Covad Communications Co. v. BellSouth Corp.

[PUBLISH]

IN THE UNITED STATES COURT OF APPEALS
FILED
FOR THE ELEVENTH CIRCUIT U.S. COURT OF APPEALS
ELEVENTH CIRCUIT
________________________ AUGUST 2, 2002
THOMAS K. KAHN
CLERK
No. 01-16064
________________________
D. C. Docket No. 00-03414-CV-BBM-1

COVAD COMMUNICATIONS COMPANY,
DIECA COMMUNICATIONS, INC.,
d.b.a. Covad Communications Company,

Plaintiffs-Appellants,

versus

BELLSOUTH CORPORATION,
BELLSOUTH TELECOMMUNICATIONS, INC.,

Defendants-Appellees.

________________________

Appeal from the United States District Court
for the Northern District of Georgia
________________________
(August 2, 2002)

Before BARKETT and MARCUS, Circuit Judges, and HIGHSMITH*, District
Judge.
____________________________

*Honorable Shelby Highsmith, U.S. District Judge for the Southern District of Florida,
sitting by designation.
BARKETT, Circuit Judge:

Covad Communications Company and Dieca Communications, Inc.

(collectively “Covad”)1 appeal the district court’s dismissal, pursuant to Federal

Rule of Civil Procedure 12(b)(6), of their action against BellSouth Corporation and

BellSouth Telecommunications Corporation (collectively “BellSouth”). Covad is a

seller of high-speed Digital Subscriber Line (“DSL”) internet service. BellSouth is

a regional telephone service and telecommunications provider, which also sells

DSL service. Covad and BellSouth have entered into an “interconnection

agreement” to allow Covad to provide DSL service to consumers over BellSouth’s

existing telephone lines. However, Covad alleges that BellSouth has attempted to

stifle competition both by failing to live up to its contractual obligations and

through broad exclusionary behavior, including the use of price squeezes,

misleading advertising, and the misuse of Covad’s confidential customer

information. Covad’s 24-count complaint asserts that BellSouth’s actions violated

the Sherman Antitrust Act, the Telecommunications Act of 1996, state anti-

monopoly statutes and unfair competition laws, and state law of breach of contract.

On appeal, Covad argues that the trial court erred in dismissing Covad’s complaint.

We agree and REVERSE.

1
Dieca is a wholly-owned subsidiary of Covad.

2
 BACKGROUND

BellSouth is the incumbent local exchange carrier (“ILEC”) that inherited

monopoly control over the local telephone network in a nine-state region after the

breakup of AT&T in 1983. Covad, formed in 1996, sells high speed DSL service,

a technology that allows consumers and businesses to transmit and receive data

over existing copper phone lines. Covad’s DSL service competes directly with

BellSouth’s own DSL and other retail data services, such as dial-up internet access,

Internet Services Digital Network (“ISDN”) and dedicated line services such as

“Frame Relay” and “T-1.”

As Covad explains it,2 to bring its services to consumers in BellSouth’s

region, Covad must have dependable, timely, and affordable access to the local

telephone network controlled by BellSouth. Because of the ubiquitous nature of

the local telephone network, the facilities controlled by BellSouth cannot

practicably be duplicated. Thus, to operate feasibly, Covad must be able to

“interconnect” its DSL network with BellSouth’s local telephone network, which

means, at its most basic, that Covad needs to be able to connect its wires to the

BellSouth wires that make up the local telephone network.

2
Because in this appeal we review de novo the district court’s grant of a motion to
dismiss Covad’s complaint, we take the facts as they are alleged in Covad’s complaint. See
Quality Foods de Centro Am., S.A. v. Latin Am. Agribusiness Dev. Corp., S.A., 711 F.2d 989,
994-95 (11th Cir. 1983).

3
 Congress recognized that new companies seeking entry into the market

could not compete if they had to duplicate existing telephone networks, and

addressed this concern by passing the Telecommunications Act of 1996 (the “1996

Act”), which requires, among other things, that ILECs allow competitors to

interconnect with their networks. The centerpieces of the 1996

Telecommunications Act are sections 2513 and 252,4 codified at 47 U.S.C. §§ 251

and 252, which together impose a series of affirmative duties on ILECs like

BellSouth, for the benefit of competitive local exchange carriers (“CLECs”) like

Covad. Sections 251 and 252 also establish the standards for the arbitration and

approval of interconnection agreements between ILECs and CLECs.

Pursuant to the 1996 Act, Covad entered into a contract in 1998 with

3
Section 251 imposes various duties on all local exchange carriers (“LECs”): to permit
the resale of their telecommunication services; to provide number portability; to provide dialing
parity to other LECs; to afford other LECs access to poles, ducts, conduits, and rights-of-way;
and, most significantly here, to establish reciprocal compensation arrangements for the transport
and termination of telecommunications. 47 U.S.C. § 251(b). Section 251 also imposes additional
obligation on ILECs, including the duty to interconnect their networks with that of any
requesting telecommunications carriers “on rates, terms, and conditions that are just, reasonable,
and nondiscriminatory,” and to negotiate in good faith the agreements establishing the rates,
terms, and conditions of these interconnections. 47 U.S.C. § 251(c)(1) and (2).
4
Section 252 provides for the negotiation, arbitration, and approval of interconnection
agreements and requires all parties to participate in any arbitration. 47 U.S.C. § 252(b)(1) and
(5). All interconnection agreements adopted by negotiation or arbitration must be submitted for
approval to the respective state public service commission (“PSC”). 47 U.S.C. § 252(e).

4
BellSouth (the “Interconnection Agreement”) in which BellSouth agreed, among

other things: (1) to allow Covad to “collocate” (place Covad’s equipment) in

BellSouth central offices throughout its region, providing interconnection between

the network controlled by BellSouth and Covad’s network; (2) to provide

interoffice transport facilities (high capacity connections necessary to connect

Covad’s equipment in various central offices); (3) to provide nondiscriminatory

access to operational support systems (“OSS”) to allow Covad to place orders for

facilities; and (4) to provide loops (the actual copper wires used for DSL

transmission).

In this suit, Covad alleges that Bell South aimed to stifle competition and

protect and extend its local telephone monopoly, in violation of the Interconnection

Agreement and the antitrust laws, by embarking on a series of dilatory, anti-

competitive acts designed to prevent or delay Covad’s entry into the DSL market,

impede its ability to deliver service to consumers, and drive Covad from the

marketplace. In particular, Covad alleges that BellSouth regularly misrepresented

the availability of space in BellSouth’s central offices so as initially to effectively

deny collocation altogether. When it did permit collocation, BellSouth allegedly

raised Covad’s costs unnecessarily and systematically and in bad faith denied and

delayed facilities essential to Covad’s success, including interoffice transport, OSS,

5
and local loops, resulting in delays and lost customers. Covad also asserts that

BellSouth manipulated its dual role as both Covad’s wholesale supplier (of local

exchange elements) and its retail competitor (for DSL) by engaging in a “price

squeeze”—an intentional pattern of pricing wholesale inputs at such a high level

that Covad (or indeed BellSouth itself) cannot absorb those costs and still compete

profitably in the downstream retail markets. By assigning inordinately high costs

to its wholesale offerings, and inordinately low costs to its retail offerings,

BellSouth allegedly squeezed out competitors such as Covad, clearing the field for

its own retail services.

