Opinion ID: 539780
Heading Depth: 2
Heading Rank: 3

Heading: Information Services

Text: 48 The BOCs and the DOJ also appeal from the district court's decision not to lift the restriction on information services under section II(D)(1), as that restriction is applied to the generation of information. 25 The district court found that there had been no significant, relevant change in market conditions justifying removal of this restraint under section VIII(C). 673 F.Supp. at 564. Noting that neither the DOJ nor AT & T opposed lifting the information services ban, the BOCs contend that the district court should have reviewed this question under a more flexible public interest standard pursuant to section VII. See supra note 6. We agree, and hold that the district court erred in applying section VIII(C) to the uncontested motion to remove the line-of-business restriction on information services. And because we are unable to say that the district court would have reached the same result had it applied the proper legal standard, we are constrained to remand the case for further consideration of the BOCs' motion to remove the information services ban in its entirety. 49 1. The Applicability of Section VII to Uncontested Motions to Modify a Line-of-Business Restriction Under the Decree 50 It is well established that a less demanding standard of review applies to an uncontested motion to modify a consent decree than applies to a contested one. See generally Note, Modifications of Antitrust Consent Decrees: Over a Double Barrel, 84 MICH.L.REV. 134, 135 (1985). As we have explained, unless the parties have expressly agreed otherwise, an antitrust defendant can prevail on a contested motion to reduce or eliminate its obligations only if it can make a clear showing of grievous wrong evoked by new and unforeseen conditions. United States v. Swift & Co., 286 U.S. 106, 119, 52 S.Ct. 460, 464, 76 L.Ed. 999 (1932). But when all parties to a decree assent to a particular modification, the relevant inquiry for the court is whether the resulting array of rights and liabilities comports with the public interest. See, e.g., United States v. American Cyanamid Co., 719 F.2d 558, 565 (2d Cir.1983), cert. denied, 465 U.S. 1101, 104 S.Ct. 1596, 80 L.Ed.2d 127 (1984); United States v. National Finance Adjusters, Inc., 1985-2 Trade Cas. (CCH) p 66,856, at 64,248 (E.D.Mich.1985). 51 Through section VIII(C), the parties expressly altered this common law approach to decree modification. The question is how much they altered it. According to the BOCs, Section VIII(C) was intended merely to supplant Swift 's grievous wrong standard for contested modifications of the decree's line-of-business restrictions; uncontested motions to lift these restrictions, the BOCs argue, remain subject to the ordinary public interest standard as incorporated in section VII's general provision for modification of the decree. 26 Because neither AT & T nor the DOJ opposed the BOCs' motion to remove section II(D)(1)'s information service restriction, 27 the BOCs conclude that the district court should have reviewed their motion under a public interest test rather than under section VIII(C)'s no-substantial-possibility test. The appellees reply that section VIII(C) furnishes the exclusive mechanism for modifying the decree's line-of-business restrictions. 52 Whether section VII or section VIII(C) governs an uncontested motion to modify section II(D) is not a mere academic question. By focusing on whether a particular uncontested modification is in the public interest, section VII allows the district court to approve an uncontested modification even without a showing of a change of any kind so long as the resulting array of rights and obligations is  'within the reaches of the public interest'  today. United States v. Bechtel Corp., 648 F.2d 660, 666 (9th Cir.) (quoting United States v. Gillette Co., 406 F.Supp. 713, 716 (D.Mass.1975)), cert. denied, 454 U.S. 1083, 102 S.Ct. 638, 70 L.Ed.2d 617 (1981). 53 To determine whether the parties intended section VII or section VIII(C) to apply to uncontested motions to modify the decree's line-of-business restrictions, we must look first to the text of the decree, and then, if the question remains subject to doubt, to  'contemporaneous statements of [the decree's] objectives.'  United States v. Western Elec. Co., 894 F.2d 1387, 1390-91 (D.C.Cir.1990) (quoting United States v. Western Elec. Co., 846 F.2d 1422, 1427 (D.C.Cir.), cert. denied, --- U.S. ----, 109 S.Ct. 306, 102 L.Ed.2d 325 (1988)). This inquiry convinces us that uncontested motions to modify line-of-business restrictions should be resolved pursuant to a public interest standard under section VII. 54 Contrary to the contentions of the appellees, the applicability of section VIII(C) is not dictated by the plain meaning of its terms. Section VIII(C) does not purport to be the exclusive standard for reviewing motions to modify restrictions imposed by section II(D). Indeed, as we have noted above, insofar as section VIII(C) makes removal of a restriction contingent upon a showing by the petitioning BOC, 552 F.Supp. at 231 (emphasis added), this provision appears to contemplate adversarial testing of the relevant issues. At best, section VIII(C) must be deemed to be silent on the question of what standard applies to uncontested motions to remove the decree's line-of-business restrictions. 