Unfit for prime time: why cable television regulations cannot perform Trinko's 'antitrust function'.

• Author: Klovers, Keith

Until recently, regulation and antitrust law operated in tandem to safeguard competition in regulated industries. In three recent decisions--Trinko, Credit Suisse, and Linkline--the Supreme Court limited the operation of the antitrust laws when regulation "performs the antitrust function." This Note argues that cable programming regulations--which are in some respects factually' similar to the telecommunications regulations at issue in Trinko and Linkline--do not perform the antitrust function because they cannot deter anticompetitive conduct. As a result, Trinko and its siblings should not foreclose antitrust claims for damages that arise out of certain cable programming disputes.

TABLE OF CONTENTS INTRODUCTION I. TRINKO, LINKLINE, AND CREDIT SUISSE REDEFINE THE RELATIONSHIP BETWEEN ANTITRUST AND REGULATION A. A Primer on U.S. Antitrust Laws B. The Traditional View of Antitrust and Regulation as Complements C. Trinko and Its Siblings Redefine Antitrust Law and Regulation as Substitutes 1. Trinko, Credit Suisse, and Linkline 2. When Regulation Supplants Antitrust Law II. CABLE TELEVISION REGULATIONS CANNOT PERFORM THE ANTITRUST FUNCTION A. Defining the Antitrust Function B. Why Cable Television Regulations Are Inadequate 1. The FCC's Terrestrial Loophole 2. FCC Cable Television Regulations Provide Inadequate Deterrence 3. Damages Are Key Adequate Deterrence III. PROPOSED SOLUTION: TRINKO AND CREDITSUISSE SHOULD OUST ANTITRUST LAW ONLY WHERE REGULATORY PENALTIES ARE SUFFICIENT TO MAINTAIN COMPETITION A. Applying the Proposed Solution to the Cable Industry 1. Different Competitive and Regulatory Facts 2. Courts Should Decline to Apply Trinko and Its Siblings to the Cable Industry B. Qualification: Limiting Injunctive Relief under the Antitrust Laws CONCLUSION INTRODUCTION

Lawsuits involving regulated industries form the foundation of the modern American antitrust canon. The famous Standard Oil case revolved largely around railroad shipping rates, (1) which were highly regulated by the U.S. Interstate Commerce Commission. (2) More recently, the U.S. Department of Justice ("DOJ") obtained the breakup of AT&T, a telephone monopoly closely regulated by the U.S. Federal Communications Commission ("FCC" or the "Commission"). (3) The rule seemed clear: regulated industries were subject to the antitrust laws. (4)

Over the past seven years, a string of Supreme Court decisions have challenged this orthodoxy. In Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, (5) the Supreme Court ruled that certain refusal to deal antitrust claims against Verizon--a successor to the former AT&T monopoly--were legally incognizable. (6) Although the Court grounded its decision in narrow language regarding the type of duty to deal, (7) it also identified several factors that, together, suggested that the antitrust laws were unnecessarily duplicative of state and federal regulation. (8) Since Trinko, the Supreme Court has also ruled that antitrust law may be muted by either (1) the existence of a regulation that "performs the antitrust function" (9) or (2) a regulatory structure that is "clearly incompatible" with the antitrust laws. (10) Taken together, Trinko and its siblings announce a broad shift in the way the Court views the relationship between regulation and antitrust law.

Lower courts and scholars have struggled to define the new boundary between antitrust law and regulation. Some scholars writing soon after the decision argued that Trinko may limit antitrust claims against a wide range of regulated entities. (11) More recent scholarship has proposed narrow exceptions to Trinko, including, for example, exceptions for industries undergoing deregulation. (12) The Court seemed to confirm this expansive view (at least in part) in Pacific Bell Telephone Co. v. Linkline Communications, Inc., which used a "straightforward application" of Trinko to limit certain antitrust claims in the internet access industry. (13) Yet Linkline arose under the same statute as Trinko--the Telecommunications Act of 1996 ("Telecommunications Act") (14)--and thus sheds little light on the application of Trinko's prin-principles to industries, such as cable television, whose regulatory statutes prescribe more limited regulatory authority. (15) And as the Court noted in Trinko itself, "Antitrust analysis must sensitively recognize and reflect the distinctive economic and legal setting of the regulated industry to which it applies." (16)

Applying this individualized analysis, federal district courts have split on whether Trinko's logic extends to limit antitrust claims against cable companies. One court extended Trinko to foreclose even antitrust claims not created by regulation; (17) another refused to apply Trinko even to a refusal-to-deal claim. (18) And a trio of related decisions suggest that Trinko may apply to the cable industry. (19) No U.S. court of appeals has yet considered the question.

