Sprint Nextel Corp. v. AT&T Inc.

• Decision Date: 02 November 2011
• Docket Number: 11–1690 (ESH).,Civil Action Nos. 11–1600 (ESH)
• Court: U.S. District Court — District of Columbia
• Parties: SPRINT NEXTEL CORP., Plaintiff, v. AT & T INC., et al., Defendants.Cellular South, Inc., et al., Plaintiffs, v. AT & T Inc., et al., Defendants.

2011-2 Trade Cases P 77,664

54 Communications Reg. (P&F) 523

821 F.Supp.2d 308

SPRINT NEXTEL CORP., Plaintiff,

v.AT & T INC., et al., Defendants.Cellular South, Inc., et al., Plaintiffs,

v.AT & T Inc., et al., Defendants.

Civil Action Nos. 11–1600 (ESH)

11–1690 (ESH).

United States District Court, District of Columbia.

Nov. 2, 2011.

Steven C. Sunshine, Tara Shaun Emory, Tara L. Reinhart, Skadden Arps Slate Meagher & Flom LLP, Gregory Bestor Craig, Skadden Arps, Washington, DC, James A. Keyte, Matthew P. Hendrickson, Skadden, Arps, Slate, Meagher & Flom, LLP, New York, NY, for Plaintiff.

Mark C. Hansen, Aaron Martin Panner, James M. Webster, Michael K. Kellogg, Kellogg Huber Hansen Todd & Evans, PLLC, Washington, DC, Mark W. Nelson, George S. Cary, Cleary, Gottlieb, Steen & Hamilton, Washington, DC, for Defendants.

MEMORANDUM OPINION

ELLEN SEGAL HUVELLE, District Judge.

INTRODUCTION

These are antitrust cases between competing mobile wireless carriers. Before the Court are motions to dismiss lawsuits which Sprint and Cellular South brought to enjoin AT & T's proposed acquisition of T–Mobile. AT & T and T–Mobile move for dismissal pursuant to Federal Rule of Civil Procedure 12(b)(6), arguing that Sprint's and Cellular South's complaints fail to adequately allege that the merger would cause them “antitrust injury,” and therefore that they lack the “antitrust standing” required to seek injunctive relief under § 16 of the Clayton Act, 15 U.S.C. § 26.¹

Plaintiff Sprint Nextel Corporation (“Sprint”) is the third largest national provider of mobile wireless services, with 50 million wireless customers. (Sprint Compl. ¶ 96.) In 2010, Sprint “accounted for 15 percent of all mobile wireless services revenues.” ( Id.) Plaintiffs Cellular South, Inc., and its wholly owned subsidiary Corr Wireless Communications, L.L.C. (collectively, “Cellular South” unless otherwise stated), are regional carriers operating a wireless network that “serves more than 887,000 customers located in Mississippi, Tennessee, Alabama Florida, and other surrounding states.” (Cellular South Compl. ¶¶ 1, 21.)

Defendant AT & T Mobility, L.L.C. (“AT & T”), the wholly owned subsidiary of defendant AT & T, Inc., is the second largest national carrier,² with 95 million customers. (Sprint Compl. ¶¶ 15, 94.) In 2010, AT & T “accounted for 32 percent of all mobile wireless services revenues.” ( Id. ¶ 94.) Defendant T–Mobile USA, Inc. (“T–Mobile”), the wholly owned subsidiary of defendant Deutsche Telekom AG, is the fourth largest national carrier, with 34 million customers. (Sprint Compl. ¶¶ 16, 97.) In 2010, T–Mobile “accounted for 12 percent of all mobile wireless services revenues.” ( Id. ¶ 97.)

On March 20, 2011, AT & T entered into a stock purchase agreement to acquire T–Mobile and to merge the two companies' mobile wireless services businesses. Five months later, the United States brought suit to enjoin the acquisition, alleging that its effect would “be substantially to lessen competition, or to tend to create a monopoly” in violation of § 7 of the Clayton Act. 15 U.S.C. § 18.³ Sprint and Cellular South filed the present suits in the subsequent weeks,⁴ and defendants moved to dismiss both.⁵

The Court heard argument on defendants' motions on October 24, 2011. Having considered the parties' positions and the relevant legal principles, the Court will grant the motions except as to plaintiffs' claims regarding mobile wireless devices, and Cellular South's roaming claim insofar as it relates to Corr Wireless.

ANALYSIS

I. GOVERNING LEGAL PRINCIPLES

Section 16 of the Clayton Act authorizes private parties to seek injunctive relief to protect “against threatened loss or damage by a violation of the antitrust laws.” 15 U.S.C. § 26. While the statute's text is broad, providing for suits by “[a]ny person, firm, corporation, or association,” id., courts have limited its reach to those plaintiffs that allege a threat of “antitrust injury.” Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 113, 107 S.Ct. 484, 93 L.Ed.2d 427 (1986).

