Telecor Communications v. Southwestern Bell

• Decision Date: 10 September 2002
• Docket Number: No. 01-6138.,No. 01-6067.,01-6067.,01-6138.
• Citation: 305 F.3d 1124
• Parties: TELECOR COMMUNICATIONS, INC., an Oklahoma corporation; Advanced Communications, Inc., an Oklahoma corporation; Coinlink LLC, an Oklahoma limited liability company; Jack Keeler, d/b/a Americall; Kenneth Meritt, d/b/a Oklahoma Heartland Payphone Services; Don Owens, d/b/a Owens Communications Company; Payphone Plus LLC, an Oklahoma limited liability company; Redlands Communications, Inc., an Oklahoma corporation; and Sooner Telecommunications, Inc., an Oklahoma corporation; Plaintiffs-Appellees, v. SOUTHWESTERN BELL TELEPHONE COMPANY, a Missouri corporation, Defendant-Appellant.
• Court: U.S. Court of Appeals — Tenth Circuit

305 F.3d 1124

TELECOR COMMUNICATIONS, INC., an Oklahoma corporation; Advanced Communications, Inc., an Oklahoma corporation; Coinlink LLC, an Oklahoma limited liability company; Jack Keeler, d/b/a Americall; Kenneth Meritt, d/b/a Oklahoma Heartland Payphone Services; Don Owens, d/b/a Owens Communications Company; Payphone Plus LLC, an Oklahoma limited liability company; Redlands Communications, Inc., an Oklahoma corporation; and Sooner Telecommunications, Inc., an Oklahoma corporation; Plaintiffs-Appellees, v. SOUTHWESTERN BELL TELEPHONE COMPANY, a Missouri corporation, Defendant-Appellant.

No. 01-6067.

No. 01-6138.

United States Court of Appeals, Tenth Circuit.

September 10, 2002.

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Donald L. Flexner, Boies, Schiller & Flexner LLP, Washington DC (D. Kent

Meyers and Richard C. Ford, Crowe & Dunlevy, Oklahoma City, OK, Scott E. Gant, Boies, Schiller & Flexner LLP, Washington, DC, and David A. Barrett, Boies, Schiller & Flexner LLP, New York, NY, with him on the briefs), for Defendant-Appellant.

Robert D. Edinger (Jonathan E. Miller and Linda G. Kaufmann, with him on the briefs), Edinger & Blakley, P.C., Oklahoma City, OK, for Plaintiffs-Appellees.

Before EBEL and KELLY, Circuit Judges, and WINDER,^* Senior District Judge.

EBEL, Circuit Judge.

Southwestern Bell Telephone Company appeals from a jury verdict finding it guilty of monopolistic behavior in violation of Oklahoma state law and assessing damages of over $7 million, trebled to over $20 million. At issue is Southwestern Bell's domination of the Oklahoma pay phone market, a market it legally monopolized, under the oversight of the Oklahoma Corporation Commission (OCC), until November 1996. The plaintiffs are nine independent pay phone service providers whose efforts to compete with Southwestern Bell succeeded only in whittling down the latter's market share to roughly 80 percent after two years of competition. On appeal, Southwestern Bell challenges several aspects of the district court's rulings, most notably its definition of the relevant market. While we do not embrace the district court's analysis in its entirety, we nevertheless believe that the challenged rulings were proper, and we therefore AFFIRM.

BACKGROUND

In the decades up until November 1996, Southwestern Bell enjoyed a legal monopoly over the provision of pay phone services in the state of Oklahoma. As early as 1990, the Oklahoma legislature had decided to move from monopoly to competition in this market, but it entrusted the implementation of that transition to the OCC, which failed to end Southwestern Bell's monopoly until passage of the 1996 Telecommunications Act, 47 U.S.C. § 276(b), forced its hand. After a four-month rule-making proceeding, the OCC authorized new pay phone providers in November 1996, subject to certain regulatory requirements.

Pay phone service providers ("PSPs") such as Southwestern Bell and the Plaintiffs typically do not own the land on which the pay phones are located. Rather, they make a deal with the party that owns the land ("location owner"): the PSP gets permission to place the pay phone on the location, and in exchange the location owner gets a commission, typically a percentage of the phone's receipts.

The Plaintiffs' evidence at trial showed that, prior to the Oklahoma legislature's 1990 decision to end its pay phone monopoly, Southwestern Bell had projected that it would lose 77 percent of its pay phone revenues in the first year of open competition. (The facts discussed here were disputed at trial and are presented in the light most favorable to the Plaintiffs.) In response, in 1991 Southwestern Bell undertook an intentional campaign to make entry into the Oklahoma pay phone market more difficult by attempting to secure every possible pay phone location through long-term contracts between Southwestern Bell and the location owners. This "lock up" campaign continued through 1996 and accelerated dramatically with what Southwestern Bell termed "the Blitz" in 1995-96 on the eve of the coming of competition.

