McCAW PER. COMMUNICATIONS v. Pacific Telesis Group

• Decision Date: 18 September 1986
• Docket Number: No. C-86-0374 SW.,C-86-0374 SW.
• Citation: 645 F. Supp. 1166
• Parties: McCAW PERSONAL COMMUNICATIONS, INC., Plaintiff, v. PACIFIC TELESIS GROUP, Defendant, and Communications Industries, Inc., Intervenor.
• Court: U.S. District Court — Northern District of California

645 F. Supp. 1166

McCAW PERSONAL COMMUNICATIONS, INC., Plaintiff, v. PACIFIC TELESIS GROUP, Defendant, and Communications Industries, Inc., Intervenor.

No. C-86-0374 SW.

United States District Court, N.D. California.

September 18, 1986.

COPYRIGHT MATERIAL OMITTED

Milbank, Tweed, Hadley & McCloy, John H. Shenefield, Peter E. Halle, D. Stephen Mathias, Washington, D.C., McCutchen, Doyle, Brown & Enersen, David M. Balabanian, Terry J. Houlihan, San Francisco, Cal., for plaintiff.

Pillsbury, Madison & Sutro, Richard W. Odgers, Mary B. Cranston, Paul R. Griffin, Nancy J. Murray, San Francisco, Cal., for defendant, Pacific Telesis Group.

David M. Wilson, Barry W. Lee, Carl Diehl, Dinkelspiel, Donovan & Reder, San Francisco, Cal., for defendant Communications Industries, Inc.

MEMORANDUM DENYING DEFENDANT'S MOTION FOR SUMMARY JUDGMENT

SPENCER WILLIAMS, District Judge.

Defendant Pacific Telesis Group ("Pacific") has agreed to acquire the assets of Communications Industries, Inc. ("CI"), including CI's paging businesses in San Francisco, San Diego and Fresno. Plaintiff McCaw Personal Communications, Inc. ("McCaw"), has entered into its own agreement to purchase paging businesses in these three cities, from MCI Airsignal Inc. ("MCI"). Contending that Pacific's acquisition of CI's paging assets would substantially lessen competition in the paging markets in San Francisco, San Diego and Fresno, McCaw filed the instant action, claiming, inter alia, that the acquisition would violate Section 7 of the Clayton Act, 15 U.S.C. § 18 (1982). McCaw moved to enjoin the acquisition, and CI was permitted to intervene under Fed.R.Civ.P. 24(a). Following a hearing and extensive briefing on McCaw's motion, the court declined to halt the closing of the Pacific/CI acquisition, but did issue a limited preliminary injunction prohibiting Pacific from taking control of CI's paging assets pending further proceedings. Order Granting Limited Preliminary Injunction on "Paging" Issues, February 27, 1986.¹ Pacific then brought the instant motion for summary judgment, on the ground that there exists no triable issue of fact as to whether its acquisition of CI would substantially lessen competition within the meaning of the Clayton Act. By order filed August 7, 1986, the court denied Pacific's motion. This memorandum elaborates on the court's reasoning.

FACTUAL BACKGROUND

CI, through a subsidiary, is the largest operator in the paging² markets in San Francisco and San Diego, and is second largest (behind MCI) in Fresno.³ In terms of the number of paging units (beepers) presently in use, CI has a 66.7% share of the San Francisco paging market, a 70% share in the San Diego market and a 34.1% market share in Fresno. Pacific's paging operations in these three markets possess shares of 5.1%, 12.9% and 2.3%, respectively. In terms of the Herfindahl-Hirschman Index (HHI) measure of market concentration, the post-acquisition measure of concentration for the Pacific/CI combination would be 5155 in San Francisco, 6872 in San Diego, and 1325 in Fresno.

McCaw has contracted with MCI to purchase the latter's paging businesses in numerous markets, including the three geographic markets at issue here.⁴ MCI's paging assets include equipment installed and ready to operate in San Francisco and San Diego, and an operating system in Fresno. McCaw's acquisition of MCI's paging businesses has not been completed, because the purchase is subject to the approval of the California Public Utilities Commission (PUC), and that agency has scheduled hearings to address the propriety of the acquisition. This acquisition was approved by the Federal Communications Commission (FCC) on July 1, 1986.

Pacific's acquisition of CI has been approved by the FCC and the PUC, and the Department of Justice has decided not to oppose the paging aspects of the merger. The merger closed on February 28, 1986, permitting the transfer of CI's assets to a trustee. Upon final FCC approval on May 27, 1986, CI's assets were transferred from the trustee to Pacific, except for the paging assets subject to this court's limited preliminary injunction.

DISCUSSION

Pacific moves for summary judgment on a number of grounds.

