ORAL ARGUMENT SCHEDULED FOR APRIL 15, 2003

No. 02-7057

IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

COVAD COMMUNICATIONS CO. and DIECA COMMUNICATIONS, INC.,

d/b/a COVAD COMMUNICATIONS CO.,
Plaintiffs-Appellants,

v.

BELL ATLANTIC CORPORATION, et al.,

Defendants-Appellees.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

BRIEF FOR THE UNITED STATES AND THE FEDERAL COMMUNICATIONS

COMMISSION AS AMICI CURIAE SUPPORTING NEITHER PARTY

R. HEWITT PATE
JOHN ROGOVIN Acting Assistant Attorney General
Acting General Counsel
CATHERINE G. O’SULLIVAN
JOHN E. INGLE NANCY C. GARRISON
SUSAN L. LAUNER DAVID SEIDMAN
Deputy Associate General Counsels Attorneys
Federal Communications Commission U.S. Department of Justice
Washington, D.C. 20554 601 D Street, N.W.
Washington, D.C. 20530
202-514-4510
 CERTIFICATE AS TO PARTIES, RULINGS, AND RELATED CASES

(A) Parties and Amici. Except for the following, all parties, intervenors,

and amici appearing before the district court and in this court are listed in the Brief

for Appellants Covad Communications Company, et al.

Defendants-Appellees. The following are listed in this court’s docket:

Telesector Resources Group, Inc.

Bell Atlanta Internet Solutions, Inc.
Bell Atlantic-West Virginia, Inc.

Appellees. The following are listed in this court’s docket:

Communications Workers of America

Arthur Andersen LLP

Amici Curiae for Appellant. The following are listed in this court’s docket:

Z-Tel Communciations, Inc.

Corecomm Holdco, Inc.
AT&T Corporation
Association for Local Telecommunications Services
Competitive Telecommunications Association
The American ISP Association
State of New York
Cavalier Telephone, LLC

Amici Curiae for Appellee. The following are listed in this court’s docket:

BellSouth Corporation
SBC Communications Inc.
United States Telecom Association

(B) Rulings Under Review. References to the rulings at issue appear in

the Brief for Appellants Covad Communications Company, et al.

(C) Related Cases. This case has not been on review previously before this

Court or any other court. We are aware of no related cases that do not appear in

the Brief for Appellants Covad Communications Company, et al.

 _________________
David Seidman
Attorney for the United States

ii
 TABLE OF CONTENTS

Table of Authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iv

Glossary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

Interest Of The United States And The Federal Communications Commission . . . 1

Statement Of The Issue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Statement Of The Case . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Summary Of Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6

Argument . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

I. THE TELECOMMUNICATIONS ACT OF 1996 DOES NOT BAR ANTITRUST CLAIMS

ALLEGING THAT AN INCUMBENT PROVIDER OF LOCAL TELECOMMUNICATIONS
SERVICES VIOLATED SECTION 2 OF THE SHERMAN ACT . . . . . . . . . . . . . . . . . . . 7

A. The 1996 Act Did Not Effect an Implied Repeal of the Sherman Act . 7

B. The Regulatory Framework of the 1996 Act Does Not Justify Dismissal
of the Complaint . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

II. EXCLUSIONARY OR PREDATORY CONDUCT IS NECESSARY TO ESTABLISH A

VIOLATION OF SECTION 2 OF THE SHERMAN ACT . . . . . . . . . . . . . . . . . . . . . . . 12

A. Neither The Essential Facilities Doctrine Nor Any Other Theory

Permits Antitrust Liability Absent Exclusionary Conduct . . . . . . . . 14

B. The 1996 Act is Fundamentally Remedial, While the Sherman Act

Defines Offenses That May Lead to Remedies . . . . . . . . . . . . . . . . . . 19

CONCLUSION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26

iii
 TABLE OF AUTHORITIES

Cases

AT&T v. Iowa Utilities Board, 525 U.S. 366 (1999) . . . . . . . . . . . . . . . . . . . . . . . . 14

Advanced Health-Care Services v. Radford Community Hospital,

910 F.2d 139 (4th Cir. 1990) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

* Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585
(1985) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10, 15, 16, 17, 21

Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d 263 (2d Cir.
1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16, 20

Carnation Co. v. Pacific Westbound Conference, 383 U.S. 213 (1966) . . . . . . . . . . 12

Carribean Broadcasting System, Ltd. v. Cable & Wireless PLC, 148

F.3d 1080 (D.C. Cir. 1998) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 15

Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984) . . . . . . . . . . . 15

Covad Communications Co. v. BellSouth Corp., 299 F.3d 1272 (11th

Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 10, 19

Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451
(1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Essential Communications Systems, Inc. v. AT&T, 610 F.2d 1114

(3d Cir. 1979) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

General Industries Corp. v. Hartz Mountain Corp., 810 F.2d 795

(8th Cir. 1987) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Goldwasser v. Ameritech Corp., 222 F.3d 390 (7th Cir. 2000) . . . . . . . . . . . . passim

Gordon v. New York Stock Exchange, 422 U.S. 659 (1975) . . . . . . . . . . . . . . . . . . . . 9

Hecht v. Pro-Football, Inc., 570 F.2d 982 (D.C. Cir. 1977) . . . . . . . . . . . . . . . . . . . 14

Laurel Sand & Gravel, Inc. v. CSX Transportation, Inc., 924 F.2d
539 (4th Cir. 1991) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Authorities upon which we chiefly rely are marked with asterisks.

iv
 Law Offices of Curtis V. Trinko v. Bell Atlantic Corp., 294 F.3d 307
(2d Cir. 2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8, 10, 11

MCI Communications Corp. v. AT&T, 708 F.2d 1081 (7th Cir. 1983) . . . . . 9, 11, 15

* Matsushita Electric Industrial Co. v. Zenith Radio Corp., 475 U.S.

