The essential facility or essential facilities doctrine is a theory of antitrust liability which states, in broadest and simplified form, that a firm or consortium which controls a sufficiently important resource may be compelled to share that resource with its competitors. The origins, authority, boundaries, and desirability of the doctrine are all subjects of academic debate.
In this paper I attempt to define the "essential facilities doctrine" as it stands today, in light of the recent Supreme Court decision in Law Offices of Curtis V. Trinko v. Verizon, 540 U.S. 398 (2004). This will require a very brief review of the history of the doctrine, but the bulk of this paper will be an attempt to disentangle the factors courts have cited in making essential facilities decisions. Economic and policy rationales will be examined as they appear, but the primary focus here will be on ascertaining the current state of the law and its likely future direction.< As we shall see, this is no easy task.
In the recent Trinko case the Court limited the applicability of the essential facility doctrine. In doing so it relied heavily on a pair of writings[1] by Phillip Areeda, who characterized the essential facilities doctrine as in need of limitation. This may signal a general hostility to the doctrine by the court. Indeed, the head of the Antitrust Division has suggested that in the few years prior to Trinko the doctrine had already been in disfavor throughout the judicial system. R. Hewitt Pate, the Common Law Approach and Improving Standards for Analyzing Single Form Conduct, speech to 30th Annual conference on International Antitrust Law and Policy, Fordham Corporate Law Institute, October 23, 2003.[2] Trinko may thus represent a turning point, or at least a highly visible sign of a recent turn, in the evolution of a legal doctrine that traces its roots back to 1912.
At infrequent intervals in a small number of cases, the Supreme Court announced further rulings consistent with the general idea that a monopolist had a duty to share a sufficiently crucial facility upon nondiscrimnatory terms. In Associated Press v. United States, 326 U.S. 1 (1945), an association for sharing international news reports was not allowed to exclude from membership the competitors of existing members. In Lorain Journal Co. v. United States, 72 S. Ct. 181 (1951), a newspaper was forced to allow advertising from businesses who also advertised in competing media. And in Otter Tail Power Co. v. United States, 410 U.S. 366 (1973), an electric utility was forced to allow a competitor to transmit power over its lines. None of these cases, however, used the phrase essential facility, nor can they be said in themselves to have established a coherent doctrine. Decades later, after a formal essential facilities doctrine had been developed in lower courts, the Supreme Court still declined to rely on it, using other grounds to decide leading cases including Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985) and Trinko itself.
At the circuit court level, the phrase "essential facility" makes its first appearance in Hecht v. Pro-Football, Inc., 570 F.2d 982 (D.C. Cir. 1977) cert. denied, 98 S. Ct. 3069 (1978), a case in which the promoter of a proposed new football team demanded access to RFK stadium in Washington.[3] The court in that case used essential facility theory as a synonym for "bottleneck theory", citing a 1960 treatise for the latter phrase.[4] Hecht, 570 F.2d at 992. The plaintiff in Hecht won a new trial because of the trial judges failure to give the following jury instruction:
[I]f the jury found
(1) that use of RFK stadium was essential to the operation of a professional
football team in Washington;
(2) that such stadium facilities could not practicably be duplicated by
potential competitors;
(3) that another team could use RFK stadium in the Redskins' absence without
interfering with the Redskins' use; and
(4) that the restrictive covenant in the lease prevented equitable sharing of
the stadium by potential competitors, then the jury must find the restrictive
covenant to constitute a contract in unreasonable restraint of trade, in
violation of Sherman Act 1 and 3.
Hecht , 570 F.2d at 993.
Five years after Hecht, in the case of MCI Communications Corp. v. American Tel. & Tel. Co.,, 708 F.2d 1081 (7th Cir.1982), the elements of an essential facilities claim were set out in what has become their canonical form, adopted verbatim by all but two circuits[5] over the next decade. The elements are:
Note that despite this uniformity of definition, there are some differences among the circuits over the application of the doctrine. We shall return to these later.
As is abundantly clear from comparison of the wording of the Trinko decision with that of his 1989 article, one man may take most of the credit (or blame) for judicial qualms about the essential facilites doctrine. That man is Phillip Areeda. His 1978 treatise [6] urged limiting any duty to deal to cases involving multiple firms jointly acquiring vertically integrated facilities. Phillip Areeda & Donald Turner, Antitrust Law pp. 723-736 (1978). The 1978 treatise apparently failed to anticipate the flowering of the essential facilities doctrine, but Areedas 1989 article remedied that oversight in scathing language: "You will not find any case that provides a consistent rationale for the doctrine or that explores the social costs and benefits... . It is less a doctrine than an epithet." P. Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 Antitrust L. J. 841 (1989), at 841. Later editions of his treatise were even more categorical. See Phillip Areeda & H. Hovencamp, Antitrust Law (2d Ed. 2002) at P 771c (urging that the essential facilities doctrine be abandoned); Phillip Areeda & H. Hovencamp, Antitrust Law (2004 supp.) (we continue to believe that the essential facility doctrine should be abandoned).
