Tuesday, November 28, 2006

Supreme Court to decide what makes an antitrust case

Supreme Court to decide what makes an antitrust case

WASHINGTON (AP) — The Supreme Court pressed both sides Monday in the opening arguments of a case that businesses of all stripes care deeply about: how hard should it be to get evidence that a company might be violating antitrust laws?

The case, Bell Atlantic v. Twombly, stems from the deregulation of the telecommunications industry in the 1980s and 1990s, with some experts citing it as the most important antitrust case to reach the Supreme Court in 20 years.

The case is being closely watched by numerous companies, including airlines, credit card issuers and trade associations representing the wireless communications and pharmaceutical industries, all of whom have submitted or signed onto friend-of-the-court briefs.

The plaintiff in this case is represented by Milberg Weiss, known for its class-action lawsuits alleging securities fraud against major corporations. The firm filed a lawsuit in 2003 on behalf of William Twombly and all individuals in the continental United States who bought local telephone and Internet service between February 1996 and the present.

The suit alleged that the incumbent local telephone companies, or regional Bells, illegally conspired to prevent competition by excluding new local phone companies from their territories and agreeing not to compete against each other in each other's markets.

As part of the original court-ordered breakup of AT&T in 1982, seven regional telephone companies were created to provide local service. The 1996 Telecommunications Act allowed those regional Bells to offer long-distance calling, in addition to local service, in exchange for allowing competitors access to their networks.

The original seven incumbent local phone companies have been reduced to four through mergers and acquisitions: Verizon Communications (VZ), which was formed by the merger of Bell Atlantic and GTE in 2000; BellSouth (BLS); Qwest Communications International (Q), which bought Pacific Bell; and AT&T (T), which was bought by local phone provider SBC Communications. AT&T has also offered to buy BellSouth, but that deal has not been approved.

A federal district court dismissed Twombly's case, finding that Twombly did not allege sufficient facts to indicate that a conspiracy would likely be proven during a trial. But Twombly argued that a conspiracy could be inferred from the so-called "parallel conduct," or behavior, of the defendants.

The Second Circuit Court of Appeals reversed the district court, however, finding in October 2005 that a plaintiff must submit only a "short and plain statement of the claim" and not a detailed set of facts in order to survive a motion to dismiss.

The regional Bells appealed to the Supreme Court. A low standard, corporations say, would enable "meritless" and "abusive" cases to go forward, forcing many businesses to settle those cases rather than endure the expense of litigation, including the discovery process in which defendants must produce documentation of certain facts for the plaintiff.

Under the standard upheld by the appeals court, "you can go sue half the firms in the economy," Justice Stephen Breyer said Monday.

A higher standard, however, could make it too difficult for individuals to bring valid antitrust cases, Twombly argued, because the only way a plaintiff can get evidence of an agreement among companies to restrict competition is through the discovery process.

If antitrust cases are dismissed too quickly, evidence of such agreements will rarely end up in the hands of plaintiffs, Twombly argued.

Twombly's attorney also said that the telephone companies' refusal to compete against each in each other's territories went against their economic self-interest, which could imply a conspiracy.

Justice John Paul Stevens pressed Michael Kellogg, the attorney arguing the case for the phone companies, on why such allegations were not sufficient for the case to continue.

"How you can say this is not a statement of fact I find mind-boggling," Stevens said.

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