Tuesday, May 27, 2008

DOJ, FTC Differ on Ripeness of Supreme Court Antitrust Petition

This posting was written by Jeffrey May, Editor of CCH Trade Regulation Reporter.

The U.S. Solicitor General has urged the U.S. Supreme Court to grant a petition for review of a federal appellate court's decision allowing unlawful price squeeze claims to proceed. The FTC decided not to join the Justice Department's May 22 amicus brief. In a May 23 statement, the Commission said that it disagreed with the Justice Department's analysis and that the case did not appear to be ready for review.

Unlawful Price Squeeze

At issue is a decision of the U.S. Court of Appeals in San Francisco (2007-2 Trade Cases ¶75,875), permitting Internet service providers (ISPs) who sold digital subscriber line Internet access to retail customers to proceed with Sherman Act, Sec. 2 claims against an incumbent telecommunications company—Pacific Bell. The ISPs contended that Pacific Bell had engaged in an unlawful price squeeze by intentionally charging them wholesale prices that were too high in relation to prices at which it was providing retail services and necessary equipment to end-user customers.

Pacific Bell had moved to dismiss the price-squeeze claim in the amended complaint for failure to state a claim. After the appellate court affirmed the denial of the motion to dismiss, Pacific Bell sought review by the U.S. Supreme Court. The petition is Pacific Bell Telephone Co. v. LinkLine Communications, Inc., Dkt. No. 07-512.

The Solicitor General told the Court that “Section 2 of the Sherman Act does not provide a cause of action for ‘price-squeeze’ claims of the type at issue here—namely, allegations that a vertically integrated company with an alleged monopoly at the wholesale level, but with no antitrust duty to provide that wholesale input to its retail competitors, engaged in a ‘price squeeze’ by leaving insufficient margin between wholesale and retail prices to allow its retail competitors to compete.” The decision “threatens to chill retail price-cutting by vertically integrated firms and encourage litigation designed to protect competitors at the expense of competition,” according to the Solicitor General. “Despite the interlocutory posture of the case, review is warranted.”

According to the Commission's statement: “The holding of the Ninth Circuit is unquestionably correct, and indeed merely echoes what other courts of appeals have held on the narrow issue presented to the court below: that claims of a predatory price squeeze in a partially regulated industry remain viable after [Verizon Comms. Inc. v. Law Offices of Curtis V. Trinko, LLP, 2004-1 Trade Cases ¶74,241, 540 U.S. 398 (2004)].”

The Commission went on to say that the procedural posture would deprive the Court of a fully developed record. “There is no apparent justification, based on only a partial record of the plaintiffs’ pleadings in this case, for turning back 60 years of case law that embraces price-squeeze claims under Section 2 of the Sherman Act.” Three of the four commissioners voted to issue the statement, with FTC Chairman William E. Kovacic recused.

Past Instances of Diverging Views

The FTC statement concluded by noting that “the FTC and the Solicitor General frequently cooperate in fashioning recommendations to the Supreme Court regarding the grant or denial of certiorari, and likely will continue to do so.” This was not the first time, however, that the federal antitrust agencies took different positions on Supreme Court petitions.

In 2006, the Solicitor General advised the High Court to reject the FTC's petition for review of a decision of the U.S. Court of Appeals in Atlanta (2005-1 Trade Cases ¶74,716) vacating the agency's cease and desist order against pharmaceutical companies for entering into anticompetitive patent settlements.

Then in 2007, the Solicitor General urged the Court not to review a decision of the U.S. Court of Appeals in New York City (2005-2 Trade Cases ¶74,992) that involved facts similar to Schering. The FTC has argued that the Eleventh Circuit's Schering decision and the Second Circuit decision are bad law.

Text of the Federal Trade Commission’s statement appears here on the FTC website.

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