This Note argues that Trinko and its siblings should not be read to displace judicially enforced antitrust law in the cable industry because existing FCC regulations cannot perform Trinko's "antitrust function." (20) Part I reviews the pre-Trinko era and summarizes Trinko and the subsequent decisions in Linkline and Credit Suisse Securities (USA) LLC v. Billing. (21) Part I concludes that regulated industries that do not satisfy the tests in Trinko and its siblings remain subject to cognizable antitrust claims. Part II argues for a deterrence-based definition of Trinko's "antitrust function." Applying this definition to cable television regulations that are facially similar to the telecommunications regulations in Trinko and Linkline, Part II concludes that cable television regulation does not "perform[] the antitrust function" and thus cannot displace antitrust law. Part III attempts to clarify Trinko's teachings in light of the case's potential application to the cable industry. Part III thus proposes to focus Trinko's "antitrust function" test more clearly on whether the overlapping regulatory regime is sufficient to deter anticompetitive conduct in practice. Part III then argues that when regulatory deterrence is inadequate, as in the cable industry, regulation should not bar antitrust suits for damages. (22)

1. TRINKO, LINKLINE, AND CREDIT SUISSE REDEFINE THE RELATIONSHIP BETWEEN ANTITRUST AND REGULATION

   Since Trinko was decided in 2004, scholars have debated how far the Court should go in shielding regulated firms from antitrust scrutiny. (23) This debate has intensified since the decisions in Credit Suisse and Linkline. Although Trinko is somewhat ambiguous in isolation, the Court's reasoning and future direction become clearer when the case is analyzed alongside Linkline and Credit Suisse.

   This Part interprets Trinko in light of the Court's recent guidance in those decisions. Section I.A provides a quick primer on the antitrust laws at issue in the three cases and illuminates the different legal standards that apply in each case. Section I.B surveys the historical (pre-Trinko) relationship between antitrust law and regulation. Section I.C reviews Trinko, Linkline, and Credit Suisse and identifies the circumstances under which regulation supplants antitrust law.

   1. A Primer on U.S. Antitrust Laws

      American antitrust laws prohibit anticompetitive activity by firms acting either alone or coordinately}4 Coordinated anticompetitive activity ("collusion") is prohibited by section 1 of the Sherman Act ("Section 1"), which states that "[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce among the several States, or with foreign nations, is declared to be illegal." (25) Generally, firms violate Section 1 any time they coordinate their activities with the intent to restrain trade and increase prices. (26) Coordinated acts may be condemned either as per se violations of the antitrust laws (27) or under a "rule of reason" analysis that weighs the procompetitive and anticompetitive effects of the conduct. (28)

      Other antitrust laws, most notably section 2 of the Sherman Act ("Section 2"), prohibit a firm from unilaterally "monopolizing" a market. (29) To monopolize a market, a firm must have "monopoly power," which is generally characterized as the ability to profit by unilaterally raising prices. (30) All monopolization claims are evaluated using a "rule of reason" analysis. (31) Antitrust laws condemn those practices that, on balance, harm consumers by harming competition. (32)

   2. The Traditional View of Antitrust and Regulation as Complements

      Traditionally, antitrust law has operated alongside regulation, including rate and access regulation. For example, antitrust law and regulation were applied in tandem in 1912 in the foundational case United States v. Terminal Railroad Ass'n of St. Louis. (33) Terminal Railroad concerned the monopolization of access to railroad bridges and ferries crossing the Mississippi River into St. Louis by a joint venture of several leading railways. (34) The joint venture foreclosed competitors' access to the crossings, (35) prompting its competitors to file an antitrust suit in federal court. The Court found this denial of access anticompetitive. (36) It ordered injunctive relief granting new members nondiscriminatory access to the crossings. (37) Mindful of the power of the Interstate Commerce Commission to regulate railroad rates, terms, and conditions of service, however, the Court concluded that the resulting consent decree should contain a savings clause recognizing and preserving "the power of the Interstate Commerce Commission over the rates to be charged by the Terminal Company ... or any other power conferred by law upon such Commission." (38) In other words, the Court explicitly allowed the antitrust laws to operate alongside regulation.

      The Court also recognized the complementary nature of antitrust law and regulation in other industries...