The Trinko case was a class action brought by a law firm which was a customer of Verizon (known as Bell Atlantic at the time the suit was filed). Verizon was the local phone company (Incumbent Local Exchange Carrier) in New York. The plaintiffs argued that certain Verizon-owned networking equipment constituted an essential facility for the market for competitive local telephone services. That market was a creation of the 1996 Telecommunications Act.
The FCC had imposed a $3 million fine (consent decree) on Verizon for its failure to live up to its obligations under the 1996 Act. Trinko sued seeking antitrust damages as well. The defendant's motion to dismiss was granted by the district court, 123 F. Supp. 2d 738 (SDNY 2000), but the Second Circuit reversed, 305 F.3d 89 (2d Cir 2002). The Supreme Court ruled in favor of the defendant.
At first glance, the Supreme Courts holding in Trinko does not appear to change the essential facilities doctrine. As a matter of fact, the Court stated that Trinko is not an essential facilities case at all. Trinko, 124 S. Ct. 872 at 881 (We have never recognized such a doctrine, and we find no need either to recognize it or to repudiate it here. [citation omitted]). However, the Trinko ruling (and two companion cases, disposed of in a single sentence each) reversed the decisions of three circuit courts which had applied the essential facilities doctrine to the same set of facts. Trinko 305 F.3d 89 (2d cir 2002) (revd, Trinko 124 S. Ct. 872 (2004)); Covad Communications Co. v. BellSouth Corp., 299 F.3d 1272 (11th Cir 2002) (revd Bellsouth Corp. v. Covad Communications Co., 124 S. Ct. 1143 (2004) , dismissed as to essential facilities on remand, 374 F.3d 1044 (11th Cir. 2004); Metronet Servs. Corp. v. U.S. West Communs., 329 F.3d 986 (9th Cir 2003) revd Qwest Corp. v. MetroNet Servs. Corp., 124 S. Ct. 1144 (2004); summary judgement granted to defendant on remand, Metronet Servs. Corp. v. Qwest Corp., 383 F.3d 1124 (9th Cir. 2004).
The Supreme Court's decision not to apply the essential facility doctrine came about because the Court, though disclaiming any intention of examining the doctrine, created a significant new limitation on the doctrines application. Specifically, Trinko held that where a government agency has powers to enforce access to a facility, the essential facilities doctrine will not apply.
The Court reached its conclusion (ie that certain agency-regulated scenarios are excluded from the purview of the essential facilities doctrine) from the following statement: where access exists, the doctrine serves no purpose. Trinko, 124 S. Ct. at 881, quoting Phillip Areeda & H. Hovencamp, Antitrust Law, p. 150, P 773e (2003 Supp.) (essential facility claims should . . . be denied where a state or federal agency has effective power to compel sharing and to regulate its scope and terms). On its face, the Courts statement appears almost tautological - after all, denial of access is the third element of the doctrine. But both the statement itself and the conclusion the Court drew from it are logically faulty.
First, the statement itself is deceptive, because it overlooks a robust (though not unanimous) line of precedent, going all the way back to Terminal Railroad, holding that the mere existence of access is insufficient; rather access must be upon fair terms. See, e.g., Terminal Railroad, 32 S. Ct. 507 (citing arbitrary and discriminatory fee structure in finding Sherman Act violation); Delaware & Hudson 902 F.2d 174, 179-180 (2d Cir 1990) (there need not be an outright refusal to deal It is sufficient if the terms are unreasonable. (citing Terminal RR)); Southern Pac. Communications Co. v. AT&T, 740 F.2d 980, 1009(D.C. Cir. 1984), cert. denied, 470 U.S. 1005 (1985) ("just and reasonable terms required); but c.f. Ideal Dairy Farms v. John Labatt, Ltd., 90 F.3d 737 (3d Cir 1996) (discriminatory pricing does not constitute denial of access).
If the essential facilities doctrine is to have any meaning, a monopolist must not be able to avoid liability merely by opening its gate a hairs breadth. Surely a consortium of shipping companies, who together own all bridges across the Mississippi and generally refuse to allow competing truckers to use the bridges, is still guilty of illegal restraint of trade even if it allows competing truckers to use the bridge on one day each year. [7]
Second, the Trinko holding stretches the meaning of Areedas language beyond the breaking point. By treating agency power to enforce access as equivalent to access, the Court turns a blind eye to the facts. Trinko and its two companion lawsuits were filed precisely because, despite the presence of a regulatory agency, access was denied. The Court also appears to be overturning its own holding in Otter Tail Power Co. v. United States, 410 U.S. 366 (1973), a point to which we shall return later.
Why did the court feel the need to resort to such semantic legerdemain? A general animus toward the essential facilities doctrine cannot be ruled out, but a more prosaic explanation is a better fit with the evidence available. Trinko is a difficult case in which to find liability, for several reasons including: 1) the intrusive nature of the access demanded by the plaintiff, including physical installation of equipment on the defendants property; 2) the absence of prior dealing between the competitor and the defendant, and thus the absence of various indicia of both anticompetitive intent and the feasibility of imposing access, upon which prior cases had relied; 3) the fact that the defendant is a single firm, not a consortium; and 4) the unusual nature of the 1996 Federal Telecommunications Act (FTCA), upon which the duty to provide access was predicated. We shall return later to all of these factors except the first (the intrusiveness of the particular access demanded), which needs no explanation.
