Monday, December 08, 2008

U.S. Supreme Court Hears “Price-Squeeze” Case

This posting was written by CCH Washington Correspondent John Scorza.

The U.S. Supreme Court on December 8 took up the question of whether a plaintiff states a claim under Section 2 of the Sherman Act by alleging that the defendant—a vertically integrated retail competitor with an alleged monopoly at the wholesale level but no antitrust duty to provide the wholesale input to competitors—engaged in a “price squeeze” by leaving insufficient margin between wholesale and retail prices to allow competitors to compete.

The claim at issue was brought by linkLINE Communications Inc., an independent Internet service provider (ISP), against SBC California Inc.

In the suit, linkLine claimed that the wholesale prices SBC charged to linkLINE and other ISPs for access to its DSL lines were so high that the ISPs could not effectively compete in the retail market. SBC and its affiliates own phone lines and other facilities needed for DSL service, and they control a large share of the retail DSL market in California.

Use of Monopoly Power

linkLine contends that SBC is using its monopoly power to drive competitors out of the market. The company wants the Supreme Court to vacate a decision of the U.S. Court of Appeals in San Francisco (2007-2 Trade Cases ¶75,875) and to send the case back to district court so it can file an amended complaint alleging that the prices SBC charged were predatory.

Richard Brunell of the American Antitrust Institute (AAI) appeared in support of linkLINE.

“The problem with a price squeeze by a monopolist is that by charging wholesale prices to rivals that are the same or barely above its retail process, the monopolist may exclude equally efficient competitors to the ultimate detriment of consumers,” Brunell said in a statement from the AAI. He argued that the price-squeeze theory remains solid under antitrust law.

Aaron Panner, representing petitioner SBC, urged the Court to adopt a clear rule that, in the absence of a duty to deal, an allegation of a price squeeze cannot be a valid claim.

Duty to Deal

The federal government entered the case in support of SBC. Deanne E. Maynard, assistant to the solicitor general, told the court that SBC has no duty to deal with linkLINE or other ISPs and is free to charge whatever prices it pleases.

“In the absence of a duty to deal, a monopolist cannot be forced to share the benefits of its lawful monopoly with its rivals,” Maynard said.

The case is Pacific Bell Telephone Co. v.linkLINE Communications Inc. (Docket No. 07-512). A transcript of the oral argument appears here on the Supreme Court web site.

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