PACIFIC BELL TELEPHONE CO., DBA AT&T CALIFORNIA, ET AL. v. LINKLINE COMMUNICATIONS, INC., ET AL.
No. 07-512
Supreme Court of the United States
Argued December 8, 2008—Decided February 25, 2009
555 U.S. 438
Aaron M. Panner argued the cause for petitioners. With him on the briefs was Michael K. Kellogg.
Deanne E. Maynard argued the cause for the United States as amicus curiae urging vacatur. With her on the brief were former Solicitor General Garre, Assistant Attorney General Barnett, Deputy Solicitor General Kneedler, Deputy Assistant Attorney General O‘Connell, Catherine G. O‘Sullivan, and David Seidman.
Maxwell M. Blecher argued the cause and filed a brief for respondents.
Richard M. Brunell argued the cause and filed a brief as amicus curiae for the American Antitrust Institute. With him on the brief was Albert A. Foer.*
*Briefs of amici curiae urging reversal were filed for the Commonwealth of Virginia et al. by Robert F. McDonnell, Attorney General of Virginia, Stephen R. McCullough, State Solicitor General, William C. Mims, Chief Deputy Attorney General, Sarah Oxenham Allen, Assistant Attorney General, and William E. Thro, and by the Attorneys General for their respective States as follows: Troy King of Alabama, John W. Suthers of Colorado, Bill McCollum of Florida, Steve Six of Kansas, Jon C. Bruning of Nebraska, W. A. Drew Edmondson of Oklahoma, Mark L. Shurtleff of Utah, and Robert M. McKenna of Washington; for Abbott Laboratories by Gene C. Schaerr, Steffen N. Johnson, Charles B. Klein, James F. Hurst, and Linda T. Coberly; for Verizon Communications Inc. et al. by John Thorne, Richard G. Taranto, Jan S. Amundson, and Quentin Riegel; and for the Washington Legal Foundation by Mark J. Botti, Daniel J. Popeo, and Richard A. Samp.
Briefs of amici curiae were filed for COMPTEL by Samuel L. Feder, Elaine J. Goldenberg, and Mary C. Albert; and for Professors and Scholars in Law and Economics by J. Gregory Sidak and Robert H. Bork, both pro se.
The plaintiffs in this case, respondents here, allege that a competitor subjected them to a “price squeeze” in violation of
I
This case involves the market for digital subscriber line (DSL) service, which is a method of connecting to the Internet at high speeds over telephone lines. AT&T1 owns much of the infrastructure and facilities needed to provide DSL service in California. In particular, AT&T controls most of what is known as the “last mile“—the lines that connect homes and businesses to the telephone network. Competing DSL providers must generally obtain access to AT&T‘s facilities in order to serve their customers.
Until recently, the Federal Communications Commission (FCC) required incumbent phone companies such as AT&T
The plaintiffs are four independent Internet service providers (ISPs) that compete with AT&T in the retail DSL market. Plaintiffs do not own all the facilities needed to supply their customers with this service. They instead lease DSL transport service from AT&T pursuant to the merger conditions described above. AT&T thus participates in the DSL market at both the wholesale and retail levels; it provides plaintiffs and other independent ISPs with wholesale DSL transport service, and it also sells DSL service directly to consumers at retail.
In July 2003, the plaintiffs brought suit in District Court, alleging that AT&T violated
In Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U. S. 398, 410 (2004), we held that a firm with no antitrust duty to deal with its rivals at all is under no obligation to provide those rivals with a “sufficient” level of service. Shortly after we issued that decision, AT&T moved for judgment on the pleadings, arguing that the plaintiffs’ claims in this case were foreclosed by Trinko. The District Court held that AT&T had no antitrust duty to deal with the plaintiffs, App. to Pet. for Cert. 77a–85a, but it denied the motion to dismiss with respect to the price-squeeze claims, id., at 86a–90a. The court acknowledged that AT&T‘s argument “has a certain logic to it,” but held that Trinko “simply does not involve price-squeeze claims.” App. to Pet. for Cert. 86a. The District Court also noted that price-squeeze claims have been recognized by several Circuits and “are cognizable under existing antitrust standards.” Id., at 89a, and n. 27.
