Essential facilities.

AuthorLipsky, Abbott B., Jr.
PositionBaxter Symposium

Since United States v. Terminal Railroad Association, the essential facilities doctrine has been applied to a wide variety of business contexts--from football stadiums to the New York Stock Exchange. However, courts have also declined to extend the doctrine to a wide variety of situations. Despite academic criticism, courts have never provided a coherent rationale for the limitations of the doctrine. The essential facilities doctrine can be seen as an equivalent to the economic concept of a "natural monopoly," implying that the wisdom of judicial regulation in this area requires an assessment of the administrative complexity involved. Three conclusions follow: First, diversification restraints on the owners of essential facilities are inefficacious. Second, the doctrine should not be applied to intellectual property. Third, the doctrine is most likely to be useful when the monopoly facility is shared by numerous competitors, has excess capacity, and where the applicants seek access on the same terms as the incumbents. Finally, an examination of the government litigation against the Microsoft Corporation reveals that an injunctive remedy providing mandatory access to the Windows platform could run into two sorts of constitutional difficulties. First, a court would be forced to deal with a complex pricing problem to avoid a violation of the Takings Clause of the Fifth Amendment. Second, to the extent the Windows platform may be regarded as a forum for communication, mandatory access may lead to compelled speech, potentially violating the First Amendment.


A recurring theme in William Baxter's schema of antitrust law, whether expressed in the classroom or the courtroom, was that, to be legitimate, a theory of antitrust liability must envision a remedy that is both feasible for a court to administer and conducive to enhancing consumer welfare. As Assistant Attorney General, for example, Baxter dropped the IBM monopolization case as unworkable,(1) settled the AT&T case by splitting up the Bell System,(2) and introduced merger guidelines that encouraged parties to "fix it first" in terms of necessary divestitures of competing businesses.(3)

In the same spirit of emphasizing that liability rules and remedies must share a common economic logic, and that courts should not be conscripted to serve as de facto regulatory bodies, we examine here a strand of antitrust doctrine that has only grown in significance since Baxter's splitting of the Bell System. The call for mandatory access remedies in antitrust law, often but not always expressed under the rubric of the "essential facilities" doctrine, has grown steadily since Baxter's tenure at the Antitrust Division of the Department of Justice. The most dramatic manifestation of that trend today, though perhaps not its culmination, is the current litigation against Microsoft Corporation, which is widely regarded as the most consequential antitrust case prosecuted by the federal government since the IBM and AT&T cases on which Baxter left his mark seventeen years earlier. It is therefore a fitting tribute to William Baxter's contribution to the theory and practice of antitrust law to assess, with the Baxterian skepticism that he imparted to us as his students, the logic and limits of mandatory access remedies in antitrust law.

In 1889, the notorious financier Jay Gould organized a coalition to acquire railroad facilities in and around St. Louis, Missouri. The antitrust suit that resulted from Gould's escapade--United States v. Terminal Railroad Association(4)--involved three different means of crossing the Mississippi when the government finally sued the combination. After Gould had obtained control of each crossing, his acquisitive urge was still well short of its goal. At this dominant regional and transcontinental railroad junction, twenty-four independent lines terminated--half on the bluffs forming the St. Louis side of the Mississippi, and half on the plains stretching away from East St. Louis, Illinois, on the opposite bank. Gould's group, which included only fourteen of the twenty-four lines, acquired all of the railroad facilities of both cities: terminals and yards, and tunnels and tracks leading from the high bluffs on the Missouri side of the Mississippi down to the river crossing below.

In short, the acquisition gave Gould complete control of the facilities necessary to load or unload freight traffic or passengers anywhere within the area of St. Louis or East St. Louis, let alone carry anything or anyone across the Mississippi. Given that the assets under Gould's control were absolutely indispensable to the railroads of the region, and considering the importance of the railroad to both passenger and freight transportation in that era, it is difficult to imagine an amalgamation today that could achieve a similar chokehold. Perhaps one might imagine the unification under common control of the highways, bridges, railroad facilities, airports, and city streets of St. Louis and East St. Louis.