The contracts contained several provisions designed to freeze out Southwestern Bell's competitors, including automatic renewal terms and stiff penalties for early termination.¹ In addition to the lock up, Southwestern Bell employed several other measures to freeze out competition, including erecting a bureaucratic maze to discourage location owners who tried to terminate their contract, failing to remove its pay phones when requested to do so, and damaging the pay phone location when removing a phone.²

Southwestern Bell's anti-competitive actions were highly successful. Although its competitors offered better commissions to location owners and better phones at cheaper rates to customers, at the end of the second year of competition Southwestern Bell retained more than 87 percent of the market, with no single competitor above 2.4 percent.

The Plaintiffs filed suit against Southwestern Bell claiming violations of federal and state antitrust law. The district court issued four different written decisions, two pre-trial and two post-verdict. The first order, filed March 1, 2000, dealt with the relevant product market pursuant to cross-motions for summary judgment. The Plaintiffs argued that the relevant market was the provision of pay phone facilities and services to location owners. Southwestern Bell argued that the product market should be evaluated from the viewpoint of the end-user of the phone services and should therefore include both pay phones and cell phones, which Southwestern Bell argued were reasonably interchangeable at the end-user level. The district court did not address whether the market should be evaluated at the level of the location owners or at the level of the end-users, but it did rule that pay phones and cell phones were not reasonably interchangeable, and thus, that the market should be limited to pay phones. Ultimately, the jury instructions submitted by the district court defined the relevant market simply as "the provision of pay phone and pay phone related services" without differentiating whether it should be evaluated at the level of the location owners or at the level of the end-users. Southwestern Bell does not claim to have objected to this instruction, so it is clear that the parties allowed the jury to determine which set of customers should be used in evaluating monopoly power.

The second order, filed March 23, 2000, addressed various motions in limine, none at issue on appeal. The third order, filed January 31, 2001 (after the jury found Southwestern Bell liable for state antitrust violations but not liable for federal antitrust violations), rejected Southwestern Bell's motion for a new trial on the issue of damages. The central contention addressed in that order was whether the damages awarded were based improperly on anticipated future illegal conduct. The fourth order, also filed January 31, 2001, rejected Southwestern Bell's motion for judgment as a matter of law or new trial. That motion argued, inter alia, that the jury improperly was allowed to consider Southwestern Bell's lobbying efforts before the OCC and its pre-November 1996 conduct, that the verdict failed to account for the temporary contractual nature of Southwestern Bell's market power, and that the verdict violated the state action doctrine. Southwestern Bell appeals the district court's resolution of all of these issues.

DISCUSSION

The district court had jurisdiction over the federal antitrust claims pursuant to 28 U.S.C. § 1337 and over the state antitrust claims pursuant to 28 U.S.C. § 1367. We have jurisdiction under 28 U.S.C. § 1291.

A. Relevant Product Market

The first step in analyzing a monopoly claim is to define the relevant market in which the defendant was operating. See Full Draw Prods. v. Easton Sports, Inc., 182 F.3d 745, 756 (10th Cir.1999); SCFC ILC, Inc. v. Visa USA, Inc., 36 F.3d 958, 966 (10th Cir.1994). The relevant market inquiry has two components: geographic market and product market. Full Draw Prods., 182 F.3d at 756. Only the latter is at issue in this appeal. Southwestern Bell contends that the relevant product market should include cell phones as well as pay phones, while the Plaintiffs argue that the market is limited to pay phones. The parties' underlying interests in this regard are conflicting: Southwestern Bell wishes to define the market as broadly as possible (which would make it more difficult for a jury to find that it exercised monopoly power), and the Plaintiffs wish to define the market as narrowly as possible (which would make it easier to find monopoly power). The parties filed cross-motions for summary judgment on market definition, and the court granted the Plaintiffs' motion, ruling that cell phones were not part of the relevant market.

We have previously explained the relevant product market analysis as follows:

The market power query begins with the determination of the relevant market, that is, a market relevant to the legal issue before the court. The market which one must study to determine when a producer has monopoly power will vary with the part of commerce under consideration. The tests are constant. That market is composed of products that have reasonable interchangeability for the purposes for which they are produced — price, use and qualities considered. We also look to the geographic reach of the group of sales or sellers to determine the relevant market. Further, because the ability of consumers to turn to other suppliers restrains a firm from raising prices above the competitive level, the definition of the relevant market rests on a determination of available substitutes.

To define a market in product and geographic terms is to say that if prices were appreciably raised or volume appreciably curtailed for the product within a given area, while demand held constant, supply from other sources could not be expected to enter...