(Slip Opinion) OCTOBER TERM, 2008 1
Syllabus
NOTE: Where it is feasible, a syllabus (headnote) will be released, as is
being done in connection with this case, at the time the opinion is issued.
The syllabus constitutes no part of the opinion of the Court but has been
prepared by the Reporter of Decisions for the convenience of the reader.
See United States v. Detroit Timber & Lumber Co., 200 U. S. 321, 337.
SUPREME COURT OF THE UNITED STATES
Syllabus
PACIFIC BELL TELEPHONE CO., DBA AT&T CALI-
FORNIA, ET AL. v. LINKLINE COMMUNICATIONS,
INC., ET AL.
CERTIORARI TO THE UNITED STATES COURT OF APPEALS FOR
THE NINTH CIRCUIT
No. 07–512. Argued December 8, 2008—Decided February 25, 2009
Petitioners (hereinafter AT&T) own infrastructure and facilities needed
to provide “DSL” service, a method of connecting to the Internet at
high speeds over telephone lines. As a condition for a recent merger,
the Federal Communications Commission requires AT&T to provide
wholesale DSL transport service to independent firms at a price no
greater than the retail price of AT&T’s DSL service. The plaintiffs in
this case, respondents here, are independent Internet service provid
ers that compete with AT&T in the retail DSL market in California.
The plaintiffs do not own all the facilities needed to supply DSL ser
vice, and must lease wholesale DSL transport service from AT&T.
They filed suit under §2 of the Sherman Act, asserting that AT&T
unlawfully “squeezed” their profit margins by setting a high price for
the wholesale DSL transport service it sells and a low price for its
own retail DSL service. This maneuver allegedly placed the plaintiffs
at a competitive disadvantage, allowing AT&T to maintain monopoly
power in the DSL market. AT&T moved for judgment on the plead
ings, arguing that the plaintiffs’ claims were foreclosed by Verizon
Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540
U. S. 398, 410, in which this Court held that a firm with no antitrust
duty to deal with its rivals has no obligation to provide those rivals
with a “sufficient” level of service. The District Court found that
AT&T had no antitrust duty to deal with the plaintiffs, but nonethe
less denied the motion, holding that Trinko did not address price
squeeze claims. The court certified its order for interlocutory appeal
on the question whether Trinko bars price-squeeze claims when the
parties are required to deal by federal communications law, but not
2 PACIFIC BELL TELEPHONE CO. v. LINKLINE
COMMUNICATIONS, INC.
Syllabus
antitrust law. The Ninth Circuit affirmed, holding that Trinko did
not address the viability of price-squeeze claims, and thus the plain
tiffs’ complaint stated a potentially valid §2 claim.
Held:
1. The case is not moot. The plaintiffs now agree that their claims
must meet the Brooke Group test for predatory pricing, apparently
apart from their price-squeeze theory. That test established two re
quirements 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. Despite the plaintiffs’ new position, the par
ties continue to seek different relief: AT&T seeks reversal of the deci
sion below and dismissal of the complaint, while the plaintiffs seek
leave to amend their complaint to allege a Brooke Group claim. It is
also not clear that the plaintiffs have unequivocally abandoned their
price-squeeze claims. Prudential concerns favor answering the ques
tion presented; absent a decision on the merits, the Circuit conflict
that this Court granted certiorari to resolve would persist. Pp. 5–7.
2. A price-squeeze claim may not be brought under §2 when the de
fendant has no antitrust duty to deal with the plaintiff at wholesale.
Pp. 7–17.
(a) Businesses are generally 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. But
in rare circumstances, a dominant firm may incur antitrust liability
for purely unilateral conduct, such as charging “predatory” prices.
Brooke Group, supra, at 222–224. There are also limited circum
stances in which a firm’s unilateral refusal to deal with its rivals can
give rise to antitrust liability. See Aspen Skiing Co. v. Aspen High
lands Skiing Corp., 472 U. S. 585, 608–611. Here, plaintiffs do not
allege predatory pricing, and the District Court concluded that there
was no antitrust duty to deal. Plaintiffs challenge a different type of
unilateral conduct in which a firm “squeezes” its competitors’ profit
margins. This requires the defendant to operate in both the whole
sale (“upstream”) and retail (“downstream”) markets. By raising the
wholesale price of inputs while cutting its own retail prices, the de
fendant can raise competitors’ costs while putting downward pres
sure on their revenues. Price-squeeze plaintiffs assert that defen
dants must leave them a “fair” or “adequate” margin between
wholesale and retail prices. Pp. 7–9.
