Case 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 UNITED STATES DISTRICT COURT DISTRICT OF MADISON

No. 13-1684 _____________________________________________________________

BRIEF OF PLAINTIFF-APPELLEE

Team B

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CORPORATE DISCLOSURE STATEMENT

Pursuant to Federal Rule of Appellate Procedure 26.1, Plaintiff-Appellee Patriot Wireless

Corporation makes the following disclosure: Patriot Wireless Corporation is a Madison State

corporation that does not have a parent corporation. No publicly owned company has any

ownership interest in Patriot Wireless Corporation.

DATED this 20th day of January, 2015.

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TABLE OF CONTENTS

CORPORATE DISCLOSURE STATEMENT .................................................................. ii

TABLE OF AUTHORITIES ............................................................................................... v

JURISDICTIONAL STATEMENT .................................................................................... 1

STATEMENT OF ISSUES ................................................................................................. 2

STATEMENT OF THE CASE ........................................................................................... 3

STATEMENT OF FACTS .................................................................................................. 4

SUMMARY OF ARGUMENT ........................................................................................... 7

STANDARD OF REVIEW ................................................................................................. 9

ARGUMENT .................................................................................................................... 10

I. Dominion Possessed Monopoly Power in the Television Service and Cellular Service Markets ........................................................................................ 10

"II. The Bundled Discount Offered by Dominion was Anticompetitive ...................... 12

"a. The LePage’s standard offers guidance to firms while protecting consumer welfare .................................................................................................................... 12

b. The bundle offered by Dominion aims to exclude competition from the cellular service market ............................................................................................ 16

c. The bundle offered by Dominion creates an anticompetitive effect in the cellular service market ...................................................................................... 16

III. Dominion's Refusal to Deal was Anticompetitive .................................................. 18

a. Courts look to the totality of the circumstances when determining the lawfulness of a refusal to deal ................................................................................ 19

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b. Dominion terminated a prior profitable course of dealing ..................................... 20

c. Dominion lacked a valid business justification for terminating the prior course of dealing ............................................................................................ 21

"d. Dominion intended to exclude Patriot from the cellular services market .............. 23

e. Dominion's refusal to deal had anticompetitive effects in the cellular services market ....................................................................................................... 25

CONCLUSION ................................................................................................................. 29

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TABLE OF AUTHORITIES

Cases

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) ................................................................................................... passim Broadway Delivery Corp. v. United Parcel Serv. of Am., 651 F.2d 122 (2d Cir. 1981) .............................................................................................. 11 Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993) .......................................................................................................... 25 Cascade Health Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 2007) ...................................................................................... passim Chi. Bd. of Trade v. United States, 246 U.S. 231 (1918) .......................................................................................................... 26 Domed Stadium Hotel, Inc. v. Holiday Inns, Inc., 732 F.2d 480 (5th Cir. 1984) ............................................................................................. 11 Eastman Kodak Co. v. Image Technical Servs, Inc., 504 U.S. 451 (1992) .................................................................................................... 25, 26 Hayden Pub. Co., Inc. v. Cox Broad. Corp.,

730 F.2d 64 (2d Cir. 1984) ................................................................................................ 11

Hunt-Wesson Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919 (9th Cir. 1980) ............................................................................................. 11 In re Nw. Airlines Corp. Antitrust Litig., 197 F. Supp. 2d 908 (E.D. Mich. 2002) ...................................................................... 11, 12 J.B.D.L. Corp. v. Wyeth-Ayerst Labs., Inc., 485 F.3d 880 (6th Cir. 2007) ............................................................................................... 9 LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003) ....................................................................................... passim Lorain Journal Co. v. United States, 342 U.S. 143 (1951) .................................................................................................... 22, 26 Meijer, Inc. v. Abbott Labs., 544 F. Supp. 2d 995 (N.D. Cal. 2008) ......................................................................... 14, 15

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Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438 (2009) .......................................................................................................... 18 Standard Oil Co. v. United States, 221 U.S. 1 (1911) ............................................................................................................. 26 United States v. Colgate & Co., 250 U.S. 300 (1919) .......................................................................................................... 18

United States v. Grinnell Corp.,

384 U.S. 563 (1966) .......................................................................................................... 11 United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001) ....................................................................................... 25, 26 Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004) ................................................................................................... passim

Statutes

15 U.S.C. § 2 .......................................................................................................................... passim 15 U.S.C. § 15(a) ......................................................................................................................... 1, 2 15 U.S.C. § 26 ................................................................................................................................. 3 28 U.S.C. § 1291 ............................................................................................................................. 1 28 U.S.C. § 1331 ............................................................................................................................. 1

Other Authorities

3A Areeda & Hovenkamp, Antitrust Law (2008) .................................................................. passim 3B Areeda & Hovenkamp, Antitrust Law (2008) ......................................................................... 11

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JURISDICTIONAL STATEMENT

Patriot alleged that Dominion violated the Sherman Act. 15 U.S.C. §§ 2. The District

Court had jurisdiction pursuant to 15 U.S.C. §15(a) and 28 U.S.C. § 1331. Dominion timely filed

their notice of appeal on January 13, 2014. This Court has jurisdiction pursuant to 28 U.S.C. §

1291. This brief is timely filed.

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STATEMENT OF ISSUES

I. Whether Dominion’s introduction of a bundled discount following Patriot’s entry into the

market was anticompetitive in violation of Section 2 of the Sherman Act.

II. Whether Dominion’s termination of a prior course of dealing with Patriot was an

anticompetitive refusal to deal in violation of Section 2 of the Sherman Act.

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STATEMENT OF THE CASE

On February 22, 2013, Plaintiff Patriot Wireless Corporation (“Patriot”) originally filed a

complaint alleging that Defendants Ariel Wireless Company, Noble Communications

Corporation, and Dominion Telecommunications, Incorporated (“Dominion”) violated Section 2

of the Sherman Act. The suit, brought under the Clayton Act, 15 U.S.C. §§ 15 and 26, sought

treble damages and injunctive relief. The United States District Court for the District of Madison

granted a preliminary injunction ordering Dominion to continue providing cellular transmission

capacity to Patriot. On July 18, 2013, the District Court granted a motion to dismiss by co-

Defendants Ariel Wireless and Noble Communications. Subsequently, the remaining parties,

Patriot and Dominion, performed discovery and filed cross-motions for summary judgment.

