WASHINGTON-A New York federal judge refused to certify a potentially disruptive class-action lawsuit against the four national mobile-phone carriers, possibly removing from the line of fire for now the latest antitrust challenge to the standard industry practice of packaging wireless service and handsets in a way that largely prevents consumers from using phones on other networks when they change operators.
Plaintiffs’ lawyers argued wireless carriers, with their collective market power, conspired to illegally lock handsets by tying the sale of handsets to purchasing cellular service. In doing so, they claimed cellular consumers were forced to buy unnecessarily expensive mobile phones with features consumers do not need nor want.
In particular, they alleged wireless industry trade association CTIA; 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.
Consumers may not have noticed. Carriers keep the cost of new phones down by subsidizing wireless handsets phones purchased with service contracts.
“Denial of certification in these circumstances is … consistent with the Second Circuit’s requirement that class treatment be efficient and manageable. There is nothing particularly efficient or manageable about a class action that would require upwards of 100 million individual hearings before a classwide injunction could issue,” stated U.S. District Judge Denise Cote in a 67-page order.
At the same time, Cote said plaintiffs met other threshold requirements for class certification. Cote said it was unnecessary to rule on arguments by AT&T Inc., Cingular Wireless L.L.C., Sprint Nextel Corp., and T-Mobile U.S.A. Inc. that plaintiffs’ claims are improper because of arbitration agreements in subscribers’ service contracts.
Cote’s ruling is limited to class certification, leaving for another day a decision on the antitrust case’s merits.
The mobile-phone industry Friday planned to ask to throw out the case. Meantime, a lawyer representing the plaintiffs in the antitrust handset-locking lawsuit indicated Cote’s denial of class certification in the Michael Freeland class-action case would be challenged.
“Everyone recognizes there is competition in the handset and wireless services markets. In cases like that, there is not any antitrust injury,” said Michael Altschul, general counsel for CTIA.
It is the second time Cote has ruled in favor of the wireless industry on the handset tying issue. In August 2005, Cote rejected a similar lawsuit brought by Suzanne Brook and others.
The Brook case was seen as weaker than Freeland because in the former a direct conspiracy allegation was not deemed to have been explicitly made.
The conspiracy component is critical because it lowers the legal standard for establishing market power. The conspiracy claim allows aggregate market power (rather than market power of an individual wireless carrier) to be considered by the court.
As such, in the Brook case, Cote granted summary judgment because plaintiffs could not prove any one of the industry defendants had market power in the wireless services space. In addition, she ruled plaintiffs did not show individual defendant’s tying arrangement had an anticompetitive effect on the handset market.
Plaintiffs have challenged Cote’s ruling in the first handset locking case-Brook-in the 2nd U.S. Circuit Court of Appeals in New York. Oral argument in that case is set for Oct. 11.
It is unclear when plaintiff’s will file with same court an appeal of Cote’s class certification denial in the Freeland action.
