Pac Bell v. Linkline--Antitrust

This is an antitrust case (think Sherman Act of 1890) that also implicates an enormously important and complicated law passed in 1996--the Telecommunications Act of 1996. The facts of this case can be stated rather easily but to determine if the facts state a violation of the "antimonopoly" sec. 2 of the Sherman Act, well...that's another story. Let's start with facts and then see if we understand the legal issue.

Background Facts

In life there are not only Jews and Greeks, male and female, slaves and free, as the Apostle Paul would have it, but there are Incumbent Local Exchange (Phone/Internet) Carriers and Local Exchange Carriers. This case presents a problem when one of the "incumbents" sells services to a local guy, which they are required to do under the 1996 Act, but does so at a price which the local guys says is below the price that the incumbent will sell the same services to the public. Well, read on...

Linkline purchases high-speed digital subscriber line service (known as "DSL transport") from AT & T, combines it with other facilities and services and then sells retail Internet-access service in competition with AT & T. That is, the service which AT & T sells to Linkline is one that Linkline will then use to turn around and compete against AT & T because both Linkline and AT & T are internet providers. Well, this isn't fantasy land or "good-neighbor" policy of AT & T; it is required under the 1996 Act. But Linkline claims that the wholesale rates which AT & T charges them to purchase the DSL transport line exceed the retail rate which AT & T charges its internet service customers. In other words, they claim that AT & T is reluctantly obeying the law; sure they are selling services to us (Linkline) as the law requires, but they do so at such a prohibitive rate that no one then will buy their (i.e., Linkline's) internet services.

So, Linkline did what any company would do in this situation--they sued. They sued claming that AT & T had engaged in monopolization and attempted monopolization in violation of sec. 2 of the Sherman Act by refusing to deal, by denying access to an "essential facility," and by engaging in a "price squeeze." Well, you ask, why not simply sue under the 1996 Act? I don't actually know if they did, but let me quote sec. 2 of the Sherman Act and see if you can figure out why this might be a more attractive statute under which to sue...

"Every person who shall monopolize, or attempt to monopolize, or combine or conspire with any other person or persons, to monopolize any part of the trade or commerce among the several States, or with foreign nations, shall be deemed guilty of a felony, and, on conviction thereof, shall be punished by fine not exceeding $100,000,000 if a corporation, or, if any other person, $1,000,000, or by imprisonment not exceeding 10 years, or by both said punishments, in the discretion of the court," 15 USC sec. 2.

Hm. A fine "not exceeding $100,000,000." Well, that amount would catch the attention of even the most spendthrift and big corporation. So, now we see why Linkline would love to see AT & T's alleged activity as constituting an antitrust violation.

Well, if you really want to get into antitrust law, you enter into one of the most arcane and, in my judgment, unclear areas of American law. The unclarity emerges from a basic contradiction that the law is unable quite to solve. On the one hand, we love competition in America and believe that competition in products works to the advantage of the consumer. Good. On the other hand, if you are a business owner, you want to do everything in your power not to give away market share to your competitors. The ideal situation is where you have 100% of the market. Then, you can rest easily at night. But the law doesn't permit you to do the very thing that the business school and your personal inclination inspire you to try to do (i.e., try to be the biggest and only "guy" in the market). So, the law tries to encapsulate this contradiction. It makes illegal attempted antimonopolistic activity, but it clearly allows loads of activity where people are the sole player in a particular market. I have never understood how to resolve this...

Well, back to the case. Recall that Linkline sued AT & T for a sec. 2 antitrust violation. The Supreme Court then decided the Verizon v. Trinko case in 2004 which, though not directly on point, considerably limited the reach of sec. 2 of the Sherman Act. So, AT & T moved to dismiss Linkline's claim. AT & T argued that it provided DSL transport to rival providers of retail internet-access service only under compulsion by the 1996 Act and FCC regulations; that AT & T had no antitrust duty (though it did have an 1996 Act duty) to deal with Linkline at all; and that Linkline's complaints about terms of dealing between them and AT & T failed ot state a claim under sec. 2.

The US district court agreed with AT & T on most claims, but was troubled by Linkline's contention that they were forced into a "price squeeze" by AT & T's actions. The court held that Trinko had nothing to do with "price squeeze" claims. It further held that though there was

"persuasive appeal of petitioner's [i.e., AT & T's] argument that the underlying logic of Trinko, which is that no inference of anticompetitive intent can be drawn from a refusal to deal where the parties are compelled by law to deal, applies with equal force to price squeeze claims,"

it denied AT & T's motion to dismiss. The Ninth Circuit affirmed the district court's decision. It held that "for over six decades, federal courts have recognized price squeeze allegations as stating valid claims under the Sherman Act."

Conclusion--At the Supreme Court

I think what is going on here is that AT & T is, in fact, a reluctant obeyer of the 1996 Act. Wouldn't you be tempted to be so, too, if you had the equipment that you had to sell/lease to someone with which s/he would then compete with you? Wouldn't you be tempted to "overcharge" your customer, so that it would be exceedingly difficult for the customer really to compete with you? I think probably so. But, the legal question here is whether that type of activity implicates the Sherman Act or is simply cognizable and punishable under the 1996 Act. I think the Court is of the mind to constrict (or read narrowly) the scope of the Sherman Act sec. 2, and thus I smell reversal here. After all, it is the Ninth Circuit. A good hit upside the head by the Supremes is what they have come to expect at least three times per term...

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