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CONSOLIDATED TERMINAL SYS. v. ITT WORLD COMMUNS.

March 25, 1982

CONSOLIDATED TERMINAL SYSTEMS, INC., Plaintiff,
v.
ITT WORLD COMMUNICATIONS, INC., RCA Global Communications, Inc., Western Union International, Inc., TRT Telecommunications Corporation and FTC Communications, Inc., Defendants



The opinion of the court was delivered by: LASKER

Consolidated Terminal Systems, Inc. ("Consolidated"), claims that defendants' provision of telex terminals and related equipment to international telex subscribers at allegedly nonremunerative active rates violates the Sherman Act and the Communications Act.

Defendants are the five International Record Carriers ("IRCs") which have been authorized by the Federal Communications Commission ("FCC") to provide international telex transmission service from points within the United States to points abroad. This service is ordinarily provided in conjunction with telex circuits operated by the Western Union Telegraph Company ("Western Union") or another domestic carrier. The domestic carrier provides the domestic leg of the service and an interconnected IRC furnishes the international portion. In certain designated "gateway" cities, telex users place calls directly with an IRC for overseas transmission.

 The IRCs also provide their customers in gateway cities with telex equipment, consisting of teleprinters, terminals, tie-lines, and related supplies and service. Consolidated is in the business of supplying telex terminals and related equipment to persons using telex service. Consolidated, however, is not an IRC and provides no actual telex transmission service.

 Until recently, the IRCs provided their telex transmission service and related equipment according to a "unified" rate structure by which the companies recovered their costs for related equipment through the charges they imposed for their telex transmission service. The FCC approved that practice in Mackay Radio & Telegraph Co., Inc., 26 F.C.C. 557 (Bd. of Commissioners 1958), aff'd, 26 F.C.C. 566 (1959). However, on February 15, 1980, the FCC directed the IRCs to "unbundle" their rates and to file revisions of their tariffs establishing charges for the provision of telex equipment which would reflect the actual cost associated with the service and equipment being offered. Interface of the International Telex Service With the Domestic Telex and TWX Services, 76 F.C.C.2d 61 (February 15, 1980). In April, 1980, the IRCs filed revised telex tariffs which purported to set forth cost-based rates for telex service, the telex terminal, and related equipment and supplies. Subsequently, the FCC determined that terminal equipment should be detariffed. Interface of the International Telex Service with the Domestic Telex and TWC Service, 86 F.C.C.2d 411 (1981). See generally Western Union Telegraph Company v. F.C.C., -- - F.2d -- , 81-4122 (2d Cir. March 12, 1982).

 Consolidated alleges that the IRCs filed tariffs which did not reflect an honest unbundling of rates (Amended Complaint P 59), that the IRCs violated the filed tariffs themselves, and that the IRCs have discriminated in price in violation of the Communications Act, 47 U.S.C. § 202. (Amended Complaint PP 21, 48, 50). Consolidated further alleges that the IRCs have violated the antitrust laws by subsidizing their prices for telex terminals and related equipment from revenues derived from the provision of international telex transmission service. It claims that this constitutes an unreasonable extension of the IRCs privileged status as FCC-authorized carriers. (Amended Complaint PP 18, 19). Consolidated also alleges that the IRCs have entered into unlawful tie-in agreements with their customers whereby each IRC provides terminals and equipment free or below cost on condition that the customer purchase international telex transmission service from the particular IRC. (Amended Complaint, P 20). Consolidated claims that the effect of the IRCs' alleged conduct has been that it and other independent suppliers of telex terminals and related equipment have been unable to compete in the lease or sale of such goods to international telex subscribers. (Amended Complaint P 23). It seeks relief under the Sherman Act, 15 U.S.C. §§ 1, 2, 14, 15 and 26, and under the Communications Act, 47 U.S.C. §§ 206 and 401(b).

 The IRCs, except for Western Union Communications, Inc., move pursuant to Fed.R.Civ.Pr. 12(b)(1) and 12(b)(6) to dismiss the complaint on the grounds that the antitrust allegations fail to state a claim upon which relief can be granted and the Communications Act claims are within the primary jurisdiction of the FCC.

 I.

