American Antitrust Institute Says Supreme Court’s linkLine Decision is a Gift to Monopolists
DEATH OF THE “PRICE SQUEEZE” OFFENSE
American Antitrust Institute Says Supreme Court’s linkLine Decision
is a Gift to Monopolists
The Supreme Court continued its assault on antitrust by eliminating the venerable “price squeeze” doctrine as an independent basis for liability under the anti-monopolization law. In a decision released on Wednesday in Pacific Bell Tel. Co. v. linkLine Communications, the Court ruled in favor of the defendant for the tenth straight time in a private antitrust case in the last five years.
“The Supreme Court’s decision is a gift to monopolists and their recently-departed laissez-faire cheerleaders in the Bush Administration,” said AAI President Bert Foer. “This decision will harm consumers by giving monopolists a green light to eliminate competitors who depend on the dominant company for critical inputs, especially in markets where there is no possibility of regulatory relief.”
The case involved a suit by linkLine and other independent DSL internet service providers (ISPs), against Pacific Bell, which sold at wholesale a critical input needed by the ISPs to offer their services. Pacific Bell also competed against the plaintiffs in the retail DSL internet service market. The complaint alleged that Pacific Bell engaged in an unlawful price squeeze by charging a wholesale price for the input in excess of Pacific Bell’s own retail price for the purpose of excluding the independent ISPs and extending Pacific Bell’s wholesale monopoly to the retail level. Such a price squeeze by a vertically integrated monopolist has been unlawful in the lower courts since the famous Alcoa decision in 1945.
The Department of Justice (DOJ), over the objections of the Federal Trade Commission, asked the Supreme Court to overturn 63 years of precedent and reject a price squeeze as independent basis for liability. The AAI filed an amicus brief in opposition to DOJ’s views, and AAI Director of Legal Advocacy Richard Brunell was granted leave to participate in the oral argument. Despite the fact that plaintiffs had abandoned their price squeeze theory after certiorari was granted, and the complaint at issue was moot for other reasons, the Court nonetheless reached out to decide the question of the viability of an independent price squeeze theory.
A majority of five Justices largely accepted the DOJ’s position, reasoning that a price squeeze should not be an independent antitrust violation in significant part because otherwise monopolists “that seek to avoid price-squeeze liability will have no safe harbor for their pricing practices.” The Court rejected an “equally efficient competitor” test proposed by the AAI that would have provided a relatively clear rule and aligned U.S. law with the law of the European Union, which recognizes price squeeze claims.
The Court also brushed aside concerns about the anticompetitive effects of a price squeeze by asserting that any such harm could be remedied under the antitrust “refusal to deal” or “predatory pricing” doctrines. However, these doctrines have also been substantially narrowed by the Court in recent years, and they fail to capture circumstances when a monopolist’s wholesale price is not high enough to constitute a refusal to deal and its retail price is not low enough to constitute predatory pricing, but the combination of the two prices harms competition as much as either a refusal to deal or predatory pricing.
Further, as Justice Breyer suggested in his concurring opinion for four Justices, when there has been no refusal to deal in a price squeeze situation, it makes little sense to ask whether a hypothetical refusal to deal would be illegal; liability should turn on actual facts, not hypotheticals. The four concurring Justices would have retained a price squeeze as an independent theory of liability, at least where adequate regulatory remedies are not available.
“Make no mistake, this decision hands vertically integrated monopolists such as local telephone companies a potent new tool which will be utilized to cause the exit of many businesses, some quite large, unless federal regulatory agencies suddenly become much more favorably disposed to regulating against price squeezes,” said Foer. “The Court repeated its mantra that monopoly pricing is an important element of the free-market system; and, it added a new bromide to the brew, stating that it is a ‘rare instance in which a dominant firm may incur liability for purely unilateral conduct.’”
“This decision highlights the need for Congress to resuscitate the antitrust laws, which have been left for dead in the Supreme Court,” Foer added. “Otherwise, the new administration’s plans to reinvigorate antitrust enforcement may well be stymied by a hostile Supreme Court.”
The AAI’s amicus brief in the linkLine case may be found here.