Covad Communications Co. v. Bell Atlantic Corp.
| Decision Date | 03 May 2002 |
| Docket Number | No. Civ. A. 99-1046(GK),Civ. A. 99-1046(GK) |
| Citation | 201 F.Supp.2d 123 |
| Parties | COVAD COMMUNICATIONS COMPANY, et al., Plaintiffs, v. BELL ATLANTIC CORP., et al., Defendants. |
| Court | U.S. District Court — District of Columbia |
John Richard Gerstein, I, Merril Jay Hirsh, Ross, Dixon & Bell, LLP, Washington, DC, Brad Sonnenberg, Covad Communications Company, Santa Clara, CA, James Stubblefield, Jason S. Hartley, Ross, Dixon & Bell, LLP, San Diego, CA, Susan Jin Davis, Covad Communications Company, Washington, DC, for Plaintiffs.
Robert J. Zastrow, Bell Atlantic Network Services, Inc., Arlington, VA, Dan K. Webb, George C. Lombardi, Winston & Strawn, Chicago, IL, Mark C. Hansen, Reid M. Figel, Sarah O. Jorgensen, Kellogg, Huber, Hansen, Todd & Evans, P.L.L.C., Washington, DC, Jon Thorne, Arlington, VA, Richard G. Taranto, Farr & Taranto, Washington, DC, Charles Bennett Molster, III, Winston & Strawn, Washington, DC, for Defendants.
Mark Ford Wilson, Communications Workers of America, Justin Sanjeeve Antonipillai, Arnold & Porter, Washington, DC, for Non Parties.
Andrew Gerald McBride, Jr., Wiley, Rein & Fielding, Washington, DC, for Amicus.
Robert J. Zastrow, Bell Atlantic Network Services, Inc., Arlington, VA, Deborah L. Winstead, Estabrook & Associates, P.C., McLean, VA, David M. Estabrook, Estabrook & Associates, McLean, VA, John Richard Gerstein, I, Ross, Dixon & Bell, LLP, Washington, DC, for Movants.
Plaintiffs, Covad Communications Company and Dieca Communications, Inc. (collectively "Covad"), bring this antitrust action for damages and injunctive relief against Defendants, Bell Atlantic Corporation and its subsidiaries (collectively, "Bell Atlantic").
The matter is now before the Court on Defendants' Motion to Dismiss the Second Amended Complaint. Upon consideration of the Motion, Opposition, Reply, Sur-reply, the numerous submissions of supplemental authority submitted by parties, the Motions Hearing held on March 11, 2002, and the entire record herein, for the reasons stated below, the Court grants Defendants' Motion to Dismiss.
Covad is a California-based start-up company founded in 1996 that uses a technology called Digital Subscriber Line ("DSL") to provide high-speed Internet services, as well as other network and data services.2
Defendants are collectively the Bell Atlantic Corporation and its twelve subsidiaries.3 Bell Atlantic provides telecommunications and local exchange services in thirteen states along the North Eastern Seaboard as well as in the District of Columbia.4
Covad alleges that Bell Atlantic has unlawfully maintained monopoly power in various telecommunications markets, including the DSL market, and has engaged in anticompetitive and exclusionary conduct in violation of Section 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. §§ 1, 2 ("Sherman Act"), Sections 4 and 16 of the Clayton Antitrust Act, 15 U.S.C. §§ 15 and 26 ("Clayton Act"), the District of Columbia Antitrust Act of 1980, D.C.Code §§ 28-4503, 4508 and common law.
Before turning to the particulars of Covad's Complaint, some general explanation about the regulatory framework within which the parties operate is warranted.
The relationships between the parties are governed in large part by the Telecommunications Act of 1996, Pub.L. 104-104, 110 Stat. 56 (1996), codified at 47 U.S.C. § 151 et seq. ("1996 Act" or the "Act"), which sought to jump-start competition in the communications industry after a lengthy period of state and FCC regulated monopolies. The goal of the 1996 Act was to transform the telecommunications industry from a monopolistic setting to a competitive one.5
To encourage competition, the Act requires that those companies that have historically provided telephone services, referred to as "incumbent local exchange carriers" or "ILECs," provide certain services to new entrants in the telecommunications market, referred to as "competitive local exchange carriers" or "CLECs."
Among other things, the 1996 Act requires that ILECs permit "interconnection" with their local telecommunications network.6 Specifically, ILECs must give new entrants access to their local network on terms that are "just, reasonable and non-discriminatory" so that these new entrants or CLECs can compete with ILECs in existing and emerging telecommunications markets. 47 U.S.C. § 251. Furthermore, the 1996 Act establishes a set of procedures for making and enforcing "interconnection agreements" between ILECs and CLECs for access to local networks. 47 U.S.C. § 252.
