SAS of Puerto Rico, Inc. v. Puerto Rico Telephone Co.

Citation48 F.3d 39
Decision Date08 November 1994
Docket NumberNo. 94-1711,94-1711
Parties, 1995-1 Trade Cases P 70,908 SAS OF PUERTO RICO, INC., Plaintiff, Appellant, v. PUERTO RICO TELEPHONE COMPANY, Defendant, Appellee. . Heard
CourtUnited States Courts of Appeals. United States Court of Appeals (1st Circuit)

Laurence Z. Shiekman with whom M. Duncan Grant, Frank M. Rapoport, Michael A. Ceramella and Pepper, Hamilton & Scheetz, Philadelphia, PA, were on brief, for appellant.

Philip J. Mause with whom Joaquin A. Marquez and Drinker Biddle & Reath, Washington, DC, were on brief, for appellee.

Before TORRUELLA, Chief Judge, BOUDIN, Circuit Judge, and BOYLE, * Senior District Judge.

BOUDIN, Circuit Judge.

SAS of Puerto Rico, Inc. ("SAS"), brought an antitrust suit in federal district court in Delaware against Puerto Rico Telephone Company ("PRTC"). After the suit was transferred to the district court in Puerto Rico, the district court granted PRTC's motion to dismiss on the ground that SAS did not adequately assert "antitrust injury." We agree and affirm.

I.

In April 1993 SAS filed its original complaint in Delaware district court. After the case was transferred to Puerto Rico, the site of most of the events that underlie the case, an amended complaint was filed. Since the amended complaint was later dismissed on the pleadings, we accept the allegations as true for purposes of this appeal. Berkovitz v. United States, 486 U.S. 531, 540, 108 S.Ct. 1954, 1960-61, 100 L.Ed.2d 531 (1988). What follows is SAS's version of the facts, supplemented by information not reasonably disputable.

PRTC is a Delaware corporation that provides about 90 percent of the telephone service within Puerto Rico and operates over 95 percent of the pay phones in Puerto Rico. Although once a subsidiary of ITT, all of the stock of PRTC was acquired about 20 years ago by the Puerto Rico Telephone Authority ("the Authority"), a public corporation and government instrumentality of the Commonwealth. The Authority also owns the stock of the Puerto Rico Communications Corporation ("PRCC") which provides telephone service and operates pay phones in those areas of Puerto Rico not served by PRTC. (PRTC's brief says that it and PRCC have now merged.)

Long distance service between Puerto Rico and the U.S. mainland was for some years provided by an ITT subsidiary interconnecting on the mainland with AT & T, but in the 1980's the Federal Communications Commission took steps to facilitate competition for Puerto Rico's long distance traffic. 1 To participate in this new environment, the Authority created yet another wholly owned subsidiary called Telfonica Larga Distancia ("TLD"). In 1990, the Commonwealth adopted legislation designed to facilitate the Authority's sale of TLD's stock.

After its formation, TLD rapidly became the carrier for about 80 percent of the long distance telephone calls made from pay phones in Puerto Rico. Although the mechanics are not described in the complaint, they can readily be inferred. Pay phones are commonly located on streets or other public property by the local telephone company or they may be located on private property such as in a store or hotel lobby; in the latter instance, the instrument is usually (although not always) furnished by the local telephone company by arrangement with the property owner.

As long distance competition developed over the past three decades, telephone subscribers have ordinarily been able to select the long distance carrier through which their calls would be routed. A small percentage of modern pay phones make it easy for the caller to select his or her preferred long distance carrier by pushing a single button; but in many pay phones, a pre-designated long distance carrier automatically receives the traffic unless the caller "dials" a complex access code to reach another long distance carrier.

According to the complaint, in Puerto Rico many of the pay phones used (or were connected through) older technology that prevented a caller from using a long distance carrier--other than the pre-designated one--except by the cumbersome means of calling an operator and asking to be routed to a different long distance carrier. The pre-designated carrier for a pay phone is normally selected by the local telephone company or the premises owner. In short order TLD began to carry most of the long distance calls from Puerto Rico pay phones.

SAS was formed as a Puerto Rico corporation in 1991 in the hope of contracting with PRTC and PRCC to upgrade equipment and maintain service at Puerto Rico's pay phones. The complaint explains that "[t]he principals of SAS were experienced in the installation and operation of 'intelligent paystations' and, in fact, had successfully assisted in improving the pay phone system in the United States Virgin Islands." Such intelligent pay phones, embodying what are effectively computers can provide various advantages to callers (e.g., speed dialing) and to the local telephone company (e.g., remote diagnosis of failure).