Turning immediately to the fourth factor, to appreciate the unusual nature of the FTCA it is important to recall the relationship (or distance) between the FTCA and antitrust law. The FTCA contains a saving clause, stating that it does not alter traditional antitrust rules. 110 Stat. 56 section 601(b)(1). [8] Thus, the Court reasoned, for an antitrust remedy to be available, the defendant must have violated an antitrust rule (such as the essential facilities doctrine) considered without regard to additional duties imposed by the FTCA. The Court took care to maintain this crucial distinction between duties imposed by the FTCA and duties imposed by the rules of traditional antitrust. Trinko, 124 S. Ct. at 881.
Under traditional antitrust principles (of which the essential facilities doctrine may be one), monopolization is not illegal, nor is monopoly pricing. Only improper actions in obtaining or maintaining a monopoly will be punished. [9] See, e.g., United States v. Grinnell Corp., 86 S. Ct. 1698, 1703 (1966) ("[T]he willful acquisition or maintenance of [monopoly] power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident is required for the Sherman Act to be violated.)
The FTCA, in contrast, had as its goal the creation of new competition by breaking up local telephone monopolies without regard to those monopolies conduct. A traditional antitrust remedy as provided by the essential facilities doctrine would therefore be inappropriate unless the defendant also had an antitrust duty to provide access, independent of the FTCA. The court found (overruling three circuit courts [10]) that no such duty existed, so it declined to apply an essential facilities remedy.
That is all well and good and possibly even correct on the facts of the case (though that is hard to judge on a motion to dismiss). It is unfortunate, however, that the Court stated no genuine doctrinal reason [11] for finding no duty to provide access but instead resorted to saying merely that access exists in the presence of regulatory oversight. It is not at all clear from this language what degree of regulatory oversight is sufficient to constitute access, thus opening up the possiblity of expansive interpretation by a defendant in virtually any industry.
Furthermore, the Court fails to give clear guidance about the situations in which traditional antitrust might impose a duty to share such as was found in Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985). The Court characterizes that case as one at or near the outer boundary of section 2 liability [12] but says little about how the boundary can be discerned. To the extent that Trinko provided an opportunity to address that question, it was an opportunity missed.
In addition to the four elements of the traditional essential facilities test, various additional factors come into play when courts actually apply the doctrine. Trinko adds regulatory oversight to this list. Other factors considered here are prior dealing and short-term sacrifice by the monopolist, the sometimes-divergent treatment of single-firm conduct compared to multi-firm conduct, and (briefly) the type of competition required.
Newly enshrined by Trinko as a critical addition to the traditional four elements, the question of regulatory oversight will probably dominate future discussions of the essential facilities doctrine. This section examines three aspects of the question: first, what the Trinko decision portends for regulated industries in general; second, how the regulation in the Trinko case compares to that in Otter Tail Power Co. v. United States, 410 U.S. 366 (1973), a similar case reaching an opposite result; and third, the policy rationale relied on by the Trinko court in support of its laissez-faire holding. Each of these aspects raises more questions than it answers.
It is possible to read the Trinko decision as bearing on the larger question of judicial power. Read broadly, Trinko might express the attitude that courts should refuse to intervene in any industry where a regulatory agency already has quasi-judicial powers, regardless of whether the agency has been effective in enforcing justice. This reading is similar, but not identical, to questions of immunity or exclusive, primary, or secondary agency jurisdiction. See generally Areeda & Hovenkamp, Antitrust Law P.242(c) and P 244(d).
The Trinko court clearly found that there was no express nor implied immunity in this case. That the Court did not discuss the idea of primary jurisdiction is not surprising, as the agency had already acted in this case. [13] The Court was being asked not to review an agency decision but to enforce an antitrust remedy for conduct that had already been found illegal by the agency. The question in Trinko was not whether an agencys determination about antitrust harms deserves deference, nor whether or not an agency decision can be appealed, but whether the mere existence of agency regulation should be a factor in enforcing the antitrust laws.
The Trinko court answered in the affirmative. In finding no antitrust violation, the Court considered the presence of FCC enforcement. [14] As discussed below in the context of a comparison with Otter Tail, the Court felt that Congress specific grant of antitrust powers to the FCC sufficiently diminishes the likelihood of anticompetitive harm, Trinko at 881, that the Court need not extend its inquiry into the actual facts. Thus while the Court retains its rights of judicial review and antitrust enforcement in principle, in practice it has signaled a degree of unwillingness to interfere in regulated industries, which may be a change from past practice. The practical significance of this is unclear, as it may apply only to cases like Trinko in which regulation attempts to actively create a new market from an existing monopoly.
