Nov 08, 2024
On October 31, The Capitol Forum hosted a conference call with Daniel Hanley, Senior Legal Analyst at the Open Markets Institute, to discuss his recent paper “Illuminating the Anti-Coercion Foundations of Refusals to Deal” and its implications. The full transcript, which has been modified slightly for accuracy, can be found below.
TEDDY DOWNEY: Good morning and welcome to our conference call on Reviving Anti‑Coercion as the Foundation of Refusal to Deal Litigation. I’m Teddy Downey, Executive Editor here at The Capitol Forum. Today’s guest is Daniel Hanley, a Senior Legal Analyst at the Open Markets Institute.
And we’re going to be talking about his new paper published in September titled “Eliminating the Anti-Coercion Foundations of Refusals to Deal”. The paper looks at anti-coercion, which has been a foundational principle for refusals to deal and anti-monopolization law in general for over a century. It’s become a little bit more controversial. The Supreme Court has maybe disregarded it as an essential aspect of underlying the legality of refusals to deal. And the paper really digs into this refusals to deal and anti-coercion as a viable and robust antitrust claim against monopolists. And Daniel, thank you so much for joining us today.
DANIEL HANLEY: Of course, glad to be here. Thanks for the invite.
TEDDY DOWNEY: We’ve got a couple of things. I mean, if you have questions, just put them in the pane. You can enter them into the little control panel on your computer. Or you can email editorial@thecapitalforum.com. We’ll get to questions later on in the interview.
And Daniel, I think this is like a particularly good time to be talking about refusals to deal because I think the monopolists consider it a good law for them. They’re always trying to reframe everything as a refusal to deal, and then saying we can refuse any deal that we want. And so, from a timing perspective, I just think this is fabulous. And I wanted to get your take on why look into this now? What was the impetus for the paper before we get into some of the highlights?
DANIEL HANLEY: Yeah, first of all, thanks so much. Really appreciate the invite, glad to be here. So, the paper, what I think refusals to deal are just absolutely fascinating. They really strike at the heart, in my opinion, of what antitrust law is about, at a real fundamental level. And if I can put it in a single sentence, it’s refusals to deal establish a limit on what a business is allowed to do. In general. It really gets to the baseline of business operations, business relationships, the production of goods, the distribution of those goods.
And for that reason, it’s obvious why refusals to deal can be so controversial. It’s because they strike precisely at that part of what should a business be allowed to do or not to do? So, the impetus for the paper was actually just, when I saw a competition policy international, they were seeking input on, they just wanted to do a whole issue on refusals to deal. I said, this is just a good time to take a step back and say, okay, what do I want people to understand about this admittedly confusing doctrine at times? And how do I also challenge the notions of this idea of, well, refusals to deal are dead. And all businesses want things to be refusals to deal, to your point.
I really wanted to give a good perspective on what actually the underlying law is. And what’s actually the purpose of having this as a violation at all? I think if someone reads, even a non-lawyer reads, the Trinko opinion written by Justice Scalia and issued in 2004. If someone reads that, and that’s all they’ve read, they would really have a distorted understanding of the meaning of Section 2 of the Sherman Act, the meaning of the purpose of refusals to deal. And so, I really just wanted to give a good overview of what’s actually going on. What’s the point of all this in general?
So, I really wanted to take like a 30,000-foot level. And then at the same time, which the paper is clearly delineated into really two core sections, what refusals to deal are, and then the second is, well, let’s actually give some boundaries. Let’s establish some boundaries of what Trinko actually does. I think there’s a lot of distortion in the paper. I say it has more rhetorical bark than legal bite. And I stand by that. I really do. I think that Trinko as itself is grossly misunderstood. So that’s really the general purpose of the paper, what I was trying to accomplish.
TEDDY DOWNEY: So maybe, can you give us, I mean, I’m guessing our audience is kind of familiar with what refusals to deal are. But maybe let’s just start out with that part of the paper. Just walk us through some highlights there, and then let’s get into Trinko.
DANIEL HANLEY: Certainly. So just a basic overview of a refusal to deal is a company that quite literally doesn’t provide either a specific resource, doesn’t provide access to a specific commercial channel, or to an ostensibly dependent firm.
So, a classic example of a refusal to deal is a railroad closing down access or demanding some sort of unfair preferential terms, or onerous terms for someone to access a railroad. So, in one sense, it’s actually pretty easy to understand. Oh, the point of this is a business can’t seek a resource or other commercial channel, and the Sherman Act or the antitrust laws are designed to open that up. Okay, great.
Well, it gets a little confusing because, in some cases, a refusal to deal can look like other kinds of conduct. So, there are ways to make a refusal to deal look like an exclusive agreement. So, if a company requires another company to be their exclusive supplier or provider of a product, well, that means other companies can’t also supply or provide that product, right? So, in a way, you’re refusing to deal because you have an exclusive agreement. So, it can get a little confusing, but we’ll stick to the general definition. But broadly speaking, it’s when a firm refuses to provide access to a good recovery channel.
TEDDY DOWNEY: Let’s dig into Trinko. Because I feel like when we’re doing journalism and legal analysis, I feel like on refusal to deal, Aspen Skiing kind of has these like pretty easy, hey, you know. This is when a refusal to deal is a problem.
DANIEL HANLEY: Yes.
TEDDY DOWNEY: And then you’ve got Trinko, and I do find it’s confusing to marry those two or figure out what Trinko’s role is. If you already have this formula and they’re saying that formula is still good, let’s talk about Trinko, what its role is, why it’s taken on a life of its own. Would love to get your take on that.
DANIEL HANLEY: Certainly. So, to your point about Aspen admittedly learning about skiing is more interesting than incumbent local exchange character. Like it’s just as a factual matter, skiing is more interesting than networking and telephone and interconnection. So, I agree that you read Aspen and it’s a little bit more straightforward than Trinko. I think the facts don’t really help Trinko be a more interesting case, but that’s besides the point.
