Supreme Court Amicus Brief of Professors and Scholars in Law and Economics in Support of Certiorari, Pacific Bell Telephone Co. v. linkLine Communications, Inc., No. 07-512 (filed Nov. 16, 2007)

U.S. Supreme Court

21 Pages Posted: 19 Nov 2007 Last revised: 23 May 2012

William J. Baumol

New York University - Stern School of Business, Berkley Center for Entrepreneurial Studies; Leonard N. Stern School of Business - Department of Economics

Robert H. Bork

Independent

Robert W. Crandall

Brookings Institution; AEI-Brookings Joint Center for Regulatory Studies

George Daly

Georgetown University - Robert Emmett McDonough School of Business

Harold Demsetz

University of California, Los Angeles (UCLA) - Department of Economics

Jeffrey A. Eisenach

American Enterprise Institute; NERA Economic Consulting

Kenneth G. Elzinga

University of Virginia - Department of Economics

Gerald R. Faulhaber

University of Pennsylvania - Wharton School

Franklin M. Fisher

Massachusetts Institute of Technology (MIT) - Department of Economics

Charles John Goetz

University of Virginia - School of Law

Robert W. Hahn

University of Oxford, Smith School; Georgetown University

Jerry A. Hausman

Massachusetts Institute of Technology (MIT) - Department of Economics; National Bureau of Economic Research (NBER)

Thomas Jorde

University of California, Berkeley - School of Law

Robert E. Litan

Ewing Marion Kauffman Foundation; AEI-Brookings Joint Center for Regulatory Studies

Paul W. MacAvoy

Yale School of Management (Deceased); Yale University, Yale Graduates Energy Study Group (Deceased)

J. Gregory Sidak

Criterion Economics, L.L.C.

Pablo T. Spiller

University of California, Berkeley - Business & Public Policy Group

Daniel F. Spulber

Northwestern University - Kellogg School of Management

Date Written: November 16, 2007

Abstract

The linkLine price squeeze case from the Ninth Circuit is the most important antitrust case that the Supreme Court could take during the Fall 2007 Term. Amici are professors and scholars in law and economics who have taught, or have conducted research on, antitrust law and the economics of industrial organization. They include William J. Baumol, Robert H. Bork, Robert W. Crandall, George Daly, Harold Demsetz, Jeffrey A. Eisenach, Kenneth G. Elzinga, Gerald Faulhaber, Franklin M. Fisher, Charles J. Goetz, Robert Hahn, Jerry A. Hausman, Thomas M. Jorde, Robert E. Litan, Paul W. MacAvoy, J. Gregory Sidak, Pablo T. Spiller, and Daniel F. Spulber.

We agree with the petitioners that the Ninth Circuit has generated an inescapable conflict among circuits, and that the Ninth Circuit's opinion below is incompatible with this Court's reasoning in Verizon Communications Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398 (2004), Weyerhaeuser Co. v. Ross-Simmons Hardwood Lumber Co., 127 S. Ct. 1069 (2007), and Brooke Group Ltd. v. Brown & Williamson Tobacco Corp., 509 U.S. 209 (1993). We agree with Judge Gould's dissent in linkLine that Trinko "takes the issues of wholesale pricing out of the case," such that the plaintiffs' only possible remaining theory of harm would be predatory pricing at the retail level - which the plaintiffs did not allege. linkLine Commc'ns Inc. v. Pac. Bell Tel. Co. d/b/a/ AT&T Cal., Inc., No. 05-56023, 2007 U.S. App. LEXIS 21719, at *28-29 (9th Cir. Sept. 11, 2007) (Gould, J., dissenting). We also agree with Judge Ginsburg's opinion for the D.C. Circuit in Covad Communications Co. v. Bell Atlantic Corp., 398 F.3d 666 (D.C. Cir. 2005), which in turn embraces the conclusion of the Areeda-Hovenkamp treatise that "'it makes no sense to prohibit a predatory price squeeze in circumstances where the integrated monopolist is free to refuse to deal.'" Id. at 673-74 (quoting 3A Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ΒΆ 767c3, at 129-30 (2d ed. 2002)). The existence of a rule like linkLine has a pervasive impact on business behavior that, at the margin, affects competition and consumers. This deleterious effect extends beyond the telecommunications industry to affect all firms that do business in the Ninth Circuit. These reasons justify granting certiorari in linkLine and reversing the Ninth Circuit's decision.

In our minds, an even larger reason than those described above makes it imperative that the Court take this case. The Ninth Circuit's decision in linkLine implicates the normative foundation of modern Sherman Act jurisprudence: that antitrust law exists to advance consumer welfare. We have three points to make.

First, any rule of price-squeeze liability that threatens liability based on the claim that the difference between a firm's upstream and downstream prices leaves downstream rivals insufficient margin substitutes a rule of competitor welfare for consumer welfare.

Second, properly understood, a price squeeze is a regulatory issue, which makes sense only as a rule of price regulation in an industry already subject to duties to deal and to control by institutionally competent regulators. Attempting to implement regulatory policy through section 2 of the Sherman Act is ill-advised, both because it makes no sense for courts to re-regulate deregulated or lightly regulated industries, and because courts lack the institutional competence to implement regulation.