On December 16, 2013, the District Court found Dominion’s conduct to be in violation of

the Sherman Act in two ways. First, by using the standard of review as set forth in LePage’s Inc.

v. 3M – where a bundled discount is deemed anticompetitive even if it is priced above cost – the

District Court found Dominion’s bundled discount anticompetitive. Second, the District Court

found that Dominion engaged in anticompetitive behavior by its refusal to lease capacity to

Patriot. Thus, Patriot prevailed on both counts and the court ordered Dominion to pay $100

million in damages, trebled per statute, as well as attorneys’ fees and costs of $1 million. The

District Court enjoined Dominion from terminating the lease agreement with Patriot until June

16, 2016.

Dominion filed a timely appeal on January 13, 2014, bringing the matter before this

Court.

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STATEMENT OF FACTS

Defendant-Appellant Dominion Telecommunications, Incorporated (“Dominion”)

possessed significant market share in the cellular service and television service markets for the

city of Mason for all parts relevant to this action. R. at ¶ 2-3. Plaintiff-Appellee Patriot Wireless

Corporation (“Patriot”) attempted to offer consumers a cheaper option in the cellular services

market, and was successful following entry into the market in July 2012. R. at ¶ 4. Patriot’s

business model was drastically different than Dominion’s, offering consumers a low-cost option;

Patriot’s price of $75 for cellular service was lower than Dominion’s $100 price. R. at ¶ 4.

Due to the high costs of constructing a cellular network, Patriot opted to lease network

capacity from Dominion prior to entering the market. R. at ¶ 4. Patriot planned to increase its

market share over time and use the profits to eventually construct its own cellular network. R. at

¶ 4. In July 2012, Patriot and Dominion entered into a four-year lease agreement allowing

Patriot the ability to lease excess capacity from Dominion. R. at ¶ 4. The lease agreement

included a clause allowing Dominion the power to terminate the contract for any reason with

thirty days notice. R. at ¶ 4.

After Patriot’s entry into the cellular services market, consumers responded favorably. R.

at ¶ 5. Patriot was able to capture 5% of the market within six months. R. at ¶ 5. Over half of

this growth was a result of consumers leaving Dominion and choosing the low-cost option

Patriot offered. R. at ¶ 5.

Dominion responded with a bundle that packaged its cellular service with cable television

service for $105 in December 2012. R. at ¶ 9. Previously, consumers wishing to purchase both

options from Dominion were required to pay $200, or $100 for each service. R. at ¶ 2–3.

Dominion’s market share increased by 7% in the three months following the introduction of the

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bundle. R. at ¶ 9. During this time period, Patriot’s market share stopped increasing. R. at ¶ 10.

Patriot had still outpaced its expected growth and began planning the construction of its

own cellular network. R. at ¶ 11. Under Patriot’s plan, over half of the financing would come

from the profit in existing operations while the remaining cost would be borrowed from a group

of banks. R. at ¶ 11. The $100 million loan from the banks was contingent upon Patriot

continuing to earn profits of at least $5 million per month. R. at ¶ 11. Following the completion

of its cellular network, Patriot would no longer need to lease capacity from Dominion. R. at ¶

11. During the two year construction period of its network, Patriot would still need to lease

cellular capacity from Dominion. R. at ¶ 11. On January 2, 2013, Patriot announced that it

would be building its own cellular network. R. at ¶ 11.

Dominion responded by terminating the lease agreement with Patriot. R. at ¶ 12. As

justification, Dominion claimed that shortly after the lease agreement was signed, an internal

report found that there was a 50% chance of network failure if Dominion did not act to upgrade

its cellular network. R. at ¶ 12. Dominion wanted to delay the upgrade until July 2013 when it

believed it would have greater cash flow and, based on Dominion’s increasing market share, did

not believe that the network could support both parties. R. at ¶ 10. Dominion’s internal report

ended up being incorrect, as the cellular network was able to support both parties through

technical advances and lower-than-anticipated utilization by cellular service subscribers. R. at ¶

13.

Following the termination of the lease agreement, Patriot was unable to make an

agreement to lease cellular capacity from any other competitor in the market. R. at ¶ 12.

Additionally, the banks that had agreed to finance Patriot’s construction of its cellular network

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backed out of the financing agreement. R. at ¶ 12. Without the ability to lease cellular network

capacity, Patriot will be unable to serve its customers and will be forced to exit the market.

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SUMMARY OF ARGUMENT

Dominion used monopoly power in the television and cellular service markets to exclude

Patriot and other low-cost rivals from competing. In both markets, Dominion possessed

sufficient market share to qualify as a monopolist. Additionally, Dominion satisfied the conduct

element of Section 2 of the Sherman Act by offering an anticompetitive bundle and by

unlawfully refusing to deal with Patriot following a pre-existing course of dealing.

1. Dominion’s introduction of a bundled discount following Patriot’s entry into the cellular

services market is anticompetitive and aimed at excluding competition. The standard articulated

by the Third Circuit in LePage’s Inc. v. 3M, 324 F.3d 141 (3d Cir. 2003), is most appropriate for

analyzing bundled discounts because it provides guidance to firms while protecting consumer

welfare. Even if this Court were to adopt the Ninth Circuit’s approach in Cascade Health

Solutions v. PeaceHealth, 515 F.3d 883 (9th Cir. 2007), this case would qualify as an exception

because the cellular services market does not fall within the scope of the “normal case[s]” that

the discount attribution test was intended to cover. Id. at 901. The high fixed costs in the

cellular service market, relative to variable costs, distinguish the instant case from the healthcare

services market at issue in PeaceHealth.

The behavior by Dominion is exclusionary and aimed at foreclosing the market to Patriot

and other low-cost providers. The discount offered to consumers was substantial and would not

have occurred, but for the perceived threat that Patriot and other low-cost cellular service

providers posed to Dominion. The bundled discount was offered for the purpose of regaining

market share to allow for higher prices by Dominion following Patriot’s exclusion from the

market.

