Both
case, see, e.g.,
Chillicothe
&Sand Gravel
presented expert
testimony on this issue.
v.Co.
Corp.,
Martin Marietta
It is
that courts
es-
timely
848,
Co.,
Distilling
(9th
570 F.2d
857
Cir.
objective
tablish
pric-
understandable
denied,
829,
439
ing
bring
1977),
standards which
into
cert.
99 S.Ct.
sharp fo-
U.S.
103,
cus
line
separates
(1978);
Engi-
122
Pacific
commenda-
58 L.Ed.2d
imply
intent,
pre-
proba-
40. We do not
mean
that direct
inferences
'of
which were of little
Brodley
precedential
tive evidence of a defendant’s
intent
inadmis-
dictive
value. See
&
infra,
Pricing: Competing
sible.
59.
Hay, Predatory
note
Economic
Legal
Stan-
Theories and the Evaluation
Early
predatory
antitrust cases could define
738,
dards,
(1981)
66
L.Rev.
765-67
Cornell
pricing
vague
verbal formulations relat-
Hay, Predatory
Brodley
cited as
&
[hereinafter
ing
predatory
competi-
intent and ruinous
Turner,
Pricing];
Predatory Pricing
&
Areeda
Co.,
tion. See Moore Mead’s
v.
Fine Bread
348
at 699.
115, 118,
149,
148,
99
U.S.
(1954);
75 S.Ct.
L.Ed. 145
FTC,
47,
Mfg.
Forster
Co. v.
335 F.2d
See,
Turner,
e.g.,
supra, at
3 P. Areeda & D.
denied,
906,
(1st Cir.1964), cert.
52-53
380 U.S.
189;
Posner, supra,
(1978); R.
at
Ar
¶711-15
887,
(1965);
85 S.Ct.
It is unfortunate course of the cost plant equipment regarded trial the case before us was characterized as as fixed contest between the and is included in the calcula- supporters oppo- *32 nents of the Areeda-Turner rule. At tion of a product’s marginal, trial short-run or long-run variable, incremental cost was incorrectly average cost. Long-run incremen- equated average with cost variable while cost, contrast, tal by measures all costs fully distributed cost incorrectly equat- adding product of a or new service—“fixed” ed average fact, with total cost. (and as well “capital” as variable costs as validity rule, of the Areeda-Turner based on items).45 Essentially, well as “operating” marginal costs, short-run is not at issue in the approach LRIC assumes all costs this case party because neither ever argued Hence, long become variable run. for a Rather, short-run cost standard. AT number of the criticisms that have been evidence, MCI, & introduced by unrefuted against leveled choice of a short-run showing prices that its Telpak for both and marginal are not applicable cost standard Hi-Lo above those services’ long-run cost. long-run use of incremental incremental costs. partic- use of long-run analysis may cost ularly important appropriate capital-intensive
There are economic differences long-run processes growth plant equip- between of incremental cost and where First, marginal short-run cost. incremental ment is marked. Pricing Predatory Practices, Scherer, Koller, See the Sher (1979);
44. 24 Antitrust Bull. 233 Comment, Predatory?, man A Pricing Act: When is 89 Harv.L.Rev. 868 24 Antitrust Bull. Predatory (1976); Turner, Scherer on Areeda & supra, (1979). Posner, also R. at 184- Reply, Pricing: (1976); A 89 Harv.L.Rev. 891 Scherer, Predatory Some Last Words on Pric ing, (1976); Williamson, 89 Harv.L.Rev. 901 long- 45. Professor William Baumol defined has Predatory Pricing: Strategic A and Welfare product run costs as incremental X “total Analysis, (1977); Yale L.J. 284 Areeda & company cost of the cost minus what the total Predatory Pricing, Turner, Williamson on produc- company be in the would absence Williamson, (1978); A Prelimi Yale L.J. 1337 X, by being quantity tion of of X all divided nary Response, (1978); 87 Yale L.J. 1353 Wil Baumol, produced.” Quasi-Permanence Predatory II, liamson, Pricing Williamson on Policy A Price Reductions: Predatory Pricing, for Prevention Critique (1979); Greer, Yale L.J. 1183 A 89 Yale L.J. 9 n. Predatory Areeda and Turner’s Standard context, multiproduct in the long- necessary, fore incorrectly equating In addition to by mar- costs are caused run incremental cost with short-run to determine what cost, variable) services, re- ginal (or average the district and this products (without guidance from the adequate (e.g., court incre- sort of differential quires some fully distribut- parties) incorrectly equated mental) methodology. (“FDC”) average total cost. ed cost context, fully dis In an antitrust Both these notions are incorrect because economically not an relevant tributed cost is simply as LRIC and FDC can be viewed cost and must be average definition of total total defining average ways different rejected First, as determinative.47 is a FDC (“ATC”) particular product cost of a among arbitrary allocation of costs quite multiple produces service for a firm that of service. There are different classes
products or services.46
methods,
allocating
FDC
each
countless
firm, average total
single product
For
mathematical
formul
costs
a different
of all
easily defined as the sum
cost can be
eco
Despite trenchant criticism
a.48
costs,
variable,
both fixed and
divided
be wide
continues to
grounds,49
nomic
FDC
by the
output produced
the total units of
alia,
inter
ly
regulatory purposes,
used for
average
to-
simple concepts
firm. Such
dividing
application
because of its ease
cost, however,
meaning
their
when
tal
lose
requirement
revenue
an authorized total
one considers a multi-service firm such
or services—
among
products
individual
non-joint
AT T.
common costs
& Joint
into slices. But
pie
much as a
is divided
of the same firm
among products
shared
those costs
purport
identify
cannot
FDC
sim-
impossible
render it
to calculate ATC
service,
product
caused
which are
by the
ply by adding up
dividing
costs and
to economic cost
and this is fundamental
output.
possible
number of units of
This is
determination.
prod-
produces
single
in a firm which
economically
rele-
also fails as
FDC
fashion for
proceed
uct. One cannot
in this
purposes
cost for antitrust
vant measure of
total num-
multiproduct firms because the
or embedded
it relies on historical
differ-
because
produced
many
ber of units
include
anticipated
current and
costs and
costs. For it is
products
ent
each with different
cost,
is rele-
there-
rather than historical cost that
price
different
and sales data.
It is
Principles
among
Bonbright,
“Average
it here refers
services.
J.
total cost” as we use
costs
*33
cost,
average
(1961).
Utility
is
to
total economic
as the term
The FCC
of Public
Rates 351
by
predatory pricing
employed
required
economists
in
at least
has
T to submit
itself
&
analysis.
generally Brodley Hay,
See
Preda-
in-
In the
seven different FDC cost studies.
tory Pricing.
“average
The term
total costs” is
case,
using
dif-
these seven
stant
cost studies
ratemaking
utility
to
also sometimes used in
at trial.
methods were introduced
ferent FDC
required
all the
refer to the revenue
to meet
signifi-
yielded
surprisingly,
a
Not
each method
accounting
utility enterprise.
costs of an entire
cantly
profile.
different cost
infra,
note 52.
highlight
simple example helps
the arbi-
A
methodology.
Imagine a rail-
objection
trariness of FDC
instant
47. No
made in the
has been
simultaneously transports
fully
three
cost
road line that
case to the introduction
distributed
Thus, nothing
opinion
gold,
If
products:
feathers.
evidence.
in this
should
lead and
different
admissibility
reflecting
calculate,
fully
attempted
be construed as
on the
on a
the railroad
fully
Under some
basis,
shipping
distributed cost evidence.
each
the cost'of
distributed cost
example,
operation
of a
circumstances —for
radically
products,
dif-
reach
of these
would
single product enterprise
economy—
in stable
a
depending
it allocated
results
on whether
ferent
average
may provide
balance
sheet costs
joint
basis of the
costs on the
and common
Posner,
acceptable proxy for LRIC. See R.
value,
respective
weight,
com-
of the
or bulk
FDC,
supra,
proxy, in
at 190. The use of
as a
shipped.
modities
contexts,
always open to examina-
various
is
tion.
150;
Kahn, supra,
J.
generally,
at
A.1
49. See
Radio,
Bonbright,
supra;
Inc. v.
Aeronautical
normally
Thus,
will
various FDC methods
1221,
FCC,
(D.C.Cir.1980)
642 F.2d
1236-47
produce quite
of the cost
different calculations
denied,
J., dissenting),
(Wilkey,
451 U.S.
cert.
utility
product
of a
or service.
In one electric
1998,
(1981).
101 S.Ct.
68 L.Ed.2d
to the existence
rate case one witness testified
apportioning
of at least 29 different methods of
Co.,
to business
Distilling
vant
decisions
enter markets Bros. v. American
price products.
manager
(9th
and
business
Cir.1977),
a decision
enter a
by
makes
new market
(1978).
99 S.Ct.
American Excelsior
T,
(2d
choice two different cost stan between rejected the explicitly Circuit Second may dards —LRIC or FDC —each of which reasoning that because AT & trial court’s argued average be to measure total cost. utility the use regulated was a multiservice average objective (and If total cost is appropriate. distributed cost was fully principle of cost causation is to be hon at 89-90. The Circuit reiterated Id. Second ored), we think that LRIC is and FDC is not maintaining price its conclusion that floor getting at it.55 appropriate method a haven for marginal provided above cost We, course, do not close the door on such It then detailed competitors. inefficient yet undeveloped other methods —as and un pricing of FDC on con- perverse effects firmly disclosed—as based on competitive process sumer welfare and relation of cause and effect between the the court examined and re- Finally, itself. or service involved and the costs it product required jected argument that FDC produces. cross-subsidization, explaining prevent cost no marginal if were above prices surprising
It is not that no court has ever contribu- could exist and in fact subsidies adopted fully appro- distributed cost as to the overhead of the tions would be made priate predatory pricing cost standard in a Id. at 90. also other Bell services. recently, case. Most Circuit re- Second Pacific Co. v. AT Communications jected fully adopted distributed cost and Southern T, (D.D.C. 1982). F.Supp. marginal predation cost as the test for a & using rejection rule av- regard being of the Areeda-Turner 55. We tried under a this case as previous average erage stipulation affirm our total cost variable costs. We that a form Thus, pricing predation. holding below aver- would be used to determine Chillicothe normally analyze age most one of the is the most variable cost we whether LRIC FDC pricing. predatory meaningful average indications of economic measure of total relevant analysis be construed as cost. This should not
1121
The Eighth
rejected
Circuit has also
petitor,
operate
did not
at a loss in
costs,
use of fully allocated
in
although
supplying
product.
75,625.
p.
Id. at
less definitive manner than the Second Cir-
court,
defendant,
in holding for the
In Superturf,
Co.,
cuit.
Inc. v. Monsanto
explicitly
average
chose
variable cost over
(8th Cir.1981),
pricing
FDC;
is,
properly
when
it
equated with
price
benefits of defendant’s
anticipated
multipro-
understood,
best measured
tendency
discipline
depended
incremen-
long-run
by average
en-
duct context
thereby
and
competition
eliminate
the case be-
Essentially,
this is
tal cost.
ability
reap
long-term
hance the firm’s
FDC, only measures
LRIC,
cause
unlike
If the
monopoly power.
the benefits of
to the ser-
causally related
costs which are
average
were below
prices
defendant’s
question.58
product
variable
vice or
average
total cost but above
overriding
anti-
may
in an
concern
permission
not be of
the field. Since the
FCC
to enter
powers
open up
trust context.
the tele-
extensive
FCC has
competition
industry
communications
to new
(including
compute
practically to
LRIC
58. How
competitive
permissible
and to “fine tune” the
appropriate,
proxies,
possible
where
use of
entry
prices by regulation, any
barriers to
such
780-86)
Predatory Pricing
Brodley Hay,
cf.
&
quibble
return,
This is not an economist’s
five rate of
earned on an allocated
musing;
or a theoretical
matter of
is a
rate base
rate
a lower
of return than did
principled analysis
practical reality
AT T long
certain other
distance services.
place. Pricing
long-
the market
at or above
return,
run incremental
competitive
cost in a
mar
differing
Such
rates of
ket
is a rational
profitable
business
however,
if correctly
meaningfully
even
practice. Because
legitimate,
there are
derived,
support
imposition
do not
compelling,
in fact
business reasons for
liability.
antitrust
The fact that different
products
pricing
long-run
at or above their
services
earn different
rates of return
cost,
incremental
no
intent should
predatory
largely reflects the realities of
competi
be presumed or inferred
such cond
tive market.60 Where a firm
competi
faces
*39
uct.59
tion,
is,
is more
demand
elastic —that
more
changes
prices
sensitive to
in
of
—because
E. Cross-subsidization
presence
of other firms producing sub
makes
sup-
MCI
one final
argument
products
stitute
to which buyers
turn.
may
use
port
fully
of
cost.
distributed
MCI Lower
returns
investment are
ex
to be
argues at considerable
length that
FDC pected
competitive
in
markets because each
methodology is required
prevent
AT & T firm, in
with
accordance
classical competi
subsidizing
competitive
its
services
practice,
tive theory and
will be
forced
with revenues derived
in
from services
prices
marginal
lower
toward
costs in order
which it retains a monopoly. MCI claims
to maintain its market share.
injures
that such
AT
“cross-subsidization”
presumes
argument
MCI’s
that customers
competitors
& T’s
as well as AT & T’s local
high-
of
services will have
monopoly
pay
customers,
monopoly
higher
who
pay
must
prices
er
& T prices
if AT
below
in
FDC
order
rates in
to “subsidize”
company’s
competition
markets where
is present. See
private
less profitable
line services. No-
Telephone
In Re American
& Telegraph
where does MCI
precisely
define
what
it
Co.,
587, 624,
F.C.C.2d
Such
by a
although
means
“cross-subsidy,”
arguments
the nature of
and
ignore
costs
presented evidence at trial
different
revenues in multi-service
AT
enterprise.
a
AT
T
differing
& services earned
rates of
& T’s
overhead
particular,
return.
In
unattributable
costs do
MCI noted that AT
service,
Telpak
& T’s
AT T offers
private
long
and other
line
increase when
&
a new
services,
showing
distance
a
although
posi-
when
a
is
they
nor do
decrease
such service
quite
appropriately
is a matter which we believe to be
man-
above an
of
derived measure
ageable
capable
development
and
long-run
of
on an on-
no
incremental cost. MCI has offered
going basis.
that,
evidence of
our
credible direct
intent
in
view,
presumption.
directly
this
rebuts
imply
do not
in all cases
We
intend to
only
all
and in
circumstances we
exam-
would
implication
theory
of
60. The
MCI’s
would
price-cost relationship
product
ine the
or
a
that a multiservice firm must earn a rate
merely suggests
judge
service. Our test
that a
equal
service at least
return for each
jury may
predatory
not infer
intent unless
capital
overall
for the firm. Such
cost
price
long-run
is below
incremental
cost.
requirement
illogical
since a firm’s overall
Thus,
agree,
principle,
Judge
we
with
least
capital
cost
is based on
level
of risk
advocacy
Wood’s
of the use of non-economic
investing
Grm
in the
and not in an individual
(or
rigorous economic)
less
in some
evidence
particularized
with
service faced
risks
however,
Considering,
among
cases.
other
Also,
competitive
to the
all
conditions.
extent
things,
regulatory
the extent of
control over
competition,
a demand that
case,
the services face
entry
prices
present
in the
and the
they
aggregate
highly ambiguous
earn the overall cost
nature of the non-economic
that,
capital
degree
submitted,
suggests
some serv-
evidence which has been
we think
figure,
price-cost relationship
others will
determina-
ices exceed this
fall short
must be
But,
arbitrarily
any
course,
appear “predatory.”
case
thus
In
tive.
some future
scope
event,
admit more
return
for “other
factors.” Chilli-
rate of
calculations must be based
cothe,
strong
any
arbitrary apportionments
plant
615 F.2d at
event
on a host of
presumption of
when
expenses.
lawfulness must attach
price is shown in
one to be
a case like this
T
whether
multiproduct
firm
When
& considers
discontinued. When a
expand
competitive
sales in a
long-
enter or to
prices
competitive
service above its
cost,
monopoly
market the old
service custom-
cross-subsidy
no
can
run incremental
long
stand to benefit so
as the new
pro-
the additional revenues
ers
occur because
the common
any part
customers bear
exceed all additional costs associated
duced
joint
costs. To determine whether mo-
competitive
provide
service and
customers will benefit from the
nopoly
the unallocable common
contribution to
operations in the
mar-
existing
competitive
firm’s
firm’s
costs otherwise borne
ket, one
calculate whether the
For
reason the
need
very
customers.
Second
mar-
competitive
revenues from the new
Telephone
Circuit
Co. v.
Northeastern
the incremen-
rejected
argu-
operations pay fully
a cross-subsidization
ket
tal or additional costs the firm incurs
ment
identical
to that advanced
If revenues cover these
operations.
these
here:
meas-
(including
capital
costs
cost of
plaintiff’s] argument in
favor
[The
variant of
ured
LRIC or
similar
fully distributed cost test
is based on a
marginal
measurement)
cost
then ANY
misunderstanding of the economic notion
additional
revenue earned above the
plaintiff]
of subsidization.
seems to
[The
monopoly
LRIC level is a bonus for the
product’s price
believe that whenever a
customers.
costs,
fails to
fully
cover
distributed
*40
J.,
enterprise
product’s
dissenting).
must subsidize that
(Wilkey,
H25 priced that Hi-Lo was below com- verdict promotion price antitrust laws—the standard. any cost under It is also inconsistent with petition. compe- explicit price endorsement
FCC’s time, Melody the first Dr. Testifying Specialized its Common Carriers tition in Hi- no evidence whatsoever that presented requiring rule decision. An antitrust measure cost. priced any Lo was below firm to at or above FDC price dominant chart, Melody introduced a Plaintiff’s Dr. effectively re- competitive markets purported prove which Exhibit competition quire forego price the firm to predatory by comparing Telpak share, market gradually abandon its with the costs associated with Hi-Lo price (cid:127) i.e., Constraining AT & T lose its business. argued that the costs Melody service. Dr. competitive services pricing to FDC of its attributable to both services were identical actually or permitting thus runs the risk of simply each service was a different because potentially competitors less efficient private for the same lines. marketing plan the telecommu- growing segment serve a Density of the Hi This chart shows the cost deprive market and thus consum- nications (Hi-D) per circuits to be circuit mile. $.65 competition.62 price Thus, ers of the benefits of own on this issue estab- proof MCI’s circuits63,
lishes that
AT & T’s Hi-D
mile,
per circuit
were sold for $.85
Evidence
Insufficiency
F.
fully
their
distribut-
priced
above even
$.20
an incor
In addition to reliance on
ed costs.
standard,
jury’s finding
rect cost
was reinforced on cross-
This admission
predatory
disapproved
Hi-Lo was
coun-
exchange
in an
between
examination
be set aside because MCI failed
must
Melody:
Dr.
sel for AT & T and
a jury
sufficient evidence to create
produce
Hi-Lo, you
Q:
turning
Now
back to
cost
priced
that Hi-Lo was
below
question
high
that the
contending,
you,
are not
are
testimony
of Dr.
under
standard.
*41
of the Hi-Lo tariff is be-
density portion
economist, ac
Melody,
regulatory
William
any
cost
measure?
by
low
documents,
certain
consti
companied by
high
not contended that the
A:
I have
presented
evidence MCI
only
tutes the
I
cost.
have
density rate is below
predatory pricing.
Melody
of
Dr.
the issue
in terms of
high density rate
assessed the
twice,
part
first in the latter
testified
costs.
4,
again
on June 3 and
February 1980
expressing misgiving
testimony
Despite
neither occasion did his
1980. On
Tr.
PX
Dr.
the costs reflected
to sustain
about
produce evidence sufficient
event,
presented
course,
based on
apart
pricing
evidence was
quite
no
62. Df
from antitrust
industry,
regula-
regulated
in this case.
such theories
in this
standards
competitive prices
tory agencies
evaluate
can
belatedly argues
not re-
63. it was
economically
by
they
standards
deem
whatever
quired
prove
Hi-D circuits were
that the
desirable, including
socially
See Aero
FDC.
priced
as a whole
but that Hi-Lo
below cost
FCC,
Radio,
1222
Inc. v.
nautical
argument
priced
This
defies
below cost.
was
logic
(D.C.Cir.1980), cert.
101
proof. The Hi-D circuits
as
as MCI’s
well
(1981).
Melody time, to was suggest evidence the first Hi-D cluding figure, best $.65 PX re- 2576,10481. MCI introduced Melody Tr. Dr. also below cost. available. below, computed a table that, data, which is examining produced Bell’s cost stated rev- Melody showing (cid:127)alleged Dr. various adjustments he unable make the was pri- for AT & T’s entire Hi-D costs enue deficiencies necessary demonstrate that telephone 2594. vate line service. any greater than Tr. $.65. AT&T PRIVATE LINE TELEPHONE SERVICE MILLIONS)
(IN $
1975
1973
1974
$172
$109
$120
$153
$164
REVENUE NECESSARY
TO COVER AT&T’S
OF
COST
CAPITAL
$
$
REVENUE AVAILABLE
$
$
$
($
($ 73)
($ 88)
($ 96)
($ 99)
72)
DEFICIENCY OF REVENUE
BELOW COST
line telephone
nue
Melody explained
preparation
private
Dr.
below costs
service.
his chart as follows:
Tr. 10474-76.
On the basis of Mr. Johnson’s
[an
[sic]
nor his
study,
Melody’s testimony
what I did
I
Neither Dr.
AT & T witness’s]
telephone chart reflect the sort
private line
every
examined
revenue that would be
necessary to
analysis
presentation
deducting
available after
all of the nor-
predatory pricing.
support a claim
operating expenses
mal
business....
summary
Melody’s
Dr.
chart
nature of
very
would make it
difficult
I did was I calculated
reve-
What
Dr.
determine the basis of his calculations.
for paying
nue
would be available
Melody
making adjustments
purports
the cost of
on the
of Mr.
capital
basis
exhibits
fully
to a series of
distributed cost
Johnson’s
studies....
[sic]
ex-
AT & T. Each
these
introduced
cost studies
hibits consisted
voluminous
*42
cost dis-
(using several different methods of
I then calculated
revenue that
studies,
of such
tribution), or summaries
necessary
be
to cover AT & T’s
would
private
line
which on their face stated
capital
cost of
as earned
the business
posi-
earned
telephone
Telpak
service and
as
a whole. That is indicated
first
under each FDC
of return64
tive rates
row. The revenues
would
neces-
Melody
in the studies. Dr.
method used
telephone
were
sary
private
if
line
service
(or even
calculation
provides us
no
pay
provide sufficient revenue
cost of
of AT & T’s overall
specification)
capital.
cost of
(including, presumably, embedded
capital
the revenue neces-
I then subtracted
deficiency
a
debt),
cost of
which establishes
and was
sary
by private
telephone
from
revenue available
line
in contribution
deficiency
able to
of reve-
calculate
cost.65
expressed
Tr.
after
into effect.”
10477. Con-
These
the studies as a
Hi-Lo went
earnings
operating
context of the other deficiencies
ratio of net
to net
invest-
sidered in the
many
in-
and the
variables
ment.
in the evidence
volved,
as
we do not consider
observation
Melody
“revenue
was “below cost.”
testified that
that Hi-Lo Hi-D
65. Dr.
also
evidence
deficiency”
“greater
shown in his chart was
Thus, Melody’s
Dr.
testimony is deficient
tion is defective for lack
specificity
why
to the reasons
he selected one of the
explanation of key elements and because
FCC’s at least seven cost methods or how he
“private
telephone”
line
inadequately
re-
adjusted
AT & T’s cost studies to
lated to the high density portion of the
produce the revenue deficiencies derived on Hi-Lo rate.68 This evidence falls below the
his chart.
Melody
Dr.
does not
what
state
legal
proof
standard of
necessary
support
percentage he used to calculate AT & T’s
a finding
predatory pricing.
Indeed,
rate,
cost of capital
nor
plant
what
items he
rejected
Second Circuit recently
summary
private
attributed to
line services for pur-
evidence of this sort in a predatory pricing
poses of calculating these capital costs.
case.
In Broadway Delivery Corp. v. Unit
Similarly, there is no
descrip-
definition or
America,
ed Parcel
Service
category, all its revenues
profits
its
in a third.
