Opinion ID: 75966
Heading Depth: 3
Heading Rank: 1

Heading: Essential Facilities

Text: The withholding of access to an essential facility without which a competitor cannot enter or compete in a market is a violation of the antitrust laws. See Consolidated Gas I, 880 F.2d at 301. Under the well-established “essential facilities” doctrine, an inference of anticompetitive intent in violation of Section 2 arises upon a showing of four elements: (1) control of the essential facility by a monopolist; (2) a competitor’s inability practically or reasonably to duplicate the essential facility; (3) the denial of the use of the facility to a competitor; and (4) the feasibility of providing the facility. See MCI Communications Corp. v. AT&T, 708 F.2d 1081, 1132-33 (7th Cir. 1983). By exercising its control over an essential facility (sometimes called a “bottleneck”) to withhold access to that facility, a monopolist can exclude competition. For example, in Consolidated Gas I, we found that a massive system of natural gas pipes controlled by the defendant was an essential facility. Control over that bottleneck, the gas pipelines, enabled the defendant to exercise its power in the market to exclude competition. See Consolidated Gas I, 880 F.2d at 301. “Thus, the antitrust laws have imposed on firms controlling an essential facility the obligation to make the facility available on non-discriminatory terms.” MCI, 708 F.2d at 1132. In MCI, 708 F.2d at 1133, the Seventh Circuit held that the local telephone 23 network was an essential facility and that AT&T could not deny MCI reasonable access to it. Covad argues that MCI is essentially indistinguishable from the present case, and uses it as a template in stating the elements of its essential facilities claim. First, Covad alleges that BellSouth controls an essential facility, indeed, the same essential facility (local telephone exchange) at issue in MCI. See id. Second, Covad alleges that it would not be economically feasible “to duplicate Bell’s local distribution facilities (involving millions of miles of cable and line to individual homes and businesses), and regulatory authorization could not be obtained for such an uneconomical duplication.” Id. Third, Covad contends that BellSouth denied interconnections to the essential facilities, and fourth, did so even though the interconnections could have been feasibly provided. See id. Finally, Covad maintains that BellSouth’s conduct was intended to, and did, leverage BellSouth’s local exchange monopoly into the local internet access markets to exclude Covad and to create or preserve BellSouth’s monopoly power in the local internet access markets. See id. BellSouth’s response to this claim begins with a critique of the essential facilities doctrine itself, explaining that “[e]ssential facilities claims—along with other doctrines that Covad invokes in passing—exist at the fringes of antitrust law.” Br. of Appellee at 34 (citing Blue Cross & Blue Shield United of Wisc. v. 24 Marshfield Clinic, 65 F.3d 1406, 1412 (7th Cir. 1995) (“[T]he essential-facilities line[] has been criticized as having nothing to do with the purposes of antitrust law.”). Whatever the merits of this critique, as the Seventh Circuit observed in Blue Cross, “[w]e are not authorized to abrogate doctrines that have been endorsed and not yet rejected by the Supreme Court.” Blue Cross, 65 F.3d at 1413 (citing Olympia Equip. Leasing Co. v. W. Union Tel. Co., 797 F.2d 370, 376 (7th Cir. 1986)). With regard to the substance of Covad’s essential facilities claim, BellSouth responds with three points. First, BellSouth argues that Covad cannot allege the most basic element of an essential facilities claim: the actual denial of access to an essential facility. BellSouth states that Covad conceded that BellSouth has participated in the interconnection and negotiation/arbitration process, and that BellSouth has provided all of the types of facilities that Covad has sought. According to BellSouth, the dispute is thus restricted to the following matters: the specific terms, timing, and implementation of the interconnection agreement; the alleged “delays” in obtaining collocation space and transport; and the “obstacles” in obtaining loops. BellSouth maintains that these complaints are properly characterized as claims regarding the terms or quality of access under the interconnection agreement, and that none of these claims can amount to an antitrust 25 claim. Second, BellSouth argues that Covad’s claim fails because the essential facilities doctrine never applies where a competitor seeks “preferential access” or asks the owner to “abandon its facilities.” Br. of Appellee at 39 (citing MCI, 708 F.2d at 1133). BellSouth explains that when Covad purchases an unbundled loop, it gains exclusive use of that loop, and that antitrust laws have never required a monopolist to “cease using its own facility so that [a competitor] can begin using it.” Id. (quoting City of Vernon v. S. Cal. Edison Co., 955 F.2d 1361, 1366 (9th Cir. 1992)). Third, BellSouth argues that Covad is attempting to use antitrust law not merely to gain access to facilities, but also to force BellSouth to construct new facilities or to alter the nature of its business and become a renter of facilities for