Opinion ID: 75967
Heading Depth: 4
Heading Rank: 1

Heading: The Essential Facilities Doctrine

Text: 14 The Seventh Circuit clearly articulated what the world would have looked like if, counterfactually, Congress had opted to choose a “simple antitrust solution” rather than the extraordinary obligations placed upon ILECs: It would have been possible for Congress to have passed a statute that simply lifted the regulatory prohibitions found in sources such as the Telecommunications Act of 1934, the MFJ, and other sources, that barred companies in different parts of the telecommunications market (i.e. long distance and local markets, generally speaking) from entering one another’s domains. Anyone who wanted to compete with an ILEC would have had the burden of duplicating its physical infrastructure or of persuading the ILEC to contract with it on mutually satisfactory terms, but this is the normal way in which competitive markets work . . . . In other words, Congress could have chosen a simple antitrust solution to the problem of restricted competition in local telephone markets. It did not. Instead, in an effort to jump-start the development of competitive local markets, it imposed a host of special duties on the ILECs; it entrusted supervision of those duties to the FCC and the state public utility commissions; and it created a system of negotiated agreements through which this would be accomplished. These are precisely the kinds of affirmative duties to help one’s competitors that we have already noted do not exist under the unadorned antitrust laws. Goldwasser, 222 F.3d at 399-400 (citations omitted). 11 Antitrust doctrine has never required the extensive, court-administered forced-access regime that the panel opinion contemplates in its holding regarding the so-called “essential facilities” doctrine.15 Antitrust law generally poses no obligation upon firms to deal with competitors or share their capital investments with rivals. See, e.g., Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 600-01, 105 S. Ct. 2847, 2856, 86 L. Ed. 2d 467 (1985) (“[E]ven a firm with monopoly power has no general duty to engage in a joint marketing program with a competitor. . . . The absence of a duty to transact business with another firm is, in some respects, merely the counterpart of the independent businessman’s cherished right to select his customers and his associates.”); see generally 3A Phillip Areeda & Herbert Hovenkamp, Antitrust Law, ¶ 771b (1996) (“Forcing a firm to share its monopoly is inconsistent with antitrust’s basic goals . . . .”). This is so for several reasons. The first reason is the fear that new entrants will not build their own physical plant if they can simply piggyback on the facilities of an incumbent; there is hardly meaningful competition without facilities-based competition. A second problem with a broad expansion of the essential facilities 15 The panel, citing MCI Communications v. Am. Tel. & Tel., 708 F.2d 1081, 1132-33 (7th Cir. 1983), held that there are four elements to a claim under the essential facilities doctrine: (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. Covad, 229 F.3d at 1286. The panel never mentioned the horizontal/vertical distinction that I discuss, infra. 12 doctrine is that it would place trial courts in the role of quasi-regulatory agencies because they would have to oversee sharing between rivals. Third, the doctrine creates a disincentive to develop new technologies. If a competitor can simply utilize a court order to get access to an incumbent’s physical plant, there is less incentive to create new technologies (such as wireless telephony) to bypass the perceived “essential facility.” Finally, the doctrine creates little incentive for incumbents to roll out additional plant or upgrade existing facilities. Why bare all of the risk, only to have competitors reap the benefits? In sum, there are convincing reasons why the leading antitrust scholars condemn the essential facilities doctrine, and why they are steadfast in their argument that the Supreme Court has never explicitly endorsed the doctrine. See id. at ¶¶ 771b-c (“The Supreme Court has never articulated or approved the modern version of the essential facilities doctrine.”). The panel relied on two cases to support its expansive view of the essential facilities doctrine. The first is Consolidated Gas Co. of Fla., Inc. v. City Gas Co. of Fla., 880 F.2d 297, 301 (11th Cir. 1989), on reh’g en banc, 912 F.2d 1262 (11th Cir. 1990), vacated and remanded, 499 U.S. 915 (1991), on remand, 931 F.2d 710 (11th Cir. 1991). That case was wrong because it failed to grasp a fundamental point: to the extent that the essential facilities doctrine is viable at all, it is a 13 doctrine concerned with vertical foreclosure. The leading antitrust scholars confirm this view: “It should be clear from the outset that the essential facility doctrine concerns vertical