It
be that
whether and
all
tive date. How to determine
accounting
pre-an-
could have
expert
in cost
what
circumstances
under
figures
in these
a basis
gross
price might
discerned
lawful
consti-
nouncement of a
analysis,
plain-
for the
but the
required
is an ex-
monopolization
tute an act of
presented
tiffs
no such testimony.
re-
Unnecessarily
tremely delicate task.
the flow
likely
are
to inhibit
strictive rules
(citations omitted).
predatory
announced Hi-Lo
done with the intent
nouncement was
verdict on
price,
disap-
this count is
out of business.
putting Americana
be set
proved and must
aside.
that,
pric-
allegations
absent
court held
cost,
marginal
the announcement
ing below
by pre-announcing
MCI also claims that
healthy competition
the sort of
represented
Hi-Lo,
knowingly
public
AT & T
misled the
designed
laws were
which the antitrust
believing that the new tariff would be
into
court stated:
1129
would,
time,
that it
423,
three months
show Corp., 458
F.Supp.
(N.D.Cal.1978),
the same film in
city
another
for less.
per
aff’d
curiam
Corp.
sub nom. Memorex
v.
Americana’s complaint
only alleges
not
Corp.,
(9th
IBM
72. AT & T contends in its brief that the entire In addition to for, Telpak already paid wish- pre-announcement customer been of Hi-Lo is immunized ing previously must scrutiny by application unused circuit to utilize a antitrust charges. doctrine, pp. pay Noerr-Pennington terminal discussed infra additional 1153-1158. Inasmuch as we have concluded Telpak pre-announcement addition, marketing cannot be con- the bulk comparable antitrust laws we do micro- sidered a violation of the the user-owned made immunity. question designed to systems against not need to reach which it was wave compete. *46 hold, Telpak’s MCI also contends that “fiction- We as in the pric- case of the volume al routing” feature tended to restrict MCI ing of that Telpak, preda- in the absence of serving large private from line users. MCI tory pricing system a billing represents such argues that the routing fictional no violation antitrust laws.76 a Telpak pur- sense that customer who circuits, chased a example, bundle of IY. INTERCONNECTIONS York City Columbus, to Ohio from New and another of circuits bundle from Columbus years In the following Specializ- Toledo, Ohio could combine these circuits decision, major ed Common Carriers a Toledo, and make a call from New York to source of contention between MCI and AT which be would billed under Telpak. MCI T& was the extent which AT T & was injured because, contends that it has been obliged to interconnect with MCI’s facilities although New its Toledo to York is service to accommodate MCI’s needs. The inter- T’s, AT cheaper than & it serve does not part connection issue arose in because MCI Columbus and a customer commu- requiring in place had only facilities to serve a limited all penalized nications to three cities is part number of cities and in because MCI choosing MCI. provide was unable to local circuits nec- competitive disadvantage MCI’s in essary to connect its distance long service regard stems from fact that it telephone customer. MCI’s telecommu- only geo entered the market on a limited system nications consists transmission scale, graphic and not does reflect unlawful relay towers that be- impulses microwave predation by AT & T. What MCI calls tween terminals in the cities MCI serves. routing” merely represents “fictional In each of those must cities MCI connect its ability to one Telpak customer’s tack circuit terminals at telephones its customers’ onto way another such a that a call can provide locations. In order to full end-to- placed be between two distant con cities transmission, equipment end MCI’s at some string nected a of circuits —or between point must make contact with AT & T’s building intermediate cities. A customer a T, equipment through AT & because its private system linking microwave the same operating companies, controls the ser- local cities precisely would able to achieve vice MCI’s customers. AT & T also out, same result. As AT T points Telpak & provides long distance service to locations was designed upheld by the FCC —as —and fo- dispute covered MCI. The thus an alternative to private sys microwave on local interconnections between cuses tems, “fictional which routing” of premises MCI its towers and customers’ complains MCI no involves more than bill (discussed “multipoint” interconnections ing Telpak customer as if service were infra, 1147-1150) pp. between MCI provided over the same kind of facilities long towers AT T distance the customer would and certain & have available private system.75 from its own microwave circuits. alleging complaint 75. The is difference that AT & before him as situation physically signal having Telpak transmit over whatever where bundle be- a customer placed, circuits available City Washington, are when the call is tween York D.C. New matter which is irrelevant customer and from New York suburban of- could have calls competitive significance. without points Washington, D.C. suburban fices to Telpak Judge billed the same circuit. under connection, In this somewhat unclear arrangement, stating Richey upheld such an exactly from MCI’s brief what “fictional” char- had more than recreate that AT & T done no Telpak routing complains acteristics of MCI of. system that the cus- same communications interpretation argument Our MCI’s differs hypothetical pri- have in tomer would its own slightly Judge Richey Dis- system. To the extent MCI vate microwave trict for the who Court District Columbia prob- complains analogous the same or argument by considered a similar different lem, is the we the answer same as think specialized carrier in Commu- Southern Pacific Judge provided by Richey. T, F.Supp. nications Co. v. AT & (D.D.C. 1982). Judge Richey characterized and ineffective installation complex sought interconnections
When MCI procedures. T’s switched maintenance it access to AT & give would network,77 AT & T AT & T con- balked. acts, claimed, com- of these All limited that the FCC’s 1971 decision tended damage deliberately T to mitted “point-to- carriers providing the new conduct of business and constitut- MCI’s no lines,” require private point monopoly power an abuse of & T’s ed switching because each line is dedicated *47 MCI’s success. facilities essential to over customer and specific exclusive use a premises. designated runs between two A. FX-CCSA Interconnections unlawfully T complained MCI that AT & The Essential Facilities Doctrine FX and CCSA refused interconnections for AT & T unlaw found that sеrvices, ma- switching both which use refused to MCI with fully interconnect chines,78and for lines that essentially local operating distribution facilities of Bell local limited, geographical beyond led a defined act MCI prevented which companies AT & T —an complained MCI also area. offering FX services to its from and CCSA unlawfully refused interconnections A refusal to deal monopolist’s customers. sup- T multipoint Although service. AT & governed these circumstances is under required when plied some interconnections facilities doctrine. the so-called essential injunction, a 1973 district court a a refusal be unlawful because Such promptly terminated those connections facility monopolist’s control of an essential injunction appeal when the was vacated on “bottleneck”) can ex (sometimes called a pending the same were be- because issues monopoly power stage one tend alleged MCI that these ter- fore FCC. another, one market to and from production maintaining AT & minations aimed at Thus, into another. the antitrust laws monopoly by injuring reputation T’s MCI’s controlling firms an essential imposed on since improper as a reliable firm and were obligation facility make the facility the to very decision on the matter of FCC non-discriminatory terms. available also interconnections was imminent. MCI Associa v. Terminal Railroad United States illegally maintained that AT T tied the & 383, 410-11, 507, tion, 224 32 U.S. S.Ct. provision long distance service to local 515-516, 56 (1912); Byars v. Bluff L.Ed. 810 service. 843, Co., (6th 609 Cir. News F.2d 856 City actually The interconnections that were 1979). implemented between T and MCI also AT & ele dispute. forth four gave rise to MCI asserted that the The case law sets under procedure required necessary liability entire interconnection ments establish (1) control by AT T was because facilities doctrine: & unreasonable the essential (2) monopolist; physical facility by interconnections utilized materials of the essential a or rea inadequate practically for the of business competitor’s inability volume MCI a facility; duplicate essential doing unduly sonably and because it involved (“foreign exchange”) 77. A switched network is one in involves which a cus- 78. FX service telephone many telephone a is subscriber’s tomer’s linked to one of the the connection distant, switching rather than a machine in a AT local & central offices located each local, (“com- telephone company office. CCSA exchange picks up area. When the caller his or arrangement”) switching service is mon control telephone receiver, switching her machine far-flung by large link of- subscribers used permits dial tone sends a the caller access by private each other lines connected fices to switching machines in other central offices compa- through telephone switches the local exchange Long in the distance service area. supra, ny’s note various offices. See at upon process, except same involves this CCSA, provide would To both FX and MCI telephone dialing proper area code and loop” between an need “local interconnections number, the caller shifted from the local nearby in a AT terminal and the switch & machine, switching long toll distance pick up the local T central office. MCI would supra, forwards the call. See at notes 8 and 9. long call and distance via MCI switched send it relays to called. microwave the customer
1133
(3)
facility
Finally,
supports
denial of the use of the
the evidence
the jury’s
(4)
feasibility of
& T
competitor;
pro
determination
denied the es-
Pro-Football,
facilities,
facility.
Hecht v.
sential
the interconnections for
viding
service,
Inc.,
982,
FX
(D.C.Cir.1977),
they
992-93
and CCSÁ
when
could
956,
have been
denied,
3069,
feasibly provided.
legitimate
No
cert.
436 U.S.
98 S.Ct.
57
business or technical reason was shown for
1121
Otter Tail Power
L.Ed.2d
See
366,
requested
& T’s denial of the
States,
93
intercon-
Co. v. United
410 U.S.
S.Ct.
Cf., Gamco,
nections.
Inc. v. Providence
1022,
(1973);
interconnections
Execunet estab--
1974 order
service,
with service
the FCC’s
in accordance
vate line
right
sub-
in documents
lished MCI’s
interconnections
descriptions contained
carriers in
FX and CCSA.
specialized
mitted
the lan-
argued
1971 case. But MCI
denying
trial,
MCI contended
At
Common Carriers
Specialized
of the
guage
pre-
interconnections,
T intended
AT &
provide
T to
required AT &
also
decision
that the
argued
AT &
competition.
vent
net-
its local switched
interconnection with
decision
Common Carriers
Specialized
FX
CCSA.
work for
on AT &
gave
guidance
no
vague that it
so
than a
following more
on
In November
or even
to interconnect
obligation
T’s
sought
negotiations,
of futile
FX and CCSA
year
provide
authority to
MCI’s
accede
requiring AT & T to
injunction
reasonably
that it
argued
AT & T
service.
pre-A
demand for interconnections.
MCI’s
not authorized
that MCI was
believed
was la-
was issued but
liminary injunction
sought
which it
services for
provide
pending
on
because of a
appeal
ter vacated
faith
interconnections,
good
and that
on the inter-
proceeding
show-cause
FCC
was a
requirements
regulatory
belief in the
issue. MCI Communications
connection
liability
to antitrust
complete defense
T,
(E.D.Pa.
F.Supp.
Corp. v. AT &
of interconnections.
the denial
1973),
primary juris-
injunction vacated
instruc-
Judge Grady’s
propriety
Cir.1974).
(3d
grounds,
diction
meaning
Specialized
on the
tions
dismantled all the
immediately
AT & T
became an extra-
decision
Carriers
Common
provided pursuant
it had
interconnections
not-
Although
case.
in this
ordinary issue
*49
injunction. This action
preliminary
means
what a decision
“[ojrdinarily
that
ing
ability
adversely affected MCI’s
obviously
court,” Judge
the
law for
question
is a
its
serve its customers. AT & T claimed
to
the circumstances
that under
Grady stated
the disconnection.
required
filed tariffs
as a fact
jury
the
must decide
of this case
deci-
Eight days after the Third Circuit
Specialized
Common
whether
question
injunction,
the FCC issued
vacating
sion
pro-
AT & T to
required
Carriers decision
cause order. The
ruling
on the show
intercon-
FX and CCSA
requested
vide the
Specialized
Common
interpreted
FCC
He further
told
Tr. 11463.
nections.
decision,
conceding its
although
Carriers
Special-
that the
that,
if it found
jury
even
clarity,
requiring
as
the interconnec-
lack
decision,
AT
ordered
ized Common Carriers
Tariff
sought.
System
tions MCI
Bell
Of
the.connections, AT & T would
& T to make
Facilities for
fering of Local Distribution
good
or had
it “knew
not be liable unless
Carriers,
byUse Other Common
46 F.C.C.2d
constitut-
that the decision
reason to believe
v.
Telephone
aff’d sub nom. Bell
Co.
Judge Gra-
App. 1200.
ed such an order.”
FCC,
(3rd Cir.1974), cert.
based
determination
relied,
contrary
public
litigants may
to the
was
dent on which
interconnection
im-
interest, by
that AT & T believed
of first
finding
deciding an issue
by
... or
required
because
interconnections
clearly
no
was not
whose resolution
pression
its terms did not
(a)
by
decision
foreshadowed....
(b) the context
explicitly
them or
order
106,
97,
Huson,
v.
404 U.S.
Co.
Chevron Oil
were ordered
which the interconnections
(1971)
L.Ed.2d
AT
T did not know
vague
was so
omitted).
(citations
case, AT
In either
they
were ordered.
have taken
Execunet
Although
fully
by
& T’s defense could be
considered
holding
by surprise,
T
the FCC
& and
indicated, only
As
and not
jury.
MCI
law, nor
principle
new
did not establish
injured by
T
trans-
AT & could have been
While
impression.
first
case one of
into
decid-
forming
question
a fact
issue
Specialized
concluded that
had
a matter
law
FCC
against
ed
AT & T as
Execu-
did not authorize
of Common Carriers
the FCC in 1974 and
District
38-40,
ap-
service,
in 1977.
60 F.C.C.2d at
Columbia Circuit
net
represented
view
noted that this
peals court
Application of Execu-
3. “Retroactive”
admin-
departure
prior
“a substantial
net
The
at 373.
practice.”
F.2d
istrative
regulations
out
carefully
court
set
FCC
& T
contends that
the court
also
case
from both
and the
law
instructing
meaning
practices,
on the
erred
argues
that the
Circuits
Execunet decision. AT &
Second
District of Columbia
gave
improperly
district court
retroactive
374-76.80
conclusion. Id. at
support its
1977 Execunet
application
decision
proceedings
dealing
with FCC
later case
instructing
jury that
case meant
pursuant
issue
the interconnection
provide
had
authorized to
FX
been
decision,
the District
Columbia
Execunet
CCSA,
obligated
and AT & T had been
view. MCI
its earlier
Circuit reaffirmed
Act
provide
under the Communications
FCC, 580 F.2d
Corp.
Telecommunications
since
the FX and
interconnections
CCSA
(D.C.Cir.), cert.
the date
issued.
permits
MCI’s
58 L.Ed.2d
99 S.Ct.
the District
reasoning
holding
Supreme
part analyzed
has in
Court
Execunet,
per
while
retroactivity question
follows:
Columbia Circuit
princi
not
a “new
haps startling, did
create
nonretroac-
applied
decision to be
[T]he
ple
new
law.”81
tively
principle
must establish a
pre-Execunet
its deci-
cases had
foreshadowed
other
AT & T
that the FCC’s
asserts
opinion
special
the D.C.
is due
377-78
59. What
the matter
deference
F.2d at
n.
sion. 561
respect
because
embodies the view of the administra-
was that different
in this
Circuit meant
agency responsible
enforcing
tive
the rele-
put
arguments
courts that
had been
before
*51
with,
begin
the
deci-
vant statute. To
Execunet
previously
interconnection
dealt with the
had
controversy.
holds
view
issue
sion
that the FCC’s
on this
not foreshad-
That the
was
result
agency’s
prac-
past
with the
was inconsistent
court’s conclu-
not undermine the
owed does
tice,
agency’s
a
in which the
are
situation
views
departed
established
sion that
the FCC
special
due no
See
States v.
deference.
United
manner
limited
in the
it
MCI
doctrine when
Co.,
Shreveport
Elevator
U.S.
Grain &
Indeed, AT T itself
case.
as
&
in that
involved
acknowledges,
42, 44,
(1932).
See
53 S.Ct.
L.Ed.
premise
is
court’s
the Execunet
Hurst,
generally,
Statutes In
W.
Court
grant of service
is no limitation on a
that there
Moreover,
Grady permitted
(1970).
Judge
AT
ruling
by
the FCC.
to that effect
without
argue
expressions
T to
that the
of its
&
FCC’s
Specialized
holding
that
FCC
court’s
T’s
incorrect
made AT &
reliance on
views
did
an affirmative
not make
Common Carriers
proper.
gave
ample oppor-
T
This
AT &
them
required
public interest
that the
determination
lay
jury
tunity to
out for the
the historical
clearly
was
foreshadowed
such a limitation
context and all the facts
circumstаnces
applica-
merely
is
latest
cases and
earlier
time,
parties
to
at the
consistent
known
with
principles in this intercon-
tion of established
court’s instructions.
the district
controversy.
nection
argu-
notwithstanding AT & T’s
This is so
recognized
ment
that
the court in Execunet
H37
Unlike the usual situation in which
Instructions
Regulatory
on
Policy
a question
application
of retroactive
As we have already indicated the
raised, the Execunet
was
decision
not deter
regulatory
governing
constraints
the behav
of the outcome in
minative
this case.82 ior
public
of a
utility are
important
though Judge Grady correctly
Even
in
factor to
weighed
assessing
poten
structed the
that
jury
reasoning
tial
liability
antitrust
of a regulated firm.
Execunet MCI was
entitled
intercon
supra, at pp.
Ordinarily,
See
1105-1111.
nections,
clearly
instructions
stressed
antitrust
liability should
be imposed
that
under
entitlement
the Communications
when a firm acts
compliance
Act did not establish liability under the
regulatory
obligations.
Watson &
antitrust
laws. More importantly,
care
Brunner, Monopolization
Regulated
ful instruction that the jury was to consider
“Monopolies”: The Search for Substantive
“the historical context
all of
the facts
Standards, 22 Antitrust
(1977).
Bull. 559
and circumstances known to the parties at
that,
AT & T contends
since it
at
asserted
the time” of AT & T’s allegedly improper
public
trial that
interest considerations un-
preserved
acts83
AT
good
& T’s
faith de
201(a)
der Section
of the Communications
(which
fense
emphasized
was
in the instruc
prompted
Act
its refusal
provide
inter-
tion immediately following the explanation
connections, the district court should have
Execunet),
Judge
and rendered
Grady’s
jury
instructed
the details of the
instruction on Execunet
repre
an accurate
statute
regulatory
they
as
relate to the
controversy
sentation of the
MCI
between
controversy
Judge
involved here.
Grady
and AT & T rather than a “retroactive”
the jury
instructed
that MCI had to prove
application of
legal principle
a new
result
T
that AT
denied the
&
FX and CCSA
ing
prejudice
AT
& T.
interconnections
for anticompetitive rea-
Nor do we
explanation
believe
sons,
good
and not because of its
faith
Execunet misled or
jury.
confused the
AT
it
belief “that
would have violated estab-
argues
“placed
& T
it
AT & T in the
policies
lished
regulatory
MCI to receive
position
anomalous
being required
the connections.”
prove
ignorant
that it was
of the law.” AT
argues
AT
that this
&
instruction was
& T does not argue
Judge Grady
mis-
inadequate
it
nonetheless
because
failed
stated the law. His instruction placed in
explain
regulatory provisions
in detail the
proper
position
context AT & T’s
governing
making
interconnection.
In
time
believed
that MCI was not
argument
heavily
T relies
on Mid-
&
authorized to provide FX and CCSA service.
Systems,
Texas
Inc. v. AT
It
Communications
removed any misleading implication that
T,
(5th
not,
Cir.),
&
istence n. 16. federal F.2d at 1390-91 state and deliberations. it from consideration misuse briefly of willful ex- very On the issue would regulation. An instruction ideal allowed the instruction monopoly power, carrier has an example, that a plain, telephone “legitimate consideration Act the Communications obligation under reasons,” specifically but did not business interconnect, interconnec- may deny but take account the jury to into direct the public inter- that the tions if it determines might have had on the regulation effect if the and that contrary; est is System. Bell The Fifth Cir- conduct of the basis in had a reasonable at the time carrier must be in- jury concluded that cuit conclude, good and in policy regulatory regulatory to the relevant structed as concluded, of interconnec- that denial faith whether Bell’s con- framework to determine concrete, articulable required by tions was reasonable. Id. at 1390-91. duct interest, then there public concerns for the argues required T that more is AT & laws. AT the antitrust liability is no under charge regulation is to than went well be- T’s instruction proposed & Mid-Texas, into account. taken in- The court’s this concise model. yond should court stated that “the district court it did the extent that fell short to struction applicable jury have instructed the on provision explain particular at 1387. From regulatory provision.” Id. Act, this fatal. Un- we do not consider but this, requir- support AT T finds for a rule & Mid-Texas, jury here in jury like the explain in ing the court describe and the im- to consider clearly was instructed But regulations. all relevant detail and, applicable, regulation where pact of rule, take into account the cited fails to faith. Both good defense of AT & T’s Mid-Texas, ques- in that “the approval regulation evidence on parties presented whether an instruction appeal tion on is not application argued thoroughly but whether every respect, was faultless in thrust of jury. that evidence to as a considering the instruction jury, the Communica- position T’s under AT & whole, Thus, only was misled. in those nothing plain, tions Act was made reviewing court has sub- cases where the misled or con- instructions pertinent fairly jury stantial doubt whether jury regard.84 fused the in this judg- guided its deliberations should argument 1390-91 n. 16 ment be disturbed.” Id. at T makes a second AT & Accord, (citations omitted). Interna Alloy the mean- instructions on specific favor of Co., Bearing tional Co. v. Hoover-NSK AT & T obligations. ing regulatory of its (7th Cir.1980); F.2d Commercial omitted jury instructions contends that the Stuart, Halsey Iron & Metal Co. v. Bache explanation of specific reference to and Inc., Cir.1978), (10th F.2d 246 cert. de applied in required to be Rule of Reason nied, 59 L.Ed.2d pursu- argues cases. AT & antitrust Bohmker, (1979); Allers v. must Reason the to the Rule of ant Cir.1952). (7th and circumstances the facts consider all of the chal- reasonableness bearing on the not state how Mid-Texas does consideration would lenged conduct. Such regulatory detailed a framework instruction on the mean- instructions require detailed error must be. All we know is that was Act. ing of the Communications to omit all reference to how evidence versy, inquiry respect on whether AT & T to the interconnection contro- focused 84. With perceived versy, specifically requested of a instruc- in fact had acted on the basis AT T purport- regulatory policy. explaining great pertinent AT & T’s Whether detail tion statutes, issue since the regulatory was not at re- ed belief was correct but the district court policies actually required the intercon- jected simply instructed that lia- relevant it and instead Particularly the dis- bility in that instance acted nections. not be found if AT & T had could general regu- was suffi- pursuant good interpretation more instruction trict court’s to a faith latory policy. cient. In the interconnection contro-
1139 argument misappre & T’s straint that fall within the realm of Instead, hends the role of the Rule of Reason proper reason. directly focuses on the in antitrust eases. The Rule of Reason is a challenged restraint’s impact competi- rule of applies construction section tive conditions. 1 of the Act. Sherman The need such a 688, Id. at 98 at 1363. S.Ct. The inquiry reading
rulé arose
because
literal
sec
under the Rule of Reason is thus confined
private
tion 1
prohibit virtually every
would
consideration of the
impact
contract. See National
of Profes
Society
challenged conduct on competitive condi-
States,
sional
v.
Engineers United
435 U.S.
inquire
tions and does not
a policy
whether
679, 687-88,
1363,
1355,
98 S.Ct.
55 L.Ed.2d favoring competition is in the public inter-
(1978);
637
Chicago Board of
Trade Unit
690, 692,
est.
Id. at
540, 41
(1897).
L.Ed. 1007
its interconnection decisions without refer
The Rule of Reason
analyzed
to its understanding
ence
of the state of the
comprehensively National Society of Pro
For support,
law.
