Court Opinion

ID: 9566224
Source: CourtListenerOpinion
Date Created: 2023-08-21 19:35:10.926949+00
Date Added: 2024-06-11T09:33:22.123160
License: Public Domain

GOULD, Circuit Judge,
dissenting:
I respectfully dissent, concluding that the amended complaint should have been dismissed for failure to state a claim, in light of dispositive Supreme Court precedent, notwithstanding the permissive standard by which we assess a complaint when confronted with a motion to dismiss on the pleadings.
As the court correctly notes, we assume the facts pleaded in linkLine’s amended complaint to be true. As a general matter it is not correct to dismiss the complaint if any facts might be proved under which the complaint would be valid. However, the complaint only generally alleges a “price squeeze” and related exclusionary conduct. The complaint does not allege that the SBC Entities had any market power to set or influence the retail price for internet service. So it seems quite odd to say they could have violated the antitrust laws in part because of retail pricing; if SBC has no power to set its retail prices above the price at which it has sold its wholesale connection, it does not make sense to consider its pricing an illegal “price squeeze” under the antitrust laws. Given that SBC’s DSL internet connections compete with connections by cable and by satellite, it is by no means clear that SBC has the market power to influence the retail market price.
Moreover, the complaint does not allege that the prices at which the SBC Entities sold retail “DSL” internet connections were below cost, under any measure of cost; yet to the extent the concern is with predation at the retail level, then it would seem that, in current antitrust theory, below-cost sales must be *886shown. The complaint does not allege that the SBC Entities, to the extent they had losses by selling below cost in the retail market, had any realistic prospect of recouping losses; yet again, this prospect of recoupment is an integral element of a predation analysis under current Supreme Court doctrine.
Because of the expense and burden of proceeding in the antitrust litigation, it would be inefficient and unwise to permit the complaint to proceed on the general allegations of price squeeze, absent allegation of critical facts that in my view are needed for liability. To put the matter practically, it seems to me that the Supreme Court’s decision in Verizon Communications, Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 124 S.Ct. 872, 157 L.Ed.2d 823 (2004) (“Trinko ”) in essence takes the issues of wholesale pricing out of the case, and thus transforms what is left of any claim of “price squeeze.” If so, and if plaintiffs in good faith cannot allege market power, below cost sales and probable potential for recoupment in the retail market, then the case should not proceed. Conversely, if plaintiffs are able to allege that the SBC Entities had market power in the retail market to set or influence the price, and that their retail sales of internet connection were predatory in the sense of being below cost with a real prospect of recoupment, then the case should proceed for factual development.1
After Trinko and Brooke Group v. Brown & Williamson Tobacco Corp., 509 U.S. 209, 113 S.Ct. 2578, 125 L.Ed.2d 168 (1993) (“Brooke Group ”), the case doesn’t get out of the antitrust law starting blocks if plaintiffs cannot make allegations showing that the retail prices charged by the SBC Entities were predatory in a sense forbidden by the antitrust laws.
The district court dismissed most of the allegations of the complaint, but let stand the “price squeeze” allegation. As the majority opinion notes, “At the time the amended complaint was filed, the SBC Entities were both a supplier to the Plaintiffs at the wholesale level, and a competitor at the retail level.” The majority opinion also correctly explains: “In antitrust terms, a price squeeze occurs ‘when a vertically integrated company sets its prices or rates at the first (or ‘upstream’) level so high that its customers cannot compete with it in the second-level (or ‘downstream’) market.’ ” Yet, the notion of a “price squeeze” is itself in a squeeze between two recent Supreme Court precedents.
Let us look first at the part of the “price squeeze” represented by SBC setting the upstream price at which it would sell use of its land lines to linkLine and the other ISPs here suing. The Supreme Court’s decision in Trinko, upholding the ability of a regulated monopolist to deal with a competitor on certain service terms, means that if SBC set its wholesale price, the upstream price, too high, that cannot be challenged under the antitrust laws by analogy to permissible refusals to deal. I substantially and substantively agree with the position taken by the D.C. Circuit in Covad Communications Co. v. Bell Atlantic Corp., wherein the court adopted the reasoning of a major treatise on antitrust law that “ ‘it makes no sense to prohibit a predatory price squeeze in circumstances where the integrated monopolist is free to refuse to deal.’ ” Covad Commc’ns Co. v. Bell Atl. Corp., 398 F.3d 666, 673 (D.C.Cir.2005) (quoting 3A Areeda & Hovenkamp, Antitrust Law P767c3, at 129-30 (2d ed.2002)). I am in agreement with this reasoning so far as it goes: Trinko insu*887lates from antitrust review the setting of the upstream price.
However, although the D.C. Circuit concluded from this that “price squeeze” allegations should be dismissed, in this respect I would disagree if the key allegations I have identified could be made, because part of the “price squeeze” allegation is based on the retail price set in the “downstream” market. Thus, here linkLine is complaining about its inability to buy use of wholesale service lines at the price set by SBC when it cannot compete with the retail price at which SBC itself sells DSL internet connections to consumers.
SBC’s setting of its sale price of the use of its land lines by ISPs in a wholesale transaction cannot be the basis of an antitrust claim in light of Trinko. That, however, does not dispose of scrutiny of SBC’s conduct in the retail market, for it is the price at which SBC sells DSL service to its retail customers that squeezes linkLine’s ability to resell internet connections at a profit. Thus the “price squeeze” contention boils down to a claim of a predatory pricing on sales of internet connections by SBC in the retail market. If all that remains of the “price squeeze” claim is a challenge to the retail prices set by SBC on sale of DSL internet connection service, then it seems to me essentially a predatory pricing claim, and it can only be viable in the first instance if the SBC Entities have some real market power sufficient to set or influence prices in the retail market.
Moreover, even beyond the need for alleging and proving some degree of market power in the retail market, if that is the true locus of the antitrust complaint after Trinko, 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. In that case the Supreme Court held that a predatory pricing claim could proceed only if there were allegations (1) that the prices set were below an appropriate measure of the seller’s costs; and (2) that the seller had a reasonable prospect, or, under § 2 of the Sherman Act, a dangerous probability, of later recouping losses. Id. at 222-24, 113 S.Ct. 2578. Here, plaintiffs in their “price squeeze” contentions in the amended complaint did not allege that the seller had the market power to set prices for internet connection in the retail market, that SBC’s retail price, contributing to the squeeze, was set below cost, and that losses could later be recouped.
Because we have not heretofore held that there must be a showing of market power in the retail market, nor held that the standards of Brooke Group must be applied in assessing predation in the retail side of a “price squeeze,” I do not think it would be correct to dismiss the complaint on the pleadings with prejudice. Instead, after dismissal, plaintiffs should have been free to amend their complaint if they could assert in good faith the allegations that are requisite here, after Trinko, for antitrust liability.2
Thus I respectfully dissent, believing that the Supreme Court’s precedents in Trinko and Brooke Group have so hemmed in the potential for “price squeeze” liability that the specific allegations I have identified are necessary to *888state an antitrust claim in the context of the “price squeeze” alleged.

. It might then be resolved at the summary judgment stage if there were no genuine issue of material fact, but it would warrant trial if there were any disputed material fact issues.

. There is just enough possibility of an injury occurring for reasons culpable under the antitrust laws, see Brunswick Corp. v. Pueblo Bowl-O-Mat, 429 U.S. 477, 97 S.Ct. 690, 50 L.Ed.2d 701 (1977), so that in my view, while the district court should have granted a motion to dismiss on the pleadings, the district court also should have permitted amendment in case the critical allegations can be made by the plaintiffs.