The intelligent pay phones to be supplied by SAS would also increase competition among long distance carriers. SAS expected to negotiate with such carriers, as agent for the local telephone company or premises owner, presumably to secure the most favorable terms for the position of pre-assigned long distance carrier at the pay phone. In addition the intelligent pay phone would greatly simplify the task of the caller who desired to route his or her own call through a long distance carrier other than the pre-assigned carrier.

On January 31, 1992, after "substantial negotiation and investment of considerable time and money," SAS signed an "agency agreement" with both PRTC and PRCC to provide and maintain pay telephones in Puerto Rico. As to PRTC, the agreement provided for SAS to act as PRTC's agent to upgrade a minimum of 1,500 of PRTC's pay phones at tourist and business centers. The agreement included authority for SAS to negotiate with the premises owner to alter the pre-designated long distance carrier for the intelligent pay phones to be installed on the premises. SAS hoped to obtain better terms from such carriers through competition.

Ten days after the January 31 agreement, the Authority reached an agreement with Telefonica de Espana, the international subsidiary of Spain's telephone company, to sell it control of TLD. Part of the value of TLD lay in its position as the pre-designated long distance carrier at most of Puerto Rico's pay phones. This position was threatened by the SAS-PRTC agreement. According to the complaint, PRTC thereafter "engaged in a course of conduct designed to delay, disrupt and derail the installation of the 1,500 intelligent paystations in Puerto Rico."

The complaint does not describe this conduct beyond asserting generally that PRTC failed to carry out unspecified obligations under the contract while making new demands on SAS. On June 18, 1992, SAS agreed with PRTC and PRCC to modifications in the original agreement and shortly thereafter PRTC told SAS to proceed with installation. SAS then obtained a $500,000 line of credit and began to purchase the new pay phone equipment. In October 1992 PRTC told SAS to stop operations. More negotiations followed and a second contract revision followed, but after further steps by SAS to implement the program, SAS was again instructed to halt work.

In April 1993, SAS began the present lawsuit in the district court in Delaware, PRTC's state of incorporation. The complaint (as later amended) says that after the case began, PRTC in late 1993 or early 1994 sought bids to replace some or all of the pay phones that SAS had contracted to replace; PRTC later accepted one of the bids; and PRTC thereafter contracted for pay phones with some of the same manufacturers or suppliers who had agreed to supply them to SAS when the latter was seeking to fulfill its own contract with PRTC.

The complaint alleges, in its first three counts, that the acts described constituted monopolization and attempted monopolization of two different markets and conspiracy to restrain trade in the same markets, all in violation of the Sherman Act. 15 U.S.C. Secs. 1-2. PRTC was alleged to have monopoly power in "the market for the provision of pay phone service in Puerto Rico"; and PRTC, PRCC and TLD as a "single economic entity" were alleged to have such power in "the market for the provision of long distance service from pay phones in Puerto Rico."

In the antitrust conspiracy count Telefonica de Espana was named as a co-conspirator. In addition to the conduct already described, SAS alleged that PRTC had discussed with Telefonica de Espana the impact that the SAS upgrading of pay phones would have and that PRTC had impeded and delayed the agreement with SAS in order to avoid an adverse impact on the value of TLD.

Additional counts of the complaint charged PRTC with fraud, breach of contract, and tortious interference with contracts between SAS and makers or suppliers of pay stations. On the antitrust counts, the complaint sought injunctive relief, treble damages and attorney's fees; on the non-federal counts, it asked for compensatory damages and attorney's fees. In the injunctive relief request, SAS asked that PRTC be required to complete its contract with SAS.

After the transfer to Puerto Rico, SAS of Puerto Rico v. Puerto Rico Tel. Co., 833 F.Supp. 450 (D.Del.1993), PRTC moved to dismiss the antitrust claims on the ground that it was protected by the state action doctrine, see Parker v. Brown, 317 U.S. 341, 63 S.Ct. 307, 87 L.Ed. 315 (1943), or, in the alternative, that antitrust injury had not been alleged. PRTC also contended that it was shielded from damage liability for antitrust violations by the Local Government Antitrust Act of 1984, 15 U.S.C. Secs. 34-36. In an opinion and order entered May 9, 1994, the district court rejected the state action and statutory arguments but dismissed the antitrust claims for lack of antitrust injury.

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