Corporate & Securities Law

The Supreme Court Unanimously Rejects Price Squeeze Claim

By Matthew S. Wild

Yesterday, the Supreme Court in Pacific Bell Telephone Co. v. Linkline Communications, Inc., No. 07-512 (Feb. 25, 2009) (LinkLine decision  here) unanimously rejected a price squeeze claim alleged under Section 2 of the Sherman Act.  Pac Bell is a DSL transport service and retail service provided.  Linkline, an independent DSL service provider, competed with Pac Bell on the retail level but needed to purchase Pac Bell’s transport service to provide DSL to its retail customers.  Linkline alleged that Pac Bell engaged in a price squeeze by charging Linkline too high a wholesale price for DSL transport service and charging its retail customers too low a price on DSL service.  The Court rejected this claim because (1) Pac Bell had no obligation to deal with Linkline and thus the prices it charged to Linkline are of no consequence and (2) Pac Bell was not alleged to have engaged in predatory pricing at the retail level — i.e., charging prices below  cost with a dangerous probability that it can raise its prices later and recoup its losses.  Chief Justice Roberts aptly summarized the Court’s rationale, “Trinko holds that a defendant with no antitrust duty to deal with its rivals has no duty to deal under terms and conditions preferred by those rivals.  Brooke Group hold that low prices are only actionable under the Sherman Act when prices are below cost and there is a dangerous probability that the predator will be able to recoup the profits it loses from low prices.  In this case, plaintiffs have not stated a duty-to-deal claim under Trinko or a predatory pricing claim under Brooke Group.  They nontheless 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.”

The background to this case is unusual.  The June 3, 2008 Post reported a rare disagreement between the DOJ’s Antitrust Division and FTC over whether to grant certiorari.  The Antitrust Division filed a brief supporting certiorari (which the FTC declined to join) and the FTC issued a statement explaining why certiorari should be denied.  It also seems as if the Supreme Court reached out to decide this case as Linkline argued that it abandoned its price squeeze claim and wanted to pursue a predatory pricing claim under Brooke Group.  The Court rejected the mootness argument and believed that the issues were adequately explored to make a reasoned decision based on the amici’s submissions.

Full post as published by Antitrust Commentary on February 26, 2009 (boomark / email).