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7th Circuit Nixes Text Message Monopoly Suit

CHICAGO (CN) - The 7th Circuit threw out a class claim that AT&T, Verizon, Sprint, and T-Mobile colluded to raise text messaging rates from 2005 to 2008.

The antitrust complaint was filed just after Sen. Herbert Kohl, chairman of the antitrust subcommittee of the Senate Judiciary Committee, sent a letter on Sept. 9, 2008, to the CEOs of the four carriers expressing concern about antitrust violations.

The companies allegedly discussed price-fixing in trade association meetings and then hiked rates despite steeply falling costs. The class claims that the companies also met through the association's "leadership council," which had a stated mission to substitute "co-opetition" for competition among members.

The cost of text messages, commonly priced at 10 cents per message in 2005, rose to 20 cents per message by 2008.

When the 7th Circuit allowed the case to proceed to discovery in 2011, Judge Richard Posner wrote: "Discovery may reveal the smoking gun or bring to light additional circumstantial evidence that further tilts the balance in favor of liability."

On Thursday, however, the 7th Circuit ruled that plaintiffs failed to find a smoking gun.

"Their supposed smoking gun is a pair of emails from an executive of T-Mobile named Adrian Hurditch to another executive of the firm, Lisa Roddy," the 22-page opinion states.

In these emails, Hurditch criticizes T-Mobile's decision to raise text messaging rates and says the price increase is a gouge on consumers. He calls the rate rise "collusive and opportunistic."

But beyond the use of the word "collusive," there is nothing in the emails that implies express collusion between the four major carriers.

"Nothing in any of Hurditch's emails suggests that he believed there was a conspiracy among the carriers," Posner said, again writing for the three-judge panel.

"There isn't even evidence that he had ever communicated on any subject with any employee of any of the other defendants."

Plaintiffs "make much" of the fact that Hurditch later asked Roddy to delete the emails he sent, but "there's nothing unusual about sending an intemperate email, regretting sending it, and asking the recipient to delete it," the judge added.

The plaintiffs' opening and reply briefs name Hurditch more than 160 times, but "it's a mystery to us that the plaintiffs have placed such weight on those emails, thereby wasting space in their briefs that might have been better used," the court said.

Furthermore, the problems with plaintiffs' case go deeper to the legal foundation of antitrust law.

Plaintiffs "have particular difficulty accepting is that the Sherman Act imposes no duty on firms to compete vigorously, or for that matter at all, in price," Posner wrote.

While express collusion is forbidden, tacit collusion does not violate the Sherman Act, and with good reason, Posner suggested.

Otherwise, "Such a requirement would convert antitrust law into a scheme resembling public utility price regulation, now largely abolished," he said.

Competing firms often keep close track of each others' pricing behavior, and "often find it in their self-interest to imitate that behavior rather than try to undermine it - the latter being a risky strategy, prone to invite retaliation," the opinion states.

"We hope this opinion will help lawyers understand the risks of invoking 'collusion' without being precise about what they mean," it concludes. "Collusion is illegal only when based on agreement."

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