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ESSENTIAL COMMUN. SYS. v. AT&T

March 18, 1978

Essential Communication Systems, Inc.
v.
American Telephone & Telegraph Co., Western Electric Co., New Jersey Bell Telephone Co.



The opinion of the court was delivered by: WHIPPLE

 Essential Communications Systems distributes a device named "code-a-phone" which, when electronically connected to a telephone (and thereby with the telephone network) automatically answers, transfers and records incoming calls. American Telephone and Telegraph Company (ATT) and New Jersey Bell are part of the Bell System which owns and operates the telecommunications system. They are subject to regulation by the Federal Communications Commission (FCC) and state commissions such as the New Jersey Public Utility Commission (N.J.P.U.C.). Western Electric Company is a subsidiary of ATT which manufactures, inter alia, telephone equipment.

 On May 17, 1973, Essential filed a complaint which alleged violations of Sections 1 and 2 of the Sherman Act (15 U.S.C. §§ 1 and 2) by ATT, New Jersey Bell and Western Electric and requested injunctive relief, treble damages and attorney fees. Specifically, Essential alleged: That it and the defendants were in competition in the distribution of "code-a-phones"; That beginning January 1, 1969 the defendants sought to restrain competition in this market by the promulgation of tariffs with the regulatory agencies which prohibited connection to the telephone network of "code-a-phones" not obtained from defendants except through a protective connecting arrangement (hereafter: PCA) leased from the defendants; That the defendants enforced and threatened to enforce those tariffs against persons who obtained "code-a-phones" from Essential even though such answering devices were, in all material respects, identical to those distributed by the defendants (because manufactured by the same company which supplied defendants) and even though some of the devices distributed by Essential had built-in PCA circuitry. It is also alleged that the defendants further restrained competition by the manner in which they enforced and threatened to enforce the tariffs, e.g., by providing Essential's customers with incorrect or malfunctioning PCA's, by unreasonable delay in providing PCA's, and by failing to adequately and properly train their service personnel in the installation and servicing of PCA's. *fn1"

 On October 5, 1973, by consent of the parties, this action was stayed so that the N.J.P.U.C. might exercise primary jurisdiction over the issue of the PCA tariffs. However, in early 1974, the FCC asserted an exclusive jurisdiction over the regulation of interconnection of customer-provided terminal equipment (hereafter: CPTE) which largely preempted state regulatory commissions. In the Matter of Telerent Leasing, 45 FCC 2d 204 (1974), aff'd, sub nom. North Carolina Utils. Commn. v. FCC, 537 F.2d 787 (4th Cir. 1976); cert. den., 429 U.S. 1027, 50 L. Ed. 2d 631 (1976); recon. den., 552 F.2d 1036 (4th Cir. 1977). On December 22, 1976, the Hearing Examiner of the N.J.P.U.C. issued an opinion responding to this Court's referral. The opinion stated, inter alia, that the N.J.P.U.C. lacked jurisdiction, under the Telerent decisions, supra, to determine the validity of the tariffs. On June 13, 1977, the stay was revoked and the action returned to the active docket.

 I.

 The doctrine of "implied immunity" is actually a subspecie of implied statutory repeal. See, Gordon v. N. Y. Stock Exchange, 422 U.S. 659, 682, 45 L. Ed. 2d 463, 95 S. Ct. 2598 (1975), and U.S. v. Southern Motor Carriers Rate Conference, 439 F. Supp. 29, 35 (N. D. Georgia, 1977). It is one of several distinct judicially created rules, which include "primary jurisdiction" and "exhaustion of administrative remedies", *fn3" designed to resolve potential conflicts between two regimes with federal statutory authorization to regulate the conduct of business entities: federal administrative agencies and federal courts enforcing (among others) the antitrust laws.

 The antitrust laws posit that the public interest is best served when business enterprises are compelled to compete in markets free of anti-competitive restraints. In contrast, the basic premise of administrative regulation is that the freedom of business entities must be in some degree curtailed to maximize the general welfare. When the same conduct falls within the scope of both the antitrust laws and a regulatory scheme, potential conflicts of competency and policy are resolved under the doctrine of implied immunity. Note: AT&T and the Antitrust Laws: A Strict Test for Implied Immunity, 85 Yale L.J. 254, 255-256 (1975). See, Gordon v. N.Y.S.E., supra, 422 U.S. at 689; Silver v. N.Y. Stock Exchange, 373 U.S. 341, 349, 10 L. Ed. 2d 389, 83 S. Ct. 1246 (1963); and FCC v. RCA Communications, Inc., 346 U.S. 86, 91-92, 97 L. Ed. 1470, 73 S. Ct. 998 (1953).

 The Supreme Court has articulated broad maxims on the implication of immunity from the antitrust laws due to administrative regulation. It has said:

 
Only where there is a "plain repugnancy between the antitrust and regulatory provisions" will repeal be implied. United States v. Philadelphia National Bank, 374 U.S. 321, 350-51, 83 S. Ct. 1715, 1734-35, 10 L. Ed. 2d 915 (1963).