Furthermore, Covad alleges that BellSouth strategically understaffed its

wholesale division, which BellSouth created to serve customer-competitors like

Covad. This strategy slowed down order processing and created backlogs that, at

times, included over 5,000 Covad orders. By refusing to develop adequate systems

for placing wholesale orders, BellSouth thwarted Covad’s aggressive

first-to-market strategy, caused Covad to lose customers, impeded Covad’s ability

to deliver high quality service, and protected BellSouth’s monopoly.

Finally, Covad alleges that BellSouth acted with clear motive and intent to

destroy DSL competition and competitors like Covad. Covad asserts that

BellSouth possessed DSL technology, but did not offer it to the public as a means

6
of internet access until forced to do so in competition with Covad; BellSouth

preferred to offer more profitable alternatives such as ISDN or T-1 service, at the

expense of consumer choice. When Covad threatened to compete for internet

access customers with DSL, a cheaper and more convenient service, BellSouth

itself began an aggressive campaign to offer DSL. BellSouth confirmed its

anticompetitive intent, Covad says, by falsely disparaging Covad’s services and

using confidential Covad information to solicit its customers. Covad states that

BellSouth’s scheme has had the intended effect of denying Covad access to the

local internet access markets, substantially lessening competition and consumer

choice in those markets, creating higher prices, and stifling innovation.

These actions, according to Covad, violate the 1996 Act, the Sherman Act,

and various state laws. The district court, relying on the Seventh Circuit’s opinion

in Goldwasser v. Ameritech Corp., 222 F.3d 390 (7th Cir. 2000), dismissed

Covad’s Sherman Act claims, holding that allegations that are based on duties

established by the 1996 Act cannot form the basis of a violation of the Sherman

Act because (1) “‘affirmative duties to help one’s competitors . . . do not exist

under the unadorned antitrust laws,’” D.C. Opinion at 15 n.8 (quoting Goldwasser,

222 F.3d at 400); (2) “the ‘elaborate enforcement structure’ of the 1996 Act

precludes suits under the Sherman Act for ILEC duties because ‘antitrust laws

7
would add nothing to the oversight already available under the 1996 law,’” id. at

15 (quoting Goldwasser, 222 F.3d at 400-01); and (3) even if such allegations

could be entirely divorced from the 1996 Act context, such claims nonetheless

would not constitute “allegations of a freestanding antitrust claim” because “‘[t]he

elaborate system of negotiated agreements and enforcement established by the

1996 Act’” should not be “‘brushed aside by any unsatisfied party with the simple

act of filing an antitrust action.’” Id. at 16-17 (quoting Goldwasser, 222 F.3d at

401).5

Turning to Covad’s claims under Section 222 of the 1996 Act and for breach

of contract, the district court found that, because state commissions have the power

not only to approve interconnection agreements “but to later interpret and enforce

them as well,” “sections 206 and 207 do not grant federal courts jurisdiction . . .

when claims directly implicate the regulatory scheme of the 1996 Act,” except for

the power to review “a determination by a [state commission].” Id. at 37-38.

Because Covad’s claims “relate directly to duties under the 1996 Act or the

5
The district court, however, did not dismiss Covad’s antitrust claims in their entirety; it
found that allegations that “BellSouth engaged in predatory advertising and promotion” could
support an antitrust violation and dismissed these claims only to the extent that they alleged
misuse of proprietary information, a subject that is “covered by paragraph 9 of the
Interconnection Agreement.” D.C. Opinion at 29-31. The court also declined to dismiss
Covad’s “monopoly leveraging” claim to the extent it was based on conduct “not implicated by
the 1996 Act.” Id. at 33.

8
interconnection agreement, which are to be first reviewed and enforced by the

respective [state commissions],” the court dismissed those claims. Id. at 38.

Finally, the court dismissed Covad’s tort claims for interference and unfair

competition to the extent they involved any allegation other than “improperly

soliciting customers not to enter into contracts with Covad or to breach existing

contracts, [and] disparaging Covad’s products and services.” Id. at 40.6 The trial

court rejected the bulk of Covad’s tort claims because they “are merely a restated

breach of contract claim which the court has already dismissed for the reasons

noted above.” Id.

We review a district court’s dismissal of a complaint de novo. In particular,

“[w]hether specific conduct is anti-competitive is a question of law reviewed de

novo.” SmileCare Dental Group v. Delta Dental Plan of Cal., Inc., 88 F.3d 780,

783 (9th Cir. 1996). “‘[A] complaint should not be dismissed for failure to state a

claim unless it appears beyond doubt that the plaintiff can prove no set of facts in

support of his claim which would entitle him to relief.’” St. Joseph’s Hosp., Inc. v.

Hosp. Corp. of Am., 795 F.2d 948, 953 (11th Cir. 1986) (quoting Conley v.

Gibson, 355 U.S. 41, 45-46 (1957)). This Court “must accept the facts pleaded as

6
The tort claims not dismissed by the district court were subsequently dismissed by
stipulation and are not part of this appeal.

9
true and construe them in a light favorable to plaintiffs.” Quality Foods de Centro

Am., S.A. v. Latin Am. Agribusiness Dev. Corp., S.A., 711 F.2d 989, 994-95 (11th

Cir. 1983). Rule 12(b)(6) dismissals are particularly disfavored in fact-intensive

antitrust cases. In Quality Foods, which involved claims under sections 1 and 2 of

the Sherman Act, this Court stated that “the threshold of sufficiency that a

complaint must meet to survive a motion to dismiss for failure to state a claim is

exceedingly low.” 711 F.2d at 994. “Although authorized by the Federal Rules of

Civil Procedure, the liberal rules as to the sufficiency of a complaint make it a rare

case in which a motion [to dismiss] should be granted.” St. Joseph’s Hosp., 795

F.2d at 953 (footnote omitted).

DISCUSSION

I. Sherman Act Claims

We turn first to the question of whether the litany of facts pleaded in

Covad’s complaint, if taken as true, state a cause of action for the violation of the

Sherman Act. Answering this question requires a two-tiered inquiry. First, we

must determine whether the 1996 Act’s regulation of local telecommunications

markets precludes application of the Sherman Act so that a claim based on facts

“inextricably linked” to an alleged violation of the 1996 Act can never, as a matter

of law, form the basis of an independent Sherman Act claim. If we conclude that

10
the 1996 Act precludes “inextricably linked” antitrust claims, then our inquiry is at

an end. However, if such a claim can stand as an independent Sherman Act claim,

then we must determine whether the allegations in Covad’s complaint adequately

allege a violation of the Sherman Act.

