Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-caDC-02-07057/USCOURTS-caDC-02-07057-0/pdf.json

Nature of Suit Code: 410
Nature of Suit: Antitrust
Cause of Action: 

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United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued November 18, 2004 Decided March 1, 2005

Reissued March 2, 2005

No. 02-7057

COVAD COMMUNICATIONS COMPANY AND

DIECA COMMUNICATIONS, INC., D/B/ACOVAD

COMMUNICATIONS COMPANY,

APPELLANTS

v.

BELL ATLANTIC CORPORATION, ET AL.,

APPELLEES

Appeal from the United States District Court

for the District of Columbia

(No. 99cv01046)

Bruce D. Sokler argued the cause for appellants. With

him on the briefs were Fernando R. Laguarda, John R. Gerstein,

Merril J. Hirsh, Gabriela Richeimer, and James A. Kirkland.

Antony R. Petrilla and Donald B. Verrilli, Jr. entered

appearances.

David W. Carpenter, David L. Lawson, C. Frederick

Beckner, III, Ryan D. Nelson, Jason D. Oxman, Eric J.

Branfman, Rebecca P. Dick, Jonathan D. Lee, and Stephen T.

Perkins were on the brief of amici curiae AT&T Corporation, et

USCA Case #02-7057 Document #880643 Filed: 03/01/2005 Page 1 of 20
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al. in support of appellants. 

Eliot Spitzer, Attorney General, Attorney General’s

Office of the State of New York, Michelle Aronowitz, Deputy

Solicitor General, Jay L. Himes and Richard L. Schwartz,

Assistant Attorney Generals, Richard Blumenthal, Attorney

General, Attorney General’s Office of the State of Connecticut,

Steven M. Rutstein, Assistant Attorney General, Carla Stovall,

Attorney General, Attorney General’s Office of the State of

Kansas, G. Steven Rowe, Attorney General, Attorney General’s

Office of the State of Maine, J. Joseph Curran, Jr., Attorney

General, Attorney General’s Office of the State of Maryland,

Mike Hatch, Attorney General, Attorney General’s Office of the

State of Minnesota, Frankie Sue Del Papa, Attorney General,

Attorney General’s Office of the State of Nevada, and Mark L.

Shurtleff, Attorney General, Attorney General’s Office of the

State of Utah, were on the brief of amici curiae States of New

York, et al. in support of reversal of the order appealed from.

Mark C. Hansen argued the cause for appellees. With

him on the brief were Michael K. Kellogg, Aaron M. Panner,

John Thorne, and Richard G. Taranto. Dan K. Webb and Steven

F. Benz entered appearances.

Jerry W. Kilgore, Attorney General, Attorney General’s

Office of the Commonwealth of Virginia, William E. Thro, State

Solicitor General, and Maureen Riley Matsen, Deputy State

Solicitor General, were on the brief for amicus curiae

Commonwealth of Virginia, in support of appellees.

R. Hewitt Pate, Assistant Attorney General, U.S.

Department of Justice, Catherine G. O'Sullivan, Nancy C.

Garrison, and David Seidman, Attorneys, John C. Rogovin,

General Counsel, Federal Communications Commission, John

E. Ingle and Susan L. Launer, Deputy Associate General

USCA Case #02-7057 Document #880643 Filed: 03/01/2005 Page 2 of 20
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Counsels, were on the brief of amici curiae The United States

and Federal Communications Commission supporting neither

party. 

Andrew D. Roth and Laurence Gold were on the brief of

amicus curiae Communications Workers of America in support

of appellees.

Lawrence E. Sarjeant, Marc Gary, Stephen M. Shapiro,

John E. Muench, Jeffrey W. Sarles, and James D. Ellis were on

the brief of amici curiae BellSouth Corporation, et al. in support

of appellees. James F. Rill entered an appearance.

Before: GINSBURG, Chief Judge, and ROGERS and

TATEL, Circuit Judges.

Opinion for the Court filed by Chief Judge GINSBURG.

