Response of the United States in Opposition to GTE's Motion to Terminate the Decree
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ______________________________ ) UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) Civil No. 83-1298 (HHG) v. ) ) GTE CORPORATION, ) ) Defendant. ) ______________________________) RESPONSE OF THE UNITED STATES IN OPPOSITION TO GTE'S MOTION TO TERMINATE THE DECREE ANNE K. BINGAMAN Assistant Attorney General DAVID TURETSKY Senior Counsel to the Assistant Attorney General WILLARD K. TOM Counselor to the Assistant Attorney General DONALD J. RUSSELL NANCY C. GARRISON Chief, Telecommunications MARK S. POPOFSKY Task Force Attorneys LAWRENCE M. FRANKEL Antitrust Division Attorney U.S. Department of Justice 10th & Pennsylvania Ave., N.W. Antitrust Division Washington, D.C. 20530 U.S. Department of Justice (202) 514-1531 Washington, D.C. 20001 June 5, 1995
TABLE OF CONTENTS STATEMENT......................................................... 2 SUMMARY OF ARGUMENT.............................................. 7 ARGUMENT..................................................... 9 I. GTE AGREED TO A DECREE THAT DOES NOT TERMINATE AUTOMATICALLY UPON DIVESTITURE OF SPRINT .............. 9 II. ABSENT A SHOWING THAT THE DECREE'S PURPOSES HAVE BEEN FULLY ACHIEVED, DIVESTITURE OF THE ACQUIRED ASSETS DOES NOT WARRANT TERMINATION OF A DECREE ENTERED TO REMEDY AN ALLEGED CLAYTON 7 VIOLATION ........................16 III. GTE HAS NOT SHOWN THAT THIS DECREE'S PURPOSES HAVE BEEN FULLY ACHIEVED ........................................25 A. The GTE Decree Remedies Anticompetitive Effects of Vertical Integration by This Local Telephone Monopolist .......................................25 B. GTE Has Not Shown That the Purpose of the Interexchange Restrictions Has Been Fully Achieved by Divestiture of Sprint .........................33 C. GTE Has Not Shown That the Purpose of the Information Services Restrictions Has Been Fully Achieved by the FCC's Rules ......................36 CONCLUSION...................................................37
TABLE OF AUTHORITIES CASES American Horse Protection Association v. Watt, 694 F.2d 1310 (D.C. Cir. 1982) ...................22 Berger v. Heckler, 771 F.2d 1556 (2d Cir. 1985) ......................................................23 Board of Education v. Dowell, 498 U.S. 237 (1991)....passim FTC v. National Lead Co., 352 U.S. 419 (1957) ........19 Ford Motor Co. v. United States, 405 U.S. 562 (1972) .....................................................19 Freeman v. Pitts, 502 U.S. 467 (1992).................23,24,25 Hartford-Empire Co. v. United States, 323 U.S. 386 (1945), modified, 324 U.S. 570 (1945) ............18 International Salt Co. v. United States, 332 U.S. 392 (1947) ............................................18,19 Kozlowski v. Couglin, 871 F.2d 241 (2d Cir. (1989) .....................................................22 Local No. 93, International Association of Firefighters v. Cleveland, 478 U.S. 501 (1986) .........22 Milliken v. Bradley, 418 U.S. 717 (1974) .............23,25 National Society of Professional Eng'rs v. United States, 435 U.S. 679 (1978) .....................18,19 Rufo v. Inmates of Suffolk Co. Jail, 502 U.S. 367 (1992) .................................................7,16,24,31 Swann v. Charlotte-Mecklenburg Board of Education, 402 U.S. 1 (1971) ...........................24 Swift & Co. v. United States, 276 U.S. 311 (1928) .....................................................21,23 _________________________________ *Authorities upon which we chiefly reply are marked with asterisks. United States v. Agri-Mark, 156 F.R.D. 87 (D. Vt. 1994) ..............................................10,20
United States v. American Cyanamid Co., 598 F. Supp. 1516 (S.D.N.Y. 1984) ..............................10,11,20 United States v. American Telephone & Telegraph Co., 552 F. Supp. 131, aff'd sub nom. Maryland v. United States, 483 U.S. 1001 (1983) ..........................................18 United States v. Armour & Co., 402 U.S. 673 (1971) .....................................................13 *United States v. GTE Corp., 603 F. Supp. 730 (D.D.C. 1984) passim United States v. ITT Continental Baking Co., 420 U.S. 223 (1975) ........................................9 United States v. National Association of Broadcasters, 553 F. Supp. 621 (D.D.C. 1982) ......................................................9 *United States v. United Shoe Machinery Corp., 391 U.S. 244 (1968) passim United States v. United States Gypsum Co., 340 U.S. 76 (1950) .........................................18,19 United States v. Western Electric Co., 154 F.R.D. 1 (D.D.C. 1994) .....................................13 United States v. Western Electric Co., 158 F.R.D. 211 (D.D.C. 1994), aff'd, 46 F.3d 1198 (1995) ........................................17 United States v. Western Electric Co., 797 F.2d 1082 (D.C. Cir. 1986), cert. denied, 480 U.S. 922 (1987) ........................................9,13 United States v. Western Electric Co., 894 F.2d 1387 (D.C. Cir. 1990) .................................17 United States v. Western Electric Co., 900 F.2d 283 (D.C. Cir.), cert. denied, 498 U.S. 911 (1990) ............................................36 United States v. Western Electric Co., 46 F.3d 1198 (D.C. Cir. 1995) .................................10,17
Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100 (1969) ..............................19,33 MISCELLANEOUS Fed. R. Civ. P. 60(b) passim 119 Cong. Rec. S13926 (Daily ed. July 18, 1973).............11 Antitrust Div., U.S. Dep't of Justice, Antitrust Division Manual (2d ed. 1987) ..............................10
IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA ______________________________ ) UNITED STATES OF AMERICA, ) ) Plaintiff, ) ) Civil No. 83-1298 (HHG) v. ) ) GTE CORPORATION, ) ) Defendant. ) ______________________________) RESPONSE OF THE UNITED STATES IN OPPOSITION TO GTE'S MOTION TO TERMINATE THE DECREE Defendant GTE Corporation ("GTE") has moved to terminate the consent decree entered against it in this antitrust case. GTE seeks termination "as a matter of law," on the sole grounds (1) that there can be no continuing restrictions on its interexchange services because it has "divested itself of all the asset whose acquisition gave rise to the government's sole legal claim with respect to interexchange services," i.e., GTE Sprint and certain other assets, and (2) that the remaining information services provisions have been "superseded by federal regulation." Memorandum of GTE Corporation in Support of Motion To Terminate the Decree, at 1 (Apr. 13, 1995) ("GTE Mem.") (GTE's emphasis). GTE claims that its motion "requires no factual inquiry or assessment of the competitive conditions of the marketplace," id., and it offers none. The United States opposes GTE's motion. The decree's interexchange provisions do not terminate automatically upon divestiture of Sprint, and GTE is not entitled to termination
under Fed. R. Civ. P. 60(b) because it has not shown that the decree's purpose has been fully achieved. STATEMENT 1. In 1983, the United States filed an antitrust complaint against GTE. The GTE complaint, which closely paralleled the theory of the then recently-settled AT&T case, was premised on the structure of the telecommunications industry in 1983 and the resulting incentives and opportunities for anticompetitive conduct by local exchange carriers affiliated with interexchange carriers, or information service providers.1 As the complaint explained, a "partnership" among AT&T's Long Lines Department, AT&T's local operating company subsidiaries, the Bell Operating Companies ("BOCs"), and other local operating companies, including GTE's subsidiaries, the General Telephone Operating Companies ("GTOCs"), was the principal provider of interexchange services. Complaint ï½¶8. In addition, since 1971, other common carriers ("OCCs"), not members of the partnership, had been authorized by the FCC to provide interexchange service. ï½¶11. The BOC and GTOC operating companies, however, controlled facilities necessary to originate and terminate interexchange calls and, therefore, had "the power to control the price of, and exclude competition for, the provision of exchange access to interexchange carriers." ï½¶11.
