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No. 14-1654
UNITED STATES COURT OF APPEALS FOR THE THIRTEENTH CIRCUIT
PATRIOT WIRELESS CORP.,
Plaintiff-Appellee,
v.
DOMINION TELECOMMUNICATIONS, INC.,
Defendant-Appellant.
Appeal from the United States District Court for the District of Madison
BRIEF FOR APPELLEE Team C 123 ABC Street Mason, Madison 98765 (123) 456-7890 Attorney for Plaintiff-Appellee
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TABLE OF CONTENTS
TABLE OF AUTHORITIES ...................................................................................................... iv
STATEMENT OF THE ISSUESS PRESENTED FOR REVIEW .......................................... 1
STATEMENT OF FACTS ........................................................................................................... 1
SUMMARY OF THE ARGUMENT .......................................................................................... 4
ARGUMENT ................................................................................................................................. 6
I. MONOPOLISTIC CONDUCT IS PROPERLY ANALYZED UNDER A BURDEN-
SHIFTING FRAMEWORK. ................................................................................................. 6
II. DOMINION’S BUNDLING PRACTICE IS ANTICOMPETITIVE BY BOTH THE
LEPAGE’S AND CASCADE HEALTH STANDARDS. ...................................................... 7
A. The Telecom Market’s Structure Renders Application of a Price-Cost Test Using
AVC Powerless to Prevent Anticompetitive Harms. ..................................................... 8
B. Dominion’s Bundle Caused Anticompetitive Harm Under the LePage’s Test Because
It Excluded an Equally Efficient Competitor or a New Entrant Capable of
Developing into One. ....................................................................................................... 12
1. LePage’s Is the Appropriate Test Here Because Its Direct Assessment of
Anticompetitive Effect Catches Predatory Acts that Cascade Health Cannot. ... 12
2. Dominion’s Bundle Harmed Competition by Excluding an As Efficient Rival or
by Squashing a New Competitor Before It Could Grow into an As Efficient
One. ............................................................................................................................ 13
C. Applying the Cascade Health Price-Cost Test Using an Appropriate Measure of Cost
to the Telecom Market Here Would Result in a Finding of Illegality. ....................... 16
! ii
1. Due to the Unusually High Ratio of Fixed to Variable Costs in the Telecom
Market, the Proper Measure of Cost Here Is LRIC. ............................................. 16
2. Dominion Harmed Competition by Pricing Cellular Service Below LRIC
Through the Bundle. ................................................................................................. 19
D. Dominion Has No Valid Procompetitive Justification for the Bundle. ...................... 20
III. DOMINION’S REFUSAL TO LEASE NETWORK CAPACITY TO PATRIOT WAS
ANTICOMPETITIVE UNDER SECTION 2 .................................................................... 21
A. Due to the Lack of Regulatory Structure Intended to Introduce Competition into the
Relevant Market, Dominion’s Conduct Is Distinguished from Trinko and Properly
Analyzed As a Refusal to Deal Under the Aspen Exception. ....................................... 21
B. The District Court Correctly Found Dominion’s Refusal to Deal to Be
Anticompetitive Under the Aspen Framework. ............................................................ 23
1. Patriot Has Sufficiently Shown a Theory of Anticompetitive Harm. .................. 23
2. Dominion’s Refusal to Deal Is Anticompetitive Because It Harmed Consumers,
Excluded a Dynamic Competitor, and Indicated a Willingness to Forsake Short-
Term Profit for Long-Term Monopoly. .................................................................. 24
a. Dominion Possesses a Dangerous Probability of Achieving Monopoly Power in
the Relevant Market. ............................................................................................. 24
b. Dominion’s Conduct Was Exclusionary Under Both Interpretations of Aspen. .. 27
i. Dominion’s Conduct Was Exclusionary Under the Supreme Court’s
Reasoning in Aspen Because Dominion Harmed Consumers, Excluded Its
Rival, and Negatively Impacted Its Own Well Being. ..................................... 28
! iii
ii. Dominion’s Conduct Was Exclusionary Based on the Aspen Factors Found
Important in Trinko. ........................................................................................ 31
c. Dominion Possesses a Specific Intent to Destroy Competition. ........................... 31
3. Dominion’s Proffered Justifications Were Unpersuasive Because Dominion
Could Have Avoided the Cited Problem by Staying on Schedule and Its Reason
for Delay Was Illogical. ............................................................................................ 32
4. On Balance, the Harms Caused by Dominion’s Conduct Outweigh Any
Benefits. ...................................................................................................................... 34
CONCLUSION ........................................................................................................................... 35
CERTIFICATE OF COMPLIANCE ....................................................................................... 35
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TABLE OF AUTHORITIES
CASES PAGE
3M Co. v. LePage’s Inc., 542 U.S. 53 (2004) ................................................................................. 7
A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881 F.2d 1396 (7th Cir. 1989) .................... 18
AD/SAT, Div. of Skylight, Inc. v. Associated Press, 181 F.3d 216 (2d Cir. 1999) ........................ 25
Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) ............................ passim
Broadcom Corp. v. Qualcomm, Inc., 501 F.3d 297 (3d Cir. 2007) .............................................. 22
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477 (1977) ........................................... 12
Cal. Dental Ass’n v. F.T.C., 526 U.S. 756 (1999) .......................................................................... 6
Cascade Health Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 2007) ............................ passim
Christy Sports, LLC v. Deer Valley Resort Co., 555 F.3d 1188 (10th Cir. 2009) ........................ 32
Covad Commc’ns Co. v. Bell Atl. Corp., 398 F.3d 666 (D.C. Cir. 2005) ..................................... 30
Creative Copier Servs. v. Xerox Corp., 344 F. Supp. 2d 858 (D. Conn. 2004) ............................ 32
Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451 (1992) ............... 21, 27, 32, 34
Four Corners Nephrology Assocs., P.C., v. Mercy Med. Ctr. of Durango, 582 F.3d 1216 (10th
Cir. 2009) ...................................................................................................................................... 29
Free Freehand Corp. v. Adobe Sys., Inc., 852 F. Supp. 2d 1171 (N.D. Cal. 2012) ......... 14, 15, 25
F.T.C. v. Church & Dwight Co., 665 F.3d 1312 (D.C. Cir. 2011) ................................................. 7
Helicopter Transp. Servs., Inc. v. Erickson Air-Crane Inc., No. CV 06-3077-PA, 2008 WL
151833 (D. Or. Jan. 14, 2008) ...................................................................................................... 27
Image Technical Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195 (9th Cir. 1997) ............ 24, 25
In re Elevator Antitrust Litig., 502 F.3d 47 (2d Cir. 2007) ........................................................... 31
Kolon Indus., Inc. v. E.I. DuPont de Nemours & Co., 748 F.3d 160 (4th Cir. 2014) ..................... 9
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LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003) ................................................................ passim
LiveUniverse, Inc. v. MySpace, Inc., 304 F. App’x. 554 (9th Cir. 2008) ..................................... 31
Lorain Journal Co. v. United States, 342 U.S. 143 (1951) ........................................................... 21
McGahee v. N. Propane Gas Co., 858 F.2d 1487 (11th Cir. 1988) ................................................ 8
MCI Commc’ns Corp. v. Am. Tel. & Tel. Co., 708 F.2d 1081 (7th Cir. 1983) ................. 10, 11, 17
Meijer, Inc. v. Abbott Labs., 544 F. Supp. 2d 995 (N.D. Cal. 2008) .............................. 8, 9, 10, 11
Metronet Servs. Corp. v. Qwest Corp., 383 F.3d 1124 (9th Cir. 2004) ........................................ 22
MiniFrame Ltd. v. Microsoft Corp., 551 F. App’x. 1 (2d Cir. 2013) ........................................... 31
NCAA v. Bd. of Regents, 468 U.S. 85 (1984) .................................................................................. 6
Novell, Inc. v. Microsoft Corp., 731 F.3d 1064 (10th Cir. 2013) ........................................... 22, 31
N.Y. Mercantile Exch., Inc. v. Intercontinental Exch., Inc., 323 F. Supp. 2d 559
(S.D.N.Y. 2004) ............................................................................................................................ 30
Olympia Equip. Leasing Co. v. W. Union Tel. Co., 797 F.2d 370 (7th Cir. 1986) ....................... 27
Polygram Holding, Inc. v. F.T.C., 416 F.3d 29 (D.C. Cir. 2005) ............................................. 6, 32
Rebel Oil Co., Inc. v. Atl. Richfield, Co., 51 F.3d 1421 (9th Cir. 1995) ....................................... 25
S. Pac. Commc’ns Co. v. Am. Tel. & Tel. Co., 740 F.2d 980 (D.C. Cir. 1984) ................ 15, 17, 25
S. Pac. Commc’ns Co. v. Am. Tel. & Tel. Co., 556 F. Supp. 825 (D.D.C. 1982) ......................... 17
Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447 (1993) ..................................................... 24, 31
Spirit Airlines, Inc. v. Nw. Airlines, Inc., 431 F.3d 917 (6th Cir. 2005) ........................... 6, 8, 9, 16
Times-Picayune Publ’g Co. v. United States, 345 U.S. 594 (1953) ............................................. 31
Transamerica Computer Co. v. Int’l Bus. Machs. Corp., 698 F.2d 1377 (9th Cir. 1983) ............ 13
Tucker v. Apple Computer, Inc., 493 F. Supp. 2d 1090 (N.D. Cal. 2006) .............................. 27, 30
United States v. Aluminum Co. of Am., 148 F. 2d 416 (2d Cir. 1945) .......................................... 30
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United States v. AMR Corp., 335 F.3d 1109 (10th Cir. 2003) ...................................................... 18
United States v. Colgate & Co., 250 U.S. 300 (1919) .................................................................. 21
United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377 (1956) ....................................... 24
United States v. Grinnell Corp., 384 U.S. 563 (1966) .............................................................. 4, 27
United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) ........................................... passim
Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004) ...... passim
Virgin Atl. Airways Ltd. v. Brit. Airways PLC, 257 F.3d 256 (2d Cir. 2001) ................................. 6
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STATUTE
15 U.S.C. § 2 ................................................................................................................................... 4
MISCELLANEOUS
Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law (3d ed. 2008) ....................... 8, 10, 11, 17
Phillip E. Areeda & Donald F. Turner, Predatory Pricing and Related Practices Under Section 2
of the Sherman Act, 88 Harv. L. Rev. 697 (1975) .......................................................................... 9
John B. Kirkwood & Robert H. Lande, The Fundamental Goal of Antitrust: Protecting
Consumers, Not Increasing Efficiency, 84 Notre Dame L. Rev. 191 (2008) ......................... 34, 35
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STATEMENT OF THE ISSUES PRESENTED FOR REVIEW
1. Whether Dominion’s bundled discount in the telecommunications market, which forced an as
efficient rival to operate below costs and stopped a new entrant from increasing its own
efficiency, was anticompetitive.