GINSBURG, Chief Judge: This appeal comes to us in the

wake of Verizon CommunicationsInc. v. Curtis V. Trinko, LLP,

540 U.S. 398 (2004), in which the Supreme Court held that a

complaint alleging an incumbent local exchange carrier (ILEC)

refused to share elements of its network with a competitor, as

required by the Telecommunications Act of 1996, 110 Stat. 56,

codified at 47 U.S.C. § 151 et seq., did not state a claim for

monopolization or attempted monopolization under § 2 of the

Sherman Act, 15 U.S.C. § 2. In the present case, Covad

Communications Company sued Bell Atlantic Corporation, also

an ILEC, similarly alleging Bell Atlantic had violated § 2 of the

Sherman Act by virtue of having breached various duties

imposed upon it by the 1996 Act and by engaging in other

anticompetitive conduct.

The district court, prior to the Supreme Court’s decision

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*

 The district court declined to exercise supplemental

jurisdiction over the three state common law claims and the claim that,

in addition to violating the Sherman Act, Bell Atlantic violated the

District of Columbia Antitrust Act. 201 F. Supp. 2d at 135. Covad

does not challenge that ruling on appeal. 

in Trinko, granted Bell Atlantic’s motion to dismiss Covad’s

complaint for failure to state a claim upon which relief can be

granted. Covad Communications Co. v.BellAtlantic Corp., 201

F. Supp. 2d 123, 127 (D.D.C. 2002). Covad appeals, arguing:

(1) the allegations in its complaint relative to the 1996 Act are

materially different from the allegations held deficient in

Trinko; and (2) at least some of its allegations are of conduct

independently proscribed by the Sherman Act.*

We conclude that most of the allegations in Covad’s

complaint do not state an antitrust claim; they describe at most

a violation of the 1996 Act. Of the three allegations unrelated

to duties imposed upon Bell Atlantic by the 1996 Act – the false

pre-announcement campaign, the refusal to deal, and the

baseless and bad faith patent suit – only the alleged refusal to

deal states an antitrust claim and therefore should not have been

dismissed. 

I. Background 

Covad provides a Digital Subscriber Line (DSL) service

over local telephone lines, which not only gives its customers

high-speed Internet access but also permits Covad to offer voice

and data service, in competition with Bell Atlantic, which

provides local exchange and telecommunications services,

including DSL. Covad contends that Bell Atlantic used its

monopoly power to undermine competition in various markets

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for telecommunications services. In April 1999 Covad sued Bell

Atlantic and twelve subsidiaries asserting, in its second amended

complaint, seven causes of action, including the four Sherman

Act claims that are the subject of this appeal. The thrust of the

four antitrust claims – monopolization, attempted

monopolization, denial of essential facilities and refusal to deal,

and monopoly leveraging – is that Bell Atlantic violated the

Sherman Act by exercising its monopoly power in violation of

its obligations under the 1996 Act. 

Several allegations clearly concern Bell Atlantic’s failure

to make various of its facilities and elements of its network

available to Covad, as required by the 1996 Act. See 47 U.S.C.

§ 251(c) (requiring ILECs to share unbundled network elements

with competitors). See generally Trinko, 540 U.S. at 402-05

(discussing duties imposed upon ILECs by 1996 Act); Covad

Communications, 201 F. Supp. 2d at 127 (same). Specifically,

Covad alleges Bell Atlantic failed to provide it with adequate

co-located space and facilities; did not make its local loops – the

wires between Bell Atlantic’s central offices and its customers’

premises – sufficiently available to Covad; did not maintain

adequate operations support systems (OSS) for Covad’s use; and

denied Covad access to the “transport facilities” it needed to

connect its central office equipment with other points in its

network. 

Covad also alleges Bell Atlantic engaged in

anticompetitive conduct arguably untethered to the 1996 Act.

Specifically, the complaint states Bell Atlantic pursued an

unlawful “price squeeze”; created the false impression Bell

Atlantic’s own DSL service was already available to consumers;

refused to sell its DSL service to would-be customers who had

orders for DSL service pending with Covad; and brought a

baseless and bad faith patent suit against Covad.

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Bell Atlantic moved to dismiss Covad’s complaint on the

ground it did not state a claim upon which relief can be granted.