Further, the complaint alleged, GTE and the GTOCs had an incentive to misallocate costs and cross-subsidize unregulated services in order to evade rate-of-return regulation. ï½¶16. Accordingly, the complaint alleged, vertical integration by GTE's local operating companies into the interexchange business had two anticompetitive effects: [First, s]ince the firm with monopoly control over exchange access is simultaneously competing with non-integrated firms for interexchange telecommunications services, non-integrated firms are forced to depend on the local operating company acting against its own economic interest to provide equal exchange access to competitors. Second, . . . vertical integration gives [the operating company] the incentive and ability, through cross-subsidization, to eliminate or substantially impair competition from non- integrated competitors. ï½¶17. Indeed, the complaint alleged that the members of the AT&T partnership, including GTE, had used their control of "essential local switching and transmission facilities" to discriminate against OCCs and prevent OCCs from competing with the interexchange services provided by the partnership. ï½¶ï½¶13, 14, 15. The complaint also alleged that provision of information services in connection with regulated exchange services presented similar threats to competition, and that GTE had begun to offer information services. ï½¶18. The complaint further alleged that GTE had entered into an agreement to acquire "various telecommunications enterprises of SP [Southern Pacific], including SPCC [Southern Pacific
Communications Company] and SPSC [Southern Pacific Satellite Company]." ï½¶20. At the time of the complaint, SPCC was an OCC and "the second largest interexchange carrier . . . other than the [AT&T] partnership, in the United States." ï½¶12. Because of the potential for abuse of the local exchange monopoly, the complaint alleged that the effect of GTE's acquisition of SPCC and SPSC "may be substantially to lessen competition in [interexchange telecommunications] in violation of Section 7 of the Clayton Act," ï½¶21, and that "GTE's provision of information services creates a substantial probability of monopolization in the provision of information services, in violation of Section 2 of the Sherman Act," ï½¶22. The complaint sought an injunction to prohibit GTE from acquiring the telecommunications enterprises of SP, to prohibit the GTOCs from providing information services, and to provide other appropriate relief. ï½¶VI. 2. A proposed consent decree to settle the case was filed simultaneously with the complaint. As the United States' Competitive Impact Statement and the parties' responses to public comments and arguments to the Court in the Tunney Act proceeding explained, the GTE decree addressed the same competitive concern as the AT&T decree -- abuse of local telephone bottlenecks. The GTE decree did not prohibit GTE from acquiring SPCC and SPSC or providing interexchange services or information services, but it imposed a variety of conditions designed to prevent GTE from abusing its local exchange monopolies to impair competition.
Section V(A) and (B) required the GTOCs to provide equal access to all interexchange carriers and information service providers; sections IV and V(C) required strict structural separation between the GTOCs and all GTE interexchange services, whether or not provided through the acquired entities; and section V(D) prohibited the GTOCs from providing information services, except through a separate subsidiary or division.2 The Court approved the proposed decree. United States v. GTE Corp., 603 F. Supp. 730 (D.D.C. 1984) ("GTE Decree Op.").3 It found that the decree (with certain modifications to which the parties consented) was "in the public interest," because it would "adequately prevent GTE from engaging in the anticompetitive activities alleged in the complaint and . . . open up the relevant markets to competition." Id. at 753. In reaching this conclusion, the Court expressly noted that the GTE decree and the AT&T decree "have a common purpose: to prevent the defendant companies from impeding competition, by the use of local
telecommunications monopoly bottlenecks, in markets where such competition is technologically feasible." Id. at 752.4 3. GTE owned and operated the acquired interexchange businesses for twelve years.5 In a series of transactions between 1986 and 1992, GTE divested its interests in Sprint and Spacenet; it represents that it no longer has any ownership interest (aside from minor pension fund investments) or involvement in the affairs of Sprint or Spacenet. See GTE Mem. at 9-10, App. A ï½¶ï½¶2, 3. Shortly thereafter, GTE requested that the Department of Justice consent to termination of the decree in light of the divestiture and the Federal Communication Commission's adoption of regulations for local exchange carriers' provision of information services. The Department asked GTE to provide documents and information relevant to its claim that, in light of these developments, there is no continuing need for the decree restrictions. The Department is in the process of analyzing this information, and also has informed GTE that it would consider any request for an appropriate modification. In addition, the Department considered whether GTE's divestiture of Sprint requires termination of the decree as a matter of law without regard to potential competitive
consequences. Concluding that it does not, the Department informed GTE that the United States would oppose a motion for termination on that ground. GTE filed its motion on April 13, 1995.6SUMMARY OF ARGUMENT The decree to which GTE consented contains no express or implied provision for automatic termination in the event GTE divests Sprint. Accordingly, GTE's motion for termination is governed by the equitable principles embodied in Fed. R. Civ. P. 60(b). These principles mandate that an antitrust consent decree "may not be changed in the interest of the defendants if the purposes of the litigation as incorporated in the decree . . . have not been fully achieved." United States v. United Shoe Machinery Corp., 391 U.S. 244, 248 (1968); Rufo v. Inmates of Suffolk Co. Jail, 502 U.S. 367, 379-80 (1992); Board of Education v. Dowell, 498 U.S. 237, 247 (1991). Contrary to GTE's contention (Mem. at 2) there is no legal rule requiring that "provisions in a consent decree that are predicated on remedying an allegedly unlawful acquisition must be terminated upon divestiture of the acquired assets" without inquiry as to competitive conditions. A decree in a section 7 case should prevent or remedy the anticompetitive consequences of the particular transaction challenged in the complaint; it also may
contain provisions to protect the public from similar threats to competition. When a decree providing such relief has been entered as a final judgment, the court retains the power to enforce it. GTE has not shown that the purposes of the decree entered in this case have been fully achieved. As not only the United States but GTE itself emphasized throughout the Tunney Act proceedings, and as the Court expressly found, the GTE decree's purpose was the same as that of the AT&T decree: to prevent abuse of local telephone exchange monopolies to impair competition in interexchange services and information services. To implement this purpose, the parties agreed to restrictions that provided significant prophylactic relief that addressed, but was not confined to, GTE's relationship with Sprint. The decree's equal access provisions prohibited discrimination in favor of any interexchange carrier, and its structural separation provisions precluded future vertical integration by the GTOCs as well as integration with Sprint. GTE has not shown that the potential anticompetitive effects of its integration into interexchange services have been eliminated by its divestiture of Sprint. GTE does not claim that the GTOCs' local exchange monopolies have been eliminated. Nor has GTE shown that, absent the decree restrictions, it would lack the incentive and ability to use its control of the GTOCs to favor its own interexchange services and impede interexchange competition. Further, the severance of GTE's relationship with