MCI introduced internal
fessional Engineers
States,
v. United
435 AT & T
showing
documents
AT & T’s ex
98 S.Ct.
Contrary to its does Rule “demands for unrestricted interconnec open the tions”), field antitrust inquiry suggesting ap that AT & T’s argument in favor of challenged re- proach “buying through be one of time” *54 persons that some evidence indicated That
“delaying tactics.”85 AT & T docu- One de- indus- policies of the telecommunications adoption ment noted Bell’s with familiar specializ- flexibility to “limit signed “pri- of the term the FCC’s use try [the viewed to sell serv- ability ed [their] Com- Specialized carriers] in the vate line” service switching office our central utilizing ices enough to be opinion vague as mon Carriers evidence, jury the From capacity.” “point-to-point” to limiting as MCI read delays infer that AT & T’s reasonably could (an interpreta- AT T line service & private interconnec- FX and CCSA permitting in- FX and would exclude CCSA tion that improper of AT & T’s tions were evidence intercon- required and limit terconnections competitive encroachments intent “to limit through local “tie lines” nections to restricting the use such as through devices access provide that would not wire “links” make of our facilities.” other carriers In re- network).87 switched public to the must AT T’s denial of interconnections & however, evidence MCI introduced sponse, its other in context with judged also FX and always T classified that AT & of Mishawaka v. Ameri- City actions. See service,” which was “private as line CCSA Co., Power can Electric used in the descriptive term principal Cir.1980). supports the (7th The evidence of service scope to describe the 1971 order that, it an- regardless inference of whether authorized; “point- limiting term Execunet, T intended to ticipated AT & appear line service” did not to-point private entry obstruct into the market MCI’s decision; that “tie lines” the 1971 in bad public used the interest standard access to a switched network. could afford faith.86 a fact which raised point, The “tie line” T that the evidence was urges AT & also that, issue, conclusion jury sustain a would rejection support jury’s insufficient to tie line receiving limited to even if MCI was good it had in of AT & T’s defense that interconnections, still was no basis for there interpreted Specialized faith Common access to the T to conclude that AT & duty pro- its limiting Carriers decision as was forbidden to MCI switched network jury was enti- vide interconnections. Moreover, Specialized 1971 order. showing that tled to credit the evidence options decision discusses Common Carriers im- AT T officials intended to generally & loop” “local intercon- provision meaning pede competition regardless of nections, which assumes approach T presented of the 1971 decision. AT & avail- freely would be such interconnections of its officials and others familiar testimony able.88 MCI demonstrated on eross-exami- industry. telecommunications admissibility aspects precisely deci- challenges what of the of one AT & T articulate 85. containing gave the decision to his view that document such statements. That sion rise infra, question “point-to-point” is dealt with at service. Other 1143. limited MCI closely examined T witnesses & 86. A similar inference of intent could be drawn knowledge expose about biases or lack of their filed, from tariffs AT & T their terms jury specifics the decision. The required FX inter- AT & T to refuse and CCSA according weight all this entitled to consider connections. When in the context considered testimony those these witnesses and above, comments noted the tariffs could of the opposite testify to their MCI called whom give legitimate well rise to a inference meaning of the case. about conclusions sought every of ob- that AT & T avenue anticipating competition, struction to while opinion portion of the describes That general interconnections its denial loop respect approved local options “with prove unsupportable long-run. in the would including (a) service,” at 29 F.C.C.2d infra, pp. 1153-1158, the discussion arrangements on provision of interconnection those tariffs. conditions,” (b) new “reasonable terms and indepen- of “their own testimony carriers’ construction undercut some of this provide ser- end-to-end dent local facilities T witness ad- cross-examination. One & Id. the need for interconnection. vice” without interconnection re- mitted that his view of the limiting language about Specialized There is no quirements at 940. Common Carri- having aside from the reference interconnections without his ers decision was formed conditions.” opinion. terms and witness could not “reasonable read the Another scope Specialized nation an AT technical witness that *55 Common Carri- loop” encompassed any the term “local local decision AT brought ers which & T into (including interconnection connections to question. good & T’s defense, AT faith FX switching equipment used in an termi- based as it on an was asserted ambiguity in nation) AT T between an & central office Specialized the decision, Common Carriers an and MCI terminal. This demonstration necessitated that MCI be allowed show of AT & T’s that own inter- awareness its what the own FCC believed its order pretation Specialized of Common Carriers meant. recognized, question- AT & T when on questionable was highly technical ing witness, risk of providing the a basis ground is finding sufficient sustain a of of for the admissibility 1971 order. Judge intent,89 especially viewed in improper when Grady warned AT & T’s counsel that his light arguably the anticompetitive com- questions opening the door for MCI’s management. ments AT & T use the 1971 decision. AT & T’s counsel responded, any “I don’t think there is doubt event, any In AT regardless of whether & that,” about pursue and continued to his T reasonably Specialized believed that Com- questioning. line of mon not require Carriers did interconnec- tions, conclude, the jury was entitled to How the FCC viewed its 1971 deci evidence, based on the T that AT did not & sion was to the relevant reasonableness of good act in faith when it purportedly deter- AT & T’s professed good interpreta faith mined that the public justified interest its limited, tion of that decision. This non- denial interconnections. hearsay Further, use was erroneous. the use comports of the decision with our Evidentiary Rulings 6. recognition of the showing relevance of the AT & T that the asserts district court full regulatory environment within which in admitting erred into the evidence FCC’s operated. AT & T 1974 cease and desist order and accompany- not, Grady Judge did as AT & T decision, ing 46 F.C.C.2d which re- claims, reverse his evidentiary rulings on quired provide AT & T to FX and CCSA hearsay opinion; use of the it was not That interconnections. decision noted that truth admitted for the of the statements it scope FCC’s order T, v. AT contained.90 Cf. United & (prompting been unclear States agency pro- F.Supp. (D.D.C.1980) (finding that ceed under a section of the Act different same if FCC decision inadmissible offered from that usually employed for cease and it). orders), truth of matters asserted in desist but concluded T that was unlawfully Nor the admission of the 1974 decision denied the interconnections unduly prejudicial under Federal Rule of Specialized contravention of the Common Although Judge contrary, provided Carriers decision. Evidence 403. To Grady highly refused to admit probative the decision and order for evidence of how FCC asserted, decisions, the truth of subject the matters he viewed one its own admit- ted document for T non-hearsay use as discussed AT & witnesses who ex revealing the “state FCC’s of mind” about their views of the plained meaning” “clear Brief, acknowledging Reply the Third This even is so FCC. AT & directs our opinion transcript Circuit’s comment that the portion FCC’s 1971 attention to a of the where it clarity. was not a model says objection The evidence was hearsay grounds it made an on jury sufficient for infer that & T admission of the 1974 decision. We see ambiguity on seized whatever existed in the nothing remotely objection resembling such opinion anticompetitive to mask the true ani- in that or other relevant of the section guided mus its decisions. Rather, transcript. portion the cited of the transcript objection relevancy contains an on Indeed, hearsay objected on AT & T never nothing grounds that document has to do “[t]he grounds opinion, to the use of the rather but on Specialized interpretation with the of” the basis that the order was irrelevant or else Common decision. Carriers purportedly unreliable because it was obtained representations MCI’s fraudulent Specialized of the meaning of the opinion pressions entire opinion.91 the 1971 Judge Grady opinion. Carriers admitted, including portion Common of the Be- Car- the admission Common refused Specialized properly
characterized the
rule,
“unclear,”
T was
and AT &
records
the business
riers case
chtel letter under
permitted
attention to
jury’s
reveal
to draw
it did not
803(6), because
Fed.R.Evid.
carefully instruct-
Grady
Judge
fact.92
his conclusions.
author drew
how the
purposes
the limited
ed
the au-
ruled that
correctly
Judge Grady
decision, clearly stat-
it could use the
begin-
“in the
vague statement
thor’s
illegali-
that it was not conclusive
*56
ing
were
interconnections
FX and
ning”
CCSA
merely
was
one
of AT & T’s actions but
ty
insuf-
it” was
“as I understood
required
AT &
relevant to whether
piece of evidence
requirement
meet the foundation
ficient to
known that interconnections
T should have
foun-
803(6).
adequate
no
Because
of Rule
instructions,
final
required.
were
In his
admission of
for
be established
dation could
reminded
jurors
the
Judge Grady also
letter,
proper-
court
the district
the Bechtel
is relevant
of intent
expression
the FCC’s
refusing to
in
exercised its discretion
ly
on the
to the extent that it was based
only
it.
admit
other facts
language of the 1971 decision or
refused to
court also
The district
at the time. Potential
parties
known to the
chief
by the
keep
prepared
out evi-
memorandum
prejudice is not a reason to
admit a
outweighs
Radio,
was
probative value
legal
dence where
officer of Collins
generally
prejudice. Fed.R.Evid. 403. See
that firm.
managers of
circulated to certain
Bendix, Moore’s Federal
10 J. Moore & H.
the attor
memorandum concerned
That
(2d
1982). Judge
ed.
Practice ¶ 403.10[1]
of interconnec
scope
about the
ney’s belief
admit-
abuse his discretion in
Grady did not
Specialized
the
Com
required under
tion
purposes.
limited
ting
opinion
part
in
and discussed
mon Carriers decision
IBM,
Precision,
673 F.2d
Forro
Inc.
had obtained
recently
injunction
Cir.1982).93
(9th
Pennsyl
in
district court
from the federal
stated
attorney
deposition,
vania.
In a
T contends that
the district
&
memoranda
prepared such
regularly
that he
of two
improperly
court
refused admission
Radio’s
relevant to Collins
topics
on similar
from
documents, one of which emanated
introduce the
sought
T
business. AT &
firm, and
Corp.,
Bechtel
MCI’s construction
records
the business
under
Radio, Inc., memorandum
one of which came
Collins
support
rule to
hearsay
to the
exception
equipment suppliers.
one of MCI’s radio
in
interconnections
that it denied the
the writers’ im-
claim
The documents contained
proba-
T notes that
the 1974 decision was
opinion
92.
is not
that the
AT & claims
por-
mind,
prejudicial
saying
with the
submitted to the
tive of the
state of
FCC’s
object
sitting
highlighted.
T did not
at the
AT &
two of the five
tions
Since
Commissioners
having
opportunity
reasoning.
joined
opinion’s
highlighting
full
Ac-
after
time
in the
to the
submission,
majority
tually
inspect
prior
as
to its
three of the five formed the
the exhibit
portions
opinion.
portions
highlighted
of its own exhib-
to the relevant
of the
One
and itself
single paragraph
its,
jury’s
impropriety
receiv-
those three dissented from a
in the
no
we see
concerning
ing
raised here. AT & T’s
an issue not
the marked document.
Competitive Transp., Inc. v.
citation of Assure
States,
Cir.1980),
(7th
United
lins Radio document.
admission, since,
as an
at least as
by
shown
evidence,
circumstantial
it
made while
objects
AT
& T
admission
managers
agents
corpora
were
portions
of
of
comprising
documents
an AT
tion; and it concerns matters within the
& T internal
called
study,
the Interbusiness
scope
agency, namely
their
relations with
Report.
Relations
The report
contains
competitors.
801(d)(2)(D);
Fed.R.Evid.
statements attributed to AT
T manage
&
Mahlandt v. Wild Canid Survival
Re &
ment.
express
The statements
manage
Center, Inc.,
(8th
search
588 F.2d
ment’s attitude that AT
T’s
in
&
tactics
Cir.1978); McCormick On Evidence
§
regard to interconnection were or should
(E.
ed.,
Cleary,
at 642
ed. 1972).
2d
The
designed
been
to obstruct commercial
report was
basis
corporate
for
action
legitimate competitive
rivals’
progress by
since
evaluated alternative
methods
denying interconnections. AT & T asserts
dealing
competitors
with
and involved a
the documents are not admissions of
expenditure
vast
of corporate time. Pekelis
the corporation
they
because
were written
Inc.,
Air,
v. Transcontinental & Western
by “low level” employees.
AT
is
While
& T
122, 128-29
Hand,
(2d Cir.) (A.
J.),
187 F.2d
correct
that opinions of such employees
cert, denied,
without management responsibility are not
report
L.Ed. 1374
The fact that the
properly considered
be admissions of the
hearsay
opinion goes
on
based
reflects
see,
corporation,
e.g., United
v.
States
Sie
weight
credibility,
to its
its admissib
Corp.,
mens
(2d
ed guilty tying found jury The AT & generate whether it could it was unsure intercity telecommunications. local anticipated working capital, needed findings are jury’s T contends that & of which was flow from service source cash vi- evidence and unsupported substantial turn revenues. deferral decision MCI’s ty- tiated erroneous instructions. in scope once operations limited MCI’s T’s theory was AT & mo- ing upon based became terconnections available. control over local interconnections. nopoly find time consumed was entitled to that the sold that AT T had these argued MCI and MCI’s by the denial interconnection product separate interconnections as a re into on a consequent entry the market customers, telephone substantially independent local scale were sufficient to duced MCI, during MCI’s coming they companies years. harm did and others start-up period.95 claims where services FX and CCSA position took the were involved & T installations, backlog of MCI’s circuit pur- local could not be services believe, was caused jury reasonably could be used separately, chased but could resulting significant part by morale low long conjunction AT & T’s distance necessary layoffs were made services. anticompetitive T’s of inter- AT & denial *58 by This connections. was reflected is, simply tying MCI’s claim reality, in three internal MCI memoran- comments of its claim legal alternate characterization the installa- possible da. Other causes for controversy. The relating FX-CCSA (some of MCI backlog tion which concerned involving tying specific allegedly act were mem- mismanagement) noted in those T’s point can AT & uncondi- that MCI to is oranda, the jury was asked to consider specialized refusal to interconnect tional well that re- those reasons as as the ones local distribution common carriers with its adversely Contrary flected on AT T. to & theory MCI’s underlying The facts system. contentions, in- nothing AT & T’s there is underlying entire are identical those between jury consistent these determina- claims have These dispute. interconnection jury’s tions and the AT T did finding that & the rubric already been dealt with under han- through process not harass MCI its doctrine. Whether the essential facilities installations, dling late provide did not T’s of the antitrust AT & violation we label faulty or installations. were other If there an essential tying or the denial of laws as backlog,
reasons for the such as low MCI AT is that T prime our concern & facility, employee morale AT & T’s brought on telephone monopoly power in local used its anticompetitive actions, mattered hardly it destroy impede as a lever to service AT expeditiously responded how & T Nothing in other markets. competition the installations that were effected. It was on one hinges theory which uses this case that, the jury reasonable for to find based We AT & T’s conduct. therefore evidence, condemn on all the the refusals to intercon- tying given reach the our need not issue impact nect had a substantial adverse disposition grounds.96 claims on other MCI. Thus, service, argument actually AT T’s that could went as well as at & MCI into MCI AT the time of & T’s actions. not have not have been harmed because it did during part in service of the time these facilities opinion express no on the overall rela- We convincing. obstructive events occurred is not tionship of essential fa- between the doctrines harm was one that have effect once would imply tying mean to that cilities and and do not 1151, 1154, C. Disconnections S.Ct. L.Ed. provide The tariffs could not thus an excuse AT T& contends that erroneous instruc- knowingly anticompetitive AT & T’s finding
tions account for the
that AT
jury’s
Co.,
conduct.
Cantor v.
Detroit Edison
T improperly
disconnected MCI custom-
579, 592-96,
3118-
ers after the Third Circuit’s decision over-
(even
(1976)
L.Ed.2d 1141
where
injunction
turning
district court
utility could neither maintain nor alter al-
specifi-
ordered interconnection. AT
T&
legedly anticompetitive tariff without state
cally
Judge Grady
asserts that
erred in fail-
regulatory
permission,
agency’s
antitrust
ing to instruct
that Bell
jury
system
have,
option
laws still
if
apply
“the
precluded
interconnections,
tariffs
be-
have,
such a program
cause
the first
obliged
Bell was
to follow the
[in
terms
primarily”
utility’s).
of those
once
injunction
tariffs
was
Since
instance]
& T
AT
presented
jury
theory
vacated.
its
actions,
its
purportedly based on its
given precluded
instruction
lia
legal obligations arising
tariffs,
under the
bility unless the
jury found that AT &
lawful, and
the substance of
de-
“did
it
acting
not believe was
lawfully
fense was communicated to the jury in the
disconnecting these lines.” The instruction
instructions, no further elaboration of the
also
liability
finding
conditioned
on a
specifics
position
of AT & T’s
was neces-
the purpose of the disconnections was to
Mitchell,
sary. See Beard v.
to its build own facilities for end-to-end Multipoint service described situation service, see 29 F.C.C.2d at not that it where & T a provided private AT line to a duplicate could AT & T’s local service facili city B, city customer between A and and Also, every point. ties at itself FCC provided MCI line B private city between characterized service within the LDAs as sought city and MCI C. interconnection though “essential” even the new carriers city in B own and between its line AT & T’s option duplicate had an to them. We Id. line so city that MCI’s customer in C could fault find no instruction as given.100 uninterrupted city service between C city and A. MCI claimed its to ability that Multipoint E. Service compete city city in market for B to C substantially communications was impaired jury The that AT T found inter- denied if it was not to able offer its customers connections for multipoint service MCI to through AT service over & T’s lines to other with the intent to retain monopoly. its AT cities which MCI did not serve itself. &AT & T asserts that the instructions on this T that multipoint contended interconnec- claim were incorrect they because were in- effectively provide tions allowed MCI to its given consistent with the instruction under customers service to cities not the LDA MCI could charge interconnection that MCI existing was reach with its equipment although not entitled to geographically unlimited ” compete Otherwise, in monopolist need order to .... Since the be would ordinary meaning, unreasonably word “essential” is a term competition, able to choke off all explained yet since instruction escape simply it sanctions because was the facilities involved must be those position firm one in a do so. thrust compete, jury given needs in order to Mall, was Official Airline Guides and Almeda Inc. v. guidance. adequate Cf. Kocher v. Creston Co., Lighting Houston (5th & Power F.2d Co., (3d (where Cir.1948) Transfer F.2d 680 Cir.), cert. 101 S.Ct. used, enigmatic jury may term left not, (1980), L.Ed.2d is as AT & speculate meaning). on its contends, joint that a refusal deal is neces- sary applicability in order establish the Reply & T’s Brief on this issue cites an Rather, concept. the essential facilities the' detailing MCI memorandum the construction of point in made those cases is that the absence Chicago Hammond, MCI facilities in South competition potential between a seller appears Indiana. The memorandum to refer to putative buyer, apply there is no room part long these facilities as distance Here, contrast, essential facilities doctrine. portion planned of MCI’s service between Chi- competition AT T & and MCI are direct Cleveland, cago making them different in providers long distance service. The inter- character from the local interconnections MCI seeks AT & T the connections sought controversy. in the LDA beyond area the restrictive LDAs are defini- necessary component tion a for MCI to reach argues 100. AT & T essential facilities jury concept applicable find is not here customers. entitled to because there joint greater geographical range has been no that absent a refusal to deal. Where a than services, concede, monopolist ever, willing controls essential how- & T was MCI would be potential competitors placed competitive disadvantage. its refusal to allow a severe gives to liability those potential use services rise to antitrust Since MCI showed that had custom- purpose LDAs, where the denial ers had outside restrictive *61 competition, monopolist restrain even if the is ample ÁT T basis to conclude that & intend- facility. one that controls the Otter competitive potential. ed to undercut MCI’s States, 366, Tail Power Co. v. United 410 Indeed, U.S. provided temporary when AT & 1022, (1973); 93 35 S.Ct. L.Ed.2d 359 Official pursuant injunc- interconnections to the 1973 Guides, Airline Inc. v. Federal Trade Commis tion, beyond at several went to MCI customers 920, sion, (2d Cir.1980), 927-28 least one LDA. 917, 1362, 450 U.S. 101 S.Ct. 67 L.Ed.2d 1148 testified Similarly, Mr. McGowan itself to build the facil- 372-80.
MCI was authorized impossible” be provide “physically that would the service.101 that it would ities telephone system, but Bell’s local duplicate law, that, find a matter of We as dupli- practicability address the did not a support was not the evidence sufficient long distance circuits cating private multipoint jury finding that & T denied it had to be intercon- requested with which monopo with the intent to interconnections multipoint Tr. for service. nected agree T that the lize. We also with AT & demonstrate ei- presented did not evidence insufficient, although was jury instruction intercity Bell’s duplication that the ther one advanced grounds on different from the or that infeasible economically lines was AT & T. by handicap a severe of access inflicted denial upon two theories independent There are primary entrants. MCI’s busi- on market the denial of interconnec- multipoint which precisely type to build facil- ness was laws. tions could have violated the antitrust Bell sought ities to which access First, as we discussed terms explana- There was no sufficient System. for service and interconnections FX-CCSA hand, why MCI, on the one tion as to area, beyond service local distribution network, and, other, on the building its own could multipoint denial of interconnections interim to AT was entitled to access in the violation antitrust laws have been a Thus, facilities. lacked suffi- & T’s presented if sufficient evidence had been these that inter- cient evidence conclude services.” these were “essential were connections essential.102 obligation general, legal a business has no for impos A second basis possible are to deal with its There competitors. T for AT & ing liability upon antitrust situations, however, in which the federal multipoint interconnection would denial 2 courts have found a under section of duty AT & T’s actions in be a determination that trade monopolist Act for a Sherman of an evidence respect this sufficient nondiscriminatory with all on terms. One monopolize. In addition to the intent monopolist is of these instances where the refusal to finding liability cases for a deal controls an “essential or “bottle- service” involved, an essential there when service We Supra neck.” at pp. 1132-1133. liability are cases which find when mo hold, however, that, law, as a matter of competitor nopolist’s refusal to deal with presented there was not sufficient evidence illegal to be of an intent is shown evidence permit finding at trial to intercon- destroy competition. Lorain Journal multipoint nection for service involved “es- States, Co. v. United S.Ct. sential services.” (1951); L.Ed. 162 Eastman Kodak principal testimony MCI’s on interconnec- Co., v. Photo Materials Co. Southern came from president, tions William (1927); 71 L.Ed. U.S. McGowan. While Mr. McGowan testified Co., Colgate United States that interconnections were essential to con- 300, L.Ed. 992 39 S.Ct. metropolitan nect MCI’s terminal with the compet cases focus the intent and These on (the deal; system local Bell distribution basis for itive effect of refusal FX, CCSA, counts), and LDA none of It itself is “essential.” facility whether testimony might the need inter- addressed is settled law that actions Bell’s Tr. constitute a intercity connection to circuits. in another context can lawful multipoint argument to be It should be made clear lee’s Brief at 83. We find this service, MCI, requested contemplated disingenuous. as While the intercon- somewhat involved, question that AT & T would be to all revenue entitled in a technical nections generated “local,” sense, the use physical of AT & T lines. that were facilities purpose was to of these allow interconnections appeal, argues 102. On MCI the intercon- package long service to sell a distance sought multipoint nections it service were to cities to which MCI which included access “purely provision local and do not involve had, yet, not built its own facilities. Appel- interstate facilities T to AT & MCI.”
H49
of
obligation
violation
section 2 of the Sherman Act if
the
the
extraordinary
to fill in
gaps in its
they
competitor’s
are done with the
of benefit-
network.
purpose
ing monopolist
a
as
against
competitors,
As
liability only,
a matter of antitrust
smothering competi-
and have
effect of
however,
actually
can an entrant which
tors,
either
the market where the monop- builds its own
between Chicago
facilities
adjacent
oly power exists or in
markets.
Milwaukee,
example, thereby gain
Griffith,
100,
See United
v.
334
States
U.S.
entitlement
the far-flung
to use all
facilities
941,
(1948);
68
it
take 15 weeks to
cedures because
chairman
MCI’s
work,
accept the
board,
FCC,
and cost
ex-
$300
$400
a 1973 letter
passed
directly
pressed
price
which will be
“the
approval
his
fair
66-type
parison,
300-type
A connection in a
is
block
formed
connector is mounted on
by pushing
pins.
frame,
square pin
provides
points
wires down between small
has a
points
There are two
In
connection.
com-
connection.
details
mention the
service
technical
of accom-
settlement. The court
then
[and]
plishing interconnection to date.” The let-
jury
agreement
informed the
in or-
however,
ter,
did
address
specifically
explain why
changed
der to
services had
so
Rather,
reporting procedures.
trouble
Judge Grady explained
in 1975.
suddenly
requests
simply, enumerated five
for inter-
jury
agreement:
how the
should view the
connection between MCI and either custom-
The reason that I allowed in the evidence
premises
er
or AT
facilities.
& T’s
addi-
just
...
agreement]
about
that I
[the
tion,
testimony
there was
that MCI’s dissat-
any way you
try
don’t see
can
the case
reporting proce-
isfaction with the trouble
knowing
happened.
without
what
It
dures
continued
1973.111 The
after
you
would be an artificial situation for
was entitled to take this into account in
*65
not
to understand the course of the
evaluating AT
argument.
& T’s
very important
you
events. But it is
AT T& asserts that the trial court
to understand that the defendant doesn’t
erred by allowing
jury
the
to hear refer
anything
having
admit
and its
made
ences to a 1975 agreement
pro
in an FCC
changes
having agreed
those
to those
ceeding initiated to consider
com
MCI’s
an
changes does not constitute
admission.
plaints
through
and resolved
negotiation.
testimony,
Prior to this
AT &
AT & T relies on Federal Rules of Evidence
objected, arguing
provi
that the settlement
408,
407 and
which limit
evidentiary
the
use
subsequent
sion and the doctrine of
remedi
subsequent
repairs
remedial
and settle
al
the
repairs precluded
testimony.
ap
On
negotiations,
ment
respectively.
direct
On
peal,
argues
testimony
AT & T
that the
was
examination,
vice-president
an MCI
men
inadmissible because a court
not admit
the
agreement.
tioned
settlement
Instead
.
objecting
408,
agreement
evidence of a
the basis of Rule 407 or
settlement
for the
however, AT
purpose
& T’s counsel moved for a
fault or
proving
liability. Set
ground
mistrial on the
the
however,
reference
negotiations,
tlement
are admissi
provision
violated a
agreement
in the
explain
dispute
ble to
another
and to assist
stated, “[N]othing contained in this settle
the
understanding
trier of fact in
the case.
agreement
ment
... shall constitute an ad Subsequent
repairs are also admissible to
”
by
mission
any party....