competitors to use. BellSouth observes that “[n]o case has suggested that the monopolist must build new capacity to satisfy a would-be sharer.” Id. at 40 (quoting 3A Areeda & Hovenkamp, Antitrust Law ¶ 773e, at 214). BellSouth characterizes Covad’s claim as an attempt to harness the antitrust law to force BellSouth to build new facilities, to develop new software, or to modify existing facilities quickly enough to meet Covad’s alleged business needs. For the most part, these are arguments that must be addressed at a later stage 26 of the proceedings, such as summary judgment or trial. We note that with regard to BellSouth’s first point, Section 2 prohibits denial of access to essential facilities on reasonable terms. See Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d 536, 542 (9th Cir. 1991); City of Vernon, 955 F.2d at 1367; Laurel Sand & Gravel, Inc. v. CSX Transp., Inc., 924 F.2d 539, 545 (4th Cir. 1991); accord Del. & Hudson Ry. v. Consol. Rail Corp., 902 F.2d 174, 179-80 (2d Cir. 1990) (“[i]t is sufficient if the terms of the offer to deal are unreasonable”). The “applicable legal standard” is that “[a]ny company which controls an ‘essential facility’ or a ‘strategic bottleneck’ in the market violates the antitrust laws if it fails to make access to that facility available to its competitors on fair and reasonable terms that do not disadvantage them.” United States v. AT&T, 524 F. Supp. 1336, 1352-53 (D.D.C. 1981) (emphasis added) (citing United States v. Terminal R.R. Ass’n of St. Louis, 224 U.S. 383, 411 (1912), and Otter Tail Power Co. v. United States, 410 U.S. 366 (1973), among other cases). As the Supreme Court explained in Terminal R.R., a monopolist must provide access to essential facilities “upon such just and reasonable terms and regulations as will, in respect of use, character, and cost of service, place every such company upon as nearly an equal plane as may be with respect to expenses and charges as that occupied by the proprietary 27 companies.”13 224 U.S. at 411. Whether or not Covad can ultimately prove a violation, its complaint does allege that Bell South sometimes denied access to its facilities outright and other times denied access on reasonable terms.14 As to BellSouth’s second argument, we likewise note that the case upon which BellSouth relies, City of Vernon, 955 F.2d at 1361, affirmed a summary judgment, not a Rule 12 dismissal. Moreover, City of Vernon sought exclusive use of a relative share of defendants’ entire electrical transmission facilities. See id. at 1364 & nn. 3 & 4. As we understand the claim here, Covad seeks temporary use of an element of the ratepayer-funded local telephone network only for so long as Covad has a customer, after which BellSouth regains full use of the facility (which at all times remains its property). That temporary use seems quite similar to the use of a pipeline in Consolidated Gas I and is nothing more than MCI found 13 BellSouth cites to a number of cases denying essential facilities claims, but those cases are distinguishable from the present case. For example, Ideal Dairy Farms, Inc. v. John Labatt, Ltd., 90 F.3d 737, 748 (3d Cir. 1996), affirming summary judgment, involved alleged overcharges under the parties’ contract, not denial of access to essential facilities. Anserphone, Inc. v. Bell Atl. Corp., 955 F. Supp. 418, 428-29 (W.D. Pa. 1996), found plaintiff’s evidence of poor service an insufficient “constructive denial” of access to withstand summary judgment. Twin Labs., Inc. v. Weider Health & Fitness, 900 F.2d 566, 569 (2d Cir. 1990) and Valet Apt. Servs. Inc. v. Atlanta Journal & Constitution, 865 F. Supp. 828, 830-31 (N.D. Ga. 1994), involved fact-bound disputes about whether and where to place print advertisements. 14 BellSouth’s argument that the essential facilities claim is really an ordinary breach of contract claim does not support its motion to dismiss. Covad’s allegations of anticompetitive conduct can and do “support antitrust liability” at the pleading stage. Mr. Furniture Warehouse, 919 F.2d at 1522-23 (monopolist’s refusal to deal supports Section 2 claim where it is “designed to have an anticompetitive effect”). Breach of contract and antitrust are not mutually exclusive. See City of Vernon, 955 F.2d at 1368. 28 proper. See MCI, 708 F.2d at 1132-33. In any case, these are primarily fact issues that reflect upon the feasibility of the requested relief. It would thus be inappropriate to grant dismissal on this basis. Similarly, whether the relief sought would unreasonably require BellSouth to construct new facilities as opposed to granting nondiscriminatory access to existing ones is primarily a question of fact inappropriate for disposition on a motion to dismiss. Without venturing any opinion on the merits of its specific allegations, we conclude that Covad’s complaint satisfies the “exceedingly low” threshold of sufficiency that a complaint must meet to survive a motion to dismiss for failure to state a claim, Quality Foods, 711 F.2d at 995, namely, that it must adequately allege that as an integrated telecommunications company with monopoly control, BellSouth attempted to leverage its monopoly power in the high-speed internet market by giving itself preferential access to its essential facilities.