Academic journal article Journal of Corporation Law

The "No Economic Sense" Test for Exclusionary Conduct

Academic journal article Journal of Corporation Law

The "No Economic Sense" Test for Exclusionary Conduct

Article excerpt

I. INTRODUCTION

Section 2 of the Sherman Act prohibits the acquisition or maintenance of monopoly power through the use of "predatory" or "exclusionary" conduct.1 In Trinko,2 the Solicitor General argued that when "the plaintiff asserts that the defendant was under a duty to assist a rival. . . conduct is not exclusionary or predatory unless it would make no economic sense for the defendant but for its tendency to eliminate or lessen competition."3 Although the Solicitor General only advocated this "no economic sense" test for a narrow class of conduct, the Department of Justice (DOJ) has consistently advocated this test in all of its section 2 cases.4 This Article briefly discusses Trinko and explains how the "no economic sense" test is motivated by policies the Supreme Court articulated in Trinko and prior cases. This Article also explains the role the test can usefully play in section 2 cases and why it does not have the flaws of the "profitsacrifice" test with which the "no economic sense" test has been confused.

II. THE TRINKO Case

Mr. Trinko's law firm selected AT&T to provide its local telephone service.5 The incumbent local exchange carrier (ILEC) in New York City, a successor of the Bell companies, owned facilities necessary to provide the service, and it was required by the Telecommunications Act of 19966 to "share its network with competitors."7 The ILEC, which later became part of Verizon, entered into interconnection agreements with AT&T and others, and the ILEC made available its "operations support system," through which customer orders were placed.8 Complaints that the ILEC nevertheless failed to fill orders were addressed by a consent decree the ILEC entered into with the FCC.9 One day after entry of the decree, Trinko filed suit under section 2 of the Sherman Act, alleging that the ILEC failed to provide AT&T with access to its facilities equivalent in quality to the ILEC's own access to them.10 The district court twice dismissed the complaint for failure to state a claim, and the second Circuit reversed, holding that the complaint "may state a claim under the 'essential facilities' doctrine" and that Trinko also "may have a monopoly leveraging claim."11

In its consideration of the case, the Supreme Court initially observed that "a detailed regulatory scheme such as that created by the 1996 Act ordinarily raises the question whether the regulated entities are not shielded from antitrust scrutiny altogether."12 But the Court found that such shielding had been precluded by language in the 1996 Act providing that "nothing in this Act... shall be construed to modify, impair, or supersede the applicability of... the antitrust laws."13

The Court then explained why the Sherman Act should not be understood to impose a general "duty to aid competitors":

Compelling . . . firms to share the source of their advantage is in some tension with the underlying purpose of antitrust law, since it may lessen the incentive for the monopolist, the rival, or both to invest in those economically beneficial facilities. Enforced sharing also requires antitrust courts to act as central planners, identifying the proper price, quantity, and other terms of dealing-a role for which they are ill-suited. Moreover, compelling negotiation between competitors may facilitate the supreme evil of antitrust: collusion.14

The Court held that "as a general matter, 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 the parties with whom he will deal.'"15

Acknowledging there were "exceptions" to this general rule,16 the Court reviewed a particularly notable example-its Aspen decision17-making clear that the facts of Aspen were "at or near the outer boundary" of circumstances in which "a refusal to cooperate with rivals can constitute" a violation of section 2. …

Search by... Author
Show... All Results Primary Sources Peer-reviewed

Oops!

An unknown error has occurred. Please click the button below to reload the page. If the problem persists, please try again in a little while.