55 The circumstances surrounding the formation of the decree, however, leave little question that the parties expected uncontested motions to be governed by common law principles pursuant to section VII. When the parties initially submitted the decree to the district court, the only provision for modification was section VII. In explaining their understanding of that section, both parties stated that [i]n the event that the parties agree to an amendment of the modification to remove [a line-of-business] restriction, the standard for such removal would be whether it is in the public interest. Brief of the United States in Response to the Court's Memorandum of May 25, 1982 at 32, reprinted in J.A. 882; see AT & T Brief in Response to the Court's Memorandum of May 25, 1982 at 17-18, reprinted in J.A. 849-50 (stating same view). 56 The addition of section VIII(C) cannot be viewed as altering this understanding. The district court conditioned approval of the decree on adoption of section VIII(C) in order to alter the parties' stated intention that contested motions to remove a line-of-business restriction be granted merely upon a finding that 'the rationale for [the restriction] is outmoded by technical developments.'  552 F.Supp. at 195 (quoting Brief of the United States in Response to the Court's Memorandum of May 25, 1982 at 32-33, reprinted in J.A. 882-83); see also AT & T Brief in Response to the Court's Memorandum of May 25, 1982 at 18, reprinted in J.A. 850 (expressing same standard). The trial court expressly noted that the standard in section VIII(C) would supplant [t]he test usually applied to a contested modification ... [as] set forth in United States v. Swift & Co. 552 F.Supp. at 195 n. 266 (emphasis added) (citation omitted). Nothing in the court's opinion suggests that section VIII(C) was designed in addition to displace the parties' agreement that a public interest standard would apply to uncontested motions to modify section II(D). 57 This reading of the decree is further supported by an important general rule of decree construction, namely, the presumption that the parties, absen[t] any expressly stated intention to the contrary, intended to adopt the ordinary substantive ... standards that attend decree modification. United States v. Western Elec. Co., 894 F.2d 430, 436 (D.C.Cir.1990). As we have explained, the only express intention relating to section VIII(C) was that it would displace the Swift test for reviewing contested modifications. 58 2. Application of the Public Interest Test to the Motion to Remove the Restriction on Information Services 59 Having determined that section VII's public interest test governs uncontested proposals to modify the decree's line-of-business restrictions, we must next examine whether the district court's erroneous reliance on section VIII(C) affected the court's decision to deny the BOCs' unopposed motion to remove the decree's restriction on information services. We conclude that it did, and, consequently, we reverse. 60 As we have indicated, section VII and section VIII(C) involve different inquiries. Section VII's public interest test directs the district court to approve an uncontested modification so long as the resulting array of rights and obligations is within the zone of settlements consonant with the public interest today. Cf. Bechtel Corp., 648 F.2d at 666. Section VIII(C) requires the district court to determine whether the petitioning BOC has shown that it could not impede competition in the relevant market as it was believed it could when the decree was approved; applying this standard, Judge Greene denied the BOCs' motion to remove the information-services restriction because he found that [t]here has been no change whatever in the information services market. 673 F.Supp. at 565. 61 Under only two circumstances could we discount the possibility that the district court would have reached a different result had it applied section VII rather than section VIII(C). The first would be if the inclusion of the information services restriction was mandatory, not merely permissible, at the time that the decree was adopted. If market conditions or assumptions in 1982 so constrained the range of permissible settlements that only a decree incorporating this restriction could have been approved as consistent with the public interest then, it would follow that the parties would need to show that those conditions had abated before the court could approve removal of the restriction today. 62 We cannot say, on the record before us at least, that this condition is met. The Government's case in the AT & T antitrust litigation centered exclusively on AT & T's activities in the interexchange-service and equipment-manufacturing markets. See, e.g., COMPETITIVE IMPACT STATEMENT IN CONNECTION WITH PROPOSED MODIFICATION OF FINAL JUDGMENT, 47 Fed.Reg. 7172 (1982). Indeed, because the 1956 consent decree enjoined AT & T from engaging ... in any business other than the furnishing of common carrier communications services, United States v. Western Elec. Co., 1956 Trade Cas. (CCH) p 68,246, at 71,138 (D.N.J.1956), and because relatively few information services were provided to the public before the DOJ moved to reopen that decree in 1974, there really was no record to speak of concerning AT & T's activities in the information services market. The parties agreed to the information services restriction as a precautionary measure in light of uncertainty about how divestiture of AT & T would affect the development of this embryonic market. Under these circumstances, it would not have been legal error for the district court to approve the decree had the parties not agreed on their own to include the restriction on information services. Consequently, the district court's bare finding that the BOCs failed to show a change in market conditions does not suffice to show that the decree, absent the information services restriction, would no longer be  'within the reaches of the public interest.'  