Antitrust Injury and Standing in Foreclosure Cases

Article excerpt

I. INTRODUCTION

Under the Telecommunications Act of 1996,' an incumbent local exchange carrier (ILEC) is obliged to cooperate with potential entrants by making its infrastructure available to them on terms that will not preclude effective competition.2 Since an incumbent's failure to cooperate satisfactorily may be characterized as an illegal effort to maintain its monopoly, a natural question is whether such a failure exposes the incumbent to antitrust liability.3 In its recent Trinko4 decision, the Supreme Court ruled that it did not. As with most Supreme Court opinions, Trinko raised some interesting substantive legal issues, which we are exploring elsewhere. Justice Stevens's concurring opinion, which was joined by Justices Souter and Thomas, raised an interesting procedural question: does the consumer have standing to pursue an antitrust claim in the event that an incumbent monopolist arguably maintained its monopoly in violation of section 2 of the Sherman Act by foreclosing its rivals? Justice Stevens found that only the foreclosed entrants could sue for damages.5 But, as we shall show, his reasoning is flawed. In our view, at least one third of the Supreme Court is confused about the economics of foreclosure.6 We contend that the economic analysis and the antitrust case law support our view that both consumers and foreclosed rivals should have standing to sue for damages in such cases. We also examine the practical difficulties that private plaintiffs will encounter in proving their damages.

II. THE TRINKO LITIGATION

A. Antitrust Background

It is well known that the structural condition of monopoly, without more, is not a violation of section 2 of the Sherman Act, which states in relevant part that "[ejvery person who shall monopolize . . . any part of the trade or commerce among the several States . . . shall be deemed guilty of a felony."7 It is the act of monopolizing that offends the Sherman Act rather than the structural condition of monopoly. A compact statement of the test for illegal monopolization was provided in the Supreme Court's Grinnell decision: "The offense of monopoly under § 2 of the Sherman Act has two elements: (1) the possession of monopoly power in the relevant market and (2) the willful acquisition or maintenance of that power as distinguished from growth or development as a consequence of a superior product, business acumen, or historic accident."8 To the extent that this test separates the deserving from the undeserving, it is a useful standard.9

There are several evidentiary hurdles for a successful plaintiff. First, the plaintiff must define a relevant antitrust market, which has two components: a product market10 and a geographic market.11 Second, having defined the relevant market, the plaintiff must prove that the defendant has monopoly power in that market. This requires a showing that the defendant is able to profitably raise price above the competitive level for a sustained period of time.12 Once these two hurdles have been successfully negotiated, the first prong of the Grinnell test has been satisfied. The third evidentiary burden is to show that the defendant has engaged in exclusionary conduct.13 That is, the monopolist's success must be attributed to some sort of predatory, or otherwise exclusionary, conduct.14 If the monopolist has engaged in such conduct, its monopoly will violate section 2.15

B. The Telecommunications Act Requirements

The production of local telephone service is marked by substantial economies of scale, which makes competition infeasible. Local telephone service, therefore, is a natural monopoly.16 In order to enjoy the productive efficiency of a single producer while minimizing the allocative inefficiency of monopoly, local telephone service historically had been subject to traditional forms of public utility regulation.17 Dissatisfied with the results of this regulation, Congress decided to enhance competition in local telephone service markets. …

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.