Court Opinion

ID: 2660220
Source: CourtListenerOpinion
Date Created: 2014-04-03 04:13:22.8504+00
Date Added: 2024-06-11T12:50:08.234399
License: Public Domain

UNITED STATES DISTRICT COURT
                        FOR THE DISTRICT OF COLUMBIA
__________________________________
                                    )
UNITED STATES, et al.,              )
                                    )
            Plaintiffs,             )
                                    )
        v.                          )    Civil Action No. 12-1354 (RMC)
                                    )
VERIZON COMMUNICATIONS, INC., )
et al.,                             )
                                    )
            Defendants.             )
_________________________________   )

                                           OPINION

              After following the appropriate procedures under the Antitrust Procedures and

Penalties Act, 15 U.S.C. §§ 16(b)-(h) (commonly known as the APPA or Tunney Act), the

Government moves for entry of final judgment in this antitrust case. Mot. for Final J. [Dkt. 27].

As stated below, the motion will be granted.

                                           I. FACTS

              In December 2011, Verizon Communications, Inc. (Verizon) and Cellco

Partnership d/b/a Verizon Wireless 1 entered into certain Commercial Agreements with Comcast

Corporation, Time Warner Cable Inc., Bright House Networks LLC, and Cox Communications,

Inc. (Cable Defendants). The Commercial Agreements allow the sale of bundled services such

as Verizon Wireless services together with Cable Defendants’ residential wireline voice, video,

and broadband services. They also entered into a joint venture (a Joint Operating Entity or JOE)

to develop integrated wireline and wireless technologies through research and development. The

Government investigated and found that the Commercial Agreements would have certain

1
 Verizon Wireless is a joint venture by Verizon and Vodafone Group PLC and is operated and
managed by Verizon.

                                               1
anticompetitive effects in the marketplace. As a result, the Government filed this antitrust case

against Verizon, Verizon Wireless, and the Cable Defendants (collectively, Defendants). 2 The

Government alleges that Commercial Agreements between Defendants unreasonably restrain

trade in violation of the Sherman Act, 15 U.S.C. § 1. Compl. [Dkt. 1] ¶¶ 45-47.

               At the same time it filed the Complaint, the Government filed a Competitive

Impact Statement (CIS) [Dkt. 3]; a proposed Final Judgment [Dkt. 2-1; refiled at Dkt. 27-1]; and

a Stipulation and Order [Dkt. 2] whereby the parties agreed to entry of the Final Judgment after

compliance with the Tunney Act requirements. The proposed Final Judgment is intended to

remedy the anticompetitive effects of the Commercial Agreements between Defendants by

preserving competition in numerous local markets for broadband, video, and wireless services.

               In some areas, Verizon offers fiber-based voice, video, and broadband services

under the trade name “FiOS.” FiOS is offered in various areas in which the Cable Defendants

also offer cable services. The Commercial Agreements would have resulted in Verizon retail

stores selling two competing “quad play” (i.e., video, broadband, telephone, and mobile wireless

services) packages: (1) Verizon Wireless and a Cable Defendant’s services or (2) Verizon

Wireless and Verizon FiOS services.        The Government determined that the Commercial

Agreements and the JOE would have diminished Verizon’s incentives and ability to compete

vigorously against the Cable Defendants with its FiOS services and that the JOE created a

product development partnership with unlimited duration, which would decrease competition

and innovation in the long term in a fast changing field. The Government negotiated a consent

decree (i.e., the proposed Final Judgment) with Defendants to remedy the anticompetitive effects

of the Commercial Agreements.
2
  The State of New York joined the United States as a plaintiff in this case. This Opinion refers
to Plaintiffs jointly as the Government.

                                                2
               To satisfy the Tunney Act requirement for public notice and comment, the

Government published the proposed Final Judgment and CIS in the Federal Register on August

23, 2012, see Fed. Reg. 51048, and placed a summary for these documents in the Washington

Post on August 18-24, 2012. As a result, the Government received and responded to comments

from four entities: RCN Telecom Services LLC (RCN), a cable over-builder (i.e., a facilities-

based provider of wireline services); Communications Workers of America (CWA), a trade

union representing workers in the telecom industry; Montgomery County, Maryland; and the

City of Boston, Massachusetts (collectively, Objectors). See Gov’t Resp. to Public Comments

[Dkt. 26].

               Asserting that the proposed Final Judgment provides an effective and appropriate

remedy for the antitrust violations alleged in the Complaint, the Government now seeks entry of

Final Judgment. RCN was granted leave to participate in this case, and it filed a Reply brief

objecting to entry of the proposed Final Judgment and asserting the same concerns that it set

forth during the comment period. See RCN Reply [Dkt. 31]; RCN Comments [Dkt. 26-3].