(b) Where there is no duty to deal at the wholesale level and no
predatory pricing at the retail level, a firm is not required to price
both of these services in a manner that preserves its rivals’ profit
margins. Pp. 9–12.
Cite as: 555 U. S. ____ (2009) 3
Syllabus
(1) Any challenge to AT&T’s wholesale prices is foreclosed by a
straightforward application of Trinko. The claim in Trinko addressed
the quality of Verizon’s support services, while the claims in this case
challenge AT&T’s pricing structure. But for antitrust purposes, there
is no meaningful distinction between price and nonprice components
of a transaction. The nub of the complaint in both cases is identical—
the plaintiffs alleged that the defendants (upstream monopolists)
abused their power in the wholesale market to prevent rival firms
from competing effectively in the retail market. But a firm with no
antitrust duty to deal in the wholesale market has no obligation to
deal under terms and conditions favorable to its competitors. See
Trinko, supra, at 410. Had AT&T simply stopped providing DSL
transport service to the plaintiffs, it would not have run afoul of the
Sherman Act. Thus, it was not required to offer this service at the
wholesale prices the plaintiffs would have preferred. Pp. 9–10.
(2) The other component of a price-squeeze claim is the asser
tion that the defendant’s retail prices are “too low.” Here too plain
tiffs’ claims find no support in existing antitrust doctrine. “[C]utting
prices in order to increase business often is the very essence of com
petition.” Matsushita Elec. Industrial Co. v. Zenith Radio Corp., 475
U. S. 574, 594. To avoid chilling aggressive price competition, the
Court has carefully limited the circumstances under which plaintiffs
can state a Sherman Act claim by alleging that the defendant’s prices
are too low. See Brooke Group, supra, at 222–224. The complaint at
issue here has no allegation that AT&T’s conduct met either Brooke
Group requirement. Recognizing a price-squeeze claim where the de
fendant’s retail price remains above cost would invite the precise
harm the Court sought to avoid in Brooke Group: Firms might raise
retail prices or refrain from aggressive price competition to avoid po
tential antitrust liability. See 509 U. S., at 223. Pp. 11–12.
(c) Institutional concerns also counsel against recognizing such
claims. This Court has repeatedly emphasized the importance of
clear rules in antitrust law. 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. Courts
would be aiming at a moving target, since it is the interaction be
tween these two prices that may result in a squeeze. Moreover, firms
seeking to avoid price-squeeze liability will have no safe harbor for
their pricing practices. The most commonly articulated standard for
price squeezes is that the defendant must leave its rivals a “fair” or
“adequate” margin between wholesale and retail prices; this test is
nearly impossible for courts to apply without conducting complex pro
ceedings like rate-setting agencies. Some amici argue that a price
squeeze should be presumed if the defendant’s wholesale price ex
4 PACIFIC BELL TELEPHONE CO. v. LINKLINE
COMMUNICATIONS, INC.
Syllabus
ceeds its retail price. But if both the wholesale price and the retail
price are independently lawful, there is no basis for imposing anti
trust liability simply because a vertically integrated firm’s wholesale
price is greater than or equal to its retail price. Pp. 12–15.
(d) The District Court on remand should consider whether an
amended complaint filed by the plaintiffs states a claim upon which
relief may be granted under the pleading standard articulated in Bell
Atlantic Corp. v. Twombly, 550 U. S. 544, 561–563; whether plaintiffs
should be given leave to amend their complaint to bring a Brooke
Group claim; and such other matters properly before it. Pp. 15–17.
503 F. 3d 876, reversed and remanded.
ROBERTS, C. J., delivered the opinion of the Court, in which SCALIA,
KENNEDY, THOMAS, and ALITO, JJ., joined. BREYER, J., filed an opinion
concurring in the judgment, in which STEVENS, SOUTER, and GINSBURG,
JJ., joined.
