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Anti-trust DSL provider claim from ISLs against AT&T for price-squeezing Cases of Interest >  IP >  Patent

AT&T v linkLine

AT&T v linkLineAT&T v linkLine
Pac. Bell Tel. Co., dba AT&T California, et al. v. linkLine Communs., Inc., et al., 172 L. Ed. 2d 836; 2009 U.S. LEXIS 1635
http://www.supremecourtus.gov/opinions/08pdf/07-512.pdf decided February 25, 2009.

Question Presented:
Whether Plaintiff’s original text complaint creates a cause of action under section 2 of the Sherman Act. (emphasis added).

Facts:
Plaintiffs are four Internet service providers (ISPs) that compete with Pacific Bell (dba “AT&T”) in the retail DSL market. The Federal Communication Commission (FCC) requires AT&T to provide independent ISPs wholesale DSL transport service at the same or lower price than AT&T charges the retail price for its own DSL service. AT&T participates in both the retail and wholesale DSL market. Plaintiffs contend that AT&T violated section 2 of the Sherman Act by price fixing a high wholesale price to the ISPs and a low retail price to its customers, allowing AT&T to preserve and maintain its monopoly on the DSL market.

Procedural Posture:
This is somewhat complex here, as the US Supreme Court granted reviewed of the 9th Circuit’s judgment from an interlocutory appeal requested by the California District Court and the amended complaint did not supersede the original complaint upon review, as it normally would absent the specific sequence in this case.

The District Court denied AT&T’s motion to dismiss, although acknowledging AT&T had no anti-trust duty to deal with the Plaintiffs (via Trinko, infra). Plaintiffs amended their complaint, at the District Court’s request, providing greater detail of the price fixing scheme (“asking for a mulligan to try again under a different theory”). AT&T then moved to dismiss “arguing that price-squeeze claims could only proceed if they met the two established requirements for predatory pricing: below-cost retail pricing and a "'dangerous probability'" that the defendant will recoup any lost profits.” See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222-224 (1993). The first part of the Brooke Group requirement is unsatisfied here.

The District Court did not reach the issue whether all price- squeeze claims must meet the Brooke Group requirements, because it concluded that the amended complaint, "generously construed," satisfied those criteria. The court also certified its earlier order for interlocutory appeal on the question whether "Trinko bars price squeeze claims where the parties are compelled to deal under the federal communications laws."

On interlocutory appeal, the Court of Appeals for the Ninth Circuit affirmed the District Court's denial of AT&T's motion for judgment on the pleadings on the price-squeeze claims. The court emphasized that “Trinko did not involve a price squeezing theory.” Because "a price squeeze theory formed part of the fabric of traditional antitrust law prior to Trinko," the Court of Appeals concluded that "those claims should remain viable notwithstanding either the telecommunications statutes or Trinko." Based on the record before it, the court held that plaintiffs' original complaint stated a potentially valid claim under § 2 of the Sherman Act.

Pac. Bell Tel. Co., supra (citations omitted). The Supreme Court granted certiorari only in regard to the original complaint’s price fixing applicability under section 2 of the Sherman Act.

Holding:
The case is not moot. The plaintiffs now agree that their claims must meet the Brooke Group test for predatory pricing, apparently apart from their price-squeeze theory. That test established two requirements for predatory pricing: below-cost retail pricing and a "'dangerous probability'" that the defendant will recoup any lost profits, see Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222-224 (1993). Despite the plaintiffs' new position, the parties continue to seek different relief: AT&T seeks reversal of the decision below and dismissal of the complaint, while the plaintiffs seek leave to amend their complaint to allege a Brooke Group claim. It is also not clear that the plaintiffs have unequivocally abandoned their price-squeeze claims. Prudential concerns favor answering the question presented; absent a decision on the merits, the Circuit conflict that the Supreme Court granted certiorari to resolve would persist.

Pac. Bell Tel. Co. v. linkLine Communs., Inc., 172 L. Ed. 2d 836 (U.S. 2009). The Supreme Court held that section 2 of the Sherman Act is inapplicable to the price squeezing claims in the original complaint “when the defendant has no antitrust duty to deal with the plaintiff at wholesale” (under the “no set of facts doctrine” articulated in Bell Atlantic v. Twombly, 550 US 544, 561-563 (2007)). (emphasis added). Reversed and remanded for the District Court to apply (or not) the amended complaint and other discretionary functions.

