Tuesday, June 24, 2008

High Court to Consider “Price Squeeze” Claim Against Telecommunications Firm

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

Pacific Bell Telephone Company has successfully petitioned the U.S. Supreme Court to review a decision of the U.S. Court of Appeals in San Francisco (2007-2 Trade Cases ¶75,875), permitting monopolization claims based on a “price squeeze” theory to proceed against the telecommunications company.

The appellate court allowed the Sherman Act, Sec. 2 claims of Internet service providers (ISPs) who purchased services at wholesale from Pacific Bell and used them to provide retail digital subscriber line Internet access to customers.

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 denial of the motion to dismiss, Pacific Bell sought review by the U.S. Supreme Court.

Conflict Among Circuits

In its petition for review, Pacific Bell contended that review was proper because the Ninth Circuit's decision conflicted with the decision of the U.S. Court of Appeals in Washington, D.C. in Covad Communications Co. v. Bell Atlantic Corp. (2005-1 Trade Cases ¶74,712).

In that decision, the District of Columbia Circuit, “in indistinguishable circumstances,” ruled that a price squeeze claim could not proceed. Pacific Bell also argued that the Ninth Circuit decision improperly created an exception to the rule established by the Supreme Court in Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP (2004-1 Trade Cases ¶74,241) “that—in the absence of any antitrust duty to deal—a rival's allegations that a monopolist has provided insufficient assistance fail to state a claim under Section 2.”

Federal Enforcement Agencies' Positions

The Court's decision to take up the petition came after the U.S. Solicitor General filed a friend-of-the-court brief, urging the High Court to grant Pacific Bell's petition for review. The Solicitor General said in the May 22 brief that “Section 2 of the Sherman Act does not provide a cause of action for “price-squeeze” claims of the type at issue here.”

The FTC, on the other hand, issued a May 23 statement, saying that it disagreed with the Justice Department's analysis and that the case did not appear to be ready for review.

The petition is Pacific Bell Telephone Co. v. LinkLine Communications, Dkt. 07-512, cert. granted June 23, 2008.

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