1. Standing and antitrust injury

Pacific first contends that McCaw lacks standing to sue under the Clayton Act, because McCaw is not presently a competitor in the three relevant geographic markets, and the acquisition of MCI's paging businesses is contingent upon regulatory approval. McCaw, by this lawsuit, seeks primarily injunctive relief under Section 16 of the Clayton Act, 18 U.S.C. § 26. The standing requirements under Section 16 are broader than those under Section 4 of the Act, which provides for monetary damages. Parks v. Watson, 716 F.2d 646, 662 (9th Cir.1983). To have standing to obtain an injunction, a plaintiff must demonstrate (1) "a threatened loss or injury cognizable in equity (2) proximately resulting from the alleged antitrust violation." City of Rohnert Park v. Harris, 601 F.2d 1040, 1044 (9th Cir.1979), cert. denied, 445 U.S. 961, 100 S.Ct. 1647, 64 L.Ed.2d 236 (1980). McCaw claims standing as a prospective purchaser of a present competitor of Pacific, under the authority of Solinger v. A & M Records, Inc., 586 F.2d 1304 (9th Cir.1978), cert. denied, 441 U.S. 908, 99 S.Ct. 1999, 60 L.Ed.2d 377 (1979).⁵ In Solinger, the court held that a prospective purchaser of a business would have standing to sue if it possessed "the intention and preparedness" to proceed with the purchase. Id. at 1310. The court outlined four factors to consider:

1. The background and experience of plaintiff in his prospective business ...

2. Affirmative action on the part of plaintiff to engage in the proposed business ...

3. The ability of plaintiff to finance the business and the purchase of equipment and facilities necessary to engage in the business ...

4. The consummation of contracts by plaintiff....

Id. (quoting Waldron v. British Petroleum Co., 231 F.Supp. 72, 81-82 (S.D.N.Y.1964)). Although the precise holding of Solinger has been undermined by subsequent authority, see Solinger v. A & M Records, 718 F.2d 298, 299 (9th Cir.1983) (denying standing where plaintiff was merely a shareholder of the corporation seeking to purchase the party injured by the alleged antitrust violation), the general rule it states regarding the test for standing as a prospective purchaser remains viable. See, e.g., Parks, 716 F.2d at 660 (applying the four factors enumerated above).

Pacific does not dispute that McCaw has significant background and experience in the paging business, and that it has the capacity to finance and operate the paging operations it seeks from MCI. McCaw has, in addition, entered into a binding, written contract with MCI. Moreover, the acquisition has apparently "closed" to the extent that McCaw has paid MCI for its stock in MCI Airsignal. On these undisputed facts, McCaw has conclusively demonstrated its intention and preparedness to enter the paging business. The sole contingency remaining is PUC approval of the acquisition, a barrier which is insufficient to deprive McCaw of standing. McCaw's "threatened loss or injury" is quite real. Indeed, given that the Clayton Act was "designed to arrest in its incipiency ... the substantial lessening of competition," United States v. E.I. duPont de Nemours & Co. 353 U.S. 586, 589, 77 S.Ct. 872, 875, 1 L.Ed.2d 1057 (1957), and that McCaw has demonstrated its status as a probable future owner of paging operations in competition with Pacific, it is perhaps better situated than MCI to assert the competitive interests of the paging operations it is seeking to acquire.

Pacific also contends that McCaw is unable to show that it will suffer "antitrust injury" as a result of Pacific's acquisition of CI. Antitrust plaintiffs must show that the relief they seek is for "antitrust injury, which is to say injury of the type the antitrust laws were intended to prevent and that flows from that which makes defendants' acts unlawful." Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 697, 50 L.Ed.2d 701 (1977) (emphasis in original). In the merger context,⁶ the antitrust injury requirement is met if the plaintiff's claimed injury will result "either from a lessening of competition due to the acquisitions or from `anticompetitive acts made possible' by the acquisitions." Arthur S. Langenderfer, Inc. v. S.E. Johnson Co., 729 F.2d 1050, 1058-59 (6th Cir.), cert. denied, 469 U.S. 1036, 105 S.Ct. 511, 83 L.Ed.2d 401 (1984).

McCaw asserts that it is threatened with antitrust injury in several ways. First, it contends the Pacific/CI merger will give the combined firm sufficient market power on low cost paging frequencies to permit it to extract supra-competitive prices from these frequencies. This power, in turn, would allow Pacific to engage in predatory price-cutting against McCaw in selected markets, financed by the supra-competitive prices in other markets. Predatory prices would injure McCaw by either driving it out of business or by "disciplining" it. Pacific contends that such predatory pricing would be "irrational," because later supra-competitive pricing is impossible to maintain in a market with low barriers to entry. See Matsushita Electric Industrial Co., Ltd. v. Zenith Radio Corp., ___ U.S. ___, 106 S.Ct. 1348, 1359 n. 15, 89 L.Ed.2d 538 (1986). However, Pacific's argument assumes the existence of low entry barriers in paging, a question which is a matter of some dispute in this case. See, infra, Part 3. Moreover, the Court in Matsushita did not find predatory pricing to be irrational per se, but rather found that the number of firms in the electronics market combined with the length of time the alleged pricing scheme would have had to have continued in order to be successful, rendered such pricing conduct "self-deterring," and implausible as a matter of law. Id. 106 S.Ct. at 1360. Here, Pacific, a single firm...