At the District Court‘s request, plaintiffs then filed an amended complaint providing greater detail about their price-squeeze claims. AT&T again moved to dismiss, arguing that price-squeeze claims could only proceed if they met the two established requirements for predatory pricing: below-cost retail pricing and a ” ‘dangerous probability’ ” that the defendant will recoup any lost profits. See Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U. S. 209, 222–224 (1993). The District Court did not reach the issue whether all price-squeeze claims must meet the Brooke Group requirements, because it concluded that the amended complaint, “generously construed,” satisfied those criteria. App. to Pet. for Cert. 46a–49a, 56a. The court also certified its earlier order for interlocutory appeal on the question whether ”Trinko bars price squeeze claims where the parties are compelled to deal under the federal communications laws.” Id., at 56a–57a.
Judge Gould dissented, noting that “the notion of a ‘price squeeze’ is itself in a squeeze between two recent Supreme Court precedents.” Id., at 886. A price-squeeze claim involves allegations of both a high wholesale price and a low retail price, so Judge Gould analyzed each component separately. He concluded that ”Trinko insulates from antitrust review the setting of the upstream price.” Id., at 886–887. With respect to the downstream price, he argued that “the retail side of a price squeeze cannot be considered to create an antitrust violation if the retail pricing does not satisfy the requirements of Brooke Group, which set unmistakable limits on what can be considered to be predatory within the meaning of the antitrust laws.” Id., at 887 (citing Brooke Group, supra, at 222–224). Judge Gould concluded that the plaintiffs’ complaint did not satisfy these requirements because it contained no allegations that the retail price was set below cost and that those losses could later be recouped. 503 F. 3d, at 887. Judge Gould would have allowed the plaintiffs to amend their complaint if they could, in good faith, raise predatory pricing claims meeting the Brooke Group requirements. 503 F. 3d, at 887.
We granted certiorari, 554 U. S. 916 (2008), to resolve a conflict over whether a plaintiff can bring price-squeeze
II
This case has assumed an unusual posture. The plaintiffs now assert that they agree with Judge Gould‘s dissenting position that price-squeeze claims must meet the Brooke Group requirements for predatory pricing. They ask us to vacate the decision below in their favor and remand with instructions that they be given leave to amend their complaint to allege a Brooke Group claim. In other words, plaintiffs are no longer pleased with their initial theory of the case, and ask for a mulligan to try again under a different theory. Some amici argue that the case is moot in light of this confession of error. They contend that “[w]ith both petitioners and respondents now aligned on [the same] side of the question presented, no party with a concrete stake in this case‘s outcome is advocating for the contrary position.” Brief for COMPTEL 6.
We do not think this case is moot. First, the parties continue to seek different relief. AT&T asks us to reverse the judgment of the Court of Appeals and remand with instructions to dismiss the complaint at issue. The plaintiffs ask that we vacate the judgment and remand with instructions that they be given leave to amend their complaint. The parties thus continue to be adverse not only in the litigation as a whole, but in the specific proceedings before this Court. Second, it is not clear that the plaintiffs have unequivocally abandoned their price-squeeze claims. In their brief and at oral argument, the plaintiffs continue to refer to their “pricing squeeze claim.” See Brief for Respondents 13. They appear to acknowledge that those claims must meet the Brooke Group requirements, but it is not clear whether they believe the necessary showing can be made in at least partial
Amici also argue that we should dismiss the writ of certiorari because of the “lack of adversarial presentation” by an interested party. Brief for COMPTEL 7. To the contrary, prudential concerns favor our answering the question presented. Plaintiffs defended the Court of Appeals’ decision at the certiorari stage, and the parties have invested a substantial amount of time, effort, and resources in briefing and arguing the merits of this case. In the absence of a decision from this Court on the merits, the Court of Appeals’ decision would presumably remain binding precedent in the Ninth Circuit, and the Circuit conflict we granted certiorari to resolve would persist. Two amici have submitted briefs defending the Court of Appeals’ decision on the merits, and we granted the motion of one of those amici to participate in oral argument. 555 U. S. 1029 (2008). We think it appropriate to proceed to address the question presented.