574 (1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

Michigan Public Power Agency v. FERC, 963 F.2d 1574 (D.C. Cir.
1992) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14

* National Gerimedical Hospital and Gerontology Center v. Blue

Cross of Kansas City, 452 U.S. 378 (1981) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Neumann v. Reinforced Earth Co., 786 F.2d 424 (D.C. Cir. 1986) . . . . . . . . . . . . . 18

Olympia Equipment Leasing Co. v. Western Union Telegraph Co.,

797 F.2d 370 (7th Cir. 1986) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Otter Tail Power Co. v. United States, 410 U.S. 366 (1973) . . . . . . . . . . . . 10, 11, 12

Phonetele, Inc. v. AT&T, 664 F.2d 716 (9th Cir. 1981) . . . . . . . . . . . . . . . . . . . . . . . 9

Southern Pacific Communications Corp. v. AT&T, 740 F.2d 980

(D.C. Cir. 1984) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 20

Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993) . . . . . . . . . . . . . . . . . 15, 16

Standard Oil Co. of New Jersey v. United States, 221 U.S. 1 (1911) . . . . . . . . . . . 20

Stearns Airport Equipment Co. v. FMC Corp., 170 F.3d 518 (5th
Cir. 1999) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

United States v. AT&T, 461 F. Supp. 1314 (D.D.C. 1978) . . . . . . . . . . . . . . . . . . . . 9

United States v. Alcoa, 148 F.2d 416 (2d Cir. 1945) . . . . . . . . . . . . . . . . . . . . . . . . 16

United States v. Griffith, 334 U.S. 100 (1948) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir.), cert.

denied, 122 S. Ct. 350 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 15, 18, 21

United States v. Microsoft Corp., 87 F. Supp. 2d 30 (D.D.C. 2000),

aff'd in part and rev'd in part on other grounds, 253 F.3d 34

v
 (D.C. Cir. 2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17

United States v. National Association of Securities Dealers, 422 U.S.

694 (1975) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

United States v. Terminal R.R. Association of St. Louis, 224 U.S.

383 (1912) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

United States Telecom Association v. FCC, 290 F.3d 415 (D.C. Cir.
2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14, 23

Verizon Communications, Inc. v. FCC, 122 S. Ct. 1646 (2002) . . . . . 7, 19, 22, 24, 25

Statutes and Rules

Section 2 of the Sherman Act, 15 U.S.C. 2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . passim

Telecommunications Act of 1996, Pub. L. 104-104, 110 Stat. 56 . . . . . . . . . . passim

§ 251, 47 U.S.C. 251 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 7, 22

§ 252, 47 U.S.C. 252 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3, 24
§ 601(b)(1), 110 Stat. 56, 143 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8

Fed. R. Civ. P. 12(b)(6) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11

Fed. R. App. P. 29(a) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2

Fed. R. App. P. 32(a)(7)(B)(iii) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Fed. R. App. P. 32(A)(7)(B) and 29(d) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Administrative Materials

Implementation of the Local Competition Provisions of the

Telecommunications Act of 1996, 15 F.C.C.R. 3696 (1999) . . . . . . . . . . . . . 22, 23

47 C.F.R. 51.505 (2001) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Other

3 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law (2d ed. 2002) . . . . . . . 16

3A Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law (2d ed.

2002) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11, 14, 23

vi
Robert H. Bork, The Antitrust Paradox (1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18

vii
 GLOSSARY

A__ Appellant’s Appendix, at the specified page.

Br. Opening Brief of Appellants Covad Communications Company, et al.

CLEC Competitive Local Exchange Carrier.

Compl. (Corrected) Second Amended Complaint dated July 5, 2001.

DSL Digital Subscriber Line.

ILEC Incumbent Local Exchange Carrier.

TELRIC Total Element Long-Run Incremental Cost.

viii
 No. 02-7057

IN THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

COVAD COMMUNICATIONS CO. and DIECA COMMUNICATIONS, INC.

d/b/a COVAD COMMUNICATIONS CO.,
Plaintiffs-Appellants,

v.

BELL ATLANTIC CORPORATION, et al.,

Defendants-Appellees.

ON APPEAL FROM THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF COLUMBIA

BRIEF FOR THE UNITED STATES AND

THE FEDERAL COMMUNICATIONS COMMISSION
AS AMICI CURIAE SUPPORTING NEITHER PARTY

INTEREST OF THE UNITED STATES AND THE

FEDERAL COMMUNICATIONS COMMISSION

The United States has primary responsibility for enforcing the federal

antitrust laws. The Federal Communications Commission has primary

responsibility for enforcing the Communications Act of 1934, as amended by the

Telecommunications Act of 1996 (“1996 Act”).1 The United States and the FCC thus

have a mutual interest in ensuring that the Communications Act, including the

Congressional determinations in the 1996 Act, and the Sherman Act are properly

reconciled. We file pursuant to the first sentence of Fed. R. App. P. 29(a).

1
Pub. L. 104-104, 110 Stat. 56.
 STATEMENT OF THE ISSUE

The United States and the FCC will address the applicability of both the

1996 Act and Section 2 of the Sherman Act, 15 U.S.C. 2, to allegations that an

incumbent local exchange carrier has monopolized or attempted to monopolize a

market for local telecommunications services.

STATEMENT OF THE CASE

Covad’s Complaint. Appellant Covad’s complaint in this case alleged, inter

alia, that Bell Atlantic violated Section 2 of the Sherman Act by unlawfully

“sustain[ing] and enhanc[ing]” monopoly power “through anticompetitive and

predatory means . . . to the detriment of consumers and competition.” Compl. ¶ 216

(A109).2 Covad alleged that it “competes or seeks to compete” (id. ¶ 53 (A065)) in

markets in which Bell Atlantic has monopoly power, specifically, the “Local Internet

Access Market,” “Local Telecommuting Market” and “Local Voice Services Market”

(id. ¶ 53 (A065)) in “Bell Atlantic’s local services areas” (id.) In order to do so,

Covad alleged, it requires “dependable, timely and affordable” (id. ¶ 64 (A068))

“access to four parts of the local telephone network over which Bell Atlantic

exercises total control”: central office space, local loops, operations support systems,

and transport (id. ¶ 63 (A068)), which Covad “cannot reasonably duplicate” (id.

¶ 227 (A111)). However, because “Covad’s introduction of DSL services threatens

2
Covad also alleged various state law violations. Compl. ¶¶ 239-302 (A113-
133).
“Compl.” refers to the (Corrected) Second Amended Complaint dated July 5,
2001, and filed July 16, 2001. (A047-134). “A” refers to appellants’ Appendix.

