Department of Justice Seeks to Block AT&T’s Acquisition of T-Mobile

This posting was written by John W. Arden.

The U.S. Department of Justice filed a civil antitrust lawsuit today to block AT&T’s proposed $39 billion acquisition of T-Mobile USA Inc. from Deutsche Telekom AG.

The deal would combine the second and fourth largest providers of mobile wireless service, substantially lessen competition for wireless telecommunications services across the U.S., and result in higher prices, poorer quality of services, fewer choices, and less innovation for millions of American consumers, according to the Department of Justice news release.

Currently, four nationwide providers of mobile wireless services—Verizon, AT&T, Sprint, and T-Mobile—account for more than 90 percent of the national market. T-Mobile has historically challenged the top three competitors by providing value, innovation, and aggressive pricing, the Justice Department said.

“T-Mobile has been an important source of competition among the national carriers, including through innovation and quality enhancements such as the roll-out of the first nationwide high-speed data network,” said Sharis A. Pozen, Acting Attorney General in charge of the Department of Justice Antitrust Division. “Unless this merger is blocked, competition and innovation will be reduced, and consumers will suffer.”

The complaint, filed in the federal district court in Washington, D.C., alleges that “AT&T’s elimination of T-Mobile as an independent, low-priced rival would remove a significant competitive force from the market” and “substantially reduce competition.”

The relevant product market was alleged as mobile wireless telecommunications services and, alternatively, mobile wireless telecommunications services provided to enterprise and government customers. The relevant geographic market was defined as local areas approximating cellular market areas (CMAs) identified by the Federal Communications Commission to license providers for certain spectrum bands. According to the Justice Department, AT&T and T-Mobile compete in approximately 97 of the nation’s top 100 CMAs. Each of these 97 CMAs was alleged to constitute a relevant geographic market.

The case is U.S. v. AT&T Corp., T-Mobile USA, Inc., and Deutsche Telekom AG, 1:11-cv-01560.

In a statement released today, AT&T expressed surprise at the filing of the lawsuit and declared an intention to ask for an expedited hearing, “so the enormous benefits of this merger can be fully reviewed.” The company plans to “vigorously contest this matter in court.”

Further analysis of this development (“AT&T’s Planned Acquisition of T-Mobile Challenged by Justice Department” by Jeffrey May) appears here on the AntitrustConnect blog.

Certification of Cable TV Subscriber Class in Antitrust Action Was Proper

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

Certification of a class of approximately two million non-basic cable television programming services customers in the Philadelphia area—alleging that cable provider Comcast engaged in unlawful monopolization, attempted monopolization, and market or customer allocation through a series of acquisitions and cable system swap arrangements—was a proper exercise of discretion, the U.S. Court of Appeals in Philadelphia has ruled.

The trial court satisfied the "rigorous analysis" standard established in In re Hydrogen Peroxide Antitrust Litigation (2008-2 Trade Cases ¶76,453) in determining that questions of fact or law common to class members predominated over individual issues, for purposes of meeting the certification requirements of Federal Rule of Civil Procedure 23(b)(3). Certification (2010-1 Trade Cases ¶76,869) was therefore affirmed.

The trial court’s finding that the plaintiffs established by a preponderance of evidence that they would be able to prove, through common evidence, not only class-wide antitrust impact in the form of higher costs for programming but also a common methodology to quantify damages on a class-wide basis was not clearly erroneous, the appellate court decided.

In granting certification, the lower court had limited the class’s theories of class-wide impact to the theory that Comcast’s clustering conduct through the swaps and acquisitions had deterred competition from overbuilders in the Philadelphia market.

Relevant Geographic Market, Antitrust Impact

Arguments that the trial court had failed to apply the correct legal standard for determining the relevant geographic market and had made clearly erroneous factual findings by relying on the plaintiffs' expert for proof of class-wide antitrust impact were rejected by the appellate court.

Comcast’s contention that the relevant geographic market was each complaining individual’s household would have set a market so small as to be impractical and inefficient, whereas the class’s market definition capturing the whole of the Philadelphia area was based on record evidence showing that customers throughout the aggregated area faced similar competitive choices.

