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Smoking Gun in Text Message Antitrust Suit Not Smoking Enough

By Mark Wilson, Esq. | Last updated on

Remember the days before unlimited text messaging plans? Text messages seemed to cost an obscene amount of money. If you actually calculated the data cost, at 20 cents per text, it averaged out to over $1,300 per megabyte.

The current litigation in the Seventh Circuit is now over four years old. It's a class action brought by text messaging customers claiming wireless providers conspired to drive up text message prices in violation of the Sherman Antitrust Act. After all that time, a district court granted summary judgment for the wireless carriers and dismissed the case. Last week, in an opinion by Judge Richard Posner, the Seventh Circuit affirmed.

The Hurdles Get Higher

Back in the day (which is to say, 2011), there were a small number of firms in the text messaging market, rising prices in the face of falling costs, and uniformity of price increases. All those factors led the Seventh Circuit to at least allow the case past the pleading stage back then. The plaintiffs at least got over the Twombly "plausibility" hurdle.

All those things were presumed to be true for the purpose of dismissal at the pleading stage. In order to actually win, plaintiffs had to "find evidence that the defendants had colluded expressly -- that is, had explicitly agreed to raise prices -- rather than tacitly ('follow the leader' or 'consciously parallel' pricing)."

The plaintiffs seized on emails from one T-Mobile executive to another, in which one says to the other, "Gotta tell you but my gut says raising messaging pricing again is nothing more than a price gouge on consumers," and goes on to say there's no way he can justify the price increase, other than that's what "the other guys are doing." In a second email, the executive affirms that there's been no cost increases.

That Gun Isn't Even Smoking

But that's about it. Far from demonstrating a conspiracy to increase prices, Posner said, the emails only show that the executive disagreed with the company's policy. The plaintiffs tried to draw an adverse inference from the fact that the executive asked for several of the emails in that chain to be destroyed, but, said Posner, "that is consistent with his not wanting to be detected by his superiors criticizing their management of the company."

Posner declined to make the inference plaintiffs were suggesting; namely, that when businesses in an industry don't "compete vigorously," that should raise the flag of collusion. For Posner, this created a catch-22: In a market that mathematically favors "convergence by the sellers on a joint profit-maximizing price," how are businesses supposed to craft prices? The law doesn't outlaw oligopolistic markets -- it only outlaws explicit collusion, which requires more than a showing that companies are watching each other, eying their competitors' price increases.

"We hope this opinion will help lawyers understand the risks of invoking 'collusion' without being precise about what they mean," Posner concluded. "Tacit collusion, also known as conscious parallelism, does not violate section 1 of the Sherman Act. Collusion is illegal only when based on agreement."

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