Second Circuit Dismisses $500M Telecom Antitrust Suit

The U.S. Court of Appeals for the Second Circuit upheld a district court’s decision to dismiss Site-Sites.com, Inc.’s $500 million antitrust suit against Verizon Communications and several other telecommunications companies for lack of standing.  Siti-Sites.Com, Inc., v. Verizon Communications, Inc. et al., Case No. 11-65 (2d Cir., July 5, 2011) (summary order).

Siti-Sites (Siti) alleged that Allied Security Trust, a patent holding company with members including Verizon Communications and Cisco Systems, conspired with the co-defendants to prevent non-practicing entities (NPE) from licensing or selling certain patents for 3G and 4G wireless products in which Siti had a financial interest.  Pursuant to a 2006 settlement agreement with MLR, LLC, Siti was entitled to up to 40 percent of MLR’s gross proceeds on the patents at issue.  In its complaint, Siti stated that the defendants’ alleged antitrust violations resulted in an 84 percent decrease in licensing frequency and its cash flow between March 2007 and March 2010.

In their motion to dismiss, the defendants argued that Siti lacked antitrust standing because “any alleged injury to Siti—that is, its alleged reduction in revenues—is indirect, and results only from a supposed downturn in MLR’s business.”  The defendants also moved to dismiss on the grounds that Siti failed to allege any antitrust violation.  The district court granted the defendants’ motion to dismiss on standing alone.  Siti appealed.

The 2d Circuit agreed that Siti lacked standing to sue for alleged antitrust violations regarding the MLR patents.  The court concluded that Siti owned only the “contractual right to a percentage of MLR’s gross proceeds,” and therefore “any alleged antitrust injury Siti suffered [was] derivative” of an injury to MLR.  Consequently, the court affirmed the district court’s dismissal of Siti’s complaint.

Practice Note:  While the antitrust laws are a powerful tool for plaintiffs seeking to remedy competitive harm, the courts require such plaintiffs to meet the stringent requirements for antitrust standing. Plaintiffs who are too remote from the alleged anticompetitive conduct will face an uphill battle to proceed with their antitrust claims.