Phonetele, Inc. v. American Tel. & Tel. Co.

• Decision Date: 03 December 1981
• Docket Number: 77-2936,Nos. 77-3877,s. 77-3877
• Citation: 664 F.2d 716
• Parties: 1981-2 Trade Cases 64,413 PHONETELE, INC., Plaintiff-Appellant, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY; Western Electric Company, Incorporated; Bell Telephone Laboratories, Incorporated, Defendants-Appellees. DASA CORPORATION, etc., Appellant, v. GENERAL TELEPHONE COMPANY OF CALIFORNIA, et al., Appellees.
• Court: U.S. Court of Appeals — Ninth Circuit

Page 716

664 F.2d 716

1981-2 Trade Cases 64,413

PHONETELE, INC., Plaintiff-Appellant, v. AMERICAN TELEPHONE AND TELEGRAPH COMPANY; Western Electric

Company, Incorporated; Bell Telephone

Laboratories, Incorporated,

Defendants-Appellees.

DASA CORPORATION, etc., Appellant, v. GENERAL TELEPHONE COMPANY OF CALIFORNIA, et al., Appellees.

Nos. 77-3877, 77-2936.

United States Court of Appeals Ninth Circuit.

Argued and Submitted May 7, 1979.

Submission Ordered Vacated Nov. 20, 1979.

Reargued and Resubmitted Feb. 6, 1980.

Decided Dec. 3, 1981.

Ronald L. Bauer, McGuire & Bauer, Tustin, Cal., for DASA Corp.

Ron Landsman, John H. Shenefield, Robert B. Nicholson, Washington, D. C., amicus curiae, for United States.

Paul S. Sigelman, Rick M. Stein, Sigelman & Stein, Beverly Hills, Cal., for Phonetele, Inc.

Robert J. White, O'Melveny & Myers, Los Angeles, Cal., C. Daniel Ward, Stamford, Conn., Dezendorf, Spears & Lubersky, Portland, Or., Robert G. Lane, Charles Bender, Paul, Hastings & Janofsky, Los Angeles, Cal., for General Telephone Co. of Cal., etc.

Frank Rothman, Wyman, Bautzer, Rothman & Kuchel, Los Angeles, Cal., George L. Saunders, Jr., Sidley & Austin, Chicago, Ill., Harold S. Levy, New York City, for American Telephone & Telegraph Co., etc.

Appeals from the United States District Court for the Central District of California.

Argued and submitted before a panel consisting of HUFSTEDLER and KENNEDY, Circuit Judges, and CLAIBORNE, District Judge, May 7, 1979.

Reargued and resubmitted before a panel consisting of KENNEDY and FLETCHER, Circuit Judges, and CLAIBORNE, District Judge, February 6, 1980.

Before KENNEDY and FLETCHER, Circuit Judges, and CLAIBORNE, ^* District Judge.

KENNEDY, Circuit Judge:

These consolidated appeals present to this circuit the question whether a telephone company may be sued for damages and injunctive relief for attempting to monopolize and restrain trade in the distribution and sale of telephone terminal equipment. ¹ The case requires us to reconcile the antitrust laws with the regulatory regime established by the Communications Act of 1934, 47 U.S.C. §§ 151-609 (1976 & Supp. III 1979) (FCA or Act).

Plaintiff Phonetele, Inc., manufactures and sells the "Phonemaster," equipment connected to a telephone to prevent the user from placing calls beyond a predetermined area. Plaintiff DASA Corp. manufactures equipment known as "Divert-A-Call" which is connected to a telephone and effects automatic transfer of an incoming call to another telephone number. Both devices are attached by electric connections.

The complaints in these actions arose from the tariffs filed by the defendants with the Federal Communications Commission (FCC) and the California Public Utilities Commission (CPUC), tariffs which prohibited the direct electrical connection of customer-provided equipment to the telephone without the use of a plate-like connecting device, called a "protective connecting arrangement" or "PCA," supplied by the telephone company. Plaintiffs allege that the filing and implementation of these tariffs violated the antitrust laws.

DASA filed its complaint in 1973, alleging violations of sections 1 and 2 of the Sherman Act by General Telephone of California (General Telephone or General), by Ford Industries as manufacturer of an automatic call diverter, and by others unnamed. Damages and injunctive relief were sought. ² As for the section 1 violations, the complaint generally alleges that since 1966 the defendants combined to unreasonably restrain trade in the call diverter market in those areas of California in which General has a state-granted monopoly in telephone system operation. The alleged goal of the concert and agreement was to suppress competition. ³ DASA's section 2 monopolization claim is that General and its co-conspirators have controlled at least 90 percent of the automatic call diverter market in those areas of California in which General operates and that defendants have monopolized the market and have undertaken to destroy actual and potential competitors. ⁴

