Old lessons die hard: why the essential facilities doctrine provides courts the ability to effectuate competitive balance in high technology markets.

• Author: Ortiz, Armando A.

Cite as 13 J. High. Tech. L. 170 (2012)

Introduction

The rapid rise in technological, scientific, and electronic markets leave the state of United States antitrust laws in a perplexing position: can the one hundred plus years of antitrust jurisprudence, an area of law that began in the era of Standard Oil, be used to regulate these unseen economies? On one side of the debate, there are those who contend that antitrust law should not, and frankly cannot, effectively regulate the development of modern technological economies. Likewise, there are also those who contend that antitrust law is needed now more than ever to protect society from the dangers of monopolies.

This note aims to look past these exaggerated fears and argues that antitrust regulation, should be, and in fact, can be, applied to modern technological and scientific fields where innovation is key. Specifically, the focus of this note will be that the essential facilities doctrine, a doctrine deemed largely dormant by the U.S. Supreme Court's recent treatment of it, is a practical solution that can assist antitrust regulation in this new age.

Parts I.A and I.B summarize monopolization jurisprudence pursuant to [section] 2 of the 1890 Sherman Act. Part I.C summarizes the development of the essential facilities doctrine in antitrust law and its recent treatment by courts as to New Economies. Part II.A defines "New Economies" and provides an overview of the characteristics that differentiate them from traditional economies. Part II.B provides an overview of the ongoing debate as to whether antitrust can and should be applied to New Economies. Part III.A argues why the essential facilities doctrine should be a tool that courts should use to regulate New Economies as needed. Part III.B provides a proposed elemental test to assist courts in determining the applicability of the essential facilities doctrine to a particular plaintiff's antitrust claim.

1. History

   1. Antitrust Statutory Provisions

      Congress passed the 1890 Sherman Act upon a platform of populist concern to combat the effects of a non-regulated industrial revolution that effectively bottled up the national economy. (1) Two separate, yet intertwined, provisions constitute the Act. (2) While initially interpreted to condemn all restraints of trade, (3) [section] 1 condemns only those restraints deemed unreasonable. (4) Additionally, [section] 2 makes monopolization or attempts to monopolize distinct illegal acts. (5) Congress also passed other statutory provisions after the Sherman Act, such as the Clayton Act (6) and the Robinson-Patman Act. (7)

   2. Monopolization Jurisprudence

      The statutory language of [section] 1 and [section] 2 of the Sherman Act left much for the early courts to determine. (8) As briefly mentioned supra, [section] 1 condemns unreasonable restraints of trade. (9) Section 2 makes two distinct acts illegal: 1) monopolization and 2) any attempt to monopolize, either unilaterally or through a conspiracy. (10) Much like with [section] 1, the early courts struggled to determine the meaning of [section] 2 and its relationship to [section] 1.11 In modern monopolization analysis, a firm violates [section] 2 if it possesses monopoly power in the relevant market, and it willfully acquired or maintains this power through exclusionary acts. (12) While this two-step analysis seems simple, the Court struggled to develop this test due to the need of balancing a firm's right to compete and reap profits from healthy competition, along with the need of protecting the economy from monopoly power. (13)

      The Court first addressed a [section] 2 monopolization issue in Standard Oil v. United States, (14) a seminal case in which the U.S. government sought to break apart John Rockefeller's Standard Oil Trust. (15) At the time of this case, the Standard Oil trust engulfed the American economy. (16) The Court in Standard Oil determined that [section] 2 should be treated as a "compliment" to [section] 1, thereby applying the rule of reason test developed for [section] 1 analysis. (17) While contemporary monopolization analysis is distinct from [section] 1 analysis, (18) Standard Oil is significant for two main reasons. (19) First, Standard Oil stands for the proposition that a [section] 2 monopolization claim potentially arises from any act that brings about the monopolization, thereby intertwining [section] 2 with other antitrust provisions that condemn certain practices. (20) Second, the Court did not weaken [section] 2 by making a blanket reduction in its potential application in future cases. (21) Instead, however, the Court did not expressly preclude a broader application of [section] 2.22 Even though the Court was not accustomed to applying [section] 2 to the business of the era, it constantly kept in mind the dangers [section] 2 aimed to prevent or mitigate and acted accordingly. (23) The Court continued this sentiment by also not expressly precluding the possibility of a broader application in United States v. American Tobacco, (24) another antitrust case decided in the same term that treated [section] 1 and [section] 2 as complimentary sections. (25)

