The Ninth Circuit has upheld the viability of “price squeeze” antitrust claims, taking a narrow view of the Supreme Court’s decision in Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004). A divided court held that nothing in the Trinko decision bars a claim under Section 2 of the Sherman Act that a monopoly supplier who is also plaintiff’s competitor violates the law by exacting high wholesale prices in relation to defendant’s retail prices, known as a “price squeeze.”
While the Ninth Circuit’s decision in LinkLine Communications, Inc. v. SBC California, Inc., No. 05-56023 (Sept. 11, 2007) most directly pertains to antitrust claims in a regulated context, the court’s narrow reading of Trinko is potentially significant in a range of other contexts. Most notably, intellectual property licensing has operated under a cloud of doubt about whether a refusal to license might in some circumstances form the basis of an antitrust claim by a disappointed customer. Trinko, read broadly, seemed to dispel this concern. However, the Ninth Circuit may have revived some degree of doubt.
Plaintiffs in LinkLine are internet service providers that compete with SBC as the Incumbent Local Exchange Carrier (“ILEC”) in the provision of DSL service, and also rely on SBC for “last mile” interconnection to retail customers. The complaint alleges that SBC charged plaintiffs wholesale prices that were too high to permit them to compete with SBC’s retail DSL prices. It is also alleged that SBC engaged in a variety of exclusionary conduct designed to interfere with plaintiffs’ business, such as causing service delays and interruptions for plaintiffs’ customers. The Ninth Circuit observed that wholesale pricing for DSL service is subject to substantial FCC and state regulation, while retail prices are not.
In Trinko, the Supreme Court rejected an antitrust claim based on an alleged violation of a regulatory or statutory duty of an ILEC to share its network with competitors. The Supreme Court reasoned that the regulatory regime was a more “effective steward” than antitrust courts to monitor and remedy anticompetitive abuses by ILECs. At least one other Circuit Court has read Trinko as having repudiated price squeeze claims in a regulatory context. Covad Communications Co. v. Bell Atlantic Corp., 398 F.3d 666 (DC Cir. 2005). On a broader reading, Trinko deprives plaintiffs of any argument that the regulatory duty to deal on “fair,” “nondiscriminatory,” or other specified terms can give rise to an antitrust duty to deal on similar terms, even where the refusal to do so is predatory. In reading Trinko more narrowly, the Ninth Circuit upheld the LinkLine complaint as having sufficiently pleaded a violation of the Sherman Act.
Since the Eleventh Circuit has also given Trinko a narrow reading, there is an emerging split among the courts. Covad Communications Co. v. Bellsouth Corp., 374 F.3d 1044 (11th Cir. 2004).