Aircraft Check Servs. Co. v. Verizon Wireless (In re Text Messaging Antitrust Litig.)

• Court: U.S. Court of Appeals — Seventh Circuit
• Writing for the Court: POSNER, Circuit Judge.
• Citation: Aircraft Check Servs. Co. v. Verizon Wireless (In re Text Messaging Antitrust Litig.), 782 F.3d 867 (7th Cir. 2015)
• Decision Date: 09 April 2015
• Docket Number: No. 14–2301.,14–2301.
• Parties: In re TEXT MESSAGING ANTITRUST LITIGATION. Aircraft Check Services Co., et al., individually and on behalf of all others similarly situated, Plaintiffs–Appellants, v. Verizon Wireless, et al., Defendants–Appellees.

782 F.3d 867

In re TEXT MESSAGING ANTITRUST LITIGATION.

Aircraft Check Services Co., et al., individually and on behalf of all others similarly situated, Plaintiffs–Appellants

v.Verizon Wireless, et al., Defendants–Appellees.

No. 14–2301.

United States Court of Appeals, Seventh Circuit.

Argued Feb. 10, 2015.

Decided April 9, 2015.

Rehearing and Rehearing En Banc^* Denied May 22, 2015.

Patrick J. Coughlin, Attorney, Coughlin Stoia Geller Rudman & Robbins LLP, San Diego, CA, for Plaintiffs–Appellants.

Aaron Martin Panner, Attorney, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Dane H. Butswinkas, Attorney, John E. Schmidtlein, Attorney, Williams & Connolly LLP, Washington, DC, Micah Block, Attorney, Christopher Hockett, Attorney, Sandra West Neukom, Attorney, Davis, Polk & Wardwell LLP, Menlo Park, CA, Charles H.R. Peters, Attorney, Schiff Hardin LLP, Brian A. McAleenan, Attorney, John W. Treece, Attorney, David W. Carpenter, Attorney, Linton J. Childs, Attorney, Sidley Austin LLP, Ruth A. Bahe–Jachna, Attorney, Greenberg Traurig, LLP, Frederic R. Klein, Attorney, Goldberg Kohn Ltd., Chicago, IL, for Defendants–Appellees.

Before WOOD, Chief Judge, and POSNER and TINDER, Circuit Judges.

Opinion

POSNER, Circuit Judge.

This class action antitrust suit is before us for the second time. More than four years ago we granted the defendants' petition to take an interlocutory appeal (see 28 U.S.C. § 1292(b) ) from the district judge's refusal to dismiss the complaint for failure to state a claim. But we upheld the judge's ruling. In re Text Messaging Antitrust Litigation, 630 F.3d 622 (7th Cir.2010). Three years of discovery ensued, culminating in the district judge's grant of the defendants' motion for summary judgment, followed by entry of final judgment dismissing the suit, precipitating this appeal by the plaintiffs.

The suit is on behalf of customers of text messaging—the sending of brief electronic messages between two or more mobile phones or other devices, over telephone systems (usually wireless systems), mobile communications systems, or the Internet. (The most common method of text messaging today is to type the message into a cellphone, which transmits it instantaneously over a telephone or other communications network to a similar device.) Text messaging is thus an alternative both to email and to telephone calls. The principal defendants are four wireless network providers—AT & T, Verizon, Sprint, and T–Mobile—and a trade association, The Wireless Association, to which those companies belong. The suit claims that the defendants, in violation of section 1 of the Sherman Act, 15 U.S.C. §§ 1 et seq., conspired with each other to increase one kind of price for text messaging service—price per use (PPU), each “use” being a message, separately priced. This was the original method of pricing text messaging; we'll see that it has largely given way to other methods, but it still has some customers and they are the plaintiffs and the members of the plaintiff class.

The defendants' unsuccessful motion to dismiss the complaint—the motion the denial of which we reviewed and upheld in the first appeal—invoked Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), which requires a complaint to pass a test of “plausibility” in order to avoid dismissal. The reason for this requirement is to spare defendants the burden of a costly defense against charges likely to prove in the end to have no merit. We decided that the plaintiffs' second amended complaint passed the test; we noted that the complaint

alleges a mixture of parallel behaviors, details of industry structure, and industry practices, that facilitate collusion. There is nothing incongruous about such a mixture. If parties agree to fix prices, one expects that as a result they will not compete in price—that's the purpose of price fixing. Parallel behavior of a sort anomalous in a competitive market is thus a symptom of price fixing, though standing alone it is not proof of it; and an industry structure that facilitates collusion constitutes supporting evidence of collusion. ... [T]he complaint in this case alleges that the four defendants sell 90 percent of U.S. text messaging services, and it would not be difficult for such a small group to agree on prices and to be able to detect “cheating” (underselling the agreed price by a member of the group) without having to create elaborate mechanisms, such as an exclusive sales agency, that could not escape discovery by the antitrust authorities.

