Verizon Communications Inc. v. Trinko departed from the legal principles regulating refusals to deal under Section 2 of the Sherman Act. The 2004 Supreme Court opinion also embedded an ideological preference for non-intervention that has spread to other areas of antitrust law, eroding its ability to deter anticompetitive conduct. On its own terms, however, there are opportunities to distinguish and constrain Trinko, writes Andrew I. Gavil.


In an effort to jumpstart competition in the aftermath of the 1984 break-up of the AT&T monopoly, the Telecommunications Act of 1996 mandated that local phone companies provide new rivals access to their infrastructure. In Verizon Communications Inc. v. Trinko, a customer of one such rival alleged that Verizonโ€™s failure to abide by that mandateโ€”not by an outright refusal to deal, but by providing degraded servicesโ€”violated not just the Telecommunications Act but also constituted unlawful monopolization under Section 2 of the Sherman Act. The Supreme Court held, however, that the customer had failed to state an antitrust claim because absent the Telecommunications Act Verizon had a โ€œrightโ€ to refuse to deal with its rivals. To reach that result, the Court recast Verizonโ€™s conduct as an unconditional refusal to dealโ€”i.e., an outright refusal to enter into any type of buy or sell relationship with a rivalโ€”and departed from the legal principles that had long applied to similar conduct under Section 2 of the Sherman Act.

The full import of the Supreme Courtโ€™s 2004 opinion in Trinko was not immediately apparent at the time it was decided. Doctrinally, the Courtโ€™s ruling could be read very narrowly. The Courtโ€™s decision was fashioned as a holding about monopolization under Section 2 of the Sherman Act based on a monopolistโ€™s unilateral refusal to deal with one of its rivals, and it arose in the context of a heavily regulated industry in which incumbents were required to deal with rivals. In addition, the Courtโ€™s two critical assumptions, that โ€œforced sharingโ€ was of โ€œuncertain virtueโ€ and that courts would have โ€œdifficulty โ€ฆ identifying and remedying anticompetitive conduct by a single firmโ€ seemed to apply only to unconditional refusals to deal.

Instead, Trinko has crept beyond its holding and context to serve not merely as a constraint on liability for unconditional refusals to deal under Section 2, but as a statement of non-interventionist philosophy. In that regard, it built on and augmented the Courtโ€™s 1993 decision in Brooke Group and helped to more deeply embed an arguably misplaced skepticism for antitrust enforcement and a preference for minimal government regulation of markets. As Jon Baker has recently observed, it discourages liability for all forms of unilateral refusals to deal, welcomes monopolies, and expresses disdain for antitrust enforcement. It has become a major obstacle to antitrust reform.

The Courtโ€™s Decision

Trinko came before the Court on a motion to dismiss without any developed record. The breadth of the decision and the assertions it makes, therefore, are drawn not from evidence, but from the briefs of the partiesโ€”and it is quickly evident that the Court was receptive to Verizonโ€™s proposed narrative. The Court embraced sweeping, defense-friendly assumptions about monopoly, refusals to deal, the competence of courts, and the utility of antitrust litigation. In contrast to the long-standing view first articulated in Alcoa that โ€œpossession of unchallenged economic power deadens initiativeโ€ and that โ€œimmunity from competition is a narcotic, and rivalry is a stimulant to industrial progress,โ€ the Court in Trinko saw virtue in monopoly, asserting that โ€œmonopoly prices,โ€ even if temporary, are โ€œan important element of the free-market systemโ€ that attract โ€œbusiness acumenโ€ and provide an โ€œincentive to innovate.โ€ 

Claims based on refusals to deal were marginalized. To the degree they remained viable at all, in the Courtโ€™s view, they were best categorized as โ€œexceptionsโ€ to the โ€œrule,โ€ discussed below, that monopolists have a โ€œrightโ€ to refuse to deal with their rivals. One such exceptional example of a valid claim of refusal to deal was the Supreme Courtโ€™s 1985 decision in Aspen Skiing. But the Court marginalized Aspen Skiing, too, seemingly anchoring it to a theory of past dealing and profit sacrifice and declaring that it was โ€œat or near the outer boundaryโ€ of Section 2. The Court also distinguished its 1973 decision in Otter Tail, noting that the defendant there was engaged not in a refusal to deal, but in discriminatory dealing: it was โ€œalready in the business of providing a service to certain customersโ€ but โ€œrefused to provide the same serviceโ€ to other customers. Hence, Otter Tail did not involve the remedial challenge of an unconditional refusal to deal. 