A. Does the 1996 Act Preempt All Sherman Act Claims?

As a general principle, a statute does not automatically limit causes of action

under another statute, and conduct that is alleged to violate one statute can also

violate another, subjecting the perpetrator to liability for the violation of each.

Moreover, the same conduct may support various theories of liability and expose

the perpetrator to different types of damages. At the same time, Congress can

determine the contours and extent of the remedy for specific conduct it determines

to be unlawful and accordingly limit the causes of action for such conduct. While

such congressional limitations can be established explicitly, courts have also

determined that if two statutes are deemed to be plainly repugnant to each other,

then Congress has implicitly limited one or the other. However, we must be

mindful that courts should be reluctant to imply a limitation resulting in antitrust

immunity. See Cantor v. Detroit Edison Co., 428 U.S. 579, 597 (1976). “Repeals

of the antitrust laws by implication from a regulatory statute are strongly

disfavored, and have only been found in cases of plain repugnancy between the

11
antitrust and regulatory provisions.” United States v. Philadelphia Nat’l Bank, 374

U.S. 321, 350-51 (1963) (footnotes omitted).

The initial question before us in this case is whether Congress intended in

the 1996 Act to provide immunity from antitrust violation claims for conduct

covered in that Act. We begin by examining the plain language of the 1996 Act to

determine whether it expresses any intention to preempt Sherman Act antitrust

claims for conduct that is inextricably linked to the 1996 Act. Our examination

reveals that, rather than pre-emptive language, Congress specifically and directly

stated that the two Acts were intended to be used in tandem to accomplish the

congressional goals served by both acts—namely, the stimulation of competition.7

Congress explicitly stated—both through a savings clause directed specifically at

antitrust enforcement and through an additional general savings clause—that the

1996 Act does not supplant or change the antitrust laws. The 1996 Act provides:

SAVINGS CLAUSE . . . nothing in this Act or the amendments
made by this Act shall be construed to modify, impair, or supersede
the applicability of any of the antitrust laws.

NO IMPLIED EFFECT . . . This Act and the amendments made
by this Act shall not be construed to modify, impair, or supersede

7
The purpose of the 1996 Act is to “provide for a pro-competitive, de-regulatory national
policy framework designed to accelerate rapidly private sector deployment of advanced
telecommunications and information technologies and services to all Americans by opening all
telecommunications markets to competition.” H.R. Conf. Rep. 104-458, 1996 WL 46795, at *1
(1996).

12
 Federal, State or local laws unless expressly so provided in such Act
or amendments.

Telecommunications Act of 1996, sec. 601(b)(1), (c)(1), § 152 note, 110 Stat. 56,

143 (1996) (emphasis added). Thus, in enacting the 1996 Act, Congress did not

explicitly supersede the salience of the antitrust laws in the telecommunications

industry.

It is clear that plain repugnancy cannot be found between the 1996 Act and

the antitrust laws in view of the 1996 Act’s express language reserving the

applicability of the antitrust laws. An act that expressly preserves the antitrust

laws’ applicability and fully subjects anticompetitive activities to them cannot be

read to impliedly repeal those laws. We agree with the Second Circuit that the

“savings clause unambiguously establishes that there is no ‘plain repugnancy’

between the Telecommunications Act and the antitrust statutes [and thus] that the

Telecommunications Act does not provide an ‘implicit immunity’ from the

antitrust laws.’” Law Offices of Curtis V. Trinko v. Bell Atl. Corp., ___ F.3d ___,

___ (2d Cir. 2002). We conclude that the plain statutory language is sufficient to

end our inquiry on this matter. CBS Inc. v. Primetime 24 Joint Venture, 245 F.3d

1217, 1222 (11th Cir. 2001) (“[W]hen the words of a statute are unambiguous,

then, this first canon [of statutory construction] is also the last: judicial inquiry is

complete.”) (brackets in original) (citations omitted).

13
 However, should there be any doubt that the plain language of the savings

clause resolves the issue, we find support for our conclusion in the legislative

history surrounding the 1996 Act, reflecting that the President, the Congress, the

Department of Justice, and the FCC have emphasized the critical need for the

antitrust laws to work in conjunction with the 1996 Act in order to spur

competition in the telecommunications industry. For example, the Senate Report

analyzing the bill specifically provided: “[T]he provisions of this bill shall not be

construed to grant immunity from any future antitrust action against any entity

referred to in the bill.” S. Rep. No. 104-23, at 17 (1995) (R2-7-A18). Thus, the

savings clause “prevents affected parties from asserting that the bill impliedly

preempts other laws.” Joint Explanatory Statement of the Committee of

Conference, H.R. Conf. Rep. No. 104-458, S. Rep. No. 104-230, at 201 (1996)

(“Conference Report”). Throughout the legislative record, Congress repeatedly

emphasized that ILECs like BellSouth remain subject to antitrust enforcement:

Antitrust law is synonymous with low prices and consumer protection
– and that is exactly what we need in our telecommunications industry
. . . . [T]he bill contains an all-important antitrust savings clause which
ensures that any and all telecommunications merger and
anticompetitive activities are fully subject to the antitrust laws. . . .
And by maintaining the role of the antitrust laws, the bill helps to
ensure that the Bells cannot use their market power to impede
competition and harm consumers.

142 Cong. Rec. H1145-06 (daily ed. February 1, 1996) (statement of Rep.

14
Conyers).

The second important antitrust issue in this legislation is the
unequivocal antitrust savings clause that explicitly maintains the full
force of the antitrust laws in this vital industry. Today we take for
granted that the antitrust laws apply to the communications sector. . . .
Application of the antitrust laws is the most reliable, time-tested
means of ensuring that competition, and the innovation that it fosters,
can flourish to benefit consumers and the economy.

142 Cong. Rec. S687-01 (daily ed. February 1, 1996) (statement of Sen.
Thurmond).

I firmly believe that we must rely on the bipartisan principles of
antitrust law in order to move as quickly as possible toward
competition in all segments of the telecommunications industry, and
away from regulation. Relying on antitrust principles is vital to ensure
that the free market will work to spur competition and reduce
government involvement in the industry.

141 Cong. Rec. S18586-01 (daily ed. December 14, 1995) (statement of Sen.
Leahy).

Former President Clinton again emphasized the importance of antitrust

enforcement when he signed the 1996 Act into law:

The Act’s emphasis on competition is also reflected in its antitrust
savings clause. This clause ensures that even for activities allowed
under or required by the legislation, or activities resulting from FCC
rulemaking or orders, the antitrust laws continue to apply fully.

Statement by President William J. Clinton upon Signing S. 652, 32 Weekly Comp.

Pres. Doc. 218 (February 8, 1996), reprinted in 1996 U.S.C.C.A.N. 228-1, 228-3.

Thus, both the legislative and executive branches recognized that the antitrust laws

15
would coexist alongside the Act.

Finally, in implementing sections 251 and 252 of the 1996 Act (governing

the arbitration for and approval of interconnection agreements between ILECs like

BellSouth and CLECs like Covad), the FCC formally acknowledged that its

regulations did not provide the “exclusive remedy” for anticompetitive conduct.