 The IRCs argue that Consolidated's claim under § 2 of the Sherman Act is stated in conclusory terms and contradicts other allegations of the complaint. Specifically, the IRCs emphasize that in its § 2 count, Consolidated fails to allege that there is a specific intent or a dangerous probability that the IRCs will be able to control prices or destroy competition in the equipment market. The IRCs contend that Consolidated cannot make such an allegation because the equipment used by IRC subscribers is a small percentage of the total amount of such equipment in use. They also argue that Consolidated has alleged no factual basis from which a separate market for telex equipment used by IRC subscribers could be established. In addition, it is argued that Consolidated has failed to allege the market share of any particular defendant and thus that there is no basis for an inference that any IRC controls a share of the equipment market sufficient to establish the probability of successful monopolization. The IRCs note that any specific intent to monopolize is contradicted by Consolidated's own allegations that the IRC telex service market is intensely competitive and that the reduced equipment prices are motivated by the desire to sell telex service.

 Consolidated responds that it has stated a claim under § 2 of the Sherman Act by alleging that the IRCs have extended their monopoly power or privileged position in the international telex transmission market to the equipment market by subsidizing the cost of equipment with monopoly profits from the transmission market. Consolidated also contends that if its Communications Act claims and its § 1 claim go forward, it would not serve any useful purpose to dismiss the § 2 claim, at least until it has an opportunity to develop the claim through discovery.

 II.

 Defendants' motion to dismiss Consolidated's claim under § 2 of the Sherman Act is granted. The complaint merely alleges in conclusory terms that the IRCs have conspired to monopolize the markets for international telex business and the business in peripheral equipment and that the IRCs together account for between 98 and 100 percent of the market. The critical flaw of the allegations under § 2 is that the complaint nowhere alleges the market share of any particular defendant.

 In order to state a valid claim for monopolization under § 2, a plaintiff must allege as a threshold requirement that the defendant enjoys monopoly power in the relevant market. United States v. Grinnell Corp., 384 U.S. 563, 570-71, 86 S. Ct. 1698, 1703-04, 16 L. Ed. 2d 778 (1966). Similarly, in order to state a claim under § 2 for attempted monopolization, a plaintiff must allege (1) a dangerous probability of success in monopolizing a given product market and (2) a specific intent to destroy competition or control prices in the relevant market. Nifty Foods Corp. v. Great Atlantic & Pacific Tea Co., 614 F.2d 832, 840 (2d Cir. 1980).

 Consolidated's allegations that the IRCs account for between 98 and 100 percent of the market assumes that the defendants' combined market power is the relevant datum. That approach, however, might be termed tautological. In light of the fact that Consolidated has named as defendants every company authorized to compete in the market for international telex transmission service, it is not surprising that Consolidated is also able to allege that the defendants account for 98 to 100 percent of the business in that market. But an oligopoly, or a shared monopoly, does not in itself violate § 2 of the Sherman Act. Rather, in order to sustain a charge of monopolization or attempted monopolization, a plaintiff must allege the necessary market domination of a particular defendant. See Nifty Foods Corp. v. Great Atlantic & Pacific Tea Co., supra at 841; Levitch v. Columbia Broadcasting System, Inc., 495 F. Supp. 649, 668 (S.D.N.Y.1980); American Tel. & Tel. Co. v. Delta Communications Corp., 408 F. Supp. 1075 (S.D.Miss.1976), aff'd per curiam, 579 F.2d 972 (5th Cir. 1978), modified on other grounds per curiam, 590 F.2d 100 (5th Cir.), cert. denied, 444 U.S. 926, 100 S. Ct. 265, 62 L. Ed. 2d 182 (1979). Consolidated has not made any such allegation. Since there is no allegation that any particular defendant has monopolized or attempted to monopolize the international telex transmission business, Consolidated's contention that defendants' pricing policies for peripheral equipment violate § 2 because they are an extension of defendants' monopoly or privileged status in the international telex transmission business cannot stand. And, for the same reasons, the complaint is insufficient to state a claim for monopolization or attempted monopolization of the terminal and equipment market-the only market in which Consolidated competes.

 Moreover, Consolidated fails to allege sufficient facts from which it can be inferred that the market for equipment used by international telex customers (as opposed to telex users generally) constitutes a relevant market for determining the control of price and competition. "(C)ommodities reasonably interchangeable by consumers for the same purpose make up that "part of the trade or commerce,' monopolization of which may be illegal." United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 395, 76 S. Ct. 994, 1007, 100 L. Ed. 1264 (1956). Consolidated has not challenged defendants' assertion, supported by judicial recognition of the ability of domestic telex users to directly access the IRCs, see ITT World Communications, Inc. v. FCC, 635 F.2d 32, 35-37 (2d Cir. 1980), that the terminals and teleprinters used by its ...


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