Supreme Court rules for phone companies

/ Source: The Associated Press

The nation's largest local phone companies won a Supreme Court victory Monday in a lawsuit by consumers alleging anticompetitive business practices.

The court ruled 7-2 that the suit lacked any factual support for its accusations that the companies secretly agreed to stay out of each other's territories for local telephone and high-speed Internet service.

It is not enough to make a bare assertion of conspiracy, Justice David Souter wrote in the majority opinion.

Souter said the complaint alleging restraint of trade "comes up short." The consumers "have not nudged their claims across the line from conceivable to plausible," Souter wrote.

In dissent, Justice John Paul Stevens objected to a federal judge's dismissal of the case. Stevens said federal rules, previous rulings and "sound practice mandate that the district court at least require some sort of response" before throwing out the case. Justice Ruth Bader Ginsburg joined Stevens in dissenting.

The 2nd U.S. Circuit Court of Appeals had sided with the consumers, concluding those filing the lawsuit had stated "a plausible claim of conspiracy."

The case underscores the Supreme Court's recent emphasis on antitrust law, and the justices still have two major antitrust cases before them this term. One is an investors' suit against Wall Street investment banks, the other a 96-year-old Supreme Court ruling that bans agreements between manufacturers and retailers setting price floors for products.

The Supreme Court seems intent on "making over the antitrust landscape by cleaning up areas they think need to be cleaned up," said attorney Joseph Simons, a former chief antitrust enforcer at the Federal Trade Commission.

The Chamber of Commerce and eight other business groups and companies filed papers supporting the phone companies.

The decision is "a triumph of the voices for America's wealthiest corporations," said attorney J. Douglas Richards, who argued the case for the plaintiffs in the Supreme Court.

Richards called it "disturbing" that the court isn't permitting such cases to continue long enough to force disclosure of any of the basic evidence that only the companies possess. Richards declined to discuss whether the plaintiffs would refile the lawsuit with additional information.

The case arose from changes to the telecommunications law in 1996 in which the local phone companies were to open their monopoly markets to competition. In return, they were given the opportunity to enter the long-distance business. At the time, the four companies controlled more than 90 percent of the market for local phone service.

The defendants were Bell Atlantic Corp., BellSouth Corp., Qwest Communications International Inc., and SBC Communications Inc. Bell Atlantic is now Verizon Communications Inc. and SBC bought AT&T Inc. and the renamed company, AT&T, merged with BellSouth.

Consumers represented by a prominent firm of plaintiffs' attorneys sued when the companies kept to their own territories rather than competing.

A natural explanation is that "the former government-sanctioned monopolists were sitting tight, expecting their neighbors to do the same thing," Souter wrote.

The consumers also alleged the local phone companies conspired to keep smaller companies from competing successfully in the larger companies' markets.

Nothing in the complaint suggests that the companies' resistance to the upstart competitors was anything more than natural reaction by each acting alone, wrote Souter.

In their arguments, the companies said it is understandable each company would decide individually against devoting scarce resources to the risky enterprise of entering new markets.

The court's decision "should discourage plaintiffs from filing antitrust conspiracy claims based upon nothing more than evidence of parallel conduct and a hope that more will turn up in discovery," said attorney Edward Schwartz.

The Bush administration supported the phone companies, saying the lawsuit "fails to provide concrete notice of the alleged wrongdoing." Those filing such lawsuits, said the Justice Department's solicitor general, need to be able to point to allegations of particular jointly attended meetings or to involvement of alleged conspirators in joint activities.

The case is Bell Atlantic v. Twombly, 05-1126.