 Gordon, supra, 422 U.S. at p. 682. Further, the Court noted in Silver v. N.Y.S.E., supra, 373 U.S. at p. 357.

 
[The] proper approach . . . is an analysis which reconciles the operation of both statutory schemes with one another rather than holding one completely ousted.

 Thus, as a "guiding principle" the Court declared:

 
Repeal is to be regarded as implied only if necessary to make the [regulatory scheme] work, and even then only to the minimum extent necessary.

 Id. Accord: Gordon, supra, 422 U.S. at p. 683. Finally, the Court has warned that:

 
Activities which come under the jurisdiction of a regulatory agency nevertheless may be subject to scrutiny under the antitrust laws.

 Otter Tail Power Co. v. U.S., 410 U.S. 366, 372, 35 L. Ed. 2d 359, 93 S. Ct. 1022 (1973).

 While stated with clarity, these axioms have proved difficult to apply in particular cases. See, Note: AT&T and the Antitrust Laws, supra, at pp. 257-58. We, nevertheless, perceive a common analysis in the Supreme Court cases dealing with implied immunity or repeal. Under this analysis, immunity is implied only if two elements are found to exist.

 First, there must be a conflict between the antitrust laws and the regulatory scheme regarding the specific conduct at issue. In other words, the policies and purposes of the regulatory scheme must be such that, in implementing those policies, the agency or enabling act would require, approve or sanction the specific conduct, or type of conduct, alleged to be in violation of the anti-trust laws.

 Thus, a necessary, but not sufficient, condition to this first element is that the agency have the power to regulate the conduct at issue. See, Gordon, supra, 422 U.S. at pp. 683-84 (discussing Silver, supra); Georgia v. Pennsylvania R. Co., 324 U.S. 439, 455-57, 89 L. Ed. 1051, 65 S. Ct. 716 (1945); and U.S. v. Southern Motor Carriers Rate Conference, supra, at p. 36. Cf. Seatrain Lines, Inc. v. Pennsylvania R. Co. et al., 207 F.2d 255 (3d Cir. 1953). Further, to provide the requisite repugnancy, the conduct alleged to violate the antitrust law must be (or, perhaps, might be) required, *fn4" approved or sanctioned by the regulatory agency in implementation of the policies or purposes of its enabling act. The Court observed in U.S. v. National Ass'n of Securities Dealers, et al., 422 U.S. 694, 734, 45 L. Ed. 2d 486, 95 S. Ct. 2427 (1975):

 
[We] have implied immunity in particular and discrete instances to assure that the federal agency entrusted with regulation . . . could carry out that responsibility free from the conflicting judgments that might be voiced by courts exercising jurisdiction under the antitrust laws. (Emphasis added)

 Similarly, in Gordon, supra, immunity was based, in part, upon a finding:

 
[That] to deny antitrust immunity with respect to [the conduct at issue] would be to subject the [regulated entities] to conflicting standards.

 422 U.S. at p. 689. (Emphasis added).

 Thus, if the agency has considered the specific conduct and either denied it sanction or approval or declared it inconsistent with regulatory goals, any claim of implied immunity as to that conduct must fail. In Ricci v. Chicago Mercantile Exchange, 409 U.S. 289, 34 L. Ed. 2d 525, 93 S. Ct. 573 (1973), it was held that where conduct regulated by an agency is alleged to violate antitrust laws, the status of that conduct under the regulatory scheme should be referred to the agency under the doctrine of primary jurisdiction before the issue of immunity is determined. The rationale being that the:

 
[agency's] determination will be of great help to the antitrust court in arriving at the essential accommodation between the antitrust and regulatory regimes: The problem disappears entirely if it is found that there has been a violation of the [agency's] rule . . . .

 409 U.S. at 307. Similarly, in Mt. Hood Stages, Inc. v. Greyhound Corp., 555 F.2d 687 (9th Cir. 1977), the denial of a claim of implied immunity was affirmed where the conduct found to have violated the antitrust laws had been disapproved by the relevant agency as contrary to the regulatory goals. The Court noted that under such circumstances:

 
Clearly there has been no conflict between the regulatory and antitrust regimes. On the contrary, they have accommodated and supplemented each other. The policies of both have been advanced.

 555 F.2d at p. 692.

 Given the requisite repugnancy, it becomes necessary to address the second element: How did Congress intend that the conflict be resolved. Only if it be found that Congress intended that the regulatory scheme should prevail over the antitrust laws in the event of conflict will immunity or repeal be implied. As stated in Otter Tail, supra, 410 U.S. at p. 374, immunity should only be implied where a court may "conclude that Congress intended to override the fundamental national policies embodied in the antitrust laws." The Court in Mt. Hood Stages, Inc., supra, succinctly observed:

 
Whether conduct Congress has made subject to administrative regulation is exempt from the antitrust laws depends upon Congress' intent.

 555 F.2d at 691. As will be demonstrated below, the Supreme Court's analysis of the element of congressional intent has focused largely upon the form, scope and content of authority devolving to the ...


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