SW Legal studies in Business

Firm Has No Obligation to Sell to Rivals at Price they Demand
Description

Supreme Court threw out a claim by Internet service providers who leased phone line space from AT&T that the price charged by AT&T squeezed their profits too much. AT&T followed federal regulations in its pricing policy and had no obligation to offer competitors a service at a price that would guarantee them a profit.

Topic Antitrust
Key Words

Sherman Act; Price-Squeeze Claim; Predatory Pricing

C A S E   S U M M A R Y
Facts

AT&T owns infrastructure and facilities to provide DSL service for Internet service over phone lines. Federal law requires AT&T to provide wholesale DSL service to independent firms at a price no greater than the retail price of AT&T’s DSL service. Independent Internet providers who rented DSL service from AT&T sued under Section 2 of the Sherman Act, claiming that AT&T illegally imposed a price-squeeze on them by setting a price for the wholesale DSL service that made it difficult for them to compete with AT&T’s retail service. This resulted in monopolization. They also claimed that this was predatory pricing. The district court held that the case could proceed, and the Ninth Circuit affirmed. AT&T appealed.

Decision

Reversed and remanded. Simply possessing monopoly power and charging monopoly prices does not violate the Sherman Act. Growth or development of a product or service that gives a firm power in the market does not violate the Act. AT&T had no obligation to provide its competitors some of its Internet capacity at a better price than is required by federal law under Federal Communications Commission rules. The claim of a price-squeeze is not recognized since AT&T had no obligation to deal with the companies at the price they demanded. For there to be a predatory pricing claim, a plaintiff must show that the prices are below an appropriate measure of cost and that the defendant would profit by the below-cost pricing strategy; that is not the case here. The case should have been dismissed.

Citation

Pacific Bell Telephone v. Linkline Communications, ---S.Ct.--- (2009 WL 45286, Sup. Ct., 2009)

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