So, Trinko is, I’ll say this from the outset. I think you probably won’t find a single scholarly article or account that doesn’t at first have the disclosure of like, this is a difficult case to understand. So, I will also include, I will take part in that tradition, and also take part in saying that this is a difficult case to understand. Admittedly, the facts are intertwined. There’s both the antitrust laws and the Telecommunications Act of 1996 at play. But let’s just talk about the essence of what this case is getting.
So, in 1996, Congress passed a landmark telecommunications law called the Telecommunications Act of 1996. It basically rewrote large sections of the communications law in the United States. And generally speaking, that law was designed to promote competition in the telephone space. Because before this act, these local telephone companies had basically exclusive monopolies over specific regions.
So, the law was designed to open that up. And part of opening that up was a mandate to share certain interconnections and infrastructure. Again, I’m being general here because I don’t want to lose people in like the terminology. It’s more important to just focus on what the essence of this case is about.
And Verizon, the defendant in this case, was accused of either not providing access to its exchanges where you could interconnect with its telephone infrastructure or doing them in a very lethargic, slow manner. So, this first went to the FCC, the Federal Communications Commission, where that issue was eventually dealt with. And then you have a private plaintiff here, which is a law firm, probably in the greatest marketing move ever to get the name of your law firm and the name of the case so that you can hear all about it.
The plaintiff in this case, the law firm, was also a customer of AT&T. And they filed a lawsuit against Verizon claiming that Verizon was violating Section 2 of the Sherman Act by failing to have their interconnection points and failing to provide those.
So, what’s going on here is you have an overlap of discussion between the Telecommunication Act of 1936 and the antitrust law. So, it gets a little confusing. So, I don’t know if you want to go into like the whole thing. Or if you just want me to stick to just the facts there for a moment.
TEDDY DOWNEY: Yeah, let’s keep going.
DANIEL HANLEY: So, Justice Scalia gives his—so this is what a lot of the opinion gets remembered for, really why Trinko was cited. Because Justice Scalia uses the opinion as an opportunity to basically provide a soliloquy, a long story, his entire philosophy on, well, what should the antitrust laws be doing in general? What decision‑making power firms have and what their baseline responsibilities should be. And in his opinion, Justice Scalia pretty much doesn’t hide—he has, you can almost say, no shame in detailing his thoughts.
He repeatedly throughout the entire opinion expresses both the Sherman Act and the Telecommunications Act as imposing these onerous requirements on Verizon, forcing it to share its infrastructure, forcing it to do things it would otherwise not want to do. And, of course, he goes on to say about the need to promote innovation. In other words, that this idea of the antitrust laws hammering down on companies deters them from engaging in the kind of conduct that they’re supposed to encourage, which is innovation, competition, rigorous rivalry, between firms.
And then he has this interesting line where he doesn’t want undue expansion of Section 2 of the Sherman Act, because we don’t want mistaken inferences—this is a direct quote—and the resulting false condemnation that would chill the very conduct the antitrust laws were designed to protect. So, he uses the case as an opportunity to (1) impose restrictions on how Section 2 is to apply. Remember, Section 2 is the statute that prohibits monopolization, attempted monopolization, conspiracies to monopolize. So very broad terms, effects a range of conduct. So just simply use this concept of refusals to deal to impose broader principles on how Section 2 should apply more broadly throughout the antitrust enforcement scheme.
So, that’s the general, and the holding is, of course, that Trinko doesn’t have a—oh sorry, not Trinko, Verizon doesn’t have a duty to deal in this way, mandating the sharing of its infrastructure to its telephone infrastructure.
TEDDY DOWNEY: Yeah, and I think people point to Trinko a lot when there’s a regulator with authority, and you can be like, hey, well, there’s a regulator. Go to them. You don’t need antitrust enforcement here. Do you want to talk about that for a second? Or should we just keep going?
DANIEL HANLEY: Yeah, I think this is really an important aspect of Trinko. And the essence of your question is to what relationship the antitrust law has with other regulatory regimes? So, do the antitrust laws work alongside other regulatory regimes? In other words, is it another layer to the regulatory cake, so to speak? Or is it this separate thing that applies only when it doesn’t apply?
Yeah, so in this case, I think it’s easy to say, oh, this is existing regulatory regime that is the Telecommunications Act of 1996, and then the Sherman Act is just getting in the way. We don’t want it to deal with it here. But importantly in this case is that Justice Scalia doesn’t say that the Telecommunications Act bars antitrust enforcement here.
He notes that in the Telecommunications Act of 1996, that there is what’s called—I’ll use the legal jargon—a savings clause. What that means is that it’s a short sentence in the Telecommunications Act that basically says this law doesn’t supersede the antitrust laws. In other words, the antitrust laws still apply here when they apply. So, as long as you have an antitrust violation, they still apply regardless of the requirements set forth by the Telecommunications Act.
So, now that’s just to say, and what’s important about this specific issue, is that the Supreme Court has previously—in many other cases, when you’ve looked at either amendments to the Sherman Act or other regulatory regimes—the Supreme Court has been quite clear that the antitrust laws apply in all but the most exceptionally narrow circumstances.
So, for example, one of the instances where the Supreme Court said that the antitrust laws have a limited role was in a case called Hughes Tool Co. of Howard Hughes Company. And this is where it had to involve the Civil Aeronautics Board, the predecessor to the Department of Transportation, as it concerns airline regulation.
And there—I think it was a case from the 1970s—the Supreme Court said that the antitrust laws don’t really apply here because the regulatory regime established by the laws governing airlines was pervasive. And that was a very narrow circumstance. But now, unless there’s an explicit command that the antitrust laws don’t apply, they typically do.
And Trinko does not undo that. But what Trinko does do is it says that this has to be an important consideration in terms of ensuring—and the justification there is to ensure that the antitrust laws are harmonized, so to speak, with other regulatory regimes that exist.