A detailed comparison with the similar case of Otter Tail reveals a number of flaws and inconsistencies in the Trinko courts reasoning. In the end, it appears that the inconsistencies between the two cases are sufficient that Trinko may be regarded as a de facto overruling of Otter Tail.
Though not decided on the basis of the essential facilities doctrine, the case of Otter Tail Power Co. v. United States, 410 U.S. 366 (1973), is apposite because it applied the related doctrine of refusal to deal. The case turned (in part) on whether the defendant electric company could be held liable under the antitrust laws for refusing to deal with competitors requesting interconnection when the Federal Power Act, 16 U.S.C.S. 824, gave the FPC the power to order (and enforce) such interconnections. The Court held the defendant liable, holding that there is nothing in the legislative history which reveals a purpose to insulate electric power companies from the operation of the antitrust laws. Otter Tail, 410 U.S. at 373, 374.
The Trinko court purported to reach the same conclusion thirty years later when considering the FTCA. Trinko, 540 U.S. at 878 (Section 601(b)(1) of the 1996 Act bars a finding of implied immunity.). The Trinko Court then went on to state the uncontroversial converse proposition: the 1996 Act does not create new claims that go beyond existing antitrust standards Id. The legislative intent of the FTCA was not discussed further.
Beyond the question of immunity, Trinko raises questions of deference to regulatory agencies by the judiciary. The Trinko court appears to have been deferring to the FCC in affirming that
[o]ne factor of particular
importance [in finding a lack of duty to provide access] is the existence of a
regulatory structure designed to deter and remedy anticompetitive harm... The
regulatory framework that exists in this case demonstrates how, in certain
circumstances, regulation significantly diminishes the likelihood of major
antitrust harm.
Trinko, 540 U.S. at 881 (quoting Concord v. Boston Edison Co., 915 F. 2d at 25). The mere presence of a regulatory framework apparently satisfied the Court that it need not consider whether any harm actually occurred.
How does this analysis compare with that in Otter Tail? In that case, though the FPC had power to order interconnections for reasons including antitrust grounds, the antitrust considerations were found to be not determinative of FPC action. Otter Tail410 U.S. at 373. It may thus be possible to distinguish the two cases based on differences in how effectively the two regulations were designed to deter and remedy anticompetitive harm. It is also possible, however, that the purported differences between the regulations are primarily conclusory in nature. In the next several paragraphs I will attempt a comparison of the two statutes before returning to the idea that reasons other than differences between the statutes might better explain the different results of the two cases.
It is difficult to compare two such large and detailed statutes as the Federal Power Act and the 1996 Telecommuni-cations Act, neither of which appear primarily designed to deter and remedy anticompetitive harm. Still, it may be noted that the Telecommunications Act contains a section titled Development of Competitive Markets which sets out eleven distinct duties for existing local phone companies (incumbent local exchange carriers or ILECs). 110 Stat. 56 section 251.
In comparison, the Federal Power Act has a much smaller section titled (in part) preservation of competitive relationships which merely directs that 1) No order may be issued under subsection (a) unless the Commission determines that such order would reasonably preserve existing competitive relationships. 16 USCS 824j(c). Other sections of the Act, however, give the Commission power to order various specific actions (eg, interconnection) and to regulate prices in great detail. E.g., 16 USCS 824i (interconnection); 16 USCS 824g (price). Given the great and detailed authority granted the Commission by the FPA and the requirement that the Commission may not act in ways harmful to competition, it is at least arguable that the FPA was designed to deter and remedy anticompetitive harm[15] to a similar extent as the 1996 Telecommunications Act. At the very least, the FPA was sufficient to diminish the likelihood of major antitrust harm, which was all the Trinko court required of the 1996 Act [16].
There is, however, one distinct difference between the two Acts, though it is perhaps not immediately apparent from their texts. [17] Historically, regulatory schemes such as the FPA imposed sharing but permitted monopolists to recoup their costs - usually setting rates based on cost plus or fair value measurements which in effect usually allowed incumbents to charge a monopoly price or close to it. In contrast, the Court in 2002 gave its blessing to the idea that the FTCA allowed the FCC to impose competitive rates that were likely to be lower than the incumbent monopolists actual costs. Verizon Communications v. FCC, 122 S. Ct. 1646 (2002). Why the Trinko court chose to characterize this difference in terms of the law being designed to deter and remedy anticompetitive harm remains a mystery.
Areeda and Hovenkamp find yet another difference between the two statutes. They state that the Federal Power Act, unlike the FTCA, did not authorize a regulatory agency to compel sharing. Their conclusion, famously quoted in the Trinko case, that essential facilities claims should be denied where a state or federal agency has effective power to compel sharing [18], is stated by Areeda and Hovenkamp to have as its logical basis the Supreme Courts Otter Tail decision, which forced an electric utility to wheel power because the statutory authorization to the Federal Power Commission failed to give that agency the power to order wheeling. P. Areeda & H. Hovenkamp, Antitrust Law 2004 Supp. at 193.