To drive home his disdain for refusal to deal claims, Justice Antonin Scalia described the technical elements to be shared under the Telecommunications Act as lying โ€œdeep within the bowels of Verizonโ€ and โ€œbrought out on compulsionโ€ of the Act โ€œat considerable expense and effort.โ€ Again, given that the case was before the Court on a motion to dismiss, these were based on nothing more than Verizonโ€™s untested, colorful assertions. Finally, the Court distinguished concerted refusals to deal subject to Section 1, which present โ€œgreater anticompetitive concerns.โ€ 

Trinko also disavowed refusal to deal claims based on the โ€œessential facilitiesโ€ doctrine, a variation of the general law of refusals to deal, asserting that the Court had never explicitly endorsed it. That assertion is highly debatable. And, despite the Courtโ€™s reliance on Phillip Areedaโ€™s Essential Facilities: An Epithet in Need of Limiting Principles, it did not acknowledge his view in the article that MCI Communicationโ€™s successful 1973 case against AT&T rested on the essential facilities doctrine and was โ€œprobably correct.โ€ Trinko also sought to undercut claims of โ€œmonopoly leveragingโ€ by limiting them to instances in which a monopolistโ€™s conduct in a second market satisfied the demanding โ€œdangerous probabilityโ€ requirement for the separate offense of attempt to monopolize. 

Since Trinko, successful monopolization claims based on refusals to deal have become exceedingly rare. Most fail. Two Circuits, the Ninth and Tenth, have read Trinko to hold that Aspen Skiing is not merely the โ€œouter boundary,โ€ but is the only exception to Trinkoโ€™s conception of the right not to deal. That position appears to be at odds with even Trinko. For the Tenth Circuit, then Judge Neil Gorsuch interpreted Aspen Skiing especially narrowly and added that refusals to deal are โ€œpresumptively pro-competitive.โ€ Nevertheless, the Seventh Circuit concluded that it may still be possible to navigate the narrow channel left open for claims relying on Aspen Skiing. Also, the D.C. Circuit distinguished Trinko when it rejected a motion to dismiss because the refusal to deal by a monopolist was directed at customers of its rival, not its rival, and was used as a mechanism to coerce them into dealing exclusively with the monopolist. 

Trinkoโ€™s Refusal to Deal with the Courtโ€™s Precedent

One of the most consequential principles expressed by the Court in Trinko is that the Sherman Act โ€œdoes not restrict the long-recognized right of [a] trader or manufacturer engaged in an entirely private business, freely to exercise his own independent discretion as to parties with whom he will deal.โ€ This well-known and oft-cited norm was first stated by the Court in its 1919 decision in Colgate, which Trinko cited. But Colgate did not concern Section 2. It addressed whether unilaterally announced terms of dealing (in that case, minimum resale price maintenance (RPM)) can satisfy the โ€œagreementโ€ requirement of Section 1. In Dr. Miles (1911), the Court had endorsed a per se approach to RPM, which meant a finding of RPM agreement was tantamount to a finding of violation. By assigning significance to the โ€œagreementโ€ requirement of Section 1, therefore, Colgate moderated the impact of Dr. Miles, as did the Supreme Courtโ€™s later decisions in Monsanto and Business Electronics, which elevated the burden for proving RPM agreements.

More importantly, Colgate included a proviso that was conspicuously deleted from the language quoted by Justice Scalia in Trinko: โ€œIn the absence of any purpose to create or maintain a monopolyโ€ฆ.โ€ By contrast, this qualification was included in the Courtโ€™s reiteration of Colgate in both Lorain Journal (1951) and Aspen Skiing (1985). Trinko instead substituted a later, understated acknowledgement that the โ€œrightโ€ was not โ€œunqualified.โ€

The import of the deleted proviso cannot be over-emphasized. Colgate was clear: terms of dealing remained subject to appraisal under Section 2. It thus preserved the possibility of a Section 2 challenge for conduct that did not satisfy the agreement requirement of Section 1, such as unilateral conduct related to terms of dealing. That important reservation was actualized in Lorain Journal and Aspen Skiing, both of which quoted the key segment from Colgate in full and then went on to find Section 2 violations. To accomplish its more sweeping goal in Trinko, the Court simply deleted it rather than address and attempt to distinguish it, if possible. In so doing, the Court unleashed a far more robust rights-based approach to refusals to deal that monopolists have repeatedly invoked to divert courtsโ€™ attention away from consideration of the effects of their conduct.

Locating the Outer Boundary of Trinko

Trinko could be limited to its facts and context. As already noted, it concerned an industry that was heavily regulated, and that regulation included provisions regarding access by rivals to the infrastructure of the incumbent telecommunications monopolists that had been created by the break-up of the original AT&T. Moreover, Verizon had already been fined by the FCC for its failure to abide by those provisions.

But Verizon persuaded the Court to use the case as a vehicle to announce a broad principle of antitrust law that was not at issue in the case, i.e. that its conduct should be judged as if that regulatory scheme did not exist. It argued that, but for the requirements of the Telecommunications Act of 1996, it would never have granted access to its infrastructure to a rival. The Court viewed this admission of Verizonโ€™s jealous interest in maintaining its monopoly as weighing in its favor, not against it. That allowed Verizon to transpose its actual conduct (dirty dealing with a rival โ€“ with whom it was required to deal under the Act) with a hypothetical and unconditional unilateral refusal to deal. That framing of the antitrust issue better fit the Courtโ€™s expressed core concerns that a judgment in Trinkoโ€™s favor could undermine Verizonโ€™s incentives to innovate (in disregard of the policy judgment already made by Congress) and mire the courts in complex oversight (even though the Court had also acknowledged that the Telecommunications Act provided all the necessary regulatory detail).