The bundled discount creates an anticompetitive effect on the cellular services market.

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The exclusion of Patriot and other low-cost providers will allow for Dominion to return to its

previous pricing, which was the highest in the market. The benefits that consumers enjoy from

the bundled discount will be short-lived and disappear following the absence of Patriot and other

low-cost cellular service providers from the market. Examining the period before Patriot’s entry

into the market allows one to predict the price that Dominion will charge following Patriot’s

exclusion from the market. Lacking competition from low-cost cellular service providers,

Dominion will return to charging the highest price on the market, harming consumer welfare.

2. The termination of the lease agreement is an anticompetitive refusal to deal in violation

of Section 2. Analyzing the circumstances surrounding the formation and subsequent

termination of the lease agreement suggests questionable behavior by Dominion. Only three

months after entering into a four-year agreement, Dominion terminated a profitable agreement

with Patriot. The compensation offered by Patriot was equal to the amount Dominion received

from consumers purchasing cellular service as part of the bundled discount. Dominion claims

that an internal report suggested that their cellular network was unfit for both parties to share. A

responsible company would not have undertaken a lease agreement while such a study was

underway. Instead, the purpose of Dominion’s refusal to deal is to exclude Patriot from

competing in the cellular services market. Following Patriot’s growth in the market and

announcement that they would construct their own cellular network to cement their place as a

viable competitor, Dominion determined that they had to act to protect their market share. The

goal of terminating the lease agreement is to prevent competition, not to satisfy any valid

business justification. Additionally, the exclusion of Patriot from the cellular services market

has an anticompetitive effect that outweighs any concerns about chilling innovation or forcing

rivals to deal with one another.

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STANDARD OF REVIEW

A grant of summary judgment is subject to de novo review. J.B.D.L. Corp. v. Wyeth-Ayerst

Labs., Inc., 485 F.3d 880, 886 (6th Cir. 2007).

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ARGUMENT

I. Dominion Possessed Monopoly Power in the Television Service and Cellular Service Markets

"A monopolist may not maintain monopoly power by engaging in conduct that unfairly

excludes competitors from the market. The issues before this Court are (1) whether Dominion

Telecommunication, Incorporated’s (“Dominion”) introduction of a bundled discount following

Patriot Wireless Corporation’s (“Patriot”) entry into the market was anticompetitive in violation

of Section 2 of the Sherman Act, and (2) whether Dominion’s termination of a prior course of

dealing with Patriot was an anticompetitive refusal to deal in violation of Section 2 of the

Sherman Act. Section 2 of the Sherman Act states:

“Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony…”

Patriot is a new competitor in the suburban Mason cellular telephone market, having

entered the market in July of 2012. R. at ¶ 4. Dominion has been a major competitor in the

Mason cellular service market since 1993, when it constructed the first cellular network in the

Mason metropolitan area. R. at ¶ 3. Dominion also has had a local monopoly in cable service

since 1984. R. at ¶ 2. In July 2012, Dominion and Patriot entered into a four-year lease

agreement where Patriot was able to lease unused cellular capacity from Dominion. R. at ¶ 4.

Patriot’s unique business approach as a low-cost provider allowed them to provide cellular

services for $75, which was significantly cheaper than Dominion’s $100 service. R. at ¶ 4. In

response to Patriot’s explosive growth in the first six months, Dominion began to offer

customers an anticompetitive bundle with cable and cellular services. R. at ¶ 9. Additionally,

Dominion gave Patriot thirty days notice of termination of the lease agreement based upon an

internal projection regarding network capacity. R. at ¶ 12.

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Dominion’s conduct has violated both elements of a Section 2 offense. The two elements

of a Section 2 offense are “(1) the possession of monopoly power in the relevant market and (2)

the willful acquisition or maintenance of that power as distinguished from growth or

development as a consequence of a superior product, business acumen, or historic incident.”

U.S. v. Grinnell Corp., 384 U.S. 563, 570-71 (1966).

Dominion has monopoly power in the television services market. Monopoly power can

be established from the relative market share a company possesses in a particular market. 3B

Areeda & Hovenkamp, Antitrust Law ¶ 801a, at 383 (2008). Market shares between 50% and

70% can demonstrate monopoly power. Broadway Delivery Corp. v. United Parcel Serv. of Am.,

651 F.2d 122, 129 (2d Cir. 1981), cert. denied, 454 U.S. 968 (1981); see also Hunt-Wesson

Foods, Inc. v. Ragu Foods, Inc., 627 F.2d 919 (9th Cir. 1980), cert. denied, 450 U.S. 921 (1981)

(65% market share sufficiently pleads monopoly power). Dominion’s cable service accounts for

60% of the television services market. R. at ¶ 2. Thus, Dominion has sufficient market power to

be deemed a monopolist in the television services market.

Additionally, Dominion has monopoly power in the cellular services market. Courts have

not foreclosed a categorical rule that shares less than 50% preclude finding monopoly power. 3B

Areeda & Hovenkamp, Antitrust Law, ¶ 807d1, at 441-44 (2008). In fact, it has been held that

monopoly power can be found where a party’s market share is less than 50%. Hayden Pub. Co.,

Inc. v. Cox Broad. Corp., 730 F.2d 64 (2d Cir. 1984); see also Domed Stadium Hotel, Inc. v.

Holiday Inns, Inc., 732 F.2d 480, 490 (5th Cir. 1984) (noting that a share of less than the 50%

generally required for actual monopolization may support a claim for attempted monopolization

if other factors are present); In re Nw. Airlines Corp. Antitrust Litig., 197 F. Supp. 2d 908, 919

(E.D. Mich. 2002) (stating that a defendant still might possess monopoly power where its market

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share is below 50%). At the time the complaint was filed, Dominion possessed 46% market

share of the cellular services market.1 R. at ¶ 3, 9. Together, Dominion’s local monopoly in

television services and its established presence in the cellular services market allowed Dominion

to offer a bundled discount at a significantly lower rate than its competitors. As a result,

Dominion exercised its monopoly power to control prices and exclude competitors in the cellular

services market.

