Court Raises Bar On Antitrust Lawsuits
Latest Tightening Of the Sherman Act Is Bid to Limit Costs
By Jess Bravin
The Wall Street Journal
Tuesday, May 22, 2007
WASHINGTON -- Aiming to rein in the high cost of antitrust
litigation, the Supreme Court toughened the standards for
plaintiffs to get into court.
The justices, in a 7-2 opinion, ruled that an allegation that
two or more companies are acting in parallel isn't enough for an
antitrust lawsuit to proceed. Even if the result benefited the
companies and diminished competition, the plaintiffs must go
further and include some allegation indicating that the
companies were actively working together.
When independent self-interest also could explain the conduct,
Justice David Souter wrote for the court, plaintiffs must allege
"some factual context suggesting agreement" to restrain trade.
But in throwing out the suit alleging that major telecom
companies conspired to restrain trade, the court noted that the
plaintiffs failed only because they "have not nudged their
claims across the line from conceivable to plausible."
The ruling doesn't radically upend the rules for antitrust
actions. Nevertheless, it marks the latest in a sequence of
cases where the court has tightened the scope of the Sherman
Antitrust Act, the 1890 statute that took aim at monopoly by
outlawing any "contract, combination ... or conspiracy in
restraint of trade or commerce."
Business interests contend that many companies are forced to
settle even meritless lawsuits, because the cost of discovery
may dwarf a payment that would make the case go away. But the
court was vague about what it had in mind as the minimum
allegation for a suit to proceed. "In terms of a bright-line
standard, we didn't get one here," said Robin Conrad, executive
vice president of the National Chamber Litigation Center, which
filed a friend of the court brief in the case.
Justice Souter wrote that "the problem of discovery abuse" could
cost innocent defendants huge sums. In the telecom case,
"determining whether some illegal agreement may have taken place
between unspecified persons at different [companies], (each a
multibillion dollar corporation with legions of management level
employees)...is a sprawling, costly and hugely time-consuming
The telecommunications industry already fills chapters of
antitrust history. In 1984, a government lawsuit broke up the
decades-old Bell System monopoly, only to see the industry
reconsolidate into a handful of dominant regional carriers.
The 1996 Telecommunications Act sought to foster competition by
allowing the so-called Baby Bells, the Bell System's successors,
to sell long-distance service while also requiring them to open
their local exchanges to rival carriers. But instead of
promoting a robust marketplace for local telephone service, the
Baby Bells largely declined to enter each others' regions and,
plaintiffs alleged, they made it hard for upstart competitors to
use their exchanges.
Citing this parallel conduct, plaintiffs, represented by the
class-action firm Milberg Weiss Bershad & Schulman, filed suit.
They alleged that the mutually beneficial parallel conduct by
the Baby Bells -- which, after various mergers and name changes,
now include AT&T Inc., Qwest Communications International Inc.
and Verizon Communications Inc. -- suggested some sort of
agreement. Plaintiffs sought to begin discovery in search of
evidence supporting the claim.
A federal judge in Manhattan dismissed the case, ruling that
plaintiffs must also allege facts that tend "to exclude
independent self-interested conduct as an explanation for
defendants' parallel behavior."
But the Second U.S. Circuit Court of Appeals, in New York,
reinstated the case, citing a 1957 Supreme Court opinion that a
suit shouldn't be dismissed "unless it appears beyond doubt that
the plaintiff can prove no set of facts in support of his
claim." Since a conspiracy was a conceivable explanation for
conduct that undercut competition, the court ruled the case
Not so, wrote Justice Souter, joined by Chief Justice John
Roberts and Justices Antonin Scalia, Anthony Kennedy, Clarence
Thomas, Stephen Breyer and Samuel Alito.
In this case, Justice Souter wrote, the plaintiffs didn't list
"a single fact in a context that suggests an agreement." The
Baby Bells, he observed, descended from a world where telecom
was a monopoly and "doubtless liked the world the way it was."
Thus, "a natural explanation for the noncompetition alleged is
that the former government-sanctioned monopolists were sitting
tight, expecting their neighbors to do the same thing."
In dissent, Justice John Paul Stevens, largely joined by Justice
Ruth Bader Ginsburg, contended that the majority was driven not
by settled law but a "transparent policy concern" to protect
antitrust defendants from litigation costs.
(Bell Atlantic Corp. v. Twombly)
Write to Jess Bravin at