Cite as: 555 U. S. ____ (2009) 1
Opinion of the Court
NOTICE: This opinion is subject to formal revision before publication in the
preliminary print of the United States Reports. Readers are requested to
notify the Reporter of Decisions, Supreme Court of the United States, Wash
ington, D. C. 20543, of any typographical or other formal errors, in order
that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
_________________
No. 07–512
_________________
PACIFIC BELL TELEPHONE COMPANY, DBA AT&T
CALIFORNIA, ET AL., PETITIONERS v. LINKLINE
COMMUNICATIONS, INC., ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[February 25, 2009]
CHIEF JUSTICE ROBERTS delivered the opinion of the
Court.
The plaintiffs in this case, respondents here, allege that
a competitor subjected them to a “price squeeze” in viola
tion of §2 of the Sherman Act. They assert that such a
claim can arise when a vertically integrated firm sells
inputs at wholesale and also sells finished goods or ser
vices at retail. If that firm has power in the wholesale
market, it can simultaneously raise the wholesale price of
inputs and cut the retail price of the finished good. This
will have the effect of “squeezing” the profit margins of
any competitors in the retail market. Those firms will
have to pay more for the inputs they need; at the same
time, they will have to cut their retail prices to match the
other firm’s prices. The question before us is whether
such a price-squeeze claim may be brought under §2 of the
Sherman Act when the defendant is under no antitrust
obligation to sell the inputs to the plaintiff in the first
place. We hold that no such claim may be brought.
2 PACIFIC BELL TELEPHONE CO. v. LINKLINE
COMMUNICATIONS, INC.
Opinion of the Court
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 Commis
sion (FCC) required incumbent phone companies such as
AT&T to sell transmission service to independent DSL
providers, under the theory that this would spur competi
tion. See In re Appropriate Framework for Broadband
Access to Internet over Wireline Facilities, 20 FCC Rcd.
14853, 14868 (2005). In 2005, the Commission largely
abandoned this forced-sharing requirement in light of the
emergence of a competitive market beyond DSL for high
speed Internet service; DSL now faces robust competition
from cable companies and wireless and satellite services.
Id., at 14879–14887. As a condition for a recent merger,
however, AT&T remains bound by the mandatory inter
connection requirements, and is obligated to provide
wholesale “DSL transport” service to independent firms at
a price no greater than the retail price of AT&T’s DSL
service. In re AT&T Inc. and BellSouth Corp., 22 FCC
Rcd. 5662, 5814 (2007).
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
——————
1 Petitioners
consist of several corporate entities and subsidiaries,
and their names and corporate structures have changed frequently over
the course of this litigation. For simplicity, we will refer to all the
petitioners as “AT&T.”
Cite as: 555 U. S. ____ (2009) 3
Opinion of the Court
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 partici
pates 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 §2 of the Sherman Act,
15 U. S. C. §2, by monopolizing the DSL market in Cali
fornia. The complaint alleges that AT&T refused to deal
with the plaintiffs, denied the plaintiffs access to essential
facilities, and engaged in a “price squeeze.” App. 18–19.
Specifically, plaintiffs contend that AT&T squeezed their
profit margins by setting a high wholesale price for DSL
transport and a low retail price for DSL Internet service.
This maneuver allegedly “exclude[d] and unreasonably
impede[d] competition,” thus allowing AT&T to “preserve
and maintain its monopoly control of DSL access to the
Internet.” Ibid.
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 “suffi
cient” level of service. Shortly after we issued that deci
sion, 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 anti
trust 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.” Id., at 86a. The District Court also noted
that price-squeeze claims have been recognized by several
Circuits and “are cognizable under existing antitrust
4 PACIFIC BELL TELEPHONE CO. v. LINKLINE
COMMUNICATIONS, INC.
Opinion of the Court
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 prob
ability’ ” 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 con
strued,” 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.
On interlocutory appeal, the Court of Appeals for the
Ninth Circuit affirmed the District Court’s denial of
AT&T’s motion for judgment on the pleadings on the price
squeeze claims. 503 F. 3d 876 (2007). The court empha
sized that “Trinko did not involve a price squeezing the
ory.” Id., at 883. Because “a price squeeze theory formed
part of the fabric of traditional antitrust law prior to
Trinko,” the Court of Appeals concluded that “those claims
should remain viable notwithstanding either the telecom
munications statutes or Trinko.” Ibid. Based on the
record before it, the court held that plaintiffs’ original
complaint stated a potentially valid claim under §2 of the
Sherman Act.