Since December of 1997, Covad (a CLEC) and Bell Atlantic (an ILEC), have entered into numerous interconnection agreements concerning access to Bell Atlantic's local network. All of these agreements have been, or currently are, the subject of dozens of enforcement proceedings before numerous state regulatory bodies and the FCC.
In this action, Covad alleges that Defendants have unlawfully maintained their monopoly power in various telecommunications markets by engaging in a pattern of "unlawful, anticompetitive and fraudulent practices" in order to prevent Covad's entry into those markets. Compl. ¶ 7.
In particular, Covad alleges that its DSL services threaten Bell Atlantic's monopoly power in three different product markets, namely the "Local Internet Access Market," the "Local Telecommuting Market," and the "Local Voice Services Market."7 See Compl. ¶ 53. Covad also asserts the existence of hundreds of different geographic markets in the states Bell Atlantic serves.8
Virtually all the conduct of which Plaintiffs complain concerns Bell Atlantic's failure to perform duties required under the 1996 Act. Chief among these allegations is that Bell Atlantic has denied Covad access to its local telephone network in the following four ways: (1) refusing to "collocate" or provide physical space and facilities for the placement of Covad's equipment within Bell Atlantic's central offices, Compl. ¶¶ 91-124; (2) denying access to "local loops," which are the wires running between Bell Atlantic's central offices and customers' premises, Compl. ¶¶ 125-177; (3) refusing to maintain adequate operations support systems ("OSS"), the computer systems that Covad along with numerous other new entrants in the local telecommunications markets must use to order loops from Bell Atlantic, Compl. ¶¶ 131-135; and (4) denying access to the "transport" facilities that connect Covad's central office equipment with other points in Covad's network, Compl. ¶¶ 175-177.
Covad argues that Bell Atlantic has repeatedly denied or delayed access to these four dimensions of the local telephone network. Plaintiffs further allege that timely access to Bell Atlantic's local network is essential to their provision of DSL services and to competition in the relevant telecommunications markets. See Compl. ¶¶ 89-177.
Plaintiffs' other allegations of anticompetitive conduct include price squeezing and refusal to line share, see Compl. ¶¶ 178-185; misleading and fraudulent advertising, see Compl. ¶¶ 186-192; bad faith negotiations, see Compl. ¶¶ 196-201; and patent misuse, see Compl. ¶¶ 202-212.
Plaintiffs filed this action on April 28, 1999, amending their Complaint twice, once on July 8, 1999, and again on August 10, 2000. The Court has issued two Memorandum Opinions since then, both of which denied Non-resident Defendants' Motions to Dismiss for Lack of Personal Jurisdiction.9 Defendants now move to dismiss the entire case for failure to state a claim. Fed.R.Civ.P. 12(b)(1) and (b)(6). The Court heard oral argument on this Motion on March 11, 2002.
"[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46, 78 S.Ct. 99, 2 L.Ed.2d 80 (1957); Davis v. Monroe County Bd. of Educ., 526 U.S. 629, 119 S.Ct. 1661, 1676, 143 L.Ed.2d 839 (1999).
The heart of Plaintiffs' Complaint is that Bell Atlantic has violated Section 2 of the Sherman Act, which prohibits (1) the willful acquisition or maintenance of monopoly power in the relevant market (2) by the use of exclusionary or predatory conduct "to foreclose competition, to gain a competitive advantage, or to destroy a competitor." United States v. Griffith, 334 U.S. 100, 108, 68 S.Ct. 941, 92 L.Ed. 1236 (1948). A showing of "exclusionary" conduct is an absolute pre-requisite to stating a claim under Section 2.
A careful review of the Complaint reveals that virtually all allegations of exclusionary conduct, with the exception of the retaliatory patent law suit, relate to Bell Atlantic's failure to comply with the myriad duties contained in sections 251 and 252 of the 1996 Act.
Specifically, Covad alleges that Bell Atlantic engaged in "exclusionary" conduct through denial or delay of access to its local network in the areas of collocation,10 access to loops,11 adequate operations support systems,12 transport services,13 and line sharing,14 all of which are expressly governed by §§ 251(c)(1), (2), (3) and (6) of the 1996 Act as well as by particular provisions in the interconnection agreements entered into between the parties. Plaintiffs also allege that Defendants engaged in exclusionary conduct through price squeezing,15 misleading advertising about its own DSL services,16 sham negotiations,17 and a retaliatory patent lawsuit,18 conduct which, with the exception of the patent suit, is also governed by the 1996 Act and the interconnection agreements between the parties.
For the reasons discussed below, the Court concludes that none of these allegations, if proven, can be "exclusionary" conduct within the meaning of antitrust law and that therefore, Covad's...
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