Sprint does not necessarily eliminate the effects of their 12- year affiliation. Nor has GTE presented evidence that it will not, in the future, acquire interexchange stock or assets, or that such acquisitions would not require the decree's safeguards. As to information services, GTE has made no showing that the administrative regulations on which it relies provide safeguards equivalent to those of the decree. Thus, GTE has failed to establish that the decree's purposes have been fully achieved, and it is not entitled to termination. ARGUMENT I. GTE AGREED TO A DECREE THAT DOES NOT TERMINATE AUTOMATICALLY UPON DIVESTITURE OF SPRINT GTE's first argument (Mem. at 19-30), in essence, is that the decree must be construed to terminate automatically if GTE divests Sprint. Questions of decree construction turn on the language of the decree, considered in light of the "aids to construction" provided by the parties' contemporaneous statements and surrounding circumstances. See United States v. ITT Continental Baking Co., 420 U.S. 223, 238 (1975); United States v. Western Elec. Co., 797 F.2d 1082, 1089 (D.C. Cir. 1986), cert. denied, 480 U.S. 922 (1987) ("Out-of-Region Exchange Services"). 1. Many antitrust consent decrees provide that they will terminate a specified number of years after entry, or on the occurrence of specified events. See, e.g., United States v. Nat'l Ass'n of Broadcasters, 553 F. Supp. 621, 627 (D.D.C. 1982) (antitrust consent decree "shall remain in effect until ten (10) years from the date of entry"); see generally Antitrust Div.,
U.S. Dep't of Justice, Antitrust Division Manual at IV-76 (2d ed. 1987) ("Consent Decree Standard Provisions" provide that "judgment will expire on the tenth anniversary of its date of entry or, with respect to any particular provision, on any earlier date specified"). Decree restrictions not covered by express termination provisions are construed not to expire automatically, but to continue in force until modified or terminated by the decree court under Rule 60(b), as conditions warrant. See United States v. Western Elec. Co., 46 F.3d 1198, 1202-04 (D.C. Cir. 1995) ("AT&T-McCaw Appeal"); United States v. American Cyanamid Co., 598 F. Supp. 1516, 1519, 1522-25 (S.D.N.Y. 1984) (decree provisions perpetual on their face may be terminated only as specified in decree or pursuant to court's inherent modification powers).7 In many cases, divestiture will be found sufficient to warrant termination of a section 7 decree upon an appropriate factual showing under Rule 60(b). E.g., Cyanamid, 598 F. Supp. at 1516; United States v. Agri-Mark, 156 F.R.D. 87 (D. Vt. 1994). But that is not necessarily the case and does not mean that section 7 decrees must be construed as
providing automatic termination upon divestiture.8 There is no "natural understanding in ï½§7 cases" that consent decrees terminate automatically upon divestiture, as GTE claims (Mem. at 14, 22).9 2. This decree contains no express provision for automatic termination in the event GTE divests Sprint, and GTE does not assert that it does. There are several automatic termination provisions in the GTE decree, but none of them provides for termination if GTE divests Sprint. Most significantly, Section X
provides that the entire decree "shall expire if GTE no longer provides exchange or exchange access services pursuant to any federal or state regulation." This provision confirms that the parties did not agree to automatic termination in any other event, presumably because there likely would be a continuing justification for the decree as long as GTE was a provider of such local exchange service. The GTE decree also contains more limited automatic termination provisions. Under section VI(A), the requirement that GTE not acquire an interest in any interexchange carrier without first obtaining approval of the Department or the Court, applies only "[f]or ten (10) years after the effective date of this Final Judgment." And, Section V(D)(3) provides that the restrictions on GTOC provision of information services "shall expire . . . whenever and to the extent that a BOC is relieved of the provisions of Section II(D) of [the AT&T decree]." Like Section X, these specific provisions support the conclusion that, with these exceptions, the parties agreed and intended that the GTE decree restrictions would continue in effect unless and until terminated by the Court under Rule 60(b). 3. Sections III, V(D)(3) and VII(B) of the decree do not provide that the decree terminates if GTE divests Sprint. Nor, contrary to GTE's contention (Mem. at 22-27), do these sections indicate that the parties had any agreement or understanding to that effect. The decree does not provide for automatic termination upon divestiture, and it "must be construed as it is
written." United States v. Armour & Co., 402 U.S. 673, 682 (1971). Even if the parties failed to consider a particular factual circumstance, that circumstance is not exempt from the plain language of the decree. See United States v. Western Elec. Co., 154 F.R.D. 1, 7 (D.D.C. 1994) ("AT&T-McCaw I"); Out-of- Region Exchange Services, 797 F.2d at 1090-91. a. Section III, the successors and assigns provision, states that the decree "shall not apply to any GTOC, or any portion thereof, as to which GTE may . . . dispose of its interests . . . to any nonaffiliated person." Neither the CIS nor either party's response to comments discusses this exemption, but its effect is to allow GTE to transfer portions of its exchange businesses to other carriers that had not consented to, and might be unwilling to assume, decree obligations.10 In any event, section III neither provides nor implies that the decree ceases to apply to GTE and the GTOCs owned by GTE if GTE divests Sprint.
b. Section V(D)(3) provides the conditions for termination of the separation requirements imposed on GTOC information services. GTE (Mem. at 25-26) argues that the absence of similar termination provisions for the interexchange restrictions implies that the latter were intended to terminate upon divestiture of Sprint. But a more plausible inference is that the parties intended the interexchange restrictions to be subject to removal only under the common law standards incorporated in Fed. R. Civ. P. 60(b) and section VII(A) of the decree. For there is no indication that the parties or the Court viewed the decree as providing for any automatic termination of the interexchange restriction. Indeed, the Court required amendment of section V(D)(3) to eliminate the 5-year automatic termination provision the parties originally proposed for the information services restrictions, concluding that there would be no justification for automatic expiration of the restrictions governing either interexchange services or information services. GTE Decree Op., 603 F. Supp. at 743. c. Section VII(B) allows the Court to order additional relief, including a divestiture of Sprint (or, at the election of GTE, divestiture of the GTOCs), if it finds that GTE has engaged in serious violations of the decree. This section expressly provides that if the Court orders further relief "the GTOCs will continue to be bound by all injunctive provisions of [the decree]." GTE (Mem. at 26-27) argues that this express provision for continuation of decree restrictions in the event of
involuntary divestiture -- a provision not included in the decree as originally proposed by the parties -- implies that voluntary divestiture of the Sprint assets would result in automatic termination of the decree. Any such inference is conclusively refuted by the record concerning the section VII(B) language. At the Tunney Act hearing, government counsel explained that if the Court were to order divestiture under section VII(B): of course, the way 7(b) works the rest of the injunctive provisions would not disappear . . . . [T]he rest of the decree enjoining them and forcing them to provide full equal access would continue to operate. Tr. 48-49 (Nov. 22, 1983) (Blumenfeld). Counsel for GTE did not disagree. Nonetheless, as a condition to approving the decree, the Court required that "the parties incorporate into the decree the Department's representations to the Court concerning section VII(B)." GTE Decree Op., 603 F. Supp. at 740, 753.11 Thus, the express continuation language of section VII(B) merely confirmed the parties' understanding that, even without the Court's addition to VII(B), divestiture would not extinguish the decree's injunctive provisions. Because the decree history contains no evidence to the contrary, this understanding should be assumed to have encompassed voluntary, as well as involuntary, divestiture.