First Report and Order, In re Implementation of the Local Competition Provisions

in the Telecommunications Act of 1996, 11 F.C.C.R. 15499, ¶ 124 (Aug. 8, 1996)

(R2-7-A174). The FCC emphasized that, in addition to judicial review of

arbitrations setting the terms of interconnection agreements, “parties have several

options for seeking relief if they believe that a carrier has violated the standards

under section 251 or 252,” id., expressly including private antitrust enforcement:

“[W]e clarify . . . that nothing in sections 251 and 252 or our implementing

regulations is intended to limit the ability of persons to seek relief under the

antitrust laws.” Id. at ¶ 129 (R2-7-A175) (footnote omitted).

Thus, in view of the plain statutory language and the legislative

pronouncements of the intended coexistence of the antitrust laws and the 1996 Act,

we cannot agree with Goldwasser to the extent that it is read to say that a Sherman

Act antitrust claim cannot be brought as a matter of law on the basis of an

allegation of anti-competitive conduct that happens to be “intertwined” with

16
obligations established by the 1996 Act.8

At the same time, we agree with Goldwasser that merely pleading violations

of the 1996 Act alone will not suffice to plead Sherman Act violations. Thus, a

claim that a defendant failed to live up to its contractual obligations under an

8
The Goldwasser court stated:

Nevertheless, when one reads the complaint as a whole these allegations
appear to be inextricably linked to the claims under the 1996 Act. Even if
they were not, such a conclusion would then force us to confront the
question whether the procedures established under the 1996 Act for
achieving competitive markets are compatible with the procedures that
would be used to accomplish the same result under the antitrust laws. In
our view, they are not. The elaborate system of negotiated agreements and
enforcement established by the 1996 Act could be brushed aside by any
unsatisfied party with the simple act of filing an antitrust action. Court
orders in those cases could easily conflict with the obligations the state
commissions or the FCC imposes under the § 252 agreements. The 1996
Act is, in short, more specific legislation that must take precedence over
the general antitrust laws, where the two are covering precisely the same
field.

Goldwasser, 222 F.3d at 401.

The district court interpreted this language to mean that a Sherman Act antitrust claim
cannot ever be brought if it alleges conduct also covered by the 1996 Act. We disagree that
Goldwasser stands for such a broad proposition, and note that Goldwasser tied its conclusion to
the specific allegations of the complaint in that case. We do agree, however, with the Second
Circuit in Trinko, when it concluded that “controlling case law does not support the theory that
specific legislation meant to encourage competition necessarily takes precedence over the general
antitrust laws,” Trinko, ____F.3d at ____ (citing Otter Tail Power Co. v. United States, 410 U.S.
366 (1973)). The Second Circuit also noted that “[i]t is unlikely that allowing antitrust suits
would substantially disrupt the regulatory proceedings mandated by the Telecommunications
Act.” Id. While acknowledging that injunctive relief in such suits may require judicial restraint,
the Trinko court stated that “[a]warding damages for the willful maintenance of monopoly power
would not substantially interfere with the regulatory scheme envisioned by the
Telecommunications Act,” noting that in some instances, “it is possible that the antitrust laws will
be needed to supplement the regulatory scheme” to bring competition to the local phone service
markets. Id. at ___ (footnote omitted).

17
agreement made pursuant to the 1996 Act in and of itself will be insufficient to

establish an antitrust violation. However, if a plaintiff also pleads facts that, if true,

tend to show an anticompetitive purpose to create or maintain a monopoly, then

that plaintiff has pleaded an antitrust violation.9 Because we believe that the 1996

Act does not preempt claims under the Sherman Act as a matter of law, we turn to

the question of whether Covad has pleaded a valid antitrust claim.

B. Does Covad’s Complaint Sufficiently Allege a Violation of the

Sherman Act?

Establishing a Section 2 monopolization violation requires proof of two

elements: “(1) the possession of monopoly power in the relevant market and (2)

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

or development as a consequence of a superior product, business acumen, or

9
In Goldwasser, the plaintiff pleaded 20 counts, seventeen of which explicitly cited
violations of the 1996 Act. Goldwasser then alleged that “[a]ll of these practices . . . violate both
§ 2 of the Sherman Act, 15 U.S.C. § 2, and the 1996 Act itself.” Goldwasser, 222 F.3d at 395.
None of the charges involved any allegations of anticompetitive intent; rather, the complaint
merely asserted that the defendant was a monopolist, and that it had violated the 1996 Act. The
Seventh Circuit observed, consistent with what we have said above, that such allegations of mere
failure to fulfill obligations under the 1996 Act are insufficient to state a claim under the
Sherman Act: “The fundamental fallacy in the plaintiffs’ theory is that the duties the 1996 Act
imposes on ILECs are coterminous with the duty of a monopolist to refrain from exclusionary
practices. They are not.” Id. at 399. The Goldwasser court further observed that there exists no
independent duty to help competitors under the antitrust laws. Therefore, “[a] complaint like this
one, which takes the form ‘X is a monopolist; X didn’t help its competitors enter the market so
that they could challenge its monopoly; the prices I must pay X are therefore still too high’ does
not state a claim under Section 2.” Id. at 400.

18
historic accident.” United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966);

accord Eastman Kodak Co. v. Image Technical Servs., Inc., 504 U.S. 451, 481-83

(1992). Monopoly power is defined as “the power to control prices or exclude

competition.” United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391

(1956). A firm that does not achieve monopoly power may nonetheless violate

Section 2 through “attempted monopolization.” Proving attempted monopolization

requires a showing of: (1) anticompetitive or exclusionary conduct; (2) with

specific intent to monopolize; and (3) a dangerous probability of achieving

monopoly power. See Spectrum Sports, Inc. v. McQuillan, 506 U.S. 447, 456

(1993). Anticompetitive conduct is “the use of monopoly power, however lawfully

acquired, to foreclose competition, to gain a competitive advantage, or to destroy a

competitor.” United States v. Griffith, 334 U.S. 100, 107 (1948), disapproved of

on other grounds by Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752

(1984). An assessment of intent is critical in determining whether an accused

monopolist’s actions qualify as anti-competitive conduct. Id. at 106-07; accord

United States v. Colgate & Co., 250 U.S. 300, 307 (1919) (stating that “[i]n the

absence of any purpose to create or maintain a monopoly, the [Sherman Act] does

not restrict the long recognized right of [a] trader or manufacturer engaged in an

entirely private business, freely to exercise his own independent discretion as to

19
parties with whom he will deal”).

