WASHINGTON-The mobile-phone industry has been forced into a two-front legal war to defend the widespread practice of tying handset sales to the purchase of wireless service from cellular carriers.
Two federal antitrust suits, one initially decided in industry’s favor, are playing out in two New York courts.
Late last month, lawyers for Cingular Wireless L.L.C., Verizon Wireless, Sprint Nextel Corp. and T-Mobile USA Inc. argued in a brief at the 2nd U.S. Circuit Court of Appeals that a lower court appropriately threw out the Brook suit. They argued that because the plaintiffs did not prove any of the defendants has sufficient market power to force consumers to buy unwanted handsets or that alleged tying created anticompetitive consequences.
“The district court’s conclusions rest on undisputed facts and rock-sold legal analysis, and plaintiffs hardly challenge them on appeal,” the mobile-phone companies stated. Instead, the cellular carriers explained, the plaintiffs argued the lower court read their amended complaint too narrowly so as to exclude conspiracy claims. Industry lawyers said none of the arguments proffered by plaintiffs on appeal are grounds for reversal.
Plaintiffs’ lawyers point out the 2nd Circuit previously ruled a direct allegation of conspiracy is not necessarily required for a court to keep a lawsuit alive if arguments are presented that defendants acted in parallel.
Plaintiffs have made the conspiracy claim explicit in a separate antitrust tying lawsuit pending before U.S. District Judge Denise Cote in U.S. District Court for the Southern District of New York. That Freeland suit appears to be a greater legal challenge for the mobile-phone industry. Cote is the same judge who rejected the first antitrust tying suit now before the 2nd Circuit.
The conspiracy claim is key to both antitrust cases because it changes the legal standard for market power. The conspiracy claim allows aggregate market power-rather than market power of an individual carrier-to be considered by the judge.
Meantime, plaintiffs in the second antitrust in the U.S. District Court in New York are pushing for certification by Cote of their class-action lawsuit.
“The observed increases in average wholesale handset prices demonstrate class-wide injury and damages,” plaintiffs’ lawyers told the court in the Freeland litigation
The Freeland suit asserts CTIA, the cellular phone association; the Telecommunications Industry Association, which represents manufacturers and crafts technical standards; and CDMA, TDMA and GSM groups worked together to effectively make phone locking an industry standard. The lawsuit claims that as the phone-locking practice was embraced throughout industry, the number of handset manufacturers decreased and prices-beginning in 1998-began to inch upward.
The cellular industry said phone locking is not an industry standard and that practices vary among national mobile-phone carriers. Moreover, the industry said consumers who want to purchase phones separately from service can do so via the Internet. Wireless carriers heavily subsidize phones bought in conjunction with service contracts, making phone-service packages attractive to consumers.
Similar lawsuits in Tennessee and South Carolina could find their way to Cote’s court. A court in Alameda County, Calif., is considering phone locking lawsuits filed by the Foundation for Taxpayer and Consumer Rights.