2. Whether a dominant firm’s unilateral termination of a voluntary and profitable prior course
of dealing, causing the exclusion of a low-cost rival, constitutes attempted monopolization.
STATEMENT OF FACTS
Patriot Wireless Corporation (“Patriot”) is the dynamic, newest entrant to the cellular
service market in the suburban Mason area (“relevant market”), which has two million
subscribing households. R. ¶¶ 2, 4. Within six months of its entry in July 2012, Patriot was able
to vastly exceed growth expectations and attain a 5% share of the relevant market. R. ¶¶ 4-5.
Over half of this market share, i.e. 3%, came from Dominion subscribers. R. ¶ 5. Patriot
performed this feat by providing the same service as its competitors at the market’s lowest price,
i.e. $75 per household per month. R. ¶¶ 3-4. Further, it is a low-cost carrier by design, R. ¶ 4, as
evidenced by its low fixed costs at $2 million per month. R. ¶ 8.
By contrast, Dominion Telecommunications, Inc. (“Dominion”) is the largest competitor
in the relevant market. R. ¶ 3. As of December 2012, Dominion’s market share in the relevant
market was 40% and it has been charging $100 per household per month for cellular service. R. ¶
3. Dominion also has a legal monopoly in the cable service market in the suburban Mason area,
granted by the City of Mason. R. ¶ 2. It charges $100 per household per month for this service.
R. ¶ 2. It is also a major competitor in other large cellular service markets around the country,
but has recently been threatened by the entry of low-cost rivals in these markets. R. ¶ 3.
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Dominion built the first cellular network in the relevant market in 1993 and has been
amortizing the costs since then. R. ¶¶ 3, 7. Specifically, it is obliged to pay $200 million per year
for the network for each of the next five years. R. ¶ 7. With this existing network, Dominion’s
average variable cost (“AVC”) for providing cellular service is $3 per household per month. R. ¶
7. Its fixed costs are $72.38 million per month. R. ¶ 7. On the other hand, Patriot, being a new
entrant, has yet to construct its own network and must lease network capacity from Dominion at
$5 per household per month in order to operate. R. ¶ 8. The lease was for four years, and
contains a provision stipulating termination on 30 days’ notice. R. ¶ 4.
Since its entry in July 2012, Patriot has been planning to build its own low-cost network.
R. ¶ 4. It estimated the network to cost $220 million over two years, of which $120 million
would come from Patriot and $100 million would be financed by a bank loan. R. ¶ 11. Patriot’s
capital contribution would be drawn from its profits of $5 million per month from existing
operations; the bank loan is contingent upon maintaining this level of profit. R. ¶ 11. This plan
was blocked before construction could even begin, however. R. ¶ 12.
In response to fierce competition from Patriot and its declining market share, Dominion
conducted a market study in October 2012 on market acceptance of a cable-cell service bundle.
R. ¶ 9. The study predicted a 10% growth in the cellular market. R. ¶ 10. Dominion’s internal
projections also found that if its “network had to support 50% or more of the market for a period
of more than six months and the network was not upgraded, there would be a 50% chance” of
service outages. R. ¶ 10 (emphasis added).
Based on these findings, Dominion started offering a $105 per month cable-cell service
bundle to households in the Mason area in December 2012. R. ¶ 9. The bundle gained Dominion
a 5% increase in market share in December 2012, 1% in January 2013, and another 1% in
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February 2013. R. ¶ 9. After that, however, its growth dropped to zero, with total growth falling
short of the 10% rate Dominion had forecasted. R. ¶ 9. Nevertheless, the bundle severely curbed
Patriot’s growth, as evidenced by its restrained market share throughout this proceeding. R. ¶ 13.
If the bundle had not been enough to completely stunt Patriot’s growth, Dominion’s
refusal to continue leasing network capacity to Patriot was the death knell. R. ¶ 12. On January 2,
2013, Patriot announced the plan to build its own network, stating that until its completion
Patriot would “continue to rely entirely on its lease of Dominion’s facilities.” R. ¶ 11. Only
shortly after this announcement, Dominion gave Patriot notice that it was terminating the lease,
which prompted the banks to withdraw their financing of Patriot’s network. R. ¶ 12. Dominion’s
cited reason for the termination was the findings of its October 2012 internal projections. R. ¶ 12.
What Dominion failed to cite, however, was its own decision to delay upgrading its
network to prevent the predicted glitches. R. ¶¶ 10, 12. In November 2012, based on the study’s
findings, Dominion decided to perform the upgrades necessary to support 50% of the relevant
market. R. ¶ 10. At that time, Dominion already had on hand the $2 million required to complete
the upgrades, which would only take three months. R. ¶ 10. Instead of beginning the upgrades
that it had found necessary to support its predicted market growth, however, Dominion chose to
delay construction until July 2013, citing “greater cash flow” as the reason. R. ¶ 10.
In the end, despite its predictions, Dominion’s network has been functioning normally
since February 2013, when the complaint was filed. R. ¶ 13. At the end of December 2012,
Dominion’s network was supporting 50% of the market, R. ¶ 10, and in February 2013 it was
supporting 52% of the market. R ¶¶ 9-10. Thus, at 2% over the predicted threshold, Dominion’s
network was still able to sustain adequate operation. R. ¶ 13. Since the other two networks in the
market also refused to lease excess capacity to Patriot, R. ¶ 12, Patriot has been able to persevere
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only because the District Court granted a preliminary injunction requiring Dominion to “continue
providing cellular transmission capacity to [Patriot]” during the proceeding. R. at 1.
In District Court, Patriot and Dominion filed cross-motions for summary judgment. R. at
1. The District Court granted Patriot’s motion for summary judgment, and found that Dominion
had violated Section 2 on both the bundling and refusal to deal claims. R. ¶¶ 18, 20.
SUMMARY OF THE ARGUMENT
Section 2 of the Sherman Act makes illegal any monopoly or attempted monopoly. 15
U.S.C. § 2. To prove a violation of Section 2, the plaintiff must show that the defendant has
market power and that it engaged in exclusionary conduct, “as distinguished from growth or
development as a consequence of a superior product, business acumen, or historic accident.”
Verizon Commc’ns, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 407 (2004)
(quoting United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966)). Bundling and refusal to
deal are among the exclusionary tactics condemned by Section 2.
Here, Dominion has violated Section 2 by engaging in both acts. First, exploiting its
monopoly in cable service, Dominion offered a cable-cell phone bundle that is predatory by the
appropriate standards. In a high fixed costs - low variable costs market, such as the
telecommunications (“telecom”) market here, the use of AVC in a mechanical application of
Cascade Health cannot accurately reflect long-run anticompetitive harm. Therefore, using either
the LePage’s standard or a different measure of cost is required. Under the LePage’s approach,
which directly measures harm to consumers, Dominion harmed competition by forcing Patriot,
an as efficient competitor, to operate at a loss, or by completely removing Patriot’s ability to
grow from a mere nascent threat to a more efficient rival. Alternatively, using long-run
incremental cost (“LRIC”) as the proper measure of cost to assess exclusionary effect in this
! 5
market under Cascade Health’s price-cost test, Dominion harmed competition by pricing below
cost. Accordingly, Dominion’s bundle would force a hypothetical competitor with both
Dominion’s costs and market share to operate at a massive yearly loss. Dominion having offered
no valid procompetitive justification for this conduct, its bundle is illegal under Section 2.
Second, Dominion violated Section 2 by attempting to monopolize the relevant market
through refusing to continue dealing with Patriot. Dominion’s ability to actually exclude Patriot
by refusing to lease network capacity, as well as Dominion’s 47% market share in the relevant
market characterized by significant barriers to entry, establishes a dangerous probability of
monopolization. Dominion’s termination of Patriot’s lease is exclusionary under both applicable
standards. Under the Supreme Court’s reasoning in Aspen, Dominion’s conduct was predatory
because it harmed consumers, as well as reflected a willingness to sacrifice short-run profit to
achieve a long-run anticompetitive result. Under the post-Trinko approach, Dominion’s conduct
is similarly exclusionary because it involved the termination of an existing, voluntary, and
profitable course of dealing. Dominion’s proffered justifications are all rebutted. It cited a
concern over possible service outages, but its network has been operating normally even after
exceeding the limits it predicted. Further, Dominion stated that delaying the upgrades was
necessary in order to have a greater cash flow. In reality, however, it has only foregone a source
of significant income that could have funded the majority of the upgrade. Even if Dominion were
to be believed, the benefit that consumers might receive is overwhelmed by the loss of present
and future competition that occurs when Dominion eliminates Patriot. Dominion’s refusal to
deal, therefore, has resulted in a net loss for consumers, and is a violation of Section 2.