Areeda & Hovenkamp are right to point to the FPCs lack of authority to order wheeling as an important factor in the Otter Tail courts decision to grant an antitrust remedy, but they oversimplify both the Federal Power Act and the manner in which the Court interpreted it. Though the Otter Tail courts characterization of the FPCs powers is confusing at best, [19] that court did conclude that the specific form of sharing sought by the plaintiffs, namely wheeling, was not authorized by the FPA.[20] Otter Tail, 410 U.S. at 375. This, however, was but one part of the Courts analysis.
As discussed previously, the Otter Tail court considered this limitation on the FPCs power in the course of finding that the FPA conveyed no antitrust immunity: "[t]here is no basis for concluding that the limited authority of the Federal Power Commission to order interconnections was intended to be a substitute for, or to immunize Otter Tail from, antitrust regulation for refusing to deal with municipal corporations." Otter Tail, 410 U.S. at 374,375. Furthermore, the FPA did not preclude the specific remedy granted by the lower court: Insofar as the District Court ordered wheeling to correct anticompetitive and monopolistic practices of Otter Tail, there is no conflict with the authority of the Federal Power Commission. Otter Tail, 410 U.S. at 376.
Though Areeda & Hovenkamp might lead their reader to conclude that the Otter Tail court ended its analysis with the observation that wheeling was beyond the FPAs scope, in fact it also considered actions that were explicitly within the FPCs power to compel, namely defendants refusal to set up interconnections. The commission had clear power to compel these, though only if a power company refuses to interconnect voluntarily. Otter Tail, 410 U.S. at 373. Upon this slim hope of initial voluntary action the Court built an edifice of legislative intent to preserve antitrust remedies: "When these relationships are governed in the first instance by business judgment and not regulatory coercion, courts must be hesitant to conclude that Congress intended to override the fundamental national policies embodied in the antitrust laws." Id. at 374 (citation omitted and emphasis added).
Thus the Otter Tail majority did not view lack of wheeling authority in isolation as determinative of the Courts power. Rather, it was but one of several lines of evidence of congressional intent to preserve the judicial antitrust role. Accordingly, Areeda & Hovenkamp's analysis of Otter Tail, with its narrow focus on wheeling, overstates the importance of effective power to compel sharing to the Courts conclusion. The applicability of their analysis to the facts of Trinko is therefore correspondingly weakened. Effective power to compel sharing is not in itself logically sufficient grounds for nonintervention.
It is interesting to note that the dissent in Otter Tail, in which Judge Rehnquist joined, stated as their chief complaint: "Nowhere did the District Court come to grips with the significance of the Federal Power Act, whose regulatory apparatus and policy considerations should have been central to the disposition of this case." Otter Tail , 410 U.S. at 383. It is also noteworthy that the dissent sounded the now-familiar theme of a highly regulated industry wholly different from those that have given rise to ordinary antitrust principles Otter Tail, 410 U.S. at 382. In this light, Trinko may be viewed as the vindication of the Otter Tail minority, or even as an unofficial reversal of that precedent. If that view is correct, then it is largely a waste of time to seek fine distinctions between the FPA and the FTCA when trying to explain the differing results of Otter Tail and Trinko.
The Trinko court devoted much of its time to policy arguments tending to show that application of antitrust liability to the facts of Trinko would be economically wasteful and likely to result in injustice. The problem with these arguments is that the Court fails to show why they apply with more force to the facts of Trinko than to virtually any other antitrust case.
The Court spills much ink over the problem of [m]istaken inferences and the resulting false condemnations. Trinko at 882. According to the Court, this problem arises because the means of illicit exclusion, like the means of legitimate competition, are myriad Id. (quoting United States v. Microsoft Corp., 253 F.3d 34, 58 (DC Cir 2001)). In other words, it is so difficult to distinguish between legitimate and illegitimate exclusion that the court should refrain from making the attempt, for fear of chilling legitimate exclusion. The Court believes that because acts of illegitimate exclusion are both highly technical and extremely numerous, a generalist antitrust court should refrain from wading into this field. Trinko at 883. The Court is, in effect, declaring itself (and all the lower courts) incompetent. While this may be an accurate assessment, it does little to distinguish the Trinko case from myriad other highly technical and extremely numerous kinds of cases in which courts do not hesitate to intervene.
The Trinko court also borrowed from Areedas 1989 article to argue that no court should impose a duty to deal that it cannot explain or adequately and reasonably supervise. Trinko, 124 S. Ct. at 883 (quoting 58 Antitrust L. J. 841 (1989)). Apparently the Court felt that the situation in Trinko fell into the category of unxplainable or unsupervisable duties. Why it thought so is not entirely clear. The standard of conduct sought was adequately explained in the FTCA, and the details of dealing, such as how prices should be set, had already been worked out by the agency and endorsed by the Supreme Court.[21] In such a situation the idea of supervision is a red herring. Furthermore, even absent advance agreement on such details, there is no logical reason why the courts cannot provide damages for unmistakable past misconduct in the cases where a litigant brings them to the courts attention. Trinko is such a case.
