Court Case on Baby Bells May Affect Antitrust Enforcement
By Jess Bravin
The Wall Street Journal
Tuesday, November 28, 2006
WASHINGTON -- In a case with implications for antitrust
enforcement, the Supreme Court heard arguments on how
specific a plaintiff's allegations must be to claim
The case springs from the decades-old legal saga that ended
the Bell system telephone-service monopoly and created
The 1996 Telecommunications Act gave the Bell system's
regional successors, the Baby Bells, the right to sell
long-distance service in return for opening their local
networks to competitors. Despite Congress's expectation the
law would create a competitive market, the Baby Bells have
remained dominant in their respective regions.
The plaintiffs, a group of individuals who bought local
telephone and Internet service since the law was enacted and
represented by the class-action firm Milberg Weiss Bershad &
Schulman LLP, filed suit in 2003, alleging the Baby Bells
conspired to restrict entry into their territories of
competitors in local telephone and Internet service. They
claimed the Baby Bells, which after several mergers and name
changes now include
Qwest Communications International Inc. and
Verizon Communications Inc., violated the Sherman
Antitrust Act, which prohibits "every contract, combination
... or conspiracy, in restraint of trade or commerce."
The plaintiffs had no direct evidence of such a conspiracy,
however, and instead based their claim on circumstantial
indicators of anticompetitive behavior, such as the parallel
conduct of the Baby Bells in declining to compete in each
other's territory and allegedly impeding other carriers from
connecting to their networks. The Baby Bells argued that
without more -- such as an allegation of a specific meeting
in which a deal was made to restrain trade -- the case
should be dismissed without allowing the plaintiffs
discovery of internal documents.
The Federal Rules of Civil Procedure impose minimal
requirements to file a lawsuit, specifying little more than
that plaintiffs file "a short and plain statement of the
claim showing that [they are] entitled to relief." Court
rulings have interpreted the rule to require that the claim
provide defendants "fair notice" of the accusation so they
can respond and prepare for trial.
A federal judge in New York dismissed the suit, ruling the
plaintiffs' allegations fell short of this standard. The
Second U.S. Circuit Court of Appeals, also in New York,
reinstated the lawsuit, saying the evidentiary test applied
by the trial court was better suited at a later stage of
proceedings -- summary judgment, which a party can seek
after discovery and presentation of evidence -- on the
grounds no reasonable jury could agree with its opponent.
The appeals court acknowledged that the ease of filing
lawsuits imposed on defendants the "sometimes colossal
expense of undergoing discovery" and could thereby encourage
unjustified settlements to avoid trial. But the Second
Circuit said "if that balance is to be recalibrated ... it
is Congress or the Supreme Court that must do so."
Yesterday, a lawyer for the Baby Bells, Michael Kellogg,
told the Supreme Court that no recalibration was needed
because existing law already required dismissal of the suit.
Several justices, however, seemed unpersuaded. Justice Ruth
Bader Ginsburg suggested the Baby Bells were trying to
rewrite a 68-year-old rule by adding evidentiary
requirements to the initial claim, and Justice John Paul
Stevens said "dozens" of antitrust claims were no more
specific than that alleged in the Baby Bells case.
The Bush administration, siding with the Baby Bells, argued
that parallel conduct was common in the U.S. economy, and
that allowing antitrust suits based only on it would be too
burdensome for business. Pressed by Justice Antonin Scalia,
however, Assistant Attorney General Thomas Barnett agreed
that some parallel conduct could be so suspicious as to be
sufficient to support a claim.
But the plaintiffs' attorney, J. Douglas Richards, fared no
better. Under the standard the plaintiffs favored, Justice
Stephen Breyer said, half the companies in the U.S. could be
sued. Adopting that position would have the Supreme Court
"restructuring the economy," he said.
A decision is expected by the end of the court's term, in
(Bell Atlantic Co. v.
contributed to this article.
Write to Jess Bravin at