Into the Frying Pan: Standing and Privity under the Telecommunications Act of 1996 and Beyond

Abstract

Any legal system must make a trade-off between two components of optimal law enforcement. The first requires all persons injured by some wrongful conduct to recover full damages in order to create optimal incentives for primary conduct. The second requires some limit on the number of potential of wrongful suits arising out of wrongful conduct, in order to contain the administrative and error costs of legal enforcement. In most practical settings, the second of these concerns has proved more important than the former, which has led to the creation of a practical standing doctrine recognized in the Supreme Court's decisions in Illinois Brick (1977) and Holmes (1992). One component of standing is the so-called privity limitation, which limits suits to parties who are immediate purchasers from the wrongdoer. The privity limitation has applied to common law actions, and to statutory causes of action under both the general antitrust law and direct schemes of regulation. This paper explores the evolution and justifications for the privity doctrine, and then argues that the recent suits, such as Goldwasser (2000) and Trinko (2002) that have allowed indirect purchasers of telecommunications services to have standing against Local Exchange Carriers under the Sherman Act misread the relevant legal authority, and overlooks the important practical function of both standing and privity limitations.