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United States District Court, District of Columbia

May 3, 2002


The opinion of the court was delivered by: Gladys Kessler, United States District Judge.


Plaintiffs, Covad Communications Company and Dieca Communications, Inc. (collectively "Covad"), bring this antitrust action for damages and injunctive relief against Defendants, Bell Atlantic Corporation and its subsidiaries (collectively, "Bell Atlantic").

The matter is now before the Court on Defendants' Motion to Dismiss the Second Amended Complaint. Upon consideration of the Motion, Opposition, Reply, Sur-reply, the numerous submissions of supplemental authority submitted by parties, the Motions Hearing held on March 11, 2002, and the entire record herein, for the reasons stated below, the Court grants Defendants' Motion to Dismiss.


Covad is a California-based start-up company founded in 1996 that uses a technology called Digital Subscriber Line ("DSL") to provide high-speed Internet services, as well as other network and data services.*fn2

Defendants are collectively the Bell Atlantic Corporation and its twelve subsidiaries.*fn3 Bell Atlantic provides telecommunications and local exchange services in thirteen states along the North Eastern Seaboard as well as in the District of Columbia.*fn4

Covad alleges that Bell Atlantic has unlawfully maintained monopoly power in various telecommunications markets, including the DSL market, and has engaged in anticompetitive and exclusionary conduct in violation of Section 1 and 2 of the Sherman Antitrust Act, 15 U.S.C. § 1, 2 ("Sherman Act"), Sections 4 and 16 of the Clayton Antitrust Act, 15 U.S.C. § 15 and 26 ("Clayton Act"), the District of Columbia Antitrust Act of 1980, D.C. Code §§ 28-4503, 4508 and common law.

Before turning to the particulars of Covad's Complaint, some general explanation about the regulatory framework within which the parties operate is warranted.

A. Telecommunications Act of 1996

The relationships between the parties are governed in large part by the Telecommunications Act of 1996, Pub.L. 104-104, 110 Stat. 56 (1996), codified at 47 U.S.C. § 151 et seq. ("1996 Act" or the "Act"), which sought to jump-start competition in the communications industry after a lengthy period of state and FCC regulated monopolies. The goal of the 1996 Act was to transform the telecommunications industry from a monopolistic setting to a competitive one.*fn5

To encourage competition, the Act requires that those companies that have historically provided telephone services, referred to as "incumbent local exchange carriers" or "ILECs," provide certain services to new entrants in the telecommunications market, referred to as "competitive local exchange carriers" or "CLECs."

Among other things, the 1996 Act requires that ILECs permit "interconnection" with their local telecommunications network.*fn6 Specifically, ILECs must give new entrants access to their local network on terms that are "just, reasonable and non-discriminatory" so that these new entrants or CLECs can compete with ILECs in existing and emerging telecommunications markets. 47 U.S.C. § 251. Furthermore, the 1996 Act establishes a set of procedures for making and enforcing "interconnection agreements" between ILECs and CLECs for access to local networks. 47 U.S.C. § 252.

Since December of 1997, Covad (a CLEC) and Bell Atlantic (an ILEC), have entered into numerous interconnection agreements concerning access to Bell Atlantic's local network. All of these agreements have been, or currently are, the subject of dozens of enforcement proceedings before numerous state regulatory bodies and the FCC.

B. Covad's Complaint

In this action, Covad alleges that Defendants have unlawfully maintained their monopoly power in various telecommunications markets by engaging in a pattern of "unlawful, anticompetitive and fraudulent practices" in order to prevent Covad's entry into those markets. Compl. ¶ 7.

In particular, Covad alleges that its DSL services threaten Bell Atlantic's monopoly power in three different product markets, namely the "Local Internet Access Market," the "Local Telecommuting Market," and the "Local Voice Services Market."*fn7 See Compl. ¶ 53. Covad also asserts the existence of hundreds of different geographic markets in the states Bell Atlantic serves.*fn8 Virtually all the conduct of which Plaintiffs complain concerns Bell Atlantic's failure to perform duties required under the 1996 Act. Chief among these allegations is that Bell Atlantic has denied Covad access to its local telephone network in the following four ways: (1) refusing to "collocate" or provide physical space and facilities for the placement of Covad's equipment within Bell Atlantic's central offices, Compl. ¶¶ 91-124; (2) denying access to "local loops," which are the wires running between Bell Atlantic's central offices and customers' premises, Compl. ¶¶ 125-177; (3) refusing to maintain adequate operations support systems ("OSS"), the computer systems that Covad along with numerous other new entrants in the local telecommunications markets must use to order loops from Bell Atlantic, Compl. ¶¶ 131-135; and (4) denying access to the "transport" facilities that connect Covad's central office equipment with other points in Covad's network, Compl. ¶¶ 175-177.