Covad’s Sherman Act claims fall under three different categories of alleged

anti-competitive behavior. First, Covad complains that BellSouth denied Covad

the use of an “essential facility,” namely its network of telephone lines. Although,

as Covad recognizes, the antitrust laws in general do not require that firms

(including monopolies) affirmatively help their competitors to succeed, there is a

narrow exception to this general rule when a monopolist improperly withholds

access to an “essential facility” without which a competitor cannot enter or

compete in a market. See, e.g., Consolidated Gas Co. of Fla., Inc. v. City Gas Co.

of Fla., 880 F.2d 297, 301 (11th Cir. 1989) (hereinafter, “Consolidated Gas I”).10

Second, Covad complains about BellSouth’s “refusal to deal.” Although a party

may ordinarily choose freely the companies with which it will conduct business,

when a monopolist’s refusal to deal is accompanied by the intent to monopolize

and the requisite degree of market power, that refusal to deal may violate Section

2. See, e.g., Mr. Furniture Warehouse, Inc. v. Barclays Am./Commercial, Inc. 919

F.2d 1517, 1522 (11th Cir. 1990). Third, Covad alleges that BellSouth illegally

manipulated its dual role as both Covad’s wholesale supplier (of local exchange

10
Consolidated Gas I was reinstated, en banc, by 912 F.2d 1262 (11th Cir. 1990)
(“Consolidated Gas II”), which was then vacated and remanded in 499 U.S. 915 (1991), because
the parties reached a settlement and the case therefore became moot.”

20
elements) and its retail competitor (for DSL) by engaging in a “price squeeze.” A

price squeeze is an intentional pattern of pricing wholesale inputs at such a high

level that Covad cannot absorb those costs and still compete profitably in the

downstream retail markets. See, e.g., Cities of Anaheim, Riverside, Banning,

Colton & Azusa, Cal. v. Fed. Energy Regulatory Comm’n, 941 F.2d 1234, 1238

(D.C. Cir. 1991). Covad alleges that by assigning inordinately high costs to its

wholesale offerings, and inordinately low costs to its retail offerings, BellSouth

squeezes out competitors such as Covad, clearing the field for its own retail

services.

It is important to recognize that each of these three theories is related to

Covad’s allegation that BellSouth engages in what is known as “monopoly

leveraging.” Monopoly leveraging occurs when a firm uses its market power in

one market to gain market share in another market other than by competitive

means. See Aquatherm Indus., Inc. v. Fla. Power & Light Co., 145 F.3d 1258,

1262 (11th Cir. 1998) (citing Berkey Photo, Inc. v. Eastman Kodak Co., 603 F.2d

263, 276 (2d Cir. 1979) (“[T]he use of monopoly power attained in one market to

gain a competitive advantage in another is a violation of § 2, even if there has not

been an attempt to monopolize the second market.”)). For example, in this case,

while BellSouth may not at present have a monopoly in the high-speed internet

21
market, it can attempt to leverage its clear monopoly in the telecommunications

market by refusing to deal with or provide essential facilities to competitors in the

high-speed internet market. We have previously held that monopoly leveraging

can violate Section 2: “[W]hen a party with monopoly power abuses its monopoly

power in one market as a means of gaining an unlawful competitive advantage in

and monopolizing another market, we have no hesitation to conclude that the

Sherman Act prohibits such conduct.” Key Enters. of Del., Inc. v. Venice Hosp.,

919 F.2d 1550, 1568 (11th Cir. 1990), vacated as moot by 9 F.3d 893 (11th Cir.

1993). The Supreme Court has also found that a triable question of fact exists on a

Section 2 claim where a defendant used its control over one market to gain

dominance in another market. See Eastman Kodak, 504 U.S. at 482-83; see also

Poster Exch., Inc. v. Nat’l Screen Serv. Corp., 431 F.2d 334, 339 (5th Cir. 1970).11

Guided by these basic principles of antitrust law, we consider Covad’s three claims

sequentially.12

11
In Bonner v. City of Prichard, 661 F.2d 1206, 1209 (11th Cir. 1981) (en banc), the
Eleventh Circuit adopted as binding precedent all Fifth Circuit decisions handed down prior to
the close of business on September 30, 1981.
12
We stress here that our inquiry is limited by the standard of review appropriate to
BellSouth’s Rule 12(b)(6) motion. Covad need only have alleged necessary elements of the
relevant claims. We are not presented here with deciding, for example, whether telephone lines
are in fact essential facilities for providing high-speed internet service, or whether BellSouth in
fact had monopolistic intent in performing the alleged anticompetitive conduct. The standard of
review at this stage is, of course, different than those at summary judgment or at trial.

22
 1. Essential Facilities

The withholding of access to an essential facility without which a

competitor cannot enter or compete in a market is a violation of the antitrust laws.

See Consolidated Gas I, 880 F.2d at 301. Under the well-established “essential

facilities” doctrine, an inference of anticompetitive intent in violation of Section 2

arises upon a showing of four elements: (1) control of the essential facility by a

monopolist; (2) a competitor’s inability practically or reasonably to duplicate the

essential facility; (3) the denial of the use of the facility to a competitor; and (4) the

feasibility of providing the facility. See MCI Communications Corp. v. AT&T,

708 F.2d 1081, 1132-33 (7th Cir. 1983). By exercising its control over an essential

facility (sometimes called a “bottleneck”) to withhold access to that facility, a

monopolist can exclude competition. For example, in Consolidated Gas I, we

found that a massive system of natural gas pipes controlled by the defendant was

an essential facility. Control over that bottleneck, the gas pipelines, enabled the

defendant to exercise its power in the market to exclude competition. See

Consolidated Gas I, 880 F.2d at 301. “Thus, the antitrust laws have imposed on

firms controlling an essential facility the obligation to make the facility available

on non-discriminatory terms.” MCI, 708 F.2d at 1132.

In MCI, 708 F.2d at 1133, the Seventh Circuit held that the local telephone

23
network was an essential facility and that AT&T could not deny MCI reasonable

access to it. Covad argues that MCI is essentially indistinguishable from the

present case, and uses it as a template in stating the elements of its essential

facilities claim. First, Covad alleges that BellSouth controls an essential facility,

indeed, the same essential facility (local telephone exchange) at issue in MCI. See

id. Second, Covad alleges that it would not be economically feasible “to duplicate

Bell’s local distribution facilities (involving millions of miles of cable and line to

individual homes and businesses), and regulatory authorization could not be

obtained for such an uneconomical duplication.” Id. Third, Covad contends that

BellSouth denied interconnections to the essential facilities, and fourth, did so even

though the interconnections could have been feasibly provided. See id. Finally,

Covad maintains that BellSouth’s conduct was intended to, and did, leverage

BellSouth’s local exchange monopoly into the local internet access markets to

exclude Covad and to create or preserve BellSouth’s monopoly power in the local

internet access markets. See id.

BellSouth’s response to this claim begins with a critique of the essential

facilities doctrine itself, explaining that “[e]ssential facilities claims—along with

other doctrines that Covad invokes in passing—exist at the fringes of antitrust

law.” Br. of Appellee at 34 (citing Blue Cross & Blue Shield United of Wisc. v.