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ARGUMENT
I. MONOPOLISTIC CONDUCT IS PROPERLY ANALYZED UNDER A BURDEN-SHIFTING FRAMEWORK.
Given the myriad of ways in which a single firm’s conduct can violate Section 2, courts
have recently come to rely on a generalized burden-shifting framework to analyze whether a
conduct is anticompetitive. In United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001)
(per curiam), the Court of Appeals for the District of Columbia Circuit stated concisely this
general framework. First, the plaintiff must assert a theory of anticompetitive harm. Microsoft,
253 F.3d at 58. The defendant’s conduct “must harm the competitive process and thereby harm
consumers.” Id. Next, the plaintiff “must demonstrate that the monopolist’s conduct indeed has
the requisite anticompetitive effect.” Id. at 58-59. Third, if such effect has been established, the
burden shifts to the defendant to provide valid procompetitive justifications for its conduct. Id. at
59. Lastly, if the defendant’s justifications are not rebutted, “then the plaintiff must demonstrate
that the anticompetitive harm of the conduct outweighs the pro-competitive benefits.” Id.
The virtue of this framework is that it eliminates the need for courts to classify a firm’s
conduct under a single label, and allows courts to instead focus on the most important factor:
whether there is anticompetitive harm. See Polygram Holding, Inc. v. F.T.C., 416 F.3d 29, 35
(D.C. Cir. 2005) (citing Cal. Dental Ass’n v. F.T.C., 526 U.S. 756 (1999), and NCAA v. Bd. of
Regents, 468 U.S. 85 (1984) and finding that categories of analysis are less important and that
the true focus of antitrust inquiry is whether a challenged restraint enhances or destroys
competition). This sort of framework has been adopted by courts of appeal to analyze potentially
monopolistic conduct in an array of contexts. See, e.g., Spirit Airlines, Inc. v. Nw. Airlines, Inc.,
431 F.3d 917, 938 (6th Cir. 2005) (discussing monopolistic pricing); Virgin Atl. Airways Ltd. v.
Brit. Airways PLC, 257 F.3d 256, 264 (2d Cir. 2001) (analyzing incentive agreements).
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Assessment of a monopolist’s bundling arrangement and refusal to deal should be similarly
conducted under this framework.
II. DOMINION’S BUNDLING PRACTICE IS ANTICOMPETITIVE BY BOTH THE LEPAGE’S AND CASCADE HEALTH STANDARDS.
Bundling occurs when a firm “sells a bundle of goods or services for a lower price than
the seller charges for the goods or services purchased individually.” Cascade Health Solutions v.
PeaceHealth, 515 F.3d 883, 894 (9th Cir. 2007); see also LePage’s Inc. v. 3M, 324 F.3d 141,
153 (3d Cir. 2003), cert. denied, 542 U.S. 953 (2004). It is anticompetitive when consumers are
coerced into accepting a bundle due to the seller’s market power in the bundle’s non-competitive
product, while as efficient rivals not producing the desired product are excluded. Cascade
Health, 515 F.3d at 900; LePage’s, 324 F.3d at 155-57 (likening bundling to tying).
The Third Circuit in LePage’s prohibited bundling when it resulted in any
anticompetitive harm. See 324 F.3d at 159-62. The Ninth Circuit in Cascade Health sought to
accomplish the same goal, but did so by using the price-cost test as a proxy. See 151 F.3d at 910.
Resolution of this circuit split is unnecessary to answer the narrow question presented here, i.e.
whether Dominion has harmed competition in this telecom market. See Trinko, 540 U.S. at 411
(“Antitrust analysis must always be attuned to the particular structure and circumstances of the
industry at issue.”); F.T.C. v. Church & Dwight Co., 665 F.3d 1312, 1316-17 (D.C. Cir. 2011)
(refusing to “pass upon the merits of the rule in LePage’s” in deciding on FTC’s subpoena power
in Third Circuit). Under either standard, properly construed and applied to the Mason telecom
market, Dominion’s bundle is exclusionary. Because Patriot can prove that Dominion’s conduct
was exclusionary, and because Dominion fails to provide any valid procompetitive justifications,
this Court should find Dominion’s bundle in violation of Section 2.
! 8
A. The Telecom Market’s Structure Renders Application of a Price-Cost Test Using AVC Powerless to Prevent Anticompetitive Harms.
Under Cascade Health, bundling is illegal only if, “after allocating the discount given by
the defendant on the entire bundle of products to the competitive product or products, the
defendant sold the competitive product or products below its [AVC] of producing them.” 515
F.3d at 910. Other courts, however, have recognized that in markets where fixed costs are high
and variable costs are negligible, the price can never truly be below AVC. See, e.g., Meijer, Inc.
v. Abbott Labs., 544 F. Supp. 2d 995, 1003-04 (N.D. Cal. 2008) (declining to apply Cascade
Health to pharmaceutical market); Spirit Airlines, 431 F.3d at 953 (holding that predatory pricing
could harm competition by causing rival to exit market with high entry barriers even if predator
priced above AVC). Mechanical application of Cascade Health using AVC would thus always
result in a finding of legality in these markets. Meijer, 544 F. Supp. 2d at 1003-04.
At the same time, however, the predator still injures competition by excluding as efficient
rivals who make fewer products because these rivals cannot offer the same discounted price,
which is above AVC but allows for no recoupment of fixed costs. 3A Phillip E. Areeda &
Herbert Hovenkamp, Antitrust Law ¶ 741e2 at 228 (3d ed. 2008) (“[U]ntil capacity is exhausted,
the incremental cost of serving additional customers is very low. As a result, an average variable
cost test seemed to offer the defendant too much protection.”). If these competitors match the
discount and cover only AVC, their long-run operation in this type of market will be at a loss
even though they still make a “profit” for each individual unit of product sold in the short run.
See McGahee v. N. Propane Gas Co., 858 F.2d 1487, 1495-96 (11th Cir. 1988) (criticizing
marginal cost as “static short-run analysis” and “too permissive of predatory activity”). Thus,
incumbent rivals may exit the market, and new entrants’ growth may be so constrained that they
can never become a threat to the predator. See Microsoft, 253 F.3d at 79-80 (“[I]t would be
! 9
inimical to the purpose of the Sherman Act to allow monopolists free reign to squash nascent,
albeit unproven, competitors at will . . .”); see also Kolon Indus., Inc. v. E.I. DuPont de Nemours
& Co., 748 F.3d 160, 176 (4th Cir. 2014) (stating that harm by preventing rival’s growth was
“certainly plausible”). As the D.C. Circuit recognized, even if it is not entirely certain that a
“nascent threat” will develop into an as efficient competitor, “the defendant is made to suffer the
uncertain [antitrust] consequences of its own undesirable conduct.” Microsoft, 253 F.3d at 79.
Finally, Cascade Health’s use of AVC as a measure of cost in this type of market
inherently favors the incumbent predator over new entrants. The predator, by entering the market
first, can recoup at least some of its significant fixed costs before any threat of entry arises.
Meijer, 544 F. Supp. 2d at 1004 n.9. The new entrant, however, takes the risk of not being able to
recoup its fixed costs if it enters the market due to the predator’s bundle. Hence, even a potential
competitor with sufficient staying power may be deterred from entry by this comparative
disadvantage. See Phillip E. Areeda & Donald F. Turner, Predatory Pricing and Related
Practices Under Section 2 of the Sherman Act, 88 Harv. L. Rev. 697, 709 (1975) (discussing
exclusionary effect of predatory pricing on as efficient rivals with less staying power). Thus, if
Cascade Health’s application using AVC is widely adopted and predators are permitted to
bundle in this manner in response to every new entry in these high fixed costs - low variable
costs markets, predators can create an additional significant entry barrier with their own
behavior. See Spirit Airlines, 431 F.3d at 936 n.5 (citations omitted) (endorsing description of
“reputation for fierce response to entry” as “the predatory investment in deterrence”).
Meijer offers a clear illustration of the principles just discussed. The relevant market in
that case was the pharmaceutical market for protease inhibitor (“PI”), which is complemented by
another kind of drug called “boosters.” 544 F. Supp. 2d at 997-98. The defendant was dominant
! 10
in the booster market and also competed in the PI market. Id. It bundled the two products into a
pill, the AVC of which was “negligible—most likely only a few cents per pill.” Id. at 1003. The
Meijer court assumed that AVC for producing the PI, i.e. the competitive product, was $0.05. Id.
Applying the Cascade Health discount attribution test, it found that the PI’s discounted price was
$1.64, which was higher than its AVC. Id. Competitors would have to sell an equally effective PI
for $0.05 or less in order to compete with the bundle. Id. The court further held:
Common sense dictates that no newly developed PI could ever be sold profitably at such a price, because the manufacturer would never be able to recoup its huge research and development costs. If the Cascade rule were applied in this context, it would stifle competition; even a competitor who could produce an equally effective drug for only $0.01 per pill would be excluded from the market.
Id. at 1003-04. Accordingly, the court concluded that applying Cascade Health would inhibit
competition due to “the unique structural characteristics of the pharmaceutical industry, where
fixed costs in the form of investment in research and development dwarf variable costs.” Id. at
1004. The court, therefore, declined to require the plaintiff to allege that the competitive
product’s imputed price was less than its AVC. Id. at 1004-05.
