Summary
The Seventh Circuit reviews a $1.8 billion treble-damages antitrust judgment obtained by MCI Communications and MCI Telecommunications against AT&T. The court addresses predatory pricing, interconnection disputes, regulatory issues, bad-faith negotiations, evidentiary matters, and damages, affirming some liability findings while reversing or sustaining challenges to others and remanding for a new trial on damages.
Topics
Practice areas
Questions Presented
- Whether AT&T's regulation under the Communications Act impliedly immunized its interconnection and pricing conduct from antitrust liability.
- Whether the impact of federal and state telecommunications regulation was relevant to evaluating monopoly power and willful maintenance of monopoly power.
- Whether an antitrust defendant in a regulated industry may present a good-faith regulatory-compliance defense.
- Whether the selection of the cost standard for predatory-pricing claims is a question of law for the judge or a question of fact for the jury.
- Whether fully distributed cost is an appropriate cost standard for predatory pricing.
- Whether predatory-pricing liability may be based on failure to maximize short-run profits rather than pricing below cost.
- Whether the evidence was sufficient to support the jury's finding that AT&T's Hi-Lo tariff was predatory.
- Whether the judgment could stand when the jury awarded damages in a single lump sum without allocating damages among lawful and unlawful conduct.
Holdings
- AT&T was not entitled to implied immunity from antitrust liability for its interconnection and competitive pricing conduct because the Communications Act did not expressly immunize that conduct, the FCC had not dictated or approved it in a manner incompatible with antitrust enforcement, and the regulatory scheme was not irreconcilable with the antitrust laws.
- Regulation is relevant to determining monopoly power and willful acquisition or maintenance of monopoly power, even when it does not create antitrust immunity.
- In an extensively regulated industry, an antitrust defendant may present evidence that it acted in good faith to comply with regulatory obligations, and the jury may consider that evidence in determining whether the conduct was anticompetitive and undertaken to maintain monopoly power.
- The choice of the cost-based standard used to evaluate predatory pricing is a question of law for the trial judge, not a factual choice for the jury.
- Predatory-pricing liability must be based on proof that the defendant priced below cost; a theory based solely on failure to maximize profits is incompatible with antitrust principles.
- Fully distributed cost is not an economically relevant or determinative measure of cost for antitrust predatory-pricing analysis; long-run incremental cost is an appropriate method for measuring the costs causally attributable to a product or service.
- The evidence was insufficient to create a jury question that AT&T's Hi-Lo service was priced below cost under any appropriate cost standard, so the Hi-Lo predatory-pricing finding had to be set aside.
Key quotations
“Repeal of the antitrust laws by implication is not favored and not casually to be allowed. Only where there is a 'plain repugnancy between the antitrust and regulatory provisions' will repeal be implied.” (at 1102)
“The choice of a cost-based standard for evaluating claims of predatory pricing is a question of law to be decided by the trial judge.” (at 1112)
“We therefore reject MCI's 'profit maximization' theory, and reaffirm this Circuit's holding that liability for predatory pricing must be based upon proof of pricing below cost.” (at 1114)
“If average total cost is the objective (and the principle of cost causation is to be honored), we think that LRIC is and FDC is not an appropriate method of getting at it.” (at 1123)
Factual background
MCI entered the long-distance telecommunications market after FCC authorization and depended on interconnections with AT&T's local telephone facilities to provide its services. MCI alleged that AT&T denied or delayed interconnections, charged discriminatory prices, negotiated in bad faith, announced its Hi-Lo tariff prematurely, and engaged in predatory pricing. A jury found AT&T liable on ten section 2 theories and awarded MCI $600 million in damages, which was trebled to $1.8 billion.
Procedural history
MCI sued AT&T in federal district court alleging monopolization, attempted monopolization, conspiracy, predatory pricing, denial of interconnections, bad-faith negotiations, and tying. After a jury trial, the district court directed a verdict for AT&T on seven claims and submitted fifteen section 2 claims to the jury; the jury found AT&T liable on ten and awarded $600 million, which the district court trebled to $1.8 billion. The district court denied AT&T's post-trial motions, and both parties appealed.
Remand instructions
The case was remanded for a new trial on damages. The opinion also set aside the Hi-Lo predatory-pricing finding and disapproved the Hi-Lo preannouncement finding while sustaining or rejecting the remaining liability challenges as described in the opinion.