The district court granted that motion, explaining that “virtually

all allegations of exclusionary conduct, with the exception of the

retaliatory patent law suit, relate to Bell Atlantic’s failure to

comply with the myriad duties contained in ... the 1996 Act,”

201 F. Supp. 2d at 129, and more important, “fall squarely

outside the parameters of antitrust law,” id. at 130. Thus, the

district court held the allegations concerning Bell Atlantic’s

failure to share its facilities and certain network elements with

Covad did not state a claim under the so-called “essential

facilities” doctrine – which the Supreme Court in Trinko later

described as having been “crafted by some lower courts”

applying the Sherman Act, 540 U.S. at 410 – and held the

allegations concerning the baseless and bad faith patent suit

were inadequate because Covad “failed to allege [it] had any

‘anticompetitive effect.’” Id. at 135 (citing United States v.

Microsoft Corp., 253 F.3d 34, 58-59 (D.C. Cir. 2001)).

II. Analysis

We review de novo the district court’s dismissal of a

complaint for failure to state a claim upon which relief can be

granted. See Caribbean Broad. Sys. Ltd. v. Cable & Wireless

PLC, 148 F.3d 1080, 1085 (D.C. Cir. 1998). Confronted with a

motion to dismiss, “a plaintiff is not required to plead facts

sufficient to prove its allegations”; rather, the complaint need

only contain “a short and plain statement of the claim showing

that the pleader is entitled to relief.” FED. R. CIV. P. 8(a). The

court must accept all facts and reasonable inferences as true and

may dismiss the complaint only if it “it appears beyond doubt

that the plaintiff can prove no set of facts in support of his claim

which would entitle him to relief.” Caribbean Broad. Sys., 148

F.3d at 1086. Why? Because the “the issue presented by a

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motion to dismiss is not whether a plaintiff will ultimately

prevail but whether the claimant is entitled to offer evidence to

support the claims.” Id.

In this case, therefore, the issue on appeal is broadly

whether Covad’s complaint alleges Bell Atlantic engaged in any

“anticompetitive conduct” in violation of § 2 of the Sherman

Act. See Trinko, 540 U.S. at 407 (“possession of monopoly

power will not be found unlawful unless it is accompanied by an

element of anticompetitive conduct”). Covad argues that all the

claims in its complaint should be reinstated because its

allegations of anticompetitive conduct, taken together, dwarf the

single allegation at issue in Trinko and that, in any event, at least

some of its allegations, viewed individually, do state a claim

upon which relief can be granted under the Sherman Act. Bell

Atlantic contends the district court properly dismissed the

complaint in its entirety because each allegedly anticompetitive

act either pertains only to a duty imposed by the 1996 Act or

otherwise fails to state a claim under the Sherman Act. 

In determining whether Covad has stated a valid claim,

our starting point is the teaching of the Supreme Court in Trinko

about the relationship between the 1996 Act and established

antitrust principles. In holding a complaint alleging breach of an

ILEC’s duty under the 1996 Act to share its network with

competitors did not state a claim under § 2 of the Sherman Act,

the Court explained that, “just as the 1996 Act preserves claims

that satisfy existing antitrust standards, it does not create new

claims that go beyond existing antitrust standards.” Id. at 407.

Having determined that a violation of the 1996 Act is not itself

actionable under the Sherman Act, the Court went on to

determine “whether the activity of which [the plaintiff]

complains violate[d] pre-existing antitrust standards.” Id. We

address the same question but only after first disposing of

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Covad’s preliminary arguments for distinguishing Trinko. 

A. Has Covad Distinguished Trinko?

At the outset Covad contends its complaint is materially

different from the complaint in Trinko, and should be reinstated

in its entirety, because the complaint in Trinko stated only “the

narrowest of claims,” whereas its complaint alleged the

defendant ILEC: (1) engaged in “a vast array of anticompetitive

conduct”; and (2) sought to “export” its monopoly power to a

downstream market. Covad also maintains (3) the district court

erroneously held the 1996 Act implicitly granted antitrust

immunity for a carrier regulated by the 1996 Act – an

interpretation specifically rejected by the Supreme Court in

Trinko, 540 U.S. at 406.

Covad’s first distinction is legally irrelevant. A violation

of § 2 of the Sherman Act “requires, in addition to the

possession of monopoly power in the relevant market, the

willful acquisition or maintenance of that power as distinguished

from growth or development as a consequence of a superior

product, business acumen, or historic accident.” Id. at 407.

