Pacific Bell Telephone Co. v. Linkline Communications, Inc.

2009-02-25

Headline: The Court bars price-squeeze antitrust claims against vertically integrated firms with no duty to deal, limiting independent Internet providers’ ability to sue over high wholesale and low retail DSL pricing.

Holding: The Court held that a company with no antitrust duty to deal cannot be sued under the Sherman Act for a price squeeze based only on its wholesale and retail prices.

Real World Impact:

Bars price-squeeze suits when the supplier owes no antitrust duty to deal.
Preserves ability to challenge refusals to deal and true predatory pricing.
Directs district courts to reassess amended predatory claims under Twombly.

Topics: antitrust law, price squeeze, internet service competition, telecom regulation

Summary

Background

AT&T owns much of the telephone lines and the “last mile” used to provide DSL internet, and four independent Internet service providers leased wholesale DSL transport from AT&T under an FCC merger condition. The independents sued, saying AT&T set a high wholesale price for transport while keeping its own retail DSL price low, which squeezed the rivals’ profits and violated the Sherman Act. The lower courts differed: the District Court allowed price-squeeze claims to proceed, and the Ninth Circuit affirmed, prompting review by the Supreme Court to resolve the conflict.

Reasoning

The key question was whether a price-squeeze claim can proceed when the defendant has no antitrust duty to deal. The Court applied Verizon v. Trinko to bar wholesale-price challenges where no duty to deal exists and applied Brooke Group to require predatory-pricing proof for claims about low retail prices. Because the complaint alleged neither a duty-to-deal violation nor below-cost predatory pricing and the plaintiffs had not met Brooke Group’s recoupment test, the Court held price-squeeze claims were not cognizable under the Sherman Act.

Real world impact

The decision limits independent ISPs’ ability to sue vertically integrated suppliers for price squeezes when there is no antitrust duty to deal. It leaves intact the ability to challenge unlawful refusals to deal or true predatory pricing, and directs the District Court on remand to consider amended predatory-pricing claims under the Twombly pleading standard. The ruling also resolves a split among appeals courts about the viability of price-squeeze suits.

Dissents or concurrances

Justice Breyer, joined by three Justices, concurred in the judgment but urged remand to let the district court consider predatory-pricing claims, stressing the role of regulation and cautioning against broad new antitrust theories.