Publisher Could Have Monopolized Market for Bank Rate Websites

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A company in the business of aggregating and publishing bank rate tables listing interest rates from financial institutions could have unlawfully monopolized or attempted to monopolize the market for bank rate websites, but had not engaged in a predatory price fixing conspiracy, the federal district court in Newark, New Jersey, has ruled.

A complaining competitor adequately alleged that the company violated federal and New Jersey antitrust law by entering into exclusive dealing arrangements with online media outlets that allegedly prevented competitors from gaining necessary distribution outlets for their data, the court found.

The competitor, however, failed to offer factual allegations that the defending company acted in concert with any other entity to price below some measure of cost. Therefore, a motion to dismiss was granted as to the price fixing claim, but denied as to the other claims.

Monopoly Power

The complaining competitor sufficiently alleged that the defendant possessed monopoly power by claiming: that the defendant had reached a relevant market share of over 95%, that it had entered into agreements with more than 300 partner sites, that the prices it charged to customers had become inelastic, and that independent competitors had been pushed out or acquired as a result of the defendant's scheme.

Predatory Pricing

The allegations of anticompetitive conduct was bolstered by claims that the defendant purposefully predatorily priced its rate listings below cost, and sometimes for free, in order to acquire customers from its rivals and to drive those rivals out of the market, the court noted.
The court rejected arguments that there was no market foreclosure and that a one-year contract with partner websites was not restrictive to the extent condemned by the antitrust laws.

The complaint alleged conduct—such as an agreement with a financial media website allowing the defendant to set rates in exchange for waiving annual license fees—that would impair the opportunities of rivals for whom waiving license fees was not feasible and who were, as a consequence, excluded from doing business with those website partners, in the court’s view.

The decision is BanxCorp. v. Bankrate Inc., 2011-2 Trade Cases ¶77,750.

Antitrust Division Asked to Investigate Bestseller Book Pricing

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

The American Booksellers Association—a trade organization representing locally owned, independent booksellers—has asked the Department of Justice Antitrust Division to investigate alleged predatory pricing by Amazon.com, Wal-Mart, and Target.

In its October 22 letter, the trade group requested a meeting with Christine Varney, Assistant Attorney General Antitrust Division, and Molly Boast, Deputy Assistant Attorney General for Civil Matters, to discuss the retailers' pricing of recent best sellers and its impact on small bookstores.

Price War in Internet Sales

The trade association points to recent reports that Amazon.com, WalMart.com, and Target.com have engaged in a price war in the pre-sale of new hardcover bestsellers, which typically retail for between $25 and $35. The companies are currently selling these and other titles for between $8.98 and $9—losing money on each unit, according to the trade association.

Predatory Pricing

The group contends that Amazon.com, Wal-Mart, and Target are using these predatory pricing practices to attempt to win control of the market for hardcover bestsellers. These companies are purportedly using “mega bestsellers . . . as a loss leader to attract customers to buy other, more profitable merchandise.” As a result, “the entire book industry is in danger of becoming collateral damage in this war.”

The association also called on the Antitrust Division to scrutinize the loss-leader pricing of digital content. The letter points to Amazon.com's purported below-cost pricing of digital editions of new hardcover books.

Private Suits

Over the years, the American Booksellers Association has filed Robinson-Patman Act suits against publishers and book stores for alleged price discrimination, with varying success. In the 1990s, the trade group obtained settlements from major publishers in price discrimination actions. Around the same time, the Federal Trade Commission (FTC) dropped investigations into price discrimination by the country’s largest book retailers (Trade Regulation Reporter ¶24,109).

Government Enforcement

Generally, the FTC, and not the Department of Justice, has been the federal antitrust agency that has taken the lead in enforcing the Robinson-Patman Act. However, the number of cases has dropped significantly in recent decades. The FTC has not issued a Robinson-Patman Act complaint since its action against spice company McCormick & Co. in 2000 (Trade Regulation Reporter ¶24,711).

“Price Squeeze” Theory Insufficient to Support Monopoly Claims: High Court

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

In an opinion by Chief Justice John Roberts, the U.S. Supreme Court today rejected an independent “price-squeeze” theory under Section 2 of the Sherman Act.

The Court ruled that AT&T—the telecommunications company that owns much of the infrastructure and facilities needed to provide digital subscriber line (DSL) services in California—would not have engaged in monopolization of the retail DSL market by engaging in a price squeeze vis-à-vis competing independent Internet service providers (ISPs), in the absence of an antitrust duty to deal at the wholesale level or predatory pricing at the retail level.