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
Cite as: 555 U. S. ____ (2009) 5
Opinion of the Court
and a low retail price, so Judge Gould analyzed each
component separately. He concluded that “Trinko insu
lates 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 plain
tiffs to amend their complaint if they could, in good faith,
raise predatory pricing claims meeting the Brooke Group
requirements. Ibid.
We granted certiorari, 554 U. S. ___ (2008), to resolve a
conflict over whether a plaintiff can bring price-squeeze
claims under §2 of the Sherman Act when the defendant
has no antitrust duty to deal with the plaintiff. See Covad
Communications Co. v. Bell Atlantic Co., 398 F. 3d 666,
673–674 (CADC 2005) (holding that Trinko bars such
claims). We reverse.
II
This case has assumed an unusual posture. The plain
tiffs now assert that they agree with Judge Gould’s dis
senting 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
6 PACIFIC BELL TELEPHONE CO. v. LINKLINE
COMMUNICATIONS, INC.
Opinion of the Court
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 advo
cating 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 plain
tiffs ask that we vacate the judgment and remand with
instructions that they be given leave to amend their com
plaint. 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 unequivo
cally 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 reliance on the sort of price squeeze
theory accepted by the Court of Appeals. At one point, for
example, the plaintiffs suggest that “the DSL transport
price” may be pertinent to their claims going forward
under the theory of Judge Gould’s dissent; that opinion,
however, concluded that Trinko “in essence takes the
issu[e] of wholesale pricing out of the case.” 503 F. 3d, at
886. Given this ambiguity, the case before us remains a
live dispute appropriate for decision. Cf. Friends of Earth,
Inc. v. Laidlaw Environmental Services (TOC), Inc., 528
U. S. 167, 189 (2000) (a party’s voluntary conduct renders
a case moot only if it is “ ‘absolutely clear’ ” the party will
take that course of action).
Amici also argue that we should dismiss the writ of
Cite as: 555 U. S. ____ (2009) 7
Opinion of the Court
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 Ap
peals’ decision at the certiorari stage, and the parties have
invested a substantial amount of time, effort, and re
sources 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 mo
tion of one of those amici to participate in oral argument.
555 U. S. ___ (2008). We think it appropriate to proceed to
address the question presented.
III
A
Section 2 of the Sherman Act makes it unlawful to
“monopolize, or attempt to monopolize, or combine or
conspire with any other person or persons, to monopolize
any part of the trade or commerce among the several
States, or with foreign nations.” 15 U. S. C. §2. Simply
possessing monopoly power and charging monopoly prices
does not violate §2; rather, the statute targets “the willful
acquisition or maintenance of that power as distinguished
from growth or development as a consequence of a supe
rior product, business acumen, or historic accident.”
United States v. Grinnell Corp., 384 U. S. 563, 570–571
(1966).
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 anti
8 PACIFIC BELL TELEPHONE CO. v. LINKLINE
COMMUNICATIONS, INC.
Opinion of the Court
trust 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 mar
ket 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 High
lands 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
The challenge here focuses on retail prices—where there
is no predatory pricing—and the terms of dealing—where
there is no duty to deal. Plaintiffs’ price-squeeze claims
challenge a different type of unilateral conduct in which a
firm “squeezes” the profit margins of its competitors. This
requires the defendant to be operating in two markets, a
wholesale (“upstream”) market and a retail (“down
stream”) market. A firm with market power in the up
stream market can squeeze its downstream competitors by
raising the wholesale price of inputs while cutting its own
retail prices. This will raise competitors’ costs (because
they will have to pay more for their inputs) and lower
——————
2 The Court of Appeals assumed that any duty to deal arose only from
FCC regulations, 503 F. 3d, at 878–879, n. 6, and the question on which
we granted certiorari made the same assumption. Even aside from the
District Court’s reasoning, App. to Pet. for Cert. 77a–85a, it seems
quite unlikely that AT&T would have an antitrust duty to deal with the
plaintiffs. Such a duty requires a showing of monopoly power, but—as
the FCC has recognized, 20 FCC Rcd., at 14879–14887—the market for
high-speed Internet service is now quite competitive; DSL providers
face stiff competition from cable companies and wireless and satellite
providers.
