## Facts

- AT&T California was a vertically integrated provider of DSL Internet access in California, selling wholesale DSL transport to independent ISPs while also competing with them in the retail DSL market.
- Independent ISPs, including linkLine, bought wholesale DSL transport from AT&T and resold DSL Internet service to consumers.
- Federal communications regulation had historically required incumbent carriers to offer certain transmission services to competitors, though the FCC later reduced forced-sharing requirements; AT&T still had a time-limited obligation (as a merger condition) to offer wholesale DSL transport under specified pricing constraints.
- The ISPs alleged that AT&T’s high wholesale prices and low retail prices created a “price squeeze” that impaired rivals’ margins and threatened their ability to compete at retail.
- The ISPs did not plead a traditional refusal-to-deal claim and did not plead predatory pricing satisfying the below-cost and recoupment requirements associated with predatory pricing doctrine.
- The district court denied AT&T’s motion for judgment on the pleadings, concluding there was no antitrust duty to deal but allowing the price-squeeze theory to proceed.
- The Ninth Circuit affirmed on interlocutory review.
- The Supreme Court granted certiorari and reviewed whether a price-squeeze claim is cognizable under § 2 when there is no antitrust duty to deal at wholesale and no predatory pricing at retail.

## Issues

1. Whether a plaintiff may bring a § 2 Sherman Act “price squeeze” claim against a vertically integrated firm that has no antitrust duty to sell wholesale inputs to the plaintiff.
2. Whether a price-squeeze theory may proceed absent a retail predatory pricing claim meeting the Brooke Group requirements.
3. Whether § 2 recognizes a free-standing price-squeeze cause of action distinct from refusal-to-deal and predatory pricing frameworks, particularly in a regulated setting.

## Decision

- The Supreme Court reversed the Ninth Circuit and remanded.
- The Court held that no § 2 price-squeeze claim lies when the defendant has no antitrust duty to deal at the wholesale level and the plaintiff cannot establish predatory pricing at the retail level.
- The Court treated the alleged “price squeeze” as dependent on two components: (1) a challenge to wholesale dealing/terms and (2) a challenge to retail pricing.
- Because there was no antitrust duty to provide wholesale service on favorable terms, § 2 could not be used to police wholesale margins.
- Because the complaint did not allege predatory pricing under the governing test, § 2 could not be used to attack retail price cuts that remained above cost.
- The Court warned that antitrust adjudication is poorly suited to setting or supervising price relationships in a heavily regulated environment.
- A concurrence agreed the complaint failed because it did not allege predatory pricing, while expressing less categorical skepticism about all margin-squeeze theories in every context.

## Legal Principles

- A § 2 “price squeeze” claim is not cognizable where the defendant has no antitrust duty to deal with rivals at the wholesale level and the plaintiff does not plead retail predatory pricing.
- A firm with no antitrust duty to deal cannot be forced, through antitrust litigation, to provide rivals a “sufficient” wholesale margin or to offer inputs on court-supervised terms.
- Low retail prices are not unlawful under § 2 unless they meet the requirements for predatory pricing, including below-cost pricing and a dangerous probability of recoupment.
- Antitrust law does not require firms to maintain above-cost retail prices merely to preserve competitors’ margins.
- Courts should be cautious about converting regulatory access and pricing disputes into antitrust claims, particularly where a detailed regulatory scheme governs the relevant inputs and prices.

## Conclusion

The Court rejected a free-standing § 2 price-squeeze theory for a vertically integrated firm that lacked an antitrust duty to deal at wholesale and was not plausibly alleged to have engaged in retail predatory pricing, reversing the Ninth Circuit and limiting margin-squeeze allegations to recognized refusal-to-deal or predatory pricing frameworks.


Pac. Bell Tel. Co. v. linkLine Commc’ns, Inc., 555 U.S. 438 (2009)