                                    II. LEGAL STANDARD

               Entry of final judgment in antitrust cases is governed by a statute that requires that

the Court determine whether entry of judgment is in the public interest:

               (e) Public interest determination

               (1) Before entering any consent judgment proposed by the United
               States under this section, the court shall determine that the entry of
               such judgment is in the public interest. For the purpose of such
               determination, the court shall consider—

                      (A) the competitive impact of such judgment, including
                      termination of alleged violations, provisions for
                      enforcement and modification, duration of relief sought,
                      anticipated effects of alternative remedies actually
                      considered, whether its terms are ambiguous, and any other
                      competitive considerations bearing upon the adequacy of
                                                   3
                      such judgment that the court deems necessary to a
                      determination of whether the consent judgment is in the
                      public interest; and

                      (B) the impact of entry of such judgment upon competition
                      in the relevant market or markets, upon the public generally
                      and individuals alleging specific injury from the violations
                      set forth in the complaint including consideration of the
                      public benefit, if any, to be derived from a determination of
                      the issues at trial.

               (2) Nothing in this section shall be construed to require the court to
               conduct an evidentiary hearing or to require the court to permit
               anyone to intervene.

15 U.S.C. § 16(e).    A court must engage in an independent determination of whether the

proposed consent judgment is in the public interest. United States v. Microsoft Corp., 56 F.3d
1448, 1458 (D.C. Cir. 1995). Even so, a court’s inquiry is limited, as the Government is entitled

to “broad discretion to settle with the defendant within the reaches of public interest.” Id. at

1461. “[A] district court is not permitted to reject the proposed remedies merely because the

court believes other remedies are preferable.” United States v. SBC Commc’ns, Inc., 489 F.

Supp. 2d 1, 15 (D.D.C. 2007) (citation omitted). 3 A court must determine “whether there is a

factual foundation for the government’s decisions such that its conclusions regarding the

proposed settlement are reasonable.” Id. at 15-16. Further, a court’s proper role is to review the

proposed consent decree in light of the allegations made in the complaint; a court may not

“construct [its] own hypothetical case and then evaluate the decree against that case.” Microsoft,
56 F.3d at 1459.

3
  A court is not required to hold an evidentiary hearing or to permit any intervenors. SBC
Commc’ns, 489 F. Supp. 2d at 10. A court can make its public interest determination based on
the competitive impact statement and response to public comments alone. United States v.
Enova Corp., 107 F. Supp. 2d 10, 17 (D.D.C. 2000).

                                                 4
                                         III. ANALYSIS

                Applying this standard, the Court finds that there is a reasonable factual basis for

the proposed Final Judgment; that the proposed Final Judgment sufficiently remedies the

anticompetitive impact of the Defendants’ Commercial Agreements; and that entry of the

proposed Final Judgment is in the public interest. The objections do not convince the Court

otherwise.

                The proposed Final Judgment (1) forbids Verizon from selling the Cable

Defendants’ wireline services in areas where Verizon offers FiOS or is likely to offer FiOS in the

foreseeable future; and (2) forbids Verizon from selling cable services after December 2016 to

customers in areas where Verizon now sells Digital Subscriber Line (DSL) services. The

Objectors argue that the geographic area where Verizon is forbidden to sell cable services should

be defined more broadly in order to give Verizon the incentive to expand FiOS services. The

Government reasonably considered and rejected this objection. While Verizon is required to

build FiOS to millions of new households in the next few years due to existing franchise

obligations, it also had determined, before entering the Commercial Agreements, not to build

FiOS within its entire wireline footprint. Because it is unlikely that Verizon would have

expanded FiOS beyond those areas required by franchise agreements, competitive harm in those

areas is unlikely.

                CWA and RCN argue that the proposed Final Judgment undermines the

prohibition on Verizon’s sale of cable services by permitting national and regional advertising,

thereby resulting in Verizon’s marketing of cable services within its FiOS footprint. The

provision of the Final Judgment that permits advertising does not nullify the prohibition on the

sale of cable services. See Proposed Final J. § V.C. Even if customers within the FiOS sales

                                                  5
area receive advertising for cable services, Verizon is still prohibited from selling them cable

services.

               CWA and RCN also contend that Verizon’s ability to volunteer information

regarding cable services without compensation also undercuts the prohibition on Verizon’s sale

of cable services. The proposed Final Judgment is designed to preserve competition between the

sale of services by the Cable Defendants and the sale of FiOS by Verizon. Permitting Verizon to

provide free information regarding cable services does not impinge on Verizon’s incentive to sell

FiOS, which was the competitive harm alleged in the complaint.