II. ABSENT A SHOWING THAT THE DECREE'S PURPOSES HAVE BEEN FULLY ACHIEVED, DIVESTITURE OF THE ACQUIRED ASSETS DOES NOT WARRANT TERMINATION OF A DECREE ENTERED TO REMEDY AN ALLEGED CLAYTON 7 VIOLATION Because the GTE decree does not provide for automatic termination in the event GTE divests Sprint, GTE's motion for termination is governed by Rule 60(b) of the Federal Rules of Civil Procedure. Under Rule 60(b)(5),12 the Court may terminate an injunction if "it is no longer equitable that the judgment should have prospective application." 1. In United States v. United Shoe Machinery, 391 U.S. 244, 248 (1968), the Supreme Court articulated more specifically the standard for termination of antitrust consent decrees over the government's objection: such a decree "may not be changed in the interest of the defendants if the purposes of the litigation as incorporated in the decree (the elimination of monopoly and restrictive practices) have not been fully achieved." The Court has reaffirmed this standard in subsequent cases. See, e.g., Dowell, 498 U.S. at 247; see also Rufo, 502 U.S. at 379-80 (approving United Shoe). Recent decisions of this Court and the Court of Appeals elucidate the analysis required under this standard. To ascertain "the purposes of the litigation as incorporated in the decree," in an antitrust case, the court should take into account the theory of competitive harm set forth in the complaint, the scope of the remedial provisions of the decree itself, and, in
the case of a consent decree, the explanations provided by the parties in the Tunney Act review proceeding and the court's opinion explaining its public interest finding. See AT&T McCaw Appeal, 46 F.3d at 1205-06; United States v. Western Elec. Co., 158 F.R.D. 211, 218-19 (D.D.C. 1994) ("AT&T-McCaw II"), aff'd, 46 F.3d 1198 (1995); see also United States v. Western Elec. Co., 894 F.2d 1387, 1391-94 (D.C. Cir. 1990) ("Manufacturing"). To determine whether the defendant has carried its burden of showing that those purposes have been fully achieved, rendering the decree unnecessary, the court should then assess current market conditions. GTE, however, fails even to mention United Shoe, and it ignores the approach to ascertaining a decree's purpose followed by this Court and the Court of Appeals. Instead, it seeks to draw from Dowell and two district court cases the unprecedented legal rule that "provisions in a consent decree that are predicated on remedying an unlawful acquisition must be terminated upon divestiture of the acquired assets." (GTE Mem. at 2, 16-19.) GTE's argument rests on the erroneous assumptions that divestiture necessarily constitutes "full relief" in a section 7 case and, therefore, that decrees in section 7 cases must terminate upon divestiture. (See GTE Mem. at 17-18.) But a section 7 decree, whether entered by consent or resulting from litigation, may contain prophylactic and remedial provisions instead of, or in addition to, requiring immediate or eventual
divestiture. Such a decree, like other antitrust decrees, may be terminated under Rule 60(b) only upon a proper showing that its purposes have been achieved. It is well-established that an antitrust decree should "both . . . avoid a recurrence of the violation and . . . eliminate its consequences." National Soc'y of Professional Eng'rs v. United States, 435 U.S. 679, 697 (1978) ("NSPE"); accord United States v. United States Gypsum Co., 340 U.S. 76, 88 (1950). See generally United States v. American Tel. & Tel. Co., 552 F. Supp. 131, 150-51 & nn.79-80 & 82 (D.D.C. 1982), aff'd sub nom. Maryland v. United States, 483 U.S. 1001 (1983). However, a court is not limited to "deal[ing] only with the exact type of acts found to have been committed," Hartford-Empire Co. v. United States, 323 U.S. 386, 409 (1945), modified, 324 U.S. 570 (1945), if additional relief is necessary to accomplish either objective, see, e.g., International Salt Co. v. United States, 332 U.S. 392, 400-01 (1947). To eliminate the effects of a violation, therefore, a court may take appropriate steps to "den[y] [the violator] future benefits from [its] forbidden conduct," Gypsum, 340 U.S. at 89, including placing restrictions on the firm's otherwise lawful conduct, see NSPE, 435 U.S. at 698. And, to prevent a recurrence of the violation, the decree may "range broadly through practices connected with acts actually found to be illegal," Gypsum, 340 U.S. at 89; see also Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 132-33 (1969). See generally FTC v. National Lead Co., 352 U.S. 419, 429-30 (1957).
The remedial powers of the federal courts, moreover, are as broad when an acquisition is challenged under Clayton Act section 7 as they are in a Sherman Act section 1 or 2 case. See Ford Motor Co. v. United States, 405 U.S. 562, 573 & n.8, 575, 577-78 (1972). Contrary to GTE's assumption, therefore, divestiture is not the maximum possible relief that the government may obtain in a section 7 case. A section 7 decree may both require divestiture and include provisions designed to eliminate anticompetitive effects that are predicted to persist after divestiture. See id. at 575-78. Prophylatic relief, which also may supplement divestiture, permissibly extends to practices that threaten future section 7 violations and other practices of the "`same type or class,'" Zenith, 395 U.S. at 132 (quoting NLRB v. Express Publishing Co., 312 U.S. 426, 435 (1941)), as those challenged in the complaint that threaten to violate the antitrust laws, see International Salt, 332 U.S. at 400, or that might enable such violations in the future, see NSPE, 435 U.S. at 684 & n.5, 696-98 (permissible to ban Society from adopting "any official opinion, policy statement or guideline stating or implying that competitive bidding is unethical" when the violation proved was the Society's enforcement of a ban on competitive bidding); National Lead, 352 U.S. at 430. Such prophylatic relief is equally appropriate in a decree that imposes conditions designed to eliminate the anticompetitive effects of an aquisition without barring the acquisition itself or requiring divestiture.