The specific results of the combination's power were predictable: The combination was able to impose premium rates on traffic moving within and through the St. Louis area, constrained with respect to the latter by the presence of a railroad bridge at Memphis, Tennessee, roughly 285 miles to the south. These rates were imposed in the form of supplemental charges called "arbitraries." The term suggests the likely attitude of the parties most obviously aggrieved by the situation--namely, the railroads relying on those facilities that were not included within Gould's ownership group.

The federal government brought suit in 1905, seeking, under sections 1 and 2 of the Sherman Act,(5) to dissolve the Association and restore independent competition among the various entities united by Gould. But the Supreme Court, in 1912, found merit in the defendant's argument that the consolidation of terminal facilities within this enormous transportation complex would permit more efficient coordination of railroad operations. Accordingly, the Court held that dissolution would not be required unless the parties could not agree on a remedy short of divestiture.(6) This remedy was to require the Association to admit any railroad to ownership on the same terms and conditions as the railroads already allied with Gould. Moreover, railroads that wished to use the Association's facilities without becoming owners would have to be charged usage fees that would "place every such [railroad] company upon as nearly an equal plane ... as that occupied by the [member] companies."(7) The Court gave no further guidance on the principles by which such rates could be calculated.

Thus, the competition that had existed before Gould's consolidation of the numerous independent terminal companies and other facilities operators could have been restored by a decree of divestiture. Rather than rekindle the competition extinguished by Gould, however, the Court permitted the entry of a decree that required regulation of (1) the terms and conditions of ownership in the monopoly established by the consolidation and (2) the relationship between the rates and terms of usage applied to owners and those applied to non-owner users of the monopoly facility.

The legal principle for which Terminal Railroad came to stand--the essential facilities doctrine--is now paraphrased in terms compelling in their simplicity: A monopolist in control of a facility essential to other competitors must provide reasonable access to that facility if it is feasible to do so. This principle has been applied to centralized market facilities such as the New York Stock Exchange.(8) the Providence, Rhode Island wholesale produce market,(9) the multiple listing services for residential real estate,(10) the computerized airline reservation system,(11) modern rail networks,(12) regional electricity distribution networks,(13) natural gas pipelines,(14) oil pipelines and storage facilities,(15) a municipal pier,(16) an airport terminal,(17) football and basketball stadiums,(18) and the nationwide transmission and switching facilities that once comprised the local telephone network of the former Bell System.(19) Creative antitrust lawyers have attempted to apply the doctrine to an even broader array of items: hospitals,(20) ski mountains,(21) soft drinks,(22) credit cards,(23) the milk industry,(24) cable television,(25) the apartment rental referral industry,(26) direct all-freight flights between New York City and San Juan, Puerto Rico,(27) the ownership of National Football League franchises,(28) publications and periodical distributors,(29) the list of vendors willing to provide teletype terminals compatible with the Western Union teletype service network,(30) electronic transmission of advertisements to newspapers,(31) a list of the business classification in which each advertiser in the Miami, Florida Yellow Pages spends the greatest amount of money each year,(32) a membership in an appraiser's association,(33) payphone long distance carriers in Puerto Rico,(34) cellular long distance service,(35) microwave facilities for international communications,(36) the home health care market,(37) resistive bands and tubing for exercise equipment,(38) the lignite market,(39) and high performance Intel microprocessors.(40)

Although the essential facilities doctrine has been the target of some distinguished critics,(41) the remedy of mandatory access has enjoyed persistent, even growing, popularity despite being almost surely unworkable in most cases. In Part I of this article, we describe the evolution of the doctrine following Terminal Railroad. Although courts have declined to extend the essential facilities doctrine to a variety of facilities and situations, no court has stated the specific rationale for those limitations. We therefore attempt to define limits for the essential facilities doctrine by analyzing its historical roots, its...

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