Cite as: 555 U. S. ____ (2009) 9
Opinion of the Court
their revenues (because they will have to match the domi
nant firm’s low retail price). Price-squeeze plaintiffs
assert that defendants must leave them a “fair” or “ade
quate” margin between the wholesale price and the retail
price. In this case, we consider whether a plaintiff can
state a price-squeeze claim when the defendant has no
obligation under the antitrust laws to deal with the plain
tiff at wholesale.
B
1. 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 cus
tomers’ orders. Id., at 404–405. The complaint alleged
that this conduct in the upstream market violated §2 of
the Sherman Act by impeding the ability of independent
carriers to compete in the downstream market for local
telephone service. Ibid.
We held that the plaintiff’s claims were not actionable
under §2. Given that Verizon had no antitrust duty to
deal with its rivals at all, we concluded that “Verizon’s
alleged insufficient assistance in the provision of service to
rivals” did not violate the Sherman Act. Id., at 410.
Trinko thus makes clear that if a firm has no antitrust
duty to deal with its competitors at wholesale, it certainly
has no duty to deal under terms and conditions that the
rivals find commercially advantageous.
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 supra, at 8. There is no meaningful distinction
10 PACIFIC BELL TELEPHONE CO. v. LINKLINE
COMMUNICATIONS, INC.
Opinion of the Court
between the “insufficient assistance” claims we rejected in
Trinko and the plaintiffs’ price-squeeze claims in the
instant case. The Trinko plaintiffs challenged the quality
of Verizon’s interconnection service, while this case in
volves a challenge to AT&T’s pricing structure. But for
antitrust purposes, there is no reason to distinguish be
tween price and nonprice components of a transaction.
See, e.g., American Telephone & Telegraph Co. v. Central
Office Telephone, Inc., 524 U. S. 214, 223 (1998) (“Any
claim for excessive rates can be couched as a claim for
inadequate services and vice versa”). The nub of the
complaint in both Trinko and this case is identical—the
plaintiffs alleged that the defendants (upstream monopo
lists) abused their power in the wholesale market to pre
vent rival firms from competing effectively in the retail
market. Trinko holds that such claims are not cognizable
under the Sherman Act in the absence of an antitrust duty
to deal.
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 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 effec
tively 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
obligation to deal under terms and conditions favorable to
its competitors. If AT&T had simply stopped providing
DSL transport service to the plaintiffs, it would not have
run afoul of the Sherman Act. Under these circumstances,
AT&T was not required to offer this service at the whole
sale prices the plaintiffs would have preferred.
2. The other component of a price-squeeze claim is the
assertion that the defendant’s retail prices are “too low.”
Cite as: 555 U. S. ____ (2009) 11
Opinion of the Court
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. Indus
trial 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 chill
ing 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 defen
dant 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. Recogniz
ing a price-squeeze claim where the defendant’s retail
price remains above cost would invite the precise harm we
sought to avoid in Brooke Group: Firms might raise their
retail prices or refrain from aggressive price competition
to avoid potential antitrust liability. See 509 U. S., at 223
(“As a general rule, the exclusionary effect of prices above
a relevant measure of cost either reflects the lower cost
structure of the alleged predator, and so represents com
petition on the merits, or is beyond the practical ability of
12 PACIFIC BELL TELEPHONE CO. v. LINKLINE
COMMUNICATIONS, INC.
Opinion of the Court
a judicial tribunal to control without courting intolerable
risks of chilling legitimate price cutting”).
3. 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
1. Institutional concerns also counsel against recogni
tion 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 explain or adequately and reasonably supervise.
The problem should be deemed irremedia[ble] by antitrust
law when compulsory access requires the court to assume
the day-to-day controls characteristic of a regulatory
agency.’ ” Id., at 415 (quoting Areeda, Essential Facilities:
An Epithet in Need of Limiting Principles, 58 Antitrust
——————
3 Like the Court of Appeals, 503 F. 3d, at 880, amici argue that price
squeeze claims have been recognized by Circuit Courts for many years,
beginning with Judge Hand’s opinion in United States v. Aluminum Co.
of America, 148 F. 2d 416 (CA2 1945) (Alcoa). In that case, the Gov
ernment alleged that Alcoa was using its monopoly power in the up
stream aluminum ingot market to squeeze the profits of downstream
aluminum sheet fabricators. The court concluded: “That it was unlaw
ful to set the price of ‘sheet’ so low and hold the price of ingot so high,
seems to us unquestionable, provided, as we have held, that on this
record the price of ingot must be regarded as higher than a ‘fair price.’ ”
Id., at 438. Given developments in economic theory and antitrust
jurisprudence since Alcoa, we find our recent decisions in Trinko and
Brooke Group more pertinent to the question before us.