Dominion’s conduct was anticompetitive and satisfies the second element of a Section 2

claim. The second element involves the willful acquisition or maintenance of monopoly power as

distinguished from growth or development as a consequence of a superior product, business

acumen, or historic incident. Anticompetitive conduct that violates Section 2 of the Sherman Act

can come in a variety of forms, including bundled discounts, LePage’s Inc. v. 3M, 324 F.3d 141

(3d Cir. 2003), and refusals to deal. Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S.

585 (1985).

II. The Bundled Discount Offered by Dominion was Anticompetitive

a. The LePage’s standard offers guidance to firms while protecting consumer welfare.

" The LePage’s standard is most consistent with the principles of antitrust law. In

LePage’s, the Third Circuit applied the rule of reason to find large rebates by the Defendant

anticompetitive. 324 F.3d at 157. Despite the benefits to consumer welfare in the short-term, the

Third Circuit held that the long-term effects would be detrimental to consumers and competition.

Id. The court’s standard for analyzing the bundle was based on their assertion that “[t]he

principal anticompetitive effect of bundled rebates as offered by 3M is that when offered by a

""""""""""""""""""""""""""""""""""""""""""""""""""""""""1"This calculation is based upon Dominion’s 40% market share at the beginning of December 2012, plus the increase in market share of 5% in December 2012 and 1% in January 2013. R. at ¶ 3, 9. The Complaint was filed on February on February 22, 2013.

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monopolist they may foreclose portions of the market to a potential competitor who does not

manufacture an equally diverse group of products and who therefore cannot make a comparable

offer.” Id. at 155. The court reasoned that “[i]f 3M were successful in eliminating competition

from LePage’s . . . 3M could exercise its monopoly power unchallenged.” Id. at 160. Thus, the

Third Circuit’s approach looked to both the short-term and long-term consequences of the bundle

to determine the competitive effects.

The PeaceHealth approach incorrectly equates predatory pricing with bundled discounts.

The Ninth Circuit correctly stated that “[a] competitor who produces fewer products than the

defendant but produces the competitive product at or below the defendant’s cost to produce that

product may nevertheless be excluded from the market because the competitor cannot match the

discount the defendant offers over its numerous product lines.” PeaceHealth, 515 F.3d 883, 904

(9th Cir. 2007). However, the court adopted the discount attribution test, which implements a

similar analysis as that required for predatory pricing. Id. The two instances are distinct,

however, as “a single-product rival could compete with an aggregated multiproduct discount by

the monopolist only by offering a significantly larger discount on its own single product. It

would have to match not only the rival’s price on the single product, but also compensate the

buyer for loss of discounts on the other bundled products that the rival did not sell.” 3A Areeda

& Hovenkamp, Antitrust Law, ¶ 749d, at 318 (2008). Bundled discounts allow the Defendant to

spread costs over products not offered by competitors, thus increasing the risk of anticompetitive

exclusionary conduct. The Ninth Circuit’s approach is flawed because it incorrectly treats

bundled discounts and predatory pricing claims as similar.

Additionally, the Ninth Circuit’s approach is a bright-line rule that is too inflexible to

work in all circumstances. The PeaceHealth standard requires courts to look no further than the

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Defendant’s incremental costs of production and the price at which the good or service is

offered. PeaceHealth, 515 F.3d at 910. It is unwise to think that this approach will encompass

all of the bundled discounts that could conceivably be challenged. Professors Areeda and

Hovenkamp would not adopt such a rigid approach either, instead stating that “[a] requirement

that the bundling practice be sufficiently severe so as to exclude an equally efficient single-

product rival, and without an adequate business justification, seems to strike about the right

balance between permitting aggressive pricing while prohibiting conduct that can only be

characterized as anticompetitive.” 3A Areeda & Hovenkamp, Antitrust Law, ¶ 749d1, at 323

(2008). Therefore, the proper analysis is to examine the entirety of the circumstances

surrounding a bundled discount, rather than merely focusing on the Defendant’s cost and pricing.

Even under the PeaceHealth approach, there are exceptions for markets that have high

fixed costs relative to variable costs. The Ninth Circuit recognized they were not requiring “that

in every case in which a plaintiff challenges low prices as exclusionary conduct the plaintiff must

prove that those prices were below cost.” PeaceHealth, 515 F.3d at 901. Instead, the Ninth

Circuit held that the discount attribution test would be applied only “in the normal case.” Id. at

901. Markets that have high fixed costs which “dwarf variable costs” would not have the

discount attribution test applied. Meijer, Inc. v. Abbott Labs., 544 F. Supp. 2d 995, 1004 (N.D.

Cal. 2008). In Abbott, the court held that the discount attribution test would not be appropriate in

the pharmaceutical market. Id. Applying the PeaceHealth standard in that context would “not

achieve its stated goal of prohibiting pricing that results in the exclusion of equally efficient

competitors.” Id. at 1004. Therefore, the Ninth Circuit did not intend for the discount attribution

test to be applied to all markets.

The market for cellular service in Mason differs significantly from the market at issue in

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PeaceHealth. Dominion’s fixed costs of providing cellular service are $72.38 million per month,

while Dominion’s variable costs are $3 per customer, or only $2.4 million for December 2012.2

The ratio of fixed to variable costs is over thirty, making it inappropriate to apply the discount

attribution test adopted in PeaceHealth to this case. In contrast, the parties in PeaceHealth were

competing in a health services market where fixed costs were not substantially greater than

variable costs. PeaceHealth, 515 F.3d at 883. Examining only Dominion’s incremental cost of

providing cellular service is an inaccurate measure in this market, given the substantial fixed

costs. Given the circumstances in the cellular services market, this case falls within the

exception contemplated by the Ninth Circuit in PeaceHealth.

Further, the LePage’s standard offers firms guidance for how to price bundles without

negatively affecting consumer welfare. The factors present in LePage’s are clear for

interpretation. A monopolist may not offer a bundle that is aimed at excluding a competitor and

which makes it impossible for an equally efficient rival to compete. LePage’s, 324 F.3d at 162

(“The effect of 3M’s conduct in strengthening its monopoly position by destroying competition .