The Trinko court distinguished Trinko from Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 (1985), [t]he leading case for 2 liability based on refusal to cooperate with a rival, Trinko at 779, largely because in Aspen, prior to the refusal that caused the lawsuit, the defendant had voluntarily provided the very access being demanded, and, the defendant's unwillingness to renew the ticket even if compensated at retail price revealed a distinctly anticompetitive bent. Trinko at 880 (emphasis in original).
Though the Court does not entirely foreclose the possibility of proving anticompetitive intent by other means, the Trinko decisions discussion, especially in light of its characterization of Aspen as at or near the outer boundary of section 2 liability, Id. at 779, practically requires not only prior dealing, but sufficient information about pricing to infer that the defendant engaged in short-term profit sacrifice in pursuit of monopoly.[22] [23]
The Trinko decision also distinguishes Otter Tail, supra, on similar grounds [24]:the defendant was already in the business [of providing the services at issue]. Trinko at 880. Though the Trinko Court does not make this explicit, they most likely believed that the Otter Tail defendent also sacrificed short-term profits since the defendant offered the same service to other customers.
However, Trinkos discussion of Otter Tail makes a further point: The sharing obligation imposed by the 1996 Act created something brand new --the wholesale market for leasing network elements." Trinko at 880 (quoting Verizon Communications Inc. v. FCC, 106 S. Ct. 1348). Not only has Verizon never before dealt in leasing network elements, no company in history had ever done so prior to 1996. Thus, Trinko is an extreme case. As such, Trinko is not determinative of the question of whether prior dealing or short-term sacrifice are required in refusal to deal cases- though the Court strongly hints that they may be. Trinko at 880.
The Trinko decision makes clear that the Court will be reluctant to impose section 2 liability on refusals to deal by a single firm as compared to by a consortium. Trinko at 779 (We have been very cautious because of the difficulty of identifying and remedying anticompetitive conduct by a single firm). The court uses this distinction to avoid applying Terminal Railroad and Associated Press as precedent for finding Verizon liable without prior dealing. Trinko at 880 note 3. Logically, it seems that the Court may find liability in two scenarios:
The Court justifies the lower threshold for liability for collusive action by the risk that collusive action will result in the supreme [antitrust] evil of collusive price fixing, Trinko at 879, and, because it is amenable to a remedy that does not require judicial estimation of free-market forces: simply requiring that the outsider be granted nondiscriminatory admission to the club. Trinko at 880, note 3.
The distinction between single-firm action and joint action may also help explain the inconsistencies previously noted in the courts treatment of the problem of partial refusals to deal. In many cases where courts looked for outright refusal to deal, a single firm was the defendant. Lorain Journal Co. v. United States, 72 S. Ct. 181 (1951) (liability for outright refusal to publish advertisements of customers of competing medium), Eastman Kodak Co. v. Image Technical Services, Inc., 504 U.S. 451 (1992) (analyzed primarily as a tying case, but included claim that Kodak refused to sell parts to competing service companies); Gamco v Providence 194 F.2d 484 (1st Cir. 1951) cert. denied, 344 U.S. 817 (1952) (marketplace held to be an essential facility, cannot exclude would-be seller); Olympia Leasing 797 F.2d 370 (7th Cir 1986) cert. denied, 107 S. Ct. 1574 (1987) (refusal to extend special assistance not sufficient for liability). In most cases where courts allowed liability for mere discrimination, the defendant was a consortium.
There have been other cases, however, where discriminatory access sufficed for single-firm liability. E.g., Delaware & Hudson 902 F.2d 174 (2d Cir1990) (railroad cannot discriminate in rates against other railroad); Nobody in Particular Presents, Inc. v. Clear Channel Communications, Inc., 311 F. Supp. 2d 1048 (D. Colo 2004) (radio station cannot discriminate in advertising support against competing concert promoter).
The Sixth Circuit explicitly extended its version of the essential facilities theory[25] to a business or group of businesses. Byars v. Bluff City News Co., 609 F.2d 843, 856 (6th Cir. 1979). This appears to still be the law of the Sixth Circuit. E.g., Directory Sales Mgt 833 F.2d 606 (6th Cir. 1987) (weighed essential facilities claim against phone company [a single firm]).
Further examples include Hecht v. Pro-Football, Inc., 187 U.S. App. D.C. 73, 570 F.2d 982 (D.C. Cir. 1977) cert. denied, 436 U.S. 956 (1978), and Fishman v Estate of Wirtz 807 F.2d 520 (7th Cir. 1986).
The classic four-element definition of essential facilities includes a requirement that the defendant be a competitor of the firm seeking access to its facility. The precise meaning of competitor has been the subject of some litigation. The clear recent trend in most circuits is to find that direct (horizontal) competition is a prerequisite to liability. The Second Circuits initial ruling in Trinko clearly upheld this rule (though granting standing to the end customer via Clayton Act section 15). Law Offices of Curtis v. Trinko, L.L.P., 305 F.3d 89, 108 footnote 12. (2d Cir. 2002).
