Antitrust Alert: U.S. Supreme Court Rejects Price Squeeze Claim in Pacific Bell v. linkLine
In an unanimous opinion by Chief Justice Roberts, the U.S. Supreme Court today ruled in Pacific Bell v. linkLine that a price squeeze claim may not be brought under Section 2 of the Sherman Act when there is no antitrust duty to deal at the wholesale level. This decision builds on the Supreme Court's 2004 decision in Trinko where the Court held that a firm with no antitrust duty to deal with its rivals has no obligation to provide those rivals with a "sufficient" level of service. The Court also ruled that plaintiffs had not stated a predatory pricing claim under Brooke Group. Chief Justice Roberts declared that:
In this case, plaintiffs have not stated a duty-to-deal claim under Trinko and have not stated a predatory price 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.
The case arose from linkLine's 2003 antitrust complaint alleging that Pacific Bell had monopolized and attempted to monopolize the provision of DSL internet services in violation of Section 2 of the Sherman Act. linkLine asserted that Pacific Bell unlawfully "squeezed" linkLine's profit margins by setting a high price for the wholesale DSL transport service and a low price for its own retail DSL service. Pacific Bell moved to dismiss arguing that price squeeze claims must satisfy the Brooke Group requirements of sales below cost and recoupment which they argued linkLine had failed to do. The district court denied the motion and certified its order for interlocutory appeal to the Ninth Circuit.
On appeal, the Ninth Circuit recognized the validity of price squeeze claims. In a divided opinion, the panel majority explained that federal courts have recognized the viability of price squeeze claims under the Sherman Act since Alcoa and that Trinko did not "completely eliminate the viability of a § 2 price squeeze theory in regulated industries." Judge Gould dissented, finding that Trinko "takes the issues of wholesale pricing out of the case" and that "the retail side of a price squeeze cannot be considered to create an antitrust violation if the retail pricing does not satisfy the requirements of Brooke Group."
Chief Justice Roberts broke the plaintiffs' "price squeeze" claim into two separate claims, one at the retail level and the other at the wholesale level, and concluded that Trinko prevented the wholesale level claim as there is no duty to deal under the antitrust laws, and Brooke Group prevented the retail claim as plaintiffs were unable to show that the Brooke Group tests (including recoupment) had been met. Concluding the linkLine failed to demonstrate that Pacific Bell's prices were below an appropriate measure of its costs, or that it would be able to recoup its "investment" in below-cost pricing, Chief Justice Roberts held:
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 a retail level, then a firm is certainly not required to price both these services at a level that preserves rivals' profit margins.
Despite the Chief Justice's endorsement of Trinko and Brooke Group, the future treatment of price squeeze claims remains unclear. In a concurring opinion, Justice Breyer (joined by Justices Stevens, Souter and Ginsburg) concluded that "[a] 'price squeeze' claim finds its natural home in a Sherman Act § 2 monopolization case where the Government as plaintiff seeks to show that a defendant's monopoly power rests, not upon 'skill, foresight and industry,' [United States v. Alcoa], but upon exclusionary conduct, [United States v. Grinnell]" (full citations omitted). By contrast, Chief Justice Roberts noted in a footnote that "[g]iven developments in economic theory and antitrust jurisprudence since Alcoa, we find our recent decisions in Trinko and Brooke Group more pertinent to the question before us."
The Court remanded the case to the district court to determine whether linkLine's amended complaint met the heightened pleading standards under Twombly and whether plaintiffs should be given leave to amend their complaint to bring a predatory pricing claim under Brooke Group.
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