. . is most apparent when 3M’s various activities are considered as a whole.”). This standard will

only be met in the most extreme of circumstances and will preserve the countless bundles that

are present in everyday life. See 3A Areeda & Hovenkamp, Antitrust Law, ¶ 749a, at 307

(2008). The Ninth Circuit overreached in PeaceHealth and attempted to give firms guidance

while sacrificing consumer welfare. 515 F.3d at 907 (“The discount attribution standard

provides clear guidance for sellers that engage in bundled discounting practices.”). The

LePage’s standard satisfies both of these goals by giving firms guidance about the lawfulness of

bundles while protecting consumer welfare.

""""""""""""""""""""""""""""""""""""""""""""""""""""""""2 At the beginning of December 2012, Dominion provided service to 40% of the 2 million cellular subscribers in Mason for a total of 800,000 customers. R. at ¶ 3.

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b. The bundle offered by Dominion aims to exclude competition from the cellular service market. A bundle that provides significant discounts to consumers can be deemed exclusionary.

In LePage’s, the Third Circuit determined that the size of the rebates offered to customers

“created a substantial incentive for each customer” to purchase from the Defendant rather than

the Plaintiff. 324 F.3d at 154. In particular, the Court was persuaded by the fact that “[i]n some

cases, these magnified rebates to a particular customer were as much as half of LePage’s entire

prior tape sales to that customer.” Id. at 157. The discounts were “substantial” according to the

Court and could be reasonably interpreted as a monopolist attempting to exclude competition.

Id. at 154, 157. Thus, the size of the discount is an important factor in determining the

exclusionary intent of a monopolist, because it can create strong incentives for consumers to

forego dealing with a competitor.

The bundle offered by Dominion provides an unprecedented discount to consumers based

on the period prior to Patriot’s entry into the market. Dominion’s bundle offers consumers a $95

discount on cellular service and cable television based on the individual prices of those services.

R. at ¶ 2, 3. The discount consumers receive from purchasing the bundle is greater than the price

Patriot charges for cellular service. R. at ¶ 4. Additionally, as in LePage’s, the timing of the

bundle is suspicious. 324 F.3d at 160. It is unlikely that the bundle would have been introduced

without Patriot’s entry into the market, and it is unlikely that the bundle will continue to exist if

Patriot is excluded from the market. Dominion introduced the bundle to regain market share and

eliminate competition from low-cost cellular providers.

c. The bundle offered by Dominion creates an anticompetitive effect in the cellular service market.

"" A bundled discount that forecloses competition has an anticompetitive effect on the

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market. In LePage’s, the Third Circuit identified the anticompetitive effect of 3M’s rebates by

stating that “[i]t was only after LePage’s entry into the market that 3M introduced the bundled

rebate programs. If 3M were successful in eliminating competition from LePage’s . . . 3M could

exercise its monopoly power unchallenged.” Id. at 160. Thus, the court determined that the

benefits to consumer welfare in the short-term from the rebate program were outweighed by the

anticompetitive effect of having a monopolist. Following the short-term discounts, prices would

rise to uncompetitive levels after the absence of a competitor in the market.

If competitors are unable to offer a comparable package, then a bundle may coerce

consumers into purchasing from the Defendant. “[P]ackage discounting can also coerce buyers .

. . when no rival can readily assemble a comparable package. In this case a package that is

nominally ‘above cost’ can coerce when the only way the rival can match the discount is to give

an even larger per-item discount.” 3A Areeda & Hovenkamp, Antitrust Law, ¶ 749d3, at 327

(2008). Because a competitor cannot offer consumers the same bundle, they are forced to

increase the discount on their product. Thus, a bundle that cannot be matched by a competitor

has the ability to be anticompetitive by its very nature. It may be impossible for any competitor,

even one that is equally or more efficient, to offer consumers the same discount.

No competitor in the cellular service market can offer a bundle comparable to Dominion.

Dominion’s monopoly in cable service forecloses the ability of any rival to offer a similar

package to consumers. Low-cost providers like Patriot are only able to offer cellular service to

consumers, and do so at a price lower than Dominion. Patriot is unable to spread costs over

multiple product lines and therefore cannot match the steep discount that Dominion currently

offers consumers. The business model of Patriot and other low-cost providers is severely

threatened by the existence of Dominion’s bundle.

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The Court need only examine the market prior to Patriot’s entry to find the

anticompetitive effect that will occur in the cellular service market. Before Patriot began offering

consumers cellular service for $75, consumers purchasing from Dominion were paying $100 for

cellular services. R. at ¶ 3. Consumers responded quickly to Patriot’s entry into the market as

five percent of the market shifted to Patriot, with three percent switching from Dominion. R. at ¶

5. The coercive effect of the bundle has terminated Patriot’s growth and threatens to foreclose

them from the cellular service market. R. at ¶ 13. If the bundle is successful in driving Patriot

and other low-cost providers from the market, consumers will then be forced to pay $100 for

cellular service. Once a monopoly in the market is established again, prices will rise to levels

consistent to the period prior to Patriot’s presence in the market. The bundle is a temporary

measure offered by Dominion aimed at helping it monopolize the cellular services market.

III. Dominion’s refusal to deal was anticompetitive.

Dominion’s unlawful refusal to deal with Patriot violates Section 2 of the Sherman Act.

As a general rule, firms, even those with monopoly power, have a right to deal, or refuse to deal,

with whomever they choose without violating the antitrust laws. United States v. Colgate & Co.,

250 U.S. 300, 307 (1919); see also Pac. Bell Tel. Co. v. Linkline Commc’ns, Inc., 555 U.S. 438,

444 (2009); Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 410

(2004) (a business, even a monopolist, has “no antitrust duty to deal with its rivals at all”).

