Twombly Case Not Just Telecom Antitrust Suit

The case many experts call the most important antitrust suit in 20 years would, if decided in favor of the plaintiff, impact industries across the board, far beyond telecom. That is the contention of industry watchers keeping an eye on the Bell Atlantic (Verizon Communications Inc., Qwest Communications International Inc., SBC Communications Inc. and BellSouth Corp.) v. Twombly case at the Supreme Court, and they agree: the likelihood of the justices siding with Twombly is slim because of what that would mean for all antitrust lawsuits in the United States a free-for-all evocative of the rampant tobacco lawsuits of the late 1990s.

The Supreme Court could rule any day now in the Bell Atlantic v. Twombly case, which goes like this: In 2003, William Twombly, a U.S. citizen, filed his suit with the help of Milberg Weiss Bershad & Schulman LLP, a law firm notorious for bringing securities class-action lawsuits against corporations. Milberg Weiss also has been indicted for fraud and bribery, and its motivations for filing cases often are questioned.

Twombly alleged the Bell companies (reduced from seven to three since the case hit the dockets) illegally conspired to prevent competitors from entering their territories after Congress passed the 1996 Telecom Act. Twombly who filed on behalf of everyone in the continental United States who bought Internet access and local telephone service from February 1996 to the present also accused the Bells of agreeing not to compete in each others markets.

The case has been through several courts after different judges disagreed on the nitty-gritty details. In essence, the Supreme Court now must decide whether there is enough evidence of intentional agreement not to compete to allow the case to proceed, which would mean returning it to a district court for trial or settlement.

Twombly has potentially huge ramifications, says C. Paul Rogers III, a professor of law specializing in antitrust litigation at Southern Methodist University. He adds that if the Supreme Court concurs with the plaintiff, then the regional carriers can expect more suits like this.

If federal justices back Twombly, the next step would be discovery, says Victor Schnee, president of consulting firm Probe Financial Associates and a former antitrust attorney. Discovery is the process of culling through e-mails, hand-scribbled notes, confidential memos and other documents. Thats whats got the RBOCs trembling in their boots, Schnee says, pointing out that accounting firm Arthur Andersen was brought down by e-mail evidence. As for the Bells, he says, whether you could prove an antitrust agreement not to compete, there certainly was a tacit understanding that they wouldnt compete, and their behavior was frankly outrageous.

Schnee says if this so-called parallel conduct can be proved, such activity would go directly against an agreement SBC signed with the FCC once it acquired Ameritech in 1999. The incumbent told the government it would enter, and compete in, fellow RBOCs regions. But, Schnee says, they totally defaulted, and the FCC let them get away with it. The question is whether that action and the Bells lack of competition in one anothers territories amounts to conspiracy, as Twombly claims.

Rogers says it is very difficult to prove any sort of conspiracy in an oligopoly, or a market dominated by a few large suppliers, and that is one reason why he predicts the Bells will win the Twombly case. [I]f youre an oligopolist and youve got 20 [percent] or 30 percent of the market and youre making money, you might be just as happy not to rock the boat or invade other peoples markets, he says. And over time, there may be a tacit understanding that we wont bother you and you dont bother us. What started as independent action, then morphs into interdependent action, which poses tough proof problems, Rogers explains.

Schnee cautions that if the Bells come out ahead, that would not necessarily protect them from further antitrust lawsuits. Someone could beef up the complaint and run it back through the courts. Other industry analysts agree and Schnee adds that, on the other hand, if the Bells lose, anyone from consumers to states attorneys general could come out of the woodwork and accuse the phone companies of antitrust actions in hopes of winning big dollars, like they did with the tobacco lawsuits. The case, Schnee says, is something which in and of itself could be important, but also could be the first little stone that drops off the hill and becomes a landslide.

Twombly Suit Timeline

April 2003: William Twombly files suit against Bell Atlantic Corp. on behalf of nearly everyone in the United States in the Southern District of New York, amending his original complaint filed the previous December after changes to the Sherman Act, which governs antitrust matters, take place.

October 2003: District Court judges dismiss the case, a move applauded by the four Bell Atlantic companies. Twombly appeals the decision.

October 2005: The United States Court of Appeals for the Second Circuit overrides the district courts dismissal and the sent the suit back to court for further proceedings.

June 2006: The Supreme Court agrees to hear arguments in Bell Atlantic v. Twombly because of its possible implications on antitrust issues in all business sectors.

November 2006: The Supreme Court considers whether there is enough, or any, evidence of agreement not to compete, and whether it will send the case back to district court for trial or settlement.

BellSouth Corp. www.bellsouth.com

FCC    www.fcc.gov

Probe Financial Associates Inc.www.probefin.com

SBC Communications Inc. www.att.com

Southern MethodistUniversity  www.smu.eduQwest Communications International Inc. www.qwest.comVerizon Communications Inc. www.verizon.com