Covad argues that Bell Atlantic has repeatedly denied or delayed access to these four dimensions of the local telephone network. Plaintiffs further allege that timely access to Bell Atlantic's local network is essential to their provision of DSL services and to competition in the relevant telecommunications markets. See Compl. ¶¶ 89-177.

Plaintiffs' other allegations of anticompetitive conduct include price squeezing and refusal to line share, see Compl. ¶¶ 178-185; misleading and fraudulent advertising, see Compl. ¶¶ 186-192; bad faith negotiations, see Compl. ¶¶ 196-201; and patent misuse, see Compl. ¶¶ 202-212.

Plaintiffs filed this action on April 28, 1999, amending their Complaint twice, once on July 8, 1999, and again on August 10, 2000. The Court has issued two Memorandum Opinions since then, both of which denied Non-resident Defendants' Motions to Dismiss for Lack of Personal Jurisdiction.*fn9 Defendants now move to dismiss the entire case for failure to state a claim. Fed.R.Civ.P. 12(b)(1) and (b)(6). The Court heard oral argument on this Motion on March 11, 2002.


"[A] complaint should not be dismissed for failure to state a claim unless it appears beyond doubt that the plaintiff can prove no set of facts in support of his claim which would entitle him to relief." Conley v. Gibson, 355 U.S. 41, 45-46 (1957); Davis v. Monroe County Bd. of Educ., 119 S.Ct. 1661, 1676 (1999).


A. All Antitrust Claims Related to 1996 Act Duties Must Be Dismissed

The heart of Plaintiffs' Complaint is that Bell Atlantic has violated Section 2 of the Sherman Act, which prohibits (1) the willful acquisition or maintenance of monopoly power in the relevant market (2) by the use of exclusionary or predatory conduct "to foreclose competition, to gain a competitive advantage, or to destroy a competitor." United States v. Griffith, 334 U.S. 100, 108 (1948). A showing of "exclusionary" conduct is an absolute pre-requisite to stating a claim under Section 2.

A careful review of the Complaint reveals that virtually all allegations of exclusionary conduct, with the exception of the retaliatory patent law suit, relate to Bell Atlantic's failure to comply with the myriad duties contained in sections 251 and 252 of the 1996 Act.

Specifically, Covad alleges that Bell Atlantic engaged in "exclusionary" conduct through denial or delay of access to its local network in the areas of collocation,*fn10 access to loops,*fn11 adequate operations support systems,*fn12 transport services,*fn13 and line sharing,*fn14 all of which are expressly governed by §§ 251(c)(1), (2), (3) and (6) of the 1996 Act as well as by particular provisions in the interconnection agreements entered into between the parties. Plaintiffs also allege that Defendants engaged in exclusionary conduct through price squeezing,*fn15 misleading advertising about its own DSL services,*fn16 sham negotiations,*fn17 and a retaliatory patent lawsuit,*fn18 conduct which, with the exception of the patent suit, is also governed by the 1996 Act and the interconnection agreements between the parties.

For the reasons discussed below, the Court concludes that none of these allegations, if proven, can be "exclusionary" conduct within the meaning of antitrust law and that therefore, Covad's claims related to the 1996 Act must be dismissed.