But again, importantly, Justice Scalia’s opinion doesn’t say, well, because this is an alternative regulatory regime, the antitrust laws have less of a role. He actually, and probably the only decent part about his opinion is that he does acknowledge that, okay, we still have to consider this issue, and we’ve got to ensure that the antitrust laws work in harmony.
Beyond that, he then veers off track and really tries to narrow the antitrust laws, but I’ll give him the small credit. Oh, there’s some harmonization that has to do here. And that makes sense with any judge considering that—especially when they consider the breadth of the antitrust laws—there’s always, literally since the beginning, there’s been some need to understand the antitrust laws’ broader place in our regulatory regime.
TEDDY DOWNEY: And the paper’s about coercion. So, let’s get back to coercion and the role that you think historically played and how that changed and how maybe it makes sense to revisit it. I would love to get you to talk about that because I think that’s really interesting. And I think it matches up with what you said about rhetoric and sort of the way that, I think the general consensus, again, for the last 40 years, which is like, hey, we should have a laissez-faire approach to big business. We should be deferential to them. We should let them do what they want. Obviously, that’s changing now. So, the history of that rhetoric and perspective and kind of even consensus and how that translated to anti-coercion and our antitrust laws, I think, is really fascinating.
DANIEL HANLEY: Right. So, I’m eventually going to answer your question. But I want to take one step above that. Because the essence of what I talk about in terms of anti-coercion as a principle is there has to be an acknowledgement of, well, what kind of competition are the antitrust laws even talking about? Like, there’s a lot of rhetoric out there that we just need more competition. More competition is a universal good and it’s a socially desirable aspect.
And in order to like give strength to the argument that this anti-coercion principle is foundational—it’s not just foundational, but it’s essential to actually facilitate what the antitrust laws are trying to get at—is you have to sort of go up a layer above and say, well, what kind of competition are we even talking about? So, the antitrust laws don’t say competition at all costs.
So, for example, if they don’t say what is competition is me engaging in espionage or me burning down your factory, right? In a really strict sense, you could say that those kinds of actions are a form of competition. There’s a decision from Frank Easterbrook on the Seventh Circuit Court of Appeals where he says competition requires bruising rivalry and that it doesn’t matter if it’s unfair or fair. He actually really, really goes into this idea that competition doesn’t need to be fair. Who says it needs to be fair? And I’ll quote him directly here. He says that “competition requires bruising rivalry”.
Well, I could easily define bruising rivalry as me going to my business competitor and taking a baseball bat and hitting them over the head and say stop competing against me. Like that’s theoretically a form of competition in a very broad sense. But the antitrust laws don’t—that’s not legal conduct, right? So indeed, the antitrust laws prohibit a range of conduct that we would call unfair, whether it’s predatory pricing, industrial sabotage, espionage, certain forms of mergers, deception.
TEDDY DOWNEY: There’s the FTC Act, I mean.
DANIEL HANLEY: Yes, yes, the FTC Act.
TEDDY DOWNEY: It has a lot of unfair in that. Yeah, there’s a lot of unfair in that act, yeah.
DANIEL HANLEY: Prohibiting unfair methods of competition or unfair or deceptive acts or practices, yeah. In a sense, we know that the FTC Act is an expansion on the Sherman Act and the Clayton Act, but it’s more of an express acknowledgement of what the Sherman Act and Clayton Act are trying to do.
And there’s this great quote. I included this in the paper because I just think it’s—I use the baseball bat in sort of mimicking the D.C.’s Court of Appeals here in the Microsoft case—that businesses don’t have an “unfettered” right to use their property however they want. It’s no more correct than the proposition that the use of one’s personal property, such as a baseball bat, cannot give rise to tort liability.
So, what is that saying in simple terms? Is that not only can a business not do what it wants, there are legal and illegal ways to use their business operations, to use their property. So, it’s important to recognize that this anti‑coercion principle is really trying to refine this understanding that the antitrust laws promote fair competition, that there are permissible ways to act and impermissible ways to act.
So, in refusals to deal, this idea of fair competition that is best expressed through this concept of anti-coercion. And it really starts quite literally at the beginning. In one of the foundational cases on refusals to deal, there’s this case called United States v Colgate. And it has this really important quote that is probably the most repeated quote whenever anybody discusses refusals to deal. Because it really just so foundational.
And the quote goes, “in the absence of any purpose to create or maintain a monopoly, 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”. And often, as we’ll see in a lot of cases, especially in Trinko, that first clause, “in the absence of any purpose to create or maintain a monopoly” is often omitted. And then they just focus on this unfettered right, this right to do whatever they want. And that’s never been the case.
And this idea “in the absence of any purpose”. That word purpose means, okay, what are we doing? Oh, the intent behind the action at play. It’s not just what they did, but why they’re doing it. And this is really what makes refusals to deal in part controversial, or at least I think interesting to discuss is, it’s not just what the act was. It’s why that act was done. And in a sense, yeah, that’s what makes it controversial.
But as I explore in the paper, I try to bring out in the case law the many central refusals to deal cases. Well, what does the Coercion Act play? I don’t know if you want me to go through some of them, but I think some of the notable ones are —
TEDDY DOWNEY: That’d be amazing. Yeah, please do.
DANIEL HANLEY: Yeah, some of the notable ones is Lorraine Journal, the classic, probably one of the most central attempted monopolization cases in actual law. And there it involved, “a commanding and overpowering” news publisher that engaged in “bold, relentless, and predatory commercial behavior”.
And what was that case trying to do? You had a newspaper that was trying to prevent, or trying to stifle, competition over advertising. And in this case, using its monopoly control over the information and the information distribution to close off a rival radio station to access advertisers. And they quite literally, Lorraine Journal quite literally said, we will not host your advertising if you engage in advertising with the radio station. And it sought specifically to inhibit competition and crush a rival to its advertising.