However, the right to refuse to deal is not unqualified. See Trinko, 540 U.S. at 408 (quoting

Aspen, 472 U.S. at 601). “Under certain circumstances, a refusal to cooperate with rivals can

constitute anticompetitive conduct and violate [Section] 2.” Trinko, 540 U.S. at 408 (quoting

Aspen, 472 U.S. at 601. The Supreme Court has “been very cautious in recognizing such

exceptions,” but it has done so, most significantly in Aspen. Trinko, 540 U.S. at 408.

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Dominion’s refusal to continue dealing with Patriot falls within the Aspen exception.

Similar to the anticompetitive conduct of Ski Co. in the Aspen case, Dominion was willing to

forgo short-term profits because “it was more interested in reducing competition . . . over the

long run by harming its smaller competitor.” 472 U.S. at 608. Dominion terminated a profitable

lease agreement they had just begun without citing any valid business justification.

a. Courts should look to the totality of the circumstances when determining the lawfulness of a refusal to deal.

Aspen is the “leading case for [Section] 2 liability based on refusal to cooperate with a

rival.” Trinko, 540 U.S. at 408. In Aspen, the defendant-monopolist Ski Co. owned three of four

mountains in a ski area, and after selling joint ski lift tickets with its rival for several years, Ski

Co. cancelled the arrangement and refused to further sell ski lift tickets to its rival, even at full

retail price. 472 U.S. at 592–94. The Court found Ski Co.’s refusal to deal with its rival was

motivated entirely by a decision to avoid providing any benefit to its rival. Id. Additionally, Ski

Co. would have incurred no additional cost, it would have been provided with immediate

benefits, and the arrangement would have satisfied potential customers. Id. at 610. Together,

these factors supported the inference that Ski Co. was driven by the desire to establish and

exploit its monopoly power on the market because it was willing to sacrifice short-term profits

and consumer goodwill in exchange for a perceived long-run impact on its smaller rival. Id. at

610-11.

Courts should analyze all relevant facts and circumstances in determining whether to

force dealing between competitors. The Court in Aspen looked at the behavior of the monopolist

and rival, as well as circumstances surrounding their past dealing and the effects of the

arrangement on consumers. See id. at 604 (“It is, accordingly, appropriate to examine the effect

of the challenged pattern of conduct on consumers, on Ski Co.’s smaller rival, and on Ski Co.

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itself.”). The complex and sensitive nature of dealing between competitors, and their

implications to consumers require a fact intensive inquiry in order to protect consumers and

prevent anticompetitive effects. Thus, because the instant case, just like Aspen, involves a

monopolist dealing with a rival, this Court must examine the totality of the circumstances in

determining the legality of Dominion’s refusal to deal.

b. Dominion terminated a prior profitable course of dealing and sacrificed profits for the purpose of excluding a competitor.

"Dominion unilaterally terminated a profitable arrangement with Patriot and sacrificed this

efficient arrangement for the purpose of excluding Patriot from the cellular services market. In

Trinko, the Supreme Court found that when a single firm with market power unilaterally ceases

participation in a cooperative venture, “[t]he unilateral termination of a voluntary (and thus

presumably profitable) course of dealing suggest[s] a willingness to forsake short-term profits to

achieve an anticompetitive end.” 540 U.S. at 409 (citing Aspen, at 608, 610-611) (analyzing

Section 2 liability under Aspen). The arrangement between Patriot and Dominion provided that

Patriot would pay Dominion $5 per household per month to lease network capacity. R. at ¶ 8.

With the introduction of the bundled discount, Dominion’s customers would also pay $5 for their

cellular service. R. at ¶ 9. The average variable cost to Dominion of the network capacity is $3

per household per month. R. at ¶ 7. Thus, the margin on Dominion’s network capacity leased to

Patriot is equal to the margin on the network capacity used by Dominion customers. In Aspen,

the competitor was willing to pay the full face value of a ski ticket in order to continue selling

tickets for access to the monopolist’s mountains as well as its own. 472 U.S. at 594. Here,

Dominion terminated an arrangement in which Patriot offered the same $5 amount that

customers paid in the retail capacity. R. at ¶ 8. Additionally, Dominion will incur further costs

in marketing and selling its capacity to other retail consumers. Leasing to Patriot requires no

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additional cost and bears no risk, as the terms of the lease are already established and the

arrangement is ongoing. Most importantly, per Dominion’s internal report, there is a 50%

chance of network failure with the current Patriot arrangement; however, the same 50%

probability of market failure applies if Dominion achieves its goal of attaining more market

share. R. at ¶ 10. Dominion’s actions indicate a goal of achieving more market share. While

there is nothing facially inappropriate or anticompetitive with this goal, if Dominion

accomplishes this feat, the same 50% probability of network failure will apply. See R. at ¶ 10.

Thus, if Dominion is successful in garnering more control of the market, and reaches 50%

market share, then the same network capacity issues will exist in the same manner as currently

projected as a result of the current arrangement with Patriot.

c. Dominion lacked a valid business justification for terminating the course of dealing.

Dominion failed to provide a valid business justification for terminating its agreement

with Patriot. Dominion produced an internal report predicting a 50% chance of system failure

given the continued support of Patriot’s network. R. at ¶ 10. Accepting this report as a

legitimate business reason for discontinuing the arrangement with its rival fails to consider

Dominion’s goals and its own market projections. As of December 2012, Patriot controlled 5%

of the market share. R. at ¶ 5. Consequently, if Dominion ceases its agreement with Patriot and

Patriot is unable to find another provider of network capacity, 5% of the market will be forced to

look for a new provider. Three percent of Patriot’s market share was previously under

Dominion’s domain. R. at ¶ 5. Thus, in reality, assuming those customers will return to

Dominion, by excluding Patriot, Dominion presumably will add approximately 3% from Patriot

to its previously supported share of the market. Furthermore, Dominion’s goal was to gain more

market share, and it hoped to gain more by utilizing its bundled pricing scheme. Assuming

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Dominion would regain the 3% of the market it controlled prior to Patriot’s rise, Dominion

would return to the allegedly critical situation it was in while supporting Patriot’s system and

would likely need to move the timeline for system upgrades forward even in the absence of

Patriot’s presence on the market. Accordingly, it appears Dominion’s system upgrades were

inevitable, and the timeline of those upgrades would not necessarily be forced forward if this

Court were to find an improper and anticompetitive refusal to deal in the instant case.

