Eugene Crew on Antitrust Impact of Verizon v. Trinko

Eugene Crew has engaged in a commercial litigation practice for the past 35 years of his career and has tried many cases of all kinds, involving a wide range of industries and markets, in both federal and state courts throughout the country. While he has specialized in antitrust and unfair business practices litigation, Mr. Crew has tried a wide variety of commercial disputes: antitrust, patent, contracts, theft of trade secrets, commercial fraud, trade libel, and Lanham Act violations. Mr. Crew has argued cases before the U.S. Supreme Court and numerous federal and state trial and appellate courts throughout the country.

1. Why does the Court not allow antitrust principles to be applied against Verizon, yet antitrust suits are permitted against software manufacturers, such as Microsoft?

You have to look at each case on its own individual merits, because there are many differences between the two. The Verizon case involved a specific act in a regulated industry, namely, the refusal to provide a competitor access to a telephone network.

The Microsoft case, on the other hand, involved countless exclusionary acts in several markets. The Microsoft case that we prosecuted covered three markets (operating systems, word processing and spreadsheets) and a wide array of predatory conduct dating back to 1988. The evidence we collected in four years of discovery showed that Microsoft had violated the Sherman Act in many ways.

A second major difference between the two cases is that the software industry is not regulated the way the telecommunications industry is regulated by the Telecommunications Act of 1996, the FCC and many state agencies.

2. The Court makes clear that under the Telecommunications Act of 1996, there is a duty on the part of incumbent local exchange carriers (LEC) to deal with competitive LECs. Has this duty been a contested issue?

Scalia addresses the obligation of a monopolist to deal with a rival who is dependent upon the monopolist for access to its monopoly resource in order to compete downstream. This is frequently litigated in the courts.

However, the cases are mixed on whether there is an antitrust duty to deal under those circumstances. Scalia cites Aspen Ski. There are others, including Otter Tail, handled by my partner Bill Jaeger many years ago, Mt Hood v. Greyhound, a case I tried, and others that support such a duty. There is also the Kodak case, where the Court condemned Kodak for refusing to sell patented parts needed for the repair of Kodak equipment to independent repair companies. The Court held there was a duty to deal.

In Kodak II, after remand from the Supreme Court to the Ninth Circuit, Kodak then claimed that under patent law, it had the absolute right to refuse to make the parts available to anybody. The Ninth Circuit was faced with two conflicting regimes: the antitrust laws and the patent laws. To reconcile these conflicting laws, the Ninth Circuit shifted the presumption from plaintiff's favor to a presumption in favor of the defendant. Thus, if the refusal to deal concerns intellectual property, the presumption is that the patent holder was merely exercising its patent rights to refuse to share its intellectual property. The burden is thus on the plaintiff to rebut that presumption.

The general rule is that a monopolist will be liable under Section 2 of the Sherman Act for refusing to share its monopoly resource if the purpose is to foreclose competition. The act of refusing to deal will give rise to a rebuttable presumption that it was for an anti-competitive purpose. The exception to that is if it's an intellectual property situation, where the presumption and burden are shifted - as an accommodation to patent law.

The Kodak case is the latest word on a monopolist's refusal to deal, but Scalia and the majority simply ignored it.

3. The holding in Verizon suggests that an entity is more vulnerable to antitrust claims if there are no federal statutory regulations (that include anticompetitive provisions) that govern its industry. True or false? Why?

Although six of the nine justices endorsed this position, I take issue with Justice Scalia when he states that federal regulation of an industry implies some kind of immunity for members of the industry. This is a totally unsupportable proposition. Over the past 35 years, I have done a lot of antitrust cases in the regulated industries - mainly transportation - and over those decades, defendants have tried in vain to establish implied immunity for regulated industries from the antitrust laws.

Justice Scalia cites a couple cases that he thinks support implied immunity for regulated industries. However, the overwhelming authority is that immunity from the antitrust laws is disfavored and is virtually never "implied." The only time it is granted is if there's an express statutory exemption from the antitrust laws for certain conduct that has been approved by the regulatory agency. This exemption was not in the Verizon case. In fact, Congress had expressly reserved antitrust law liability for this regulated industry.

Justice Scalia's suggestion that implied immunity exists because of federal regulation is hard to understand. I have found that the only possible way to obtain implied immunity is where the antitrust laws forbid that which the regulatory agency authorizes or requires. Then you have a conflict with respect to the conduct in question, which implies an immunity so as to reconcile the conflict. Here, there is no conflict between what the antitrust laws forbade and what the FCC authorized or required.

