Cell Providers Fail to Dismiss Antitrust Case

(CN) - A class action that accuses Verizon, T-Mobile, AT&T and Sprint of conspiring to fix text message prices will proceed to discovery after the 7th Circuit ruled that the amended complaint stated a legally sufficient claim.

The 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.

"This is anomalous behavior because falling costs increase a seller's profit margin at the existing price, motivating him, in absence of agreement, to reduce his price slightly in order to take business from his competitors," Judge Richard Posner wrote for a panel of three 7th Circuit judges.

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

The defendants have adopted a uniform pricing structure which "the complaint suggests ... could not have been accomplished without agreement on the details of the new structure, the timing of its adoption and the specific uniform price increase that would ensue on its adoption."

An Illinois federal judge had dismissed the class's first complaint and approved a second amended complaint for discovery proceedings, but the wireless providers moved for an interlocutory appeal, arguing that the amended complaint should also be dismissed for not presenting a plausible claim.

The appeals court upheld the district court's decision, finding the complaint sufficiently plausible even without direct evidence.

"Discovery may reveal the smoking gun or bring to light additional circumstantial evidence that further tilts the balance in favor of liability," Posner wrote. "All that we conclude at this early stage in the litigation is that the district judge was right to rule that the second amended complaint provides a sufficiently plausible case of price fixing to warrant allowing the plaintiffs to proceed to discovery."

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