Antitrust Law Blog

District Court Schedules Tunney Act Hearing

• On November 30, 2006 at 2pm, the U.S. District Court for the District of Columbia will hold a hearing on the government's Motion for Entry of Final Judgments in deciding whether to approve the merger of AT&T and SBC and the merger of MCI and Verizon. Judge Sullivan surprised many observers by demanding that the Department of Justice and the merging parties submit much of the evidence that the Antitrust Division had reviewed during the second request it had issued during both mergers.

The court had ordered hearings in response to complaints that the proposed consent degree did not go far enough in remedying the anticompetitive effects of the mergers. In its initial proposed final judgment, the Antitrust Division had found that the mergers posed problems in a few hundred buildings around the country, where the number of providers would decrease from 2 to 1, and there was no realistic possibility of entry by another carrier, due to the low number of potential customers or the distance from the other lines or both. ACTel and COMPTel, two organizations opposed to the merger, had used the Tunney Act hearing to argue that the Division should have forced divestitures in other buildings, including those where the number of competitors decreased from 3 to 2 and those where the number of competitors decreased from 4 to 3. The Division had argued that 1) the Court did not have the constitutional authority to review problems not listed in the complaint and 2) even if it did, the bulk of the evidence showed that the merging parties would not have pricing power over other buildings.

In the most recent filings with the court, the division has presented large volumes of evidence, including expert reports along with affidavits and declarations of industry participants, stating that the mergers do not pose a problem. ACTel and COMPTel have argued that the Division is still not in compliance with the Court's order; that the evidence shows a continued problem; and that the Division's recent approval of the acquisition of BellSouth by AT&T with no conditions is an attempt to avoid the Court's review.

Whether the hearing on November 30th will result in a final decision is anyone's guess. Judge Sullivan has surprised most of the antitrust legal community around the country by undertaking such an extensive review process, which has taken more than a year since the initial complaint and proposed final judgment were first filed. There are fears that if Judge Sullivan orders a more extensive evidentiary process, including the cross-examination of witnesses and further document submissions, the Antitrust Division and the Federal Trade Commission will find it more difficult to negotiate consent decrees with merging parties in the future.

FTC Supports Narrow Interpretation of Noerr-Pennington for Ministerial Requests

• On November 2, 2006, the FTC released a Staff Report, in which the FTC clarified its position on the use of the Noerr-Pennington Doctrine as a defense in antitrust actions. Parties invoking the Noerr-Pennington Doctrine generally argue that the First Amendment immunizes conduct aimed at influencing the outcome of a government process, such as the enactment of a law or extent of a regulation. 

The FTC recommended that the Noerr-Pennington doctrine not be applied to the following three areas: "[1] filings, outside of the political arena, that seek no more than a ministerial government act. . . . [2] misrepresentations, outside of the political arena, that meet the standards set forth in the Commission’s Unocal decision. . . . [and] [3] patterns of repetitive petitioning, outside of the political arena, filed without regard to merit that employ government processes, rather than the outcome of those processes, to harm competitors in an attempt to suppress competition." 

The FTC highlighted the Second Circuit's decision in Litton Systems v. American Telephone & Telegraph Co., 700 F.2d 785 (2d Cir. 1983) for the distinction between petitioning for a discretionary act and petitioning for a ministerial act. In Litton Systems, AT&T had filed a request for a tariff with the Federal Communications Commission that had included a provision that required that carriers using non-AT&T equipment use an AT&T supplied interface. AT&T had defended its actions by arguing that its filing was protected under the Noerr-Pennington Doctrine as an attempt to influence government action. The Second Circuit, however, disagreed, holding that just because AT&T had to file and disclose its rates did not mean that it had the right to leverage a monopoly in one product market into another. In addition, the Second Circuit had emphasized that the content of the filings were not generally reviewed. The FTC emphasized that with ministerial acts, "there is little check on the truth or falsity of parties’ representations," whereas with discretionary acts, the government had a more robust review process. 

The FTC also emphasized that misrepresentation in a petition for a discretionary act could eliminate a Noerr-Pennington defense. The FTC highlighted its suit against Union Oil of California, in which the FTC had filed charges against the company alleging that it had illegally obtained a monopoly in the sale of low-emission reformulated gasoline sold in California. Union Oil had told the California Air Resources Board that the technology for production of the new standard was non-proprietary, but had then asserted its patents to force all refiners to use Union Oil's methods. The FTC sued, arguing that Union Oil's filings before the Board were not protected, because it had made misrepresentations to obtain its monopoly. The FTC and Union Oil later entered into a consent decree settling the charges. In its report, the FTC distinguished the misrepresentation exception from the Sham Litigation exception. "[M]isrepresentations differ from traditional sham activities, such as the initiation of baseless litigation, in that the purpose of making the misrepresentations likely is to obtain government action." To determine if the misrepresentation exception applies, the misrepresentation (1) must occur outside of the political process, where "there is generally little governmental expectation of truthful petitioning," (2) be deliberate, (3) subject to factual verification; and (4) central to the legitimacy of the affected governmental proceeding. 

Finally, the FTC addressed the Sham Litigation exception to the Noerr-Pennington Doctrine. Although the Supreme Court's decision in Professional Real Estate Investors, Inc. v. Columbia Pictures Industries, Inc., 508 U.S. 49 (1993) had given a two part test for determining if a company's initiation of litigation had been meant solely for the purpose of hampering a rival, the FTC noted that questions remain. The two part test required that 1) the litigation be objectively baseless and 2) initiated with the intent to hamper a rival's competitiveness. The FTC, however, argued that the decision had left open whether repeated petitioning could constitute sham litigation, even if some of the petitions could have had some conceivable merit. The FTC advocated an approach that would focus on whether the repetitive petitions were valuable to the government, or only meant to hinder rivals. "Logically, a pattern of invoking government processes for anticompetitive purposes need not be confined to repetitive litigation or to a series of identical filings to justify an exception to Noerr protection. Rather, a 'pattern' exception to Noerr should apply when a party invokes administrative processes, judicial processes, or a combination thereof, to hinder marketplace rivals." The FTC, therefore, argued that other courts should not require that every suit filed by a defendant have been objectively baseless, but rather "apply a more flexible standard when a pattern of petitioning is involved, recognizing that such cases may present more complex fact patterns and, in some instances, graver antitrust harm." 

This report is important, as it indicates that the FTC will challenge parties when they seek to use Noerr-Pennington. The cases emphasized in the report indicate that the FTC will be looking especially closely at filings and lawsuits related to patents and at filings meant to influence the Food and Drug Administration.

Authored by

Christopher Bowen

(202) 772-5348

cbowen@sheppardmullin.com