The Supreme Court’s recent decision in Pacific Bell Tel. Co. v. Linkline Commc’ns Inc. seems to be the death knell for price squeeze antitrust claims under Section 2 of the Sherman Act. In price squeeze cases, the defendant operates in both a wholesale and a retail market. The plaintiff competes with the defendant in the retail market and buys its inputs from the defendant in the wholesale market. The crux of a price squeeze claim is that the defendant raises its wholesale price and lowers its retail price, so as to squeeze the margins of its competitors. The plaintiffs’ theory in such cases has been that this conduct violates Section 2’s prohibition on monopolization.
In Pacific Bell, AT&T owned the last mile of telephone wire to consumers’ homes. Several DSL providers sued AT&T, claiming that AT&T had raised the price to lease capacity on that last mile of wire while simultaneously lowering its own price for DSL service. The result, according to the plaintiffs, was that AT&T had an unfair competitive advantage.
The Supreme Court rejected the plaintiffs’ theory, however. First, the court held that AT&T had no antitrust duty to deal with its competitors. (AT&T had a duty to deal with them under FCC regulations, but the court determined that FCC rules did not create an antitrust duty.) If AT&T had no duty to deal with its competitors at all, then it had no duty to deal with them on terms and conditions that the competitors found favorable, the court reasoned. Second, the court held that AT&T’s low retail prices could not give rise to an antitrust claim unless they were predatory (an issue that the court left for remand).
Having rejected both prongs of the plaintiffs’ price squeeze claim, the court then explained that the claim was “nothing more than an amalgamation of a meritless claim at the retail level and a meritless claim at the wholesale level.” It also noted that antitrust law already provided remedies for some of the harms that might accompany a price squeeze claim. For example, if a company like AT&T lowered its retail price to predatory levels, then a plaintiff can bring an antitrust claim without regard to the defendant’s participation in the wholesale market. Similarly, if the defendant has a duty to deal imposed by antitrust laws, and its participation in the wholesale market violates that duty, then a claim lies for that.
The court also expressed institutional concerns about price squeeze claims. First, price squeeze concerns would require a judge to police the interaction of two markets – wholesale and retail – to determine whether a price squeeze was occurring. The court explained that it viewed federal judges as ill suited for such a role. Second, the court was concerned that price squeeze claims leave a defendant with no clearly set safe harbor. For example, a defendant in a predatory pricing case knows that, if its prices are above cost, it cannot be found liable. No such safe haven exists in price squeeze cases. Third, and finally, the court explained that price squeeze claims could have the effect of damping aggressive price competition at the retail level, thus undermining the ultimate goal of antitrust law.
This holding likely signals the end of price squeeze claims in federal court. Plaintiffs with predatory pricing claims or refusal to deal claims will likely bring those claims as such, and the Court’s holding seems to leave little or no gray area for a price squeeze claim when those claims are not available.
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Joshua D. Wolson is a member of the litigation department at Dilworth Paxson LLP. He can be reached at 215-575-7295 or jwolson@dilworthlaw.com. This posting is for informational purposes only and should not be construed or interpreted as legal advice on any matter.
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