integration – in particular, the duty of a vertically integrated monopolist to share some input in a vertically related market, which we call market #1, with someone operating in an upstream or downstream market, which we call market #2.” See 3A Areeda & Hovenkamp, Antitrust Law ¶ 771a; see also Consolidated Gas, 912 F.2d at 1291-92 (Tjoflat, C.J., dissenting) (arguing that the defendant’s refusal to deal was justified on the basis that it was not a wholesaler, but rather a retailer similar to the plaintiff/competitor). Indeed, Covad concedes that my dissenting opinion was correct. See Covad Br. at 27 n.14. In this case, BellSouth was in the business of providing DSL services via its local loop. Covad is similarly in the business of DSL provision (via BellSouth’s local loop). The two entities are thus horizontal competitors. Moreover, Covad does not want merely to interconnect its own facilities with BellSouth’s network; it wants the facilities of BellSouth so that it can sell DSL services. The 1996 Act imposes this novel obligation; the antitrust laws do not. A reading of the essential facilities doctrine that stands for the proposed proposition – namely, that horizontal competitors that find it financially inconvenient to build their own physical plant 14 may simply tap the resources of the incumbent/monopolist or else sue for treble damages – is a dangerous expansion of the antitrust laws indeed.16 The Seventh Circuit decision in MCI Communications v. AT&T Tel. & Tel. Co., 708 F.2d 1081, 1132 (7th Cir. 1983), makes this point clear (although the Covad panel somehow uses that case to support its position). In that case, the court held that there was no liability for AT&T’s failure to provide access to its longdistance network. It was only in the vertical context that the essential facilities doctrine was implicated: MCI was entitled to interconnect its long distance network with AT&T’s local exchanges. The court held that because MCI was seeking to compete with AT&T in the long-distance market, it was not entitled to rely on AT&T’s existing long-distance facilities to enhance its ability to compete. As the Seventh Circuit later stated: “AT&T’s refusal to voluntarily assume ‘the extraordinary obligation to fill in the gaps in its competitor’s network,’ did not suffice to support a finding that it was trying to maintain its monopoly of long16 We rejected a similar claim in another case: This argument reveals the heart of the plaintiffs’ claim: they want the right to benefit from [the defendant’s] economies of scale. The plaintiffs are seeking a “free ride” – since they do not have a large enough operation to produce significant economies of scale and are unable, or unwilling, to finance the growth necessary to achieve these economies, they want to use, to their benefit, [the defendant’s] size and the capital outlays used to achieve it . . . . The plaintiffs then are asking us to equip them with [the defendant’s] competitive advantage. This is not a function of the antitrust laws. The antitrust laws are not intended to support artificially firms that cannot effectively compete on their own. Seagood Trading Corp. v. Jerrico, Inc., 924 F.2d 1555, 1572-73 (11th Cir. 1991). 15 distance telephone service by anticompetitive means.” State of Ill., ex. rel. Burris v. Panhandle E. Pipe Line Co., 935 F.2d 1469, 1484 (7th Cir. 1991) (quoting MCI, 708 F.2d at 1149). The MCI court held that “as pure matter of antitrust law . . . we decline to hold AT&T liable for a refusal to make available its full nationwide network to a competitor.” MCI, 708 F.2d at 1149. The analogy between MCI and AT&T’s long-distance division is similar to the analogy between BellSouth and Covad: each is a horizontal competitor of the other. Accordingly, the same result should obtain: the essential facilities doctrine should not be used to give the horizontal competitor access. The essential facilities doctrine should not be applied in Covad for another reason. Covad seeks to force BellSouth to make extensive modifications to its network to accommodate Covad. See Plaintiff’s Complaint, R1-1, ¶¶66, 70, 88 (complaining that BellSouth failed to provide a transport line, to “develop[] automated electronic interfaces,” and “to develop any mechanism by which Covad can offer an existing BellSouth ADSL customer a seamless transfer to Covad.”). The antitrust laws do not require this. See 3A Areeda & Hovenkamp, Antitrust Law ¶773e, at 214 (“No case has suggested that the monopolist must build new capacity to satisfy a would-be sharer.”). The 1996 Act may require such alterations, but that is another matter. The antitrust laws do not require BellSouth 16 to promptly develop software and modify its facilities in order to meet Covad’s business needs. Nor do the antitrust laws require, as Covad complains, that BellSouth add personnel to its wholesale division in order to meet BellSouth’s regulatory obligations.