1. The 1996 Act Contains Affirmative Duties That Extend Beyond the Requirements of Anti-Trust Law

First, Covad's allegations, which essentially relate to Bell Atlantic's failure to comply with 1996 Act duties, fall squarely outside the parameters of antitrust law. As recognized by the Seventh Circuit in Goldwasser v. Ameritech Corporation, 222 F.3d 390 (7th Cir. 2000), the 1996 Act contains duties and obligations of affirmative assistance that "go well beyond anything the antitrust laws would mandate on their own." 222 F.3d at 400. Almost every court since Goldwasser has recognized this to be true.*fn19

The reason for this nearly unanimous consensus is that the 1996 Act was designed by Congress to spur competition in local telephone markets in ways that the antitrust laws did not require. As the Seventh Circuit explained in Goldwasser, "Congress could have chosen a simple antitrust solution to the problem of restricted competition in local telephone markets. It did not." Goldwasser, 222 F.3d at 399. Instead, Congress created a new statutory system of "more specific and far-reaching obligations [than imposed by the antitrust laws] that [it] believed would accelerate the development of competitive markets." Id. at 401. Specifically, Congress imposed on ILECs a "host of special duties" or "affirmative duties to help one's competitors" that "do not exist under the unadorned antitrust laws." Id. at 399.

Consequently, the duties of affirmative assistance set forth in the 1996 Act exist outside the parameters of pre-existing antitrust law. Bell Atlantic's alleged failure to comply with those duties, which is the lion's share of Plaintiffs' Complaint, does not constitute "exclusionary" conduct as a matter of law, which is the sine qua non of any antitrust violation.

2. The Plain Language of the 1996 Act Precludes Creation of Antitrust Claims for 1996 Act Duties

Second, the savings clauses of the 1996 Act preclude expansion of antitrust law to incorporate 1996 Act duties. The 1996 Act contains two savings clauses. Section 601(c)(1), the general savings clause, provides that "[t]his Act . . . shall not be construed to modify, impair or supersede federal, State, or local law unless expressly so provided." The Act also provides a savings clause that specifically refers to antitrust remedies: "nothing in this Act . . . shall be construed to modify, impair, or supersede the applicability of the antitrust laws." 47 U.S.C. § 152, Historical and Statutory Notes. Pub.L. No. 104-104, 110 Stat. 56, § 601(b)(1).

In adopting these two separate savings clauses, Congress made explicit its intention that the 1996 Act should not in any way alter the application or scope of existing antitrust law. Thus, conduct that was proscribed prior to the 1996 Act remains proscribed after its enactment. Similarly, conduct that did not violate antitrust law prior to the 1996 Act does not now violate antitrust law after the Act. As explained above, there is nearly unanimous consensus that the 1996 Act imposes affirmative duties of assistance that require far more than the existing antitrust laws now require. If Congress intended antitrust liability and remedies to attach to violations of the specific and affirmative duties set forth in the 1996 Act, it certainly knew how to make its intention known by including provisions to that effect in the 1996 Act.

3. Plaintiffs Do Not State an Essential Facility Claim

Third, Plaintiffs fail to state an essential facility claim. Plaintiffs' primary argument is that Bell Atlantic's denial and delay of access to its local network amounts to denial of an "essential facility" in violation of antitrust law.

An essential facility claim requires that a monopolist who competes with the plaintiff in the monopolized market controls an essential facility, and refuses the plaintiff's request for access to that facility. Caribbean Broadcasting Sys., Ltd. v. Cable & Wireless PLC, 148 F.3d 1080, 1088 (D.C. Cir. 1998); see also MCI Communications Corp. v. AT & T, 708 F.2d 1081, 1132-33 (7th Cir. 1983). The animating concern of this doctrine is to prevent a monopolist from extending monopoly power from one stage of production to another, and from one market to another. Id.

The essential facility doctrine, however, is a narrow and limited qualification of a firm's right to refuse to deal with its competitors. Olympia Equipment Leasing Co. v. Western Union Telegraph Co., 797 F.2d 370, 376 (7th Cir. 1986). Because the purpose of antitrust law is to protect competition, not competitors, a firm — even one with lawful monopoly power — ordinarily has no duty under antitrust law to help its competitors. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 600 (1985). Indeed, compulsory access to a firm's facilities, if it exists at all, is exceptional, particularly in a regulated industry. 3A Phillip Areeda & Herbert Hovenkamp, Antitrust Law, ¶¶ 771b, 771c, 773a (1996).