Under United Shoe, the purposes embodied in the decree must be achieved before the decree may be terminated over the government's objection. And divestiture may not achieve a section 7 decree's full purposes, particularly when the decree protects the public against future anticompetitive conduct by including prophylatic relief that substitutes for, or complements, divestiture. Accordingly, divestiture, in and of itself, is an insufficient basis for terminating such a section 7 consent decree. GTE's reliance on United States v. Agri-Mark. Inc., 156 F.R.D. 87 (D. Vt. 1994), and United States v. American Cyanamid Co., 598 F. Supp. 1516 (S.D.N.Y. 1984), is misplaced. In both cases, the district courts terminated section 7 decrees upon divestiture, but neither case establishes the rule of law that GTE advocates. Rather, the courts determined on the facts of each case that divestiture did fulfill the purposes of the particular decrees at issue. See Agrimark, 156 F.R.D. at 88 (court considered "the facts of this case" and found that the "divestiture eliminates the vertical integration, which was the threat to competition"); Cyanamid, 598 F. Supp. at 1518, 1521 (court found that "the purpose of the Consent Judgment was to dissolve Cyanamid's monopoly . . . and encourage the entry of new producers" and that "[t]o the extent it is possible to do so, this has already been achieved").13
2. GTE also is wrong in contending (Mem. at 31-35) that, regardless of the decree's provisions or purposes, the Court lacks Article III power to enforce the decree. As a threshold matter, objections to the Article III power of the court to enforce a decree that were available at the time an antitrust consent decree was entered are "not open on a motion to vacate." Swift & Co. v. United States, 276 U.S. 311, 326 (1928). While there is no merit to the argument that failure to provide for the decree's termination upon GTE's divestiture of Sprint would create an Article III problem, GTE could have raised that argument in 1983, and it did not. Accordingly, GTE's attempt to raise such objections now constitutes a collateral attack on the consent decree that is impermissible under Swift. GTE (Mem. at 32-35) nonetheless contends that the Court now lacks Article III power to enforce the decree because the interexchange provisions, following divestiture, no longer "remedy" a "live legal claim." This contention is flawed in its premise. Despite the divestiture, the decree continues to provide relief for both the section 7 and the section 2 claims alleged in the complaint that is within the confines of the remedial principles described above. See supra pp. 17-20; infra Part III.
Further, the Supreme Court made clear in Local No. 93, Int'l Ass'n of Firefighters v. Cleveland, 478 U.S. 501 (1986) ("Firefighters"), that a consent decree falls within the equity powers of the federal court to enter if it (1) "spring[s] from and serve[s] to resolve a dispute within the court's subject- matter jurisdiction"; (2) "com[es] within the general scope of the case made by the pleadings"; and (3) "further[s] the objectives of the law upon which the complaint was based." Id. at 525 (internal quotations omitted). As long as a decree as a whole meets this test,14 a court has continuing Article III power to enforce all the terms of the decree. See Kozlowski v. Couglin, 871 F.2d 241, 244-45 (2d Cir. 1989) (explaining that "[i]f a federal court can validly enter a consent decree under [Firefighters] it can surely enforce that decree" and noting that a contrary result would "impugn the integrity of the courts"). As GTE does not contest (See Mem. at 34), the consent decree in this case met the Firefighters test; accordingly, there can be no Article III objection to the decree's enforcement.15
Indeed, GTE's core contention, that "when the underlying violation alleged in the complaint goes away, so does the power of the court to enforce the provisions of a consent decree that were initially justified as remedying that violation" (Mem. at 32), is fundamentally flawed. Termination of an alleged violation in compliance with a court order neither renders the underlying action moot nor the judgment unenforceable, cf. Berger v. Heckler, 771 F.2d 1556, 1562 (2d Cir. 1985), and the "termination of the violation" following entry of the decree is no different. As we have shown, moreover, antitrust decrees not only permissibly put an end to the illegal practices alleged in the complaint, but also may include prophylactic relief. See supra pp. 17-20. GTE's view accordingly cannot be the law for it would render unenforceable the permissible prophylactic provisions of many antitrust decrees. 3. GTE rests its argument for automatic "termination-upon- divestiture" primarily on three Supreme Court cases involving school desegregation decrees, Board of Education v. Dowell, 498 U.S. 237 (1991); Milliken v. Bradley, 418 U.S. 717 (1974); and Freeman v. Pitts, 502 U.S. 467 (1992). (See GTE Mem. at 31.) None of these supports GTE's position. Dowell and Freeman reinterated the basic principle that a decree should be terminated if, but only if, its purposes have been fully achieved. Neither case altered the standard for termination of antitrust decrees articulated in United Shoe or cast doubt on the proposition that the provisions and purposes of an antitrust
consent decree entered to resolve a section 7 case may extend beyond divestiture of the particular assets challenged in the complaint. Dowell held that the district court should vacate the litigated desegregation decree at issue if it found that the decree's purposes "had been fully achieved." 498 U.S. at 247. The Court, moreover, expressly distinguished decrees entered in desegregation cases, which, because of competing federalism concerns, "are not intended to operate in perpetuity," id. at 248, from antitrust decrees. See also Rufo, 502 U.S. at 380 (discussing Dowell). Dowell accordingly does not imply that a court is required to terminate an antitrust consent decree before its purposes have been achieved. Freeman involved the scope of a court's discretion partially to terminate a school desegregation consent decree when some but not all of the decree's purposes had been achieved. There, the Court relied on Swann v. Charlotte-Mecklenburg Bd. of Educ., 402 U.S. 1 (1971), to conclude that "[a] remedy is justifiable only insofar as it advances the ultimate objective of alleviating the initial constitutional violation." Id. at 498. Thus, the Court held that federal courts have equitable discretion to withdraw judicial control over a school district incrementally, to the extent that doing so would not undermine the decree's purposes. Id. The Court did not address, much less call into question, the Article III power of a court to continue to enforce an antitrust
consent decree entered in conformity with Firefighters until the defendant shows that its purposes have been achieved. The same is true of Milliken. There, the Court, addressing the limits on a court's discretion to fashion a remedy in a litigated school desegregation decree, relied on Swann's principle that "[a] federal remedial power may be exercised `only on the basis of a constitutional violation' and, `as with any equity case, the nature of the violation determines the scope of the remedy.'" 418 U.S. at 738 (quoting Swann, 402 U.S. at 16). But GTE does not dispute that this Court acted within its power in entering the GTE decree. Accordingly, Milliken casts no doubt on the Court's Article III power to enforce the GTE decree. III. GTE HAS NOT SHOWN THAT THIS DECREE'S PURPOSES HAVE BEEN FULLY ACHIEVED A. The GTE Decree Remedies Anticompetitive Effects of Vertical Integration by This Local Telephone Monopolist 1. The United States challenged GTE's acquisition of Sprint and GTE's provision of information services because such vertical integration presented the potential for the same type of anticompetitive conduct in which the Bell System had engaged: abuse of local telephone monopolies to impede competition in interexchange services and other dependent markets. The allegations in the complaint filed against GTE closely paralleled the government's contentions in the AT&T case. The AT&T complaint alleged that AT&T had used the BOCs' local exchange monopolies to impede competition in interexchange services and manufacturing, thereby violating section 2 of the Sherman Act.