Moreover, every decision by a dominant firm to deal on specified terms could be characterized as a refusal to deal on others. Trinkoโ€™s rationale does not adhere in such cases. If it did, Trinko could wholly undermine much of the law concerning exclusionary practices. Instead, Trinko should be confined to purely unconditional unilateral refusals to deal. 

Such a properly limited interpretation of Trinko would harmonize it with the analytical framework adopted by the D.C. Circuit in Microsoft and preclude its expansion to cases involving โ€œconditional dealing.โ€ Like conditional pricing practices, which have been distinguished from predatory pricing, conditional dealing proceeds from a decision to deal, but only on a condition. It is not a refusal to deal within the conception of Trinko. Any โ€œrightโ€ not to deal terminates with the decision to deal. When the condition implicates concerns for competition, it is susceptible to evaluation for its competitive effects under both Sections 1 and 2 of the Sherman Act. As Antitrust Division Deputy Assistant Attorney General Michael Kades recently and correctly observed, โ€œThis is not to say such conditions are illegal; rather, they are not refusals-to-deal.โ€

Moreover, when liability is found, as with conditional pricing practices a court need only enjoin the condition. At that point, absent recognition of an essential facilities-type exception, Trinko might leave open a monopolist’s option to refuse to deal entirely. No court-ordered dealing is required. The feared complexity of judicially established terms of dealing will not be at issue.

Similarly, when a conditional refusal to deal is directed not at a rival, but at its customers or suppliers, it is not being used simply, as in Trinko, to exercise a right of choice. It is a variation of conditional dealing and should not fall under Trinkoโ€™s umbrella, for example, when it operates as a version of exclusive dealing or other form of exclusionary practice, such as tying or conditional pricing. As in Lorain Journal and Microsoft, such a practice should instead be judged for its effects on competition. In these circumstances, too, the remedy concern identified in Trinko will not apply. The exclusionary condition or practice can be prohibited leaving the dominant firm free to choose to deal or not to deal, but stripping it of the option to coerce.

This approach deprives the monopolist solely of its ability to deal on exclusionary terms and would restore the proper framing that animated Colgateโ€™s exception to the so-called โ€œrightโ€ not to deal.

Instead, Trinko has become a cornerstone of Sherman Act jurisprudence that constrains its effectiveness. Justice Scaliaโ€™s opinion in Trinko was laced with concerns for judicial competence, judicial error, and litigation costs that collectively constituted a broad rejection of the utility of antitrust enforcement, and as noted above, an oddly misplaced affinity for monopoly that has also proven influential in the lower courts.

Trinko as Non-Interventionist Ideology

As already noted, then Judge Gorsuch relied heavily on the philosophy of Trinko in his opinion for the Tenth Circuit in Novell v Microsoft Corp. But he took it to a new level in NCAA v. Alston, a case that arose not under Section 2, but under Section 1 of the Sherman Act. 

In Alston, Justice Gorsuch gave full voice to Trinko as a non-interventionist manifesto. In perhaps the most defense-friendly plaintiffโ€™s victory ever written by the Court, he cited Trinko five times for some of its most weighty anti-interventionist propositions.  He cautioned that because antitrust cases can be โ€œdifficultโ€ and prone to โ€œmistaken condemnationsโ€ (false positives), antitrust enforcement can โ€œchillโ€ procompetitive conduct. Again citing Trinko he argued that in fashioning remedies courts must be โ€œsensitive to the possibilityโ€ that continuing oversight through complex decrees โ€œcould wind up impairing rather than enhancing competition.โ€ Courts, therefore, must proceed with a โ€œhealthy respect for the practical limits of judicial administration.โ€ These cautionary priors surface in many lower court decisions and tend to raise the burden of proof in private as well as government enforcement actions.

Justice Gorsuchโ€™s overall message was clear: antitrust enforcement is prone to anticompetitive results in the hands of judges. Echoing the non-interventionist philosophy outlined nearly four decades earlier by Judge Frank Easterbrook in his The Limits of Antitrust, Alston became another example of โ€œexceptionโ€โ€”the โ€œruleโ€ being non-intervention. The seeds planted by Justice Scalia in Trinko thus found fertile ground in Justice Gorsuch and the current Courtโ€”with no stated objections from any of the other justices. 

Conclusion

Section 2 of the Sherman Act has been progressively narrowed over time. Without the proviso that qualified Colgate until Trinko, Trinko has created a protective bubble around any conduct that can be characterized as a โ€œunilateral refusal to dealโ€ regardless of whether it closely resembles the type of unconditional refusal to deal constructed in Trinko and regardless of its potential for anticompetitive effect. Its influence has also expanded well beyond its narrow holding and now impairs efforts to reinvigorate antitrust enforcement. The case is strong that Trinko ought to be cabined as โ€œat or near the outer boundaryโ€ of antitrust non-liability.

Articles represent the opinions of their writers, not necessarily those of the University of Chicago, the Booth School of Business, or its faculty.