III
A
As a general rule, businesses are free to choose the parties with whom they will deal, as well as the prices, terms, and conditions of that dealing. See United States v. Colgate & Co., 250 U. S. 300, 307 (1919). But there are rare instances in which a dominant firm may incur antitrust liability for purely unilateral conduct. For example, we have ruled that firms may not charge “predatory” prices—below-cost prices that drive rivals out of the market and allow the monopolist to raise its prices later and recoup its losses. Brooke Group, 509 U. S., at 222–224. Here, however, the complaint at issue does not contain allegations meeting those requirements. App. 10–24.
There are also limited circumstances in which a firm‘s unilateral refusal to deal with its rivals can give rise to antitrust liability. See Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U. S. 585, 608–611 (1985). Here, however, the District Court held that AT&T had no such antitrust duty to deal with its competitors, App. to Pet. for Cert. 84a–85a, and this holding was not challenged on appeal.2
B
A straightforward application of our recent decision in Trinko forecloses any challenge to AT&T‘s wholesale prices. In Trinko, Verizon was required by statute to lease its network elements to competing firms at wholesale rates. 540 U. S., at 402–403. The plaintiff—a customer of one of Verizon‘s rivals—asserted that Verizon denied its competitors access to interconnection support services, making it difficult for those competitors to fill their customers’ orders. Id., at 404–405. The complaint alleged that this conduct in the upstream market violated
We held that the plaintiff‘s claims were not actionable under
In this case, as in Trinko, the defendant has no antitrust duty to deal with its rivals at wholesale; any such duty arises only from FCC regulations, not from the Sherman Act. See
The District Court and the Court of Appeals did not regard Trinko as controlling because that case did not directly address price-squeeze claims. 503 F. 3d, at 883; App. to Pet. for Cert. 86a; see also Brief for COMPTEL as Amicus Curiae 27–30. This is technically true, but the reasoning of Trinko applies with equal force to price-squeeze claims. AT&T could have squeezed its competitors’ profits just as effectively by providing poor-quality interconnection service to the plaintiffs, as Verizon allegedly did in Trinko. But a firm with no duty to deal in the wholesale market has no
The other component of a price-squeeze claim is the assertion that the defendant‘s retail prices are “too low.” Here too plaintiffs’ claims find no support in our existing antitrust doctrine.
“[C]utting prices in order to increase business often is the very essence of competition.” Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475 U. S. 574, 594 (1986). In cases seeking to impose antitrust liability for prices that are too low, mistaken inferences are “especially costly, because they chill the very conduct the antitrust laws are designed to protect.” Ibid.; see also Brooke Group, 509 U. S., at 226; Cargill, Inc. v. Monfort of Colo., Inc., 479 U. S. 104, 121–122, n. 17 (1986). To avoid chilling aggressive price competition, we have carefully limited the circumstances under which plaintiffs can state a Sherman Act claim by alleging that prices are too low. Specifically, to prevail on a predatory pricing claim, a plaintiff must demonstrate that: (1) “the prices complained of are below an appropriate measure of its rival‘s costs“; and (2) there is a “dangerous probability” that the defendant will be able to recoup its “investment” in below-cost prices. Brooke Group, supra, at 222–224. “Low prices benefit consumers regardless of how those prices are set, and so long as they are above predatory levels, they do not threaten competition.” Atlantic Richfield Co. v. USA Petroleum Co., 495 U. S. 328, 340 (1990).