The current case is similar to Meijer in that mechanical application of Cascade Health
would give Dominion carte blanche to cause irreparable harm to competition in the cellular
service market. This market is a telecom market that also has high fixed costs and negligible
variable costs. See MCI Commc’ns Corp. v. Am. Tel. & Tel. Co., 708 F.2d 1081, 1115 (7th Cir.
1983) (rejecting use of short-run marginal cost in telecom market); 3A Areeda & Hovenkamp,
supra, ¶ 741e2 at 232 (using telecom as example for markets unsuitable for AVC). Here,
Dominion’s fixed costs are the network construction costs of $200 million per year plus other
fixed costs of $72.38 million per month. R. ¶ 7. Its total fixed cost is therefore approximately
$1.07 billion per year. Its AVC is $3 per household per month. R. ¶ 7. At 40% market share, R. ¶
! 11
3, Dominion’s AVC is $28.8 million per year. A comparison between these figures shows that
this market has “unusually high ratios of fixed to variable cost”; thus, AVC is unsuitable for use
as a measure of cost. 3A Areeda & Hovenkamp, supra, ¶ 741e2 at 232. However, under Cascade
Health, Dominion’s bundled price of $5 is still higher than its AVC. R. ¶¶ 7, 18. For this sector,
a court that mechanically applies Cascade Health using AVC would find the bundle legal
regardless of any anticompetitive harm it may perpetrate. Meijer, 544 F. Supp. 2d at 1003-04.
This case is even less suitable than Meijer for mechanical application of Cascade Health
using AVC, in that the fixed costs here are truly sunk costs. In Meijer, the fixed costs were those
of research and development (“R&D”), which the defendant could control to some extent even
after the product has been created. 3A Areeda & Hovenkamp, supra, ¶ 739 at 187 (distinguishing
R&D costs from truly sunk costs of plants and equipment in defining marginal cost). However,
the network here must be built at the start, and these construction costs do not at all depend on
the output thereafter. See id. Hence, while the R&D costs in Meijer could arguably have been
included for the purpose of a Cascade Health marginal cost calculation, here the costs of the
network cannot.
Furthermore, due to its ability to cross-subsidize from its monopolist cable service
operations, R. ¶ 2, Dominion can sustain its bundle at least in the short term. See MCI, 708 F.2d
at 1124-25 (finding cross-subsidization possible if competitive product was priced below LRIC);
see infra Part II.C. By contrast, Patriot, being a new entrant, is precluded from further growth. If
it matches Dominion’s bundled price for cellular service, Patriot only just covers its AVC at $5
per household per month. R. ¶ 8. Dominion has thus forced Patriot to operate at a monthly loss of
$2 million in fixed costs. R. ¶ 8. Without court intervention, therefore, a competitor who lacks
sufficient capital to absorb this loss will eventually be driven from the market.
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Despite the bundle’s ability to exclude a new entrant, mechanical application of Cascade
Health using AVC to this case would find Dominion’s conduct to be legal because it did not
price cellular service below AVC. Regardless of whether the new entrant is, or is capable of
growing into, an as efficient rival, this categorical finding of legality is “inimical to the purpose
of the Sherman Act.” Microsoft, 253 F.3d at 79.
B. Dominion’s Bundle Caused Anticompetitive Harm Under the LePage’s Test Because It Excluded an Equally Efficient Competitor or a New Entrant Capable of Developing into One.
1. LePage’s Is the Appropriate Test Here Because Its Direct Assessment of
Anticompetitive Effect Catches Predatory Acts that Cascade Health Cannot. The LePage’s court assessed anticompetitive harm by measuring the bundle’s effect on
the plaintiff. 324 F.3d at 159-62. Implicit in the court’s equating harm to the plaintiff with harm
to competition must be a finding that the plaintiff was as efficient as the defendant. This
interpretation of LePage’s is proper because the Third Circuit presumptively followed the
Supreme Court’s mandate that plaintiffs show “antitrust injury.” Brunswick Corp. v. Pueblo
Bowl-O-Mat, Inc., 429 U.S. 477, 488-89 (1977); LePage’s, 324 F.3d at 162 (finding defendant’s
conduct to have “harmed competition itself” because defendant could raise prices after plaintiff
had exited due to high entry barriers). Additionally, LePage’s analysis of anticompetitive harm
resulting from exclusion of a nascent threat capable of developing into an as efficient rival was
supported by ample evidence of the plaintiff’s capacity for growth. 324 F.3d at 159-61 (finding
that plaintiff’s sales had been “skyrocketing” before bundle’s introduction and that defendant
prevented plaintiff from “gaining a foothold in the market”); see also Microsoft, 253 F.3d at 53-
54 (finding plaintiffs’ product capable of developing to compete with defendant’s in the future).
Based on these theories of harm, the Third Circuit’s direct assessment of exclusionary
effect in LePage’s is precisely what the Ninth Circuit purported to do indirectly in Cascade
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Health. See Cascade Health, 515 F.3d at 909 (“[W]e think it preferable to allow plaintiffs to
challenge bundled discounts if those plaintiffs can prove a defendant’s bundled discounts would
have excluded an equally efficient competitor.”). One method used by the Third Circuit to
measure anticompetitive harm was to calculate how much the plaintiff would have to lower its
own price to match the discount attributed to the competitive product. LePage’s, 324 F.3d at 161.
This calculation is the same discount attribution test adopted by the Ninth Circuit.
However, the Third Circuit went further than merely assessing prices; it also measured
the bundle’s direct effect on the plaintiff, which translated to harm to competition itself. Id. at
159-62; see also Transamerica Computer Co. v. Int’l Bus. Machs. Corp., 698 F.2d 1377, 1388
(9th Cir. 1983) (holding that “cost-price relations should not be the exclusive method of proving
predation” in predatory pricing case). By not relying exclusively on a mechanical test, LePage’s
is capable of catching predatory behavior even when the AVC price-cost test is not an accurate
proxy for effects analysis, such as in this case. See supra Part II.A. Therefore, in such cases, the
LePage’s test rather than mechanical application of Cascade Health is more suitable for
preventing harm to competition.
2. Dominion’s Bundle Harmed Competition by Excluding an As Efficient Rival or by Squashing a New Competitor Before It Could Grow into an As Efficient One.
Patriot is at least as efficient as Dominion in supplying cellular service. Dominion’s fixed
costs are $72.38 million per month. R. ¶ 7. At 40% market share and AVC of $3 per household,
Dominion’s monthly costs of cellular service operations are therefore $74.78 million. By
contrast, Patriot’s fixed costs are $2 million per month. R. ¶ 8. Assuming that Patriot also has
40% market share, at AVC of $5 per household, R. ¶ 8, Patriot’s operation cost would be only $6
million due to the vast disparity between its fixed costs and Dominion’s. Hence, although
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Dominion’s AVC is lower than Patriot’s in the very short term, a comparison between their
monthly operating costs demonstrates that Patriot is by far the more efficient competitor.
Even if this Court finds that Patriot is not as efficient as Dominion at this moment based
solely on AVC, Patriot’s rapid gain of market share from Dominion is proof that it is entirely
capable of growing into an as efficient rival, had the normal operation of the competitive market
not been disturbed. R. ¶ 5; cf. LePage’s, 324 F.3d at 159-61 (finding plaintiff’s quick growth
supported “nascent threat” theory of harm). The fact that Dominion’s market share has been
threatened by Patriot-like, low-cost rivals in other markets is further proof that Patriot’s business
model could have enabled it to develop into a more efficient competitor than Dominion. R. ¶ 3.
Had Dominion not interfered, Patriot would have earned enough to build its own low-cost
network. R. ¶ 4. By doing this, Patriot could have taken advantage of economies of scale and
reduced its AVC because it would no longer have to lease network capacity. See LePage’s, 324
F.3d at 161 (finding that “large volume customers are essential to achieving economy of scale”).
Moreover, Patriot’s network would have cost $220 million over two years, R. ¶ 11, which is by
far cheaper than Dominion’s network. In fact, because Dominion has been amortizing
construction costs since 1993, its network must cost much more than the $1 billion it has to pay
over the next five years. R. ¶ 7. Therefore, had Dominion not excluded Patriot with its predatory
tactics, see infra Part III.B.2, Patriot would have grown into a better competitor than Dominion.
To compete with the bundle, Patriot must price its cellular service at $5 per household per
month. R. ¶ 18. Hence, Dominion has severely squeezed Patriot’s monthly revenue and caused it
to lose its internal financial capacity and the bank loan necessary to build its own cellular
network. Dominion’s exclusionary tactic succeeded only because Patriot did not enter with the
full range of products that Dominion offers, i.e. both cable and cellular services. See Free
! 15
Freehand Corp. v. Adobe Sys., Inc., 852 F. Supp. 2d 1171, 1183-84 (N.D. Cal. 2012) (holding
that defendant’s bundling practice constituted significant entry barrier to potential entrants who
lacked full array of products). In fact, no competitor could have offered the full range of products
involved because Dominion holds a legal monopoly, granted by the City of Mason, in the cable
service market. R. ¶ 2. With this legal monopoly, therefore, Dominion has ensured that no rival,
however efficient, could counteract Dominion’s bundle by offering one of its own.
Having forced Patriot to operate at a monthly loss of $2 million, supra Part II.A,
Dominion need only wait for Patriot to exit the market. Even if Patriot is able to absorb the loss
and persevere, Dominion has thoroughly rid itself of the new entrant’s ability to build its own
network and grow into a better competitor than Dominion. See LePage’s, 324 F.3d at 161
(finding that by limiting plaintiff’s market share, defendant reduced its efficiency).