The GTE complaint alleged that GTE, through its GTOCs' local exchange monopolies, also had the incentive and ability to engage in anticompetitive discrimination and cross-subsidization that would cause similar competitive harm in interexchange and information services markets. The GTE complaint (ï½¶ï½¶14, 15) alleged further that GTE, as a member of the AT&T partnership, had denied competing interexchange carriers (the OCCs) equal access to GTE's local exchanges. GTE's acquisition of Sprint would give it an even greater stake in the interexchange market and thus would exacerbate the risk that GTE would impair interexchange competition through GTOC discrimination and cross-subsidization. Because of this increased potential for abuse of monopoly power, the complaint alleged that the proposed acquisition would violate section 7 of the Clayton Act, which prohibits acquisitions that may "substantially lessen competition or tend to create a monopoly"; the same potential for abuse was the basis for the allegation that GTE's provision of information services violated section 2 of the Sherman Act. 2. To resolve the controversy between the government and GTE as to whether GTE's acquisition of Sprint and the GTOCs' provision of information services violated federal antitrust law, the parties agreed to a consent decree. The theory and purpose of the decree were essentially the same as those of the AT&T decree. The parties consistently explained in the Tunney Act proceedings that the purpose of the litigation as incorporated in
the decree was to prevent the type of potentially anticompetitive effects of vertical integration that formed the basis for the complaint in this case and in the AT&T case. By preventing GTE from using its local telephone monopolies to impede competition in interexchange services, the decree's interexchange provisions remedied the alleged anticompetitive effects of GTE's affiliation with Sprint. GTE, as well as the United States, in urging the Court to enter the decree, also emphasized that it would provide prophylactic relief applicable to other instances of vertical integration by GTE that could pose similar risks of abuse of local exchange monopoly power. The Competitive Impact Statement (May 4, 1983), reprinted in 48 Fed. Reg. 22020 ("CIS") explained the purposes of the litigation as embodied in the provisions of the proposed decree. The CIS emphasized that "the potential for abuse of monopoly power over exchange access and for evasion of regulatory constraints underlies the present action and the proposed Final Judgment," CIS at 5, 48 Fed. Reg. at 22027, and that "[t]he basic antitrust theories of [the GTE] action are the same as those of [the AT&T case]." CIS at 6, 48 Fed. Reg. at 22027. Accordingly, [t]he proposed Final Judgment is designed to circumscribe GTE's ability, through cross- subsidization or discriminatory actions, to leverage the power the GTOCs enjoy in their regulated monopoly markets to foreclose or impair the development of competition in the related markets for the provision of interexchange telecommunications services and information services. CIS at 9, 48 Fed. Reg. at 22027.
To this end, the decree required the GTOCs to provide equal access to all interexchange carriers and information services providers. The decree's equal access provisions are not confined to preventing discrimination in favor of Sprint; they prohibit GTOCs from discriminating in favor of or against any interexchange carrier or information service provider. See CIS at 15-17, 48 Fed. Reg. at 22028-29. The decree also imposed conditions on GTE's own provision of interexchange services. GTE's existing partnership with AT&T was to be phased out; its affiliation with Sprint was permitted, but subject to structural separation; and any other interexchange services GTE might provide also were required to be structurally separate from the GTOCs. With respect to the interexchange restrictions, the CIS explained that "Paragraph V(C) of the proposed Final Judgment is designed to redress the long-standing competitive problems created by the GTOCs' integration into interexchange services." CIS at 15, 48 Fed. Reg. at 22028 (emphasis added). Specifically, "by requiring a phased-out termination of GTE's cooperation with AT&T, Paragraphs V(C)(2), V(C)(3) and V(C)(4) of the Proposed Final Judgment eliminate any lingering incentive the GTOCs may have to discriminate in favor of AT&T." Id. In addition, "by precluding future vertical integration by the GTOCs, Paragraph V(C)(1)" (which prohibits "the GTOCs from providing interexchange telecommunications services and from owning facilities that are used to provide such services") " Page 29
monopolization of interexchange markets by the GTOCs in the future." Id. (emphasis added). GTE's assent to safeguards against abuse of its local exchange monopolies, whether or not directly arising from its affiliation with Sprint, was a major factor in the United States' consent to the decree. The Department of Justice concluded that the public interest in competition would be served by a decree providing such protections, which would not have been achieved merely by blocking the specific transaction at issue. Therefore, although the GTE decree's line-of-business restrictions were not as severe as those imposed on the BOCs by the AT&T decree, the GTE decree would, on balance, promote the public interest in competition. As the Department explained: "the United States decided to accept a negotiated resolution dealing with a wide range of concerns related to GTE's position in the telecommunications industry," CIS at 50, 48 Fed. Reg. at 22034, in order to "significantly reduce the present anticompetitive potential of the acquisition and . . . allow for the development of competition in those markets where . . . realistic competition is now possible," CIS at 51, 48 Fed. Reg. at 22034. The responses of the United States and GTE to comments attacking the decree as too lenient reiterated that the decree would provide affirmative benefits by preventing abuse of the GTOCs' local exchange monopolies not only in connection with the Sprint acquisition but also in other situations in which GTE in
the future might provide interexchange services or information services. [T]he essential compromise of the decree is that the Department does not oppose the acquisition itself. In return, however, the Department obtained concessions which we believe not only effectively constrain GTE's ability to act anticompetitively, but also represent significant achievements in the creation of a more competitive environment in the telecommunications industry. Response of the United States of America to Comments Filed Pursuant to the Antitrust Procedures and Penalties Act at 5 (Sept. 26, 1983) ("US Response to Comments"), reprinted in 48 Fed. Reg. 46655, 46656 (1983). The decree "entails a reasonable remedy for the violations alleged in the complaint, and, in its interconnection mandates and partnership provisions, provides some significant competitive benefits, continuing the transition to a competitive interexchange telecommunications industry begun in the AT&T case." US Response to Comments at 8, 48 Fed. Reg. at 46657 (emphasis added). Again, at the Court's Tunney Act hearing, government counsel told the Court that We have obtained the relief that we believe on net would allow GTE to acquire Sprint without being anticompetitive but also more importantly than that would also provide other significant procompetitive benefits in the decree. Tr. (Nov. 22, 1983) 45 (Blumenfeld). GTE not only agreed to the decree's provisions in return for removal of objections to its acquisition of Sprint. It affirmatively endorsed -- rather than ever questioning or disputing -- the government's statements as to the decree's scope
and purpose. In GTE's own words: "the proposed judgment goes substantially farther than merely remedying the anticompetitive potential identified in the Complaint -- it contains substantive provisions, totally unrelated to the acquisition, which were crafted to foster increased competition in the telecommunications industry." GTE Response to Comments at 12 (Sept. 13, 1983). Further, GTE represented: The decree mandates far-reaching changes in areas totally unrelated to the acquisition. What we have here is a situation where the government has negotiated two key provisions which it had stated provide important public benefits designed to foster increased competition in the telecommunications industry. . . . Because they are unrelated to the Sprint acquisition and the violations alleged in the complaint, those negotiated benefits would be lost even if the decree were not approved and the government were to prosecute this case to a successful conclusion. Tr. 27-28 (Topper). GTE thus confirmed that the Department had accurately described the purposes incorporated in the decree and not merely the government's views as to what those purposes should be. Having agreed to the decree and obtained the benefits of this compromise, GTE has no right to avoid the analysis United Shoe mandates and thereby to deprive the public of the competitive benefits for which the United States bargained. Cf. Rufo, 502 U.S. at 391-92 ("a consent decree is a final judgment that may be reopened only to the extent equity requires"; court should not inquire whether defendant could have succeeded if it had opposed certain provisions of a consent decree).