With the Trinko decision, the Supreme Court has firmly aligned itself with the critics of the essential facilities doctrine. But what effects will the ruling have other than on FTCA cases?
Perhaps the most significant long-term effects can be expected from the Trinko decisions emphasis on the intent of the monopolist. As Skitol [26] has put it, "Trinko can be read as reversing [the pleading burden in refusal-to-deal cases]: [after Trinko,] plaintiffs do not allege or establish a [Sherman Act] section 2 claim unless they show anticompetitive intent and thereby eliminate the possiblity of a meaningful efficency explanation. If this reading of Trinko is correct then the Court has now made proof of bad intent an additional significant burden on plaintiffs"[27], and the essential facility doctrine, with its four strictly objective elements [28], is superfluous. If an antitrust violation can never be alleged without foreclosing the possibility of an efficiency defense, then the essential facility doctrine, which under circuit court precedent afforded a presumption of anticompetitive intent, no longer serves any purpose.
The Trinko decision does not explicitly address burdens of proof or pleading, but the fact that the case was disposed of on a motion to dismiss supports Skitol's conclusion. Even if the Court meant to stop short of imposing a new pleading burden, it is clear that the court meant to sharply limit liability for refusal to deal. The Court disposed of the case on ordinary refusal-to-deal grounds but left no room for a separate outcome on essential facilities grounds; by limiting both, one is hard-pressed to see any separate vitality remaining in the essential facility doctrine. Areeda & Hovenkamp, 2004 supp. at 202. In sum, the future of the essential facilities doctrine looks to be a short one.
The essential facilities doctrine, during its nearly thirty-year reign in the circuit courts, served as a handy description of a recognized exception to the general rule that untoward monopolistic conduct, not merely the fact of possessing a monopoly, is required before antitrust liability can be imposed. The leading recent case which arguably supports an exception to the conduct rule is Aspen. The essential facility doctrine held out the promise of linking Aspen back to Terminal Railroad and finding a robust, easily -stated rule to describe such exceptions. With its decision in Trinko, the Supreme Court has rejected this approach. Aspen is not an integral part of a larger theory of liability but an outer limit on section 2 liability whose justification rests entirely on untoward conduct. The anticompetitive nature of that conduct is made clear by the fact of Aspens prior dealing. Thus, Aspen is not an exception to the conduct rule after all.
It is not hard to find an explanation of Terminal Railroad which also conforms to the conduct rule. Since Terminal Railroad was a case about a combination of firms, the act of forming the association provides a handy action to hang ones case on. Under traditional understanding of the conduct rule, a combination that creates monopoly power is sanctionable. It thus appears that sounding the death knell of the essential facility doctrine is in no way inconsistent with Supreme Court precedent.
On the other hand, a vigorous essential facilities doctrine would in theory give rise to cases in which the monopolist engaged in no discernable antitrust misconduct. But on further reflection such cases are rare, as conduct can easily be found in most cases recently brought under an essential facilities theory. For example, in Delaware & Hudson 902 F.2d 174 (2d Cir 1990), the defendant was accused of gouging a competitor, which is sanctionable as an action in maintenance of monopoly. The only area where it is difficult to find conduct is in single-firm refusals to deal, and Aspen shows how even these cases can be brought within the conduct rule provided there is prior dealing.
Successful
use of the essential facilities doctrine is rare, and its successful use when
liability could not be found on other grounds appears to be totally
nonexistent. It therefore appears that
the essential facilities doctrine will not be greatly missed.
[1] P. Areeda, Essential Facilities: An Epithet in Need of Limiting Principles, 58 Antitrust L. J. 841 (1989)
[2] Pate conducted a review of 90 essential facilities cases over the previous five years, and found that the vast majority of those were dismissed on the pleadings, and [we found] not a single final judgement in the plaintiffs favor on this theory.
[3] A complicating factor in this case was the lease on the stadium. The land on which the stadium was built was owned by the United States; the District of Columbia (via an Armory Board) operated the stadium under contract with the Interior Department. The Armory Board leased the stadium to the Redskins (aka Pro-Football Inc.). The lease between the Armory Board and the Redskins provided that no other football team may use the stadium. Both the Board and the Redskins were defendants in the suit.
[4] The citation is to A. D. Neale, The Antitrust Laws of the U.S.A.., P. 67 (Cambridge University Press 1960). A later source, L.A. Sullivan, Antitrust 131 (1977), is also cited.
[5] The two exceptions are the 6th Circuit, where despite use of a four-element formulation by a few district courts, a simpler summary (quoted from discussion in Hecht) appears to be the rule, eg, Directory Sales Mgt 833 F.2d 606 (6th Cir 1987): where facilities cannot practicably be duplicated by would-be competitors, those in possession of them must allow them to be shared on fair terms.; and the 8th Circuit, which has adopted a nominally three-part test that closely parallels the MCI four-part test:
"(1) control of an essential facility by a monopolist; (2) the inability to practically or economically duplicate the facility; and (3) the unreasonable denial of the use of the facility to a competitor when such use is economically and technically feasible". City of Malden, Mo. v. Union Elec. Co., 887 F.2d 157, 160 (8th Cir. 1989)
[6] Co-written with Donald Turner; later editions were co-written with H. Hovenkamp.