This case is similar to Microsoft, where the D.C. Circuit found Microsoft to have illegally
prevented Netscape and Java from growing into competitors in the applications market at a time
when their middleware products were still only complementary to applications. 253 F.3d at 53-
54, 79, 95. The facts here present a stronger case for anticompetitive harm than in Microsoft
because Patriot is more than a mere “nascent threat”; it has actually taken market share from
Dominion. R. ¶ 5. Accordingly, the harm that Dominion perpetrated is much more certain than
that caused by Microsoft. See 253 F.3d at 79. Patriot’s status as a growing actual competitor is
comparable to that of the LePage’s plaintiff, which produced the private label transparent tape
that competed directly with the defendant’s branded transparent tape. 324 F.3d at 144.
The telecom market’s high entry barriers, such as large sunk costs, also compounded the
bundle’s anticompetitive effects. R. ¶¶ 7-8; S. Pac. Commc’ns Co. v. Am. Tel. & Tel. Co., 740
F.2d 980, 1001-02 (D.C. Cir. 1984) (discussing significant entry barriers in telecom market); see
! 16
infra Part III.B.2.a. Furthermore, Dominion’s reputation for crushing new entrants may itself
create an entry barrier. Supra Part II.A. This tactic is especially anticompetitive because
Dominion’s predatory reputation would likely spread to all markets in which it participates and
raise their entry barriers as well. Id.; see R. ¶ 3. Hence, in at least the relevant market, Dominion
can recoup its foregone profits after Patriot has been excluded because potential entrants are
unable to enter quickly or are deterred from doing so. See, e.g., Spirit Airlines, 432 F.3d at 950-
51 (discussing effect of high entry barriers on recoupment ability in predatory pricing scheme).
Ultimately, the victims of Dominion’s predatory conduct are the consumers. By curbing
Patriot’s growth, Dominion has eliminated Patriot’s ability to improve its efficiency. R. ¶¶ 11-13.
But for the bundle, consumers would have benefitted from the lower costs of Patriot’s service,
especially in two years’ time. In other words, Dominion has deprived consumers of the
efficiency they would otherwise have received from Patriot’s growth. Moreover, Dominion may
have robbed consumers of a low-cost carrier altogether because Patriot may exit the market,
having been forced to operate at a monthly loss. Even if Patriot does not exit on its own,
Dominion would have directly driven it out by refusing to continue leasing cellular capacity to
Patriot. See infra Part. III.B.2.b.
C. Applying the Cascade Health Price-Cost Test Using an Appropriate Measure of Cost to the Telecom Market Here Would Result in a Finding of Illegality.
1. Due to the Unusually High Ratio of Fixed to Variable Costs in the Telecom
Market, the Proper Measure of Cost Here Is LRIC. If this Court decides to apply Cascade Health to the telecom market here, a measure of
cost different from AVC and short-run marginal cost is necessary. As has been explained, in a
market where fixed costs dwarf variable costs, as is the case here, mechanical application of
Cascade Health using AVC would always lead to a finding of legality because the bundled price
! 17
of the competitive product will never be below its insignificant AVC. Supra Part II.A.
Meanwhile, the predator is still excluding as efficient competitors or squashing nascent threats,
and use of AVC would have given it carte blanche to do so. Id.
In determining the appropriate measure of cost, cases on predatory pricing are relevant
because the Cascade Health bundling model drew heavily on predatory pricing. 515 F.3d at 895-
903. Especially instructive is the Seventh and D.C. Circuits’ use of LRIC in predatory pricing
cases in the telecom sector. MCI, 708 F.2d at 1115; S. Pac. Commc’ns Co. v. Am. Tel. & Tel.
Co., 556 F. Supp. 825, 922-27 (D.D.C. 1982) (adopting LRIC and commenting that “the
Antitrust Division of the Department of Justice has advocated the use of incremental cost pricing
for the telecommunications industry”), aff’d 740 F.2d 980, 1004-06 (D.C. Cir. 1984) (applying
without adopting LRIC). Professors Areeda and Hovenkamp, from whom the Ninth Circuit
quoted extensively in Cascade Health, have also recognized this measure of cost as appropriate
for high fixed cost - low variable cost markets. 3A Areeda & Hovenkamp, supra, ¶ 741e2 at 230
(describing MCI’s result as “unobjectionable”). In fact, they explicitly used telecom as a model
market for which LRIC is the appropriate measure of costs. Id. ¶ 741e2 at 232.
LRIC measures the incremental cost of adding an entire line of product as opposed to
producing an additional unit of product. MCI, 708 F.2d at 1115. It is properly characterized as
incremental because it reflects “the change in total costs caused by the changes in output over a
longer period of time” for the competitive line of product. S. Pac. Commc’ns., 556 F. Supp. at
922; 3A Areeda & Hovenkamp, supra, ¶ 741e2 at 230 (criticizing the Seventh Circuit’s
characterization of LRIC as measure of average total cost). The costs normally classified as
fixed, such as plant and equipment, become variable because LRIC is calculated over a longer
period of time than short-run marginal cost. See MCI, 708 F.2d at 1115. Therefore, it is a valid
! 18
measure of incremental cost. See Cascade Health, 515 F.3d at 909-10 (using “incremental cost”
and “marginal cost” interchangeably); compare United States v. AMR Corp., 335 F.3d 1109,
1117-18 (10th Cir. 2003) (holding fully allocated cost test to be invalid as a matter of law
because it measured total costs), with A.A. Poultry Farms, Inc. v. Rose Acre Farms, Inc., 881
F.2d 1396, 1406 (7th Cir. 1989) (using average total cost in predatory pricing case).
Application of LRIC is particularly appropriate to cases like this one because the
bundle’s anticompetitive effects occur only in the long run, when as efficient competitors are
forced to operate at a loss by not covering their huge fixed costs. Supra Part II.A. This strategy is
especially effective against new entrants because the predator has recouped at least some of its
fixed costs before the entry, whereas the entrant cannot afford to cover only AVC unless it has
enough capital to absorb fixed costs for as long as the predator does. Id. This ability to harm
competition in the long run “without sacrificing any short-run profits” is exactly what led the
Ninth Circuit to recognize bundling’s exclusionary effects in the first place. Cascade Health, 515
F.3d at 896-97. Hence, by calculating all the costs of operating the competitive line of product,
LRIC accounts for this long-run effect and properly reflects this type of anticompetitive harm.
Finally, LRIC can show whether a new entrant, if left unimpeded, is capable of growing
into an as efficient competitor, whereas AVC and short-run marginal cost cannot because they
only measure efficiency in the short term. Here, had Dominion not introduced the bundle, Patriot
would have been able to build its low-cost cellular network. Its construction costs would be $220
million over two years. R. ¶ 11. Patriot’s fixed and variable costs are $2 million per month and
$5 per household per month, respectively. R. ¶ 8. Therefore, for the next two years, and at 5%
market share, Patriot’s LRIC would have included fixed costs of $134 million and variable costs
of $6 million per year, totaling $140 million per year. By contrast, Dominion’s fixed costs alone
! 19
are approximately $1.07 billion each year for the next five years. Supra Part II.A. At $28.8
million per year in variable costs, id., its LRIC is approximately $1.098 billion per year.
Thus, comparison between Patriot’s and Dominion’s LRIC starkly shows that Patriot is
capable of growing into a more efficient competitor than Dominion had it not been pre-empted
by Dominion’s tactics. Moreover, after two years, Patriot’s fixed costs and LRIC would decrease
dramatically because it will have fully paid its network construction costs, while Dominion’s
LRIC would remain unchanged because it would still be amortizing its network. R. ¶ 7. Equally,
if Patriot had finished building its network, it could have reduced its AVC through economies of
scale. See supra Part. II.B.2. Therefore, LRIC is the proper measure of long-term efficiency and
anticompetitive effect in with high fixed cost – low variable cost markets because it demonstrates
the harm in excluding a nascent threat capable of growing into an equally efficient competitor.
2. Dominion Harmed Competition by Pricing Cellular Service Below LRIC Through the Bundle.
Analyzing Dominion’s conduct under the price-cost test using LRIC as the appropriate
measure of costs for this market, this Court should find Dominion’s conduct to be predatory.
After the bundle’s introduction in December 2012, Dominion’s market share increased by 7%, R.
¶ 9, to 47% in February 2013. At 47%, its AVC is $33.84 million per year. With fixed costs at
$1.07 billion per year, its LRIC is approximately $1.1 billion per year. At the bundled price for
cellular service of $5 per household per month, R. ¶ 18, Dominion’s revenue for cellular service
each year is $56.4 million. This revenue covers Dominion’s AVC but is approximately $1.04
billion short of covering its LRIC.
The Ninth Circuit in Cascade Health emphasized the assessment of anticompetitive
effects on a hypothetical as efficient competitor with the discount attribution test. 515 F.3d at
905-07 (rejecting test of exclusionary effect on actual as efficient competitor). A simple
! 20
calculation has shown that Dominion’s bundle would have forced this hypothetical competitor
with Dominion’s own LRIC and market share to operate at a loss of about $1.04 billion per year.
D. Dominion Has No Valid Procompetitive Justification for the Bundle.
Since Patriot has proven its theory of harm and Dominion’s predatory conduct, the
burden shifts to Dominion to offer a valid justification. Supra Part I. The court need not engage
in any balancing exercise if the predator cannot offer a valid procompetitive justification for its
conduct. See Microsoft, 253 F.3d at 62-64, 71-76. In fact, under Cascade Health, once the
predator has been found to price below a measure of cost, there is hardly any room for
justification at all. See 515 F.3d at 907 (citations omitted) (holding that if the bundled price “is
less than the defendant’s cost, then the package discount is exclusionary”).
