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October Term, 2008

February 25, 2008

Today the Supreme Court issued a decision, described below, of interest to the business community.

Pacific Bell Telephone Co. v. linkLine Communications, Inc., No. 07-512 (previously discussed in the June 23, 2008 Docket Report).

AT&T owns much of the infrastructure and facilities needed to provide DSL service in California. As a condition for a recent merger, the Federal Communications Commission requires AT&T to provide wholesale DSL transport service to rival internet service providers (ISPs) at a price no greater than the retail price of AT&T’s DSL service. The Supreme Court granted certiorari in Pacific Bell Telephone Co. v. linkLine Communications, Inc., No. 07-512, to decide whether a "price squeeze" claim may be brought under § 2 of the Sherman Act when the defendant is obligated to sell inputs to its rivals by federal communications law, but not by antitrust law. Today, the Court answered that question in the negative.

The plaintiffs (respondents in the Supreme Court) are ISPs that are both competitors and customers of AT&T; they compete with AT&T in the DSL market in California and lease wholesale DSL transport service from the company. The plaintiffs filed suit under § 2 of the Sherman Act, asserting that AT&T had unlawfully "squeezed" their profit margins by setting a high price for the wholesale DSL transport service and a low price for its own retail DSL service. The plaintiffs argued that AT&T was required, by antitrust law, to leave them a fair or adequate margin between wholesale and retail prices.

In an opinion by Chief Justice Roberts, the Supreme Court held that there can be no claim for “price squeezing” under the Sherman Act against a firm that is under no duty to deal with its rivals at the wholesale level and does not engage in “predatory pricing” at the retail level.  The Court first concluded that the plaintiffs’ challenge to AT&T’s wholesale prices was barred by Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004), which holds that, when the Sherman Act does not require a firm to deal with its competitors at all, the firm has no duty to do so under favorable terms and conditions if it voluntarily chooses to deal with them.  The Court next concluded that the plaintiffs could not challenge AT&T’s retail prices because they did not allege facts necessary to establish a predatory-pricing claim under Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993)—namely, that AT&T’s retail prices were below cost, and that AT&T was unlikely to recoup money lost due to below-cost pricing.  The Court also concluded that institutional concerns counseled against recognizing a “price squeeze” claim when there is no antitrust duty to deal, because bright-line rules are important in antitrust law and there is no clear rule for resolving a claim of this type.

Justice Breyer concurred in the judgment, in an opinion joined by Justices Stevens, Souter, and Ginsburg. He would have resolved the case on the narrower ground that a “price squeeze” claim is unavailable when, as in this case, the defendant is a regulated firm and the regulators control the prices. “When a regulatory structure exists to deter and remedy anti-competitive harm,” the concurrence reasoned, “the costs of antitrust enforcement are likely to be greater than the benefits.” Slip op. 2 (opinion concurring in the judgment).

Mayer Brown's Supreme Court & Appellate practice distributes a Docket Report whenever the Supreme Court grants certiorari in a case of interest to the business community and distributes a Docket Report-Decision Alert whenever the Court decides such a case. We hope you find the Docket Reports and Decision Alerts useful, and welcome feedback on them (which should be addressed to Andrew Tauber, their general editor, at atauber@mayerbrown.com or +1 202 263 3324).


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