You had another case, an older case, that’s unfortunately, I would argue, has been forgotten by the Supreme Court especially. Because it’s not cited in the Trinko case, even though it’s one of the foundational refusals to deal cases, is this case called Eastman-Kodak, the Southern Photo Materials. And in that case, you had Eastman-Kodak basically refuse to provide essential photographic materials. In fact, when you had to actually develop a photograph, you had to use these chemicals to make your photograph appear right now. Not everything was digital. And this case was in the 1920s, right? So, we’re really talking like the nascency of photography here.
And what’s interesting about this case is Eastman-Kodak actually tried to acquire Southern Photo Materials. But Southern Photo Materials said, no, I don’t want to be acquired. I want to be my own independent business here. And, of course, what Kodak says is like, well, look at us. We’re Eastman-Kodak. We’re like the most important photography company in the United States. How dare you refuse to sell your business to us? In other words, Kodak engaged in a form of like retaliation. Well, if you don’t want to acquiesce to our demand, we’re just going to choke off your supply to your essential photo chemicals and there goes your business. And the court said that that’s illegal, that you can’t just cut off supply of this essential resource, especially in a manner which the court said “in pursuance of a purpose to monopolize”.
And then there’s, I’ll say one more that I think is really important is that there’s this case called Terminal Railroad and it’s sort of a classic, one of the original refusals to deal cases. This takes place in 1912. And basically, you have an amalgamation of railroads that acquired “exclusive control over the means to enter St. Louis, Missouri”. And they controlled the bridges, the terminals, the ferries. They literally controlled everything.
And what they did was they set, in the court’s words, “arbitrary discriminations” to determine how access would be granted over these. And you can’t just—I love the court’s description of this. Again, we mentioned this earlier, part of understanding anti-coercion is understanding the right language, the description of how we describe what’s actually happening here. In some of these older cases, the language is just so beautiful and descriptive. And the court said that this single association that was controlling access to the railroads said “a menace to complete domination as keeping open the way for greater competition”.
So, it’s a little floral. I can admit that. But it actually gets to the essence of, again, that intent aspect of what’s going on here. Why is a company doing this? Are they just doing this for a legitimate business reason? Or are they actually doing it to say, no, we want to entrench and expand our dominant position? And in all these cases, the essence is a business seeking to engage in conduct, to use it to leverage its infrastructure, leverage its financial power, leverage its control, over an essential commercial channel and saying, no, we don’t want to do X conduct. Because it either threatens our business model or we want to leverage our dominance and our control to be more extracted, to extract more than what would otherwise happen if we didn’t have such command and control over specific resources or specific channel of commerce. There’s another case, but I think those are some of the good ones.
TEDDY DOWNEY: Okay, awesome. You mentioned that the Supreme Court has sort of forgotten or left out in Trinko. I imagine that was on purpose.
DANIEL HANLEY: I like to think so too.
TEDDY DOWNEY: What is your sort of argument here to revive this at the heart of the law? And also, it’s kind of hard to just go straight up against the Supreme Court findings, a Supreme Court opinion. And I mentioned Aspen skiing, which sort of has this framework for like, this is when there’s a refusal to deal, which is pretty narrow, you know?
DANIEL HANLEY: Yes.
TEDDY DOWNEY: How do you see this evolving? And are you seeing anything in case law? Are you seeing anything in the courts that’s interesting? O are we really at like inning one here, to use a sad baseball analogy—Yankees lost yesterday. But yeah, we’d love to kind of get into that. You’re sort of playing forward here, how you think this can reemerge.
DANIEL HANLEY: Certainly, so I do agree. To me it’s unquestionable how the sort of purpose behind the Trinko opinion is to suppress a lot of the good case law that existed on refusals to deal. And I think that’s probably best encapsulated by the idea that quote in Colgate, “the absence of purpose to create a monopoly”. That part of the quote was completely omitted. And Justice Scalia just took the latter half of the quote, which is just saying that a business generally has the right to refuse to engage in business relations with anyone it chooses.
A subsequent case called Link Line made that statement even stronger. But again, I think it’s important to acknowledge that even though Trinko says a lot of what could be viewed as creating heightened barriers to refusals to deal, or even just how Section 2 should apply, and it’s described in the paper, Trinko doesn’t undo Aspen Skiing. It doesn’t undo, it doesn’t overrule, any of the prior case law. If anything, importantly, Trinko actually affirmatively acknowledges that Aspen Skiing, and another very important refusals to deal case called Otter Tail, are still good law, that they are still on the books.
Perhaps even more importantly, as many scholars before me have acknowledged, is that Trinko also doesn’t detail exactly when a refusal to deal takes place. Aspen gives hints of that, which Trinko does not either add onto or doesn’t amend at all. So, courts still, when they look at Trinko, when you look past the sort of principles that Justice Scalia wants to be applied to Section 2 more broadly, when you look past that and you say, okay, let’s sort of erase all that rhetoric, and let’s look at, well, how is the court telling me how I should apply the law of refusals to deal? Let’s just look at that baseline aspect.
And Trinko is sort of a blank map. It doesn’t say. So, courts still have to look to prior refusals to deal cases, most notably Aspen Skiing, to actually figure out, well, how do I determine whether a refusal to deal is lawful or not? And in this modern case, it was in 2020, this case called Viamedia v Comcast out of the Seventh Circuit, there’s such a good quote about—I was almost shocked when the court was even willing to say, oh, Trinko is not as broad and sweeping as everybody thought it was. And I cannot find the quote for the life of me right now, which is so frustrating, because I think it’s such a—oh, here it goes. Okay, I’ve got it. And it’s just to quote the court here, because most assertions about Trinko’s reach are exaggerated and “fail to comport with the actual language of the opinion”.
And I just think that judges are usually pretty notorious for hiding how they really feel. I mean, those are fighting words in the legal community, that they’re really calling out lawyers and other judges for, in short, not reading what the opinion says. And in the legal field, reading is kind of an essential skill.