24
Marshfield Clinic, 65 F.3d 1406, 1412 (7th Cir. 1995) (“[T]he essential-facilities

line[] has been criticized as having nothing to do with the purposes of antitrust

law.”). Whatever the merits of this critique, as the Seventh Circuit observed in

Blue Cross, “[w]e are not authorized to abrogate doctrines that have been endorsed

and not yet rejected by the Supreme Court.” Blue Cross, 65 F.3d at 1413 (citing

Olympia Equip. Leasing Co. v. W. Union Tel. Co., 797 F.2d 370, 376 (7th Cir.

1986)).

With regard to the substance of Covad’s essential facilities claim, BellSouth

responds with three points. First, BellSouth argues that Covad cannot allege the

most basic element of an essential facilities claim: the actual denial of access to an

essential facility. BellSouth states that Covad conceded that BellSouth has

participated in the interconnection and negotiation/arbitration process, and that

BellSouth has provided all of the types of facilities that Covad has sought.

According to BellSouth, the dispute is thus restricted to the following matters: the

specific terms, timing, and implementation of the interconnection agreement; the

alleged “delays” in obtaining collocation space and transport; and the “obstacles”

in obtaining loops. BellSouth maintains that these complaints are properly

characterized as claims regarding the terms or quality of access under the

interconnection agreement, and that none of these claims can amount to an antitrust

25
claim.

Second, BellSouth argues that Covad’s claim fails because the essential

facilities doctrine never applies where a competitor seeks “preferential access” or

asks the owner to “abandon its facilities.” Br. of Appellee at 39 (citing MCI, 708

F.2d at 1133). BellSouth explains that when Covad purchases an unbundled loop,

it gains exclusive use of that loop, and that antitrust laws have never required a

monopolist to “cease using its own facility so that [a competitor] can begin using

it.” Id. (quoting City of Vernon v. S. Cal. Edison Co., 955 F.2d 1361, 1366 (9th

Cir. 1992)).

Third, BellSouth argues that Covad is attempting to use antitrust law not

merely to gain access to facilities, but also to force BellSouth to construct new

facilities or to alter the nature of its business and become a renter of facilities for

competitors to use. BellSouth observes that “[n]o case has suggested that the

monopolist must build new capacity to satisfy a would-be sharer.” Id. at 40

(quoting 3A Areeda & Hovenkamp, Antitrust Law ¶ 773e, at 214). BellSouth

characterizes Covad’s claim as an attempt to harness the antitrust law to force

BellSouth to build new facilities, to develop new software, or to modify existing

facilities quickly enough to meet Covad’s alleged business needs.

For the most part, these are arguments that must be addressed at a later stage

26
of the proceedings, such as summary judgment or trial. We note that with regard

to BellSouth’s first point, Section 2 prohibits denial of access to essential facilities

on reasonable terms. See Alaska Airlines, Inc. v. United Airlines, Inc., 948 F.2d

536, 542 (9th Cir. 1991); City of Vernon, 955 F.2d at 1367; Laurel Sand & Gravel,

Inc. v. CSX Transp., Inc., 924 F.2d 539, 545 (4th Cir. 1991); accord Del. &

Hudson Ry. v. Consol. Rail Corp., 902 F.2d 174, 179-80 (2d Cir. 1990) (“[i]t is

sufficient if the terms of the offer to deal are unreasonable”). The “applicable legal

standard” is that “[a]ny company which controls an ‘essential facility’ or a

‘strategic bottleneck’ in the market violates the antitrust laws if it fails to make

access to that facility available to its competitors on fair and reasonable terms that

do not disadvantage them.” United States v. AT&T, 524 F. Supp. 1336, 1352-53

(D.D.C. 1981) (emphasis added) (citing United States v. Terminal R.R. Ass’n of

St. Louis, 224 U.S. 383, 411 (1912), and Otter Tail Power Co. v. United States,

410 U.S. 366 (1973), among other cases). As the Supreme Court explained in

Terminal R.R., a monopolist must provide access to essential facilities “upon such

just and reasonable terms and regulations as will, in respect of use, character, and

cost of service, place every such company upon as nearly an equal plane as may be

with respect to expenses and charges as that occupied by the proprietary

27
companies.”13 224 U.S. at 411. Whether or not Covad can ultimately prove a

violation, its complaint does allege that Bell South sometimes denied access to its

facilities outright and other times denied access on reasonable terms.14

As to BellSouth’s second argument, we likewise note that the case upon

which BellSouth relies, City of Vernon, 955 F.2d at 1361, affirmed a summary

judgment, not a Rule 12 dismissal. Moreover, City of Vernon sought exclusive use

of a relative share of defendants’ entire electrical transmission facilities. See id. at

1364 & nn. 3 & 4. As we understand the claim here, Covad seeks temporary use of

an element of the ratepayer-funded local telephone network only for so long as

Covad has a customer, after which BellSouth regains full use of the facility (which

at all times remains its property). That temporary use seems quite similar to the

use of a pipeline in Consolidated Gas I and is nothing more than MCI found

13
BellSouth cites to a number of cases denying essential facilities claims, but those cases
are distinguishable from the present case. For example, Ideal Dairy Farms, Inc. v. John Labatt,
Ltd., 90 F.3d 737, 748 (3d Cir. 1996), affirming summary judgment, involved alleged
overcharges under the parties’ contract, not denial of access to essential facilities. Anserphone,
Inc. v. Bell Atl. Corp., 955 F. Supp. 418, 428-29 (W.D. Pa. 1996), found plaintiff’s evidence of
poor service an insufficient “constructive denial” of access to withstand summary judgment.
Twin Labs., Inc. v. Weider Health & Fitness, 900 F.2d 566, 569 (2d Cir. 1990) and Valet Apt.
Servs. Inc. v. Atlanta Journal & Constitution, 865 F. Supp. 828, 830-31 (N.D. Ga. 1994),
involved fact-bound disputes about whether and where to place print advertisements.
14
BellSouth’s argument that the essential facilities claim is really an ordinary breach of
contract claim does not support its motion to dismiss. Covad’s allegations of anticompetitive
conduct can and do “support antitrust liability” at the pleading stage. Mr. Furniture Warehouse,
919 F.2d at 1522-23 (monopolist’s refusal to deal supports Section 2 claim where it is “designed
to have an anticompetitive effect”). Breach of contract and antitrust are not mutually exclusive.
See City of Vernon, 955 F.2d at 1368.

28
proper. See MCI, 708 F.2d at 1132-33. In any case, these are primarily fact issues

that reflect upon the feasibility of the requested relief. It would thus be

inappropriate to grant dismissal on this basis. Similarly, whether the relief sought

would unreasonably require BellSouth to construct new facilities as opposed to

granting nondiscriminatory access to existing ones is primarily a question of fact

inappropriate for disposition on a motion to dismiss.

Without venturing any opinion on the merits of its specific allegations, we

conclude that Covad’s complaint satisfies the “exceedingly low” threshold of

sufficiency that a complaint must meet to survive a motion to dismiss for failure to

state a claim, Quality Foods, 711 F.2d at 995, namely, that it must adequately

allege that as an integrated telecommunications company with monopoly control,

BellSouth attempted to leverage its monopoly power in the high-speed internet

market by giving itself preferential access to its essential facilities.