2
Bell Atlantic’s monopoly power,” Bell Atlantic has “use[d] its control over the local

telephone facilities to stifle competition from DSL technology.” Id. ¶ 89 (A075). In

support of that assertion, Covad’s complaint described in detail Bell Atlantic’s

alleged noncompliance with duties imposed by the 1996 Act. See id. ¶¶ 91-213

(A076-108).

Covad claimed that Bell Atlantic “has denied Covad access to these facilities

on fair, reasonable and non-discriminatory terms.” Id. ¶ 228 (A111). Covad further

alleged that Bell Atlantic “feasibly could have granted, and legally was obliged to

grant, Covad access to these facilities” (id. ¶ 229 (A112)), and that its “denial of

access is without legitimate or sufficient business justification” (id.). Although

Covad and Bell Atlantic entered into an interconnection agreement, as required by

Sections 251 and 252 of the 1996 Act, 47 U.S.C. 251, 252 (Compl. ¶ 51 (A064)),

Covad alleged, “Bell Atlantic continues to deny Covad access to . . . parts of Bell

Atlantic’s network that Covad requires to provide its services” (id. ¶ 228 (A111)).

As a result of Bell Atlantic’s actions, Covad alleged, “competition in the relevant

markets has been injured, . . . Covad has been damaged” (id. ¶ 218 (A109)), and

“Bell Atlantic continues to dominate these markets through unlawful conduct, to

the detriment of consumers and competition” (id. ¶ 216 (A109)).

Covad sought treble damages and other relief. Compl. Prayer for Relief

(A133).

Bell Atlantic’s Motion to Dismiss. Bell Atlantic moved to dismiss the

complaint. Relying on Goldwasser v. Ameritech Corp., 222 F.3d 390 (7th Cir. 2000),

3
Bell Atlantic argued that “Covad’s theory of antitrust liability is incompatible with

the 1996 Act.” Opposition to Plaintiff’s Motion for Leave To File Amended

Complaint and Memorandum in Support of Defendants’ Motion to Dismiss at 9

(Sept. 12, 2000). In response, Covad argued that the 1996 Act’s antitrust savings

clause conclusively refutes any argument “that the Act immunizes the ILECs from

antitrust liability.” Plaintiffs’ Opposition to Defendants’ Motion To Dismiss at 15-

17 (Oct. 3, 2000).

The District Court’s Order. The district court granted Bell Atlantic’s

motion and dismissed Covad’s complaint. Order (May 3, 2002) (A206). The court

acknowledged that the 1996 Act’s express savings clauses

made explicit Congress’ 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.

Memorandum Opinion 13 (May 3, 2002) (“Mem.”) (A219). The court agreed with

the Seventh Circuit that “the 1996 Act contains duties and obligations of

affirmative assistance that ‘go well beyond anything the antitrust laws would

mandate on their own.’” Id. at 11 (A217) (quoting Goldwasser, 222 F.3d at 400).

“Consequently,” the court concluded:

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.

Mem. 131 (A218).

4
 The court emphasized that “the essential facility doctrine . . . is a narrow and

limited qualification of a firm’s right to refuse to deal with its competitors,” and

that, “in order to prevail under an essential facility theory, Plaintiffs must . . .

demonstrate an ‘anticompetitive effect.’” Id. at 14 (A220). It concluded that Covad

had “fail[ed] to state an essential facilities claim” because the regulatory scheme of

the 1996 Act precludes the required anticompetitive effect:

Covad’s 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.

Id. at 16 (A222). Citing Goldwasser, the court also expressed concern about what it

deemed “the fundamental incompatibility between the remedial schemes

established by the antitrust laws and the 1996 Act.” Id. at 19 (A225). Because,

“most of the Complaint concerns conduct that is committed to the supervision of the

FCC and to state public utility commissions[, p]ermitting 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.” Id. at 19-20 (A225-226).

5
 SUMMARY OF ARGUMENT

The 1996 Act in itself neither expands nor restricts the scope of the antitrust

laws. It creates new duties intended to lead to increased competition, but it creates

no new antitrust duties. Nor does it explicitly or implicitly provide an immunity

from the antitrust laws. And while regulation under the 1996 Act may sometimes

make unlikely the anticompetitive effects essential to unlawful monopolization, it

does not preclude them as a matter of law. Accordingly, to the extent that the

district court based its dismissal of Covad’s antitrust claims on the regulatory

scheme of the 1996 Act, it erred.

Courts should nevertheless treat with considerable caution claims of

antitrust violations that rest on violations of obligations under the 1996 Act.

Section 2 of the Sherman Act protects the public from predatory or exclusionary

conduct, i.e., conduct by a monopolist or would-be monopolist that makes economic

sense only because it eliminates competition. The 1996 Act, in contrast, was

intended to uproot monopolies whether or not lawfully formed or maintained.

Failure to keep separate the requirements of the two statutes risks harm to the

purposes of both.

6
 ARGUMENT

I. THE TELECOMMUNICATIONS ACT OF 1996 DOES NOT BAR ANTITRUST

CLAIMS ALLEGING THAT AN INCUMBENT PROVIDER OF LOCAL
TELECOMMUNICATIONS SERVICES VIOLATED SECTION 2 OF THE
SHERMAN ACT

A. The 1996 Act Did Not Effect an Implied Repeal of

the Sherman Act

The 1996 Act was intended to “promote competition and reduce regulation in

order to secure lower prices and higher quality services for American

telecommunications consumers.” 1996 Act, pmbl., 110 Stat. 56. See also

Goldwasser, 222 F.3d at 391 (“bring the benefits of deregulation and competition to

all aspects of the telecommunications market in the United States, including

especially local markets”). Congress sought “to eliminate the monopolies enjoyed by

the inheritors of AT&T’s local franchises” as “both an end in itself and an important

step toward the Act’s other goals of boosting competition in broader markets and

revising the mandate to provide universal telephone service.” Verizon

Communications, Inc. v. FCC, 122 S. Ct. 1646, 1654 (2002). Thus, Section 251 of

the Act, 47 U.S.C. 251, requires all telecommunications carriers to interconnect

with other carriers, and specifically requires incumbent local exchange carriers to

comply with a series of obligations designed to facilitate entry by competitive local

exchange carriers. Although Congress’ objective was to foster competition, the

duties that the Act imposes on ILECs extend well beyond the requirements of the

antitrust laws. Goldwasser, 222 F.3d at 401.

