On February 25, 2009, the U.S. Supreme Court delivered a unanimous opinion in Pacific Bell Telephone Co. v. linkLINE Communications, Inc.,
ruling that Internet service providers (ISPs) may not assert a viable price-squeeze claim under Section 2 of the Sherman Act in the absence of an
allegation that the defendant has an antitrust duty to deal at the wholesale level or has engaged in unlawful predatory pricing at the retail
level. The ISPs claimed that an AT&T affiliate negatively impacted the margins of ISPs operating in the retail market by raising its wholesale
pricing of DSL and lowering its retail pricing of DSL services. The ISPs argued that the Supreme Court's rejection of antitrust claims based on
allegations of inadequate wholesale assistance in Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko did not legally foreclose
their price-squeeze claim. While recognizing that Trinko did not directly address pricing claims, the Court nonetheless concludes that
"the reasoning of Trinko applies with equal force to price-squeeze claims."
Reinforcing the general rule that "businesses are free to choose the parties with whom they will deal, as well as the prices, terms, and
conditions of that dealing," Justice Roberts' opinion also adds institutional concerns that courts cannot be expected to police the "moving
target" interaction between wholesale and retail pricing. The opinion characterizes the ISPs as having "tried to join a wholesale claim that
cannot succeed with a retail claim that cannot succeed...alchemiz[ing] them into a new form of antitrust liability never before recognized by
this Court." The case is now remanded to the district court, which will determine whether to allow the ISPs to amend their complaint to allege
predatory pricing under the two-prong standard in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 222-224, which
requires both below-cost retail pricing and a dangerous probability that the defendant will recoup any lost profits.
To view the opinion, please CLICK HERE.
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