2. Refusal to deal

Covad also claims anticompetitive conduct based on BellSouth’s refusal to

deal with a competitor or potential competitor. Although a party may ordinarily

choose the companies with whom it will conduct business, the existence of a “right

to refuse to deal with other firms does not mean that the right is unqualified.”

Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585, 601 (1985).

29
When a monopolist’s refusal to deal is accompanied by the intent to monopolize

and the requisite degree of market power, that refusal to deal may violate Section

2. See Mr. Furniture, 919 F.2d at 1522 (citing National Indep. Theatre Exhibitors,

Inc. v. Charter Fin. Group, Inc. 747 F.2d 1396, 1402 (11th Cir. 1984), and Otter

Tail, 410 U.S. at 377-78); accord Lorain Journal Co. v. United States, 342 U.S.

143, 154 (1951); Mid-Texas Communications Sys., Inc. v. AT&T Co., 615 F.2d

1372, 1387 (5th Cir. 1980) (right to refuse to deal is “limited when the company

possesses a monopoly because the danger exists that it may use its monopoly

position to decrease competition in other markets”). As the Supreme Court has

explained, “[i]t is true that as a general matter a firm can refuse to deal with its

competitors. But such a right is not absolute; it exists only if there are legitimate

competitive reasons for the refusal.” Eastman Kodak, 504 U.S. at 483 n.32; accord

Aspen, 472 U.S. at 600-05 (affirming jury’s monopolization finding where

monopolist ski resort ended joint marketing program with competitor).

The Seventh Circuit has summarized the Supreme Court’s holding in Aspen

in terms useful to our consideration of the present case:

Aspen Skiing Co. v. Aspen Highlands Skiing Corp. . . . goes the
furthest of any case we know toward imposing (more precisely,
allowing a jury to impose) a duty under antitrust law to help a
competitor; and as a recent decision by the Supreme Court it requires
our most careful and respectful consideration. The Aspen Skiing
Company owned three of the four mountains that make up the Aspen

30
 skiing complex. Aspen Highlands Skiing Corporation owned the
fourth. The two companies had offered their customers a joint ticket,
usable on all four mountains, and the suit arose because Aspen Skiing
Company terminated this cooperative arrangement. The Supreme
Court found that for the convenience of customers an owner of a ski
mountain in a multi-mountain skiing area normally would want to
offer a ski ticket usable on any of the mountains. The joint ticket had
originated at a time when there was competition among the different
ski mountains at Aspen, and similar tickets were offered at other
multi-mountain ski areas. 105 S. Ct. at 2858. In other words,
competition required some cooperation among competitors. Aspen
Highlands is not a conventional monopoly refusal-to-deal case like
Otter Tail because Aspen Highlands was never a customer of Aspen
Skiing Company; the skiers are the customers. But it is like the
essential-facility cases in that the plaintiff could not compete with the
defendant without being able to offer its customers access to the
defendant’s larger facilities.

Olympia, 797 F.2d at 377.

As we understand it, Covad’s refusal-to-deal claim is based on alleged facts

that are virtually identical to those supporting its essential facilities claim; that is,

Covad simply alleges that BellSouth has refused to deal with Covad with respect to

an essential facility, and that this refusal was motivated by monopolistic intent.15

15
BellSouth argues that Covad’s complaint contains no specific allegation that BellSouth
has forgone any economic advantage by failing to provide Covad with the accommodations it
desires. Although it may be true that there is no specific allegation of this sort, the entire
complaint alleges that BellSouth’s failure to live up to its contractual duties was motivated by its
will to monopolize, and showing that BellSouth has forgone an economic advantage is simply a
fact that, if true, would tend to support the contention of monopolistic intent in the fact of a
proffered legitimate business justification. Here, on motion to dismiss, there is no proffered
legitimate business justification for Covad to refute, so the absence of specific factual allegation
is irrelevant. See, e.g., Eastman Kodak, 504 U.S. at 483-84 (ruling on a summary judgment
motion and noting that after plaintiff’s presentation of evidence of Kodak’s exclusionary action
with monopolistic intent, Kodak bore the initial burden of presenting evidence of “valid

31
The claim is thus an amalgam of Aspen and Otter Tail, in that Covad is a customer

of BellSouth that would like to purchase from BellSouth the right to interconnect

with BellSouth’s essential facility.

In response, BellSouth argues that Aspen is inapposite, because in that case

the Court held that the defendant had a duty to continue to deal where termination

of the relationship would involve a “sacrifice [of] short-run benefits and consumer

goodwill” in the interest of excluding a rival and reducing competition. 472 U.S.

at 610-11. BellSouth argues that Covad has never alleged that BellSouth has

refused to deal (much less terminated a relationship); rather, BellSouth says, Covad

alleged that Covad and BellSouth established a new relationship. We do not find

this argument persuasive. In Aspen, which involved competitors only (not a

competitor-customer relationship), defendant’s termination of an existing joint-

marketing relationship and accompanying sacrifice of short-term benefits

supported the jury’s inference of the defendant’s anticompetitive intent. See

Aspen, 472 U.S. at 610-11. However, those are not prerequisites for a refusal-to-

deal claim, and Aspen does not say or suggest that they are. Other cases, such as

Otter Tail, involve a refusal to deal where there has been no prior arrangement, and

a vertically integrated monopolist that refuses to deal with a customer to foreclose

business reasons” to justify its actions).

32
competition in a second market may violate Section 2. See Olympia, 797 F.2d at

376-77. In other words, in Aspen, the fact that the defendant had terminated a

long-standing and mutually economically beneficial agreement was significant

only because it supported the jury’s conclusion that the defendant’s refusal to deal

had been motivated by monopolistic intent rather than legitimate business purpose.

We note that in Stein v. Pac. Bell Tel. Co., 173 F. Supp. 2d 975, 983 (N.D.

Cal. 2001), the district court held that plaintiff had stated a valid antitrust claim on

refusal-to-deal facts similar to those in the present case. In Stein, according to the

plaintiff, Pacific Bell “entered into these optional and voluntary [1996 Act]

agreements and then breached them or proceeded to engage in bad faith conduct in

carrying them out, without any business justification and with the intent to destroy

its competitors . . . so as to unlawfully maintain its monopoly.” Id. Citing Aspen,

the plaintiff claimed that such conduct violated Section 2 of the Sherman Act

because Pacific Bell was “attempting to exclude rivals on some basis other than

efficiency,” thus making its conduct “predatory.” Id. The Stein court held that

even accepting Goldwasser in its entirety, the plaintiff had stated a valid claim. Id.

at 983-84 (“Goldwasser did not consider whether violations of the 1996 Act, if

done in a ‘predatory’ manner as defined in Aspen Skiing, can make up an

independent basis for liability under the Sherman Act. The plaintiffs in

33
Goldwasser did not allege, as Stein alleges here, that the defendant breached

interconnection agreements in bad faith and engaged in other exclusionary

practices.”).