Phonetele's 1974 complaint charges that American Telephone & Telegraph Company (AT&T), the 23 operating companies in which it has major interests, and AT&T subsidiaries Western Electric and Bell Telephone Laboratories, ⁵ have combined and agreed to restrain commerce in the marketing, sales, and distribution of the Phonemaster, conspired to monopolize the terminal equipment market, and have effected tying arrangements, all in violation of sections 1 and 2 of the Sherman Act, and section 3 of the Clayton Act. Phonetele claims that AT&T and its operating companies control approximately 80 percent of the nation's telephone lines, and that this gives AT&T complete power over all 1,700 independent telephone companies which must use these interstate lines. Misconduct in the establishment and enforcement of an AT&T tariff requiring a coupling device for equipment like Phonetele's is also charged. Finally, Phonetele alleges AT&T was wrongfully responsible for conforming state tariffs and enforcement efforts. Phonetele alleged damages in excess of $30 million. It sought trebling of those damages and injunctive relief. Phonetele has since stated that it will no longer seek injunctive relief. ⁶

The district courts below dismissed the actions on the grounds that the FCC (and state utilities commissions where appropriate) had "exclusive jurisdiction" over the subject of interconnection of terminal equipment with the telephone system and that the FCA conferred an implied antitrust immunity for the activities of the defendants. ⁷

The immunity issue in Phonetele's appeal concerns the nature and extent of the FCC's regulation pursuant to the scheme created by the Act; DASA's case involves additional and similar issues concerning the CPUC.

I. REGULATORY SCHEME

The FCA provides for the regulation of telecommunications common carriers by the FCC and requires carriers to file tariffs with the FCC covering "practices" as well as charges. ⁸ Before changing any of its practices by filing a new tariff, the carrier must give ninety days notice to the FCC and the public. ⁹ The requirement that carriers file tariffs is the primary mechanism of regulation. Once a tariff becomes effective, the carrier is required to adhere to its provisions.

Section 201(b) requires that "(a)ll charges, practices, classifications, and regulations" be "just and reasonable." The section further states that "any such charge, practice, classification, or regulation that is unjust or unreasonable is declared to be unlawful." Any unjust or unreasonable discrimination in carrier conduct is unlawful. 47 U.S.C. § 202 (1976). Section 201(b) authorizes the FCC to prescribe "such rules and regulations as may be necessary in the public interest" to implement the Act's mandates.

Free competition is not irrelevant to the objectives of utility regulation, but determinations of whether a company's practices are in the public interest as defined by the Act require FCC consideration of factors other than competition. Such factors include network safety and efficiency, the need of the public for reliable service at reasonable rates, the proper allocation of the rate burden, the financial integrity of the carriers, and the future needs of both users and carriers. ¹⁰

Whenever a new tariff is proposed, the FCC may, upon its own initiative or upon the complaint of an interested party, hold hearings concerning the lawfulness of the practice, and may suspend the tariff. ¹¹ Section 205 authorizes the FCC, after hearings and upon a finding that a tariff does or will violate the Act, to issue a cease and desist order and to prescribe conduct to satisfy the Act's standards. ¹²

The Act gives the FCC broad jurisdiction over interstate and foreign telephone communications and the carriers which provide such communications; intrastate communications are excepted. ¹³ General Telephone provides service to a part of California only and so is not subject to the comprehensive direct supervision of the FCC and does not file general tariffs with it. To the extent the facilities of a connecting carrier such as General are used for interstate or foreign communications, it usually files a state tariff that conforms to the tariff the interstate carrier has filed with the FCC. In the case of telephone service, this mechanism of a "conforming tariff" means that when the facilities of an intrastate telephone company are used for interstate communications, the company is thus indirectly subject to the tariffs filed by AT&T.

Terminal equipment is primarily used for intrastate services and is generally provided by a connecting carrier rather than an interstate carrier. For this reason, state public utility commissions have in the past exercised authority over the connection of such equipment, as CPUC did with General. Now, however, the FCC asserts "primary authority" over interconnection of customer-provided equipment, to the exclusion of state regulation. ¹⁴ This exercise of jurisdiction was affirmed in North Carolina Util. Comm'n v. FCC, 537 F.2d 787 (4th Cir.), cert. denied, 429 U.S. 1027, 97 S.Ct. 651, 50 L.Ed.2d 631 (1976).

II. CHALLENGES TO AT&T'S EXCLUSION OF FOREIGN ATTACHMENTS

Tariffs filed with the FCC immediately following passage of the Communications Act generally prohibited the interconnection of customer-provided equipment. ¹⁵ The restrictions were similar to those contained in tariffs required by most state utility commissions before the Act was adopted. ¹⁶

In 1965, AT&T's tariff prohibiting foreign attachments was challenged in an antitrust action. The Court of Appeals held that the antitrust complaint was properly stayed while the case was referred to the FCC to determine the legality of the prohibition under the FCA. See Carter v. American Tel. & Tel. Co., 250 F.Supp. 188 (N.D.Tex.), aff'd, 365 F.2d 486 (5th Cir. 1966), cert. denied, 385 U.S. 1008, 87 S.Ct. 714, 17 L.Ed.2d 546 (...