INTERN. AUDIOTEXT NETWORK v. AMERICAN TEL. & TEL.

• Decision Date: 16 December 1994
• Docket Number: No. 92 Civ. 6454 (LMM).,92 Civ. 6454 (LMM).
• Citation: 893 F. Supp. 1207
• Parties: INTERNATIONAL AUDIOTEXT NETWORK, INC., Plaintiff, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Defendant.
• Court: U.S. District Court — Southern District of New York

893 F. Supp. 1207

INTERNATIONAL AUDIOTEXT NETWORK, INC., Plaintiff, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY, Defendant.

No. 92 Civ. 6454 (LMM).

United States District Court, S.D. New York.

December 16, 1994.

COPYRIGHT MATERIAL OMITTED

COPYRIGHT MATERIAL OMITTED

Seham, Klein & Zelman by Jeffrey M. Schlossberg, New York City, for plaintiff.

Sidley & Austin by Elizabeth M. Sacksteder, New York City, for defendant.

MEMORANDUM AND ORDER

McKENNA, District Judge.

1: The Amended Complaint and the Agreement.

Defendant American Telephone and Telegraph Company ("AT & T") moves, pursuant to Fed.R.Civ.P. 12(b)(6), for an order dismissing the Amended Complaint of plaintiff International Audiotext Network, Inc. ("IAN"). For the reasons set forth below, the motion is granted.

IAN asserts five claims against AT & T: (1) and (2), monopolization and an attempt to monopolize in violation of Section 2 of the Sherman Act, 15 U.S.C. § 2; (3) agreement in restraint of trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1; and (4) and (5), violations of Sections 201(b) and 202(a) of the Communications Act, 47 U.S.C. §§ 201(b) and 202(a).

IAN's claims all relate to a Cooperative Marketing Agreement between AT & T and Malhotra & Associates, Inc. ("Malhotra") entered into on May 6, 1991 (the "Agreement").¹ IAN and Malhotra are identified in the Amended Complaint (¶¶ 4, 5) as Information Providers, or "IPs," that is, firms that "provide various kinds of information and/or services via telephone to callers, such as stock quotes, time and temperature and horoscopes." (Am.Cplt. ¶ 4.) The parties at times refer to the services rendered by IPs as "audiotext" services.

As described by IAN, in the Agreement "AT & T agreed to pay Malhotra compensation based on the number of monthly minutes called from overseas to Malhotra's various telephone numbers." (Id. ¶ 13.)

The per minute compensation to Malhotra from AT & T represents a share of the revenue derived by AT & T from international calls originating outside the United States and terminating inside the United States. The fees that AT & T charges to foreign telephone companies to provide connections to the United States are known as accounting rates and are agreed upon in international negotiations. As the accounting rate of payments are based upon minutes of connect time, the stimulation of traffic to the United States from overseas increases defendant's revenue. The Agreement between Malhotra and AT & T provides Malhotra a fixed per minute share of the accounting rate receipts of AT & T for international calls terminating at Malhotra's audiotext service center.

(Id. ¶ 14.) The agreement was exclusive to Malhotra (id. ¶ 16) through July 8, 1993 (Pl. Mem. at 7.).²

Initially, the Agreement was applicable to four countries. (Am.Cplt. ¶ 17.) In May of 1992, the Agreement was made applicable to some 120 countries. (Id. ¶ 17.)³

IAN has sought to enter into an agreement with AT & T "on the same terms and conditions" as the Agreement, but AT & T has refused to do so. (Id. ¶¶ 20, 22.)

The alleged economic impact on IAN of AT & T's refusal to enter into an agreement with IAN similar to the Agreement is summarized by IAN thus:

Defendant controls an essential facility to the completion of international audiotext services. Duplication of defendant's international transport and billing services and arrangements by plaintiff would be economically infeasible and denial of its use inflicts a severe handicap on plaintiff and other potential market entrants. Without access to both the toll settlement arrangements and switching facilities of defendant, plaintiff cannot duplicate the call completing capability provided by defendant to Malhotra or collect the charges associated with the call.

(Id. ¶ 30.)

IAN also alleges that "the Agreement entails a joint venture between AT & T and Malhotra in which ... AT & T provides transport and billing facilities and services to Malhotra for international inbound sent-paid calls to Malhotra's audiotext services." (Id. ¶ 7). Thus, IAN alleges, after referring to certain of the provisions of the Agreement, "AT & T is, in fact, a competitor of IAN because by engaging in such intense overview and involvement AT & T is engaging in the same business as IAN." (Id. ¶ 12.)

2: Rule 12(b)(6) Standards in Antitrust Cases.