TEDDY DOWNEY: I think it’s important. Can we pause for one second and just talk about why that is? And just to go back to what you’re saying. I mean, look, I see it every, I mean, in all the transcripts of all these trials, the monopolist or the alleged monopolist constantly referring to Trinko, to Cabin, and shame the judge into how dare you tell me, this business, esteemed business, what to do?
It comes up a lot. I mean, it comes up a lot, if not being cited directly in the language by the defendants towards the judge of how the judge ought to behave. Which to your point, it’s a rhetorical and a very useful, I mean, look, if I were a monopolist, that’s what I would do. I’d be like you’re not allowed to tell me what to do. Look at what Trinko says. I get to do what I want. And then you’re saying, hey, let’s look into the statute on this very specific law, you’re violating it, right?
Like it just kind of, it makes sense strategically for the defendants to try to constantly bring this back to a rhetorical high-level fight rather than get in the weeds. And I wanted to see if you agree with that. Because I noticed that as a trend and I’m curious to get your take. And then we’d love to kind of get back into the weeds again.
DANIEL HANLEY: Yeah, so this goes at the heart of, I think what makes the sort of cabined of conduct, let’s call it, like clearly defining conduct as a specific thing, like X, if you do, that means it is Y. If I engage in a contract that does this thing, it’s an exclusive deal. And if I do this thing, it’s like the requirement that conduct be specifically defined, it creates a sort of race, if you will, for whether the plaintiff or the defendant to try to call whatever the challenge conduct is to be that specific thing. Because the name, the label, of the conduct actually invokes a whole different area of law.
So, for example, exclusive deals have very favorable law. There’s the Microsoft case. There’s a case called Lepage’s and there’s a lot of favorable law. But if you just somehow call your conduct a refusal to deal – and, of course, what makes it difficult is that a refusal to deal can involve an exclusive deal. It kind of makes it a little difficult. But if you can get your conduct called a refusal to deal, then you get to invoke Trinko much more strongly. Because, oh, well, Trinko was a refusal to deal and my case looks just like that and then you get to invoke that.
But what makes Trinko—to address the heart of your question—so important, why it’s both a rhetorical shield and sword, is that by applying general principles, since the decision invokes so much about general principles, any time conduct can’t be labeled a refusal to deal or some other conduct, defendants, I think, cleverly understand, oh, well if my conduct can’t be cabined, that means general principles apply. And Trinko is an attempt by Justice Scalia to set forth general principles for how Section 2 should operate in general.
But again, once you read beyond the text, it’s like oh, Trinko doesn’t undo the prior Section 2 case law. It doesn’t talk about cases like Griffith or this other case called Grinnell that set forth the principles, the actual principles, literally delineating, in the Grinnell case, it says there are two factors for what makes a Section 2 claim, like Trinko doesn’t erase that. It tries to. But I think Justice Scalia was trying to work in what he can without undoing other precedent., But he still tries to provide a lot of talking points., Like the often quoted one is that refuses to deal with the outer boundaries of Section 2 law. Again, if you just think about what those words mean, does that mean refuses to deal aren’t encompassed within Section 2? No. So, what does that actually mean?
TEDDY DOWNEY: They’re still in there, but they’re the outer boundary, yeah.
DANIEL HANLEY: They’re still, again, if you just think about the words, and this is like, so I’m constantly confused about, do people not understand what these words mean? Like it’s still in Section 2. That doesn’t mean it’s erased. That doesn’t mean it’s not included. It just means it’s in it, and you’re just adding some, again, floral language.
But again, what Trinko does, there’s no question it doesn’t try to invoke general principles. That’s why it’s constantly sought after. And again, in some cases, because refuses to deal are intertwined with other conduct, that labeling is so important. It does make sense. It’s rational for a defendant to say, well, my conduct to refuses to deal, Trinko applies, and now that means I’m shielded. That means I can do it. And this perhaps most particularly applies in areas like tech where this idea of innovation is somehow the most important thing. It’s the defining characteristic. It’s almost as if the technology industry thinks that innovation only happens in their sector. When you read some of the language, it’s like, well, there’s no innovation in manufacturing. There’s innovation in tech and this new product that we’re making.
So, it makes sense for why Trinko’s so frequently invoked. But again, I think once you look past that sort of rhetoric and say, okay, well, let’s ask this question. What’s the test for a refusal to deal? Trinko doesn’t modify what the actual prior case law was. You still don’t need, for example, what’s called a prior course of dealing or a prior relationship. Trinko does acknowledge that some sort of prior relationship is a good indicator. So, in the case that Justice Scalia cited, I think the quote is “a single instance of a refusal”. But he doesn’t say that you need a prior course of dealing at all. So, you can have a refusal to deal even where there’s no prior business relationship. Okay, great. Well, so Trinko doesn’t —
TEDDY DOWNEY: I thought in Aspen Skiing, that –
DANIEL HANLEY: That was a central aspect, yeah.
TEDDY DOWNEY: Yeah, it was a central aspect of it.
DANIEL HANLEY: It was a central part, but they used that as evidence. It’s important to understand where—so a refusals to deal as an intent crime, again, you’re trying to get, well, what is the coercion? What is the idea of a business choking off a rival or leveraging its infrastructure? You have to get to that intent element. Not just what the conduct is, but why they’re doing it. What’s the reasoning behind it? And so, in Aspen, they looked at the joint ticket. If it was a joint ticket that was very favorable, a skier would go, they’d buy this joint ticket. They’d be able to visit any of the mountains, the ski resorts, that they wanted. And then the defendant in this particular case didn’t like the terms that they were getting. It’s a little—just trying to keep it simple.
TEDDY DOWNEY: It’s easier to prove the intent if you had the prior relationship.
DANIEL HANLEY: Right, exactly. It was an important factor. There’s no question that if you’re trying to prove coercion, you’re trying to prove that a company has a nefarious intent behind their refusal to deal, a prior course of dealing helps, but it’s not necessary.
