Pacific Bell Telephone Co. v. Linkline Communications, Inc.
555 U.S. 438, 172 L. Ed. 2d 836, 2009 U.S. LEXIS 1635 (2009)
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Rule of Law:
A price-squeeze claim is not cognizable under §2 of the Sherman Act when the defendant has no antitrust duty to deal with the plaintiff at the wholesale level. If a defendant's conduct is not independently anticompetitive at either the wholesale level (under refusal-to-deal standards) or the retail level (under predatory pricing standards), combining these two lawful actions does not create a new, actionable antitrust violation.
Facts:
- AT&T, a vertically integrated telecommunications company, owns the infrastructure, including the 'last mile' of telephone lines, necessary to provide Digital Subscriber Line (DSL) internet service.
- Plaintiffs are independent Internet Service Providers (ISPs) who compete with AT&T in the retail market for DSL service.
- To offer their services, the plaintiff ISPs must lease wholesale 'DSL transport' service from AT&T.
- AT&T participates in both the wholesale market (selling DSL transport to plaintiffs) and the retail market (selling DSL service directly to consumers).
- Plaintiffs alleged that AT&T set a high price for its wholesale DSL transport service, which increased the ISPs' costs.
- Simultaneously, plaintiffs alleged that AT&T set a low price for its own retail DSL service, forcing the ISPs to lower their prices to compete.
- This combination of high wholesale costs and low retail prices allegedly 'squeezed' the profit margins of the independent ISPs, impeding their ability to compete with AT&T.
Procedural Posture:
- Plaintiffs (independent ISPs) sued AT&T in the U.S. District Court, alleging a 'price squeeze' in violation of §2 of the Sherman Act.
- AT&T filed a motion for judgment on the pleadings, arguing the claim was barred by the Supreme Court's decision in Trinko.
- The District Court denied AT&T's motion with respect to the price-squeeze claims.
- After plaintiffs filed an amended complaint, AT&T again moved to dismiss, which the District Court also denied.
- The District Court certified its initial order denying judgment on the pleadings for interlocutory appeal.
- On appeal, the U.S. Court of Appeals for the Ninth Circuit affirmed the District Court's decision, holding that price-squeeze claims remained a viable theory of antitrust liability separate from the claims addressed in Trinko.
- The U.S. Supreme Court granted certiorari to resolve a circuit split on the issue.
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Issue:
Does a 'price squeeze' claim under §2 of the Sherman Act, which alleges a vertically integrated monopolist has set its wholesale input prices too high and its retail prices too low, state a valid claim for relief when the monopolist has no antitrust duty to deal with the plaintiff at the wholesale level?
Opinions:
Majority - Chief Justice Roberts
No. A price-squeeze claim under §2 of the Sherman Act is not cognizable when the defendant has no underlying antitrust duty to deal with the plaintiff at the wholesale level. Such a claim is an amalgamation of two components: a high wholesale price and a low retail price. Under Verizon Communications Inc. v. Trinko, a firm with no antitrust duty to deal is not obligated to deal on terms its rivals find favorable, which forecloses any challenge to the high wholesale price. Under Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., a low retail price is not anticompetitive unless it is predatory, meaning below cost with a dangerous probability of recoupment, which was not alleged here. Combining a meritless wholesale claim and a meritless retail claim does not create a valid antitrust cause of action, as 'two wrong claims do not make one that is right.' Recognizing such claims would also enmesh courts in complex price regulation without clear, administrable rules, chilling legitimate, pro-competitive price cutting.
Concurring - Justice Breyer
Concurs in the judgment. The concurrence agrees that the plaintiffs' claim should be rejected but argues the majority's reasoning is overly broad in foreclosing all price-squeeze claims. In this specific case, the claim fails because AT&T was a regulated entity, and its wholesale rates were subject to regulatory oversight. When a regulatory structure exists to remedy anticompetitive harm, the costs of antitrust enforcement are likely greater than the benefits, especially since the plaintiffs could have sought relief from the regulators. The proper course is to vacate the lower court's decision and remand to allow the plaintiffs to attempt to state a valid predatory pricing claim under Brooke Group, rather than creating a broad rule against all price-squeeze claims in all contexts.
Analysis:
This decision effectively eliminates the standalone 'price squeeze' theory of liability under §2 of the Sherman Act, at least where no independent antitrust duty to deal exists. It reinforces the Supreme Court's preference for clear, conduct-based rules in antitrust law to avoid chilling pro-competitive behavior like price cutting. By breaking the 'squeeze' into its constituent parts—the wholesale price and the retail price—the Court forces plaintiffs to meet the high standards of established doctrines like unlawful refusal-to-deal (Aspen Skiing) or predatory pricing (Brooke Group). This makes it significantly more difficult for downstream competitors to challenge the pricing structures of vertically integrated monopolists.
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