3. This Court's conclusion that the proposed decree should be approved under the "public interest" standard of the Tunney Act was based on its understanding of the competitive concerns that led to the complaint and the scope of the decree's remedial provisions and purposes as the parties had explained them. The Court noted that arguments in favor of barring GTE from competitive markets had "substantial weight" and that "the issue is a close one." GTE Decree Op., 603 F. Supp. at 737. It found that the decree was in the public interest "only because of the strictness and firmness of the decree's injunctive and separate subsidiary provisions." Id. In this regard, it found that the decree's "equal access and non-discrimination provisions are likely to extend a significant benefit both to the public and to GTE's competitors, and they represent a significant step forward toward the creation of a more competitive environment in the telecommunications industry--a step, moreover, which would not be possible without the decree." Id. at 743. Finally, the Court itself could not have been clearer in identifying the GTE decree's purpose, and the direct relationship between that purpose and the decree's provisions: Both the AT&T decree and the [GTE] decree have a common purpose: to prevent the defendant companies from impeding competition, by the use of local telecommunications monopoly bottlenecks, in markets where such competition is technologically feasible. To achieve that objective, each decree contains provisions designed to prevent the local Operating Companies from discriminating in favor of their own affiliates engaged in competitive enterprises and from subsidizing these enterprises with profits derived from monopoly operations.
603 F. Supp. at 752 (emphasis added). B. GTE Has Not Shown That the Purpose of the Interexchange Restrictions Has Been Fully Achieved by Divestiture of Sprint 1. As we have just shown, the decree prohibition on GTOC provision of interexchange services is intended to "preclude future vertical integration by the GTOCs [and] eliminate the potential for monopolization of interexchange markets by the GTOCs in the future." CIS at 15, 48 Fed. Reg. at 22028.16 As we also have shown, a decree entered in a section 7 case may appropriately seek to avert, in their incipiency, potential antitrust problems caused by practices similar to those challenged in the complaint, whether or not they arise directly from the challenged acquisition itself.17 Accordingly, this is a sufficient rationale for the continuing application of the GTE decree's interexchange provisions, notwithstanding divestiture of Sprint. GTE has offered no evidence from which the Court could
conclude that this purpose has been fully achieved or that it would not be frustrated if the decree were vacated. The only factual support GTE provides for its motion to terminate the interexchange restrictions is a declaration that it no longer owns Sprint or Spacenet and that it has no involvement in the affairs of those entities (except for voting shares held by its pension trusts for investment purposes only). GTE Mem. App. A. The United States does not dispute these facts, but they are insufficient to establish that the purposes of the decree have been fully achieved. The divestiture of Sprint does not alter the GTOCs' monopoly power in the local exchange market. Nor does it eliminate the risk that the GTOCs would engage in anticompetitive discrimination or cross-subsidization if the decree were vacated and GTE were allowed to provide interexchange services directly through the GTOCs (rather than through separate subsidiaries), and without any decree-imposed equal access obligations. Unless and until GTE makes a persuasive showing on these issues, it is not entitled to termination of the decree's interexchange restrictions under Rule 60(b) and United Shoe; the decree restrictions must remain in effect to protect the public interest in competition. 2. Further, even if the decree's purposes were viewed as limited to remedying the effects of GTE's acquisition of Sprint or preventing anticompetitive consequences of other acquisitions, the present record would be insufficient to show that divestiture of Sprint has fully achieved those purposes.
In asserting that divestiture necessarily provided full relief for the violation alleged, GTE implicitly asks the Court to assume that the decree restrictions eliminated all the anticompetitive consequences of GTE's owning Sprint for twelve years. But whether the restrictions had this effect is a factual question, and GTE has presented no evidence to support its assumption. The GTOCs or Sprint may continue to be affected by their past affiliation so that continued application of the interexchange provisions is needed to prevent anticompetitive consequences of that relationship. Even if this were the only relevant consideration -- which it is not -- it is GTE's burden to show that there are no such continuing effects. Moreover, if GTE's present motion for termination of the decree were granted, GTE could vertically integrate not only through internal expansion, but also through future acquisitions, and the GTOCs' relationships with any acquired interexchange carriers would not be subject to the decree safeguards. GTE's acquisition of an interexchange carrier was the precise conduct challenged in the complaint, and GTE has not shown that it will not acquire any interexchange carriers' stock or assets in the future. Nor has GTE shown that the decree restrictions would not be necessary to eliminate the threat to competition that such acquisitions likely would pose. C. GTE Has Not Shown That the Purpose of the Information Services Restrictions Has Been Fully Achieved by the FCC's Rules
GTE also seeks termination of the decree's few remaining information services restrictions, sections V(a) and V(B), which require only that GTE provide equal access to and not discriminate among information service providers. (See GTE Mem. at 39-41.) In support of this aspect of its motion, GTE relies solely on the Federal Communications Commission's adoption of rules intended to prevent local exchange carriers from discriminating against information services competitors. While the FCC's rules are relevant in determining whether the decree provisions should be vacated, the mere fact that the FCC has adopted such rules does not compel the Court to vacate decree provisions that serve a similar purpose. GTE has not shown either that the substance of the FCC rules duplicates the decree restrictions or that the sanctions available for violations are equally as effective as the Court's contempt power. See United States v. Western Elec. Co., 900 F.2d 283, 298 (D.C. Cir.), cert. denied, 498 U.S. 911 (1990) ("Triennial Review Appeal") (assessment of how FCC rules have performed would bear on whether decree restrictions should be removed). Accordingly, the information services restrictions also should not be vacated on the present record.