The district
feasibility,
demonstrate technical
which was
motion,
court denied the
finding
mistrial
(a
at
issue here
point
& T does not
that AT T& had not been prejudiced. AT
appeal),
contest on
and which was a basis
& T
argue
grounds
cannot
other
for rever
for Judge Grady’s decision to admit
the
sal on appeal,
specific
because “if a
objec
testimony. At the time the evidence was
overruled,
tion is
ground
the
stated in
introduced,
the district court properly in
objection
the
be raised on review.” 21
[can]
jury
structed the
on the
limited use of
Graham,
Wright
C.
& K.
Federal Practice
testimony.
(1977).
and Procedure
5036 at 183
§
trial,
Finally,
Later in the
AT & T contends that
an MCI technical wit-
ness
post-1975
characterized the
district court’s instruction failed to es
technical
arrangements
any meaningful
MCI had with AT & T as
tablish
standard to guide
1975,
superior to those
jury
before
but did
its deliberations.112 The submis-
issue,
111. MCI’s
maintaining monop-
witness on this
who testified
ment with the intent of
personal experience
reporting
with the
oly in the relevant market. The basic contro-
procedures,
join
company
did not
until
versy
equipment
by
here concerns the
used
operating companies
the Bell
to interconnect
plaintiffs,
including
things
with
such
as con-
112; The instruction reads as follows:
interfaces,
equipment
nector
blocks and
plaintiffs
prevail
For
on their claim that
signaling
by
various kinds of
used
the Bell
they
provided
with inefficient or other-
operating
configuration
companies,
inappropriate
equipment
proce-
wise
interconnections,
certain
such
those
interconnections, plaintiffs
dures for
must es-
Service,
provision
Central Office
Centrex
knowingly
tablish that defendant
furnished
information,
engineering
proce-
and the
inappropriate
equip-
inefficient or
services or
instructions, however,
are
sion and form
need
construe the
in such
antitrust
laws
trial
right
matters within
discretion
a conflict
way as
avoid
with the
court.
Instructions must
viewed in their
protected
petition
government
under
entirety and verdicts will not be overturned
immunity
This
First Amendment.
doc-
choosing
words from an
picking
Supreme
trine
first
was
enunciated
without
to the
tri-
regard
instruction
whole
Eastern
Court in
Railroad Presidents Con-
al. E.I.
Pont
du
de Nemours & Co.
Inc.,
v. Noerr
Freight,
ference
Motor
Co.,
1247,
(8th
Berkley
F.2d
L.Ed.2d 464
Cir.1980).
gave
The instruction
sufficient While in Noerr the Court held that “no
guidance
jury
setting
forth
Act
predi-
violation of the
can be
[Sherman]
technical areas in contention.
It also stated
upon
attempts
cated
mere
to influence the
liability,
in order to find
must
laws,”
at
passage
enforcement
Id.
knowingly provided
determine that AT T&
at
explicitly
81 S.Ct.
it
excluded from
equipment
inefficient or
inappropriate
immunity
activities which
labeled “mere
services
This
improper
intent.
covered sham”
“nothing
and defined as
more than
claim that
& T’s
it believed even MCI
attempt
directly
to interfere
with the
equipment
satisfied
was ade-
of a
relationships
competitor.”
business
Id.
quate. The district court did not abuse its
Under the so-called
stated
doctrine,
ton
as
cause of action under the antitrust
laws.
activities such
state tariff
filings
claim,
liability
that,
are immune
antitrust
stated
“One
which a
from
Court
purpose
where
baseless,
their
is to influence govern
agency may
may go
court or
think
unnoticed,
ment
baseless,
action. The doctrine arose
pattern
repeti-
from
but a
coordination, installation,
testing,
very
dures
likely
rests would
vitiated.” Id.
repairs.
theory
and
We find no hint of the
to which AT & T
objects
App.
in the
that
instruction
mentioned
proce-
appropriate equipment
efficient and
and
113. AT & also
that
asserts
instruction
dures,
appropriate
not the “most” efficient or
permitted
against
to find
AT T on&
only theory
ones. The
contained in
instruc-
theory
obligation
that it
an
was under
equipment
tion
that
is
MCI was entitled
up-to-date equipment
make its best and most
procedures that did not act as a hindrance.
procedures
Quoting
available
MCI.
contrary
The cases AT & T relies on for the
Berkey Photo,
Co.,
Inc. v. Eastman Kodak
inapposite.
ask
conclusion are
MCI did not
(2d Cir.1979),
denied,
603 F.2d 263
cert.
444
prod-
knowledge
& T for advance
of its new
1061,
1093,
U.S.
100
62
783
S.Ct.
L.Ed.2d
Photo;
ucts,
plaintiffs Berkey
unlike the
nor
(1980), AT & T
“if
notes that
a firm
has
that
suggest
did
that
& T abandon a techni-
engaged
expense
in the risks and
of research
existing
already
cal innovation in favor
development
required
in all circum-
Corp.
Corp.,
alternative as in
v. IBM
Memorex
stances
share with
its rival the benefits of
(9th Cir.1980),
452
F.2d
endeavors,
these
this incentive on
1155
Cas. ¶
America,
Inc.,
ence
1978-1 Trade
that MCI’s burden on
higher
this claim is
61,927 (N.D.Ill.1978);
(clear
convincing evidence)
Associated Radio
and
because of
Inc.,
Page
these
Airways,
Service Co. v.
414
First Amendment concerns. While
F.Supp.
(N.D.Tex.1976).
1088
Cf.
instruction’did not
Walker
mention the Noerr-
name,
Pennington
Process
Inc. v.
doctrine
Equipment,
Machinery
Food
essentials
and
exception
382
doctrine
Corp.,
& Chemical
86 S.Ct.
347, 15
for
litigation
clearly
sham
and
(1965) (a single
247
correct-
L.Ed.2d
instance
ly explained. We find the instruction
enforcing
ade-
fraudulently procured patent
quate.
Act).
can violate
Section
Sherman
Balmer,
generally
Litigation
Sham
proof
MCI still bears the burden of
Laws,
the Antitrust
55-
Buff.L.Rev.
were,
that AT & T’s tariff
filings
fact,
Fischel,
(1980);
Liability
Antitrust
“sham.” The Noerr
Pennington
cases
Attempts to Influence Government Action:
provide
themselves
little definition of what
The Basis
Noerr-Penning
and Limits
a “sham” may be other than to indicate
Doctrine,
ton
45 U.Chi.L.Rev.
immunity
“genuine
“good
efforts” and
see Hydro-Tech Corp.
But
v. Sundstrand
faith” attempts
governmental
to influence
Corp.,
(10th Cir.1982).
instructions on this issue.
In
instruc
baseless
Id.
claims.
v. AT & 615 F.2d
286,
denied,
912,
they
were “an abuse
Pennington
cert.
101 S.Ct.
because
U.S.
(1980). The
Circuit has
denied the
process”
L.Ed.2d 140
Ninth
the administrative
that,
permits
exception
stated
“The sham
“fair and effective
municipalities
plaintiff
on those
liability
of antitrust
imposition
616 F.2d
regulatory process.”
access to
agencies
seeking
government
action from
Cir.1980),
976,
(7th
982-83
can serve
activity
question
when the
1982). City of Mishawaka v. American had tariffs Co., over interconnection this court held that the isdiction Electric Power at the time judicially determined the Federal Power not been utility’s filings rate with
H57 tariffs,115 MCI tariffs with the state present AT & T filed the did filed commis- support jury’s substantial evidence to sions which are at issue in this case relate to finding that, at time the tariffs were the charges for interconnection to Bell’s filed, AT T the state com- & believed local AT distribution facilities. & T claims jurisdiction approve missions lacked the tariffs were filed to supplant a them. includes the testimony This evidence long-standing arrangement contractual of Mr. FCC’s Common Strassburg, the Car- with Western Union in order to set uniform Chief, rier Bureau AT & T’s own expecta- terms and conditions for nationwide inter- memoranda, expressed tions in internal connections with other common carriers like AT previous position proceed- & T’s in FCC MCI, hand, MCI. on the claims that other ings that state commissions did not have the filings part parcel were of AT & T’s jurisdiction applicable over tariffs to MCI. continuing unlawfully deny efforts all factors, These with together testimony that to FX interconnections related and CCSA. MCI of the filings remained uninformed alleged complaint MCI in its that: despite ongoing negotia- interconnection T, tions with AT & allowed the reason- T, faith, acting & caused to bad ably to infer that AT filed these tariffs be filed with various state regulatory solely undermining as a means the nego- commissions sham tariffs which purport- tiations. edly regulated provision by the Bell System Companies of interconnection to While the tariffs with filings of state plaintiffs for use in interstate commerce. commissions are not “immune” under hand, Noerr-Pennington, thereby imposed upon on the other their Defendant AT & T filing by AT & T was not un- necessarily plaintiffs a financial substantial burden Any lawful. of actions are number not for the purpose exhausting plaintiffs’ immune from Act scrutiny Sherman but are plaintiffs resources and destroying po- entirely they lawful have no because anti- tential competitors. competitive purpose. effect or AT & T has Complaint 23(1). many thousands of tariffs on file with vari- These allegations supported by ous state utility commissions around the testimony of William McGowan and Lau- country. filings Even if these are for some rence Harris. Mr. testified that McGowan reason Noerr-Penning- not immune under negotiations, after twelve during months ton, the vast of them majority possi- cannot which receiving any time MCI was not in- bly constitute the basis of an antitrust vio- Louis, Chicago-St. terconnections besides lation merely agency because completely & T broke off talks which they are be found to filed “lack insisted that now have to MCI would take
jurisdiction.” tariffs are Some filed with up subject with each interconnections purely pur- commissions for informational Tr. 414. state commissions. poses. supra, note Other tariffs lengthy was then forced to pro- undertake relate to rates and services have no ceedings and in the before the FCC courts competitive whatsoever effect and are rights therefore if to vindicate its to interconnections illegal they even are not immune. FX and CCSA service. mission,
115. At time filed its .the Bell interconnection whether or not the FCC had exclusive utility commissions, jurisdiction. tariffs with the state no court had determined that FCC had exclu- directly that a court It was not until 1977 jurisdiction tariffs, sive the tariffs. The over question: agency juris- addressed the what had course, covered interconnections between in- diction FX interconnection. At over and CCSA long (regulated by terstate FCC) distance carriers held time the District of Columbia Circuit telephone operating companies and local jurisdiction had exclusive over FCC *70 (regulated by agencies). Filings, state such as FCC, such interconnections. California here, presumably those involved could (D.C.Cir.1977), F.2d 84 been made with state commissions for informa- (1978). L.Ed.2d 753 98 S.Ct. purposes, merely request tional or of a com- charges in Any changes services. its own testimony was corroborated This Harris, have to be might chief services also then of Laurence who was MCI’s forty-nine AT & these state com- negotiator brought on interconnections with before filings of the alone would requirement T. Mr. Harris described missions. This over litigation by requir- state tariffs as the culmination of costs greatly increase negotiations. months of bad faith ing spread twelve its resources across MCI discussions, September Early in the necessitate the retention country and would urgency Perhaps informed AT T of the legal he had & of numerous local counsel. working permit strategy out interconnections to MCI of this aspect the most harmful begin expanded service in the summer least one commission possibility that at subjected service, of 1973. Tr. 893-94. Harris was proposed would refuse to allow the involv- negotiations to months of fruitless of a might undermine the creation ing purchase rather than the lease AT & system. communication nationwide facilities, the creation of local distribution to bear addi- strategy T’s also forced MCI areas, pricing disputes. and technical Dur- in connection with expenses tional costs and no new ing period the entire MCI received courts and the litigation before the FCC interconnections whatsoever. interconnections. right establish its 1, 1973, September
Then on Mr. Harris importantly, filings Finally, and most going learned that AT & T was not (as a culmina- with the state commissions negotiations resume but instead had filed added additional negotiations) tion of the service, tariffs which did not include FX MCI could enter the delay months of before narrowly service or service outside effect of the bad CCSA market. The combined areas, Tr. circumscribed local distribution filing and the of the state negotiations faith 1015, 1049, utility with state forty-nine a half tariffs have cost MCI one and filing fought commissions. Prior while it years of time and revenue AT negotiating interconnections, state tariffs MCI was T at first with & single T set single & for contract with in the FCC bargaining table and later of terms and conditions that would be used had and the courts. In October MCI operating companies. all of the AT & T expended and had place its terminals in filings Tr. 1013. Because of the in state capital only to have substantial amounts commissions, prospect MCI faced the of ne- because of its its revenue flow obstructed gotiations litigation forty-nine before while AT & T denied inability operate separate regulatory agencies. state Tr. 1067. On this basis interconnection. the bad faith jury properly found noted, one As commentator has filing in the negotiations culminating by pow lawsuits and administrative actions acts committed state tariffs were unlawful up erful firms “can tie smaller businesses monopoly T’s in order to maintain there expensive proceedings, uncertain and position. by increasing doing the cost business entries into a preventing delaying new Negotiations B. Bad Faith Balmer, particular Litiga market.” Sham other as Laws, challenges AT & T also tion and the Antitrust 29 Buff.L.Rev. that bad faith (1980). Bork, jury’s finding Anti generally pects R. Paradox, culminated negotiations contractual trust 347-64 Based on regulatory state com case, filings in this as sham before anticompetitive record negotia the issue of bad faith of AT & T’s course of conduct are missions. On pects errone that the court negotiations argues AT & T’s bad faith tions AT & apparent. need MCI culminating filings ously in the tariff harmed instructed negotiated in that defendant ways. in a “establish significant number of delaying plain purposes of First, of liti bad faith for prospect MCI had to face the intent of .. and with the entry to es tiff’s . gation forty-nine different forums Appellant’s monopoly.” maintaining line right private tablish its to offer its *71 argues Therefore, Brief at 128. AT & T financial viability. there was jury instruction allowed the to hold the sufficient evidence to jury’s sustain the negotiations entire course of unlawful with- finding injury as a result of bad faith out considering impli- First Amendment negotiations. filing cations of with tariffs the states. Finally, AT & T attacks jury’s is, finding negotiations The of bad faith finding negotiations of bad faith as incon however, entirely separate count from sistent findings. with other related But the filings. state tariff fact that AT T& was exonerated of negotiations The themselves were a busi- charges against of discrimination inMCI ness transaction private carried on two favor of Western and of charging Union parties, MCI, AT & T and and involved no prices excessive for local interconnections any governmental resort to processes. The does not foreclose the possibility that bad
jury
ample
had
evidence to hold that these
faith negotiations were found on the basis
negotiations were conducted in bad faith
of other acts. Evidence such
filing
as the
based on the record of
delay,
bargaining
tariffs,”
of “sham
the failure to disclose this
T,
position of AT & and the ultimate futili-
action
delaying
and other
tactics
have
could
ty
negotiations.
findings
These
did
jury’s
contributed to the
conclusion. Given
depend
not
filings.
on the state tariff
The
the fair
jury
inferences that the
could have
respect
lack of candor with
to the decision
evidence,
drawn from the other
we cannot
to file the tariffs was at most additional
engage in the type
speculation
AT & T
And,
circumstantial evidence of bad faith.
urges
jury’s special
to construe the
findings
worth,
for whatever it
bemay
our conclu-
Altman,
as irreconcilable. See Stockton v.
sion that
the state
filings
tariff
were not
(5th Cir.1970),
cert. de
protected by
Noerr-Pennington
doctrine
nied,
L.Ed.2d
here,
apply
equal
would
force
were we
Noerr-Penning-
somehow to conclude that
applied
ton
negotiations.
to the bad faith
C. Other Conduct
AT & T also contends that the ver
additionally argues
gener-
& T
that á
charge
dict on this
cannot stand because the
Noerr-Pennington
al
instruction was neces-
court failed to define “bad faith” in its
sary
“virtually
because
every liability issue
It
only
instruction.
is
error to fail to define
adversely
jury
found
to AT
T
&
“enigmatic
terms” that
leave the
regulation
subject
involved conduct
speculate
meaning.
on their
See Kocher v.
the Bell
System’s participation
regu-
Co.,
Creston
(3d
Transfer
activity that
$452,215,-
totalling
showed losses for MCI
purpose
trine
be admitted to show the
figure
adjusted
000. This
was then
doing
and character of other activities if
so
$900,000,000 to
an after-tax result
produce
overly prejudicial
is not
to the defendants.”
Feminist
Health
v. Mo
financial
losses.
Women’s
Center
equal
alleged
to MCI
hammad,
finding liability
on ten of
(5th
jury, upon
543 n. 7
Cir.
VI. DAMAGES that caused unlawful conduct and upon unsupportable study We come at last to the substantial award based the record. AT & damages jury, assumptions in this case. The after not found in deliberation, as- specifically challenges study’s found for on ten of the T could have achieved sumptions fifteen counts it considered. After com- that MCI month; per a circuit mile pleting special verdict the awarded revenues $.85 attained a market general damages million in that MCI could have MCI $600 million circuit miles thirty-seven in accordance with the anti- share of trebled 1975; and that MCI could have financed damages. trust laws to total billion in $1.8 envisioned in systems awards dam- communications Because this determination and unlawful conduct, law to the effect for both lawful ages study. MCI relies on case need plaintiff antitrust damage must be set aside and that a successful award plan was not introduced at trial. 117. The business itself “disaggregate” “tightly compartmen- defendant from profiting from his own
talize” its
damages once
fact of injury wrongdoing and
sense
makes
when dam-
has been
also
ages
established. MCI
defends the
arise from a
series
unlawful acts
specific assumptions
on by
relied
the au-
intertwined with one another.
Bigelow
profits study.
Pictures,
thors
the lost
Inc.,
RKO Radio
*73
264-65,
579-580,
574,
66 S.Ct.
Plaintiffs prove must their injury, tending plaintiffs’ business, antitrust to injure say injury is to and from type evidence in the decline prices, values, antitrust laws were prevent profits intended to not shown to be attribut- 264, able to other 327 flows from that which causes.” U.S. at makes 66 defendants’ S.Ct. acts unlawful. Corp. Bowl-O-Mat,
Brunswick
Pueblo
v.
always
courts have
distinguished be-
Inc.,
477,
690,
429
489,
697,
U.S.
97 S.Ct.
50
proof'
tween
of causation of damages and
(1977) (emphasis
L.Ed.2d 701
in original).
proof
damages. Thus,
the amount of
courts have been consistent
in requiring
Once
of damages
causation
has
plaintiffs
prove in a reasonable manner
established,
been
damages
the amount of
link
between
injury
suffered and
just
be
by
determined
a
reasonable
illegal
practices of
defendant. The
long
jury
estimate as
as the
verdict is not
First Circuit affirmed a directed verdict for
product
of speculation
guess
work.
ground
defendant on this
in Momand v.
J. Truett
v.
Payne
Chrysler
Co.
Motor
Inc.,
Universal Film
172
Exchanges,
F.2d 37
Corp.,
557, 566-67,
1923,
451
101
U.S.
S.Ct.
(1st
denied,
Cir.1948),
967,
336
cert.
U.S.
69
1929,
(1981);
wholly-owned
proof.
dealers and other-
independent
of its
pense
indepen-
against
wise discriminated
Id. at 964.
damages
plaintiff
To establish
dents.
of causa-
deciding the issue
The court
purported
testimony which
expert
offered
damages stated:
tion of
earnings
upon
based
net
project
annual
the effect lawful
not address
Plaintiff did
have been
of sales which could
the volume
upon its dam-
have had
competition may
dealerships had been
factory
if no
expected
throw the
model,
instead to
choosing
age
of lost
a measure
To arrive at
established.
citing
court
ball back in defendant’s
us,
case before
as in the
profits
experts,
proposition
for the
Story Parchment
figure
projected
subtracted from
perfect.
need not
damage estimates
taxes.
earnings before
actual net
plaintiffs
then
study was
profit
A lost
Id. at 965.
Id. at 1351-52.
to account
its “failure
rejected because of
*74
Id. at 966.
any
competition.”
lawful
failure of the
held that
the
The Court
for lawful com-
the case before
projection
sales
to account
to
very
In a case
similar
ordered sum-
required
us,
dealers
court
factory
a
district
petition from
California
in ILC
for the defendant
mary judgment
The Court stated:
and a new trial.
reversal
Corp.,
v. IBM
458
Corp.
Peripherals Leasing
plain-
figures
advanced
damage
The
curiam
per
aff’d
(N.D.Cal.1978),
423
F.Supp.
attrib-
substantially
experts
tiff’s
Corp.,
IBM
636
Corp. v.
nom. Memorex
sub
ab-
competition.
In the
utable to lawful
denied, 452
Cir.1980), cert.