7
 Congress specified the proper relationship between the 1996 Act and the

federal antitrust laws. The Act includes an antitrust savings clause providing that

“nothing in this Act . . . shall be construed to modify, impair, or supersede the

applicability of any of the antitrust laws.” Pub. L. No. 104-104, Title VI, § 601(b)(1),

110 Stat. 56, 143. As the district court observed, the 1996 Act does not expand the

scope of the antitrust laws, so a violation of the 1996 Act is not necessarily a

violation of the antitrust laws. Mem. 13 (A219). See also Goldwasser, 222 F.3d at

400. But, as the district court acknowledged, neither does the 1996 Act bar claims

that satisfy established antitrust standards. Mem. 13 (A219). This “plain statutory

language is sufficient to end [the] inquiry on this matter.” Covad Communications

Co. v. BellSouth Corp., 299 F.3d 1272, 1281 (11th Cir. 2002). See Law Offices of

Curtis V. Trinko v. Bell Atl. Corp., 294 F.3d 307, 327 (2d Cir. 2002) (meaning of the

statutory savings clause is “plain on its face” and unambiguous).

Even if Congress had not clearly expressed its intent, well-established law

would preclude construing the 1996 Act to effect an implied repeal of the Sherman

Act absent “‘a convincing showing of clear repugnancy between the antitrust laws

and the regulatory system.’” Nat’l Gerimedical Hospital and Gerontology Center v.

Blue Cross of Kansas City, 452 U.S. 378, 388 (1981) (quoting United States v. Nat’l

Ass’n of Sec. Dealers, 422 U.S. 694, 719-20 (1975)). The Supreme Court has

“refused . . . a blanket exemption” even for heavily regulated industries. Nat’l

Gerimedical, 452 U.S. at 392. Thus, prior to passage of the 1996 Act, courts

uniformly held that the Communications Act did not immunize from the antitrust

8
laws regulated carriers’ denial of access to the local network. See, e.g., MCI

Communications Corp. v. AT&T, 708 F.2d 1081, 1101-04 (7th Cir. 1983); Phonetele,

Inc. v. AT&T, 664 F.2d 716, 726-35 (9th Cir. 1981); United States v. AT&T, 461 F.

Supp. 1314, 1320-30 (D.D.C. 1978). Although Congress in 1996 chose to impose

requirements on ILECs extending beyond the requirements of the antitrust laws, in

pursuit of its goal of eliminating monopolies in local exchange telecommunications,

nothing in the 1996 Act suggests a “plain repugnancy,” Gordon v. New York Stock

Exchange, 422 U.S. 659, 682 (1975) (internal quotation and citation omitted),

between that Act and the antitrust laws, both of which are “competition-friendly,”

Goldwasser, 222 F.3d at 391.

B. The Regulatory Framework of the 1996 Act Does

Not Justify Dismissal of the Complaint

Although it acknowledged that “Congress made explicit its intention that the

1996 Act should not in any way alter the application or scope of existing antitrust

law,” Mem. 13 (A219), the district court relied primarily on the regulatory scheme of

the 1996 Act as a reason to dismiss plaintiff’s antitrust claims.3 The court

understood Covad to argue primarily 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,” id., and it held that the complaint failed to state an essential facility

claim, id. at 16 (A222). The court discussed in general terms the requirements of an

3
The court based its dismissal of Covad’s retaliatory patent claim on Covad's
failure to allege an anticompetitive effect. Mem. 21-22 (A227-228). We do not
address this claim. See note 4 infra.

9
essential facility claim, id. at 13-15 (A219-221), but it rested its conclusion on the

assertion that the regulatory scheme established by the 1996 Act precludes plaintiff

from establishing that the challenged conduct had an anticompetitive effect:

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.

Id. at 16 (A222). The district court distinguished Aspen Skiing Co. v. Aspen

Highlands Skiing Corp., 472 U.S. 585 (1985), and Otter Tail Power Co. v. United

States, 410 U.S. 366 (1973), on the grounds that Aspen involved an unregulated

defendant and the regulatory scheme in Otter Tail limited the regulatory agency’s

power to control the challenged conduct. Mem. at 17-19 (A223-225). Finally,

although the point was “not dispositive,” the court “[could] not help but note the

fundamental incompatibility between the remedial schemes” of the 1996 Act and

the antitrust laws. Id. at 19 (A225).

To the extent that the court based its dismissal of the complaint on the

regulatory scheme established by the 1996 Act, the court erred. As the Second and

Eleventh Circuits have held, there is no basis for holding that “a Sherman Act

antitrust claim cannot be brought as a matter of law on the basis of an allegation of

anticompetitive conduct that happens to be ‘intertwined’ with obligations

established by the 1996 Act.” BellSouth, 299 F.3d at 1282; Trinko, 294 F.3d at 328-

31.

10
 The regulatory scheme of the 1996 Act may nevertheless be relevant to

Covad’s antitrust claims. An antitrust plaintiff must prove that the conduct at

issue had an anticompetitive effect and caused antitrust injury, see United States v.

Microsoft Corp., 253 F.3d 34, 58-59 (D.C. Cir.), cert. denied, 122 S. Ct. 350 (2001),

and regulation sometimes prevents such effects. As the Second Circuit recognized

in Trinko, however, whether “the regulatory process has successfully eliminated the

risk of anticompetitive behavior” in the markets at issue is a question of fact, 294

F.3d at 330, rarely appropriate for determination on a motion to dismiss under Rule

12(b)(6).

Moreover, the district court’s suggestion, Mem. 16-19 (A222-225), that the

existence of regulation particularly counsels against allowing plaintiff to proceed

under an essential facilities theory is not consistent with the view of that theory

expressed by other courts and commentators. Although, as we explain below, see

pp. 14-19, infra, we take no position on the merits of Covad’s essential facilities

claim, the theory has not been confined to unregulated firms or facilities. Indeed, it

is more likely to be invoked against a regulated monopoly. See 3A Philip E. Areeda

& Herbert Hovenkamp, Antitrust Law ¶ 787, at 310 (2d ed. 2002).

