Antitrust Law Daily Wrap Up, ANTITRUST—MichCtApp: Sale of Bundled Wholesale Telecommunications Services Did Not Fix Prices, Monopolize Market, (Apr 18, 2013)

By John W. Arden, J.D., LL.M.

An incumbent local exchange carrier’s sale of bundled wholesale telecommunications services to a competitive exchange carrier—under a Local Wholesale Complete agreement—did not constitute a price fixing agreement or the exercise of monopoly power in violation of the Michigan Antitrust Reform Act, according to the Michigan Court of Appeals (B & S Telecom, Inc. v. Michigan Bell Telephone Co., April 16, 2013, Per Curiam). Summary judgment in favor of the incumbent local exchange carrier was affirmed.

B & S Telecom, Inc. is a licensed provider of telecommunications services as a competitive local exchange carrier (CLEC). Michigan Bell Telephone Co. is an established incumbent local exchange carrier (ILEC) that sells landline telephone service directly to consumers at retail, as well as to CLECs at wholesale.

Elements of telecommunication services (such as loops, ports, and switches) may be sold within bundled packages or as individual components that allow CLECs to custom-craft their own telecommunications network by obtaining access to each necessary network element. In the transaction at issue, B & S Telecom agreed to purchase bundled telecom services from Michigan Bell at rates specified in the parties’ Local Wholesale Complete agreement.

B & S filed suit in Michigan state court, alleging that Michigan Bell violated the Michigan Antitrust Reform Act by imposing an unlawful restraint of trade and attempting to monopolize the telecommunications market. B & S also alleged that Michigan Bell engaged in unfair business practices, participated in an unlawful civil conspiracy, and violated the Michigan Telecommunications Act by refusing to sell network elements as an unbundled platform at low state-mandated rates.

Michigan Bell made a motion for summary judgment on these claims, and the trial court granted the motion. Subsequently, the trial court awarded Michigan Bell $13,645 in attorney fees and costs. B & S appealed the summary judgment, but did not file a separate appeal on the order awarding fees and costs.

Telecommunications Act. B & S alleged that Michigan Bell charged rates in excess of those statutorily authorized under the Michigan Telecommunications Act and that the rates breached the Local Wholesale Complete (LWC) agreement. Michigan Bell argued that the two claims were essentially the same and were barred by the doctrine of res judicata because they were raised in an earlier proceeding brought by B & S at the Michigan Public Service Commission. The Commission had ruled in Michigan Bell’s favor, finding that the Federal Communications Commission preempted the Michigan Telecommunications Act when it released its Triennial Review Remand Order.

As in the Public Service Commission proceeding, B & S has focused on the legality of the per-line rate charged by Michigan Bell. Because the Public Service Commission granted summary disposition in favor of Michigan Bell in that proceeding, the agency’s order constituted a final judgment on the merits. Accordingly, B & S was barred from relitigating these claims.

Restraint of trade. B & S alleged that Michigan Bell engaged in an unlawful restraint of trade under Section 445.772 of the Michigan Antitrust Reform Act, since the LWC constituted a price fixing agreement. Although the parties were competitors in the telecommunications market, it was impossible to construe the LWC as a horizontal price fixing scheme because the parties operated as vertically integrated concerns, the court held. Moreover, B & S failed to identify any language in the LWC requiring it to resell telecommunications service to consumers at a fixed price.

"The mere fact that the LWC has the ancillary effect of increasing plaintiff’s ultimate price to its consumers is of no import because the terms of the agreement do not mandate any restraint of trade," the court observed. The trial court’s order of summary judgment on the restraint of trade claim was proper.

Monopolization. B & S further claimed that Michigan Bell unlawfully exercised monopoly power through the LWC in violation of Section 445.773 of the Michigan Antitrust Reform Act. It contended, without explanation, that the trial court improperly adopted federal antitrust law in resolving the matter.

Based on Section 2 of the Sherman Act, Section 445.773 prohibits the establishment, maintenance, or use of a monopoly, or any attempt to establish a monopoly, in a relevant market for the purpose of excluding or limiting competition or controlling, fixing, or maintaining prices. However, merely possessing or exercising monopoly power does not give rise to an antitrust violation. The antitrust statutes prohibit the willful acquisition or maintenance of that power as distinguished from the growth or development as a consequence of superior product, business acumen, or historic accident, the court noted.

"Price squeezing" may occur when a firm possessing market power for a particular product in the wholesale market sells the product to competitors at a high wholesale price in order to maintain or acquire market power in the retail market. "While price squeezing can give rise to an unlawful monopolization claim under §2 of the Sherman Act, antitrust liability exists only when parties are under an antitrust duty to deal with each other," the court observed.

In Verizon Communications Inc. v. Law Offices of Curtis Trinko, LLP (540 U.S. 389), the U.S. Supreme Court held that the Federal Telecommunications Act requires ILECs to deal with CLECs in the wholesale communications market, but that this requirement did not create an antitrust duty subject to enforcement under the Sherman Act. "[I]f a firm has no antitrust duty to deal with its competitors at wholesale, it certainly has no duty to deal under terms and conditions that the rivals find commercially advantageous," the Supreme Court said. Any duty arose from the FCC regulations, not from the antitrust laws.

Accordingly, the Michigan appellate court held that the LWC in this case could not give rise to an unlawful monopolization claim against Michigan Bell under Section 445.773. Because Michigan Bell had no antitrust duty to deal with B & S, it was not required to sell wholesale telecommunications services at favorable rates. Thus, the "price squeezing" did not constitute unlawful monopolization under Michigan antitrust law.

Attorney fees, costs. Because B & S did not appeal the order awarding sanctions of attorney fees and costs, it failed to invoke the appellate court’s jurisdiction on this issue. Thus, the court declined to address the award of attorney fees and costs.

The case is No. 304030.

Attorneys: Marc Shulman for B & S Telecom, Inc. Lisa Bruno-Herline for Michigan Bell Telephone Co.

Companies: B & S Telecom, Inc.; Michigan Bell Telephone Co.

Cases: Antitrust MichiganNews