So, in this case, in this one very important case, it’s called Otter Tail. It involved a power company trying to share its infrastructure to a company called Wheeling Power so that a municipality could develop its own power generation. And Otter Tail didn’t want to do that. And there was no prior course of dealing. You didn’t have to have a relationship. Otter Tail just didn’t want to share its infrastructure and share interconnect with its infrastructure.
So again, when you’re looking at this idea of like, oh, is there a prior course of dealing? Well, Trinko acknowledges that, oh, this is helpful, but it’s not dispositive. So, Trinko doesn’t do that. So that’s now off to the side.
And then you look at, well, what are the legitimate business reasons? So that’s like another aspect. Why is the company in this case, in Trinko/Verizon, not sharing its infrastructure? Well, Trinko still goes into analyzing, well, what is the reasoning behind what they’re doing? And oddly, Trinko doesn’t cite what was then the most recent Section 2 case, which is the Eastman Kodak case, not the one from 1920, but the one from 1992, where in that case, the court cited that a business needed a legitimate business reason.
And so, Trinko doesn’t undo that either. So, you’re still looking into—so this is a very long way of saying courts are still required to look into not just that a refusal to deal happened, what is the reasoning behind it? What is the, not just the reasoning, but what’s the overall effect of that conduct? Not just on the plaintiff, but also the wider market of what’s going on, who else is affected by this decision.
And perhaps most importantly, how does this decision affect future competition? So, it’s not just a single instance, or even a company denying access to critical resources. Well, do other companies need that resource? Are they being unfairly discriminated against? Is this the only firm being called out? Or do we want this choke point to exist at all? And again, the antitrust law, Section 2 in particular, is designed to promote open, fair competition between businesses. So, Trinko doesn’t erase all of that.
It does, I think, to be fair to the opinion, I think if I’m trying to be as generous as possible, I think Trinko does require, generally speaking, as much evidence as possible. I think if you’re trying to litigate these cases, the refusal to deal case, you’ve really got to come with the shoulder pads, with the knee pads, with the helmet, and be as thorough as possible to say what actually is happening here is not just unfair, it’s a business exploiting its position. It’s a business saying that it doesn’t want to engage with another person because it’s going to threaten its business or undermine its position.
Yeah, plaintiffs really do have to come ready. But also, I think what’s just as important is not just the evidence you have, but to really facilitate the anti-coercion principle is to adequately describe what that evidence means. I think, again, in the cases that I cited earlier, I understand that the language is a little foreign. I acknowledge that. But that is the essence of what is going on. That is the actual, not just, that’s what the conduct is.
And plaintiffs have got to be ready to describe their evidence in those terms. They need to be ready to explain to the courts in detail, not only why this conduct is harmful to the competitive process and to the plaintiff, but also to get to the general principles of saying, well, what is Section 2 trying to aim at? And this is really what gets to the heart of refusals to deal in general. In my opinion, refusals to deal get at what is the purpose of Section 2? Is that a business doesn’t get to do what it wants. It doesn’t have this unfettered right to do whatever it wants to do, that Section 2 is a fundamental limitation on that principle.
And if Section 2 is going to exist at all, not only does that principle need to exist, but it needs to be enforced. It needs to be facilitated, yeah. And so, I can talk about some of the recent cases. There’s two in particular that I think are noteworthy.
TEDDY DOWNEY: Yeah, I follow Via Media pretty closely. We wrote about it. I spent a lot of time on it. Would love to hear about that. If I remember correctly, the Supreme Court didn’t take it up, right?
DANIEL HANLEY: It did not. There was an attempt.
TEDDY DOWNEY: There was an attempt, right, yeah.
DANIEL HANLEY: A petition. I think, especially in a refusal to deal, especially when you’re operating under the assumption in the background, oh, you have Trinko. You have this case called Link Line, which helped reinforce Trinko a little bit. The court might be willing to take this opinion to further refine. And they said no. They didn’t want to hear it. So, the case stands.
And Viamedia, I think, is a good opinion. And I think it’s both an acknowledgment of sort of the limits of Trinko. how a court attempting to operate within the paradigm that Trinko has not just legal thrust, but it imposes these sweeping prohibitions on refusals to deal, and it now operates as a fundamental limit on Section 2 litigation. I think the court wrongly assumes that, but that’s neither here nor there.
And what the court does in the case is I think it really cogently describes, well, let’s look at this conduct at issue on what Trinko did say. So, again, Trinko did not undo Aspen Skiing. And just on that principle alone, what I thought was just so, I’ll say clever, but I also think it was probably done more as a defensive mechanism, is that the Seventh Circuit quite literally made a table, like an Excel table, well, here are the facts. Here’s what Aspen Skiing laid out. Here’s what the court said. And here’s why the situation, the litigation before us, is not only similar to Aspen Skiing, but it’s actually a stronger case. It actually has better facts that support dan Aspen Skiing type of ruling, which is where a refusals to deal is found to be illegal under the antitrust laws.
And I have no evidence to support this, but I think if I’m a justice on the Supreme Court, I’m looking, wow, the court just quite literally took the facts of what we said was an unlawful refusal to deal, as Trinko acknowledged, and now you’re just going to detail the facts in such a clear and cogent way. Yeah, we don’t need to decide this case. There’s no reason to take this case when it just clearly fits within the scope of Aspen, and that’s it. The court had a good quote, that this case presented a case “well within the bounds of Aspen Skiing and appears stronger than Aspen Skiing”.
So, in other words, what the court was basically acknowledging there is that Aspen Skiing is alive and well. And it’s an example of, if you fit your facts within what Aspen Skiing is trying to do or what Aspen Skiing says, you have a refusal to deal claim, and that court shouldn’t second guess that. So, what the Viamedia case does, in other words, is give some much-needed perspective on the limits of Trinko and how to navigate what’s actually being said.