Accordingly, a “would-be monopolist ... comes within the

condemnation of the Sherman Act [only] when it engages in

‘anticompetitive conduct.’” Caribbean Broad. Sys., 148 F.3d at

1087; see Trinko, 540 U.S. at 407. Therefore, as Bell Atlantic

argues, whether a particular allegation states a claim under the

Sherman Act depends entirely upon the competitive significance

of the conduct alleged, and not at all upon the number or detail

of the allegations recited in the complaint.

Covad’s second distinction of Trinko, that Bell Atlantic

attempted to leverage monopoly power from one market into

another, is equally unavailing. As Bell Atlantic is quick to point

USCA Case #02-7057 Document #880643 Filed: 03/01/2005 Page 8 of 20
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out, the Court in Trinko rejected a similar argument, see 540

U.S. at 415 n.4 (holding theory of second-market “leveraging

presupposes anticompetitive conduct, which in this case could

only be the refusal-to-deal claim we have rejected”). If Covad

does not allege any anticompetitive conduct in Bell Atlantic’s

“acquisition or maintenance” of monopoly power, then it is of

no moment whether Bell Atlantic allegedly exercised monopoly

power in two markets rather than in one.

Covad’s final point, namely, that the district court

erroneously granted Bell Atlantic implied antitrust immunity

insofar as it is regulated by the 1996 Act, simply misstates the

holding of the district court. Although that court “[could] not

help but note” in a dictum the “fundamental incompatibility”

between the remedial scheme of the 1996 Act and the remedies

available under the Sherman Act – as would the Supreme Court

in Trinko, see 540 U.S. at 406 (“1996 Act is a good candidate

for implication of antitrust immunity, to avoid the real

possibility of judgments conflicting with the agency’s regulatory

scheme”) – that was not in the district court’s view “dispositive”

of Covad’s antitrust claims. 201 F. Supp. 2d at 133. Indeed, as

Bell Atlantic notes, the district court did not need to consider

whether the 1996 Act granted Bell Atlantic, as an ILEC, implicit

antitrust immunity because it had already held Covad’s

allegations that Bell Atlantic had violated the 1996 Act did not

give rise to an antitrust claim. See id. at 130-33.

Because Covad fails either to distinguish Trinko or to

show the district court’s analysis is inconsistent with that

decision, we review Covad’s complaint in light of the Supreme

Court’s holding that the 1996 Act did not alter preexisting

antitrust standards. 540 U.S. at 406-07. That Bell Atlantic’s

alleged conduct may violate the 1996 Act does not, of course,

mean that same conduct cannot violate the Sherman Act. The

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question to which we now turn, therefore, is whether any of the

conduct alleged in Covad’s complaint, regardless whether it

violated the 1996 Act, violated § 2 of the Sherman Act. 

B. Has Covad Stated a Claim under the Sherman Act? 

Covad alleges Bell Atlantic engaged in five types of

conduct in violation of the Sherman Act. They are that Bell

Atlantic: (1) unlawfully refused to cooperate with Covad (¶¶

91-177, 196-201); (2) engaged in an unlawful price squeeze (¶¶

178-85); (3) falsely advertised that its own DSL service was

available at times and in places where Covad’s service was

available (¶¶ 186-92); (4) refused to sell its DSL service, in

places where it was actually available, to would-be customers

who had orders pending for Covad’s DSL service (¶¶ 193-95);

and (5) brought a baseless and bad faith patent suit against

Covad (¶¶ 202-12). 

1. Refusal to cooperate 

Although the Court in Trinko recognized that “[u]nder

certain circumstances, a refusal to cooperate with rivals can

constitute anticompetitive conduct,” 540 U.S. at 408, it

concluded that “insufficient assistance in the provision of

service to rivals is not a recognized antitrust claim under [its]

existing refusal-to-deal precedents,” id. at 410. An antitrust

claim based upon the defendant’s refusal to cooperate with its

competitor can withstand a motion to dismiss only when it is

alleged either that the defendant had previously “engaged in a

course of dealing with its rivals, or [that it] would ever have

done so absent statutory compulsion,” id. at 409. Here, Covad

alleges neither that Bell Atlantic had at one time voluntarily

dealt with Covad nor that it would ever have been in Bell

Atlantic’s interest to have done so. Therefore, as in Trinko, the

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defendant’s “reluctance to interconnect ... tells us nothing about

dreams of monopoly.” Id.