In the complaint at issue in this interlocutory appeal, App. 10–24, there is no allegation that AT&T‘s conduct met either of the Brooke Group requirements. Recognizing a price-squeeze claim where the defendant‘s retail price remains above cost would invite the precise harm we sought to avoid
Plaintiffs’ price-squeeze claim, looking to the relation between retail and wholesale prices, is thus nothing more than an amalgamation of a meritless claim at the retail level and a meritless claim at the wholesale level. If there is no duty to deal at the wholesale level and no predatory pricing at the retail level, then a firm is certainly not required to price both of these services in a manner that preserves its rivals’ profit margins.3
C
Institutional concerns also counsel against recognition of such claims. We have repeatedly emphasized the importance of clear rules in antitrust law. Courts are ill suited “to act as central planners, identifying the proper price, quantity, and other terms of dealing.” Trinko, 540 U. S., at 408. “No court should impose a duty to deal that it cannot
It is difficult enough for courts to identify and remedy an alleged anticompetitive practice at one level, such as predatory pricing in retail markets or a violation of the duty-to-deal doctrine at the wholesale level. See Brooke Group, supra, at 225 (predation claims “requir[e] an understanding of the extent and duration of the alleged predation, the relative financial strength of the predator and its intended victim, and their respective incentives and will“); Trinko, supra, at 408. Recognizing price-squeeze claims would require courts simultaneously to police both the wholesale and retail prices to ensure that rival firms are not being squeezed. And courts would be aiming at a moving target, since it is the interaction between these two prices that may result in a squeeze.
Perhaps most troubling, firms that seek to avoid price-squeeze liability will have no safe harbor for their pricing practices. See Concord, supra, at 22 (antitrust rules “must be clear enough for lawyers to explain them to clients“). At least in the predatory pricing context, firms know they will not incur liability as long as their retail prices are above cost. Brooke Group, supra, at 223. No such guidance is available for price-squeeze claims. See, e. g., 3B P. Areeda & H. Hovenkamp, Antitrust Law ¶ 767c, p. 138 (3d ed. 2008) (“[A]ntitrust faces a severe problem not only in recognizing any
“[H]ow is a judge or jury to determine a ‘fair price?’ Is it the price charged by other suppliers of the primary product? None exist. Is it the price that competition ‘would have set’ were the primary level not monopolized? How can the court determine this price without examining costs and demands, indeed without acting like a rate-setting regulatory agency, the rate-setting proceedings of which often last for several years? Further, how is the court to decide the proper size of the price ‘gap?’ Must it be large enough for all independent competing firms to make a ‘living profit,’ no matter how inefficient they may be? . . . And how should the court respond when costs or demands change over time, as they inevitably will?” Concord, supra, at 25.
Some amici respond to these concerns by proposing a “transfer price test” for identifying an unlawful price squeeze: A price squeeze should be presumed if the upstream monopolist could not have made a profit by selling at its retail rates if it purchased inputs at its own wholesale rates. Brief for American Antitrust Institute (AAI) 30; Brief for COMPTEL 16–19; see Ray v. Indiana & Mich. Elec. Co., 606 F. Supp. 757, 776–777 (ND Ill. 1984). Whether or not that test is administrable, it lacks any grounding in our antitrust jurisprudence. An upstream monopolist with no duty to deal is free to charge whatever wholesale price it would like; antitrust law does not prohibit lawfully obtained monopolies from charging monopoly prices. Trinko, supra, at 407 (“The mere possession of monopoly power, and the concomi-tant charging of monopoly prices, is not only not unlawful; it
Amici assert that there are circumstances in which price squeezes may harm competition. For example, they assert that price squeezes may raise entry barriers that fortify the upstream monopolist‘s position; they also contend that price squeezes may impair nonprice competition and innovation in the downstream market by driving independent firms out of business. See Brief for AAI 11–15; Concord, supra, at 23–24.