In another case called Duke Energy Carolinas LLC, the NTE Carolinas, this was a reversal of summary judgment. And it basically involves the requirement of a power company to interconnect with others. And again, this case is very similar to the Otter Tail case from the 1970s where two electric, two power companies, the requirement interconnection.
So, the conduct there, again, very similar to a prior refusal to deal case. Again, nothing new. And you could say, oh, this conduct is just like that conduct and the Supreme Court there held that conduct was unlawful. We’re just going to sort of copy and paste. Copy and paste that, change the names, include the names of the litigants, say the conduct is similar. And you can wipe your hands and say, we’re done with this.
So, what these two cases really do is, one, provide a sort of jurisprudential roadmap to say, oh, refusals to deal are not done. But I think what’s also at play here is, again, that descriptive language of what conduct is happening and why the conduct was being done. And I’ll just quote the Viamedia case here because I think it could have done more rhetorically, but I think it definitely gets at the kind of descriptions that we need judges to engage in and the kind of language we need the plaintiffs to engage in to help revitalize this idea of anti-coercion, this idea that businesses don’t get to do what they want, that there are limits on how they can operate their business.
So, I’ll just read from the Seventh Circuit opinion. It said that Comcast, as a monopolist, deliberately “forced a new, intimate, and unwelcome relationship upon its smaller competitors, that inflicted financial pain on both its competitors and itself to gain monopoly power”—which was in this case an advertising representative services market—which will also produce a new advantage over its rival cable competitors.
And again, it’s that idea of what you tried to do, that you tried to either hurt your own business, that you engaged in what’s, generally speaking, called a profit sacrifice. You hurt your own profits. Or you wanted to impose either a discriminatory relationship or impose unfair terms purely to either defend your business or ensure that no one threatened your business or you wanted to expand your presence in a different industry.
And yeah, I think both of these cases are really going to give a good roadmap for litigants in terms of the sort of intellectual exercise that they need to engage in to ensure that their claims are successful, but it’s not enough. Unlike before Trinko, it was sort of enough, if you will, sort of enough of evidence to show, oh, this is what a business did, it’s unlawful because they need to share this assumption that they have a central resource. That’s not enough. You really need to do the work, so to speak, of describing what’s actually happening, why it’s happening and what the effects are.
TEDDY DOWNEY: So, we’ve got these two recent cases that sort of open the door to more private plaintiffs. I know we’re at the end of the call. If we have any questions, just a quick reminder, we’ll try to get them in. I don’t see any. Private plaintiffs, the door seems clearly open here.
DANIEL HANLEY: Or I would say more open than they previously thought.
TEDDY DOWNEY: More open, yeah. More open than they thought. Maybe not clearly open, but yeah.
DANIEL HANLEY: More like a mental barrier on people. And we’re only starting now to realize that it’s not like this impenetrable wall, that it’s actually much more open than people previously thought.
TEDDY DOWNEY: I want to ask you a question, a slightly different thing, which is, I don’t want to sort of talk badly about the whole legal profession, but maybe I will.
DANIEL HANLEY: Go ahead.
TEDDY DOWNEY: I would say that as a company that is founded on rigorous study and reporting on evidence and getting in the weeds—by the way, we did the same thing with Aspen Skiing and Viamedia. We went through all the evidence, lined it up with all the things, and sort of came out that it seemed like a pretty decent case. Do you think that, and honestly, this is kind of like the legacy of Brandeis, which was like getting way in the weeds, understanding how the competition worked, doing these detailed briefs about very specific ways that the competition works.
Is that really the path here is to just push through some of the rhetoric to get to the weeds? And when you do that, you have a better shot at winning these cases. Because, as you said, there’s still rules of what you can’t do. Is it kind of this rigor versus rhetoric is kind of what I’m getting at, which is like where the anti-monopoly movement is. And I’m curious if you think that that’s a useful frame for thinking about this, not just for plaintiffs, but for DOJ and the FTC.
DANIEL HANLEY: Yeah, I totally get what you’re getting at. I do think you definitely have to do a lot more work, definitely show a lot more evidence. And that in itself, I’m very mindful of the fact that that could also undermine the antitrust laws for us. I mean, if you require so much evidence, you may never get a chance. You may never—that evidence may not exist at all.
TEDDY DOWNEY: Or it’s hard to get past the motion to dismiss.
DANIEL HANLEY: Yes, yes.
TEDDY DOWNEY: If you need a bunch of evidence. It’s tough, it’s tough.
DANIEL HANLEY: And, unfortunately, Trinko was on a motion to dismiss. And I think that’s why, once you—so Viamedia was on a motion to summary judgment, as was the Duke Energy case. So that shows that, well, one, that refusal to deal claims can get past the motion to dismiss. I think those are good indicators that courts are saying, oh, well, Trinko (1) doesn’t modify the standard for our motion to dismiss. That’s very important. Even though it was held on. But I think this is where the rhetoric comes in. You need to survive a motion. You’ve really got to, that’s like a lot of the game plan, especially because refusals to deal are an intent to commit a crime. Like you’ve really been trying to show what’s the purpose behind this. You’ve really got to get through a motion to dismiss. And this is why, partly why, this adequate description of the rhetoric is so important. It’s also, again, what the limits of Trinko actually are.
But I also think this is where the general principles come in of what Section 2 is trying to do. And what Trinko and Link Line tried to do is they tried to separate out refusals to deal, you know, as this sort of aberration of the antitrust laws. They try to say that generally if this is can do whatever it wants except for when it can’t, which we get to decide. But Section 2 works—but again, refuses to deal operate in conjunction with a whole bunch of other laws. I make this point in the paper. There’s never been this idea that businesses get to choose whatever customers they want, whatever or how—there’s always been limits on their business operations.