Of note is the allegation in the complaint that the defendants belonged to a trade association and exchanged price information directly at association meetings. This allegation identifies a practice, not illegal in itself, that facilitates price fixing that would be difficult for the authorities to detect. The complaint further alleges that the defendants, along with two other large sellers of text messaging services, constituted and met with each other in an elite “leadership council” within the association—and the leadership council's stated mission was to urge its members to substitute “co-opetition” for competition.

The complaint also alleges that in the face of steeply falling costs, the defendants increased their prices. This is anomalous behavior because falling costs increase a seller's profit margin at the existing price, motivating him, in the absence of agreement, to reduce his price slightly in order to take business from his competitors, and certainly not to increase his price. And there is more: there is an allegation that all at once the defendants changed their pricing structures, which were heterogeneous and complex, to a uniform pricing structure, and then simultaneously jacked up their prices by a third. The change in the industry's pricing structure was so rapid, the complaint suggests, that it could not have been accomplished without agreement on the details of the new structure, the timing of its adoption, and the specific, uniform price increase that would ensue on its adoption....

What is missing, as the defendants point out, is the smoking gun in a price-fixing case: direct evidence, which would usually take the form of an admission by an employee of one of the conspirators, that officials of the defendants had met and agreed explicitly on the terms of a conspiracy to raise price. The second amended complaint does allege that the defendants “agreed to uniformly charge an unprecedented common per-unit price of ten cents for text messaging services,” but does not allege direct evidence of such an agreement; the allegation is an inference from circumstantial evidence. Direct evidence of conspiracy is not a sine qua non, however. Circumstantial evidence can establish an antitrust conspiracy.... We need not decide whether the circumstantial evidence that we have summarized is sufficient to compel an inference of conspiracy; the case is just at the complaint stage and the test for whether to dismiss a case at that stage turns on the complaint's “plausibility.” ...

The plaintiffs have conducted no discovery. Discovery may reveal the smoking gun or bring to light additional circumstantial evidence that further tilts the balance in favor of liability.

In re Text Messaging Antitrust Litigation, supra, 630 F.3d at 627–29 ; see also, for example, White v. R.M. Packer Co., 635 F.3d 571 (1st Cir.2011).

In short, we pointed to the small number of leading firms in the text messaging market, which would facilitate concealment of an agreement to fix prices; to the alleged exchanges of price information, orchestrated by the firms' trade association; to the seeming anomaly of a price increase in the face of falling costs; and to the allegation of a sudden simplification of pricing structures followed very quickly by uniform price increases.

With dismissal of the complaint refused and the suit thus alive in the district court, the focus of the lawsuit changed to pretrial discovery by the plaintiffs, which in turn focused on the alleged price exchange through the trade association and the sudden change in pricing structure followed by uniform price increases. Other factors mentioned in our first opinion—the small number of firms, and price increases in the face of falling costs—were conceded to be present but could not be thought dispositive. It is true that if a small number of competitors dominates a market, they will find it safer and easier to fix prices than if there are many competitors of more or less equal size. For the fewer the conspirators, the lower the cost of negotiation and the likelihood of defection; and provided that the fringe of competitive firms is unable to expand output sufficiently to drive the price back down to the competitive level, the leading firms can fix prices without worrying about competition from the fringe. But the other side of this coin is that the fewer the firms, the easier it is for them to engage in “follow the leader” pricing (“conscious parallelism,” as lawyers call it, “tacit collusion” as economists prefer to call it)—which means coordinating their pricing without an actual agreement to do so. As for the apparent anomaly of competitors' raising prices in the face of falling costs, that is indeed evidence that they are not competing in the sense of trying to take sales from each other. However, this may be not because they've agreed not to compete but because all of them have determined independently that they may be better off with a higher price. That higher price, moreover—the consequence of parallel but independent decisions to raise prices—may generate even greater profits (compared to competitive pricing) if costs are falling, provided that consumers do not have attractive alternatives.

Important too is the condition of entry. If few firms can or want to enter the relevant market, a higher price generating higher profits will not be undone by the output of new entrants. Indeed, prospective entrants may be...