Cite as: 555 U. S. ____ (2009) 13
Opinion of the Court
L. J. 841, 853 (1989)); see also Town of Concord v. Boston
Edison Co., 915 F. 2d 17, 25 (CA1 1990) (Breyer, C. J.)
(“[A]ntitrust courts normally avoid direct price admini
stration, relying on rules and remedies . . . that are easier
to administer”).
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 un
derstanding 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 be
tween 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 Town of 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 §2 [price-squeeze] offense, but
also in formulating a suitable remedy”).
The most commonly articulated standard for price
squeezes is that the defendant must leave its rivals a
“fair” or “adequate” margin between the wholesale price
and the retail price. See Town of Concord, supra, at 23–
25; Alcoa, 148 F. 2d 416, 437–438 (CA2 1945). One of our
14 PACIFIC BELL TELEPHONE CO. v. LINKLINE
COMMUNICATIONS, INC.
Opinion of the Court
colleagues has highlighted the flaws of this test in Socratic
fashion:
“[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 monopo
lized? 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 inde
pendent 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?” Town of
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 up
stream monopolist could not have made a profit by selling
at its retail rates if it purchased inputs at its own whole
sale 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 forbid
lawfully obtained monopolies from charging monopoly
prices. Trinko, supra, at 407 (“The mere possession of
monopoly power, and the concomitant charging of monop
oly prices, is not only not unlawful; it is an important
element of the free-market system”). Similarly, the
Sherman Act does not forbid—indeed, it encourages—
Cite as: 555 U. S. ____ (2009) 15
Opinion of the Court
aggressive price competition at the retail level, as long as
the prices being charged are not predatory. Brooke Group,
509 U. S., at 223–224. If both the wholesale price and the
retail price are independently lawful, there is no basis for
imposing antitrust liability simply because a vertically
integrated firm’s wholesale price happens to be greater
than or equal to its retail price.
2. 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 con
tend 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; Town of 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 Court of Appeals addressed only AT&T’s motion for
16 PACIFIC BELL TELEPHONE CO. v. LINKLINE
COMMUNICATIONS, INC.
Opinion of the Court
judgment on the pleadings on the plaintiffs’ original com
plaint.4 For the reasons stated, we hold that the price
squeeze claims set forth in that complaint are not cogniza
ble under the Sherman Act.
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 ar
ticulated 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 refus
ing to deal altogether, the plaintiffs must demonstrate
——————
4 We note a procedural irregularity with this case: Normally, an
amended complaint supersedes the original complaint. See 6 C. Wright
& A. Miller, Federal Practice & Procedure §1476, pp. 556–557 (2d ed.
1990). Here, the District Court addressed the amended complaint in its
2005 order, App. to Pet. for Cert. 36a–52a, but the court only certified
its 2004 order—addressing the original complaint—for interlocutory
appeal, id., at 56a–57a. Both parties, as well as the Solicitor General,
have expressed confusion about whether the amended complaint and
the 2005 order are properly before this Court. See Brief for Petitioners
9, n. 6 (noting “some ambiguity” about which order was certified); Brief
for United States 17 (“[I]t is unclear whether the 2005 Order and the
amended complaint are properly at issue in this interlocutory appeal”);
Brief for Respondents 8–10. The Court of Appeals majority did not
address any of the District Court’s holdings from the 2005 order, so we
decline to consider those issues at this time.
Cite as: 555 U. S. ____ (2009) 17
Opinion of the Court
why the law prevents AT&T from putting them out of
business by pricing them out of the market. Nevertheless,
such questions are for the District Court to decide in the
first instance. We do not address these issues here, as
they are outside the scope of the question presented and
were not addressed by the Court of Appeals in the decision
below. See Cutter v. Wilkinson, 544 U. S. 709, 718, n. 7
(2005) (“[W]e are a court of review, not of first view”).
