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In re Text Messaging Antitrust Litigation

United States Court of Appeals, Seventh Circuit

April 9, 2015

IN RE: TEXT MESSAGING ANTITRUST LITIGATION; AIRCRAFT CHECK SERVICES CO., et al., individually and on behalf of all others similarly situated, Plaintiffs-Appellants,
v.
VERIZON WIRELESS, et al., Defendants-Appellees

Argued: February 10, 2015.

Page 868

Appeal from the United States District Court for the Northern District of Illinois, Eastern Division. No. 08 C 7082--Matthew F. Kennelly, Judge.

For Aircraft Check Services Company, Nicholas Iltsopoulos, David Keefer, Jim Morris, Premiere Investment Consulting, Melissa L. Randolph, Plaintiffs - Appellants: Patrick J. Coughlin, Attorney, Coughlin Stoia Geller Rudman & Robbins Llp, San Diego, CA.

For Verizon Wireless, Defendant - Appellee: Aaron Martin Panner, Attorney, Kellogg, Huber, Hansen, Todd, Evans & Figel, P.L.L.C., Washington, DC.

For T-Mobile USA, Inc., Defendant - Appellee: Micah Block, Attorney, Christopher Hockett, Attorney, Sandra West Neukom, Attorney, Davis, Polk & Wardwell Llp, Menlo Park, CA; Charles H.R. Peters, Attorney, Schiff Hardin Llp, Chicago, IL.

For At& T Mobility, LLC, Defendant - Appellee: Brian A. McAleenan, Attorney, John W. Treece, Attorney, David W. Carpenter, Attorney, Linton J. Childs, Attorney, Sidley Austin Llp, Chicago, IL.

For Ctia - The Wireless Association, Defendant - Appellee: Ruth A. Bahe-Jachna, Attorney, Greenberg Traurig, Llp, Chicago, IL.

For Sprint Communications, Inc., formerly known as: SPRINT NEXTEL CORPORATION Williams & Connolly Llp, Defendant - Appellee: Dane H. Butswinkas, Attorney, Washington, DC; Frederic R. Klein, Attorney, Goldberg Kohn Ltd., Chicago, IL; John E. Schmidtlein, Attorney, Williams & Connolly Llp, Washington, DC.

Before WOOD, Chief Judge, and POSNER and TINDER, Circuit Judges.

OPINION

Page 869

Posner, Circuit Judge.

This class action antitrust suit is before us for the second time. More than four years ago we granted the defendants' petition to take an interlocutory appeal (see 28 U.S.C. § 1292(b)) from the district judge's refusal to dismiss the complaint for failure to state a claim. But we upheld the judge's ruling. In re Text Messaging Antitrust Litigation, 630 F.3d 622 (7th Cir. 2010). Three years of discovery ensued, culminating in the district judge's grant of the defendants' motion for summary judgment, followed by entry of final judgment dismissing the suit, precipitating this appeal by the plaintiffs.

The suit is on behalf of customers of text messaging--the sending of brief electronic messages between two or more mobile phones or other devices, over telephone systems (usually wireless systems), mobile communications systems, or the Internet. (The most common method of text messaging today is to type the message into a cellphone, which transmits it instantaneously over a telephone or other communications network to a similar device.) Text messaging is thus an alternative both to email and to telephone calls. The principal

Page 870

defendants are four wireless network providers--AT& T, Verizon, Sprint, and T-Mobile--and a trade association, The Wireless Association, to which those companies belong. The suit claims that the defendants, in violation of section 1 of the Sherman Act, 15 U.S.C. § § 1 et seq., conspired with each other to increase one kind of price for text messaging service--price per use (PPU), each " use" being a message, separately priced. This was the original method of pricing text messaging; we'll see that it has largely given way to other methods, but it still has some customers and they are the plaintiffs and the members of the plaintiff class.

The defendants' unsuccessful motion to dismiss the complaint--the motion the denial of which we reviewed and upheld in the first appeal--invoked Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 127 S.Ct. 1955, 167 L.Ed.2d 929 (2007), which requires a complaint to pass a test of " plausibility" in order to avoid dismissal. The reason for this requirement is to spare defendants the burden of a costly defense against charges likely to prove in the end to have no merit. We decided that the plaintiffs' second amended complaint passed the test; we noted that the complaint

alleges a mixture of parallel behaviors, details of industry structure, and industry practices, that facilitate collusion. There is nothing incongruous about such a mixture. If parties agree to fix prices, one expects that as a result they will not compete in price--that's the purpose of price fixing. Parallel behavior of a sort anomalous in a competitive market is thus a symptom of price fixing, though standing alone it is not proof of it; and an industry structure that facilitates collusion constitutes supporting evidence of collusion. ... [T]he complaint in this case alleges that the four defendants sell 90 percent of U.S. text messaging services, and it would not be difficult for such a small group to agree on prices and to be able to detect " cheating" (underselling the agreed price by a member of the group) without having to create elaborate mechanisms, such as an exclusive sales agency, that could not escape discovery by the antitrust authorities.
Of note is the allegation in the complaint that the defendants belonged to a trade association and exchanged price information directly at association meetings. This allegation identifies a practice, not illegal in itself, that facilitates price fixing that would be difficult for the authorities to detect. The complaint further alleges that the defendants, along with two other large sellers of text messaging services, constituted and met with each other in an elite " leadership council" within the association--and the leadership council's stated mission was to urge its members to substitute " co-opetition" for competition.
The complaint also alleges that in the face of steeply falling costs, the defendants increased their prices. This is anomalous behavior because falling costs increase a seller's profit margin at the existing price, motivating him, in the absence of agreement, to reduce his price slightly in order to take business from his competitors, and certainly not to increase his price. And there is more: there is an allegation that all at once the defendants changed their pricing structures, which were heterogeneous and complex, to a uniform pricing structure, and then simultaneously jacked up their prices by a third. The change in the industry's pricing structure was so rapid, the ...

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