Goldwasser et al v. Ameritech Corp., 98-1439

• Decision Date: 25 July 2000
• Docket Number: No. 98-1439,98-1439
• Parties: (7th Cir. 2000) Richard Goldwasser, et al., individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. Ameritech Corporation, Defendant-Appellee
• Court: U.S. Court of Appeals — Seventh Circuit

Page 390

222 F.3d 390 (7th Cir. 2000)

Richard Goldwasser, et al., individually and on behalf of all others similarly situated, Plaintiffs-Appellants, v. Ameritech Corporation, Defendant-Appellee.

No. 98-1439

In the United States Court of Appeals For the Seventh Circuit

Argued March 30, 1999

Decided July 25, 2000

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 97 C 6788--Charles P. Kocoras, Judge.

Before Ripple, Diane P. Wood, and Evans, Circuit Judges.

Diane P. Wood, Circuit Judge.

The Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56 (1996), codified at 47 U.S.C. sec. 151 et seq., represents a comprehensive effort by Congress to bring the benefits of deregulation and competition to all aspects of the telecommunications market in the United States, including especially local markets. But progress and change in such a complex industry do not occur overnight, and Congress accordingly entrusted the Federal Communications Commission (FCC) and the state public utility commissions with the task of overseeing the transition from the former regulatory regime to the Promised Land where competition reigns, consumers have a wide array of choice, and prices are low.

The antitrust laws for more than 110 years have served much the same purpose for the entire economy. The question that confronts us here is how and where these two competition-friendly regimes intersect. Consumers in most of the states served by Ameritech Corporation brought this suit under the monopolization provision of the Sherman Act, 15 U.S.C. sec. 2 (1994), claiming that Ameritech has been violating both the antitrust laws, as it has moved through the deregulation process mandated by the Telecommunications Act (which we will usually call "the 1996 Act" for short), and the 1996 Act itself. The district court dismissed their case, never reaching their effort to bring it as a class action, on the ground that they lacked standing to complain about Ameritech's alleged footdragging and obstructive behavior. We have concluded that the district court was correct to dismiss the plaintiffs' suit. Our reasons, however, differ in important respects from those on which it relied, as we explain below.

I

Plaintiffs-appellants Richard Goldwasser, Michael Cohn, Eric Carter, and Richard Lozon are citizens of Illinois, Wisconsin, Indiana, and Michigan, respectively. Those states, plus Ohio (for which there mysteriously was no named class representative) are the five states in which defendant Ameritech provides local telephone service. The Goldwasser plaintiffs (which is what we will call them here) are consumers of local telephone services in Ameritech's area. When the 1996 Act was passed, they, like millions of other telephone customers throughout the country, looked forward to the same kind of development of competitive local services that had occurred several decades earlier in the telephone equipment, long distance, and enhanced services markets. When this did not occur as speedily as they had hoped, they concluded that the fault lay with Ameritech. Under the 1996 Act, Ameritech has special responsibilities as the incumbent local exchange carrier, or ILEC, to cooperate with potential entrants as they seek to break into the local services markets. Believing that Ameritech was flouting its obligations under the 1996 Act and unlawfully monopolizing under Section 2 of the Sherman Act, they filed the present suit as a class action on September 26, 1997.

A.

Before turning to the specifics of the Goldwasser complaint, it is helpful to review what the 1996 Act was designed to do and how it went about that task.

Voice telephony itself was born with the famous summons Alexander Graham Bell sent to his assistant Thomas A. Watson, on March 10, 1876: "Mr. Watson, come here; I want you." George P. Oslin, The Story of Telecommunications 219 (1992). Just a few days earlier, on March 7, 1876, Bell became the owner of the first patent for a recognizable telephone, Patent No. 174,465. After a considerable amount of litigation, certain patents for improvements to Bell's original invention were upheld by the Supreme Court. See United States v. American Bell Telephone Co., 167 U.S. 224 (1897). Bell and his backers proved to be even more astute as businesspeople than they had been as inventors. They incorporated, and by 1886, a mere decade after the issuance of Bell's patent, the tree- like shape of the world-famous Bell Telephone company was beginning to be recognizable, with the American Telephone and Telegraph Company (AT&T) at its trunk. Oslin at 230.