This case concisely demonstrates the logic behind Cascade Health’s condemnation of
pricing below cost without the need to assess justifications. Dominion cited the forecasted 10%
growth in the total cellular market as the reason why it introduced the bundle. R. ¶ 9. However,
at $5 per household per month, even if Dominion had captured the entire 10%, R. ¶ 9, its revenue
would only have been $12 million per year. When compared to the $1.04 billion loss per year
that results from the bundle, this increase in revenue appears implausible as the procompetitive
reason for introducing the bundle. Of course, it would become much more plausible if Dominion
can be certain that the new entrant would be eliminated and Dominion can recoup its losses as
well as benefit from an enlarged market share. This would have been the case had the District
Court allowed Dominion to force Patriot out before the end of this proceeding. R. at 1.
Dominion having offered no other, more plausible, justification, this Court need not
weigh the anticompetitive effects of Dominion’s bundle against any procompetitive effect
because there is none here. See Microsoft, 253 F.3d at 62-64, 71-76.
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III. DOMINION’S REFUSAL TO LEASE NETWORK CAPACITY TO PATRIOT WAS ANTICOMPETITIVE UNDER SECTION 2.
One of the easiest ways for a monopolist to use its power to exclude rivals is by refusing
to do business with them. While generally businesses are free to choose with whom they will
deal, the Supreme Court has long recognized “that does not mean that the right is unqualified.”
Trinko, 540 U.S. at 408 (quoting Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S.
585, 601 (1985)); Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 483 (1992)
(“If Kodak adopted its . . . policies as part of a scheme of willful acquisition or maintenance of
monopoly power, it will have violated § 2.”); Lorain Journal Co. v. United States, 342 U.S. 143,
155 (1951) (emphasis added) (quoting United States v. Colgate & Co., 250 U.S. 300, 307
(1919)) (“In the absence of any purpose to create or maintain a monopoly, the [Sherman A]ct
does not restrict the . . . independent discretion as to parties with whom [a firm] will deal.”).
A. Due to the Lack of Regulatory Structure Intended to Introduce Competition into the Relevant Market, Dominion’s Conduct Is Distinguished from Trinko and Properly Analyzed As a Refusal to Deal Under the Aspen Exception. Dominion’s reliance on Trinko—the most current Supreme Court case to find a single
firm’s refusal to deal to not violate Section 2—is misguided because the holding in Trinko was
driven significantly by the presence of an effective regulatory regime designed specifically to
ensure competition in the marketplace; such regulatory system is not present here. In Trinko, the
plaintiff alleged that Verizon, the incumbent local telephone exchange carrier, had refused to
provide competing telephone operators with non-discriminatory access to its network, in
violation of its regulatory obligation under the Telecommunications Act of 1996. 540 U.S. at
404. The Court noted that the Act did not modify the antitrust standard and that any antitrust
analysis should proceed in light of traditional antitrust law, including the refusal to deal analysis.
Id. at 407-08. In this regard, the Supreme Court stated that even considering the “high value”
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given a company’s right to refuse to deal, this right was not unqualified and in certain cases
could be an illegal use of monopoly power. Id. at 408. However, the Court found that the Act
compelled Verizon to allow access to its network, and held that “the existence of a regulatory
structure designed to deter and remedy anticompetitive harm . . . significantly diminishes the
likelihood of major antitrust harm,” and thus Verizon’s conduct should not be addressed by
Section 2. Id. at 412. In essence, Trinko holds that where a market has an effective regulatory
regime designed to ensure competition through open access, a refusal to deal cannot be found.
This case is distinguished from Trinko, and should be analyzed under traditional
monopoly law. In contrast to the regulatory structure in Trinko, which was designed to
“introduce competition” into the marketplace and served “as an effective steward of the antitrust
function,” 540 U.S. at 402, 413, in this case there is no such regulatory regime. Lacking the
protection of a system designed to regulate competition in the relevant market, if the antitrust
laws are not applied here, there will be no way to ensure that consumers in the Mason area
receive the benefit of a competitive marketplace.
Refusal to deal jurisprudence has long included an exception for conduct that creates an
unlawful monopoly. The leading case for the unlawful monopoly exception is Aspen. This
decision has never been overturned and the exception fortified therein remains widely
recognized, Novell, Inc. v. Microsoft Corp., 731 F.3d 1064, 1074 (10th Cir. 2013); Broadcom
Corp. v. Qualcomm, Inc., 501 F.3d 297, 316, 318 (3d Cir. 2007); Metronet Servs. Corp. v. Qwest
Corp., 383 F.3d 1124, 1134 (9th Cir. 2004), despite subsequent decisions stating that Aspen is
“near the outer boundary of § 2 liability,” Trinko, 540 U.S. at 409.
In Aspen, the defendant owned three of the four downhill skiing mountains in the Aspen
area, and the plaintiff owned the fourth, 472 U.S. at 589-90. Beginning in 1962 and continuing
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into 1979, the plaintiff and the defendant had collaborated to offer a multi-area pass, allowing
customers visiting the Aspen area for multiple days the flexibility to ski different mountains on
different days with the purchase of a cheaper single ticket. Id. at 587-90, 592-93. In 1979, the
defendant decided to discontinue use of the multi-area pass; it also refused to accept vouchers
issued by the plaintiff to its customers to be used as payment for tickets at the defendant’s
resorts, thwarting the plaintiff’s attempts to re-create the all-area pass. Id. at 592-94. The
Supreme Court found the defendant’s conduct to be exclusionary, and upheld the jury’s verdict
against the defendant. Id. at 611. The Court held that in such cases it is “appropriate to examine
the effect of the challenged pattern of conduct on consumers, on [the monopolist’s] smaller rival,
and on [the monopolist] itself.” Id. at 605. The Court found not only that the defendant’s refusal
“infuriated” customers, id. at 607, but also that the defendant “was not motivated by efficiency
concerns and that it was willing to sacrifice short-run benefits and consumer goodwill in
exchange for a perceived long-run impact on its smaller rival,” id. at 610-11. The District Court
properly distinguished this case from Trinko and analyzed it under Aspen.
B. The District Court Correctly Found Dominion’s Refusal to Deal to Be Anticompetitive Under the Aspen Framework. 1. Patriot Has Sufficiently Shown a Theory of Anticompetitive Harm.
Dominion withdrew access to its network to counter the threat posed by Patriot to
Dominion’s market position in the relevant market. Cf. Microsoft, 253 F.3d at 60 (finding
Microsoft’s conduct “in one market (browsers) served to meet the threat to Microsoft’s
monopoly in another market (operating systems)”). The exclusionary conduct at issue here is
similar to the conduct found to be anticompetitive in Microsoft. The relevant market in Microsoft
was “intel-based PC operating systems.” Id. at 52. The court found that Microsoft had used
exclusionary methods in related markets—such as the Internet browser market—to preserve its
! 24
monopoly in the operating system market. Id. at 60-61, 64-65. Here, Dominion’s exclusionary
activity in the network market was done to subdue a rival cellular service provider that was
threatening Dominion’s market share in the cellular services market. By terminating the network
lease, Dominion could eliminate the low-cost carrier, a feature desired by consumers (evidenced
by Patriot attaining of a 5% market share within six months of entry, R. ¶ 4), harming both
competition and consumers.
2. Dominion’s Refusal to Deal Is Anticompetitive Because It Harmed Consumers, Excluded a Dynamic Competitor, and Indicated a Willingness to Forsake Short-Term Profit for Long-Term Monopoly.
A claim of attempted monopolization requires the plaintiff to prove (1) “a dangerous
probability of achieving monopoly power” and (2) “that the defendant has engaged in predatory
or anticompetitive conduct” with (3) “a specific intent to monopolize.” Microsoft, 253 F.3d at 80
(quoting Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456 (1993)).
a. Dominion Possesses a Dangerous Probability of Achieving Monopoly Power in the Relevant Market.
The “dangerous probability” element of attempted monopolization is similar to the
market power element of a standard monopoly claim, requiring consideration of the defendant’s
“ability to lessen or destroy competition” in a given market. Spectrum Sports, 506 U.S. at 456;
cf. Image Technical Servs., Inc. v. Eastman Kodak Co., 125 F.3d 1195, 1202 (9th Cir. 1997)
(“The requirements of § 2 monopolization claim are similar [to an attempt claim], differing
primarily in the requisite intent and the necessary level of monopoly power.”). Whether a
defendant has sufficient market power to affect competition can be proven via either direct or
circumstantial evidence. In this case, dangerous probability can be shown both ways.
Monopoly power, defined as “the power to control prices or exclude competition,”
United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391 (1956), can be directly
! 25
proven by showing that the defendant in fact has the ability to exclude competition, Microsoft,
253 F.3d at 51. Dominion, by terminating the network lease, effectively eliminated Patriot’s
ability to operate in the relevant market. Providing cellular service requires access to a network;
without access, consumers will not use Patriot as their cellular service provider. Dominion
possesses control over network access, and has exploited this control to exclude Patriot.
Dangerous probability can also be proven circumstantially by examining a firm’s market
share and the presence and strength of barriers to entry. Microsoft, 253 F.3d at 51, 82. The first
factor is whether Dominion possesses market power in a properly defined relevant market, the
cellular service market in the Mason area. As of this appeal, Dominion’s market share is 47%. R.
¶¶ 3, 9. This is sufficient for a finding of attempted monopolization. See Image Technical, 125
F.3d at 1207 (stating that “a share near 50%” was sufficient and noting that the court had
previously declined to adopt 50% as a bright line threshold). For instance, the Ninth Circuit has
held that 44% market share is sufficient for finding market power. Rebel Oil Co. v. Atl. Richfield,
Co., 51 F.3d 1421, 1438 (9th Cir. 1995). Further, the Second Circuit has stated that only when
market share is below 40% does it start to become difficult to establish a dangerous probability.