In the light shed by Trinko, we agree with the district

court that the following allegations do not state a claim upon

which relief can be granted under § 2 of the Sherman Act: “The

Battle to Collocate” (¶¶ 91-124), in which Covad alleges Bell

Atlantic did not offer it the opportunity to co-locate its

equipment on Bell Atlantic’s premises upon “just, reasonable,

and nondiscriminatory terms” (as required by § 101 of the 1996

Act, 47 U.S.C. § 251(c)(6)); “The Odyssey of Obtaining Loops

and Dealing with OSS” (¶¶ 125-174), in which Covad alleges

Bell Atlantic violated its obligation under the same provision to

share loops and OSS; “The Effort to Obtain Transport” (¶¶ 175-

77), which similarly pertains to Bell Atlantic’s duties under the

1996 Act; and “Bell Atlantic’s Sham, ‘Feel Good’ Negotiation

Strategy” (¶¶ 196-201), in which Covad alleges Bell Atlantic

failed to bargain in good faith over terms of interconnection (as

required by § 101 of the 1996 Act, 47 U.S.C. § 251(c)(1)). 

2. Price squeeze

Covad next alleges Bell Atlantic attempted to

monopolize the market for DSL in violation § 2 of the Sherman

Act by pricing its services as follows: 

Bell Atlantic ... offered and re-sold its DSL services to

[Internet Service Providers] at a monthly price ... very

close to, and in some cases less than, the monthly cost

Bell Atlantic charge[d] Covad and other wholesale

customers for unbundled loops. ... [Bell Atlantic]

achieve[d] this discriminatory pricing by allocating a

negligible or zero cost to the loops over which it

provides its DSL services and recovering virtually all ...

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of the cost of the loops from its local analog voice

services. 

Covad claims this conduct constitutes a “price squeeze” that

violates the Sherman Act, for which proposition it relies upon

United States v. Aluminum Co. of America, 148 F.2d 416 (2d

Cir. 1945). 

Covad’s allegation is in essence that Bell Atlantic

charged Covad a prohibitively high and discriminatory price for

access to its loops. Bell Atlantic’s duty to make those loops

available at all, however, is purely a creature of the 1996 Act.

See 47 U.S.C. 251(c)(3). The Sherman Act does not impose

such a duty – recall Trinko, 540 U.S. at 410 (“insufficient

assistance in the provision of service to rivals is not a recognized

antitrust claim”) – at least when there is no allegation it would

have been profitable for the defendant to have made its facilities

available to a competitor absent statutory compulsion. And, as

observed in a leading treatise, “it makes no sense to prohibit a

predatory price squeeze in circumstances where the integrated

monopolist is free to refuse to deal,” 3A AREEDA &

HOVENKAMP, ANTITRUST LAW ¶ 767c3, at 129-30 (2d ed. 2002).

We therefore affirm the district court’s dismissal of Covad’s §

2 claim based upon a price squeeze. 

3. False pre-announcement campaign

Covad also maintains its complaint states an antitrust

claim based upon Bell Atlantic’s pre-announcement of its DSL

service: “Knowing the limited reach and scope of its planned

service Bell Atlantic nonetheless advertised its DSL services

aggressively.” The effect of that advertising was allegedly “to

leave the impression that Bell Atlantic was ready, willing and

capable of providing DSL services.” In response, Bell Atlantic

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*

 Specifically, we do not address Bell Atlantic’s arguments

that the court should presume any harm to competition from false

advertising is de minimis and that a plaintiff must plead actual falsity

in order to state an antitrust claim. 

contends, among other things, Covad’s complaint does not state

an antitrust claim because it does not allege a plausible harm to

competition. We agree and hence do not reach Bell Atlantic’s

other arguments.* 

The gist of Covad’s allegation is that Bell Atlantic

aggressively advertised its DSL service in certain areas when

that service was not yet available there. According to the

complaint, that advertising “could stifle competition either by

capturing customers through a bait and switch, or (in any event)

by delaying customers who otherwise would have gone to

Covad for services Bell Atlantic was advertising and by

increasing the costs Covad would have to bear in order to

advertise.”