(9th
F.2d 1188
record, we
in the
any guidance
sence
3126,
Appellee’s (emphasis supplied). Brief at 141 was insub- the extent of the lawful conduct damages and the assuming
Even the instruc stantial in relation tions, whole, sufficient, proof as a were strict of causa- requiring burden way adjust relatively great, was left with no the amount was in the instant case tion a rate which was too major priced ele- which was Telpak apparently alone was fact, the dam- it to be not injury giving proven ment of the rise to low. In we had age justified. award. cost point, on the second Secondly, further Thus, policies, in Spray-Rite, shipping against other compete it was caused to territorial restric- compensation policies and service, which I as Hi-Lo services such of, tions, complained were which were pre- priced was in a manner believe major injury— secondary importance to customers, serving clude MCI from small contrast, termination In of dealers. made it difficult for MCI Telpak where case, in this the establish- lawful conduct though large customers. And even serve pricing policies, repre- ment of AT & T’s effect, it come into I believe Hi-Lo didn’t competitive reality sents a central T 1973 when AT & early it was telecommunications industry and became an rates and at that Thus, announced the Hi-Lo important focus this case. course, time, had some moment in unjust and contrary policiеs would be against an AT difficulty trying to market damage remedy of the treble to award MCI rate. damages may compensate which it for the & announced quantitatively significant effects of such Tr. 3199-3200. competition. lawful alone assumptions concerning Telpak predatory pricing allegations play damages proof critical to are so MCI’s significant role in case that such MCI’s be overturned. damage that the award must Telpak failure to establish either the or the controversy and the interconnection Telpak allegations Hi-Lo mandates re-examination case. always prongs the twin MCI’s damages pred- have been statement, Tr. 178-80. opening MCI’s icated on what has been held to be lawful largest component of Telpak single was the pricing. Throughout case-in-chief MCI’s industry, compris- private telephone line Tel- alleged predatory pricing of both Tr. 426. ing over half the market. key pak emphasized and Hi-Lo were MCI, Telpak Mr. discussing the effect anticompetitive practices used AT & T McGowan, MCI, chief executive of stat- *76 injure Telpak’s pricing MCI’s business. ed: supposed structure and “free” circuits was aware that it had certainly always [I] alleged major stumbling to be the blocks to impact, on major impact, significant attracting holding large volume MCI being in exist- MCI because without it alleged customers. Hi-Lo was to be ence, significant there would be a benefit T to specific response adopted by & it, was harm. there along the unlawfully compete against MCI signifi- all the more Telpak Tr. 705. had routes MCI had ini- long telephone distance it was aimed at impact cant on MCI because chosen to enter. tially customers, whom MCI very largest Uhl, the lost principal Mr. author of hoped to attract. profit study, study’s pur- testified that the study, ille- major premise Since pose profits was to calculate the net MCI incorrect, Hi-Lo, Telpak and gality of been inter- could have earned if “it had not This defect rejected. must be study by fered with AT & T.” Tr. 3199. When had offered have been cured if MCI might of interfer- specifically types asked what damage adjustment on the evidence meant, ence he Mr. Uhl stated: non-predation, findings to reflect award Well, things there were a number of no such evidence was offered. but that occurred ... against cer- compete MCI was forced to the Lost Assumptions of C. The Flawed services T that by tain offered Study Profits com- anticipate didn’t it would have to that MCI’s failing prove addition to against. my that came to mind pete Two unlawful con- were caused damages AT & T Telpak are service offered T, profits duct of AT & MCI’s lost study competition specialized from other common also fails to substantiate adequately the carriers but merely assumes that this does assumptions provide the foundation pose not a problem to in achieving MCI study. for the The lost profits study is target. revenue $.85 based on assumptions that MCI would The most damaging piece of evidence average receive revenues of a circuit $.85 concerning MCI’s revenue assumption $.85 month; per mile that only MCI wouid is fact that Telpak priced is considera- to pay local charges distribution $.85, bly lower than at a Telpak price which Union; same rate as Western that MCI the jury found to be lawful. If MCI had place would have in a capacity of thirty-sev- wanted to compete with Telpak it would miles; en million circuit and that MCI could presumably have had to prices lower its have raised the million necessary $500 well below the assumed rate. $.85 MCI system. finance this While the validity of argues that this price comparison is inaccu- all of assumptions these questioned, be rate prices because it its services on a dif- average basis for the assump- revenue ferent basis than AT & T. MCI contends lacking tion is so in substance that the lost that the price stated for does Telpak profits study must rejected be as inherently include service charges terminal which are untrustworthy lacking in foundation.118 already included in MCI’s assumed $.85 rev- Our conclusion that AT T& maintained enue. MCI further contends Telpak lawful pricing policies grave casts doubt on billed AT T& in such a manner that the ability per MCI’s to earn $.85 circuit mile in mileage billing purposes is nineteen per- legitimate face of price competition by greater cent than would be case for the AT & T specialized and additional common identical circuit owned by MCI. Finally, carriers. Mr. Uhl point confirmed this points to the fact Telpak custom- cross-examination when he stated that ers seventy-five use percent of their cents, “when viewing the 85 there was an producing circuits thus a seventy-five per- assumption Telpak would not be in cent “fill factor” thereby raising the existence.” Tr. 3336. Once the assumption pro rata cost of the circuits used. MCI that Telpak was unlawful was eliminated adjusts Telpak the cost of for the different was left with way adjust no billing systems, the “fill factor” and the damages amount of to reflect this lawful pro addition of a rata service terminal price competition by AT Similarly, & T. charge produce a calculation showing the study provides guidance no to this court that the Telpak “true cost” of as a whole is in adjusting the award to reflect finding MCI relies on this calculation to show $.93. that Hi-Lo was lawfully priced. also would, its projected service using $.85 The main assumption that falls as a numbers, comparable priced lower than *77 Telpak result of and Hi-Lo’s being deter competing Telpak, costing the Thus $.93. mined to be lawful is the revenue as $.85 says MCI that its revenue assumption $.85 sumption. The ability of MCI to earn $.85 and, hence, is competitive reasonable. per circuit mile over an peri extended time argument od is MCI’s fails by price competition undermined number of which, reasons. claim that the contrary average & MCI’s Tel- assump MCI’s tion, may conceivably pak only seventy-five maintain or user utilizes percent even low er long distance rates for large seriously misleading volume its circuits is be- business users. In addition cause failing seventy-five percent weighted is not a competition T, address lawful from AT average reflecting high percentage & the the lost profits study does not analyze price Telpak represented business by the deficiency 118. Because of the of MCI’s revenue from AT T at interconnections the same rate assumption Union, validity we do not consider as Western it must be noted that assumptions concerning that, fact, jury rejected the size or financ- this claim and MCI ing system. regard paid higher charge of MCI’s With it assumed in its MCl’s has than assumption right profits study. that it had a to receive local lost government United States and the very the trial. MCI’s business plan was never largest private corporations. For example, Uhl, Mr. introduced at trial. who did testi- the fill factor for the govern- United States trial, at fy expertise solely had in the finan- ment, largest Telpak customer which accounting techniques necessary cial and alone accounts for Telpak over half the prepare profits study a lost once the basic miles, circuit has been nine- always at least assumptions on the revenue side had been ty-five percent. The evidence also shows made. Mr. Uhl did not to offer attempt that the fill Telpak factor for D as a whole any justification origi- fundamental for the increased to ninety percent assumptions nal contained in the business Hence, we think MCI has not demonstrated Thus, plan. figure represents noth- $.85 price the total exceeds Telpak $.85 ing adjustment more than an made to es- per mile, original circuit reve- or that MCI’s sentially unsupported data. did not nue assumption of was reasonable.119 $.85 produce at trial other any witnesses or doc- Further, Uhl, witness, damage MCI’s Mr. umentary evidence which sufficiently dem- conceded on cross-examination that the $.85 onstrated how the revenue assumption revenue assumption included revenue from original business plan was derived. FX, Execunet as well as CCSA and other necessarily Thus while not hearsay, lost private line services. Execunet fully is a profits study assumptions it con- switched MCI service which ap- was not tains lack a foundation from which a jury proved until when the District of Co- could reasonably have determined the dam- lumbia legiti- Circuit reversed the FCC and ages which were found in the instant case. mated MCI’s offering of Execunet to its Day-Glo Cf. Locklin v. Corp., Color customers. See MCI Telecommunications (7th Cir.1970), denied, cert. 400 U.S. FCC, Corp. v. (D.C.Cir.1977), F.2d 365 582, 584, S.Ct. L.Ed.2d 632 (1971) (assumptions damage evidence L.Ed.2d 790 Execunet has ostensi- upon base). must rest an adequate bly profitable been a business for MCI FX, while and other private CCSA line D. Remand for a Partial New Trial might least, services not have At been. evidence (in before the jury was the face of These defects in proof Telpak) insufficient to profita- establish the damages require that verdict be set bility of these latter services. The jury not, however, aside. This does necessarily thus had no rational concluding basis for mandate a new trial on all issues. Rule that, Execunet, without MCI could have 42(b) of the Federal Rules of Civil Proce earned per circuit during peri- $.85 mile permits separate dure trial issue up od to 1977.120 separation when would be “in furtherance of convеnience or to prejudice, avoid
In addition
explain
MCI failed to
how it
separate
when
trials will be conducive to
derived its
assumption.
revenue
Pur-
$.85
expedition
economy.”
portedly, the
Fed.R.Civ.P.
figure
adjust-
came from
$.85
42(b).
ments
Only
made to the
one of these conditions need be
original
plan
business
for MCI Mr.
met
42(b)
Uhl. The other source for
for the court to order a Rule
figure
consultant,
separate
was an MCI
Dr.
Corp.,
$.85
trial. United States v. IBM
Lerner,
Norman
but he did not testify
(S.D.N.Y.1973).
1168
permit
to
a separate and fair trial on re-
The issue to be re-tried on remand is
mand to
damages
determine
preju-
without
solely the
damages
amount of
that MCI is
dice to either party.123 Franklin Music Co. entitled to
for
AT T
by
receive
those acts
Co.,
v. American Broadcasting
124. We note an sions of 26 U.S.C. § additional issue which trial, damages. portion damages relates to the calculation At that a of antitrust be argued damages subject offsetting they that the it suffered must to an deduction if adjusted upward previously reflect the taxes which as unrecovered been deducted company pay would on the award. In its losses. original presentation MCI asked for
1169 discovery Given the massive which forth the in pretrial has issues for trial its or- already der, been in this case little imposition further of a time limit upon the taken remand, discovery necessary should be on parties’ presentations and its reversal of but this is a matter for the trial rulings court’s several evidentiary during trial. discretion. A should presumption also exist AT T& in addition contends that the jury previous that documents and rulings on evi- erroneously instructions excluded certain dence offered at trial are not the last rear- theories of its defense. course,
guable, but
the
of
judge,
trial
has
determine,
broad discretion to
redeter-
A. Fair Trial
mine, these issues.125
We
the
find that
district
court
could properly
pre
have refused to enter a
VII. THE CONDUCT OF THE TRIAL
trial order
this case. Federal Rule
in
of
the
argues
AT & T
manner in
Civil
gives
Procedure 16
trial court dis
the district
over
presided
court
the case
cretion to hold pretrial conferences. Fed.R.
process.
due
phrased
amounted to a denial of
Civ.P.
Although
16.126
rule
T complains
(“the
of the
in mandatory
court’s failure to set
court
language
shall
mind,
guidelines
computation
damages
125. With
in
The
these
we note that
of
in an antitrust
might
appoint
spe-
liability
already
district court
wish to
case where
has
been estab-
cial master under the terms of Rule
of
type
53
lished is the
of issue
has often been
Federal Rules of
Procedure to aid
Civil
referred to
District
a master.
courts within
district court in the resolution of this case. We
procedure
pre-
this circuit have utilized this
entirely
leave this
to the discretion of the dis-
liability
vious antitrust suits where
has been
court,
knowledge
trict
further
See,
Day-Glo
e.g.,
established.
Locklin
Color
special
references to a
master are to be the
Corp.,
Cir.1970),
(7th
not absolute. As control in the case before us. order, subject change are limits specific attention to the sub- there must be “[t]hese satisfy court that if events at the trial testimony complexity and the stance of the my restrictive. It is unduly limit is issues, it not follow that but does party each sufficient intention to allow suf- several weeks for each side will never case; I present its have no interest time to The circumstances of each individual fice. speed speed.” the sake of 85 F.R.D. weighed by judge, must be the trial case Similarly, pretrial hearing at a at 31-32. position who is in the best to determine how parties the court told the there was long may reasonably try it take case. “nothing absolutely hard and fast” about MCI was confident that could establish completed presenta- the limits. After MCI days, and in fact fin- liability twenty-six days, tion of its case in fifteen and one-half days ished eleven ahead of schedule. We expressed unwillingness per- court court, did the district recognize, as mit AT T to twenty-six day exceed its presentation competent of a defense limit, yet tempered it later remind- presentation more time than of a require *83 ing parties, the “I want it very to make of the sub- plaintiff’s light case-in-chief. In nobody being pushed clear that to do proffered testimony, stance of AT T’s& anything that is inconsistent with what he however, and the district court’s considered perceives to be the best interest of his efficient, effective, yet presen- view that an client.”133 say cannot that the district We take no tation of AT & T’s defense would prepared strictly court was to adhere to its present time used to longer than the preliminary time regard limits without case, its we conclude that the district court possible prejudice party. to either manifestly did not abuse its discretion in Insisting twenty-six day the limit limiting the time for AT & T’s case-in-chief. restrictive, Corp. was too AT & T cites SCM it AT & T also asserts that (D.Conn.1977), v. Xerox Corp., F.R.D. 10 when the court reversed prejudiced district imposed where the court a six-month limit an earlier T to ruling and allowed & plaintiff’s presentation the when the present concerning public evidence the in plaintiff prima had failed to make a facie terest, late because that decision came too showing liability of after fourteen weeks of for AT in & to include that evidence its trial. AT & T in effect suggests that when- Instead, ever case-in-chief. AT & T had to imposed time limits are complex case, months, present the limits should involve this evidence on surrebuttal. It is not days. Although there be validity precisely some unclear what harm AT & T be suggestion cases, to this complex most lieves it suffered. To the extent (1979) (footnotes omitted). Lacey, It is desirable to establish time limits for Pro- major phase case, complex each Streamlining so that posed Techniques Trial period litigants within each fixed are Con, mo- Complex Antitrust Cases: Pro and self-discipline tivated to exercise and creative Moore, (1979); Antitrust L.J. 1 J. choices between alternatives. Practice, (Manual Moore’s Pt. II. For Federal Complex Litigation) 4.57 § length trial, imposed Time limits for as recently case, large in a antitrust have been regard following In this comment of AT rarely power judges used. The to cut off interest, & T’s counsel to the district court is of cumulative, presentations proof redundant but not determinative the issue: may provide authority for the use of overall very pleased We are with the amount of presentations. long limits on trial As as the given time we have been to deal with this fair, limitations established are realistic and problems kind of defense. We have no about judge prevents delaying and the tactics all, trying say that at and I am that we witnesses, hostile we believe that trial time cutting presentation are it down [on appropriate limits would also be an means of you leaning because are on us. defense] expediting litigation. leaning You are not on us. National Commission for Review of Antitrust Procedures, Tr. 6554-55. Report Laws and to the President General, Attorney and the 80 F.R.D. 535- perceives it harm derives from the jury’s Ohio-Sealy Mfg. Inc., Mattress Co. v. Sealy, hearing context, testimony out (7th Cir.1978), cert. de court district offered to “make conces- nied, 99 S.Ct. 59 L.Ed.2d sion defendant” in order to assure (1979). Considering the complexities of that AT & T’s evidence would be accorded this ease and the impossibility near of cop impact. Moreover, full its as Judge Grady ing with them adequately traditional out, pointed “most of this evidence ha[d] procedures, AT & T received a fair trial. presented been already” in one form or another during testimony of AT & T B. Theories of Defense
witnesses. To the extent
that AT & T
believes was
jury’s
harmed
becom-
its
the jury,
instructions to
the district
ing disconcerted by being held for an even court refused to articulate AT
posi-
& T’s
longer trial, we note that AT & T refused
tion on each charge. Reasoning that since
Judge Grady’s offer
allow AT
& T’s
plaintiff
had the
of proof
burden
evidence in before MCI finished its rebuttal
that AT & T’s
theory
basic
was that “it did
case, and to explain the situation to the
not do
things,”
these
the district court con-
jury,
including the fact that AT
T& had
cluded that
would be
adequately
put
wanted to
its
evidence
earlier. Par-
instructed
“explaining
without
in detail
ticularly since Judge Grady reversed his
what
defendant’s
is.”
position
ruling on “public
evidence
interest”
as soon
AT & T
argues
nevertheless
& T brought
only fully
apposite
it,
refusal was prejudicial
effect,
because
authority
position
for its
Mid-Texas
—the
deprived AT
T of an opportunity
attention,
his
case —to
circumstances
present
defense theories to the jury.
*84
surrounding the late reversal of the district
Citing Florists’ Nationwide Telephone De
position,
whole,
court’s
considered as a
do
livery Network v.
Telegraph
Florists’
Deliv
not demonstrate
to AT
prejudice
& T’s sub-
ery Association,
(7th Cir.),
incorporated testimony CONCLUSION VIII. trial. conclude opinion, we As indicated in leads Thus, of the record a review and cer- damages jury’s award meet the instructions us to conclude eviden- the merits lack jury findings tain on adequacy. AT & both these tests of as a improper tiary support or are otherwise making failed in cannot be said to have so law, must be set they so that matter of during trial position known addition, the other approve we aside. In jury with no refusal to instruct left Accordingly, findings on the merits. understanding of AT & T’s defense. insofar as it judgment is reversed instruction general these circumstances damages disap- the award of based on The district court acceptable. would be it is respects In all other proved findings. substance of AT & also communicated the for a affirmed, cause is remanded and the AT & agree T’s theories. that much of We damages only, new trial on the issue of merely negating T’s defense amounts Circuit Rule opinion. with this accordance T, example, AT & for MCI’s contentions. party remand. Each apply shall not on asserts that it was entitled to an instruction All appeal. shall its own costs bear geographic relevant it believed the which are appeal in this arguments raised nationwide but limited market was not have been herein expressly addressed to do where was authorized the areas without to be considered and determined charged, “The business. The court in fact merit. market is scope of the relevant geographic do the area in which the firms involved *85 WOOD, Jr., Circuit HARLINGTON they and the area from which business dissenting in part in Judge, concurring claims that ... draw customers.... MCI part. was geographic scope the of the market majority’s opinion fur While I with the agree The court App. nationwide.” areas, including its view of instructed the on what in a number of jury ther conduct immunity, general the regulatory determining to consider in whether factors trial, of AT illegality the the was, fact, These and fairness of the market in nationwide. local intercon- regard in to believe & T’s conduct in context lead us instructions nections, filings, negotiations the tariff T’s view. jury that the understood AT & disconnections, of the deni- legality and the argu the trial evidence and Considering interconnections, there are tendered, multipoint al of well as the instructions ment as respectfully in which I other areas a certain jury’s the obvious choice was between recognized ex- Even the MCI) a other views. by or offer (espoused nationwide market courts whom the upon field AT & in this (advocated by perts more limited market among constantly quarrel guidance look for T). examples may be found Similar by way original made submissions of the affirming adequacy of the instruc- In the by way ago, couple of tions, during parties Judge Grady’s of weeks the remarks we note and the defend- plaintiffs’ submissions instructions conference: the the submissions, win at least I ants’ who, anyone incidentally, hope, at I approval. somebody’s sympathy, if not their instructions, time, these later is critical of I had to work with will take a look at what themselves about some guess of these matters. work. a jury, After with that left, now, impression is least at as of practical computation leeway, has conscien- apply that we cannot select one view rendered tiously presuma- a verdict which unequivocal another with confidence. This bly the will fully compensate believes case will in the not least settle the academic plaintiff damages, the for its the statute It surprising, controversies. should not be multiplies then takes over and that verdict therefore, that, among judges who have surprised three. There must be some case, had to struggle with this there not jurors who later they come realize what complete unanimity. expression my This of wrought. even have It is conceivable that a own not views is to be intended critical struggling competitor securing a trebled my views of colleagues. judgment could not been more fortu- nate than to have issues, damage Before suffered considering those add I only losing comment. the hands of the preliminary competitor. my In Some shock in legal judgment trebling community requirement was evident de- Congressional breaking record billion serves review. Discretionary verdict. $1.8 however, panel, punitive damages, might This not approached example, has be an this case place intimidated size alternative for extreme cases in verdict, or with the statutory multiplication. But, event, attitude necessari- ly because of its size there must be reversi- we have to try to resolve this case as we ble the process error in somewhere. The now find the law and evidence. approached issues have been as they would have been in a less expensive my case. In 1. HI-LO AND PREDATORY PRICING sides, view attorneys Judge on both A. The Inappropriateness Exclusively Grady, jury performed, and the not perfect- Cost-Based Standards
ly, but remarkably well considering that point firstMy of difference with the ma- this is complex an extraordinarily and mul- jority question concerns the elusive of pred- tifaceted My impression case.1 initial pricing. atory setting jury’s aside the that certain reversible errors were readily determination guilty that AT & T was apparent, upon but closer examination some predatory pricing in connection with its Hi- events novel turned out to be so tariff, majority given Lo has indications disturbing particular circumstances. philosophy concerning If antitrust. Its any inclination, however, there is to gen- appears belief to be the antitrust laws erally find with ver- impressive fault dict, be advancing should I would shift concerned good share of consumer welfare blame on to the law and should thus focus itself. There is neces- sarily permitted exclusively efficiency. cases on issues To im- antitrust some lax- ity computation plement in the damages majority as we concern would just that, cases, shall A discuss. and reasonable price “esti- find most no above mate,” data, upon based Long-Run relevant will suf- Incremental Cost *86 could held fice it must although speculation be short of predatory.2 appeal generated reader,
1. This has a record of mon the of the we reiter- 2. For convenience 11,500 proportions. pages strous of There are ate brief of here definitions the various cost transcript, pleadings, majority opinion and motions other record terms used in the and this entries, 1,000 exhibits, fully than more and 45 boxes dissent. Each term more elaborated in is deposition. appel majority opinion, supra, pp. of sealed evidence and 1114-1118: The the at nearly pages, appendic late briefs total 600 Marginal supply- of cost—the additional cost height, es reach more than a addition, foot and single, infinitesimally ing a additional small correspondence is there considerable unit. parties. to this court from the Not do we Average Total sum all costs Cost—the of upon parties note the diverse issues which the (fixed variable) and divided units of all focus, print but also obscured in the small of output. over 600 footnotes in the briefs we find count average Long-Run Incremental Cost.—the less additional issues. costs) adding (including per of cost fixed unit 1176 427, (7th Cir. Corp., Marietta 615 F.2d 430 consumer welfare efficiency
While
and
1980).
majority’s
to retreat
goals,
per-
willingness
should not be
The
they
are laudable
major
clashes with
a
aim of
to a more mechanical test
entirely eclipse
mitted
competi-
and other cases
promotion
holdings
antitrust
laws:
of
of Chillicothe
efficiency
of com-
a conclusive
tion. To
ahead
which have refused
attach
advance
hierarchy
in the
of antitrust values
one
petition
any
form of evidence.
presumption
FTC,
(6th
dimension of
slight
Borden,
is to
the non-economic
674 F.2d
515
Inc. v.
competi-
concern with
103
the Sherman Act’s
Cir.1982),
granted,-U.S.-,
cert.
any
competi-
good healthy
(1983);
tion.
event
Pa
1298
77 L.Ed.2d
S.Ct.
efficiency and results in
tion itself fosters
Co. v.
& Production
Engineering
cific
not
I am
sure that
public benefits.
(10th Cir.),
790
Corp.,
F.2d
Kerr-McGee
should be the almost
majority's
LRIC rule
cert.
advancing consumer
exclusive method of
recently
Most
L.Ed.2d
welfare.
approach
adopted
broad
Ninth Circuit
In William
predatory pricing.
analyzing
focusing on the promotion
In addition to
Baking
ITT Continen
Inglis
Co. v.
& Sons
laws
price competition,
of
antitrust
Co.,
(9th Cir.1982),
power to assure fairness and manufactured, just by reducing to assure petitors, and not instruments traded in as efficiency, worthy running economic inseparable neoclassical from the the expense may and as that be. As goal beneficial companies for the many of different wrote, the lаte Professor Hofstadter under or commerce purpose. same Trade be bad- may these nevertheless to institutional- conditions possible What makes it ize ... is not a consen- restrained driv- activity ly unfortunately antitrust and utility sus as to among economists its ... the small dealers ing out of business but a enhancing efficiency, economic the com- price in the of reduction [M]ere as society large consensus in at rough modity dearly paid might dealt dangers its value in of exces- curbing class, absorp- and of such a run power. beginning, sive market As in the commodity by tion of control over the judg- on a political is based and moral of all-powerful capital. combination rather the outcome of econom- ment than 323-324, 17 at 552. Id. S.Ct. eco- distinctively ic even measurement or variety in a of century, Throughout criteria.6 nomic integra- contexts, boycotts to vertical from That concern was at monopoly its re- tion, repeatedly has Supreme Court origins efficiency to technical not confined concern with mar- jected the notion that a arguments clear made Senator eclipse efficiency permitted ket should be himself, his name- Sherman who defended broader, of the antitrust social concerns by noting, sake Act Even in of relative economic laws.8 times [monopoly] If powers the concentrated of political and cul- hardship, legal American man, are it is single entrusted to a staunchly ture has resisted rationaliza- kingly prerogative, inconsistent with our power on the monopolistic tion of economic government, form of and should be sub- overwhelming has efficiency.9 of basis So ject strong resistance of state the con- been the American abhorrence of will and national authorities. If we (and its con- power centration of economic king political power endure we range private comitant restriction of king produc- should not endure a over the tendency to opportunity and discretion and tion, transportation, and sale of Big trigger enhancement responsive necessaries of life.7 Government) that early quick antitrust cases were inconvenience, pre- despite lack this strain which addressed the elaborate general and mess introduced dictability, dangers of concentrated social and economic allegedly cohesive into the economists’ power, upon over priority and insist exclusively more As world micro-eco- efficiency tidy technical criteria. Jus- States, policy tice Peckham noted in United analysis, nomic an antitrust Association, Freight Trans-Missouri 166 concerns into political failed to take (1897), 17 41 1007 L.Ed. will unresponsive to the account would be with the of touch Congress out trading In business or combinations sup- that has perma- rough political consensus temporarily, perhaps even Hofstadter, Happened Other Non-Economic Goals 6. “What to the Anti- “Justice” and R. (1979); Antitrust, Blake 1076 in The Business Establish- 127 U.Pa.L.Rev. trust Movement?” (E. Cheit, Jones, 1964). Anti- ment ed. Toward a Three-Dimensional (1965). Policy, trust 65 Cal.L.Rev. Letwin, Cong.Rec. See also Congress and the Sherman Antitrust Laws: Hawley, Problem The New Deal 9. See 1887-1890, (1955) (tracing U.Chi.L.Rev. (tracing (1966) Monopoly, 283-379 history movement). political of antitrust strong turn- advocates in influence of antitrust away pro-car- ing policies New Deal later Pitofsky, of Anti- The Political Content planning practices). telization and Schwartz, trust, (1979); 127 U.Pa.L.Rev. *89 ported antitrust enforcement for argue, almost a as Chicago economists, To do the century.10 that ought solely antitrust be used inhibit expressions power of market in a this rich history jurisprudence With and sense, technical only economic is not stressing wide-ranging social of concern miss much in the and history develop- laws, it entirely antitrust is difficult to law, of ignore ment but to of much understand the enthusiasm with .which potential political ... consensus many theory embrace the that these laws supports antitrust comes from other stand only efficiency. economic Intel- sources. Americans continue to value in- lectual plays part. fashion no doubt It is stitutions the scale and workings of interesting note in this connection that comprehend. which they Many can con- jurisprudential historical and argu- tinue to value of decentralization de- ments on behalf of this narrowed horizon cisionmaking power responsibility. and for the antitrust laws were not articulated Many favor structures in which power in mid-1960’s, coherence until one locus by power be checked in when the “law and economics” movement Antitrust, another. broadly conceived began attain an academic foothold. This sensitively administered, and may con- new “efficiency only” paradigm was not tribute to the realization of these val- applied to the predatory pricing area until ues.13 less than ago, a decade in a seminal article I submit that no such contribution will be by Professors Areeda and Turner.11 While made we if limit our definition unlawful it perhaps is best legal left for historians to predation transgression to the of efficiency trace intellectual origins impact and defined formulae micro-eco- the “law and approach,12 economics” we nomies. only note here that it is at most a set of The majority argu- makes one additional premises contestable certainly a rela- ment support of its restriction tive newcomer to areas rich leg- marked predation inquiry in this case to the search islative and decisional history. While not for market efficiency: par- existence negating the of policy arguments value regulation allel federal of AT & Supra, T. based on I efficiency, am hesitant to aban- at pp. Thus, 1110-1111. majority the jurisprudence don and historical texture avers, this temper court should the execu- of the antitrust laws order to embrace a tion of its judge antitrust mandate to AT & set of seemingly hard and efficiency fast T’s conduct in view of the knowledge that present rules which conceptu- illusion of the FCC stands to effect technical ready Instead, al and empirical tidiness. I would improvement competition in the tele- permit continue to the kind of inquiry into really communications market. it is Since predatory use of power economic which this just a regulatory weaker version of the court encouraged in Chillicothe in order to immunity argument rejected by properly preserve important values embodied in the majority, argument suffers from the Sherman I agree Act. would with Pro- Chiefly, the same flaw. fails to account fessor Sullivan that historically independent for the role Pitofsky, supra, many responses at 1052. ism. It is one of the critique attempts of all Realist to create com- Turner, Predatory Pricing 11. Areeda and internally pletely automatic and consistent Related Practices Under Section 2 of the Sher- Horwitz, ‘pure realm Law law’.” and Eco- Act, (1975). man 88 Harv.L.Rev. 697 Politics?, nomics: Science 8 Hofstra L.Rev. suggests 12. Professor Horwitz “eco- analysis nomic of law is the most recent Sullivan, Economics More Humanistic upon prestige claimant to draw the natu- Disciplines: What Are The Sources of Wisdom system ral sciences the effort to create Antitrust?, 125 for (1977). U.Pa.L.Rev. 1222-23 thought legal objective, neutral and apolitical emerges ... Law-and-economics by Legal fill the intellectual vacuum left Real- have the Con- prefer I would society, multi- our played
the antitrust laws so. gress say polar regulatory system. *90 ma- tension exists between necessary A the Welfare in 2. LRIC and Consumer efficiency regulation seeks
joritarian
Monopoly Context
anti-
goals of
and the somewhat broader
of
concept
someone’s
assuming
Even
that
protect
to
fair
which seeks
policy,
trust
the
only goal
the
of
consumer welfare is
even
monopoly
to
competition and
restrain
I
laws,
about which
assumption
an
antitrust
in some
the latter
is found efficient
where
reservations,
as
I have serious doubts
majority’s
The
technical economic sense.
