Pacific Bell Telephone Co. v. LinkLine Communications

PETITIONER: Pacific Bell Telephone Co.
RESPONDENT: LinkLine Communications
LOCATION: AT&T Services, Inc. (California Office)

DOCKET NO.: 07-512
DECIDED BY: Roberts Court (2006-2009)
LOWER COURT: United States Court of Appeals for the Ninth Circuit

CITATION: 555 US (2009)
GRANTED: Jun 23, 2008
ARGUED: Dec 08, 2008
DECIDED: Feb 25, 2009

ADVOCATES:
Aaron Panner - on behalf of the petitioners
Deanne E. Maynard - Assistant to the Solicitor General, Department of Justice, for the United States, as amicus curiae, supporting the petitioners
Maxwell M. Blecher - argued the cause for the respondents
Richard Brunell - on behalf of the american antitrust institute, as amicus curiae, supporting the respondents

Facts of the case

LinkLine, along with several other internet-service providers (ISPs), sued Pacific Bell, claiming that the company was selling digital subscriber line (DSL) access at "a high wholesale price in relation to the price at which [it was] providing retail services." The ISPs condemned the scheme as price squeezing in violation of Section 2 of the Sherman Act, a piece of U.S. antitrust legislation designed to prevent the formation of monopolies. A price squeeze occurs when a company holding a monopoly on the production of certain goods sets its wholesale prices higher than the retail prices it charges directly to consumers, preventing the wholesale customers from competing with it at the retail level. The district court denied Pacific Bell's motion to dismiss the case for failure to state a valid claim but granted its motion for an interlocutory appeal, allowing the appellate court to determine whether such price squeezing claims are permissible before delivering a final judgment at the trial level.

The U.S. Court of Appeals for the Ninth Circuit determined that the ISPs had stated a legitimate price squeezing claim under Section 2. The Ninth Circuit argued that prior Supreme Court precedent had not eliminated the application of traditional antitrust laws to partially regulated industries. While noting that the wholesale market is governed by a separate document, the 1934 FCC Act, the court stated that the retail market remains unregulated and is therefore subject to the antitrust laws. As far as the retail market was concerned then, the ISPs had stated a valid price squeezing claim under Section 2.

Question

In light of prior Court precedent on the issue, is "price squeezing" still a valid claim under Section 2 of the Sherman Act when brought against a company acting in a partially regulated industry?

Media for Pacific Bell Telephone Co. v. LinkLine Communications

Audio Transcription for Oral Argument - December 08, 2008 in Pacific Bell Telephone Co. v. LinkLine Communications

Audio Transcription for Opinion Announcement - February 25, 2009 in Pacific Bell Telephone Co. v. LinkLine Communications

John G. Roberts, Jr.:

I have our opinion this morning in case 07-512, Pacific Bell Telephone versus Linkline Communications.

This is a case about DSL service.

DSL service is a method of connecting to the internet at high speed over telephone lines.

The defendants are a group of companies that have gone through corporate reorganizations and name changes while the case was pending but we'll call them AT&T.

The Federal Communications Commission requires AT&T to sell wholesale DSL services to independent firms.

The plaintiffs in this case are such independent internet service providers and they compete against AT&T in the retail DSL market in California.

These companies have to release at least telephone lines from AT&T as otherwise they wouldn't be able to provide the service.

Now, those plaintiffs brought suite under Section 2 of the Sherman Act arguing that AT&T had unlawfully squeezed their profit margins by charging them a high price for wholesale DSL service, and at the same time, setting their own prize too low for the retail service.

The plaintiffs argued that this maneuver put them at an unfair disadvantage and allowed AT&T to maintain a monopoly over the DSL market.

AT&T moved to dismiss these price squeezed claims, but the District Court denied their motion and the Court of Appeals affirmed.

We hold that the plaintiff may not bring a prize squeezed claim when the defendant I under no obligation under the antitrust laws to deal with the plaintiff in the first place.

AT&T's obligation to deal rose only because of the FCC regulation.

Now, a price squeeze claim involves a challenge to both the wholesale price and a retial price.

That's where the squeeze comes in.

Our recent decision in the case called Trinko holds that a firm with no deal, no duty to deal under the antitrust laws like AT&T here does not need to deal under the terms and conditions its rivals would prefer, so that takes care of the allegation about the wholesale price.

Now, our decision in the case called Brooke Group takes care of the allegation that AT&T's retail prices were too low.

Low retail prices are almost always a good thing, so this Court has allowed anti-trust claim saying that prices are too low only when those prices are below cost and meet other strict requirements.

The plaintiffs at this stage of the case do not make any allegations of below price, below cost pricing.

Now, when there is no duty to deal a the wholesale level and now below the low cost pricing at the retail level, a firm is not required to price both its wholesale and retail services in a manner that preserves its rival's profit margins.

AT&T's to rights do not make a wrong.

We're also reluctant to recognize these claims because there's no easy way to define a price squeeze.

Both businesses and courts need clear rules to operate effectively, but every price squeeze claim would require a complex economic analysis of pricing practices across multiple markets, and we and other courts are just not that good at that sort of thing.

We're likely to get it wrong a lot and everytime we do, the judiciary would be imposing higher prices on consumers.

We're very reluctant to get into that sort of business in the first place.

The decision of the Court of Appeals is reversed and the case is remanded for further proceedings consistent with this opinion.

Justice Breyer has filed an opinion concurring in the judgment which Justices Stevens, Souter and Ginsburg have joined.