Concerning the “bait and switch,” Covad alleges that

when a would-be customer called Bell Atlantic to order DSL

service at a location where it was not yet available from Bell

Atlantic, the defendant attempted to sell that customer its

“slower and more expensive ‘ISDN Anywhere’ service.” As for

“delaying customers who otherwise would have gone to Covad

for services Bell Atlantic was advertising,” although Covad does

not elaborate, we believe its point is that some potential

customers, after attempting to order DSL service from Bell

Atlantic only to discover it was unavailable, decided to wait for

Bell Atlantic’s service to become available rather than

immediately patronizing Covad. 

None of these allegations suggests a plausible harm to

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competition, let alone a case of attempted monopolization. On

the contrary, the practices alleged could only have enhanced

competition by subjecting Covad’s DSL service to market

rivalry both from Bell Atlantic’s present ISDN and from its

future DSL service. That Covad might have lost customers in

this way does not state an antitrust claim, for “[i]t is axiomatic

that the antitrust laws were passed for the protection of

competition, not competitors.” Brooke Group Ltd. v. Brown &

Williamson Tobacco Corp., 509 U.S. 209, 224 (1993).

Similarly, to the extent Bell Atlantic’s advertising obligated

Covad to increase its own advertising, competition was only

enhanced. See ROBERT H. BORK, THE ANTITRUST PARADOX 314

(2d ed. 1993) (“advertising and promotion [are] essential to

vigorous market rivalry”). 

The cases upon which Covad relies do not suggest

otherwise. They each involved either a defendant that was

alleged to have untruthfully but effectively disparaged its

competitor’s product, see, e.g., Nat’l Ass’n of Pharm. Mfrs. v.

Ayerst Lab., 850 F.2d 904, 916-17 (2d Cir. 1988) (generic drug

manufacturer alleging brand name manufacturer spread

materially false information about safety of its product states

claim under § 2 of Sherman Act where falsehood was “likely to

induce reasonable reliance” and was “not readily susceptible of

neutralization or other offset”), or in one instance a monopolist

that by making false representations had frustrated potential

rivals’ efforts to develop a competitive product, see Microsoft

Corp., 253 F.3d at 76-77. In no case could the consumer readily

discover the defendant’s falsity. Here, the alleged falsehood

pertains only to whether Bell Atlantic’s DSL service was then

available. When a company falsely claims or implies its own

service is available and the falsity of that claim is necessarily

dispelled whenever a consumer tries to obtain the service, there

can be no plausible harm to competition; upon discovering the

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*

 Covad also relies upon United States v. Microsoft Corp.,

159 F.R.D. 318 (D.D.C. 1995), for the proposition that a

preannouncement campaign directed at consumers may violate the

Sherman Act. Although the district court, in rejecting a proposed

consent decree did suggest that a preannouncement campaign might

unlawfully “contribute to the acquisition, maintenance, or exercise of

market share,” id. at 336, because the Government had made no

allegation concerning a preannouncement campaign, id. at 335, this

court expressly disapproved the district court’s consideration of that

subject. 56 F.3d 1448, 1459 (1995). 

service is not available, the consumer may choose freely

whether to purchase the service from another source or to wait

for the offeror to make good on its offer. Although the

consumer will have incurred an unnecessary transaction cost –

which may generate bad will toward the firm by which it was

misled – that is not a harm to the competitive process. 

MCICommunications Corp. v. AT&T Co., 462 F. Supp.

1072 (N.D. Ill. 1978), cited by Covad, is not necessarily to the

contrary. There, AT&T’s pre-announcement campaign was

allegedly “accompanied by extensive publicity to the business

and financial community” and was intended not only “to

discourage MCI’s potential customers” but also “to deprecate

MCI’s credit in the financial community.” Id. at 1096-97. In

this case, Covad does not allege that Bell Atlantic’s

preannouncement was aimed at anyone but potential customers

and, as we have seen, upon inquiring they had to be undeceived.*

4. Refusal to deal 

Covad next argues that Bell Atlantic unlawfully refused

to sell its DSL service to would-be customers who had orders

for DSL service pending with Covad. According to Covad, Bell

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Atlantic’s refusal to deal was designed “to prevent Covad from

getting to the market ahead of Bell Atlantic.” Bell Atlantic

counters that Covad failed to plead that this practice resulted in

a short-term economic loss to Bell Atlantic, as is required. See

AREEDA & HOVENKAMP, ANTITRUST LAW ¶ 773, at 199 (Supp.