Dominion terminated an existing profitable arrangement with a rival to pursue a path of

business that required greater costs and uncertainty. Dominion’s conduct of sacrificing profits in

favor of excluding a competitor is similar to the conduct of the monopolists found in violation of

Section 2 in Aspen and Lorain Journal Co. v. United States, 342 U.S. 143 (1951). Dominion also

failed to demonstrate any procompetitive effects relating to its actions that would outweigh the

anticompetitive effects harming consumer welfare. Forced dealing in this case preserves the

competitive market and protects consumer welfare, especially for those consumers who prefer

low-cost providers, such as Patriot. Furthermore, forced leasing of the network capacity to

Patriot does not present an undue burden for Dominion should it require a network upgrade. If

Dominion is successful in attaining greater market share, then an upgrade to its cellular network

is inevitable. Additionally, Dominion already possesses the resources to allow it to upgrade its

network.

The timing of Dominion’s refusal to deal with Patriot is problematic for its defense. In

Aspen, the Court was persuaded in part because of the several years of dealing between the

parties prior to the termination of their agreement. 472 U.S. at 608–11. The history of the course

of dealing was a factor in finding that the refusal to deal was unlawful. Id. Here, Dominion

terminated a lease agreement only several months after its formation. R. at 5. It seems unlikely

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that a business would finalize a four-year agreement prior to determining the soundness of the

leased product. In this case, Dominion did just that. Only three months after entering into the

lease agreement, Dominion claims that an internal report showed that the network would be

unable to support both parties. R. at ¶ 12. This justification suggests either reckless corporate

governance or dishonesty on the part of Dominion. This Court is not being asked to intervene in

the normal business affairs of Dominion by granting Patriot the opportunity to continue leasing

cellular network capacity. Instead this Court must only determine that the timing of this course

of dealing is highly suspicious, given that the internal report from Dominion occurred shortly

after a major lease agreement with Patriot and coincided with Patriot’s rapid growth in the

market.

d. Dominion intended to exclude Patriot from the cellular services market.

By unilaterally terminating the lease agreement, Dominion improperly excluded Patriot

from the cellular services market. “Improper exclusion is always deliberately intended.” Aspen,

472 U.S. at 602–03 (citing R. Bork, The Antitrust Paradox 160 (1978) (noting improper

exclusion does not include exclusion resulting from a superior efficiency)). A monopolist who

has done business with a competitor must possess a legitimate business reason for discontinuing

that business relationship to avoid a violation under Section 2 of the Sherman Act. Aspen, 472

U.S. at 608–11. A legitimate business justification demonstrates a lack of intent to exclude a

competitor. In the instant case, Dominion fails to provide a legitimate business justification for

its conduct. Dominion presents the projected 50% chance of significant, regular outages as

evidence of the need to terminate the leasing agreement with Patriot. R. at ¶ 10. Notably, this

report projected the outages would occur over six months in the future. R. at ¶ 10. Moreover, an

upgrade to avoid the projected outages could be completed within three months and Dominion

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had the required $2 million available to complete the improvement. R. at ¶ 10. Thus, the

upgrade was feasible and seemingly inevitable if Dominion believed the projections it presented

as justification for its inability to continue to service Patriot. Finally, after the complaint was

filed, Dominion’s market share grew 7%, yet Dominion’s network was able to continue

supporting Patriot’s customers without incident, R. at ¶ 13, further bolstering the argument that

Dominion did not present a valid business justification for refusing to deal with its competitor.

In the absence of a legitimate business reason for terminating the agreement with Patriot,

Dominion has improperly excluded Patriot, and therefore the Court should find this exclusion

was effected with deliberate intent.

The instant case is similar to Aspen in that the monopolist appears to have actively made

decisions which were meant to exclude a competitor from the market. Moreover, this decision to

exclude a competitor from the market came at the cost of foregoing an efficient, profitable

arrangement. In Aspen, the monopolist did not merely reject an offer to participate in a

cooperative venture with a competitor, but instead elected to change its distribution pattern from

the pattern which had existed in a competitive market for years. 472 U.S. at 603. In the instant

case, Dominion bases its decision to refuse to continue to deal with Patriot on a report that

simply states a chance of network failure. R. at ¶ 10, 12. That failure could be easily avoided by

implementing planned upgrades using resources readily available to Dominion at the time. R. at

¶ 10. Moreover, similar to the willful election by the monopolist in Aspen to alter the

distribution pattern and exploit its monopoly, Dominion chose to terminate its agreement with

Patriot at the very time when Patriot was presenting a challenge to Dominion’s monopoly by

gaining some of Dominion’s market share. R. at ¶ 5. Notably, Dominion notified Patriot of its

intent to terminate shortly after Patriot announced its intention to build its own network. R. at ¶

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12. The timing of this termination is suspect given it occurred just six months after the rivals

established their leasing relationship. R. at ¶ 12. This timing supports the inference that

Dominion was attempting to exclude its rival from the market. As the lower court noted, these

factors combine to present evidence of intent to exclude Patriot from the market. R. at ¶ 20.

Further, Dominion understood that by terminating its agreement with Patriot at this time, it could

cause Patriot to fail as a company due to its lack of network capacity. In the absence of

continued cooperation from Dominion, Patriot could not obtain network capacity to service its

customers, and would therefore be unable to satisfy obligations to banks necessary to the

financing of the building of Patriot’s own network. R. at ¶ 11. Thus, Patriot would likely cease

to exist in the market if Dominion is not forced to deal with Patriot.

e. The exclusion of Patriot and other low-cost providers from the cellular service market has anticompetitive effects.