Courts must also take account of the regulatory scheme in fashioning

appropriate relief if they find antitrust violations. See, e.g., Otter Tail, 410 U.S. at

381; MCI, 708 F.2d at 1105-06 (citing Otter Tail); Essential Communications Sys.,

Inc. v. AT&T, 610 F.2d 1114, 1120-21 (3d Cir. 1979). Clearly antitrust litigation —

whether seeking damages or injunctive relief — carries the potential for

11
inconsistency and conflict with the 1996 Act’s regulatory scheme. But there is no

reason to presume that application of established antitrust standards in a suit for

damages or injunctive relief would necessarily impair enforcement of the 1996 Act

or subject incumbent local exchange carriers to inconsistent standards of conduct,

and the need to harmonize enforcement of complementary federal statutes is not a

proper basis for dismissing a complaint at the pleadings stage. See Otter Tail, 410

U.S. at 376-77; cf. Carnation Co. v. Pac. Westbound Conference, 383 U.S. 213, 223

(1966) (reversing dismissal of antitrust action and remanding with instructions to

stay pending outcome of related proceedings under the Shipping Act).

II. EXCLUSIONARY OR PREDATORY CONDUCT IS NECESSARY TO

ESTABLISH A VIOLATION OF SECTION 2 OF THE SHERMAN ACT

Although we believe that the district court erred to the extent that it based

its dismissal of Covad’s antitrust claims on the regulatory scheme of the 1996 Act,

we take no position on the sufficiency of those claims as a matter of antitrust law.

Indeed, we see reason for concern that plaintiffs who believe that an ILEC has

failed to perform its 1996 Act obligations may routinely seek to transform their

grievances into antitrust claims, for which treble damages are available. Courts

should view such antitrust claims with considerable caution, focusing precisely on

the exclusionary conduct element of the Section 2 offense, because inappropriate

use of the antitrust laws could both undermine the competitive process Congress

enacted the 1996 Act to create and deter competitive conduct that would benefit

consumers.

12
 Covad’s suit focuses primarily on its allegations of deficiencies in the manner

with which Bell Atlantic has provided Covad with the access to Bell Atlantic’s

facilities the 1996 Act requires. See Opening Brief of Appellants Covad

Communications Company, et al., at 1, 9-10, 13, 14 (“Br.”).4 Covad lists various

theories that, in its view, support liability, including theories like the essential

facilities doctrine, which it presents as free-standing basies of liability under

Section 2 of the Sherman Act. See id. at 21 (listing “six distinct legal theories”:

monopolization, attempted monopolization, the essential facilities doctrine,

unlawful refusal to deal, monopoly leveraging, and price squeeze). In order to avoid

penalizing procompetitive conduct, however, theories like the essential facilities

doctrine must be interpreted in light of well established law limiting liability under

Section 2 of the Sherman Act to defendants who engage in exclusionary conduct.

And such doctrines should not be interpreted to impose antitrust duties based solely

on the requirements of the 1996 Act. Although both statutes are intended to

further the goal of competition, the requirements of the 1996 Act and the

requirements of antitrust law rest on different principles.

4
Covad’s allegations related to certain Bell Atlantic advertising and a patent
suit filed after Covad filed its complaint in this matter, Br. at 10, 25-26, have no
obvious connection to questions of access to Bell Atlantic’s facilities. We do not
discuss them here.

13
 A. Neither The Essential Facilities Doctrine Nor Any
Other Theory Permits Antitrust Liability Absent
Exclusionary Conduct

As the district court observed, Covad’s 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.” Mem. 13 (A219). The Supreme

Court has never adopted the essential facilities doctrine as a basis for liability in a

Section 2 case. AT&T v. Iowa Utilities Board, 525 U.S. 366, 428 (1999) (Breyer, J.,

concurring in part and dissenting in part) (“an antitrust doctrine that this Court

has never adopted”); see also id. at 388 (referring to doctrine as matter of “antitrust

theory,” not antitrust law). The doctrine has been heavily criticized. See, e.g., 3A

Philip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 771c, at 173 (2d ed. 2002)

(“the essential facility doctrine is both harmful and unnecessary and should be

abandoned”). This Court has endorsed the doctrine in dicta but has never found or

affirmed Section 2 liability on an essential facilities theory.5 And it has several

times expressed doubts about the doctrine.6

5
See Hecht v. Pro-Football, Inc., 570 F.2d 982, 993 & n.44 (D.C. Cir. 1977)
(error not to instruct jury regarding restrictive covenant allegedly in violation of
Section 1 of the Sherman Act on essential facility theory; no instruction requested
regarding Section 2); Southern Pac. Communications Corp. v. AT&T, 740 F.2d 980,
1008-10 (D.C. Cir. 1984) (affirming judgment for defendants on Section 2 essential
facilities claim); Carribean Broadcasting System, Ltd. v. Cable & Wireless PLC, 148
F.3d 1080, 1087-89 (D.C. Cir. 1998) (affirming dismissal for failure to state a
Section 2 essential facilities claim).
6
See Mich. Public Power Agency v. FERC, 963 F.2d 1574, 1580 n.5 (D.C. Cir.
1992) (Silberman, J.) (referring to it as “this rather confused doctrine”); United
States Telecom Ass’n v. FCC, 290 F.3d 415, 427 n.4 (D.C. Cir. 2002) (“USTA”)
(“scholars have raised very serious questions about the wisdom of the essential

14
 Noting that “[a] monopolist has no general duty to share his essential

facility,” Carribean Broadcasting System, Ltd. v. Cable & Wireless PLC, 148 F.3d

1080, 1088 (D.C. Cir. 1998), this Court has explained that:

where there may be such an obligation, the elements of an antitrust

claim for denial of access to an essential facility are (1) a monopolist
who competes with the plaintiff controls an essential facility, (2) the
plaintiff cannot duplicate that facility, (3) the monopolist denied the
plaintiffs use of the facility, and (4) the monopolist could feasibly have
granted the plaintiff use of the facility.