2004) (to be unlawful, refusal to deal must be “‘irrational’ in the

sense that the defendant sacrificed the opportunity to make a

profitable sale only because of the adverse impact the refusal

would have on a rival”). In any event, Bell Atlantic asserts, it

had a legitimate economic justification for refusing to deal,

namely, that it was unprofitable to sell its DSL service to a

consumer who would soon switch his custom to Covad. Neither

of Bell Atlantic’s arguments is persuasive as a justification for

dismissing Covad’s complaint. 

As to Bell Atlantic’s first point, the defendant is correct

that in order to prevail upon this claim Covad will have to prove

Bell Atlantic’s refusal to deal caused Bell Atlantic short-term

economic loss. See generally United States v. Colgate & Co.,

250 U.S. 300, 307 (1919) (absent “purpose to create or maintain

monopoly, [the Sherman Act] does not restrict the long

recognized right of trader ... freely to exercise his own

independent discretion as to parties with whom he will deal”).

But Covad has alleged that Bell Atlantic’s refusal to deal was

“predatory,” which suffices to withstand a motion to dismiss

because, in the vernacular of antitrust law, a “predatory”

practice is one in which a firm sacrifices short-term profits in

order to drive out of the market or otherwise discipline a

competitor. See Brooke Group Ltd., 509 U.S. at 222-23 (claim

of predatory pricing demands proof of below-cost pricing).

Bell Atlantic’s second defense – that its refusal to deal

was economically justified – depends upon a question of fact

and therefore is not cognizable in support of a motion to dismiss.

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It is, of course, entirely possible Bell Atlantic will be able to

prove the cost of connecting a customer to its DSL service is not

recovered in the short-term, thereby showing its refusal to deal

was a reasonable business decision. On the other hand, it is also

possible Bell Atlantic’s refusal to deal reflected its willingness

to sacrifice immediate profits from the sale of its DSL service in

the hope of driving Covad out of the market and recovering

monopoly profits in the long-run. See Matsushita Elec. Indus.

Co. v. Zenith Radio Corp., 475 U.S. 574, 588-89 (1986)

(because predatory pricing requires practitioner to “forgo profits

that free competition would offer,” it “must have a reasonable

expectation of recovering, in the form of later monopoly profits,

more than the losses suffered”). The district court cannot

choose between these competing explanations without first

resolving questions of fact not before it upon a motion to

dismiss.

5. Baseless and bad faith patent suit 

Finally, Covad argues its allegation that Bell Atlantic

brought a spurious patent case against it states a claim under §

2 of the Sherman Act. See generally Bell Atlantic Network

Services, Inc. v. Covad Communications Group, 92 F. Supp. 2d

483 (E.D. Va. 2000). Specifically, Covad contends that Bell

Atlantic’s suit was baseless, brought in bad faith, and had an

anticompetitive effect. Bell Atlantic counters first, as the district

court held, that Covad failed to allege the suit had an

anticompetitive effect, see Covad Communications, 201 F. Supp.

2d at 135 (quoting Microsoft, 253 F.3d at 58-59), and second,

that the suit was not objectively baseless.

Regarding anticompetitive effect, Bell Atlantic is

mistaken. Covad alleges Bell Atlantic brought the patent suit in

order “to interfere with competition in the relevant markets.”

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That is sufficient to allege an anticompetitive effect.

Alternatively, Bell Atlantic urges us to hold, as a matter

of law, that its bringing the patent suit could not have harmed

competition. In so doing, Bell Atlantic confuses the function of

a motion to dismiss pursuant to Rule 12(b)(6), which tests the

sufficiency of the plaintiff’s allegations, with a motion for

summary judgment pursuant to Rule 56, which tests the

sufficiency of the non-moving party’s evidence in light of the

legal theory it has advanced. See Swierkiewicz v. Sorema N.A.,

534 U.S. 506, 512 (2002) (“simplified notice pleading standard

[of the Federal Rules of Civil Procedure] relies on liberal

discovery rules and summary judgment motions to define

disputed facts and issues and to dispose of unmeritorious

claims”). Bell Atlantic’s protestation notwithstanding, we have

it on good authority that even a single patent suit brought in bad

faith against a nascent rival might unlawfully harm competition.