at
protected,
are well
to whether these ends
gov-
simplified picture of
view relies on a
context,
majori-
the
by
monopoly
least in a
regulation
ernmental
telecommunications
other
to look at evidence
ty’s reluctance
for
as
and coordinated search
a monolithic
concerning
prices.
cost and
than that
tidy
the
the less
single
policy, ignoring
best
short,
one
preoccupation with
majority’s
the
in
policy
system
that
our
reality
regulatory
believe,
too
efficiency, I
is
form of
special
a
good
is
ideas of the
basis for
shaped
competing
even as an economic
narrow
policy.
sound antitrust
many loci. The antitrust
emanating from
laws,
applied by
play
the
a
judiciary,
as
majority
the
advocated
standards
countervailing
enterprise.14
in this
vital
role
solely
terms of the
efficiency
in
measure
majority,
the
argue,
To
as does
that
the
the
a
service for
ability
produce
good
to
inquiry
a
require
courts should limit
their antitrust
But it would
possible
lowest
cost.
in
to
that such
leaving
leap of faith
order
conclude
regulatory
while
to the
authorities
con-
synonymous
is
with actuаl
efficiency
addressing
long-term prob-
the
of
the
duty
benefit,
ma-
goal
the
of the
sumer
avowed
the
is withdraw from the
lems of
market
to
jority.
sys-
contemplated
delicate
for our
interplay
regulation
tem
antitrust
overlapping
of
and
First,
even if it
is more
monopolist,
a
rival,
majority approach
If the
is
any potential
enforcement.
than
has
efficient
along
pass
savings
incentives to
cost
now determined to be the most beneficial
limited
because,
taxing
countervailing
especially impor-
power,
like
the whole
is
the
This
role
preserving
economy
community
it
in an
our
as
have an interest in
tant
area as vital to
question
always
law
.... No one will
communications. This nation’s
has
undiminished
great body
people
recognized
policy
requires
a
of the
in
interests of
commerce
State, would,
instance,
existing
yield
af-
in
cre-
in this
be
commitments
favor of
Hurst,
great
change.
by the
this
line of
ative
W.
Law and the Con-
fected
surrender of
right
(1956). Perhaps
single corporation,
with
ditions of Freedom
travel to a
toll,
competition
application
policy
in
for
classic
of
came
and exclude
exact
case,
Bridge
Supreme
years.
rights
private
seventy
Charles River
where the
While the
of
legislative grant
sacredly guarded,
property
heid
a
and
Court
operate
to build
are
we must
bridge
community
rights,
a
forget
toll
across the Charles River
that the
also have
preclude
operation
being
happiness
did not
and
construction
well
of
and that
every
and
competing bridge
Proprie-
preser-
depends
a
a later time.
faithful
citizen
their
Bridge
Proprietors
tors of
Charles River
vation.
Bridge,
(11 Pet.)
noted,
of the Warren
Hurst
Id. at 547-48. As Professor
has
(1837).
Taney’s opinion
L.Ed. 773
for
expresses
Justice
Bridge
this
case
Charles River
timely applied
the Court
as
to the telecom-
country’s “preferences
dynamic
for
rather than
technology
munications
involved in the case
property put
property,
for
creative
static
as
before us
it was to the less advanced modes
property
with
new use rather
than
content
communication considered
1837:
Hurst, supra,
what it is.”
at 28.
reveals,
history
ours, free, active,
be unwise to
country
As our
would
like
[I]n
regulatory agencies,
enterprising, continually
that our
bombard-
advancing
assume
in num-
multiple
wealth,
ed
demands from
entrenched
bers and
new channels of communi-
guided by
daily
necessary,
short-run efficien-
are
constituencies and
cy
cation
found
both
trade;
concerns,
vigilant
indepen-
as the
will be
travel and
and are essential
comfort, convenience,
preference
vindicating
prosperity
judiciary
dent
See,
(J.
“dynamic
e.g., Regulation
ought
property.”
people.
presumed
A
State
never
Kolko,
Triumph
Wilson,
1979);
power
promoting
Con-
to surrender this
ed.
[of
community],
(1967).
happiness
prosperity
servatism
price
form
reduc-
its customers
exercised
monopolist
existent
who
tions;
precise-
this lack of incentives is due
confronts
new entrant.16
monopoly
Thus,
ly
position.
under
predatory
The most blatant
use of mo-
circumstances, promoting
entry
such
is,
course,
nopoly power theoretically
a less
initially
seemingly
efficient firm as
cut
quick price
upon entry
compet-
until the
great
competitor
could still be of
benefit
withdraws,
itor
prices
at which time
are
Brodley
Hay,
consumers.15
Predato-
raised
to monopoly
recoup
back
levels to
ry Pricing: Competing Economic Theories
are,
temporary losses sustained. There
Standards,
and the
Legal
Evolution of
however, a variety
ways
of more subtle
Cornell L.Rev.
744-45
A
*91
monopolist
exploit
power.
which a
can
his
healthy competitor might generate even
example,
price
For
of
lowering
in antici-
more efficiencies and consumer benefits.
a
pation
entry
of
can be as effective
threat
Second,
importantly,
more
and
the exclu-
competition
actually
to new
engaging in
sive use of an
to
LRIC standard
evaluate
Indeed,
price
respected
a
war.
a
branch of
predatory pricing
pre-
fact
ignores the
of
the field
industrial organization econom-
dation is a strategic weapon available to a
ics
be
of
wary
cautions us to
the problems
monopolist facing a new entrant.
a
Such
pricing”
of this form of “limit
whereby a
test
is therefore
many
insensitive
monopolist may
profit
still make a
but elim-
strategic
forms of
aby
conduct
dominant
inate the threat or
a
entry
actual
of
new
legitimate
firm which
pur-
have no
business
competitor as the field suddenly looks less
pose
only
and are
instituted to discipline or
Sullivan,
economically inviting. L.
Anti-
competition
eliminate
accompanying
with
Law,
46(c) (1977); Scherer,
trust
§
Predato-
long-run detrimental effects for consumers.
ry Pricing and the Sherman Act: A Com-
Because of the
of strategic
element
choice
ment,
(1976); Scherer,
89 Harv.L.Rev. 869
in predatory
it is
pricing
necessary to for-
on Predatory
Some Last Words
Pricing, 89
mulate a test which avoids the indetermina-
Harv.L.Rev.
(1976).
901
In response to
Sullivan,
cy
price theory.
of
L.
Economics
concerns,
these
no other than Dr. William
Disciplines:
and More Humanistic
areWhat
Baumol,
witness,
principal expert
& T’s
Antitrust?,
Sources
125
Wisdom
has
holding
non-per-
advocated a rule
1214,
(1977).
U.Pa.L.Rev.
1228
manent
a
price
by monopolist
reduction
Thus,
greatest danger
in attaching
predatory
Baumol,
be
pricing.
Quasi-Per-
conclusive presumptions
comparison
to a
Policy
manence
Price Reductions: A
prices and
tendency
costs is the resultant
Predatory Pricing,
Prevention of
89 Yale
ignore the more
in
ways
subtle
which mo-
Cf.,
(1979).
Klevorick,
L.J. 1
Joskow &
A
power
nopoly
exploited
can be
to the detri-
Framework for Predatory Pricing Policy, 89
ment of
competitors
both
and consumers.
(1979).
Yale L.J.
250-55
majority’s
may
greater
rule
valid-
ity
But
deciding allegations
pricing”
only
in
“limit
is not the
pric-
tactic
predatory
ing
attempt
monopolize
may
prove
cases where
for a
availing
predator.
monopoly
defendant
A
power.
monopolist producing multiple products
lacks
However, there are sound economic
so-
may arbitrarily
and
and services
systemati-
cial reasons
be
wary
the market power
cally
its
shift
revenues and costs between
inefficiency
only
15. A new entrant’s
be a
The case law has even held unlawful actions
phenomenon
which,
short-run
associated
its
monopolists
themselves,
while lawful in
industry.
longer
recent start in an
If a
view is
purpose
a
evidence
sufficient
transform mo-
taken,
progress
the new entrant will
nopoly
“monopolization.”
into the offense of
“learning
may,
fact, ultimately
curve” and
Company
United States v. Aluminum
of Ameri-
more efficient than the dominant firm. F.M.
ca,
(2d Cir.1945) (on
F.2d
certification
Scherer, Industrial
Eco-
Market Structure and
Supreme Court);
from the
United States v.
(2d
1980).
nomic Performance
250-52
ed.
Machinery
F.Supp.
Corp.,
United Shoe
curiam,
(D.Mass.1953),
per
aff’d
Indeed,
the law of section 2
Sherman
(1954).
74 S.Ct.
monopolist marketing pact easily by a giving but which cannot be addressed premium price, could command a comparison, no matter pricing leverage simplistic price-cost over its significant Pricing is utilized. historically has what measure cost competitors. ReaLemon is at processed variable cost LRIC juice average lemon mar- above dominated analyzing witnesses, best an indeterminate method of nomies opposing then a expert of price the motives and effects cuts a place must be reserved for evidence of in- monopolist. light To shed pricing these include, tent. Such evidence can as in Bor- strategies, which are the conscious decision den, suspicious pattern of price reductions corporate planners, only proper of the it is geared only to firm’s competitive mar- plaintiff that a be allowed to come forward kets, combined evidence that the firm with direct of defendant’s intent evidence sought to offset the resultant revenue sacri- regard. predatory pricing Because other, fice by increasing revenues from non- corporate strategy involves element of markets, Borden, competitive 674 F.2d at defendant, part on the mechanically 513, 514, or, Products, inas Dairy National applied cost standards fail to address the firm evidence undertook research to strategic predatory pricing. essence gain knowledge competitor’s weak- Predatory Brodley Hay, Pricing: Com- massively ness and then concentrated its peting Economic Theories and the Evolu- resources in an all out strategic program of Legal Standards, tion of 66 Cornell L.Rev. product promotion damage to inflict on the (1981); Dirlam, Marginal Cost Pric- Products, competitor, Dairy National ing Tests for Predation: Naive Welfare Although F.2d at direct evidence Policy, Economics and Public 26 Antitrust conclusive, rarely intent will the court Scherer, Bull. 769 See also F.M. should also consider statements of chief ac- Industrial Market Structure and Economic tors expressing design to inhibit competi- (2d 1980) Performance 537-38 (rejecting ed. tors means other predatory than the all wide-rang- mechanical tests favor of a ability own perform effectively firm’s ing inquiry). rule reason isMore needed market, or, put way, impose another distinguish genuine competition from il- calculated harm on another firm rather legal here, conduct. The replay this case *93 primarily seeking gains than for itself. See instant, far though from the confirms cor- Sullivan, at supra, of jury’s penalty rectness the initial call against “unnecessary & T for rough- to the response majority’s In contention ness” “unsportsmanlike and conduct.” of inherently that evidence intent is un- trustworthy ambiguous and we can evidence, found, Intent if it can be is note the at nature equally least inexact particularly probative of the reasons behind accounting economic and evidence and the price changes aby dominant firm. This is ambiguity sorting entailed in the out dia- recognized the critical factor by this court metrically opposed expert testimony gener- in the in Chillicothe and Ninth Circuit In- predatory pricing ated in cases. These two glis its progeny17 rejecting and in price-cost components weak each It in need other. is predation. data as the sole test for While ambiguous, areas where conduct be predatory the inference intent the role, but plays in which intent the obviously evidence an inquiry entails which basis, judicial forum is most As case-by-case appropriate. must be done on a not- task not overwhelming is one. ed Professor Sullivan: This just circuit an inquiry undertook such out or A firm which seeks drive ex- FTC, Dairy Corp. National Products v. at by selling rivals unremunerative clude (7th Cir.1969) F.2d 618-20 set and forth traces; prices very will leave human the examples types the of record evidence bent, if concept is one of a human animus support proof predatory in- you please, upon a course of conduct so- tent. cially disapproved. If there is one task sum, juries, In if judges through antitrust law to be more and informed applied than system, may really good theoretical and uncertain eco- adversary recently applied Inglis ry monopolist supported Ninth The Circuit action in which a subsidiary through credit, generous provision the first time. In D v. & S Redi-Mix Sierra Co., Contracting price Redi-Mix and (9th Cir.1982), F.2d even where resultant exceeded predato- average the court held unlawful variable cost. routes, regis- in hu- line service to
at, pernicious causing private identifying it is evidence, how- man affairs.... an overall loss. MCI’s ter compete ever, MCI intended to showed that & on Lo-D routes. with AT T even always are difficult Purpose and intent properly a whole was Hi-Lo tariff as with, so in connection deal particularly But the complex conduct. issue. with business per- disregard not antitrust laws need pricing, MCI proof of below FDC a difference between nicious. There is FCC AT & used T’s own submissions effectively aggressively competing line” service to establish “private predatory way competing in component pricing AT T’s overall & cost has to do as much that difference only unprofitable was scheme. Hi-Lo firm’s human animus which infuses a wit- expert MCI’s item in submissions. objective as activities it does with re- years ten has ness^—who for more than of its acts. character FCC T’s cost for the viewed studies are Sullivan, supra, 111. I think we at accounting that after and others —testified cost- making exclusively a mistake to create revenue in the cost and for all other items vital teach- neglect rules which based trial presented at documents AT & had so- ing. examining conduct of When FCC, private line service and before the manipulat- phisticated business executives total priced average cost was below ing against a brash monopoly power T did in 1975. AT & much as million $99 ex- encroaching adversary I would not new evidence, of that object to the admission rele- ordinarily considered clude evidence contrary argue position preferring to uncertain, re- satisfy vant in order one account- documents and the basis of other view economic behavior. strictive presented with ing methods. Pric- Predatory B. Evidence of AT & T’s its considered opposing views and made ing testimony support- and MCI’s choice. The that, I majority, Unlike the would hold minimally suffi- are least ing documents parameters of our within decisions that choice. cient to sustain Products, Dairy National Chillicothe and Delivery Broadway unlike This case is Borden, v. guidance and with Inc. America, Parcel Corp. United Service FTC, pricing there was evidence of below denied, 454 Cir.1981), cert. (2d F.2d 122 accompanied by predatory intent suf- FDC *94 70 L.Ed.2d 102 S.Ct. predatory a finding
ficient to sustain of sum- majority, the in which (1981), cited pricing. the prices of across all of maries costs majority first attacks MCI’s evidence lumped togeth- operations were defendant’s lacking of T’s as pricing AT & below-FDC plaintiff’s on the attempt er without an required the minimal to “rigorous analysis” the ten- significance to the of part analyze sufficiency Specifically, meet its burden. case, figures. In that the defendant dered majority the summary attacks the the evidence on only party the offer was claim- aggregated figures, nature of MCI’s ad- properly the significance figures ing the only portion that since Hi-D Here, testimo- justed. expert offered MCI issue, only in Hi-D Hi-Lo was evidence of adjust- appropriate ny making that after agree. is relevant. I AT & costs cannot ments, revenue the line cost and private T’s proposed own instructions refer to find- losing operations for Hi-Lo. figures showed ings not Hi-D on Hi-Lo tariff and event, suffi- I believe there was In AT & T on basis object alone. Nor did that could jury evidence from which cient It actually given. Hi-Lo instruction Hi-D routes alone service that on conclude that evidence fоcused on the true only cost. Hi-D was was well below upon competition Hi-D routes which actual reduced program Hi-Lo that portion be- necessary That focus was occurred. propor- rates, high were reduced on Hi-D and it accounted prices cause anticipated tion of sales. Yet despite the to competitive though markets even costs lines, revenue increase from other Hi-Lo there, higher were and the defendant could overall, experienced revenue deficiencies reasonably expect it profits that could draw it moment was introduced and from a variety noncompetitive markets throughout the liability period in this case. allay short-term revenue sacrifices suf- jury was entitled to infer that the Hi-D the purpose fered for of eliminating compe- in prices rate reductions resulted below Borden, tition. at F.2d 513-15. MCI’s FDC. evidence showed that AT T engaged in I believe that majority’s attack on the pricing similar that at manipu- was least as private use of aggregate fig- line revenue differential, lative as the anticompetitive ures, which were unravelled MCI’s ex- pricing condemned in Borden. pert in logical, step-by-step fashion is MCI evidence that AT adduced & T delib- the function diminishing of the trier of fact. erately lowered revenues in the markets cases, Especially in antitrust precise inter- competed which with MCI and raised nal cost and figures relating revenue to a other, prices markets, in its noncompetitive particular rarely function will separable, be Thus, provision such as of WATS. the evi- and some analysis inferential of the availa- suggested, dence WATS users may have always ble cost data will re- almost paid most of the fixed costs shared between quired. As with its proof assessment of the addition, WATS and Hi-Lo service. In evidence, damage majority would abrupt evidence shifting adduced subject competing exacting evidence to prices was precisely and revenues aimed scrutiny, practice mathematical briskly eliminating at MCI from the com- fear, will, I recovery make for antitrust petitive pricing scene. The differential AT virtually impossible many violations T& for its established Hi-Lo markets was eases. criterion, based a supposedly objective did' Not sufficient evidence show namely high whether the circuit served a pricing & T’s Hi-Lo above low volume market. Yet AT & T’s own harbor,” the FDC “safe but there was also questioned way advisors which the other evidence sufficient submit divided, noting markets were even question predatory jury. intent used, many AT & T Lo-D criteria Products, As we noted in Dairy National (where raised) cities prices should proof “Literal of actual intent is seldom have been classified as Hi-D locations. The available. Resort must therefore and usu- & T evidence also revealed advisors made, intent, ally is in proving predatory expressed adjust- also doubts that after the the legally acceptable inference thereof ments Hi-D be priced services would from the direct and evi- circumstantial justified a cost PX 2962 at manner. Tr. Products, Dairy dence.” National From this the could infer that Borden, ap- the Sixth Circuit prices the reduced for Hi-D were predatory proved predatory the inference of intent designed tactics MCI as eliminate a com- from the entire context of pric- differential *95 petitor along goal those routes.18 AT & T’s changes the ing price dominant firm: temporarily was its only further to decrease own competition were instituted where had begun upon predatory by raising to encroach the defendant’s loss from such tactics business, price keyed only reductions were prices inaccurately on the constituted Lo-D necessary ately 18. While not or alone sufficient to to now wait and need “act rather than here, support finding predatory they going regulators of intent it until business which produced might permit dislodge.” should be noted that us I that MCI evidence not to believe motives, background illuminating probative AT T’s in- & such of a defend- evidence is least cluding operating AT & T statements and entrant ant’s intent to eliminate market company meeting power through organizational executives to a Florida 1972 and the use prevent through monopoly which stressed the need to the effectu- com- resources rather than plans petition ation of construction and other on the merits. competitors by filing matching rates immedi- 1186 the ef- “voluntary extension planned a yet operative, not and lines where MCI was While services, up to March 1974.” fective date higher prices for other
by charging
per wrong
publiciz-
with
nothing
is
se
there
such as WATS.
it is a matter
filing as
ing the tariff
II.
OF HI-LO
PRE-ANNOUNCEMENT
v.
record,
Co.
Broadcasting
Cox
public
1029, 43
Cohn,
469, 95 S.Ct.
was insuf-
The
that there
majority holds
(1975), that announcement
L.Ed.2d 328
find-
support
jury’s
ficient evidence to
intent
anticompetitive
be
evidence
Hi-Lo
ing
that
the announcement
where,
here,
anticipated effective
price
twenty-one
tariff
months before
knowingly
date of the rates announced
of mo-
change
was an act
became effective
sug-
T’s
documents
false. AT &
internal
essence,
majority
con-
nopolization.
In
to
advan-
AT & T intended
take
gest that
required to believe
jury
cludes that the
was
manipulate
to
tage
monopoly position
of its
explanation
“regulatory
&
that the
AT
T’s
competitive
response to MCI’s
consumer
obtaining
it from
FCC
prevented
context”
misleading
through a
announcement.
drive
As
the tariff sooner.
permission to initiate
evidence in
holdings
insufficient
with its
position
AT
T’s
line with
proof
proof
damage
connection
issue,
in-
was
jury
pre-announcement
majority my
pricing,
of below FDC
T’s argument
consider AT &
structed to
express
to
again
view here
intervenes
the re-
implementation were
delays
two
credible
preference
equally
as between
rather
than anti-
lag”
of “regulatory
sult
versions of the truth.
competitive
jury
conduct. The
chose
contrary,
as it
credit
evidence to
MCI’s
jury
The
was entitled
infer
City
do.
of Mishawaka
was entitled to
See
pre-announcement was a violation of the
Co., Inc., 616
Power
v. American Electric
laws if it found that AT & T
antitrust
denied,
Cir.1980),
449
(7th
F.2d
cert.
976
potential
intended to deceive
customers in
66
824
101 S.Ct.
L.Ed.2d
attempt
monopolize. U.S.
furtherance of an
(1981), which this court noted
Americana Industries Wometco de
ac-
maze” that often
Rico,
(1st Cir.1977);
“legal
practical
per Memorex v. IBM Corp. curiam sub nom. of intent to find insufficient evidence (9th Cir.1980), Corp., F.2d 1188 mislead, contrary all of the evidence con- procedures, to various cites relates L.Ed.2d through time-consuming, cededly tariff. have to to effect the go evidence to sus- & would
MCI adduced sufficient
& T’s
does not address AT
AT & T This evidence
jury’s
tain the
conclusion that
*96
its inter-
intent,
expressed through
public
to
as to the
clear
as
intended
mislead
memorandum,
extend
deliberately
expected
of the new tariff.
nal
to
effective date
than otherwise
process
longer
even
Internal AT & documents show that even
that AT
1973,
majority concedes
February
necessary.
AT & T
The
filing
before its
1187
own
at one
deficiencies,
& T’s
decision was
As a result of these asserted
unilateral
months,
delay
point responsible for a
of two
majority
has ordered a new trial
delay
but characterizes this
as “minimal.”
damages.
order to assess
I believe that the
majority’s
This seems inconsistent with the
majority’s holding
prece-
contravenes clear
stress
its discussion of interconnections
in this circuit
will effectively per-
dent
importance
upon
make-or-break
of even
wrongdoers
mit future antitrust
escape
to
delays
short
or market forestallments in the
liability.
highly dynamic telecommunications market.
least,
At the
AT & T’s intent in acced-
very
A. Disaggregation
ing
delay
question
to this
raised a
suitable
damage question
The
in private antitrust
jury
determination.
suits consists of two distinct components:
the fact of injury
damage
con-
—which
III. DAMAGE PROOF
cerns the
plaintiff’s
causal link between a
majority
damage proof
The
holds MCI’s
injury and the unlawful conduct
a de-
insufficient on
grounds.
two related
The
fendant —and the
damage.
amount of
Fon
majority
damage
first holds that MCI’s
cal-
Aviation,
tana
Inc. v. Beech
Corp.,
Aircraft
profits study
culation in the lost
was flawed
1080,
Cir.1970),
432
(7th
F.2d
1085
cert. de
it
upon
because was based
incorrect or irrel-
923,
nied,
872,
401
91
27
U.S.