The problem, however, is that amici have not identified any independent competitive harm caused by price squeezes above and beyond the harm that would result from a duty-to-deal violation at the wholesale level or predatory pricing at the retail level. See 3A P. Areeda & H. Hovenkamp, Antitrust Law ¶ 767c, p. 126 (2d ed. 2002) (“[I]t is difficult to see any competitive significance [of a price squeeze] apart from the consequences of vertical integration itself“). To the extent a monopolist violates one of these doctrines, the plaintiffs have a remedy under existing law. We do not need to endorse a new theory of liability to prevent such harm.
IV
Lastly, as mentioned above, plaintiffs have asked us for leave to amend their complaint to bring a Brooke Group predatory pricing claim. We need not decide whether leave to amend should be granted. Our grant of certiorari was limited to the question whether price-squeeze claims are cognizable in the absence of an antitrust duty to deal. The
Plaintiffs have also filed an amended complaint, and the District Court concluded that this complaint, generously construed, could be read as alleging conduct that met the Brooke Group requirements for predatory pricing. App. to Pet. for Cert. 47a–52a, 56a. That order, however, applied the “no set of facts” pleading standard that we have since rejected as too lenient. See Bell Atlantic Corp. v. Twombly, 550 U. S. 544, 561–563 (2007). It is for the District Court on remand to consider whether the amended complaint states a claim upon which relief may be granted in light of the new pleading standard we articulated in Twombly, whether plaintiffs should be given leave to amend their complaint to bring a claim under Brooke Group, and such other matters properly before it. Even if the amended complaint is further amended to add a Brooke Group claim, it may not survive a motion to dismiss. For if AT&T can bankrupt the plaintiffs by refusing to deal altogether, the plaintiffs must demonstrate why the law prevents AT&T from putting them out of
*
*
*
Trinko holds that a defendant with no antitrust duty to deal with its rivals has no duty to deal under the terms and conditions preferred by those rivals. 540 U. S., at 409–410. Brooke Group holds that low prices are only actionable under the Sherman Act when the prices are below cost and there is a dangerous probability that the predator will be able to recoup the profits it loses from the low prices. 509 U. S., at 222–224. In this case, plaintiffs have not stated a duty-to-deal claim under Trinko and have not stated a predatory pricing claim under Brooke Group. They have nonetheless tried to join a wholesale claim that cannot succeed with a retail claim that cannot succeed, and alchemize them into a new form of antitrust liability never before recognized by this Court. We decline the invitation to recognize such claims. Two wrong claims do not make one that is right.
The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.
JUSTICE BREYER, with whom JUSTICE STEVENS, JUSTICE SOUTER, and JUSTICE GINSBURG join, concurring in the judgment.
I would accept respondents’ concession that the Ninth Circuit majority‘s “price squeeze” holding is wrong, I would vacate the Circuit‘s decision, and I would remand the case in order to allow the District Court to determine whether respondents may proceed with their “predatory pricing” claim
A “price squeeze” claim finds its natural home in a Sherman Act
I would try neither to answer these hypothetical questions here nor to foreshadow their answer. We have before us a regulated firm. During the time covered by the complaint,
Unlike Concord, the regulators here controlled prices only at the wholesale level. See 915 F. 2d, at 29. But respondents do not claim that that regulatory fact makes any difference; and rightly so, for as far as I can tell, respondents could have gone to the regulators and asked for petitioners’ wholesale prices to be lowered in light of the alleged price squeeze. Cf. FPC v. Conway Corp., 426 U. S. 271, 279 (1976); 3 Areeda & Turner, supra, ¶ 726e, at 219–220.
Respondents now seek to show only that the defendant engaged in predatory pricing, within the terms of this Court‘s decision in Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U. S. 209 (1993). The District Court can determine whether there is anything in the procedural history of this case that bars respondents from asserting their predatory pricing claim. And if not, it can decide the merits of that claim. As I said, I would remand the case so that it can do so.