See 3AAREEDA & HOVENKAMP, ANTITRUST LAW ¶ 782k, at 281

(“an unjustified patent infringement suit ... might be abused by

a monopolist to the detriment of actual or potential rivals”).

Whether Bell Atlantic’s suit had such an effect is, again, a

question not properly decided upon a motion to dismiss.

Bell Atlantic next disputes Covad’s characterization of

the patent suit as baseless. Resolving this matter requires us to

consider the Noerr-Pennington doctrine, under which

petitioning the Government for redress of grievances, whether

by efforts to influence legislative or executive action or by

seeking redress in court, is immune from liability under the

antitrust laws. See E. R.R. Presidents Conference v. Noerr

Motor Freight, Inc., 365 U.S. 127, 136 (1961); Cal. Motor

Transp. Co. v. Trucking Unlimited, 404 U.S. 508, 510 (1972)

(Noerr-Pennington doctrine encompasses “the approach of

citizens ... to courts”). 

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Noerr-Pennington immunity, however, does not extend

to “sham” litigation. The presumption of antitrust immunity for

litigating is dispelled if the plaintiff can show that two

conditions are met:

First, the lawsuit must be objectively baseless in the

sense that no reasonable litigant could realistically

expect success on the merits. ... Only if challenged

litigation is objectively meritless may a court examine

the litigant’s subjective motivation. ... This two-tiered

process requires the plaintiff to disprove the challenged

lawsuit’s legal viability before the court will entertain

evidence of the suit’s economic viability. 

Prof’l Real Estate Investors, Inc. v. Columbia Pictures Indus.

508 U.S. 49, 60-61 (1993). Bell Atlantic urges us to decide as

a matter of law that its patent suit against Covad was not

“objectively baseless.” Covad interposes no issue of fact and

joins issue on the question of law. With the opinions of the

patent courts before us, we see no barrier to our determining

now whether Bell Atlantic’s suit was a sham and hence without

Noerr-Pennington immunity from antitrust liability. 

Bell Atlantic sued Covad for patent infringement. The

district court, in a lengthy and detailed opinion, granted

summary judgment in favor of Covad. Bell Atlantic Network

Services, 92 F. Supp. 2d at 499-500. Bell Atlantic appealed, and

the Court of Appeals for the Federal Circuit, in another lengthy

and detailed opinion, see 262 F.3d 1258 (2001), affirmed the

judgment of the district court. That Covad ultimately prevailed,

of course, tells us little about whether Bell Atlantic’s patent suit

lacked objective merit. See Prof’l Real Estate Investors, 508

U.S. at 60 n.5 (“court must resist the understandable temptation

to engage in post hoc reasoning by concluding that an ultimately

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unsuccessful action must have been unreasonable or without

foundation”). 

Our review of the patent courts’ opinions convinces us

that Bell Atlantic’s case against Covad was not objectively

baseless. Bell Atlantic advanced reasonable arguments that each

court went to some lengths to reject. Nothing in their opinions

suggests that “no reasonable litigant could [have] realistically

expect[ed] success on the merits.” Id. at 60. 

Covad also alleges Bell Atlantic “singled Covad out” for

suit and “used the patent action as the vehicle for serving

discovery requests on Covad” seeking “confidential information

about a competitor.” Those allegations, however, speak to Bell

Atlantic’s subjective motivation for suing Covad, which may be

evaluated “[o]nly if [the] challenged litigation is objectively

meritless.” Id. We therefore conclude that Covad’s allegation

that Bell Atlantic brought a baseless and bad faith patent suit

against it fails to state a claim under § 2 of the Sherman Act. 

III. Conclusion 

For the foregoing reasons, the judgment of the district

court dismissing Covad’s claims of monopolization and

attempted monopolization is reversed with respect to Covad’s

claim that Bell Atlantic unlawfully refused to deal with wouldbe customers who had orders for DSL service pending with

Covad. The judgment is affirmed in all other respects and this

matter is remanded to the district court for further proceedings

consistent herewith.

So ordered. 

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