Moreover, the trial court had carefully considered the plaintiffs’ theories of class-wide impact before concluding that the class met its burden of demonstrating that the anticompetitive effect of clustering on overbuilder competition was capable of proof through evidence common to the class.

The econometric analysis of the plaintiffs’ damages expert demonstrating that the alleged antitrust impact was class-wide and utilizing a “but-for” pricing model to reach a final conservative estimated overcharge value was sufficiently sound, the appellate court also concluded. The damages model provided a methodology that could establish damages on a class-wide basis using common proof.

Attacks by the cable provider on the merits of the model were premature and missed the point, the court said. Some variation of damages among class members did not defeat certification, the court noted.

Finally, the trial court did not lack any legal authority to certify a per se claim based on the class’s allegations, the appellate court held. Comcast’s request to have the appellate court declare on the merits that the plaintiffs could not establish a per se antitrust violation was beyond the scope of the certification decision from which it appealed, the court explained.

Partial Dissent

A separate opinion partially dissenting from the majority’s conclusion argued that damages could not be proven using evidence common to the entire class. According to the partial dissent, the damages expert’s testimony was incapable of identifying any damages caused by reduced overbuilding in the Philadelphia area—the plaintiffs’ only viable theory of antitrust impact—and thus did not fit the case. Therefore, it was irrelevant and should be deemed inadmissible at trial, leaving the class with no evidence of class-wide proof of damages.

Because of this, the partial dissent stated, the certification order should have been vacated to the extent that it provided for a single class as to proof of damages and remanded to the lower court to consider whether the class could be divided into subclasses for the purpose of proving damages.

The decision in Behrend v. Comcast Corp. will be reported at 2011-2 Trade Cases ¶77,575.

Invalid Market Definition Dooms Physicians’ Claim of Exclusion from Network

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A cardiology practice group and its member physicians could not maintain claims that an operator of several Arkansas hospitals conspired with insurers to restrain trade and monopolized, attempted to monopolize, and conspired to monopolize the market for in-hospital cardiology services in central Arkansas by excluding the group from health insurance network coverage, the U.S. Court of Appeals in St. Louis has decided.

The plaintiffs' relevant market allegations were insufficient as a matter of law, the court said. Dismissal of the claims (2009-1 Trade Cases ¶76,473) was affirmed.

Relevant Product Market

The complaint improperly defined the product market by how consumers paid for cardiology services, in the court's view. A relevant product market could not be defined by reference to whether patients who received services were privately insured. Such a theory "lack[ed] support in both logic and law," according to the court.

The general issue when determining a relevant product market concerned the choices available to consumers. Thus, the plaintiff had to look to alternative patients who were able to pay the required fees, not just those who paid using private insurance.

For purposes of the antitrust claims, it did not matter which kind of insurance the patients had, or whether private insurance and government insurance were reasonably interchangeable, because the lawsuit was not about the options available to patients. Rather, it was about the options available to shut-out cardiologists.

Relevant Geographic Market

The plaintiffs' limitation of the relevant geographic market to a single city was overly narrow. The definition failed to describe the geographic areas where customers could turn for cardiology procedures from the starting point of the defendant's trade area, the court observed.

By limiting the market to a city, the plaintiffs gerrymandered the relevant market to the location where cardiology procedures took place. In so doing, the complaint alleged that a low percentage of patients within the city left the proposed market, but ignored the possibility of a high percentage of patients entering the proposed market from outside the city.

An antitrust plaintiff had to allege a geographic market in which the defendant supplier drew a sufficiently large percentage of its business, the court explained. This failure to allege a coherent relevant geographic market provided an adequate and independent means of affirming dismissal of the claims.

Discovery Costs

The appellate court also ruled that the lower court did not abuse its discretion by declining to tax the defendant's discovery-related copying costs upon the unsuccessful plaintiffs after it had dismissed the suit.

No judicial decision required a district court to tax discovery-related expenses, the appellate court noted. To the contrary, numerous district courts within the appellate circuit had similarly refused to tax such costs.

The decision is Little Rock Cardiology Clinic PA v. Baptist Health, 2009-2 Trade Cases ¶76,849.