CONCLUSION The Court should deny GTE's motion to terminate the decree. Respectfully submitted, ANNE K. BINGAMAN Assistant Attorney General DAVID TURETSKY Senior Counsel to the Assistant Attorney General WILLARD K. TOM Counselor to the Assistant Attorney General ______________________________ DONALD J. RUSSELL NANCY C. GARRISON Chief, Telecommunications MARK S. POPOFSKY Task Force Attorneys LAWRENCE M. FRANKEL Antitrust Division Attorney U.S. Department of Justice 10th & Pennsylvania Ave., N.W. Antitrust Division Washington, D.C. 20530 U.S. Department of Justice (202) 514-1531 Washington, D.C. 20001 June 5, 1995
Certificate of Service I certify that on June 5, 1995, copies of the foregoing Response of the United States In Opposition To GTE's Motion To Terminate the Decree was served upon counsel for defendant GTE Paul D. Clement, Esq. Kirkland & Ellis 655 Fifteenth Street, N.W. Washington, D.C. 20005 (202) 879-5000 and James F. Rill, Esq. Collier, Shannon, Rill & Scott 3050 K Street, N.W. Washington, D.C. 20007 by messenger delivery, and C. Daniel Ward, Esq. GTE Service Corporation One Stamford Forum Stamford, CT 06904 by Federal Express, next-day delivery, and upon the following counsel by first-class mail, postage prepaid: Richard E. Wiley, Esq. Wiley, Rein & Fielding 1776 K Street, NW Washington, DC 20006 Richard C. Warmer, Esq. James J.R. Talbot, Esq. O'Melveny & Myers 555 13th Street, NW Washington, DC 20004 Don L. Keskey, Esq. John M. Dempsey, Esq. Assistant Attorneys General 1000 Long Boulevard, Suite 11 Lansing, MI 48910
Thomas P. Hester, Esq. Ameritech 30 South Wacker Drive Chicago, IL 60606 Jim G. Kilpatric, Esq. AT&T 1120 20th Street, NW Washington, DC 20004 Michael H. Salsbury, Esq. Jenner & Block Suite 1200S 601 13th Street, N.W. Washington, D.C. 20005 Herbert Marks, Esq. Squire, Sanders & Dempsey 1201 Pennsylvania Avenue, NW Washington, DC 20004 NANCY C. GARRISON Attorney Antitrust Division U.S. Department of Justice Washington, D.C. 20530 (202) 514-1531
1 The Department of Justice and GTE agreed that "because of the similarity of the issues with AT&T," GTE should be treated by the Court as a related case and handled by the same Judge. See United States v. GTE Corp., 603 F. Supp. 730, 732 (D.D.C. 1984).
2 Thus the GTE decree was less restrictive than the AT&T decree, which barred the BOCs from almost all businesses except local exchange service. The United States explained that the differences in the restrictions were justified by differences between the situations addressed by the two decrees. See Response of the United States of America to Comments Filed Pursuant to the Antitrust Procedures and Penalties Act, at 4-10 (Sept. 26, 1983), reprinted in 48 Fed. Reg. 46655, 46656 (1983).
3 The decree as entered is reported at 1985-1 Trade Cas. (CCH) ï½¶66,355, reprinted in GTE Mem. App. B.
4 The Court noted, however, that the differences between the BOCs and the GTOCs justified different restrictions. Id. at 736-37.
5 Following the acquisition, GTE operated the assets of SPCC under the name "GTE Sprint." See GTE Mem. App. A (Aff. of Ronald J. Tuccillo) ï½¶2(a). GTE held the assets of SPSC, together with its other satellite telecommunications businesses, in a wholly- owned subsidiary named GTE Spacenet Corporation. Id. ï½¶3(a).
6 Pursuant to the briefing order entered by the Court, GTE has given public notice of its motion and interested persons will have the opportunity to comment.
7 Of course, parties may not by agreement deprive a court of its equitable authority under the common law and Rule 60(b) to modify or terminate decrees as appropriate, and the United States does not contend that the parties to the GTE decree have done so. But GTE's reliance on the principle that "the parties [to a consent decree] cannot, by giving each other consideration, purchase from a court of equity a continuing injunction" (GTE Mem. at 14, 33) (internal quotations and citations omitted) in support of its present motion, is misplaced. The question presented by GTE's motion is whether it is entitled to termination without satisfying the ordinary, equitable standard for modification of decree terms to which it consented.
8 GTE (Mem. at 18-19, 22) relies on Cyanamid, 598 F. Supp. at 1516, but the court in that case did not construe the decree to terminate automatically upon divestiture. Rather, it ascertained the purpose of the particular decree at issue and then examined current competitive conditions to determine that the decree's purpose had been fully achieved.
9 GTE maintains (Mem. at 35-39) that the decree must be construed to terminate upon divestiture of Sprint because there is no "unambiguous clear statement" that the parties agreed to the contrary. As we explain, the decree's plain words and history demonstrate that the interexchange provisions were intended to survive divestiture. In any event, there is no basis for departing from the normal rules of decree construction and requiring the parties expressly to provide that the decree will not terminate upon divestiture (or any other event). Although GTE claims that construing the decree not to terminate upon divestiture raises serious constitutional questions, GTE's Article III argment is wholly insubstantial. See infra pp. 21-23. So too is GTE's due process argument (Mem. at 38), which is premised on the government's "tremendous unilateral bargaining power." The postulate underlying the Tunney Act is precisely the opposite. See, e.g., 119 Cong. Rec. S13926 (Daily ed. July 18, 1973) (explaining that antitrust defendants, due to their "`great influence and economic power,'" often have the upper hand) (statement of Sen. Tunney) (quoting testimony of Hon. J. Skelly Wright)). Finally, although GTE argues that failure to require a "clear statement" would undermine the purposes of Tunney Act review, a consent decree cannot anticipate every contingency, and there is no reason to treat the voluntary divestiture of Sprint differently from any other event that the parties might not have specifically forseen.
10 In contrast, the United States had explained that under the AT&T decree's successors and assigns clause, which contained no similar proviso, any company, including an independent telephone company, purchasing a BOC or its franchised territory or facilities, would be bound by the restrictions of the modification and thus would not be permitted to engage in activities that the BOC could not perform. This restriction is necessary in order to prevent circumvention of the modification by a mere transfer of ownership. Response of the United States to Public Comments on Proposed Modification of Final Judgment, 47 Fed. Reg. 23320, 23343 (May 27, 1982).
11 The modification also made express the parties' understanding that in seeking relief under section VII(B), the United States would not be required to prove an antitrust violation or establish the relevant market in which competition is harmed. See Id. at 741, 753.
12 GTE does not contend that its motion relies on any other subdivision of Rule 60(b).
13 Similarly, in Dowell, the Supreme Court remanded the case to allow the district court to determine whether the purposes of the desegregation litigation had been fully achieved, i.e., whether illegal discrimination had ceased and its vestiges had been eliminated as far as practicable. See 498 U.S. at 246-50.
14 The Court emphasized in Firefighters that the test applies to a consent decree as a whole, not to particular terms. See id. at 525.
15 There certainly are circumstances in which failure to terminate a decree would constitute an abuse of discretion. See, e.g., American Horse Protection Ass'n v. Watt, 694 F.2d 1310, 1316 (D.C. Cir. 1982) (underlying statute repealed). But it does not follow that a court that erroneously denies a motion to terminate acts beyond its Article III power. "The power to enjoin includes the power to enjoin too much." Swift, 276 U.S. at 331.
16 GTE is concerned primarily with this section V(C)(1) restriction. (See GTE Mem. at 10 n.5.) Termination of the decree also would eliminate GTE's continuing decree obligations to provide equal access.
17 The government's position in United States v. Microsoft, (D.C. Cir. Nos. 95-5037, 5039) is not to the contrary. There, the government maintained that additional restrictions aimed at competitive problems different from those identified in the complaint and CIS were not necessary to bring a decree within the reaches of the public interest. By contrast, the GTE decree's interexchange restrictions properly remedy the violation alleged because they are addressed to same competitive harm that the government sought to remedy in its complaint: GTE's vertical integration and the consequent abuse of its local exchange monopolies to impede competition in interexchange markets. Accordingly, the provisions of the GTE decree are directed at practices of the "same class or type," Zenith, 395 U.S. at 132, as those challenged in the complaint.