* * *
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.
Cite as: 555 U. S. ____ (2009) 1
BREYER, J., concurring in judgment
SUPREME COURT OF THE UNITED STATES
_________________
No. 07–512
_________________
PACIFIC BELL TELEPHONE COMPANY, DBA AT&T
CALIFORNIA, ET AL., PETITIONERS v. LINKLINE
COMMUNICATIONS, INC., ET AL.
ON WRIT OF CERTIORARI TO THE UNITED STATES COURT OF
APPEALS FOR THE NINTH CIRCUIT
[February 25, 2009]
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 as set forth in Judge Gould’s dissenting
Ninth Circuit opinion. linkLine Communications, Inc. v.
SBC California, Inc., 503 F. 3d 876, 887 (2007).
A “price squeeze” claim finds its natural home in a
Sherman Act §2 monopolization case where the Govern
ment as plaintiff seeks to show that a defendant’s monop
oly power rests, not upon “skill, foresight and industry,”
United States v. Aluminum Co. of America, 148 F. 2d 416,
430 (CA2 1945) (Alcoa), but upon exclusionary conduct,
United States v. Grinnell Corp., 384 U. S. 563, 576 (1966).
As this Court pointed out in Verizon Communications Inc.
v. Law Offices of Curtis V. Trinko, LLP, 540 U. S. 398
(2004), the “ ‘ means of illicit exclusion, like the means of
legitimate competition, are myriad.’ ” Id., at 414 (quoting
United States v. Microsoft Corp., 253 F. 3d 34, 58 (CADC
2 PACIFIC BELL TELEPHONE CO. v. LINKLINE
COMMUNICATIONS, INC.
BREYER, J., concurring in judgment
2001) (en banc) (per curiam)). They may involve a “course
of dealing” that, even if profitable, indicates a “willingness
to forsake short-term profits to achieve an anticompetitive
end.” Trinko, supra, at 409. See, e.g., Aspen Skiing Co. v.
Aspen Highlands Skiing Corp., 472 U. S. 585, 610–611
(1985); Complaint in United States v. International Busi
ness Machines Corp., Civil Action No. 69 Civ. 200 (SDNY,
filed Jan. 17, 1969), ¶20(c), reprinted in F. Fisher, J.
McGowan, & J. Greenwood, Folded, Spindled, and Muti
lated: Economic Analysis and U. S. v. IBM 357 (1983).
And, as Judge Hand wrote many years ago, a “price
squeeze” may fall within that latter category. Alcoa,
supra, at 437–438. As a matter of logic, it may be that a
particular price squeeze can only be exclusionary if a
refusal by the monopolist to sell to the “squeezed cus
tomer” would also be exclusionary. But a court, faced with
a price squeeze rather than a refusal to deal, is unlikely to
find the latter (hypothetical) question any easier to answer
than the former.
I would try neither to answer these hypothetical ques
tions here nor to foreshadow their answer. We have before
us a regulated firm. During the time covered by the com
plaint, petitioners were required to provide wholesale
digital subscriber line (DSL) transport service as a com
mon carrier, charging “just and reasonable” rates that
were not “unreasonabl[y] discriminat[ory].” 47 U. S. C.
§§201(b), 202(a) (2000 ed.). And, in my view, a purchaser
from a regulated firm (which, if a natural monopolist, is
lawfully such) cannot win an antitrust case simply by
showing that it is “squeezed” between the regulated firm’s
wholesale price (to the plaintiff) and its retail price (to
customers for whose business both firms compete). When
a regulatory structure exists to deter and remedy anti
competitive harm, the costs of antitrust enforcement are
likely to be greater than the benefits. See Town of Con
cord v. Boston Edison Co., 915 F. 2d 17, 26–29 (CA1 1990).
Cite as: 555 U. S. ____ (2009) 3
BREYER, J., concurring in judgment
Cf. 3 P. Areeda & D. Turner, Antitrust Law ¶¶834–836,
pp. 344–355 (1978) (whether a particular course of conduct
counts as “exclusionary” for antitrust purposes depends
upon a host of factors, including, for example, the market
position of the defendant, the nature of the market, and
the nature of the defendant’s conduct).
Unlike Town of 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 & Wil
liamson 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.