Important Dicta:
“Trinko thus makes clear that if a firm has no antitrust duty to deal with its competitors at wholesale, it certainly has no duty to deal under terms and conditions that the rivals find commercially advantageous.”

“In this case, as in Trinko, the defendant has no antitrust duty to deal with its rivals at wholesale; any such duty arises only from FCC regulations, not from the Sherman Act.”

“The nub of the complaint in both Trinko and this case is identical — the plaintiffs alleged that the defendants (upstream monopolists) abused their power in the wholesale market to prevent rival firms from competing effectively in the retail market. Trinko holds that such claims are not cognizable under the Sherman Act in the absence of an antitrust duty to deal.”

“If AT&T had simply stopped providing DSL transport service to the plaintiffs, it would not have run afoul of the Sherman Act. Under these circumstances, AT&T was not required to offer this service at the wholesale prices the plaintiffs would have preferred.”

“Plaintiffs' price-squeeze claim, looking to the relation between retail and wholesale prices, is thus nothing more than an amalgamation of a meritless claim at the retail level and a meritless claim at the wholesale level. If there is no duty to deal at the wholesale level and no predatory pricing at the retail level, then a firm is certainly not required to price both of these services in a manner that preserves its rivals' profit margins.”

“Recognizing price-squeeze claims would require courts simultaneously to police both the wholesale and retail prices to ensure that rival firms are not being squeezed. And courts would be aiming at a moving target, since it is the interaction between these two prices that may result in a squeeze.” (emphasis in original)

“Perhaps most troubling, firms that seek to avoid price-squeeze liability will have no safe harbor for their pricing practices.”

“The problem, however, is that the Plaintiffs have not identified any independent competitive harm caused by price squeezes above and beyond the harm that would result from a duty-to-deal violation at the wholesale level or predatory pricing at the retail level.”

“In this case, plaintiffs have not stated a duty-to-deal claim under Trinko and have not stated a predatory pricing claim under Brooke Group. They have nonetheless tried to join a wholesale claim that cannot succeed with a retail claim that cannot succeed, and alchemize them into a new form of antitrust liability never before recognized by this Court. We decline the invitation to recognize such claims. Two wrong claims do not make one that is right.”

Likely future importance or unanswered question:
The District Court will decide whether the amended complaint should not be dismissed under the heightened pleading standards of Twombly, whether to allow another amended complaint, or other matters that may not be sufficient to satisfy Brooke Group price fixing criteria.
The critical unanswered question is whether a price-squeezing claim is cognizable under section 2 of the Sherman Act under both wholesale and retail predatory pricing.

Critical analysis:
The concurring opinion of the liberal side of the Supreme Court is slightly more sympathetic to the ISLs, but suggests linkLine et al. could have gone to the FCC and requested more competitive pricing at the wholesale level. The District Court will determine whether anything in the procedural history bars the predatory pricing claim (which will be unlikely since the District Court suggested the amended version), and then decide whether, if allowed, the claim has merit. This case seems to be the result of FCC regulations that were deficient as to the specifics of this case, allowing AT&T to profit and enlarge its market share. Whether the Sherman Act exemptions apply under the Brooke Group prima facie case (if successfully plead under Twombly standards) creates a bit of conflict between the FCC regulations and the Sherman Act.
The majority opinion recognizes the impracticality AT&T is presented with by adhering to FCC regulations, maximizing profit and market share, and no guidance or safe harbor on how to price to similarly situated Plaintiffs. It seems that Plaintiffs’ amended complaint is unlikely to change the outcome.

Attached files

ID Name Comment Uploaded Size Downloads
99 Pacific Bell v linkLine Communications.docx AT&T v linkLine joefunk Tue 10 of Mar, 2009 04:40 GMT 18.22 Kb 607
98 Pacific Bell v linkLine Communications.docx joefunk Tue 10 of Mar, 2009 04:39 GMT 18.22 Kb 609
97 Pacific Bell v linkLine Communications.docx AT&T v linkLine joefunk Tue 10 of Mar, 2009 04:15 GMT 18.17 Kb 524
96 Pacific Bell v linkLine Communications.docx AT&T v linkLine joefunk Tue 10 of Mar, 2009 03:59 GMT 18.11 Kb 547
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