Id. (citing MCI, 708 F.2d at 1132-33). In addition, as the district court pointed out,

a plaintiff must also “demonstrate an ‘anticompetitive effect,’” Mem. 14 (A220)

(citing Microsoft, 253 F.3d at 58 (“harm to one or more competitors will not suffice”

(emphasis in original)), and the “[d]efendant’s conduct must also lack a legitimate

business justification,” Mem. 15 (A221) (citing Aspen, 472 U.S. at 604-05 (pinpoint

citation corrected) (approving jury instruction that refusal to deal does not violate

Section 2 if valid business reasons exist for it)).

Section 2 liability based on denial of access to an essential facility (or on any

other theory) must satisfy the generally applicable elements of Section 2. Section 2

specifies only two offenses that can be carried out by a firm acting unilaterally,

monopolization and attempted monopolization. See Spectrum Sports, Inc. v.

McQuillan, 506 U.S. 447, 459 (1993) (noting that Ҥ 2 makes the conduct of a single

firm unlawful only when it actually monopolizes or dangerously threatens to do so”)

(citing Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 767 (1984)).

facilities doctrine as a justification for judicial mandates of competitor access, and

accompanying judicial price setting”).

15
The offense of monopolization is (1) the willful acquisition or maintenance of

monopoly power (2) by the use of anticompetitive conduct “to foreclose competition,

to gain a competitive advantage, or to destroy a competitor.” Eastman Kodak Co. v.

Image Technical Servs., Inc., 504 U.S. 451, 482-83 (1992), quoting United States v.

Griffith, 334 U.S. 100, 107 (1948); see also United States v. Alcoa, 148 F.2d 416, 432

(2d Cir. 1945). Such conduct, which is labeled “exclusionary” or “predatory,” Aspen,

472 U.S. at 602, must “reasonably appear capable of making a significant

contribution to creating or maintaining monopoly power.” 3 Phillip E. Areeda &

Herbert Hovenkamp, Antitrust Law ¶ 651f, at 83-84 (2d ed. 2002).

Any Section 2 liability based on monopoly leveraging also must meet the

exclusionary conduct requirement (as well as the other elements of monopolization

or attempted monopolization, see Spectrum Sports, 504 U.S. at 459). Some misread

old formulations of monopoly leveraging theory (use of monopoly power to gain a

competitive advantage, see Br. 31, Griffith, 334 U.S. at 107; Berkey Photo, Inc. v.

Eastman Kodak Co., 603 F.2d 263, 275 (2d Cir. 1979)) to eliminate the requirement

of exclusionary conduct. However, neither Griffith nor Berkey supports such a

reading. Griffith concerned the use of monopoly power to extract “exclusive

privileges” that “unreasonably restrained competition,” and it was the extraction of

privileges that was found problematic. 334 U.S. at 103-04. Berkey, building on

Griffith, made clear that it is traditional exclusionary techniques that offend the

Sherman Act, see 603 F.2d at 274 (“predatory pricing, lease-only policies, and

exclusive buying arrangements, to list a few”), not all uses of monopoly power.

16
 Exclusionary conduct, the Supreme Court has explained, is conduct that “‘not

only (1) tends to impair the opportunities of rivals, but also (2) either does not

further competition on the merits or does so in an unnecessarily restrictive way.’”

Aspen, 472 U.S. at 605 n.32, quoting 3 Phillip Areeda & Donald F. Turner, Antitrust

Law ¶ 626b, at 78 (1978). Courts routinely define exclusionary or predatory

conduct as conduct that would not make economic sense unless it eliminated

competition. See, e.g., Matsushita Elec. Indus. Co. v. Zenith Radio Corp., 475 U.S.

574, 588-89 (1986).7 These requirements ensure that unlawful monopolization is

not found on the basis of economically efficient, procompetitive conduct.

This Circuit’s most recent major Section 2 case confirms this understanding.

The Microsoft district court found Section 2 liability on exactly this basis:

If the defendant with monopoly power . . . incurred . . . costs . . . with

no prospect of compensation other than the erection or preservation of
barriers against competition by equally efficient firms, the Court may
deem the defendant’s conduct ‘predatory.’

United States v. Microsoft Corp., 87 F. Supp. 2d 30, 38 (D.D.C. 2000), aff’d in part

and rev’d in part on other grounds, 253 F.3d 34 (D.C. Cir. 2001). The court relied

on this Court’s prior analysis of predation:

[P]redation involves aggression against business rivals through the use

of business practices that would not be considered profit maximizing
except for the expectation that (1) actual rivals will be driven from the
market, or the entry of potential rivals blocked or delayed, so that the
predator will gain or retain a market share sufficient to command

7
See also Stearns Airport Equip. Co. v. FMC Corp., 170 F.3d 518, 524 & n.3
(5th Cir. 1999); Advanced Health-Care Servs. v. Radford Community Hosp., 910
F.2d 139, 148 (4th Cir. 1990); Gen. Indus. Corp. v. Hartz Mountain Corp., 810 F.2d
795, 803 (8th Cir. 1987).

17
 monopoly profits, or (2) rivals will be chastened sufficiently to abandon
competitive behavior the predator finds threatening to its realization
of monopoly profits.

Neumann v. Reinforced Earth Co., 786 F.2d 424, 427 (D.C. Cir. 1986) (Bork, J.),

quoted at 87 F. Supp. 2d at 38; accord Robert H. Bork, The Antitrust Paradox 144-

45 (1993) (noting that, in any realistic theory of predation, the predator views its

costs of predation as “an investment in future monopoly profits”).

The conduct before this Court when it considered Microsoft’s liability for

monopolization on appeal was entirely conduct that the district court had found to

be predatory under this standard. Microsoft argued that some of this conduct was

nevertheless justified on various grounds, and the Court considered whether, in

light of Microsoft’s arguments, liability could be found on the basis of that conduct.

See Microsoft, 253 F.3d at 60-77. There was, therefore, no need for the Court to

refer explicitly to this established concept of predation, although the Court

implicitly did so by restricting unlawful conduct to conduct that “harm[s] the

competitive process.” Id. at 58

Thus, if Section 2 liability is to be imposed on the basis of a denial of access to

an essential facility, all of the established requirements of Section 2 must be

satisfied. Treating denial of access to an essential facility, monopoly leveraging,

and the like as antitrust offenses in their own right — separate from the statutory

offenses of monopolization and attempted monopolization — risks imposing Section

2 liability based on the needs of the rival, on simple breach of contract, or on

18
departure from the standards of law other than the antitrust laws, despite the

absence of exclusionary or predatory conduct by the dominant firm.