4. What is really going on behind the scenes with this decision?

Frankly, I think the conservative majority led by Scalia want to resuscitate the old argument that was used before deregulation in the 1970s. Before then, there was regulation of many industries, and defendants would always move to dismiss on grounds of immunity because they were regulated by some agency. This argument got nowhere back then. I think Justice Scalia is leading an attempt to give credence to this old, failed theory. There is no basis for implying an immunity, except in the limited circumstances that I described - i.e., where the antitrust laws would be imposing liability for doing that which a regulatory agency has either authorized or required. When that occurs, there is a conflict. To resolve that conflict, and only then, industry regulation should trump the antitrust laws.

5. Who are the winners in this case?

The beneficiaries of an implied immunity would be any regulated monopolist who wants to preserve its monopoly from competition. This will give them the means by which to resurrect that old, discarded theory that regulation of an industry somehow implies antitrust immunity.

6. Who are the losers in this decision?

In any antitrust case where there is a proven violation that is deemed immune, there are two parties who lose. More immediately, the competitors of the monopolist are foreclosed the opportunity to compete fairly on the merits. But the ultimate loser is always the consumer. The antitrust laws are designed to immediately protect the competitor by ensuring fair competition. If competition is preserved, the ultimate beneficiary is the consumer. And if you don't do this, the ultimate victim is the consumer, for the unremedied predatory conduct will ultimately eliminate competition - leaving the consumer with inferior products, higher prices, less innovation and no choice.

7. What's your position on the concurring opinion?

The concurring opinion by Justice Stevens said this case should not have reached the merits, but should instead have been decided on standing. I totally agree. This was not a good case for the plaintiffs to bring because it was a class action on behalf of the indirect consumers who lack standing. This case is a real tragedy because the plaintiffs didn't have standing and the Supreme Court's conservative majority, who should not have reached beyond standing, reached out for this case as an opportunity to shrink antitrust law. The Verizon decision can be viewed, in the larger context, as part of President Bush's "Tort Reform" mission.

8. The Telecommunications Act of 1996 mandates sharing of network hardware and facilities between rival companies. Is this unusually intrusive regulation?

Before the advent of deregulation many industries were heavily regulated - such as prices, rates, market entry, the duty to share resources. But we got rid of all these intrusive regulations because the thinking was that a free market was the way to go.

I was for deregulation back then. I even testified before a Senate subcommittee to support it. But I was operating under the assumption that deregulation was like kicking over a stone and letting the sunshine of antitrust come in there to regulate the markets. But instead, contemporaneously, the antitrust laws were also rolled back by our increasingly conservative federal courts while deregulation was also going on. It turned out to be a cruel joke on consumers.

From the Supreme Court down, the Reagan judges said we're not going to replace deregulation with antitrust enforcement. I do think regulation can be too intrusive, but if regulation is removed, antitrust law must fill the void to regulate the marketplace.

9. The Court makes reference to the Microsoft case: "Against the slight benefits of antitrust intervention here, we must weigh a realistic assessment of its costs. Under the best of circumstances, applying the requirements of 2 "can be difficult" because "the means of illicit exclusion, like the means of legitimate competition, are myriad."  U.S. v. Microsoft Corp., 253 F. 3d 34, 58 (CADC 2001) (en banc) (per curiam)."

What does it mean? In my view, not much. First, the Court of Appeals for the D.C. Circuit affirmed the lower court's condemnation of Microsoft's conduct as monopolization in violation of Section 2 of the Sherman Act. That was an en banc unanimous decision. So Microsoft has been adjudged an illegal monopoly. That is quite compelling, considering it comes from one of the more conservative Courts of Appeal in the nation.

Scalia selectively uses little quotes from the Microsoft case that have nothing to do with the holding. He finds a sentence that he likes that might support his view and uses it out of context. Here, the quote is being used to support the groundless suggestion that juries cannot determine right from wrong. Juries have always been able to handle complex litigation and we will continue to have the right to have juries decide complex issues until the Seventh Amendment is repealed, which won't ever happen.

10. Can you discuss the doctrine of "false positives" as used in the case?

"False positives" are used to illustrate a misdiagnosis, such as in medicine. When Scalia discusses "false positives" he is saying there is a risk the jury will misdiagnose defendant's conduct as bad when it actually is good. He is basically accusing the jury of misdiagnosing issues because the issues are too complicated and subtle. Juries, however, deal with complicated and subtle issues of human behavior all the time. The majority opinion is flying in the face of the Seventh Amendment, which is premised on the notion that juries can tell right from wrong no matter how difficult the case, and guarantees all litigants the right to have them do so.