Furthermore, in order to prevail under an essential facility theory, Plaintiffs must still demonstrate an "anticompetitive effect." See United States v. Microsoft, 253 F.3d 34, 58 (D.C. Cir. 2001). Specifically, the conduct must make a significant contribution to maintenance of its monopoly power, pose significant harm to competition, or otherwise "impair[] competition in an unnecessarily restrictive way." Aspen Skiing, 472 U.S. at 605-606; 3 P. Areeda & H. Hovenkamp, supra, ¶ 651c at 78 (1996). Defendant's conduct must also lack a legitimate business justification in order to be unlawful or exclusionary. Aspen Skiing, 472 U.S. at 605-606.

Finally, consideration of existing regulatory mechanisms and the degree to which they already address the alleged threat to competition is necessary. see MCI v. AT & T, 708 F.2d at 1106 ("the presence of a substantial degree of regulation, although not sufficient to confer antitrust immunity, may affect . . . the precise dimensions of the `willful acquisition or maintenance' of [monopoly] power") (internal citations omitted); Town of Concord v. Boston Edison Co., 915 F.2d 17, 25 (1st Cir. 1990) (regulation "dramatically alters the calculus of antitrust harms and benefits"; finding that price squeeze did not violate Sherman Act because prices were fully regulated); see also 1A P. Areeda & H. Hovenkamp, supra, ¶ 240(d) at 15, 17 (2000) ("Even when conduct is not exempt from antitrust laws, regulation of a market can bear heavily on the application of antitrust principles . . . The presence of regulation in some instances limits the antitrust role, and in some instances simply changes it . . . The impact depends on the nature of the regulatory regime, the nature of the antitrust claim, and the degree of supervision given by the agency to the challenged conduct.").

Viewed in light of these principles, Covad's allegations fail to state an essential facility claim. Those allegations focus on disputes over the terms for obtaining access to Bell Atlantic's local exchange network — an entitlement that was first created by the 1996 Act (not by the antitrust laws). The particular terms of that statutorily mandated access are now fully regulated by the FCC and state commissions through their oversight and approval of detailed interconnection agreements. In this setting, there can be no significant harm to competition or anti-competitive effect as a matter of antitrust law, as every relevant facet of Bell Atlantic's relationship with Covad is subject to regulation under the 1996 Act, the rulings of the FCC, and the affirmative and active supervision of state public utility commissions charged with the 1996 Act's enforcement. See Goldwasser, 222 F.3d at 401 ("antitrust laws would add nothing to the oversight already available under the 1996 [Act]"); cf. Town of Concord, 915 F.2d 17 (price squeeze claims are not exclusionary conduct under Section 2 because no durable harm to competition in fully regulated markets).

The case at bar is simply unlike the paradigmatic denial of an essential facility that the Supreme Court analyzed in Aspen Skiing Co., 472 U.S. 585 (1985), where an unregulated firm with monopoly power chose to "forgo cash revenues and efficient methods of doing business for the sole purpose of driving its rivals out of the market." Goldwasser, 222 F.3d at 398.

Nor is this the case of Otter Tail Power Co. v. United States, 410 U.S. 366 (1973),*fn20 where the Supreme Court upheld a finding of Section 2 liability against a public utility company that refused to supply or "wheel" to retail competitors essential wholesale power that the governing regulatory scheme was without authority to compel. See Otter Tail Power, 410 U.S. at 375 ("So far as wheeling is concerned, there is no authority granted the Commission under . . . the Federal Power Act to order it . . . the power to direct wheeling was left to the `voluntary coordination of electric facilities'") (citations omitted).*fn21

This case, by contrast, involves disputes over access to Bell Atlantic's local network where the access is mandated by the 1996 Act, fully regulated by the FCC and state commissions, and clearly spelled out in detailed interconnection agreements approved by the FCC and state commissions. Bell Atlantic has no freedom to take any unilateral action relating to access to interconnection with the local networks.*fn22 In light of this regulatory scheme, application of the essential facility doctrine and its underlying compulsory dealing rationale "would add nothing to the oversight already available under the 1996 law." Goldwasser, 222 F.3d at 401.

Accordingly, in view of established essential facility doctrine principles as well as the regulatory context of this case, the Court concludes that Plaintiffs fail to state an essential facility claim.

