On Jun 23 the Supreme Court agreed to review a California suit where Linkline, an ISP, had accused AT&T of charging so much for wholesale access that the ISP could not compete. AT&T argues that they are under no obligation. An appeals court found for Linkline. The Bush administration persuaded the Supreme Court to review the case.
The outcome has serious inferences for access competition in the nation.
The Bush Administration’s Office of U.S. Solicitor General sided with AT&T, maintaining that federal antitrust laws don’t cover the LinkLine claims.
In urging the Supreme Court to overturn the Ninth Circuit opinion, U.S. Solicitor General Paul Clement said: “Such a theory of liability could not be reconciled with this court’s modern antitrust jurisprudence.”
[Response to Brett Glass, who had argued for Linkline, on IP list]
From: Gerry Faulhaber [gerry-faulhaber at mchsi.com]
Sent: Tuesday, July 08, 2008 11:35 AM
To: David Farber
Subject: Re: [IP] Telecoms Sue Over High-Speed Links
[For IP, if you like]
Brett Glass and I agree on many things, and disagree on many things. His
position on AT&T v. LinkLine is one on which we disagree.
LinkLine, an ISP, alleged that AT&T provided it with access to its Internet
backbone network at very high wholesale rates, while charging retail rates
(in competition with LinkLine) that were low. LinkLine claimed the margin
between AT& T's wholesale and retail rates (which LinkLine had to match) was
too small for them to make a profit, and that they were the victim of a
“vertical price squeeze”.
AT&T counterclaims that selling access to the backbone is an unregulated
service (which is true) and as such they have no obligation to serve
LinkLine at all, much less at a specified wholesale-retail price margin.
They further argue that in any case the appropriate test of the
wholesale-retail price margin is not whether or not a competitor such as
LinkLine can make money on the margin.
In the recent Trinko case, SCOTUS noted that executing a vertical price
squeeze doesn't make a lot of sense if the upstream supplier has no duty to
deal. The supplier has no need for anything sophisticated like a price
squeeze; it can simply refuse to sell to the downstream firm. However, they
note that if an industry regulator (such as the FCC) believes there ought to
be a duty to deal at specificed prices, then it is perfectly free to do so.
The Court's view was that this is a regulatory job, not an antitrust job.
If the FCC does not act on this, then absent a law to the contrary, there is
no duty to deal and vertical price squeezes are moot. The AT&T request for
cert pointed this out, saying this is not a regulated business and they have
no duty to deal.
Brett references the “essential facilities doctrine”; the point of Trinko is
that the regulator can deem a firm a common carrier, which carries with it
the duty to deal, and this makes it equivalent to an essential facility.
Most obvious case in point: the local loop of the telephone company, which
is regulated, and for which the telcos have a duty to deal at a regulated
price. UNEs also require the resale of the local loop at a regulated price
(a model which has been spectacularly unsuccessful, BTW). But all this is
under the umbrella of common carriage, and it does not extend to sale of
access to the backbone.
Think of a shoe store in a mall that is the only distributor of
SuperRocket88 sneakers, and it attracts some ne'er-do-well kids that scare
off customers. The store is within its legal rights to refuse to deal with
the ne'er-do-wells, indeed refusing them entry into their store. This is
true even if the store is an “essential facility” for buying SuperRocket99
sneakers;-)
We may wisht the law were different (and of course IANAL), but this seems to
be the way it is. The essential facilities doctrine in antitrust law died
off some years ago, so I wouldn't depend upon its early return.
Prof. Gerry Faulhaber Emeritus
Wharton School and Penn Law
[response to above on IP list]
From: Ethan Ackerman [eackerma at u.washington.edu]
Sent: Tuesday, July 08, 2008 1:04 PM
To: David Farber
Subject: Re: [IP] Telecoms Sue Over High-Speed Links [DoJ, FTC disagree too]
Greetings Dave,
(if interesting for IP)
It appears there is plenty of disagreement to go around on this issue
– the antitrust divisions of the FTC and DoJ have taken opposing
approaches on this particular case as well.
In short, the DoJ wants a category of claims antitrust violations
removed that the FTC still thinks should be a part of antitrust law.
(see”Statement of FTC in
OPPOSITION to Brief of the United States,” ) (emphasis mine)
The FTC says “claims of a predatory price squeeze in a partially
regulated industry remain viable after Trinko,” while the DoJ says
roughly 'no antitrust violations for 'price-squeeze' claims” where
there's no duty to deal on one side of the market.'
This particular case is not so much about the essential facilities
doctrine, whose fate is unfortunately roughly as Prof. Faulhaber has
described. This particular case is about how and whether “price
squeeze” claims can be shown or claimed in partially regulated
industries.
It should also be noted that the facts of this case are a real stinker
– SBC(now AT&T) charged lower retail service prices than they charged
for wholesale carriage. Compounding things, AT&T's wholesale prices
and conduct _were_ regulated.