B. The 1996 Act is Fundamentally Remedial, While the Sherman

Act Defines Offenses That May Lead to Remedies

As the district court properly recognized, “the 1996 Act contains duties and

obligations of affirmative assistance that ‘go well beyond anything the antitrust

laws would mandate on their own,’” Mem. 11 (A217) (quoting Goldwasser, 222 F.3d

at 400), so that “merely pleading violations of the 1996 Act alone will not suffice to

plead Sherman Act violations,” BellSouth, 299 F.3d at 1283. Even if the antitrust

savings clause of the 1996 Act did not bar imposition of new antitrust duties based

solely on the requirements of the 1996 Act, recognition of such antitrust duties

would still be inappropriate.

The 1996 Act “sought to bring competition to local-exchange markets, in part

by requiring incumbent local-exchange carriers to lease elements of their networks

at rates that would attract new entrants when it would be more efficient to lease

than to build or resell.” Verizon, 122 S. Ct. at 1687. Provisions of the Act, including

those that lie at the core of Covad’s alleged facts, “were intended to eliminate the

monopolies enjoyed by the inheritors of AT&T’s local franchises; [an] objective . . .

considered both an end in itself and an important step toward the Act’s other goals

of boosting competition in broader markets and revising the mandate to provide

universal telephone service.” Id. at 1654. The Act was intended to “uproot[] the

monopolies that traditional rate-based methods had perpetuated.” Id. at 1660.

19
 Section 2 of the Sherman Act also reflects congressional commitment to

competitive markets, but approaches that commitment from an entirely different

perspective, prohibiting conduct that monopolizes, rather than monopoly or

monopoly power as such. 15 U.S.C. 2. Ҥ 2 does not prohibit monopoly simpliciter

— or, as the Supreme Court phrased it . . ., ‘monopoly in the concrete.’” Berkey, 603

F.2d at 273 (quoting Standard Oil Co. of New Jersey v. United States, 221 U.S. 1, 62

(1911)). Thus, for example, a lawful monopolist is ordinarily free to charge a

monopoly price, e.g., Berkey, 603 F.2d at 274 n.12.

Similarly, the lawful monopolist may take advantage of other benefits

associated with its monopoly; “an integrated business [does not] offend the Sherman

Act whenever one of its departments benefits from association with a division

possessing a monopoly in its own market.” Berkey, 603 F.2d at 276. A lawful

monopolist is under no obligation to provide equal access to its facilities so as to

place its competitors “on ‘as nearly an equal plane as may be,’” Br. 29 (quoting

Southern Pac. Communications Corp. v. AT&T, 740 F.2d 980, 1009 (D.C. Cir. 1984),

in turn quoting United States v. Terminal R.R. Ass’n of St. Louis, 224 U.S. 383, 411

(1912). That obligation is found in the remedial scheme, not the liability analysis,

set forth by the Supreme Court in Terminal Railroad. 224 U.S. at 411. That case,

which concerned whether a combination of terminal facilities resulted in a restraint

of trade, id. at 394, involved no denial of access or use, see id. at 400 (“[t]hat other

companies are permitted to use the facilities of the Terminal Company upon paying

the same charges as the proprietary companies seems to be conceded”). Finally, a

20
monopolist generally may deal, or refuse to deal, with whomever it pleases. See

Aspen, 472 U.S. at 600-03.

The 1996 Act places “obligations of affirmative assistance” on monopolists.

In contrast, Section 2 imposes on a monopolist “no general duty to help its

competitors . . . [and] no duty to extend a helping hand to new entrants.” Olympia

Equipment Leasing Co. v. Western Union Tel. Co., 797 F.2d 370, 375-76 (7th Cir.

1986). Section 2 is aimed at preventing, and remedying, conduct that improperly

impedes competition with the monopolist. Absent such conduct, there can be no

liability under Section 2. Once a violation has been established, however, courts

appropriately turn to questions of remedy, and in a proper case a court may order

relief that uproots the monopoly, see Microsoft, 253 F.3d at 103.

Under limited circumstances, a monopolist’s refusal to deal with its actual or

potential competitors may constitute exclusionary conduct, and its duty to deal in

such situations may attract new entrants or otherwise increase competition. We do

not suggest, therefore, that an ILEC’s conduct with respect to a CLEC could never

violate the Sherman Act. But neither the essential facilities doctrine nor any other

antitrust doctrine establishes a duty to deal with competitors on whatever terms

they find acceptable or profitable. See Laurel Sand & Gravel, Inc. v. CSX Transp.,

Inc., 924 F.2d 539, 542-45 (4th Cir. 1991) (access not denied when offered at a

reasonable rate of $2.12/ton, one cent above defendant’s variable costs, although

any rate over $1.00 was more than plaintiffs “could profitably pay,” because “the

21
reasonable standard of the access factor can not be read to mean the assurance of a

profit”).

When it amended the Communications Act in 1996 to promote local

competition, Congress could simply have removed legal barriers to entry and relied

on market forces and enforcement of the antitrust laws. Instead, Congress imposed

new regulatory obligations on incumbents for the purpose of “giv[ing] aspiring

competitors every possible incentive to enter local retail telephone markets, short of

confiscating the incumbents’ property.” Verizon, 122 S. Ct. at 1661. See

Goldwasser, 222 F.3d at 399. It established duties of a sort not found in antitrust

law, and left detailed specification and implementation of access standards and

requirements to the Federal Communications Commission and the state regulatory

commissions.

This Court and the FCC agree (as does the United States) that the FCC did

not write the essential facilities doctrine into its regulations implementing the Act’s

local competition provisions. The 1996 Act required the Commission to determine

which “network elements should be made available,” and in doing so to consider,

inter alia, whether failure to provide an element “would impair the ability of the

telecommunications carrier seeking access to provide the services that it seeks to

offer.” 47 U.S.C. 251(d)(2)(B). In defining its impairment standard, the FCC

explicitly rejected suggestions that it base its standard “on an analysis similar to

the one used by courts in determining whether, according to the essential facilities

doctrine, a firm must share its facilities with competitors.” Implementation of the

22
Local Competition Provisions of the Telecommunications Act of 1996, 15 F.C.C.R.

3696, 3728, ¶ 57 (1999); see also id. at 3728-29, ¶¶ 58-60 (explaining rejection).