AD/SAT, Div. of Skylight, Inc. v. Associated Press, 181 F.3d 216, 229 (2d Cir. 1999).
A finding of attempted monopolization with a near 50% market share also requires that
the market be characterized by significant barriers to entry. Microsoft, 253 F.3d at 82; Rebel Oil,
51 F.3d at 1438. Such barriers to entry characterize the relevant market. See generally S. Pac.
Commc’ns, 740 F.2d at 1001-02 (discussing significant entry barriers in telecom market); Free
Freehand, 852 F. Supp. 2d at 1183-84 (discussing bundling itself as an entry barrier). The key
barrier here is network capacity. Patriot’s plight indicates that this barrier is not only existent, but
is substantial. Most companies—especially nascent competitors, such as Patriot—do not have
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access to the necessary resources to construct their own network. Rather, a new company must
attain outside financing. Most lending organizations will only agree to lend such a large sum if
they have some assurance of viability, which in essence requires the company to prove its ability
to succeed in the market. This means that for a company to attain financing to construct an asset
necessary to participate in this market, it must operate successfully in that market and prove that
it can earn a profit sufficient to repay the loan. See R. ¶ 12 (finding that the banks financing
construction of Patriot’s network backed out of the agreement after Dominion’s withdrawal
because Patriot lost its ability to participate in the market during network construction).
The second barrier to entry is proof of reliability. A cellular telephone that does not
receive service in the areas where a consumer needs service is of no use to that consumer. Thus,
consumers will not use a particular cellular service provider unless they are certain that it will
provide the reliability they desire. However, if consumers do not use the provider, it will be
difficult for that company to prove that it has the reliable coverage that consumers demand;
consequently, it will be difficult for the company to earn the income necessary to expand its
network to provide that reliability. See Microsoft, 253 F.3d at 55 (discussing “chicken-and-egg”
situation characteristic of the “applications barrier to entry,” whereby “applications will continue
to be written for the already dominant Windows, which in turn ensures that consumers will
continue to prefer it over other operating systems”). To overcome these barriers, a new cellular
service company must overcome a third barrier—finding an incumbent network that has excess
capacity and is willing to lease that excess to a new competitor.
These significant entry barriers, coupled with Dominion’s 47% market share, as well as
the direct evidence of exclusion, establish a dangerous probability of achieving monopoly power.
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b. Dominion’s Conduct Was Exclusionary Under Both Interpretations of Aspen.
In considering whether a refusal to deal is exclusionary, courts have analyzed the refusal
in either of two ways. The first follows the Supreme Court’s reasoning in Aspen itself, examining
the conduct’s impact on consumers, rivals, and the predator. The second method uses the facts
found to be most relevant in Aspen—termination of a prior, voluntary, and thus presumably
profitable, course of dealing between the parties—as specific prongs of the analysis.
Following the Court’s reasoning in Aspen is the better approach. First, at no point has the
Supreme Court explicitly overruled Aspen. See Helicopter Transp. Servs., Inc. v. Erickson Air-
Crane Inc., No. CV 06-3077-PA, 2008 WL 151833, at *7 (D. Or. Jan. 14, 2008) (“The Supreme
Court has never held that termination of a preexisting course of dealing is a necessary element of
an antitrust claim.”); Tucker v. Apple Computer, Inc., 493 F. Supp. 2d 1090, 1101 (N.D. Cal.
2006) (“[T]he Court did not confine Aspen to cases in which a prior course of dealing exists.”).
Following the first approach is more true to the actual language of and reasoning behind the
exception to refusal to deal in Aspen.
Second, it is consistent with the Supreme Court’s teaching that courts should conduct a
“factual inquiry into the commercial realities,” as opposed to relying on presumptions based on
formal distinctions, when determining the competitive effect of a firm’s conduct. Eastman
Kodak, 504 U.S. at 466-67, 482 (citing Grinnell Corp., 384 U.S. at 572); see Trinko, 540 U.S. at
411 (“Antitrust analysis must always be attuned to the particular structure and circumstances of
the industry in issue.”); see also supra Part I. In Aspen, for example, the economic reality was
that some cooperation was necessary for effective competition. Olympia Equip. Leasing Co. v.
W. Union Tel. Co., 797 F.2d 370, 379 (7th Cir. 1986) (“If [Aspen] stands for any principle . . . it
is that a monopolist may be guilty of monopolization if it refuses to cooperate with a competitor
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in circumstances where some cooperation is indispensable to effective competition.”). Finding
liability only after satisfying a checklist of facts, as would be the case if this court follows the
second method of analysis, is analogous to reliance upon formalistic distinctions. This reliance
on a checklist of facts would also undermine the virtue of the framework that has come to
characterize much modern monopoly analysis. Supra Part I.
Under either standard, however, Dominion’s refusal to lease network capacity was
anticompetitive, and therefore the District Court should be affirmed.
i. Dominion’s Conduct Was Exclusionary Under the Supreme Court’s Reasoning in Aspen Because Dominion Harmed Consumers, Excluded Its Rival, and Negatively Impacted Its Own Well Being.
Based on the Supreme Court’s reasoning in Aspen, this court should find Dominion’s
refusal to deal to be exclusionary. In Aspen, the Court found that “[i]f a firm has been attempting
to exclude rivals on some basis other than efficiency, it is fair to characterize its behavior as
predatory,” and that such determination is made by “examin[ing] the effect of the challenged
pattern of conduct on consumers, . . . rivals, and [the monopolist] itself.” 472 U.S. at 605.
First, Dominion’s conduct has a substantial anticompetitive effect on consumers by
eliminating a beneficial and desired product choice. Patriot, as the low-cost choice in the market,
R. ¶ 4, also serves as a restraint on Dominion’s pricing ability. Given the “proof of reliability”
barrier to entry, supra Part III.B.2.a, Patriot’s rapid growth proves that it provides a product
previously lacking and strongly desired by consumers.
Second, Dominion’s conduct had an adverse effect on Patriot’s ability to compete, and on
competition generally. Patriot’s preparations to build its own network, as well as its attempts to
lease capacity from other networks, R. ¶ 11-12, “demonstrates that it tried to protect itself from
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the loss of its share of the [market],” Aspen, 472 U.S. at 608. Considering the economic realities
of the relevant market, some cooperation is essential to effective and beneficial competition.
Lastly, Dominion’s conduct negatively impacts Dominion itself and shows a “willingness
to sacrifice short-run benefits.” Id. at 610-11. Dominion’s refusal to deal is analogous to the
conduct the Supreme Court found to be anticompetitive in Aspen, where the Court “found
significance in the defendant’s . . . unilateral termination of a voluntary (and thus presumably
profitable) course of dealing.” Trinko, 540 U.S. at 409 (emphasis in original).
Dominion gave Patriot access to its network in accordance with a pre-existing agreement
that was entered into voluntarily by both parties. Contrary to Trinko, where access was
compelled by a regulatory structure, 540 U.S. at 410, in this case there is no regulation to compel
network sharing; the pre-existing course of dealing between Dominion and Patriot was entirely
voluntarily. Voluntariness reveals that the sharing agreement was presumably profitable. When a
large, sophisticated corporate entity, such as Dominion, agrees to cooperate with a new rival, it is
presumably doing so because it believes the arrangement is in the company’s interest, i.e. that it
is profitable for them. Id. at 409; cf. Four Corners Nephrology Assocs., P.C., v. Mercy Med. Ctr.
of Durango, 582 F.3d 1216, 1225 (10th Cir. 2009) (finding that defendant’s refusal to enter into
a professional dealing with the plaintiff was motivated by a desire “to avoid an unprofitable
relationship, and that the hospital pursued the course it did to protect and maximize its chances
of profitability in the short-term”). In denying Patriot continued access to its network, Dominion
was foregoing a substantial benefit of $500,000 per month in “rental income.” R. ¶¶ 1, 4, 8 (two
million households in the market × 5% of the market × $5 per household per month).
Unilateral termination of such a profitable arrangement is anticompetitive. Trinko, 540
U.S. at 409 (“willingness to forsake short-term profits . . . revealed a distinctly anticompetitive
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bent”); Covad Commc’ns Co. v. Bell Atl. Corp., 398 F.3d 666, 675 (D.C. Cir. 2005); N.Y.
Mercantile Exch., Inc. v. Intercontinental Exch., Inc., 323 F. Supp. 2d 559, 571 (S.D.N.Y. 2004)
(“Because the defendant’s cooperation with the plaintiff would have entailed no cost to the
defendant and indeed would have provided it with immediate benefits, and because consumers
preferred the cooperative arrangement, the only apparent justification for the defendant’s refusal
to deal was anticompetitive malice.”); see also Tucker, 493 F. Supp. 2d at 1101 (finding on
motion to dismiss that “Apple deliberately foregoes iPod sales to prospective customers . . . facts
that, if proven, could establish that Apple was acting with ‘anticompetitive malice’ rather than
‘competitive zeal’”). Dominion’s termination of the lease was highly irrational. Its only
reasonable motivation is a desire to exclude Patriot from the market. Such evidence of intent
sheds light on the anticompetitive effect of Dominion’s conduct. Microsoft, 253 F.3d at 59.