S.Ct.
L.Ed.2d
evant data that undermined certain as-
(1971).
923
See Terrell Household Goods
sumptions
study
in the
and consequеntly
Bureau,
16,
(5th Cir.),
Carriers’
494 F.2d
20
permitted
jury
speculate
as
dismissed,
987,
246,
cert.
419
95
S.Ct.
damage.
true extent of
42
(1974).
L.Ed.2d 260
Once sufficient evi-
majority
also holds that MCI failed
presented
dence is
related to the fact of
discharge
requisite
of proof
burden
damage, uncertainty concerning the exact
on damage certainty because
lost
MCI’s
preclude
amount of
will
recovery.
loss
not
profits study
damage proof
and other
ex-
Story Parchment Co. v. Paterson Parch
pressed
aggregate damage figure
Co.,
555, 562-65,
Paper
ment
282 U.S.
51
and thus
not permit
jury
segre-
did
248, 250-.251,
(1931);
75
544
S.Ct.
L.Ed.
gate legitimate competitive losses attributa-
Aviation,
Fontana
1188
is, then,
There
a tension between
.
upon speculation
an award
jury to base
damage proof and
certainty
Hazeltine
guesswork,
Corp.
Zenith Radio
v.
need
123-24,
Inc.,
100,
89
nature
an-
Research,
that the
of an
acknowledgement
395 U.S.
1576-1577,
129
1562,
impossi-
23
make
may
S.Ct.
L.Ed.2d
acts
titrust violator’s
American
(1969); City
way
of Mishawaka v.
a definite
the harm
separate
ble to
in
Co.,
976,
616 F.2d
986-87
Electric Power
separate
each
un-
by
to a
caused
business
denied,
1096,
(7th Cir.1980), cert.
449 U.S.
Goetz, The Basic
generally
lawful act. See
892,
(1981), juries
824
101
66 L.Ed.2d
S.Ct.
49
Damages,
Rules of
Antitrust
Antitrust
may
upon proba-
in
act
such circumstances
inability
disaggre-
L.J.
(1981).
125
as well as direct
ble and inferential
gate
damages figure
and allocate
total
123-24,
Zenith,
positive
395
at
proof.
U.S.
each
act
specific
amounts to
unlawful
dollar
1576-1577; Locklin,
at
89
429 F.2d
S.Ct. at
makes
the fact finder difficult.
the task of
recognizes
This rule
the inherent
879-80.
however,
mean,
This
does not
proving
profits.
lost sales or
difficulty of
wrongdoer
escape
consequences
can
F.2d
Corp.,
v. Gulf Oil
500
See Lehrman
damage
a precise
its acts
because
simply
659,
Cir.1974),
denied,
(5th
cert.
420 U.S.
668
conse-
placed
be
those
figure cannot
929,
1128,
(1975).20
95
H89
Spray-Rite,
per-
in
other rule
“Any
Spray-Rite
would
the
court
the
indicate
relative
mit
escape compensating
the defendant
to
importance of the
alleged
various
acts.
plaintiff
wrongful
the
if the defendant’s
Moreover, to
the Spray-Rite
confine
rule to
sufficiently
conduct were
varied and effec-
only
cases where
the effects of “small tick-
proof
damage
tive to render more exact
of
et”
cannot
disaggregated
items
be
would
impossible.”
F.2d at 1243.
Spray-Rite, 684
permit
perversely
exculpation only where
result,
held,
As a
we
that
assuming
even
the “monopoly broth”
causing
includes acts
plaintiff
proven
the
in that case had
unlaw-
cataclysmic,
minor,
rather
than relatively
only
practices
ful
one of three
and
named
damages. The determination of what acts
had
as impracticable
shown
the disaggrega-
are or
important
are not
in the case will
tion of the
of
damages ensuing
each
again
practical
as a
matter be difficult to
practices,
these
and the defendant failed to
presumably
administer because
jury
the
plaintiff’s
rebut
by showing
the
assertion
making
should be
those decisions rather
disaggregation
possible,
that
was indeed
re-
than the
as a
court
matter of law.
I
no
see
covery
plaintiff
will not be denied to the
reason
indirectly
to
amend Spray-Rite.
“merely
jury
because the
have found
case, then,
to this
Applying
principles
the
that
con-
combined lawful
[the defendant]
in Spray-Rite,
enunciated
I would hold that
duct with unlawful conduct
im-
making it
MCI has met
its burden
proof.
of
possible
portion
to determine which
the
of
damage proof proffered by MCI was
damages
total
was caused
the
unlawful
claimed and
appears
be the most specific
Id.
conduct.”
at 1243.
and
possible
detailed that
given
was
the
The majority attempts
to confine the
complexities and
of
alleged
nature
that,
reach of Spray-Rite, arguing mainly
in
T&
through-
misconduct. MCI maintained
case,
that
this
damage
court affirmed the
argues
out
trial and
upon appeal that
only
award
because the court was able to any
proof
more detailed
would have been
conclude that
was
there
sufficient evidence
impossible.
thorough
After
consideration
súpport
that
finding
alleged
all
the parties’ arguments,
the district court
unlawful, supra,
were
acts
1163. How- ultimately decided that
had
done the
ever,
finding
of sufficient evidence was
best it
able
I agree.
to do.
Even with
mentioned
the court
in the context
only
it
cooperation
unlikely
of AT & T
aof
discussion of
issue
unrelated to the
majority
that
view could have been
i.e.,
disaggregation
damages,
the admissi-
Thus,
satisfied.
the court permitted testi-
bility
testimony.
Spray-Rite,
certain
mony
proof
as to the correctness of the
The majority purports distinguish also ful acts. also properly The court instructed Spray-Rite that, case, by arguing damages be so only should assessed possibly alleged lawful acts which were long as there was a basis reasonable award, part to have been conspiracy specula- were evidence for the without tion, “secondary importance” specific and thаt the “ma- if damages were jor injury” unquestiona- directly stemmed from an tied to and from the directly flowed bly However, unlawful act. jury’s findings nowhere does of unlawful conduct.21 pertinent part: precision 21. As Instruction 55 stated in mathematical the calculations of However, damages. projec- estimates and party injured by The law allows conduct grounded assumptions tions must which violates the Sherman Act to collect damages even if the evidence does reflect method more viable suggested a T never practices acts unlawful The various showing rebut MCFs damage calculation consequences well as their T, as of AT & was as evidence damage overall preclude MCI, as to so intertwined *99 jury provide possible as specific considera- individualized for additional need picture certain with a more and court require To damages. or calculation tion allegedly each attributable damages attempting in these circumstances more Instead, a AT & T made act. wrongful act in a vacuum unlawful examine each limiting its defense choice AT tactical speculation any exacerbate only would what- damage no incurred that MCI theory only reasonable claims exists. & T now soever.22 permit was to solution practical evi- and the instructions within its jury, antitrust Often, nature of the very that would dence, single figure to reach damage calculation accurate wrong renders and com- the overall MCI for compensate affirm I would difficult, impossible. if not of and exclusion conduct bined unlawful jury court that the the district the view of specif- no that there was AT & T. The fact aspect distinct consider each should not to each im- attributable damage ic amount vacuum but should in a T’s conduct & deprive jury did not proper act T’s context of AT & acts in the treat render its dam- which to upon rational basis should AT & T’s conduct conduct. overall ad- made reasonable jury award. The age course continuing involving as be viewed lawful to exclude figures in its justments its to maintain wilfully of action intended more. could do no experts Even the acts. MCI, exclude rather and to monopoly power It charges.23 and discrete separate than as segregation shows plaintiff Once the actions in AT & T’s set of proof is the entire damage impracticable or damage rise to the give it is combination reasonably possible, specific as as Although award, act.24 specific one the defendant to demon- upon incumbent evidentiary issues legal and the number of 684 contrary. Spray-Rite, strate us to required has 1248; Aviation, appeal in this 1242, presented 432 Fontana F.2d at monopo- T’s of AT & each instance v. consider also Greene General F.2d at 1087. See mind- we must be separately, 635, (5th lizing conduct F.2d 662-65 Cir. Corp., Foods 517 should 942, “plaintiffs the fact denied, 96 ful of 1975), 424 S.Ct. cert. U.S. without proof of their the full benefit (1976). given It clear 1409, 348 is not 47 L.Ed.2d various fac- compartmentalizing tightly was deficient damage evidence that MCI’s slate clean wiping the components and AT & tual importantly, face. Even more on its and so com- compe- the antitrust laws judgments er acts offended based on reflect reasoned prised of conduct. unlawful course evidence. tent single App. rejected jury 1206-1207. be said to cannot viewpoint simply because it of conduct course developed computer two models 22. AT & fifteen acts did not com- that five of the found prise segments assumptions variables examine the and other conduct. of that unlawful Study. ap- The model within the Lost Profits throughout was that the trial contention MCI’s parently permitted least measurement of at in combination —no unlawful acts AT & T’s changes fac- that would occur as various some harm, MCI’s what combination —caused T, matter Study how- were altered. tors in the ever, jury question decided. that the and it was employed computer at trial on models issues, concerning the revenue two one 1979, correctly a loss in at which MCI would show rate noted: court 24. As the district dealing with the level at which the other crucially important and revenue loss would 2 under § is often “[W]hat intercon- occur had local pattern than one discrete of conduct rather is a activity.” prior years. charges been doubled nection Corp. v. MCI Communications availability argued T never AT & Co., F.Supp. at 1084. 462 Tel. & Tel. American achieving method of as a reasonable models disaggregation Serv., Prescription Inc. v. Ameri- See Federal stemming damages from law- 1195, Ass’n, F.Supp. 484 can Pharmaceutical ful and unlawful conduct. part (D.D.C.1980), on other rev’d in 1208-09 (D.C.Cir.1981). grounds, F.2d 253 663 structured its instructions 23. The district court special so could form that verdict improp- allegedly of AT & T’s determine which
1191
(Momand v.
scrutiny
Exchanges,
of each.” Continental Ore
acts
Universal Film
after
Corp.,
Inc.,
denied,
Carbide and Carbon
370
(1st Cir.1948),
Co. v. Union
actness
within
Co.,
support
273
assumptions
den to
Materials
v. Southern Photo
Co.
defendant’s to
379,
400, 405,
damage proof
L.Ed. 684
359,
71
47
U.S.
S.Ct.
1243;
1242,
Corp. v.
Dyk
them. Van
Research
disprove
(1927);
684 F.2d at
Spray-Rite,
1268,
F.Supp.
1327-28
Corp., 478
Associa Xerox
Export
Agricultural
Pacific Coast
aff’d,
(3d
Inc.,
631
251
Cir.
Growers,
(D.N.J.1979),
F.2d
F.2d
tion
Sunkist
denied,
1980),
(9th Cir.1975), cert.
(1976);
69 L.Ed.2d
1741,
pected figure pri- all revenue for MCI $.85 sum, parties presented exhaustive vate line service. proba- and evidence on reasonableness Moreover, testimony MCI’s president assumption, argued tiveness of the and $.85 vice president and an MCI senior revealed fully the merits and jury pitfalls before pri- MCI also intended to seek smaller proffered of that evidence. MCI sufficient vate line customers who either had been support assumption proof to and using private Telpak or no line services C court, an permit district as well as provision of whatsoever. The service court, appellate to conclude that the reve- per smaller users more revenue produces an assumption upon adequate nue rested these fact goals circuit mile. If were in finding Telpak base. Nor is the inconsist- achieved, it would have ensured that MCI Moreover, I assumption. ent could have The $.85 sustained the rate. $.85 figures majority’s also reveal that MCI’s revenue fear that detailed reevalua- $.85 Moreover, attempted priced predatory 30. jury dem If the at trial & T level. found figure given by Telpak was much $.50 onstrate that the MCI that AT T’s revenues were low, claimed, higher appropriate too ing and not this would be con thus in consider than finding Telpak predatorily priced. com whether was sistent with that MCI could pete jury $.85 AT & evidence those customers at the level. have believed T’s for Telpak score because it not to be found conflicting tion of the evidence which APPENDIX aired argued jury before sets appendix reprint In this we jury in- appellate precedent undesirable courts of the dealing structions court with the dissonant, freely pick among choose antitrust laws as well as reproduce spe- credible, but equally versions the truth. cial verdict used present case. We figure Determination of the actual these materials for reference purposes only was, view, use my left properly suggest do mean to any implicit resolution. approval, disapproval, either in- extent,
To this I respectfully special dissent. structions verdict. A. JURY INSTRUCTIONS Number As Given (OMITTED)
I. General Instructions Jury 1. General Duties Arguments Lawyers 2. Statements and Objections by Lawyers 3. 4. Court Questions Credibility 5. of Witnesses Impeachment 6. of Witnesses Weight 7. of the Evidence 8. Circumstantial Evidence Stipulations 9. Depositions 10. as Evidence —Use Corporation Through Only Agents 11. Can Act Single Enterprise Unitary
12. AT&T—a
II. Antitrust Laws Purpose 13. of the Sherman Act Purpose
14. General laws Antitrust 15. Private Actions Under the Antitrust Laws 16. Violations of Communications Act are Not Violations of Act Sherman Complaint III. this Case Complaint
17. Outline of the in this Case Monopolization
A. 18. Burden of Proof Monopolization
19. Offense of 20. Relevant Market Monopoly 21. Power Willfully Maintaining Monopoly 22. Monopoly Charge 23. Plaintiffs’ Maintenance of Competition by Monopolist is Not Unlawful Regulation Affecting Monopoly Power in the Relevant Market Facility 26. Essential Doctrine *104 FX and CCSA Specialized Common Carriers Decision Tying Intercity Local and Channels with Interference Customers Discriminatory Compared to Interconnections Western Union Multipoint Interconnection for Service beyond Interconnection a Defined Distance Plaintiffs’ Terminals Charges The Level of for Local Facilities Inappropriate or Inefficient Interconnections Faulty Late or Installations Negotiations in Bad Faith Filings 38. State Tariff Financing with
39. Interference Predatory Pricing 40. Telpak 41. Hi-Lo 42. Hi-Lo Pre-announcement of 43. Course Conduct 44. Property or Injury to Business 45. Plaintiffs’ (OMITTED) 46. Proximate Cause Charge Monopolization Burden of Proof on 47. Monopolize (OMITTED) Attempt to
B. Charge Attempt Monopolize to 48. The Specific Intent
49. First Element: Predatory Conduct Element: 50. Second Probability of Success Dangerous Third Element: 51. Injury to Plaintiffs Fourth Element: 52. Intent 53. Damages
C. Damages 54. Conjecture Based on May Lost Profits Not be
55. Damages Mitigate Duty have 56. Plaintiffs (OMITTED) Deliberations VERDICT B. SPECIAL Antitrust Purpose of the Laws II. ANTITRUST General LAWS 13. Purpose of the Sherman Act of the general purpose While anti- encourage laws and fos- protect, trust is to alleged involves violations of This case trade competition as the rule of ter Anti- law known as Sherman federal laws not pertinent economy, the Act these trust Act. The section of American as follows: reads competitors. to protect particular enacted Every person monopolize, who shall free and vigorous In the normal course of attempt monopolize, or combine or con- that some expected it is busi- competition, spire any person persons, other enjoy and some will nesses will suffer losses monopolize any part of trade or com- that this will expected success. occur It is the several or with among merce States services, provide because some will better nations, shall be foreign deemed [to cheaper products introduce or oth- better or violated law].... This public. erwise is an better serve Act is to purpose The Sherman accepted result. anti- and desirable system free, preserve advance our competitors laws to shield trust do not seek enterprise prevent and to competitive lawful, vigorous from the effects of risks or accomplishment or deliberate maintenance competi- successful competition, penalize of monopoly any industry. business or partic- tors, between equalize differences the premise Act rests on Sherman the competi- competitors ular or to shackle the interests consumers economy our apply those process, you tive should are best served the unrestricted interac- to achieve laws to the in this case issues However, forces. competitive tion of such result. Act modified application Sherman subject pub- in industries some extent utility regulation, lic such as the telecom- Actions Under Antitrust 15. Private *105 case, industry munications involved in this Laws federal statutes involved. where other are in this is a by filed MCI case lawsuit I in explain will this modification later a A business file private civil action. these instructions. alleges also AT
MCI that & T’s activities private civil action claiming competi- that a damage have caused to MCI’s and business tor has violated the antitrust laws and has property.
injured it injure or threatened to byit that
violation. Private antitrust are actions a A. MONOPOLIZATION enforcing vital means of laws, the antitrust 18. Burden of Proof because damage judgments against persons who violate the antitrust laws serve to de- a say party Whenever I that has the ter violating Thus, others from the law. on proof any proposition, a burden of or that private civil action protects public or party prove something, must show or well particular as the injured by business use something, expression establish or practices. find,” forbidden complaint decide,” “if “if I you you you or mean filed MCI in this case is such an all persuaded, considering action. must be the evi- case, proposition dence in the that is 16. Violations of Communications are Act probably more true than not true. In addi- Not Violations of Sherman Act tion, particular wherever claim contains a You have heard evidence that certain number of different or proposi- elements AT T’s conduct at issue & in this case—in tions, party proof with the burden of particular tariff the Hi-Lo and AT & T’s persuade you must on each element or prop- provide refusal connections FX and up osition that claim. making subject rulings CCSA —was of FCC otherwise, you I tell plaintiffs Unless which found that conduct to inbe violation of proof the burden on each of the of particular provisions the Communica- propositions relating allegation to each or tions Act. These rulings FCC do not prove they during claim have advanced the trial that AT & T violated antitrust laws. of this case. empowered to, not, The FCC is not and does determine the antitrust laws have whether Monopolization The Offense been violated. You must own your make claim, principal MCI’s which I will discuss determination whether T AT & has vio- first, monopolization. There are es- four lated antitrust laws con- of its sential elements MCI has burden duct. proving its order to establish claim IN III. COMPLAINT THIS CASE monopolization. Complaint prove Outline of this Case MCI must First: business data communication services constitute a Section 2 of the Antitrust Act Sherman significance market economic for a illegal monopo- makes business sense or services in that products lize, attempt conspire monopo- or to or interchangeable are reasonably market lize, any part of trade or commerce in the other, taking each the price, into account 2 prohibits United States. Section a mo- quality function of the products nopolist willfully misusing monopo- This is services. called relevant market. ly power monopoly position. to maintain its complaint parts MCI’s has two counts or must T prove Second: MCI & possessed power based Act. monopoly Section Sherman in the relevant market. I, In Count claims that American
Telephone Telegraph Company has mo- must prove Third: MCI nopolized part willfully monopoly by doing of trade or commerce re- maintained its complaint anti-competitive ferred in the as the business one or more of the acts complained and data communication services market. of MCI. This is called mo- nopolizing the relevant market. II, MCI claims that American Count at- must Telephone Telegraph Company prove Fourth: MCI that MCI tempted monopolize injured property that market. as a its business *106 the rel- determining whether
Similarly, in nationwide, market was geographic evant monopoliza- AT & T’s result of proximate business of whether the may consider you market. of the relevant tion or operated was the services providing four each of these I will now describe level on a national operated to be sought greater detail. elements others; T, plan- whether the MCI, or AT & Market Relevant was national these services ning for has shown whether MCI deciding In rates, terms prices, and scope; whether two market,” must consider you “relevant based on a nation- were often here involved products services or (1) what are the issues: schedule; the cus- whether some of al and is the (2) what market in the relevant large were busi- these services tomers for market. relevant scope geographic many services in need for nesses with services market contains A relevant states. reasonably good regard as which consumers may market there Within a relevant they which other and to for each substitutes sub-markets,” themselves “relevant geo- alternatives. readily will turn as Thus, find that you if monopolized. bemay market is of the relevant graphic scope communication services business and data business involved do area in which the firms market, you a relevant did not constitute draw custom- they from which and the area or whether these services must consider ers. a relevant sub- them constitute portion of intercity business asserts that MCI words, a market which In other market. the United services data communication fact market but for the would be a relevant through from 1969 during period States larger market part of a is a market. MCI a relevant mid-1975 a relevant submarket. nevertheless be in the market that the services claims data communication intercity business of a relevant submarket The existence scope of services, geographic and that prac- such by examining may be determined This market was nationwide. the market industry public recog- tical indications as serv- of telecommunications said to consist separate as a eco- the submarket nition of serv- private-line known as ordinarily ices peculiar the services’ charac- entity; nomic used which can be other services ices and uses; customers; distinct dis- teristics and services, such private-line instead of sensitivity price changes. prices; tinct service. long-distance and business WATS market is fully have a relevant Any need to these services did determining whether of a relevant submarket. by proof satisfied market, you relevant specific constitute whether the services offered may consider Power Monopoly through MCI mid-1975 were marketed
specifically governmental to business and of the four essential ele- Another one general public; users rather than to the show to establish AT ments that MCI must were marketed these services whether is that AT & T had monopolization T’s& locally; than among points distant rather in the relevant market. monopoly power whether the services were marketed both power is the economic Monopoly power for the for the transmission of voice and competitors into entry or limit exclude data; computer whether transmission prices or to control the relevant market marketed, including types of services the relevant market. and AT & T’s private-line various services monopoly T had claims that & services, were and business MTS WATS market power in the relevant reasonably consumers as inter- regarded T’s by virtue of through mid-1975 other; with each changeable whether T-owned local tele- over the AT & control these the sales of one service marketed to areas MCI in most of the phone companies reasonably responsive price users were sought to serve. changes of other such services.