This Court concluded that the FCC had created unduly broad new rights of access

under the 1996 Act, and suggested that aspects of the essential facilities doctrine

might provide guidance in a narrower implementation of the new regulatory access

obligations — making clear that the FCC’s implementation standard imposed

duties broader than any that might be created by the essential facilities doctrine.8

Thus both the Court and the FCC agreed that regulations promulgated under the

1996 Act did not embody the essential facilities doctrine.

Nor does failure to comply with the access requirements of the 1996 Act

amount to a “denial of access” as that term is used in antitrust discussions of the

essential facilities doctrine. Although the rates charged for unbundled network

elements are but one aspect of the terms on which these elements are provided,

they are a significant aspect of those terms and illustrate the differences between

the requirements of the 1996 Act as implemented in regulations and the

requirements of the Sherman Act.

Ratemaking for unbundled network elements under the 1996 Act is, like

other aspects of the Act, intended “to achieve the entirely new objective of uprooting

8
As this Court viewed it in USTA, the essential facilities doctrine would not
compel access to facilities unless, inter alia, “it would make no economic sense for
competitors to duplicate the facility,” 290 F.3d at 426. Cf. 3A Areeda & Hovenkamp
¶ 773, at 196 (“The strongest claims of essentiality are resources that constitute
natural monopolies or those whose duplication is forbidden by law.”). The Court
found that the FCC’s approach did not embody this concept. USTA, 290 F.3d at
426-27.

23
the monopolies that traditional rate-based methods had perpetuated,” Verizon, 122

S. Ct. at 1660, or “to reorganize markets by rendering regulated utilities’

monopolies vulnerable to interlopers,” id. at 1661. The Act therefore mandates

“nondiscriminatory access on an unbundled basis to the network functions and

services of the Bell operating companies network that is at least equal in type,

quality, and price to the access [a] Bell operating company affords to itself.” Id.

(quoting 141 Cong. Rec. 15572 (1995) (Remarks of Sen. Breaux (La.) on Pub. L. 104-

104 (1995)). The FCC, implementing the statute, defined the key statutory concept

of “the cost . . . of providing the . . . network element,” 47 U.S.C. 252(d)(1), as a

“forward-looking economic cost,” 47 C.F.R. 51.505 (2001), which it defined in turn as

“the sum of (1) The total element long-run incremental cost of the element

[TELRIC] . . .; and (2) A reasonable allocation of forward-looking common costs.”

Id. at 51.505(a). Moreover, “the FCC decided that the TELRIC ‘should be measured

based on the use of the most efficient telecommunications technology currently

available and the lowest cost network configuration, given the existing location of

the incumbent[’s] wire centers.” Verizon, 122 S. Ct. at 1664 (quoting 47 C.F.R.

51.505(b)(1)). Finally, the rate actually charged to any particular entrant was to be

in proportion to its projected actual usage of the element as compared to the

projected usage by others, including the incumbent, id. at 1665 n.16, which means,

in effect, that the monopolist and its competitor pay the same rate for the

monopolist’s facility, after adjusting for usage.

24
 TELRIC prices have no particular significance for the essential facilities

doctrine or other theories of Section 2 liability. Section 2 was not designed to give

aspiring competitors “every possible incentive to enter” a market, Verizon, 122 S.

Ct. at 1661, nor does it require that a monopolist’s prices be limited to some

measure of its costs, forward-looking or otherwise. Moreover, there is no general

requirement that an integrated monopolist share equally with others the benefits

resulting from association. Thus there is no Section 2 requirement that a

monopolist and its competitor pay the same usage-adjusted rate for the monopolist’s

facility.

Given these fundamental differences between the 1996 Act and Section 2,

proof of noncompliance with the 1996 Act, regulations thereunder, agreements

negotiated in its shadow, or all three, does not in itself prove a Section 2 violation

on an essential facilities theory or any other theory. A plaintiff claiming a violation

of Section 2 would therefore have to establish the elements of a Section 2 violation

by establishing far more than an ILEC’s failure to comply with obligations that

exist by virtue of the 1996 Act.

Covad’s complaint alleges a lack of “legitimate or sufficient business

justification” (Compl. ¶ 229 (A112)), and it further alleges injury to “competition in

the relevant markets” (id. ¶ 232 (A112)), in conclusory terms. But the absence of

more specific allegations with respect to the elements of a Section 2 violation — in

particular, the existence of exclusionary or predatory conduct — is striking. We

take no position on the sufficiency of Covad’s complaint to survive dismissal, but we

25
urge that this Court make clear that liability may not be found in this case without

proof of such conduct.

CONCLUSION

The Court should not affirm on the ground that the regulatory scheme

established under the Telecommunications Act of 1996 requires dismissal of the

antitrust claims.

Respectfully submitted.

.
______________________________
R. HEWITT PATE
Acting Assistant Attorney General
JOHN ROGOVIN
Acting General Counsel CATHERINE G. O’SULLIVAN
NANCY C. GARRISON
JOHN E. INGLE DAVID SEIDMAN
SUSAN L. LAUNER Attorneys
Deputy Associate General Counsels U.S. Department of Justice
Federal Communications Commission 601 D Street, N.W.
Washington, D.C. 20554 Washington, D.C. 20530
202-514-4510

DECEMBER 17, 2002

26
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Attorney for the United States
Dated: December 17, 2002
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for United States of America and Federal Communications Commission as Amici

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Ross Dixon & Bell, L.L.P. Meyer, Brown, Rowe & Maw
2001 K Street NW 190 South LaSalle Street
Washington, DC 20006-1040 Chicago, IL 60603
Attorney for Plaintiffs-Appellants Attorney for Amici for Appellee

David L. Lawson, Esq.

Sidley Austin Brown & Wood
1501 K Street NW
Washington, DC 20005
Attorney for Amicus AT&T Corp.
On behalf of Amici for Appellant

________________________
David Seidman