Bechtel Corp., 648 F.2d at 666 (quoting Gillette Co., 406 F.Supp. at 716). 63 The second condition under which we could disregard the district court's reliance on section VIII(C) would be if the record conclusively showed that, regardless of whether the parties were obliged to include the information services restriction in 1982, removing it would be against the public interest now. Because the public interest test must take its meaning from the nation's antitrust laws, see American Cyanamid Co., 719 F.2d at 565, the appropriate question under section VII is whether the proposed modification would be certain to lessen competition in the relevant market. See generally 2 P. AREEDA & D. TURNER, ANTITRUST LAW p 330, at 141-42 (1978) (To remain consistent with antitrust policy, the court should revise the decree that is shown to lessen competition substantially in present circumstances.). Purporting to find that the BOCs would have both the incentive and the ability to cross-subsidize the information-service operations of unregulated affiliates and to discriminate against information-service competitors, the district court concluded that removal of section II(D)(1)'s restriction on information services would be anticompetitive under current market conditions. 673 F.Supp. at 565-67. 64 But because we cannot be certain that these findings were not infected by the court's legal error concerning the proper standard of review, we may not rely on them to support the district court's denial of the BOCs' motion. See Pullman-Standard v. Swint, 456 U.S. 273, 292, 102 S.Ct. 1781, 1792, 72 L.Ed.2d 66 (1982). The district court's analysis of the contemporary risk of anticompetitive behavior repeatedly incorporates the failure of the BOCs to show a change in market conditions from those existing when the decree became effective: 65 There still has been no significant, relevant change in the situation. 66 673 F.Supp. at 564 (emphasis added). 67 It is necessary next to determine whether, with respect to the provision of information services, the incentive and ability of the Regional Companies to engage in anticompetitive conduct remains the same as it was when the decree was entered. The answer is plain. There has been no change whatever in this respect since 1984.... 68 Id. at 565 (emphasis added). 69 In short, the reasons cited by the Court in 1982 and in 1984 are as valid today as they were then. 70 Id. at 567 (emphasis added). Consequently, we cannot be sure whether the district court's findings of anticompetitive risk stemmed from its de novo assessment of the evidence. 71 Nor can we say that the record permits only one resolution of the factual issue[s] pertinent to determining whether lifting the information-services prohibition would be pro- or anticompetitive. Pullman-Standard, 456 U.S. at 292, 102 S.Ct. at 1792. To be sure, the district court had before it evidence to support its findings on the risk of discrimination and cross-subsidization. But the record also contains considerable evidence cutting the other way. The Huber Report, in particular, discounts the prospect of anticompetitive behavior, citing the ability of competing information-service providers to bypass the BOCs' local-exchange networks, see Huber Report at 6.8, 6.17-6.21, the existence of nontelecommunications substitutes for information services, see id. at 6.21-6.23, and the lack of common costs between local-exchange services and the generation of information, see id. at 6.35. 28 Because resolving these disputed factual issues would be wholly inconsistent with the function of an appellate court, Southern Pacific Communications Co. v. American Tel. & Tel. Co., 740 F.2d 980, 984 (D.C.Cir.1984), cert. denied, 470 U.S. 1005, 105 S.Ct. 1359, 84 L.Ed.2d 380 (1985), we are constrained to remand the case for further factfinding, pursuant to the proper legal standard. See Pullman-Standard, 456 U.S. at 292, 102 S.Ct. at 1792. 72 In sum, we find that the district court erred in applying section VIII(C) rather than section VII's public interest standard to the BOCs' unopposed motion to lift the decree's information-services restriction in its entirety. And because we are unable to say that the district court would have reached the same result had it applied the proper legal standard, we reverse the court's decision and remand the case for further proceedings. In reconsidering the BOCs' motion, the district court should determine whether removal of the information-services restriction as applied to the generation of information would be anticompetitive under present market conditions. 29 The court should also bear in mind the flexibility of the public interest inquiry: the court's function is not to determine whether the resulting array of rights and liabilities is the one that will best serve society, but only to confirm that the resulting settlement is 'within the reaches of the public interest.'  Bechtel Corp., 648 F.2d at 666 (quoting Gillette Co., 406 F.Supp. at 716) (emphasis added).