Public Power - November/December 2007 - (Page 30)

The High Court’s Antitrust Thunderbolts in the case of price fixing. Those who fix prices or divide markets rarely write their agreements down and, if they do, even more rarely make their agreements available to their victims. However, the Supreme Court said plaintiffs must show “enough factual matter . . . to suggest” in their complaint (and, therefore, before the legal discovery process has taken place) that the defendants had agreed to fix prices or divide markets. Under the court’s Twombly standard, plaintiffs often would be unable to allege enough facts at the pleading stage to demonstrate an agreement. Some commentators have said that conscious parallelism is evidence of actual agreements that exist but that the plaintiffs cannot provide. Where competitors offer to sell at the same non-competitive prices, when the distorted price offers can only be sensibly explained as the result of collusion, they infer that agreements exist. Others have referred to conscious parallelism as involving tacit agreements, fitting within the Sherman Act’s “contract, combination or conspiracy” in restraint of trade language. Still others believe that conscious parallelism should be actionable where there may not be an agreement per se, but that purposefully parallel actions not to compete for self-advantage amount to the same thing as contracting not to compete and should be treated as such. The Supreme Court has at least implied that this last interpretation is not valid. However, the courts have also stated, repeatedly, that “no formal agreement is necessary to constitute an unlawful conspiracy.” Many lower courts have looked to “plus factors,” saying that if, in addition to parallel pricing or like conduct, there are additional factors that demonstrate anticompetitive action, defendants’ conduct may be condemned. Courts enumerate and define different factors, but these generally amount to conduct on the part of the defendants that would make no economic sense in competitive markets. No sensible seller would maintain prices at far above cost, for example, unless he or she were confident that other sellers would not un30 NOVEMBER-DECEMBER 2007 dercut those high prices by offering to sell at or near cost. There are many examples where, by one’s actions, one enters into agreements. A person who sits at a shoe shine stand and watches his shoes being shined, but says not a word, has entered into a contract. If the Supreme Court intends that one cannot, at the pleadings stage, prove antitrust conspiracies or contracts using circumstantial evidence, especially in situations where defendants are unlikely to memorialize or publicize their agreements, consumer antitrust protection will be greatly weakened. In energy and other markets, where market power exists, allowing parallel conduct to take place with a wink and a nod will permit distorted markets and millions of dollars of excessive energy prices. Monopolization and trade restraints—In testing whether the Twombly complaint meets the Supreme Court’s requirement that the complaint contain “plausible grounds to infer an agreement,” the court cited the complaint’s allegations that the ILECs did not meaningfully compete in each other’s markets, that the ILECs acted in parallel, and other facts to justify that the ILECs “have entered into a contract, combination or conspiracy to prevent competitive entry into their…markets and have agreed not to compete with each other.” The court deems that “there is no reason to infer that the companies had agreed among themselves to do what was only natural anyway,” i.e., “parallel decisions to resist competition.” Thus, the court can be read as writing into antitrust law that it is legitimate for companies to act “naturally” to maintain monopoly power, even by employing anticompetitive means. Plaintiffs alleged that the ILECs resisted “‘especially attractive business opportunities’ in surrounding markets dominated by other ILECs” and that the ILECs’ parallel conduct in refusing to deal in others’ markets “was ‘strongly suggestive of conspiracy.’” In antitrust law, acting contrary to one’s economic interests is evidence that one lacks a legitimate independent business purpose for one’s anticompetitive conduct. The court, however, posits “an obvious alternative explanation”: “The ILECs were born in that world [where] … monopoly was the norm in telecommunications, not the exception…, doubtless liked the world the way it was, and surely knew the adage about him who lives by the sword. Hence, a natural explanation for the noncompetition alleged is that the former government-sanctioned monopolists were sitting tight, expecting their neighbors to do the same thing.” This language is not necessary to the court’s decision and therefore binding in other cases. The court merely surmises that the allegation that the ILECs were not competing in each other’s service area is not evidence of an antitrust agreement or conspiracy. Further, the court’s surmise is much looser than the explanations the court seems to have demanded in the past. In Aspen Skiing Co. v. Aspen Highlands Skiing Corp., for instance, the court referred to the defendants’ failure to offer any “efficiency justification” for their failure to compete. Here, in contrast, the court veers into the psychological. The court’s language suggests that it may find it acceptable for companies having monopoly power not to compete or deal with others in order to preserve their monopoly positions. Under the monopolization provisions of the Sherman Antitrust Act, it has long been held that those with monopoly power may not refuse to deal with competitors to preserve or expand their markets unless they have a legitimate business purpose for doing so. Preservation or expansion of monopoly power is not a legitimate business purpose. Think, for example, of Otter Tail. The suggestion that the court would legitimatize the refusal of companies like Otter Tail to deal because they were “sitting tight, expecting their neighbors to do the same thing” could greatly weaken antitrust law application not only in joint action cases, but in monopolization and merger cases, as well. Limitations to Twombly—The Supreme Court and lower courts may not apply Twombly expansively. In Erickson v. Pardus, which was decided almost immediately after Twombly, the court reversed an appeals court decision that a plaintiff had not pled his claim with PUBLIC POWER

Table of Contents Feed for the Digital Edition of Public Power - November/December 2007

Public Power - November/December 2007 Contents Washington Focus 10 Questions Connecting with the Customer Through Automation AMR or AMI? The High Court’s Antitrust Thunderbolts California’s Push for Demand-Response Plug-In Partners Get Plugged In Wiring Up for Double-Digit Growth For Engineers Safety Community Broadband For Governing Boards DEED Customer Service Hometown Connections Index to Advertisers Parting shot

Public Power - November/December 2007

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