[7] For the general idea of applying bridge and gate examples to essential facilities cases I am indebted to Glen Robinson, "Note: Rethinking the Monopolist's Duty to Deal: a Legal and Economic Critique of the Doctrine of Essential Facilities." 74 Va. L. Rev. 1069 (Sept. 1988)
[8] [With two exceptions not relevant here,] nothing in this Act or the amendments made by this Act shall be construed to modify, impair, or supersede the applicability of any of the antitrust laws.
[9] In practice, of course, many highly concentrated industries are strictly regulated, sometimes at multiple levels of government. This essay will follow the Supreme Court in choosing to regard such laws and regulations as lying outside the rubric of antitrust, though this is a purely arbitrary semantic decision, and courts in some other countries view things differently.
[10] But not all circuit courts. Compare Goldwasser v. Ameritech, 222 F.3d 390 (7th Cir. 2000), finding broadly that the FTCA is incompatible with antitrust claims.
[11] The Court did give several policy reasons why antitrust enforcement would be undesirable, which are discussed in a later section of this paper.
[12] Trinko, 124 S. Ct. at 879
[13] Courts may sometimes conclude that an agency has primary jurisdiction over certain regulated conduct. See generally Areeda & Hovenkamp, Antitrust Law P.242(c) and P 244(d). Thus agencies are sometimes allowed a first bite at a case, especially one that is technical or complex, and antitrust cases may be stayed pending an agency decision. Id at P 244(d). This doctrine does not prevent nor stay cases like Otter Tail or Trinko in which the agency has already ruled on non-antitrust grounds. Id. at P244(e).
[14] Just as regulatory context may in other cases serve as a basis for implied immunity, it may also be a consideration in deciding whether to recognize an expansion of the contours of 2. Trinko at 881(citation omited). The Courts argument is almost circular - while this is a good justification for not expanding antitrust liability, it does not adress why liability cannot be found under existing law.
[15] Trinko, 124 S. Ct. at 881.
[16] Id.
[17]< It certainly was not apparent to this writer; this difference was brought to my attention by Areeda & Hovenkamp, Antitrust Law 2004 Supp. at 190.
[18] Trinko , 124 S. Ct. at 881.
[19] To fully appreciate both the Otter Tail majority and the dissenting opinion, one must be ready to make distinctions between power to order interconnections, power to order wholesaling, power to order retailing, power to order wheeling, andcommon carrier duties, and also make a distinction between Whenever the Commission, after notice and opportunity for hearing, finds such action necessary and the Commission may [when requested by a customer]. Such discussions are beyond the scope of this paper but only when one appreciates that wheeling is not the same as interconnection can the Otter Tail decision make any sense.
[20]Subsequently, Congress amended the Federal Power Act in 1978 to grant the FPC the power to order wheeling. P.L. 95-617, Title II, 203, 92 Stat. 3136.
[21] Verizon Communications v. FCC , 122 S. Ct. 1646 (2002).
[22] The refusal to deal alleged in the present case does not fit within the limited exception recognized in Aspen Skiing. The complaint does not allege that Verizon voluntarily engaged in a course of dealing with its rivals, or would ever have done so absent statutory compulsion. Here, therefore, the defendant's prior conduct sheds no light upon the motivation of its refusal to deal--upon whether its regulatory lapses were prompted not by competitive zeal but by anticompetitive malice. The contrast between the cases is heightened by the difference in pricing behavior. In Aspen Skiing, the defendant turned down a proposal to sell at its own retail price, suggesting a calculation that its future monopoly retail price would be higher. Verizon's reluctance to interconnect at the cost-based rate of compensation available under 251(c)(3) tells us nothing about dreams of monopoly. Trinko at 880.
[23] This paragraph was written prior to reading Areeda & Hovenkamps 2004 supplement, which arrived at a similar conclusion: the Court made the existence of a previous voluntary relationship very close to dispositive. Areeda & Hovenkamp, 2004 supp. at 199. Also, the refusal must be irrational in the sense that the defendant sacrificed an opportunity to make a profitable sale only because of the adverse impact the refusal would have on a rival. Id.
[24] Similarly, in Otter Tail Power Co. v. United States, 93 S. Ct. 1022 (1973), another case relied upon by respondent, the defendant was already in the business of providing a service to certain customers (power transmission over its network), and refused to provide the same service to certain other customers. Id., 410 U.S. 366 at 370-371. In the present case, by contrast, the services allegedly withheld are not otherwise marketed or available to the public. Trinko at 880.
[25]Recall that the 6th circuit has not adopted the four-part definition of essential facility used by most other circuits. See footnote 5, supra.
[26] Skitol, Correct Answers to Large Questions about Verizon v. Trinko The AntitrustSource, May 2004. http://www.abanet.org/antrust/source/may04/skitol.pdf
[27] Id.
[28] Or five, counting absence of FTCA-like regulation