4. The Enforcement Schemes of the 1996 Act and Anti-Trust Law Are Fundamentally Incompatible

Finally, while not dispositive of the issue, the Court cannot help but note the fundamental incompatibility between the remedial schemes established by the antitrust laws and the 1996 Act. As explained above, most of the Complaint concerns conduct that is committed to the supervision of the FCC and to state public utility commissions. Permitting judicial consideration of these same issues may interfere with the ability of state regulatory agencies and the FCC to carry out their regulatory missions, and could subject ILECs to inconsistent standards of conduct. See Phonetele, Inc. v. AT & T Co., 664 F.2d 716, 732 (9th Cir. 1981) ("the agency must have sufficient freedom of action to carry out its regulatory mission, and the regulated entity should not be required to act with reference to inconsistent standards of conduct.").

For example, a CLEC could use antitrust law as a vehicle to collaterally challenge adverse determinations of regulators, or bypass regulatory determinations concerning alleged violations of interconnection agreements altogether. In this case, for example, the gravamen of Covad's Complaint is essentially that Bell Atlantic has failed to comply with numerous negotiated interconnection agreements entered into pursuant to the 1996 Act. See March 11, 2002, Motions Hearing, Defs.' Handout at 3-4. These very same issues are already before or have already been decided by dozens of state commissions as well as the FCC. Whether an interconnection agreement has been violated is a determination that, as an initial matter at least, must be decided by regulators, and not this Court.

Indeed, the Seventh Circuit in Goldwasser emphasized the nature of this incompatibility when dismissing a substantially similar Complaint:

[T]he procedures established under the 1996 Act for achieving competitive markets [are not] compatible with the procedures that would be used to accomplish the same result under the antitrust laws . . . The elaborate system of negotiated agreements and enforcement established by the 1996 Act could be brushed aside by any unsatisfied party with the simple act of filing an antitrust action. Court orders in those cases could easily conflict with the obligations the state commissions or the FCC imposes.

Goldwasser, 222 F.3d at 401. See also Essential Communications Sys. Inc. v. AT & T, 610 F.2d 1114, 1120-21 (3rd Cir. 1979) (although Communications Act does not confer blanket antitrust immunity, "[w]e recognize . . . that a given antitrust remedy might in specific instances present an actual or potential conflict with a duty imposed by the FCC."). Consequently, there is a basic incompatibility between the remedial schemes of the 1996 Act and antitrust law.

In view of all the foregoing, the Court finds that Covad's allegations pertaining to 1996 Act duties do not constitute exclusionary conduct as a matter of antitrust law. Plaintiffs' claims are therefore dismissed, and Bell Atlantic's Motion is granted as to these claims.

B. Covad's Retaliatory Patent Claim Must Be Dismissed

Covad also alleges that Bell Atlantic's suit against it for patent infringement constitutes a violation of Section 2.*fn23 Compl. ¶¶ 202-212. Specifically, Covad states that Bell Atlantic's "bad-faith filing of the patent action was a pretext. Bell Atlantic did not bring the patent action out of any desire to protect its purported intellectual property . . . [but rather] to interfere with competition in the relevant markets and to retaliate against [it] for asserting its rights in this lawsuit." Compl. ¶ 212.

However, Covad has failed to allege that this suit had any "anticompetitive effect." Microsoft, 253 F.3d at 58-59 (prima facie case under Section 2 requires demonstration of "anticompetitive effect"). Therefore, any claim based on the patent suit is dismissed, and Defendants' Motion is granted as to this claim.

C. Covad's State Law Claims Must Be Dismissed

Because the Court has dismissed Plaintiffs' federal claims, it declines to exercise supplemental jurisdiction over the state law claims. Defendants' motion is therefore granted as to Covad's state law claims, and these claims are dismissed.


For all the foregoing reasons, Defendants' Motion to Dismiss the Complaint is granted. Covad's claims are dismissed. An appropriate Order will issue with this Opinion.


The matter is now before the Court on Defendants' Motion to Dismiss the Second Amended Complaint. Upon consideration of the Motion, Opposition, Reply, Sur-reply, the numerous submissions of supplemental authority submitted by parties, the Motions Hearing held in this matter on March 11, 2002, and the entire record herein, for the reasons stated in the accompanying Memorandum Opinion, it is hereby

ORDERED, that the Court grants Defendants' Motion to Dismiss the Second Amended Complaint; it is further

ORDERED, that this case is dismissed.

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