      The ambiguous language of [section] 2 also forced the Court to determine whether a firm's size alone would be sufficient for a monopolization violation. (26) In United States v. United States Steel Corp., (27) the Court determined that a monopolization claim required a firm to commit some sort of overt act in order for condemnation under [section] 2.28 While the Court did not explicitly close the door on a per se rule against a firm's size, it did sufficiently set precedent stressed by later Court decisions stating a firm must perform some overt action in violation of the Sherman Act's policy in order to find a [section] 2 violation. (29) Although the Court was divided on applying the monopolization standard to U.S. Steel Corporation's actions, it acted consistently by suggesting a close parparallel between the conduct outlawed by [section] 1 and the overt acts required for condemnation under [section] 2. (30)

      The first modern monopolization case that removed [section] 2 from the shadow of [section] 1 was United States v. Aluminum Co. of America (Alcoa). (31) The U.S. government brought forth a [section] 1 and [section] 2 claim against Alcoa, arguing that Alcoa's acts constituted the monopolization of the entire aluminum ingot market. (32) Writing for the court, Judge Learned Hand ruled that a firm must have both the sufficient power to monopolize and the intent to monopolize. (33) Advancing the Court's holding in United States Steel Corp. regarding the requirement of overt acts, Judge Hand also declared that a firm's size must be the product of unnatural forces in order to find a monopolization violation under [section]2. (34) This was a significant ruling because it meant that a monopoly due to "skill, foresight and industry" did not constitute an unnatural force and would not satisfy a monopolization violation. (35) In an even more significant ruling, Judge Hand decided that evidence of a firm's overt acts, otherwise known as exclusionary acts, satisfies the intent requirement of his analysis because "no monopolist monopolizes unconscious of what he is doing." (36) This ruling is significant because it takes away the need for the showing of a specific intent to monopolize, (37) thereby rejecting any notion that a [section] 2 analysis mirrors criminal law's requirement of specific intent. (38) The Court approved Judge Hand's Alcoa analysis in American Tobacco Co. v. United States, (39) where it readily drew guidance in determining whether actual exclusion was a necessary element of monopolization. (40)

      Even after Alcoa and American Tobacco, the Court still analyzed [section] 2 monopolization claims under a vague standard that combined different analyses from previous cases. 41 Finally, in 1966, the Court formally defined the [section] 2 monopolization test as a two-element analysis. (42) Under this standard, a firm is guilty of monopolization in violation of [section] 2 when it: 1) possesses monopoly power in the relevant market; and 2) acquires or maintains that monopoly power through means other than "from growth or development as a consequence of a superior product, business acumen, or historic accident." (43)

      While these two elements comprise the modern monopolization test, there is a specific process in determining whether a firm is guilty of monopolization in violation of [section] 2. (44) First, in order to show monopoly power in the relevant market, a plaintiff must bring forth a full market analysis that defines the relevant product and geographic market. (45) The relevant product market is a survey of all relative substitutes for a firm's particular good or service. (46) Specifically, the relevant product market includes all products "reasonably interchangeable by consumers for the same purposes" as the products provided for by the alleged monopolist. (47) The geographic market reflects the geographic extent to which a firm's reach, or alleged market power, extends. (48) Sometimes in high technology markets the relevant product market is the only market definition needed because the product market adequately reflects the geographic market. (49)

      Once the relevant market is defined, the monopolization analysis turns to whether a firm possesses monopoly power. (50) A firm possesses monopoly power either when it has the power to raise prices above what they would be in a competitive market, or when it has the power to exclude competition in the relevant market. (51) Courts will virtually always accept circumstantial evidence of monopoly power because direct evidence is difficult to obtain. (52) The most common form of circumstantial evidence of market power is a firm possessing a predominant share of the relative market, along with other factors like barriers to entry. (53) Although no exact number dictates the percentage of...