Third, the Ninth Circuit's rule is of pressing concern precisely because it will deter efficiency-enhancing conduct and competitive pricing. Vertical integration and partial integration are ubiquitous, and firms need to be able to make decisions about such integration without the threat of liability. Vertically integrated firms likewise need to be free to cut retail prices (as long as the prices are not predatory) without concern for rivals - the point of Brooke Group. Moreover, the Ninth Circuit's standard is so vague and open-ended that it creates uncertainty and invites litigation; it also permits imposition of liability based on apparently subjective evaluation of disputed and hard-to-prove facts, which will lead to a substantial risk of false positives.

Suggested Citation

Baumol, William J. and Bork, Robert H. and Crandall, Robert W. and Daly, George and Demsetz, Harold and Eisenach, Jeffrey A. and Elzinga, Kenneth G. and Faulhaber, Gerald R. and Fisher, Franklin M. and Goetz, Charles John and Hahn, Robert W. and Hausman, Jerry A. and Jorde, Thomas and Litan, Robert E. and MacAvoy, Paul W. and Sidak, J. Gregory and Spiller, Pablo T. and Spulber, Daniel F., Supreme Court Amicus Brief of Professors and Scholars in Law and Economics in Support of Certiorari, Pacific Bell Telephone Co. v. linkLine Communications, Inc., No. 07-512 (filed Nov. 16, 2007) (November 16, 2007). U.S. Supreme Court. Available at SSRN: https://ssrn.com/abstract=1030990 or http://dx.doi.org/10.2139/ssrn.1030990

William J. Baumol

New York University - Stern School of Business, Berkley Center for Entrepreneurial Studies ( email )

New York, NY
United States
212-998-8943 (Phone)
212-995-3932 (Fax)

Leonard N. Stern School of Business - Department of Economics

269 Mercer Street
New York, NY 10003
United States

Robert H. Bork

Independent

No Address Available

Robert Crandall

Brookings Institution ( email )

1775 Massachusetts Ave. NW
Washington, DC 20036-2188
United States
202-797-6291 (Phone)
202-797-6181 (Fax)

AEI-Brookings Joint Center for Regulatory Studies

1150 17th Street, N.W.
Washington, DC 20036
United States

George Daly

Georgetown University - Robert Emmett McDonough School of Business ( email )

3700 O Street, NW
Washington, DC 20057
United States

Harold Demsetz

University of California, Los Angeles (UCLA) - Department of Economics ( email )

Box 951477
Los Angeles, CA 90095-1477
United States
(310) 825-3651 (Phone)

Jeffrey A. Eisenach

American Enterprise Institute ( email )

1150 17th Street, N.W.
Washington, DC 20036
United States

NERA Economic Consulting

1255 23rd Street, NW, Suite 600
Washington, DC 20037
United States
202-466-3510 (Phone)
202-466-3605 (Fax)

HOME PAGE: http://www.nera.com

Kenneth G. Elzinga

University of Virginia - Department of Economics ( email )

PO Box 400182
Charlottesville, VA 22904-4182
United States

Gerald R. Faulhaber

University of Pennsylvania - Wharton School ( email )

Steinberg-Dietrich Hall
Suite 1400
Philadelphia, PA 19104-6372
United States
215-898-7860 (Phone)

Franklin M. Fisher

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
E52-391
Cambridge, MA 02142
United States
617-864-3752 (Phone)

HOME PAGE: http://web.mit.edu/ffisher/www

Charles John Goetz

University of Virginia - School of Law ( email )

580 Massie Road
Charlottesville, VA 22903
United States

Robert W. Hahn

University of Oxford, Smith School ( email )

Oxford
United Kingdom

Georgetown University

Georgetown Center for Business and Public Policy
Washington, DC 20057
United States

Jerry A. Hausman

Massachusetts Institute of Technology (MIT) - Department of Economics ( email )

50 Memorial Drive
Room E52-271a
Cambridge, MA 02142
United States
617-253-3644 (Phone)
617-253-1330 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Thomas M. Jorde

University of California, Berkeley - School of Law ( email )

Boalt Hall
Office 785 Simon
Berkeley, CA 94720-7200
United States
(510) 642-0340 (Phone)
(510) 642-3856 (Fax)

Robert E. Litan

Ewing Marion Kauffman Foundation ( email )

4801 Rockhill Road
Kansas City, MO 64110
United States

AEI-Brookings Joint Center for Regulatory Studies

1150 17th Street, N.W.
Washington, DC 20036
United States

Paul W. MacAvoy

Yale School of Management (Deceased)

Yale University, Yale Graduates Energy Study Group (Deceased)

J. Gregory Sidak (Contact Author)

Criterion Economics, L.L.C. ( email )

1717 K Street, N.W.
Washington, DC 20006
United States
(202) 518-5121 (Phone)

HOME PAGE: http://www.criterioneconomics.com

Pablo T. Spiller

University of California, Berkeley - Business & Public Policy Group ( email )

545 Student Services Building
Berkeley, CA 94720
United States
510-642-1502 (Phone)
510-642-2826 (Fax)

Daniel F. Spulber

Northwestern University - Kellogg School of Management ( email )

606 Leverone Hall
2001 Sheridan Road
Evanston, IL 60208
United States
847-491-8675 (Phone)
847-467-1777 (Fax)

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