Monday, May 21, 2007

Some Thoughts on Twombly

Posted by Shubha Ghosh

Thanks to my co-blogger for being so prompt in posting on Twombly.  I just finished my first read of the opinion, and the opinion seems consistent with the Court's 2004 decision in Trinko: it's darn hard, and perhaps frankly impossible, to challenge the RBOC's under the antitrust laws.   Trinko forecloses Section Two challenges, for the most part, and now the proof of agreement required after Twombly for a Section One claim seems insurmountable given how the Court understands the Telecommunications industry.  Danny cited the appropriate language about the legal standard.  Here is a telling passage about how the Court applies that standard to telecom:

"[Twombly's complaint] was not suggestive of conspiracy, not if history teaches anything.  In a traditionally regulated industry with low barriers to entry, sparse competition among large firms dominating separate geographical segments of the market could very well signify illegal agreement, but here we have an obvious alternative explanation.  In the decade preceding the 1996 Act and well before that, monoply was the norm in telecommunications, not the exception."

Hence, the Court goes on, the lack of entry into a neighbor's market is consistent with the regional Bells accepting the status quo ante the 1996 Act and does not necessarily provide a basis to claim an agreement as required under Section One.  In effect, the Court adopts the district court's view of the pleadings: if there is an explanation of the pleaded facts consistent with unilateral action, then the Section One claim is dismissed.

But how about this interpretation of events, from a decidedly public choice perspective: the 1996 Act itself is the agreeement to not compete on each other's territory?   That theory requires a facial challenge to the statute itself under the antitrust laws and seems to be foreclosed by Trinko as well as today's decision in Twombly.

More on this later...

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Actually one can look at the majority in Trinko itself as taking a radical public choice perspective. In Trinko the plaintiff's basic argument came down to this: Congress in the 1996 Telcom Act has forbidden the LTCs to do certain things and compelled them to do others. By behaving in the way contrary to what they were told by the Congress, the LTCs were strengthening their monopoly power. Given that their behavior was already proscribed by (non antitrust) statute and it strengthens their monopoly power, why should a court be afraid of deeming it to be monopolizing conduct?

If one takes a radical public choice perspective you could argue as follows: The LTCs fought long and hard over the 1996 Telcom Act. They couldn't stop the mandate in the Act to make them share their local lines with new entrants on a wholesale basis (BTW they used many of the same arguments in their lobbying on the Act as they did in their briefs in Trinko). What they did get, however, were limited sanctions which the FCC could impose for violating the new mandates in the Act. To allow the LTCs to be subject to the additional sanctions (especially the 3X damages) of the antitrust laws would deprive the LTCs of the "bargain" that was the 1996 Act.

I happen to think the latter argument is garbage (for one thing it is inconsistent with the normal use of antitrust savings clauses, like the one in the 1996 Act, notwithstanding the Court's strange use of it in Trinko), but it sure seems to fit with what Scalia's opinion for the Court did in Trinko.

Posted by: Harry Gerla | May 22, 2007 9:14:33 AM

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