(3) For the it pro- interconnections did T charged prices that vide AT & unreasonable you If find the business data is a rele- communication services market higher that were than AT T charged & submarket, AT T vant market or that & Western for the types Union same facilities, telephone of the local had control interconnections; gave AT & T the and that this control (4) negotiate AT & T failed to for inter- power entry to exclude MCI or limit its into good in faith connections and failed to to from prices the market or control provide efficient or appropriate equip- mid-1975, through you may conclude that interconnections; ment for AT proved MCI has existence of & T’s (5) AT & T interfered with MCI’s rela- power. monopoly customers; tionships with its MCI also that claims AT & T had monop- (6) AT in & T tied local oly power long the relevant its service to market through AT mid-1975 reason of & T’s private-line distance service and offered share large market. If you find that them package; as AT T& had at least 75% revenues in (7) AT & T announced prices its Hi-Lo the relevant market through from 1969 private-line services before it was mid-1975, you not, may, but need infer from ready put changes to into effect and that fact that AT & T monopoly power. had then lowered the prices at a time to However, you should consider all of the levels which were predatory; and point evidence on the drawing any before (8) AT & T continued to the Telpak offer such inference from the fact of market ways discount at in below-cost levels and share. prevented that MCI from competing fair- power & T may You find AT had ly for customers. or to competitors entry or limit to exclude using the prices actually control without it In power effectively. or without using 23. Plaintiffs’ Monopoly Maintenance of words, considering element of other Charge to you monopoly power, question MCI challenging acquisition is not monopoly AT & T had decide is whether any monopoly may & T have had effec- power not whether it power, used prior entry. the relevant market to MCI’s it at tively used all. Instead, MCI claims that AT sought & I about the third you Next will instruct maintain monopoly position its after element, monopoly power. use Federal Communications Commission per- Maintaining 22. Willfully the Monopoly entry mitted MCI into the market. There- case, As third essential element its fore, the principal you issue which must claims that between 1969 and mid-1975 decide is whether AT T unlawfully & acted T willfully maintained monopoly its a monopoly maintain in the relevant
power in the relevant by engaging market following market entry. reaching MCI’s practices certain which MCI claims to decision, however, you should draw anticompetitive have been had any inference that AT & T wrongful- acted the effect of keeping MCI out mar- ly from provided the fact that it substan- ket or unfairly handicapping ability MCI’s all of tially the service the relevant mar- compete with AT & T. ket at the time of entry. MCI’s practices These allegedly follows: (1) AT & T refused to interconnect local Competition by Monopolist is Not telephone company facilities to allow MCI Unlawful CCSA; to offer FX and Vigorous competition the merits of the (2) AT & T provide refused to intercon- product exactly service or what the Sher- multipoint nections for service service encourage. outside man Act enacted There- of a limited distance from MCI’s terminals; regulated fore Sherman Act allows a if compete, and need in order to nesses monopoly power compete vig- firm with reasonably dupli- cannot other businesses orously be faced with com- whenever business facility, then the this essential cate long competi- petition. So as defendant’s required to facility may controls plaintiffs were based on responses tive competi- facility available to make *108 and on the legitimate business decisions basis. The a fair and reasonable tors on services, of defendant merits defendant’s promote is to requirement of this purpose unlawfully to main- cannot found have However, as I will subse- competition. plain- is so even if monopoly. tained a This requirement such you, any quently instruct and by competition tiffs were hurt the de- where, case, the terms as in this is qualified sought fendant to retain as much of its provided are which those facilities under possible. business as FCC and subject regulation the are to agencies. regulatory state Monopoly Power Regulation Affecting in the Market Relevant of AT & T’s claims that the facilities MCI companies are fa- essential operating local T determining pos- whether AT & cilities, AT T to make and that & refused the relevant mar- power in monopoly sessed with these facilities availa- interconnection ket, you consider effect may basis. to MCI on a reasonable ble regulatory authority over exercise of FCC’s prices entry, including interconnection. agreed it to position & T’s is AT effect of you may consider the Similarly, interconnec- provide MCI with facilities and regulatory agencies state the exercise MCI was good it believed faith tions entry authority prices over regulatory terms and to receive on reasonable entitled of local provision with the connection facilities respect With those conditions. T That AT & services and facilities. T did not which AT & and interconnections the entire largest had share or do provide, its is that failure to position in certain telephоne business share belief that upon good so faith was based to establish areas not be sufficient would regula- it have violated established would power if possessed monopoly AT & T it acted policies and therefore that tory agencies regulation by regulatory in fact reasonably the circumstances. in all power prevented having AT & T from prices. On the entry to restrict or control 27. FX and CCSA hand, not suffi- regulation other if the was you the law in explain I will now having AT T prevent cient to & from to the FX and CCSA issue. relation prices, or power entry to restrict control you determination should The threshold monopoly could that AT & T had you find Specializ- is whether the make on this issue though regulated even it is a enter- power ed AT & Carriers decision ordered Common prise. T FX CCSA interconnections provide Facility 26. Essential Doctrine question here whether MCI. decision, language by express either specific charges I will now discuss these reasonably lan- apparent what is makes anti-competitive conduct MCI used, ordered AT & T guage which was against T. A of these AT & number Your further make those interconnections. charges sought by relate to interconnection depends upon how problem through analysis T T from AT & first you question. answer this operating companies. order AT the decision did right you If find that Generally, recognizes the law interconnections, then provide our we see fit. & T to property
each of us to use T AT & knew However, you an must determine whether the antitrust laws make ex- the deci- good reason to believe that property right to this in certain had ception you such order. If find constituted an monopoly situations. If a business holds a sion reason good or had that AT & T did know facility of some essential that other busi- nections because believed that it had not they provide been so, to believe had ordered been ordered to do that MCI was not event, interconnections, then, in this provide service, authorized to was you guilty should find that & T it would have violated established regula- anti-competitive practice refusing tory policies for MCI to receive the connec- provide the connections. tions. If AT & T refused the interconnec- If you Specialized do not find that reasons, tions because of such believing in T Common Carriers decision ordered AT & good faith they justified refusal, interconnections, to provide FX and CCSA then the provide refusal to the interconnec- necessarily this does mean that AT & tions was not anti-competitive conduct and anti-competitive free conduct in fail- cannot be considered conduct engaged ing to provide plain- them. This is because purpose for the maintaining a monopoly. tiffs’ entitlement to these connections does *109 has specific not MCI the burden of in depend upon receiving proving autho- that refusing the upon rization the FCC or AT & T’s FX and CCSA interconnections T being ordered the to AT specifically by intent, FCC & acted with anti-competitive provide Having them. certificates received for the purpose maintaining a monopoly, of necessity convenience and for microwave good rather than for what it in faith re- facilities, MCI was entitled under the Com- garded as legitimate reasons. provide any munications Act to service
within the those facili- capacity technical Specialized 28. Common Carriers Decision ties the limits on the imposed unless FCC What the Specialized Common Carriers authority by conferred the certificates. AT to decision meant is be by determined its reasonably & T contends in this trial it that language reasonably and what is implied by the Specialized believed Common Carriers language, that considering the historical decision did constitute a limitation on MCI’s context and all of the facts and circum- authority, such that MCI not was authoriz- stances known the parties to the time. ed to provide FX and CCSA service. It was The intent of the Commission at the is time Ap- decided Court United States relevant, but it the extent that peals for District of Columbia in the found expression the decision or was Execunet case Specialized that reasonably inferable from the decision and Common Carriers decision did not consti- other facts known to the parties at tute a on authority, limitation MCI’s re- time. gardless may of what the FCC’s intention been, hearing since no was held to public determine whether the convenience 29. Tying Intercity of Local and Channels necessity required any limitation. The law prohibits from tying business Appeals Court of decision in Execunet did the product sale of a over which it- has CCSA, question address FX and monopoly power its sale of another of holding but the Special- case that products for competition. which there is proceeding ized Common Carriers was inef- MCI contends that who customers used AT authority fective to limit MCI’s nonethe- & T’s local telephone service forced to less to our the FX applicable analysis of long-distance use AT & T’s they service if question. you CCSA I instruct as a matter requiring wanted services FX and CCSA law, therefore, that at the time MCI Thus, interconnections. MCI claims that FX it requested and CCSA interconnections T engaged AT & such tying. was authorized to render those services and obligated AT & T was under the Communi- are requirements There several for deter- Act provide cations the interconnections. mining whether an unlawful tie-in exists more, first, prove however, MCI must under the than antitrust laws: there must fact T provide & refused two distinct facilities in- or services know, volved; you second, interconnections. As AT & T the defendant must have contends it refused provide the con- power over monopoly one or ser- product you
At time the same should understand service; Appeals vacating order the Court vice, product tying known jus- nothing said about discon- third, injunctions there be no reasonable must products serv- these customers. offering necting tification an intent to main- together other than ices mar- power Discriminatory in the relevant Interconnections Com- monopoly
tain pared to Western Union ket. mo- possessed & T you If find that AT prevail For on its claim MCI local power the market nopoly over provided by AT & T in interconnections metro- one or more telephone service within discriminatory compared manner West- T, areas, without that AT & politan Union, prove ern must that AT & T MCI pow- monopoly local
justification, used that MCI unreasonably against discriminated the relevant market exclude MCI from er to maintaining monopoly with intent of service to tying long-distance position in the market. relevant MCI’s service, find in favor you local then claim is that & T acted unreasona- on this claim. MCI bly price for local charging higher MCI AT & charged facilities than T Western Customers Interference T Union. MCI also claims that AT & un- in- specifically AT & claims that provide refused to reasonably MCI services discon- customers with MCI's terfered *110 under conditions similar to those under April in PX, CCSA, other lines and necting them provided it to Western Union. not AT & T did that you If find of 1974. AT & T claims there were valid business lawfully in disconnect- acting it was believe regulatory any and reasons for difference them these lines and disconnected ing in treatment. of the MCI out keeping purpose claim, to this MCI must to order establish limiting ability its unfairly market show elements. in five T, may find you with AT & compete claim. of MCI on this favor The element is that Western Union first period This claim involves between competitor was a significant in relevant April April During and 1974. during period 1972 and market between period, that AT T& disconnected some of MCI’s customers who had inter- obtained The element is that Western Un- second FX, connection for and CCSA outside ion more given was favorable treatment local pursuant distribution area services concerning than similar facilities. MCI a preliminary injunction by issued the fed- element is AT & T did not third that Philadelphia. eral district court in A pre- make treat MCI the reasonable efforts to injunction liminary equitable remedy is an same have as Western Union. You heard granted sometimes the courts by until concerning evidence the contrac- conflicting merits of the underlying controversy can be tual relationship between Western Union such, fully addressed. As the issuance of T, renegotiate efforts AT & injunction such an should not be construed Western contract certain actions Union as an by you plaintiffs indication that in relation to those matters. FCC a court by permanently held law to be find that did not take you Unless defendant entitled interconnections at issue provide steps to facilities to reasonable proceeding. this This is illustrated plaintiffs Western Union and same order of the Appeals Court of which vacat- basis, find defendant on you must for the injunction ed that and held that there this claim. uncertainty sufficient about the be- dispute parties tween the on the FX element and CCSA of this claim that fourth question that should facili- dispute be decided difference treatment involved equivalent the Federal ties substantially Communications Commis- of the same or sion which was the differ- hearing then the matter. cost. Plaintiffs must show that that indicated local facilities should be of- price ence or other treatment was not plaintiffs fered to the and other new en- by a justified difference AT & T’s cost or cities, in the but large specify trants did not by other factors in the event the facilities what geographical limitаtions were in- were different. local volved in services. Under no interpre- that decision would AT tation of & T have Finally, if acted unreasonably MCI obligated provide geographical been un- prevent agree- AT & T from negotiating an local plaintiffs. limited facilities to ment Western Union that would have any eliminated difference in treatment be- You decide whether the geographi- must two, tween the you find that imposed cal & T were limits reasona- difference in might treatment T, in setting ble and whether AT & existed violated the antitrust laws. did, limits it acted intent with an main- tain monopoly plaintiffs’ and to hinder for Multipoint Interconnection Service entry into the relevant market. MCI claims AT & T denied it inter- multipoint connection for service. Accord- Level Charges 34. The for Local Facili- ing evidence, multipoint interconnec- ties tion involved a situation where a customer Aside its claim that it was discrimi- ordered an T private AT & line between Union, against nated in relation to Western City A and City B and an MCI private line MCI also claims that the level of charges C, between BCity City sought and MCI imposed by AT & T for the local facilities an interconnection between its terminal and provided unreasonably MCI was high. the AT T& terminal so that the customer claim, prevail upon To MCI must estab- could obtain service between ACity lish AT & T charged unreasonably City upon C. To prevail its claim of denials high prices local facilities with the in- multipoint interconnections, service tent maintaining monopoly in the rele- prove must & T unreasonably de- *111 vant An unreasonably high price market. nied those interconnections with the intent is is one that excessive relation to the of maintaining monopoly a in the relevant providing cost of the service. market rather for legitimate than business reasons. Inappropriate 35. or Inefficient Intercon- beyond 33. Interconnection a Dis- Defined nections tance from Plaintiffs’ Terminals plaintiffs prevail For on their claim prevail upon For MCI to of its claim they provided that were with inefficient or of beyond denials interconnection a defined inappropriate equipment pro- otherwise terminals, from distance its must es- MCI interconnections, plaintiffs cedures for must that AT tablish & T denied in- MCI those knowingly establish defendant fur- terconnections with the intent maintain- of nished inefficient or inappropriate services a ing monopoly in relevant market. with the of equipment intent maintain- Essentially, charge MCI’s & T that AT ing monopoly a in the relevant market. unreasonably to provide refused with controversy The basic here concerns the beyond local distribution facilities a defined equipment by operating used the Bell com- area, geographic which MCI were claims panies plaintiffs, to interconnect with in- needed connect their in the terminals cluding things such as connector blocks and cities with they operating interfaces, equipment the various kinds of their customers in those cities. by operating used signaling compa- Bell guid- nies,
You the nature certain configuration consider intercon- ance by nections, afforded to defendant the FCC in such as those for Central Office Specialized Service, provision engineer- its Common Carriers decision Centrex respect procedures to the kinds of and the ing local facilities information co- provided. decision, ordination, installation, testing, In that repairs. the FCC financing.
plaintiffs’ ability to obtain will- allege that this effort was a Faulty Late or Installations Plaintiffs 36. committed in an effort ful act defendant plaintiffs’ During presentation monopoly. its In order for to maintain case, relating presented evidence was claim, plaintiffs on this plaintiffs prevail defendant employees of actions of certain that the incident with the bank- prove must delayed things in such which resulted delay effort er was deliberate installations, installed facili- improperly entry the market plaintiffs’ hinder into ties, claim a deliber- plaintiffs from which financing. its interfering with can anti-competitive conduct pattern ate things find that these you be inferred. If
occurred, Pricing in the con- you Predatory view them 40. should of transactions text of the overall number tend to benefit price Because reductions the relevant parties during between consumers, not under the antitrust laws do the burden of period. time Plaintiffs have monopolist prohibit all circumstances a delib- that these actions reflected proving But because the reducing prices. made and enforced defend- policy erate power injure competi- has the monopolist ant’s officers. un- competitors by reducing prices tion and require laws careful fairly, the antitrust Negotiations 37. in Bad Faith price review of reductions. Plaintiffs that at various times be- claim con- you For to conclude AT & T’s pursued tween 1971 and 1973 defendant main- reducing prices duct in shows willful negotiations. of bad faith policy deliberate monopoly, you tenance of its must find claim, prevail upon plaintiffs To must AT & T’s special quality there was a about negotiated in bad establish that defendant which makes it unfair or exclusion- conduct plaintiffs’ purposes delaying faith for ary. “predatory pricing.” is called This and with the intent entry into the market maintaining monopoly in the relevant example predatory pricing One would market. tempo- be the who sells at a loss monopolist weaker rarily competitors in order to force Filings Tariff State market, intending recoup his out of the AT & T filing by MCI claims when the com- by raising prices again losses operating companies of tariffs with state eliminated. petition is regulatory agencies in the fall of of- Western fering plaintiffs, local facilities to Telpak *112 carriers on specialized Union and all other that the tariff rate Telpak contends conditions, the same terms and violated the unprofitable was for AT was below cost and antitrust laws. In order to sustain this In T 1969 and mid-1975. order & between prove by claim MCI must clear and convinc- Telpak priced that was below conclude T believe ing evidence that AT & did not cost, compare must decide whether to you jurisdiction had and agencies that the state average to AT & T’s costs Telpak price faith for that the tariffs were filed in bad trial, average costs. In this marginal or its purpose hindering delaying and distributed fully costs have also been called and con- compete. MCI’s efforts to Clear have marginal costs or embedded costs vincing means evidence that com- evidence long-run called incremental or also been that your belief and leaves little doubt pels what arriving you incremental costs. is true. particular proposition providing the true cost of believe to be Financing Interference with service, views of ex- may consider the you at trial and exer- have testified System perts Plaintiffs claim that a Bell em- who of all judgment light own ployee spoke entry your to a banker about new cise you If conclude testimony you have heard. competition in the telecommunications below intentionally priced interfering Telpak with the intent that was industry not legitimate for the pur- reasons but for you appropriate what find to be the cost pose of maintaining a monopoly. mid-1975, you may between 1969 and find was On the other Telpak predatory. 44. Course of Conduct hand, plaintiff Telpak if has not shown In considering whether T AT & has will- you below believe to priced been what fully maintained its monopoly power, you standard, appropriate you be the cost should should not consider each aspect distinct find for defendant on this issue. AT & T’s in a conduct vacuum but in the
42. Hi-Lo context of all AT & T’s conduct. pricing Predatory may exist when a mo- nopolist arbitrarily prices lowers areas Injury to Plaintiffs’ Prop- Business or competition where it faces and either raises erty lower prices or does not in areas where it does competition. not face MCI contends The final element necessary MCI’s “high that AT & T’s choice of density” proof that AT & monopolized the rele- routes in the Hi-Lo tariff was based on vant market proof is that AT T’s& conduct legitimate cost differences but rather was injured has What you MCI. should deter- predatory pricing prevent intended to com- mine is whether MCI suffered financial or petition by MCI and other entrants. any economic way proxi- harm in which was mately by AT caused & T’s conduct. MCI The test for determining whether Hi-Lo claims that it was injured T’s predatory is the Telpak. same conduct in ways, including several its inabil- Again, question price of whether the customers; ity expenses; to serve increased you covered what the applicable consider suspension program; of its construction did, cost. you may If it not infer predatory revenues, profits, loss of opportunities intent; not, you may predato- if it did infer growth. you If find that such ry intent. injury was sustained and was proximately 43. Pre-announcement of Hi-Lo conduct, caused AT & T’s you should The announcement of a price reduction conclude that MCI has made out this ele- by a monopoly power long firm with time ment of its case. before it intends to put the reduction into effect can a predatory act. This is some- Monopolization 47. Burden Proof on pre-announcement.
times called The rea- Charge pre-announcement son can be anti-competi- tive is the pre-announcement may On the monopolization charge Count I hang is, over the market —that prevent complaint, plaintiffs have the buyers or discourage switching to a proving burden of each of the following new competitor they while wait for the propositions: price go announced reduction into effect. First, monopoly the defendant had MCI contends that AT & T announced its market; power in a relevant Hi-Lo year rate reduction at one least be- Second, acted, the defendant put fore AT & T intended to it into effect *113 act, failed or refused in one the anti- and that the reason for the time interval competitive plaintiffs ways claimed the discourage buyers was to from purchasing instructions; as stated in these you contends, services from MCI. AT & T on Third, acting failing that in so or or re- hand, the other that the interval time fusing act, the defendant intended required by applicable reasonable and was monopoly maintain a in the relevant mar- regulations legitimate and business consid- ket; erations. Fourth, plaintiffs injured have the were Plaintiffs the burden that proving that the announcement property; of Hi-Lo was done in their or business the and in the
ably past have made in Fifth, anti-competitive that conduct the had violated the if AT & T not .future proximate was a cause of defendant antitrust laws. or injury plaintiffs’ the business fairly compensated to be right MCI’s property. difficulty you by any be affected should not precise the may determining have in C. DAMAGES there is recovery, long so amount of the Damages your in the for a basis evidence reasonable is you If find that MCI entitled to award. verdict, provides may the law MCI be award pay have to taxes on MCI will compensated all to its fairly damages for Therefore, you if decide MCI you make. and property proxi- business not reduce damages you should entitled to you AT & T’s conduct mately caused the assumption the your award on laws. find to be antitrust violation money be tax-free. will damage This is to be measured must have a Any damages you do award which MCI would have- money amount and cannot in the evidence reasonable basis in the if AT past earned in and future conjec- speculation, guess upon be based laws, less & T had not violated antitrust ture. actually and the amount MCI has earned expected can to earn. May be Based 55. Lost Profits Not you proximate If find result of that as Conjecture violations, earnings T’s MCI’s in the AT & alleged for except MCI contends they are less past and the future than T, MCI would actions of & unlawful been, otherwise would have then operated and its micro- have constructed present proper value of that difference is a larger rapidly more and on system wave damages. measurement MCI con- of MCI’s it contends that scale it has. MCI also than called cash earnings tends that net cash greater and profits would have had calculating flows are the basis proper experienced. in fact flows than it law damages. approach Another which the failure to T contends MCI’s approach. recognizes profits is the net You system to con- larger construct adopt should may approach. either You to lawful rapidly more was due struct it adjustments to apply appropriate allow causes AT & and from competition from receiving the fact that an award of future T, AT & such as MCI’s unassociated with inter- profits now would allow MCI earn costs, difficulties, construction financial now the time money est on the between other matters. MCI’s inefficiencies and own those the future would have earned MCI a fore- Study is based on testimony about The Lost Profit profits. You have heard alleges profits flows or MCI adjust- to make this cast of the cash appropriate way period achieved over would have ment. anti-com- allegedly AT & T’s time but for may The fact business that MCI’s the cash conduct, compared with petitive does prevent new unestablished been achieved actually profits flows and its lost you determining earnings. over the same has it will achieve projected determining earnings, you MCI’s lost upon a are based period. projections involved in the business consider risks involving assumptions series interrelated world, previous experience per- circuits, local in- costs, revenues, length of in the formance MCI’s officers business costs, ef- marketing and sales terconnection world, of MCI in the actual experience forts, and other competition state of business, the competition conduct of its factors. market, level sales in the overall *114 testimony conflicting market, are You have heard and factors which any other assumptions many of basic concerning reason- earnings relevant to the would AT & T contends that the FCC had the to each of As projections. these underlying power many to resolve of the alleged un- establish that assumptions, MCI must these lawful complains acts of which MCI are made reasonable. it has assumptions if complaints MCI had filed with the injured by con- a party law allows FCC, objected or formally to tariffs of AT toAct violates the Sherman duct which T,& the FCC could have resolved dis- does damages even if the evidence collect FX, CCSA, putes over local distribution ar- in the precision not reflect mathematical eas, the terms and conditions furnishing However, esti- damages. calculations facilities, local distribution multipoint be on grounded must projections mates and service. MCI denies this contention and judg- reflect reasoned assumptions argues that AT & T it encouraged to con- competent on evidence. based ments tinue negotiating rather than resorting the FCC. Duty Mitigate 56. Plaintiffs have
Damages Unlike the other issues about which I you, instructed AT & has the requires burden company law faced is, proof mitigation. That AT & T possibility damages may re- prove must sult that MCI did not mitigate from the business conduct of another damages. you If merely sit back and do find that MCI could have nothing protect avoided economically. protect itself It must some or all of its economic losses by acting complaining itself in a commercially reasona- the FCC and that MCI acted ble and responsible unreasonably manner to minimize the in failing to complain to FCC, amount damages you incurred. This self- cannot award MCI the damages protection mitigation is damages. called could have avoided.
SPECIAL VERDICT general accompanied by Your verdict will be following answers to the series of questions. you Please bear in mind I what have told about the elements of each of against by plaintiffs the claims made you defendant and what I have told about proof. the burden of following questions “yes” Please answer the or “no.” you plaintiffs proved
1. Do find that the existence aof relevant market?
Yes X _No your “no,” you If answer is questions. need answer no further your If “yes,” is answer then answer No. 2. Question you Do power
2. find monopoly that defendant had in the relevant market? _X_
Yes _No your “no,” you If answer is your should answer 3. “yes,” No. If answer is Question skip go No. 3 and 4 and Question 5. Questions you 3. Do find willfully attempted monopolize that defendant the relevant market? Yes No you question If have answered this your “yes,” proceed answer then you No. 4 and If question your “no,” have answered the Questions answer is you questions.
then no need answer further predatory pricing issue, please you relation to the mark what find to proper cost standard. X_Average (also costs) fully Costs called distributed embedded
_Marginal (also costs) long-run Costs incremental called incremental or *115 question, subpart please “yes” you to each Do 5. As of this answer or “no.” find attempted willfully willfully monopoly that defendant maintained [or maintain] by committing any following complaint: charged acts in the (a) Refusing (Instructions FX and 28) CCSA interconnections to MCI No. 27 and
Yes X _No
(b) Tying long-distance (Instruction 29) local service to AT&T service No.
Yes X _No (c) Interfering by disconnecting FX, CCSA, with MCI customers and other service (Instruction 30) No. Yes X
_No (d) Discriminating against MCI and in favor of Western Union on interconnection
(cid:127) (Instruction 31) No. Yes_ X
No (e) Denying (Instruction multipoint 32) interconnection service No. Yes X _No (f) Denying beyond interconnection a defined distance from MCI’s terminals (Instruction 33) No. X
Yes _No (g) Charging unreasonably high prices (Instruction 34) for interconnection No. Yes_ X
No (h) Providing inappropriate equipment procedures or inefficient for interconnec- (Instruction 35) tion No. Yes X _No (Instruction 36)
(i) faulty No. Late installations Yes_ X
No (j) Negotiating agreement (Instruction 37) for an in bad faith interconnection No. X
Yes _No
(k) Filing (Instruction 38) state faith tariffs in bad No. X
Yes _No Interfering financing (Instruction 39) with MCI’s No. (l) Yes_ X
No
(m) Telpak (Instruction 41) Predatory pricing of No.
Yes_ X
No
(n) (Instruction Predatory pricing 42) of Hi-Lo No. X
Yes _No
(o) (Instruction 43) Pre-Announcement of Hi-Lo No.
Yes X No *116 you If have subparts “no,” answered all you need Question answer no further However, questions. you if any have answered one or more of subparts “yes,” then answer 6. Question you Do plaintiffs injured 6. find that in their business property as a proximate result of one more of the defendant’s acts as you to which “yes” answered 5?No. Question Yes X _No your If answer “yes,” No. 6 is then answer your Question No. 7. If Question “no,”
answer to No. 6 is do not Question answer No. 7. Question you 7. What do monetary find to injury? amount of that $ 600 million you completed
If No. fill in the amount Question on this verdict form sign it. IN
VERDICT FAVOR OF PLAINTIFFS complaint, we, jury, MCI, On plaintiffs, find against defendant, AT&T, in the amount of: $600.000.000.00
Geraldine BUCKHANON and Rosetta
Bailey, al., Plaintiffs-Appellees et Cross-Appellants, PERCY,
Donald Bernard J. Stumbras and Rentmeester, al.,
Kenneth et Defend-
ants-Appellants Cross-Appellees. 82-2057,
Nos. 82-2142.
United States Court of Appeals,
Seventh Circuit.
Argued Feb. 1983.
Decided May
As Amended May 31 and June
Rehearing and Rehearing En Banc 9, 1983. Sept.
Denied