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 Verizon’s failure to abide by that mandate—not by an outright refusal to deal, but by providing degraded services—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 “right” to refuse to deal with its rivals. To reach that result, the Court recast Verizon’s conduct as an unconditional refusal to deal—i.e., an outright refusal to enter into any type of buy or sell relationship with a rival—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 Court’s 2004 opinion in Trinko was not immediately apparent at the time it was decided. Doctrinally, the Court’s ruling could be read very narrowly. The Court’s decision was fashioned as a holding about monopolization under Section 2 of the Sherman Act based on a monopolist’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 Court’s two critical assumptions, that “forced sharing” was of “uncertain virtue” and that courts would have “difficulty … identifying and remedying anticompetitive conduct by a single firm” 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 Court’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 Court’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 parties—and it is quickly evident that the Court was receptive to Verizon’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 “possession of unchallenged economic power deadens initiative” and that “immunity from competition is a narcotic, and rivalry is a stimulant to industrial progress,” the Court in Trinko saw virtue in monopoly, asserting that “monopoly prices,” even if temporary, are “an important element of the free-market system” that attract “business acumen” and provide an “incentive to innovate.”
Claims based on refusals to deal were marginalized. To the degree they remained viable at all, in the Court’s view, they were best categorized as “exceptions” to the “rule,” discussed below, that monopolists have a “right” to refuse to deal with their rivals. One such exceptional example of a valid claim of refusal to deal was the Supreme Court’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 “at or near the outer boundary” 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 “already in the business of providing a service to certain customers” but “refused to provide the same service” 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 “deep within the bowels of Verizon” and “brought out on compulsion” of the Act “at considerable expense and effort.” Again, given that the case was before the Court on a motion to dismiss, these were based on nothing more than Verizon’s untested, colorful assertions. Finally, the Court distinguished concerted refusals to deal subject to Section 1, which present “greater anticompetitive concerns.”
Trinko also disavowed refusal to deal claims based on the “essential facilities” 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 Court’s reliance on Phillip Areeda’s Essential Facilities: An Epithet in Need of Limiting Principles, it did not acknowledge his view in the article that MCI Communication’s successful 1973 case against AT&T rested on the essential facilities doctrine and was “probably correct.” Trinko also sought to undercut claims of “monopoly leveraging” by limiting them to instances in which a monopolist’s conduct in a second market satisfied the demanding “dangerous probability” 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 “outer boundary,” but is the only exception to Trinko’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 “presumptively pro-competitive.” 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.
Trinko’s Refusal to Deal with the Court’s Precedent
One of the most consequential principles expressed by the Court in Trinko is that the Sherman Act “does 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.” 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 “agreement” 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 “agreement” requirement of Section 1, therefore, Colgate moderated the impact of Dr. Miles, as did the Supreme Court’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: “In the absence of any purpose to create or maintain a monopoly….” By contrast, this qualification was included in the Court’s reiteration of Colgate in both Lorain Journal (1951) and Aspen Skiing (1985). Trinko instead substituted a later, understated acknowledgement that the “right” was not “unqualified.”
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 courts’ 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 Verizon’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 – 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 Court’s expressed core concerns that a judgment in Trinko’s favor could undermine Verizon’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. Trinko’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 “conditional dealing.” 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 “right” 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, “This is not to say such conditions are illegal; rather, they are not refusals-to-deal.”
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 Trinko’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 Colgate’s exception to the so-called “right” not to deal.
Instead, Trinko has become a cornerstone of Sherman Act jurisprudence that constrains its effectiveness. Justice Scalia’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 plaintiff’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 “difficult” and prone to “mistaken condemnations” (false positives), antitrust enforcement can “chill” procompetitive conduct. Again citing Trinko he argued that in fashioning remedies courts must be “sensitive to the possibility” that continuing oversight through complex decrees “could wind up impairing rather than enhancing competition.” Courts, therefore, must proceed with a “healthy respect for the practical limits of judicial administration.” 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 Gorsuch’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 “exception”—the “rule” being non-intervention. The seeds planted by Justice Scalia in Trinko thus found fertile ground in Justice Gorsuch and the current Court—with no stated objections from any of the other justices.
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 “unilateral refusal to deal” 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 “at or near the outer boundary” 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.