"A short plain statement of a claim for relief which gives notice to the opposing party is all that is necessary in antitrust cases, as in other cases under the Federal Rules." George C. Frey Ready-Mixed Concrete, Inc. v. Pine Hill Concrete Mix Corp., 554 F.2d 551, 554 (2d Cir.1977) (citing Nagler v. Admiral Corp., 248 F.2d 319 (2d Cir.1957), and 5 Charles Alan Wright & Arthur R. Miller, Federal Practice & Procedure, § 1228 (1969)). That does not mean that "conclusory allegations which merely recite the litany of antitrust will ... suffice." John's Insulation, Inc. v. Siska Constr. Co., 774 F.Supp. 156, 163 (S.D.N.Y.1991). An antitrust complaint must "adequately ... define the relevant product market, ... allege antitrust injury, and ... allege conduct in violation of the antitrust laws." Re-Alco Indus., Inc. v. National Ctr. for Health Educ., Inc., 812 F.Supp. 387, 391 (S.D.N.Y.1993). In considering the complaint on a motion under Fed.R.Civ.P. 12(b)(6), "the Court must accept the pleader's allegations of facts as true together with such reasonable inferences as may be drawn in the pleader's favor." Deep South Pepsi-Cola Bottling Co. v. Pepsico, Inc., 1989 WL 48400, at *5 (S.D.N.Y. May 2, 1989). In determining the present motion, the Court may, of course, consider the Agreement, which is "incorporated in the Amended Complaint by reference." Kramer v. Time Warner, Inc., 937 F.2d 767, 773 (2d Cir.1991). Materials publicly filed by or with the Federal Communication Commission ("FCC"), of which the Court may take judicial notice, may also be considered on the motion, at least as giving an indication of the nature of relevant practices in and policies affecting the telecommunications business. Id. at 774.

It has been very persuasively argued that an antitrust plaintiff whose complaint is challenged must articulate "a careful statement of his legal theory." Phillip Areeda & Donald F. Turner, Antitrust Law, ¶ 317e (1978). It is not clear however, in the Second Circuit, that the theory — as distinguished from the facts supporting it — must be set forth in the complaint itself, see George C. Frey, 554 F.2d at 554, but it is nevertheless not too much to ask that the theory — or "alternative or multiple legal theories," Areeda & Turner, ¶ 317e — at least be fully argued in response to a dispositive motion. Not only will such argument enable a court to see how the facts alleged, if proved, would constitute a violation of the Sherman Act, but "the recommended specificity focuses discovery and thereby saves both parties' energies and costs." Id. "The heavy costs of modern federal litigation, especially antitrust litigation, and the mounting caseload pressures on the federal courts, counsel against launching the parties into pretrial discovery if there is no reasonable prospect that the plaintiff can make out a cause of action from the events narrated in the complaint." Sutliff, Inc. v. Donovan Cos., Inc., 727 F.2d 648, 654 (7th Cir.1984) (Posner, J.).

3: Section 2 of the Sherman Act.

Judge Sand has concisely summarized the requirements of a Section 2 claim:

Each of the activities which Section 2 seeks to proscribe has its own elements. Unlawful monopolization has two elements: "(1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident." Attempted monopolization has three elements: "(1) that the defendant has engaged in predatory or anti-competitive conduct with (2) a specific intent to monopolize and (3) a dangerous probability of achieving monopoly power."

Ortho Diagnostic Sys., Inc. v. Abbott Labs., Inc., 822 F.Supp. 145, 153 (S.D.N.Y.1993) (quoting United States v. Grinnell Corp., 384 U.S. 563, 570-571, 86 S.Ct. 1698, 1703-04, 16 L.Ed.2d 778 (1966), and Spectrum Sports, Inc. v. McQuillan, ___ U.S. ___, ___-___, 113 S.Ct. 884, 890-891, 122 L.Ed.2d 247 (1993)). In addition:

It appears clear that a claim under the Sherman Act is stated both where a company leverages power in one market to create monopoly in another, and where a company uses monopoly power in one market to impede competition in another, whether or not it attempts to monopolize the second market, with resulting "tangible harm to competition."

Viacom Int'l, Inc. v. Time Inc., 785 F.Supp. 371, 378 (S.D.N.Y.1992) (quoting Twin Labs., Inc. v. Weider Health & Fitness, 900 F.2d 566, 571 (2d Cir.1990), and citing United States v. Griffith, 334 U.S. 100, 68 S.Ct. 941, 92 L.Ed. 1236 (1948), and Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263, 275 (2d Cir.1979), cert. denied, 444 U.S. 1093, 100 S.Ct. 1061, 62 L.Ed.2d 783 (1980)).⁴

IAN relies very substantially—indeed, it is fair to say, its Section 2 case turns — on the "essential facility" doctrine. See Am.Cplt. ¶¶ 24, 29, 30; Pl.Mem. at 6-7, 19-22. The essential facility doctrine is "a label that may aid in the analysis of a monopoly claim, not a statement of a separate violation of law." Viacom, 785 F.Supp. at 376 n. 12 (citing Phillip A. Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 736.1a (Supp. 1990)). In an early formulation, "the essential facility doctrine, also called the `bottleneck principle,' states that `where facilities cannot practicably be duplicated by would-be competitors, those in possession of them must allow them to be shared on fair terms. It is illegal restraint of trade to foreclose the scarce facility.'" Hecht v. Pro-Football, Inc., 570 F.2d 982, 992 (D.C.Cir.1977) (quoting A.O. Neale, The Antitrust Laws of the United...