A decision of the U.S. Court of Appeals in San Francisco (2007-2 Trade Cases ¶75,875), holding that the price squeeze claim was potentially valid, was reversed. The Justice Department had contended that the appellate court erred in allowing the ISPs to proceed on their claims in the absence of an antitrust duty to deal or predatory pricing allegations.

The complaining independent ISPs filed an antitrust suit in 2003, claiming that AT&T engaged in a price squeeze in violation of Section 2 of the Sherman Act, which prohibits monopolization.

The ISPs—which received wholesale DSL transport service from AT&T and sold DSL directly to consumers in competition with AT&T—contended that the company did not leave them with a “fair” or “adequate” margin between the wholesale price and the retail price to compete.

Predatory Pricing

As a general rule, businesses are free to choose the parties with whom they deal, as well as the prices, terms, and conditions of that dealing, the Court explained. However, a dominant firm might incur antitrust liability for purely unilateral conduct by charging “predatory” prices—below-cost prices that drive rivals out of the market and allow the monopolist to raise its prices later and recoup its losses—or by refusing to deal where it has an antitrust duty to deal with its competitors.

The ISPs contended that AT&T squeezed their profit margins by setting a high wholesale price for DSL transport and a low retail price for DSL Internet service. This purportedly allowed AT&T to “preserve and maintain its monopoly control of DSL access to the Internet.” But the complaining ISPs did not allege a predatory pricing claim at least in their original complaint.

They did not contend that: (1) the challenged retail prices were below an appropriate measure of AT&T’s costs and (2) there was a dangerous probability that the AT&T would be able to recoup its investment in below-cost prices.

In rejecting an independent theory of liability based on a price squeeze, the Court said that recognizing a price squeeze in the absence of predatory pricing could lead firms to raise their retail prices or refrain from aggressive price competition to avoid potential antitrust liability.

Duty to Deal

While AT&T had a regulatory obligation to provide wholesale DSL service to the ISPs, it had no antitrust duty to deal, the Court noted. If AT&T had simply stopped providing DSL transport service to the complaining ISPs, it would not have run afoul of the Sherman Act.

The Court pointed to its recent decision in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP (2004-1 Trade Cases ¶74,241) for the proposition that “if a firm has no antitrust duty to deal with its competitors at wholesale, it certainly has no duty to deal under terms and conditions that the rivals find commercially advantageous.”

Thus, only to the extent that a monopolist engages in a duty-to-deal violation at the wholesale level or predatory pricing at the retail level do plaintiffs have a remedy under existing antitrust law.

Remand

The matter was remanded to the district court to determine whether the ISPs' amended complaint, which was not before the Court, stated a claim in light of current pleading standards and whether the ISPs were entitled to leave to amend their complaint to bring a claim under the predatory pricing theory of the Supreme Court's 1993 decision in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp. (1993-1 Trade Cases ¶70,277).

Unusual Procedural Posture

The Court noted at the outset that it would consider the matter, even though the case had “assumed an unusual posture.” The case was not rendered moot by the petitioning ISPs' request that the Supreme Court vacate the federal appellate court's decision in its favor and remand with instructions that they be given leave to amend their complaint to allege a Brooke Group claim. The ISPs—“no longer pleased with their initial theory of the case”—determined that a dissenting opinion by Judge Ronald M. Gould in the appellate court stated the correct position that price squeeze claims must meet the Brooke Group requirements for predatory pricing.

The Supreme Court decided that it was appropriate to address the question presented. The parties continued to be adverse not only in the litigation as a whole, but also in the specific proceedings before the Supreme Court. AT&T asked the Supreme Court to reverse the judgment of the appellate court and remand with instructions to dismiss the complaint. The ISPs asked that the Supreme Court vacate the judgment and remand with instructions that they be given leave to amend their complaint.

It was not clear that the ISPs had unequivocally abandoned their price-squeeze claims addressed in the petition for certiorari. Further, in the absence of a Supreme Court decision on the merits, the appellate court’s decision would presumably have remained binding precedent in that circuit and a conflict among the circuits would have persisted, the Court reasoned.

Concurring Opinion

A concurring opinion, authored by Justice Stephen G. Breyer and joined by three other justices, would have remanded the case to the district court to determine whether the ISPs may proceed with their predatory pricing claim as set forth in Judge Gould’s dissenting Ninth Circuit opinion. The dissent also would have “accept[ed] respondents’ concession that the Ninth Circuit majority’s “price squeeze” holding is wrong.”

The February 25 opinion, Pacific Bell Telephone Co. v. linkLine Communications, Inc., appears here on the U.S. Supreme Court website. It will appear at 2009-1 Trade Cases ¶76,500.