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Law School Case Brief

Pac. Bell Tel. Co. v. linkLine Communs., Inc. - 555 U.S. 438, 129 S. Ct. 1109 (2009)

Rule:

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. 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. 

Facts:

The providers participated in both the wholesale and retail markets for DSL service and, while the providers were otherwise not required to deal with the ISPs, federal approval of a prior merger required the providers to provide wholesale DSL service to the ISPs at a price no greater than retail. The ISPs contended that the providers raised wholesale prices while cutting retail prices, resulting in the ISPs being forced to pay the higher wholesale price while cutting their own retail prices to compete with the providers. The providers appealed the judgment of the U.S. Court of Appeals for the Ninth Circuit which held that the claim was cognizable under 15 U.S.C.S. § 2.

Issue:

Did the appellate court err in holding that the claim was cognizable under 15 U.S.C.S. § 2?

Answer:

Yes

Conclusion:

The U.S. Supreme Court held that the ISPs' price-squeeze claim could not brought under § 2 since the providers were under no antitrust obligation to sell wholesale DSL service to the ISPs and there was no showing of predatory retail pricing. The providers' duty to sell to the ISPs arose from federal regulations rather than antitrust obligations under § 2, there was no allegation that the providers' retail price was below cost, and, in the absence of a duty to deal at the wholesale level and no predatory pricing at the retail level, the providers were not required to set both wholesale and retail prices in a manner which preserved the ISPs' profit margins.

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