Author: Steven J. Cernak
On October 6, 2020, the Antitrust Subcommittee of the U.S. House Judiciary Committee issued its long-anticipated Majority Report of its Investigation of Competition in Digital Markets. As expected, the Report detailed its findings from its investigation of Google, Apple, Facebook, and Amazon along with recommendations for actions for Congress to consider regarding those firms.
In addition, the Report included recommendations for some general legislative changes to the antitrust laws. Included in those recommendations were proposals for Congress to overrule several classic antitrust opinions. Because this blog has summarized several classic antitrust cases over the years (see here and here, for example), we thought we would summarize some of the opinions that now might be on the chopping block. This post concerns two classic Supreme Court opinions on refusal to deal or essential facility monopolization claims, Trinko and linkLine.
House Report on Refusal to Deal and Essential Facilities
The Report’s recommendations for general changes in the antitrust laws included several aimed at increasing enforcement of Sherman Act Section 2’s prohibition of monopolization. In particular, the Report recommended that:
Congress consider revitalizing the “essential facilities” doctrine, or the legal requirement that dominant firms provide access to their infrastructural services or facilities on a nondiscriminatory basis. To clarify the law, Congress should consider overriding judicial decisions that have treated unfavorably essential facilities- and refusal to deal-based theories of harm. (Report, pp. 396-7)
The two judicial opinions listed were Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004) and Pacific Bell Telephone Co. v. linkLine Communications, Inc., 555 U.S. 438 (2009).
Justice Scalia wrote the Court’s opinion dismissing the plaintiff’s refusal to deal claim. There were no dissents although Justice Stevens, joined by Justices Souter and Thomas, wrote separately to concur in the result but would have dismissed based on lack of standing.
Since the Supreme Court’s 1919 U.S. v. Colgate (250 U.S. 300) decision, courts have found that “in the absence of any purpose to create or maintain a monopoly,” the antitrust laws allow any actor, including a monopolist, “freely to exercise his own independent discretion as to parties with whom he will deal.” Trinko narrowly interpreted the Court’s earlier exceptions to the rule that even a monopolist can choose its own trading partners.
The defendant was the incumbent local exchange carrier in certain geographic areas and, like all such carriers after the Telecommunications Act of 1996, had a statutory duty to deal with its competitors in the phone market. Defendants was accused of providing those services only slowly. Plaintiff was a customer of one of those competitors and claimed that this delay was a refusal to deal that violated Sherman Act Section 2.
The Court focused on two factual differences to distinguish the defendant’s actions here from those of defendants in two earlier refusal to deal cases in which the Court found a “purpose to create or maintain a monopoly.” First, defendant had never dealt in this way with its rivals and showed no desire to do so until forced by the statute. This fact distinguished defendant’s actions from those of the defendant in Aspen Skiing Co. v. Aspen Highlands Skiing Corp. (472 U.S. 585), a 1985 case in which the Court, through an opinion by Justice Stevens, found liability because the defendant terminated a voluntary, and presumably profitable, course of dealing with a competitor. Here, the Court described Aspen Skiing as “at or near the outer boundary of Section 2 liability.”
Second, the defendant here was not refusing to sell to its rival some product or service that it sold to others. This fact distinguished defendant’s actions from Otter Tail Power Co. v. U.S. (410 U.S. 366, 1973) in which the Court found liability because the defendant sold electricity to buyers in areas where defendant had never done business but refused to sell to otherwise similar buyers who were competitors. After Trinko, courts have been skeptical of most, but not all, refusal to deal monopolization claims.
The Trinko Court distinguished this refusal to deal analysis from the “essential facilities doctrine,” a similar theory that lower courts have sometimes applied to non-monopolists to compel sharing of “essential” facilities. The Court noted that it had neither recognized nor repudiated that doctrine and found it unnecessary to do either here. It did note that if it did recognize the theory, it would seem to be unavailable here because a regulatory agency already had the power to compel access to any facility deemed essential.
Finally, on a different topic, the Trinko Court noted that the possession of monopoly power alone is insufficient for Section 2 liability in the absence of anticompetitive conduct. The Court explained that “the charging of monopoly prices is not only not unlawful; it is an important part of the free-market system …[and] induces risk-taking that produces innovation and economic growth.” While this assertion was not specifically mentioned as one ripe for overturning by the Report, such a claim of illegally high prices under Section 2 might be possible if, as the Report recommends, Section 2 liability is changed to cover “abuses of dominance.” (Report p. 395)
Chief Justice Roberts wrote the Court’s opinion dismissing the price-squeeze claim. There were no dissents although Justice Breyer, joined by Justices Stevens, Souter, and Ginsburg, concurred in reversing the lower court’s decision but would have remanded to the lower courts for further development of the plaintiff’s predatory-pricing claim.
A price squeeze claim arises where the defendant sells a product or service—such as DSL service here—at “too high” a price at the wholesale level and “too low” a price at the retail level. The result is that any competitor is “squeezed” in the middle and unable to compete. In linkLine, the Court refused to view price squeezes as unitary claims but instead reviewed both the wholesale and retail components.
The Court applied Trinko to find the wholesale pricing component lawful: Because there was no separate antitrust duty of the defendants to deal with its rivals at all, there was no duty for it to deal with them at a particular price. As for the retail level, the Court applied Brooke Group Ltd. v. Brown & Williamson Tobacco Co. (509 U.S. 209, 1993) and found that the plaintiff could not meet its stringent two-part test of below-cost pricing and possible recoupment. In sum, the Court found “[t]wo wrong claims do not make one that is right” and rejected the price-squeeze claim.
This blog has covered Brooke Group, and subsequent cases applying it, previously, including here. As we explained, that case has made successful predatory pricing claims extremely difficult for plaintiffs. The Report recommends overturning Brooke Group and similar cases to ease the burden on plaintiffs in predatory pricing cases, a subject for a subsequent blog post. (Report p. 396)
Overturning Trinko and linkLine certainly would make it easier for plaintiffs to successfully allege refusal to deal claims against a firm found to be a monopolist. What the new standard would be and how it might affect the competitive incentives of a firm alleged to be a monopolist are far from certain.