Analyzing the structure of the relevant market supports this finding of anticompetitive
effect. As an incumbent cellular service provider, Dominion cannot plausibly argue that it did not
recognize the essential importance of network access. Dominion observed Patriot’s commercial
success and viability, and recognized that continuing to lease network capacity to Patriot would
ultimately fortify a robust competitor. By refusing to lease network capacity to Patriot, Dominion
was fully aware that it was cutting off Patriot’s lifeline, for “no monopolist monopolizes
unconscious of what he is doing.” Aspen, 472 U.S. at 602 (quoting United States v. Aluminum
Co. of Am., 148 F.2d 416, 432 (2d Cir. 1945)). The decision to terminate the lease “was
apparently motivated entirely by a decision to avoid providing any benefit to [Patriot] even
though . . . [it] would have entailed no cost” to Dominion. Aspen, 472 U.S. at 610. In sum, under
the Supreme Court’s approach in Aspen, Dominion’s refusal to deal was exclusionary.
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ii. Dominion’s Conduct Was Exclusionary Based on the Aspen Factors Found Important in Trinko.
If this Court decides to follow the post-Trinko approach, it should still find Dominion’s
termination of Patriot’s lease to be exclusionary. Post-Trinko, some courts have held that “[t]o
invoke Aspen’s limited exception . . . at least two features in Aspen must be present in the case at
hand”—(1) “a preexisting voluntary and presumably profitable course of dealing between the
monopolist and the rival” and (2) “discontinuation of the preexisting course of dealing must
suggest a willingness to forsake short-term profits to achieve an anti-competitive end.” Novell,
731 F.3d at 1074-75; e.g., LiveUniverse, Inc. v. MySpace, Inc., 304 F. App’x. 554, 556 (9th Cir.
2008); MiniFrame Ltd. v. Microsoft Corp., 551 F. App’x. 1, 2 (2d Cir. 2013) (citing In re
Elevator Antitrust Litig., 502 F.3d 47, 53 (2d Cir. 2007) (per curiam)).
Dominion’s conduct satisfies both prongs. Dominion’s refusal to deal is highly similar to
the facts of Aspen, as discussed in depth in the preceding subsection. First, Dominion’s refusal to
deal was made in the context of a voluntary pre-existing agreement between the parties. This
voluntariness indicates that the sharing agreement was profitable. Second, termination of this
prior and profitable relationship was for the purpose of and resulted in anticompetitive effect:
harm to consumers, the exclusion of a robust competitor, and harm to the competitive process.
c. Dominion Possesses a Specific Intent to Destroy Competition.
A claim of attempted monopolization requires a showing that the defendant had a specific
intent to monopolize the market. This intent is “a specific intent to destroy competition or build
monopoly.” Times-Picayune Publ’g Co. v. United States, 345 U.S. 594, 626 (1953). Specific
intent can be inferred from a monopolist’s unfair or predatory conduct. Spectrum Sports, 506
U.S. at 459. The exclusionary conduct established in the prior subsection is thus sufficient to
establish Dominion’s specific intent to exclude Patriot. However, specific intent can also be
! 32
established more directly here. Dominion’s irrational and unilateral termination of Patriot’s
lease, coupled with the structural conditions of the industry, demonstrates that Dominion was
cognizant of what would result from its conduct—the exclusion of a robust rival, Patriot.
3. Dominion’s Proffered Justifications Were Unpersuasive Because Dominion Could Have Avoided the Cited Problem by Staying on Schedule and Its Reason for Delay Was Illogical.
If a plaintiff proves that a monopolist’s conduct has an anticompetitive effect, a defendant
is given the chance to provide justifications for its conduct. Eastman Kodak, 504 U.S. at 483;
Microsoft, 253 F.3d at 59. For instance, in holding the defendant’s conduct to be anticompetitive
in Aspen, the Court found “perhaps most significant” that the defendant was unable to proffer
any legitimate business justification for its conduct. 472 U.S. at 608; Christy Sports, LLC v. Deer
Valley Resort Co., 555 F.3d 1188, 1197 (10th Cir. 2009). The defendant bears the burden of
proving the legitimacy of its justification. Eastman Kodak, 504 U.S. at 483-84. In this case, the
District Court correctly found all proffered justifications to be pretextual and unpersuasive.
A business cannot operate in any way it pleases “if the sole reason for and effect of so
doing is to stifle or unnecessarily impair competition.” Creative Copier Servs. v. Xerox Corp.,
344 F. Supp. 2d 858, 867 (D. Conn. 2004). In particular, “a defendant’s assertion that it acted in
furtherance of its economic interests does not constitute the type of business justification that is
an acceptable defense to § 2 monopolization.” LePage’s, 324 F.3d at 163; see also Polygram,
416 F.3d at 38; Microsoft, 253 F.3d at 71 (finding that Microsoft “wants to preserve its power in
the operating system market” but holding that not to be a legitimate justification).
The crux of Dominion’s justification is its October 2012 internal projection, which stated
“that if Dominion’s network had to support 50% or more of the market for a period of more than
six months and the network was not upgraded, there would be a 50% chance that Dominion’s
! 33
cell network” would face reliability problems. R. ¶ 10 (emphasis added). In light of this report
and its expected growth, Dominion decided in November that it would undertake the upgrades
necessary to enable it to support more than 50% of the market, i.e. the ability to support both
Patriot’s and its own customers. R. ¶ 10. “Dominion had sufficient resources on hand to
upgrade” its network immediately, but decided to delay upgrades until July 2013. R. ¶ 10.
The anomalous timing of Dominion’s decisions to upgrade its network, to delay the
upgrade, and to terminate Patriot’s lease further indicates that Dominion’s conduct was
anticompetitive. Such evidence of intent “helps us understand the likely effect of the
monopolist’s conduct.” Microsoft, 253 F.3d at 59. Had Dominion proceeded with the upgrades
as planned, the upgrades would have been completed at approximately the same time that Patriot
was removed from the network in February 2013. R. ¶ 12. This is well before the end of the six
month period stated in the study; this would also be the case if Dominion had only delayed for
three months. R ¶¶ 10, 12. After six months, the chance of service outages would still only be
50%. R. ¶ 10. In essence, as the District Court found, “[t]he Defendant would have avoided the
danger just by staying on its planned course.” R. ¶ 20. Between December 2012, when
Dominion’s network began supporting 50% of the relevant market, and the District Court’s
Order, Dominion has not cited any network failures. R. ¶ 13. Nor does Dominion provide
evidence that it experienced service outages when Dominion had previously served 50% of the
market, prior to Patriot’s entry. R. ¶ 3.
Dominion’s argument that it needed to delay in order to have a greater cash flow during
the upgrades is similarly unpersuasive. At the time of its decision to delay, Dominion had
“sufficient resources on hand” to perform the upgrades. R. ¶ 10. Additionally, by commencing
the upgrades as scheduled, Dominion would have been able to fund 75% of the cost of the
! 34
upgrades with the $500,000 per month leasing income that it would have earned during the three-
month upgrade period. See supra Part III.B.2.b.i. Dominion’s argument that it desired a “greater
cash flow” before upgrading while simultaneously removing this income is illogical. The
Supreme Court has found such logical inconsistency sufficient to rebut a justification. Eastman
Kodak, 504 U.S. at 484 (internal citations omitted) (finding that “Kodak simultaneously claims
that its customers are sophisticated enough to make complex and subtle lifecycle-pricing
decisions, and yet too obtuse to distinguish which breakdowns are due to bad equipment and
which are due to bad service” established “that Kodak’s first reason is pretextual.”). Thus, the
District Court was correct in finding Dominion’s justifications pretextual.
4. On Balance, the Harms Caused by Dominion’s Conduct Outweigh Any Benefits.
“[I]f the monopolist’s procompetitive justification stands unrebutted, then the plaintiff
must demonstrate that the anticompetitive harm of the conduct outweighs the procompetitive
benefit.” Microsoft, 253 F.3d at 59. Here, since Dominion’s justifications have all been rebutted,
there is no need for this Court to undertake such balancing. However, if this Court does decide
that Dominion’s justifications are unrebutted, it should subsequently find the anticompetitive
effect of Dominion’s conduct to outweigh any benefits.
The outcome of this balancing is resolved by considering the impact of Dominion’s
conduct on consumers. Dominion’s termination of the lease would have forced Patriot’s
expulsion from the market, had it not been for the District Court’s injunction. “Squashing” a new
rival before it has the opportunity to develop into a better competitor harms not only the rival,
but also competition generally. Id. at 79. Harm to competition is harm to consumers, id. at 58,
who benefit from lower costs and increased product choice, see John B. Kirkwood & Robert H.
Lande, The Fundamental Goal of Antitrust: Protecting Consumers, Not Increasing Efficiency, 84
! 35
Notre Dame L. Rev. 191, 217-22 (2008) (discussing an array of Supreme Court and Courts of
Appeals cases which identify one of the key goals of antitrust law as creating consumer benefit).
In contrast, Dominion’s justifications do not generate any consumer benefit. The implied
benefit of its conduct is a decreased likelihood of service outages. R. ¶ 12. However, Dominion
found it necessary to perform the upgrades, notwithstanding Patriot’s presence, based on its own
anticipated growth. R. ¶ 12. Thus, the appropriate question is whether delaying the upgrades had
any benefit to consumers. Contrary to Dominion’s position, consumers would benefit from an
earlier upgrade. Independent of Patriot’s elimination from the market, any delay of the
installation increases the cited risk of service outages. For instance, had Dominion reached its
expected market growth quicker than anticipated, or even surpassed its anticipated growth, the
threat of service outage would have been the same; only be installing the upgrades at an earlier
time could outages be avoided in such circumstances. Thus, delaying the upgrades may actually
harm consumers. Upon balancing the anticompetitive harm to consumers and the (lack of any)
benefits, this Court should find Dominion’s conduct to be anticompetitive.
CONCLUSION
For the reasons stated above, this Court should affirm the District Court’s finding that
Dominion’s bundling practice and refusal to deal were anticompetitive.
Respectfully submitted,
Dated: January 20, 2015 /s/ Team C Team C
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