Although the Bell company reigned supreme during the life of the basic patents, when the patents expired there was a burst of competition from many independent telephone companies around the country. This was, however, temporary mergers and acquisitions led to re-consolidation, and by the time the Communications Act of 1934, ch. 652, 48 Stat. 1064 (1934) (codified as amended in scattered sections of 47 U.S.C.) (the 1934 Act), was passed, it was an article of faith that telephone service, like services furnished by other public utilities, was a natural monopoly. Consumer protection was to be achieved by regulation, which, insofar as it affected local service, took place at the state level. The FCC had responsibility for regulating interstate telephone companies and services.

By 1934, the Bell System included operating companies, long distance services, equipment manufacturing, and research facilities. AT&T owned 80% of all the local telephone lines and services in the United States, and it had a monopoly lock on long distance service. There matters stood for some four decades. But, even if the regulatory picture was static, technology and markets were not. The natural monopoly assumption came under increasing attack especially as it pertained to long distance services and equipment manufacturing.

In 1974, the United States, through the Antitrust Division of the U.S. Department of Justice, sent shock waves through the nation when it instituted a massive antitrust case against AT&T. The complaint alleged that AT&T and its affiliates Western Electric Co. and Bell Telephone Laboratories had maintained an unlawful combination for many years among themselves and with the 22 Bell Operating Companies, or BOCs in telecom jargon; that they had restricted competition from other telecommunications systems and carriers, and from other manufacturers; and that they had engaged in a host of monopolistic practices. See [1970-1979 U.S. Antitrust Cases Transfer Binder] Trade Reg. Rep. (CCH) para. 45,074. Rather early in the litigation, the district judge who handled the proceedings from the date of filing until the case was wrapped up after the passage of the 1996 Act, the Honorable Harold Greene, rejected the defendants' argument that the matters raised in the complaint fell within the exclusive jurisdiction of the FCC and were thus immune from antitrust scrutiny. See United States v. American Tel. & Tel. Co., 461 F. Supp. 1314, 1326-28 (D.D.C. 1978) (AT&T I). In that opinion, Judge Greene considered the question whether the communications statutes conferred an implied immunity from antitrust regulation on the defendants, and his answer was no. Both his decision in that case, and the eventual Modified Final Judgment (MFJ) that reflected the consent decree reached among the parties, rested on the simple notion that, despite the existence of a substantial network of regulation in the field, there was still plenty of room for competition. See United States v. American Tel. & Tel. Co., 552 F. Supp. 131 (D.D.C. 1982) (AT&T II), aff'd sub nom. Maryland v. United States, 460 U.S. 1001 (1983). Where competition was possible, the defendants had no right to use their monopoly power to squelch it.

From the time when the consent decree was approved until the 1996 Act took effect, the process of opening up telecommunications markets to competition took place under the supervision of the district court, which had the task of administering the MFJ. Apart from its provisions requiring the break-up of the old Bell System, which was perhaps the most newsworthy consequence of the antitrust suit, the MFJ contained behavioral restrictions on the newly independent regional BOCs (including Ameritech) and on AT&T itself. See AT&T II, 552 F. Supp. at 226-28. These restrictions, which pertained to questions like the provision of long distance services outside local access and transport areas, the furnishing of wireless telephony, and the development of enhanced services, were designed to ensure that the former system (under which competition was distorted by leverage and cross-subsidization between protected, regulated markets and unregulated markets) did not reappear.

Long before the 1996 Act was passed, however, it had become clear that comprehensive regulation of the rapidly advancing telecommunications markets was not a task well suited to the federal courts. Thus, one of the first things Congress did in the 1996 Act was to shift the remaining authority the district court was exercising under the MFJ over to the FCC. The 1996 Act itself was designed to "promote competition and reduce regulation in order to secure lower prices and higher quality services for American telecommunications consumers and encourage the rapid deployment of new telecommunications technologies." Preamble to Telecommunications Act of 1996. As the Supreme Court acknowledged in AT&T Corp. v. Iowa Utils. Bd., 525 U.S. 366, 371 (1999), and as we have already noted, the eventual hope is to transform the telecommunications market from a monopolistic, regulated one to a vibrant, competitive one.

Two sections of the 1996 Act are of central importance here sec. 251 and 252. They are both contained in Part II of the statute, which is entitled "Development of Competitive Markets." Section 251 sets out detailed rules that...