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Lawsuits & Litigation

7th Circuit Rules ‘No Smoking Gun’ in Text Message Antitrust Suit

— April 14, 2015

On Thursday, April 9th, 7th Circuit Appeals Judge, Richard Posner, dismissed a longstanding class-action lawsuit against four major mobile service providers: Verizon, T-mobile, Sprint, and AT&T, who were accused of violating the Sherman Antitrust Act by coordinating a rate increase on text messaging. The origins of the case, which began as a series of over a dozen separate lawsuits, began in late 2008 on the heels of a Justice Department investigation after all four carriers increased their rate of text messages from $.10 to $.20 within weeks of each other in 2008. Former Senator Herbert Kohl, then chair of the antitrust subcommittee of the Senate Judiciary Committee, sent a letter expressing concern about the rate increases being a possible antitrust violation. The letter also set a Justice Department investigation into the allegations in motion.

By 2010, the accompanying legal case had been coordinated into a class-action in Northern Illinois although the Justice Department investigation would eventually be dropped. Despite the calling off of the probe, Posner and the rest of the three-judge panel who took the interlocutory appeal refused to dismiss the lawsuit. At the time, Posner noted that the plaintiffs may have validity to their claim, however, they were lacking a “smoking gun” that proved express collusion between the executives. Posner wrote, “Discovery may reveal the smoking gun or bring to light additional circumstantial evidence that further tilts the balance in favor of liability.” Although the initial complaint alleges that the carriers’ executives were conducting secret meetings through a “leadership council,” the long discovery process would find little evidence of an actual conspiracy.

Nearly five years later, Posner finally gave up on the plaintiffs’ search for that key evidence, perhaps being frustrated at the plaintiff’s attorneys’ hammering away at a pair of emails between executives at T-mobile. In the emails, an executive named Adrian Hurditch wrote to another company executive, Lisa Roddy, that he felt the rate increase was “collusive and opportunistic.” While Hurditch’s name is mentioned over 160 times in the complaint, judge Posner noted that even though the emails contain the word, “collusive,” there is no evidence of any T-mobile executive communicating with executives from any of the other three carriers regarding price-fixing. He explained that “Competitors in concentrated markets watch each other like hawks. We can, moreover, without suspecting illegal collusion, expect competing firms to keep close track of each other’s pricing and other market behavior.”

Posner used his opinion as an opportunity to provide a lesson between tacit and express collusion. While stating that express collusion is illegal under antitrust law, it requires direct evidence of a collusive agreement such as an employee’s admission of such a plan, or evidence that executives “met and agreed explicitly on the terms of a conspiracy to raise price.” Tacit collusion, however, is not illegal under the antitrust law and is often a part of natural market behavior. He explained that “Competitors in concentrated markets watch each other like hawks. We can, moreover, without suspecting illegal collusion, expect competing firms to keep close track of each other’s pricing and other market behavior.”Not considering the Hurditch emails to pass the threshold for express collusion, Posner chided the plaintiffs’ attorneys, and indicated that their reliance on these emails as a smoking gun demonstrated a lack of understanding of express collusion.

Calling the ruling “anything but illuminating,” plaintiffs’ attorney, Patrick Coughlin, responded, “It really puts damage in private enforcement of antitrust laws, which are key to the enforcement scheme.” Although Coughlin plans to appeal the ruling, Posner’s opinion and clarification of the antitrust law may set a standard moving forward, short of a Supreme Court hearing. It will also be curious how much desire the plaintiffs themselves will have in continuing a case that has lasted for 7 years already.

Courthouse News Service – Jack Bouboushain

National Law Journal – Amanda Bronstad

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