Antitrust injury is injury “of the type the antitrust laws were designed to prevent and that flows from that which makes the defendants' acts unlawful.” Brunswick Corp. v. Pueblo Bowl–O–Mat, Inc., 429 U.S. 477, 489, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977). Accordingly, a private antitrust plaintiff must allege more than threatened loss or damage that is merely “causally linked” to the defendant's anticompetitive behavior. Id. The plaintiff must additionally allege that its threatened injury “reflect[s] the anticompetitive effect either of the [antitrust] violation or of anticompetitive acts made possible by the violation.” Id. Thus, even if a threatened injury is “causally related to an antitrust violation,” it “will not qualify as ‘antitrust injury’ unless it is attributable to an anticompetitive aspect of the practice under scrutiny.” Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334, 110 S.Ct. 1884, 109 L.Ed.2d 333 (1990).

The antitrust injury requirement aligns antitrust suits brought by private parties “ ‘with the purposes of the antitrust laws, and prevents abuses of those laws' by claimants seeking to halt the strategic behavior of rivals that increases, rather than reduces competition.” NicSand, 507 F.3d at 449–50 (quoting HyPoint Tech., Inc. v. Hewlett–Packard Co., 949 F.2d 874, 877 (6th Cir.1991)). “It ensures that the harm claimed by the plaintiff corresponds to the rationale for finding a violation of the antitrust laws in the first place, and it prevents losses that stem from competition from supporting suits by private plaintiffs....” Atl. Richfield Co., 495 U.S. at 342, 110 S.Ct. 1884.

When the Supreme Court first articulated the requirement in Brunswick, for example, it held that plaintiffs seeking treble damages for alleged antitrust violations under § 4 of the Clayton Act, 15 U.S.C. § 15, had not established antitrust injury where they sought to recover for “profits they would have realized had competition been reduced” but for the defendant's pro-competitive activities. 429 U.S. at 488, 97 S.Ct. 690. The Court did not dispute that plaintiffs had suffered injury-in-fact. Emphasizing that the antitrust laws “were enacted for ‘the protection of competition not competitors,’ ” however, the Court held that it would be “inimical to the purposes of [those] laws to award damages” for injuries a competitor suffered from increased competition. Id. (quoting Brown Shoe Co. v. United States, 370 U.S. 294, 320, 82 S.Ct. 1502, 8 L.Ed.2d 510 (1962)).

In Cargill, the Court applied the same principle in extending the antitrust injury requirement to suits for injunctive relief under § 16. See 479 U.S. at 109–13, 107 S.Ct. 484. Monfort of Colorado, then the country's fifth-largest beef packer, sued to enjoin the acquisition of Spencer Beef, the number three beef packer, by Excel Corporation, the number two beef packer. Id. at 106, 107 S.Ct. 484. In its complaint, Monfort “alleged that the acquisition would ‘violat[e] [§ ]7 of the Clayton Act because the effect of the proposed acquisition may be substantially to lessen competition or tend to create a monopoly.’ ” Id. at 107, 107 S.Ct. 484 (first alteration in the original). Monfort further alleged that the acquisition would “result in a concentration of economic power in the relevant markets” that would allow the merged entity to bid up the cost of inputs and cause a drop in market prices, such that Monfort was threatened with a profit loss. Id. at 107, 107 S.Ct. 484 (internal quotation marks omitted).

Finding Monfort's complaint “of little assistance” in “determining what Monfort alleged the source of its injury to be,” id. at 113, 107 S.Ct. 484, the Court nonetheless was able to discern two distinct theories of injury that Monfort alleged: first, conventional price competition, and second, predatory pricing.⁶ The Court concluded that neither theory supported Monfort's claim to antitrust injury. Id. at 114–19, 107 S.Ct. 484.

As to the first theory, the Court reasoned:

Brunswick holds that the antitrust laws do not require the courts to protect small businesses from the loss of profits due to continued competition, but only against the loss of profits from practices forbidden by the antitrust laws. The kind of competition that Monfort alleges here, competition for increased market share, is not activity forbidden by the antitrust laws. It is simply, as petitioners claim, vigorous competition. To hold that the antitrust laws protect competitors from the loss of profits due to such price competition would, in effect, render illegal any decision by a firm to cut prices in order to increase market share. The antitrust laws require no such perverse result, for “[i]t is in the interest of competition to permit dominant firms to engage in vigorous competition, including price competition.”

Id. at 116, 107 S.Ct. 484 (alteration in the original) (quoting Arthur S. Langenderfer, Inc. v. S.E. Johnson Co., 729 F.2d 1050, 1057 (6th Cir.1984)). As in Brunswick, where the Court did not question that plaintiff suffered lost profits, the Cargill Court accepted plaintiff's allegations of threatened injury-in-fact as sufficient. Nonetheless, the Court concluded that “the threat of loss of profits due to possible price competition following a merger does not constitute a threat of antitrust injury.” Id. at 116–17, 107 S.Ct. 484.

The Court then turned to Monfort's second claim of antitrust injury: the threat that Excel would engage in predatory pricing. Id. at 117, 107 S.Ct. 484. The Court stated that predatory pricing “is a practice that harms both competitors and competition” and recognized that, in theory at least, losses threatened by predatory pricing constitute an injury of the type the antitrust laws were designed to prevent. Id. at 117–18, 107 S.Ct. 484 (“Predatory pricing is thus a practice ‘inimical to the purposes of [the antitrust] laws,’ Brunswick, [429 U.S. at 488, 97...