In essence, BellSouth asks this Court to conclude that it is impossible to find

a refusal to deal where the defendant has formed an agreement with the plaintiff, in

this case an agreement pursuant to the strictures of the 1996 Act. For the reasons

stated above, we conclude that allegations that allege a failure to perform under an

agreement that amount to a refusal to deal are sufficient to state a claim under the

antitrust laws.16

3. Price Squeeze

Covad also alleges that BellSouth manipulated its dual role as both Covad’s

wholesale supplier (of local exchange elements) and its retail competitor (for DSL)

by engaging in a “price squeeze.” BellSouth argues that Covad’s allegations must

fail because, as the district court stated, “there is no allegation that [BellSouth] set

accompanying low retail prices for its own DSL services.” BellSouth argues that

in light of the 1996 Act’s regulatory scheme, Covad’s failure to allege

accompanying low retail prices is fatal because BellSouth has no discretion over

16
Again, this case is presented to us on a motion to dismiss. BellSouth’s response that it
has not in fact refused to deal, while an appropriate issue for consideration on motion for
summary judgment or at trial, is not open to consideration here.

34
the prices it charges Covad for unbundled loops and other “inputs” that Covad

uses; those charges are set by state commissions after extensive proceedings in

accordance with the Act’s standards. BellSouth maintains that these rates are not

“mere[ly] tariff[ed]” and BellSouth is not free to lower those rates unilaterally.

Compare Br. of Amici Curiae Competitive Telecommunications Ass’n at 29 n.11.

In addition, BellSouth argues that section 252 provides that all network element

rates must be “based on cost,” 47 U.S.C. §252(d)(1); accordingly, Covad’s failure

to allege that the rates BellSouth charges for its retail DSL service are below cost

forecloses Covad’s claim. BellSouth argues that antitrust law cannot possibly

force a company to raise above-cost retail prices to give competitors a greater

margin, because such a rule would hurt, rather than help, consumers. In essence,

BellSouth contends that Covad’s claim boils down to a complaint that the network

element rates set by state commissions are too high. BellSouth further asserts that

the appropriate remedy for this complaint is not a collateral antitrust action, but

judicial review under Section 252(e)(6).

Covad responds by stating that its complaint in fact did allege that

BellSouth’s retail prices “are set so low related to its unbundled wholesale loop

prices that Covad cannot meet BellSouth’s wholesale or retail prices and still make

a reasonable return on its investment.” More important, Covad maintains, this

35
issue is irrelevant because whether or not there is a price squeeze should not

depend on whether retail prices are “too low,” but rather on the “squeeze” created

by the disparity between the wholesale prices Covad must pay BellSouth upstream

and the prices Covad must charge downstream to remain competitive with

BellSouth. See, e.g., City of Kirkwood v. Union Elec. Co., 671 F.2d 1173, 1176

n.4 (8th Cir. 1982). The presence of an illegal differential, Covad states, is

precisely what Covad alleged. Covad also states that commission or other

regulation at the wholesale end (or even both ends) of the price squeeze is no

defense.

Both sides cite a number of cases in support of these positions,17 but

BellSouth’s response to the claim is essentially factual in nature, and therefore it is

inappropriate to grant BellSouth’s motion to dismiss under Rule 12. Whether or

not BellSouth has any control over the wholesale prices it charges, or whether the

17
BellSouth cites Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S.
209, 223 (1993) (rejecting “the notion that above-cost prices that are below . . . the costs of a
firm’s competitors inflict injury to competition cognizable under the antitrust laws”); Indeck
Energy Servs., Inc. v. Consumers Energy Co., 250 F.3d 972, 978-79 (6th Cir. 2000) (plaintiff
“ha[s] no statutory right to compete in the economic marketplace on [its] own terms and in such
a manner as to accumulate expected profits”). Compare Br. of Amici Curiae Competitve
Telecomm. Ass’n at 29 n.11 (arguing that BellSouth should have raised retail prices to protect
competitors).
Covad responds with City of Kirkwood, 671 F.2d at 1179, and Fed. Power Comm’n v.
Conway Corp., 426 U.S. 270, 279 (1976) (“When costs are fully allocated, both the retail rate
and the proposed wholesale rate may fall within a zone of reasonableness, yet create a price
squeeze between themselves.”) (citation omitted).

36
differential between the wholesale and retail prices is such that Covad and other

would-be DSL competitors are squeezed out—these are questions of fact.

BellSouth may very well prevail on summary judgment, but for the purposes of the

pleading stage, Covad’s complaint states a claim under antitrust law.

II. Breach of Contract Claims

The district court dismissed Covad’s breach of contract claims for lack of

jurisdiction, finding that they must first be presented to PSCs. This Court,

however, recently held that “state commissions . . . are not authorized under

section 252 to interpret interconnection agreements” at all. Bellsouth Telecomm.,

Inc. v. MCImetro Access Transmission Servs. Inc., 278 F.3d 1223, 1237 (11th Cir.

2002). BellSouth concedes that the trial court’s reasoning is “inconsistent with

Bellsouth v. MCImetro.” In light of MCImetro, the trial court’s dismissal for lack

of jurisdiction must be reversed.

III. The 1996 Act Claim

The trial court dismissed Covad’s 1996 Act claim because it found any

claims “relate[d] directly to duties under the 1996 Act” must be submitted to PSCs.

R3-25-38. For the same reasons that apply to Covad’s breach of contract claims,

this ruling is inconsistent with MCIMetro and must be reversed.

IV. State Law Claims

37
 The trial court concluded that Covad’s state tort law claims were “preempted

by the 1996 Act.” This holding is irreconcilable with the Act’s express “No

Implied Effect” clause, which set forth Congress’ intent not to “modify, impair, or

supercede Federal, State or local laws.” Telecommunications Act of 1996, sec.

601(c)(1), § 152 note, 110 Stat. 56, 143 (1996).

BellSouth does not attempt to defend the trial court’s ruling, but argues

instead that Covad has failed to plead any tort claims, asserting that conduct that

constitutes a breach of contract can never support an interference claim. The cases

BellSouth cites, St. Mary’s Hosp. of Athens, Inc. v. Radiology Prof’l Corp., 421

S.E.2d 731, 735 (Ga. Ct. App. 1992), and International Telecomm. Exch. Corp. v.

MCI Telecomms. Corp., 892 F. Supp. 1520, 1543 n.19 (N.D. Ga. 1995), do not

support that broad proposition. Rather, they were summary judgment cases where

plaintiffs had failed to produce evidence that the defendant had actually induced

any third party not to contract with the plaintiff. At the Rule 12 stage, the only

proper inquiry is whether Covad has alleged such direct interference. It has, in

claiming that BellSouth “interfered with Covad’s existing and prospective business

relations with customers.” Therefore, the dismissal of Covad’s tort claims must

also be reversed.

CONCLUSION

38
 For the reasons stated above, the decision of the district court granting

BellSouth’s motion to dismiss is REVERSED, and the case is REMANDED for

further proceedings in light of this opinion.

39