               CWA also objects to § V.C of the proposed Final Judgment, which allows

Verizon Wireless to provide service and support to Verizon Wireless equipment sold by a Cable

Defendant. Retail stores operated by Cable Defendants are not widespread; Cable Defendants

make most of their sales via telephone, internet, or door-to-door. Customers that purchase

Verizon Wireless equipment might obtain their devices, or seek help setting up service, at a

Verizon Wireless store, and the proposed Final Judgment permits Verizon Wireless to provide

such service at stores within its FiOS footprint or to customers who live within the FiOS

footprint. This service does not undermine the marketing advantage of FiOS within the FiOS

footprint and does not vitiate the prohibition on Verizon Wireless from selling cable services in

the FiOS footprint.

               CWA objects to (1) § V.I, which prohibits Verizon from entering into agreements

with Cable Defendants regarding the sale of Verizon wireline services, Verizon Wireless

services, cable services, or the joint development of technology or services without prior

Government approval; and (2) § V.J, which prohibits agreements between Cable Defendants and

Verizon wireline services regarding the price, terms, and availability of cable and wireline

                                                 6
services. These sections include exceptions for certain types of agreements. CWA complains

that the exceptions are loopholes that will allow Defendants to collude on price. But the

exceptions cover categories of agreements that do not pose anticompetitive concerns, such as

agreements regarding video content, intellectual property licenses, the purchase of advertising,

the lease of real estate in the ordinary course, and interconnection agreements between the Cable

Defendants and Verizon. Moreover, to ensure that the proposed Final Judgment does not

condone anticompetitive agreements, it contains a savings clause that states “in no event shall a

Defendant participate in, encourage, or facilitate any agreement or understanding between

[Verizon entities offering wireline services] and a Cable Defendant that violates the antitrust

laws of the United States.” Proposed Final J. § V.J.

               RCN opines that the technology developed by the JOE will quickly become the

industry standard due to the large size of the JOE participants. In order to maintain competition,

RCN seeks a requirement that the products developed by the JOE shall be made available to

other wired broadband providers on a reasonable and nondiscriminatory basis. The proposed

Final Judgment does not address this issue because this concern was not raised in the Complaint.

The Court’s role is to review the proposed Final Judgment in light of the allegations made in the

complaint. See Microsoft, 56 F.3d at 1459. The Complaint alleges that the JOE may

unreasonably restrict its members from innovating outside the joint venture. Compl. ¶ 40. To

rectify this problem, the proposed Final Judgment limits the duration of the JOE and provides

that when any participant leaves the JOE, it will have a non-exclusive license to use and

                                                 7
sublicense all of the JOE’s technology. Thus, the proposed Final Judgment addresses the issues

raised in the Complaint. 4

                 RCN further claims that the “FiOS Footprint” as defined in the proposed Final

Judgment is ambiguous since it is unclear whether Verizon’s franchise to provide service in the

District of Columbia is a “statewide” or a “non-statewide” franchise. 5 RCN errs in claiming an

ambiguity with regard to the District. Verizon’s franchise with the District of Columbia requires

it to offer video services to residential areas throughout the District by 2018. In other words, the

entire District is within the definition of the FiOS Footprint.

                 Montgomery County asks that the Court require Defendants to build out their

services to every residential unit in the County without limitation. The proposed Final Judgment

does not include this requirement because the proposed Final Judgment is tailored to the harms

identified in the Complaint. The purpose of the proposed Final Judgment is to ensure that

Defendants have the same incentive to compete as they did before they entered into the

Commercial Agreements. The requirement sought by Montgomery County is outside the scope

of this litigation.

                 The County also claims broadly that the proposed Final Judgment is not in the

public interest because it permits cooperation among Defendants and will lead to the allocation

4
 RCN also complains that, under the Commercial Agreements, Verizon Wireless must give the
Cable Defendants preference when Verizon Wireless purchases “backhaul services,” the services
whereby data is carried from wireless cell sites to wireline networks. The proposed Final
Judgment does not address this issue because it was not raised in the Complaint.
5
  The FiOS Footprint is “any territory in which Verizon at the date of entry of this Final
Judgment or at any time in the future: (i) has built out the capability to deliver FiOS Services,
(ii) has a legally binding commitment in effect to build out the capability to deliver FiOS
Services, (iii) has a non-statewide franchise agreement or similar grant in effect authorizing
Verizon to build out the capability to deliver FiOS Services pursuant to a statewide franchise
agreement.” Proposed Final J. § II.M.

                                                  8
of markets. The Government does not foresee the allocation of markets. Moreover, there are

possible benefits to competition and consumers through new products created by the JOE. Again,

the proposed Final Judgment remedies the anticompetitive effects of the Commercial

Agreements that were identified in the Complaint.

                                     IV. CONCLUSION

              For the reasons stated above, the Court concludes that the proposed Final

Judgment is in the public interest. The Government’s motion for entry of final judgment [Dkt.

27] will be granted, and Final Judgment will be entered as proposed. A memorializing Order

accompanies this Opinion.

DATE: August 9, 2013

                                                                  /s/
                                                    ROSEMARY M. COLLYER
                                                    United States District Judge

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