"The antitrust courts must distinguish exclusionary acts, which reduce social welfare, and

competitive acts, which the antitrust laws encourage. United States v. Microsoft, 253 F.3d 34, 58

(D.C. Cir. 2001). In determining whether a monopolist’s act is exclusionary, this Court must

look to whether the monopolist’s act has an anticompetitive effect. Id. The plaintiff has the

initial burden of demonstrating harm to the competitive process. Id. at 58–59 (noting harm to a

competitor will not suffice); see also Brooke Grp. Ltd. v. Brown & Williamson Tobacco Corp.,

509 U.S. 209, 225-26 (1993). Once the plaintiff demonstrates an anticompetitive effect, the

burden then shifts to the monopolist defendant to present a procompetitive justification for the

act. Microsoft, 253 F.3d at 59; see also Eastman Kodak Co. v. Image Technical Services, Inc.,

504 U.S. 451, 483 (1992). Upon successful demonstration of procompetitive effects, the court

must then balance whether the anticompetitive harm outweighs the procompetitive benefits of

the monopolist’s acts. See Microsoft, 253 F.3d at 59. Courts generally apply the rule of reason

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in balancing the benefits and harms to competition of a monopolist’s act. Id. at 59; see also

Standard Oil Co. v. United States, 221 U.S. 1, 31 (1911). This balancing test focuses on the

conduct of the monopolist, rather than the intent of the monopolist. See Microsoft, 253 F.3d at

59. However, this Court may examine evidence of intent to understand better the likely effect of

the conduct. See id. (citing Aspen, 472 U.S. at 603; Chi. Bd. of Trade v. United States, 246 U.S.

231, 238 (1918)).

Courts should force monopolists to deal when refusals to do so are anticompetitive. “The

high value [the Court has] placed on the right to refuse to deal with other firms does not mean

that the right is unqualified." Aspen, 372 U.S. at 601. For example, the Supreme Court has held

that a monopolist may not refuse to sell advertising to persons that patronize a competitor.

Lorain Journal, 342 U.S. at 152. In Lorain Journal, the monopolist, a journal company that was

the only local business disseminating news and advertising material in the town, refused to sell

advertising to persons that patronized a radio station in a nearby town. Id. at 148. The journal

company sought to maintain its monopoly position in the market of news dissemination by

excluding from advertising those who supported the competitor. Id. at 149. The Court held this

refusal to deal was anticompetitive and therefore unlawful. Id. Thus, while the fact pattern in

Lorain Journal involved the refusal to deal with patrons of a competitor rather than the refusal to

deal with a competitor, it demonstrates the willingness of courts to rule for plaintiffs to curtail

anticompetitive effects resulting from refusals to deal that lack a valid business purpose or

procompetitive balancing effect.

Dominion willfully excluded its rival from competing in the market. Patriot had no

reasonable alternative to support its network, as the other two players in the market refused to

lease any capacity to Patriot. R. at ¶ 12. Additionally, Patriot lacked the resources to complete

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the development of its own network in time to remain competitive in the market. R. at ¶ 12.

Furthermore, because Patriot could not continue to earn positive cash flows without the use of

Dominion’s network capacity, Patriot was unable to support its commitment of $5 million to the

banks responsible for funding the development of Patriot’s new network. R. at ¶ 12. Therefore,

because Patriot was unable to obtain network capacity from other competitors or build its own

network in the necessary time frame, it could not compete effectively in the market without

Dominion’s network capacity. As a result, Dominion was able to exclude Patriot from the

market by refusing to deal.

Patriot is essential to the maintenance of a competitive marketplace in Mason and the

company’s exclusion has a negative effect on consumers. By January 2013, Patriot had obtained

5% of the suburban Mason market share. R. at ¶ 5. Further, Dominion’s actions taken with the

motivation to exclude Patriot from the market and regain some of the market share lost to Patriot

are evidence of the important role of Patriot as a player in the cellular services market.. Because

Dominion’s network capacity is essential to Patriot’s competitive vitality, and Patriot is essential

to maintaining a competitive marketplace in suburban Mason, the ongoing provision of network

capacity to Patriot by Dominion is imperative to avoid anticompetitive effects and promote

consumer welfare. Thus, Dominion should not be permitted to refuse to provide the network

capacity to Patriot, particularly given the economics of the existing arrangement, which

demonstrate the feasibility and procompetitive benefits of such collusion in the market.

Moreover, the preexisting agreement establishes precedent for a baseline of terms presumably

favorable to the monopolist and limits any issues related to terms

of the forced dealing.

Requiring Dominion to provide Patriot with network capacity pursuant to their agreement

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improves the market for consumers and will not chill innovation. Dominion is incentivized to

innovate further and the network capacity is not at risk of providing Patriot with a windfall of

benefits. In other words, any concerns regarding a diminished incentive for the monopolist to

innovate given any innovation’s predicted benefit to the competitor is inapplicable because of the

nature of the leased network capacity. In this case, the network capacity is the equivalent of

warehouse space for storage of perfectly durable goods, such as bricks. Assuming away factors

such as location, all warehouse space is equal, and innovations to improve the warehouse space

(e.g., air-conditioning) do not materially improve the storage of the perfectly durable goods.

Similarly, any enhancement of Dominion’s network capacity will not materially benefit Patriot,

as Patriot simply needs the space. Further, concerns such as the pricing and terms of the forced

sharing of resources do not create an issue given that Dominion previously contracted to provide

Patriot with such services. Therefore, the procompetitive effects of requiring Dominion to

provide Patriot with network capacity outweigh the minimal concerns of disincentivizing

innovation, as such concerns are inapplicable to these facts.

This case clearly falls within the framework of the exception established in Aspen. Only a

few months after entering into a profitable lease agreement with Patriot, Dominion terminated

the deal based on Patriot’s growth in the cellular service market. R. at ¶ 12. None of

Dominion’s business justifications fit with their actions to expand market share and potentially

threaten the viability of their cellular network. Additionally, the timing of the report is suspect

and falls outside of usual business practices. If Patriot and other low-cost cellular service

providers are excluded from competing in the market, consumers can expect fewer choices and

higher prices.

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CONCLUSION

For the foregoing reasons Plaintiff-Appellee Patriot Wireless Corporation requests that

this Court affirm the District Court’s December 16, 2013 judgment.

Dated: January 20, 2015

By Team B

Attorneys for Plaintiff-Appellee Patriot Wireless Corporation