Pacific Bell Telephone Co. v. linkLine Communications: Supreme Court Limits Price-Squeeze Antitrust Claims

On February 25, the U.S. Supreme Court released its opinion in Pacific Bell Telephone Co. v. linkLine Communications, a closely watched case challenging the pricing policies of Pacific Bell (which became AT&T) in relation to DSL Internet services. In its opinion, the Court adopted a new two-part standard for assessing "price-squeeze" antitrust claims. Lower courts had previously interpreted the antitrust laws to prohibit vertically integrated firms from charging wholesale prices that prevented downstream rivals from competing at the retail level. Specifically, courts had found antitrust violations where the wholesale prices were "too high" in relation to low retail prices to allow firms purchasing from the integrated producer at wholesale from earning a "fair profit" through retail sales.

In linkLine, however, the Supreme Court held that vertically integrated producers are not subject to antitrust liability for such "price-squeezes" unless they (1) had an "antitrust duty to deal" with their competitors at the wholesale level, and (2) engaged in "predatory pricing" at the retail level of competition. As a practical matter, this standard effectively forecloses "price-squeeze" antitrust claims except in the most extreme circumstances.

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