So, whether it’s common carriage obligations, which have been in the news recently—an ancient legal doctrine that says that if a business is open to all comers, they have to serve everyone on non-discriminatory terms. Refusals to deal are basically like that. But then we have other laws. The Americans with Disabilities Act, the Civil Rights Act, the Fair Housing Act, which expressly impose limits on how a business can choose its business partners. You’re not allowed to deny housing to someone on the basis of race. That’s choosing your customers. That’s choosing who you do business with in a very similar form. And refusals to deal are within Section 2 of the Sherman Act, are just another element of Congress saying, a business doesn’t get to do what it wants.
So, it becomes important for plaintiffs, I think, to argue that if you undermine refusals to deal, what you are really getting at is the essence of all antitrust claims in general. All antitrust—because of this idea of fair competition, that there’s permissible methods of competition and impermissible methods of competition, by undermining refusals to deal, you’re really undermining the entirety of antitrust law. Refusals to deal really attack the baseline conduct of firms. Who they get to do business with and on what terms, whether it’s price, whether it’s access to a resource, it’s really the essence of that. And it’s important for plaintiffs, I think, to push that and really describe. Because it’s just true that if you undermine refuses to deal, you’re really undermining the entirety of antitrust law.
And because of the sweeping prohibitions provided within the antitrust laws, that’s a powerful argument. I mean, judges often say they don’t want to create new law, don’t want to undermine Congress. They don’t want to – and this gets to the heart. If you’re attacking refusals to deal, then you’re really subverting Congress’s legislative directive. And that’s not a role for judges to take.
So again, I do think that, to your point, rhetoric is important. Rhetoric matters. And coming with, again, as much evidence as you possibly can. But I do think once you survive a motion to dismiss—as the five major cases, the Duke Energy case, show that – plaintiffs, actually, it’s not as hot water as they previously thought, that there’s actually a path to victory here. There’s a path to have refusals to deal claims. You’ve just got to do it. And what Trinko does—I think it’s irrefutable—does require a little bit more work, but that doesn’t make it impossible. That doesn’t mean that all the prior case law is overturned.
And what plaintiffs should look to, and what I hope to provide in my paper, is all the examples I could muster up, examples of what kind of description you need, what kind of evidence you need, what kind of conduct you need, to square the circle of a plaintiff situation and how it equates to refusals to deal. And how you can have an actionable claim.
TEDDY DOWNEY: And I want to wrap up with the last question which is like when you see in these Big Tech Section 2 cases, they constantly try to reframe everything as a refusal to deal. Oh, you’re alleging a refusal to deal. Oh, you’re alleging a refusals deal. Really? The Apple case, in particular, its monopoly maintenance case, they’re like, well, this is just a refusal to deal. These are just all refusals to deal. Do you think, based on the work that you’ve done, do you think that’s a losing strategy? A smart strategy? What’s your kind of take on that? Just trying to frame everything as a refusal to deal.
DANIEL HANLEY: Yeah. So, from the defendant’s perspective, I understand why they’re doing this. Again, Trico has—if you just take it at the rhetoric level, it’s powerful. And sometimes that’s enough. Sometimes that’s enough for a defendant. That’s sometimes just what they need. But what I hope to, at least I hope to, describe in the paper is that even if a claim is a refusal to deal, I totally think that – I just can lean into that. That they should say even if it is a refusal to deal, we’re still going to win. We still have a viable claim. And yes, do they have to do a lot of work explaining the limits of Trinko? Yes, I do. I do think that requires more work. But I don’t think that Trinko is as scary as plaintiffs think it is or needs to be. And I think that the Viamedia case, the Duke Energy case, are examples of that. I think plaintiffs can safely lean into that the conduct at issue is a refusal and that they can also win on that.
Now, that doesn’t mean they should just take it entirely – let me be clear. You shouldn’t just allege a refusal to deal and hope and pray that that’s just going to be persuasive. You allege all of the violative conduct at once. You throw as many legal claims at the wall as possible. And that’s a good lawyer.
But I don’t think that plan should be as fearful as refusals to deal as—I think Trinko—I’ll shorten it up. This is a long way of saying I think this Trinko has aged. I think the rhetoric has become less forceful. And I think in part, as advocacy organizations and the new interest, we’re really giving a new perspective on, again, the purpose of antitrust law, what’s actually at play here. What is the antitrust law trying to accomplish? That has shed more light on Trinko’s weakness in terms of its legal thrust than when the opinion was first released back in 2004.
And the Department of Justice does this in their reply to the motion to dismiss, which unfortunately came out after my final draft for this paper. They lean into that. They say, you know what? If Apple is trying to claim that this is a refusal to deal, it’s not. And we allege a general attempt at monopolization claim, a general sort of monopoly leveraging, monopoly broad sort of situation, where conduct individually amounts to a violation of Section 2, even if that refusal to deal, we’re still going to win, and here’s why. And I think that’s exactly the right approach.
And I think that defendants will eventually—to address the other part of your question, I think defendants are going to realize that the sort of race to call their comment a refusal to deal as not as strong as they think it is, especially when plaintiffs get to how they describe the conduct and especially as they – again, plaintiffs still have to do the work, but describe that undermining refusal to deal undermines the heart of what the antitrust laws are going to attack.
And the Supreme Court’s been clear. It’s a Charter of Liberty. Are we, as a court, supposed to undermine this entire sweeping promotion of industrial liberty in Senator Sherman’s work because of this one conduct? The answer is no. Courts are not in a position and they shouldn’t undermine this entire doctrine. And, in fact, this doctrine embodies what Section 2 in the Sherman Act and the wider antitrust laws are trying to get at. And we’re not just going to look at claims of rhetoric. We’re going to look at the evidence. We’re going to look at the conduct and look at the facts and go from there.
TEDDY DOWNEY: I know we’re over time, but I’ve got one last. You know, we were talking a little bit before we started about intent and storytelling. I think this is where Big Tech is kind of vulnerable the more you get into intent because they’re out there destroying documents. They’re out there deleting stuff. They’re out there couching—over subscribing their emails to lawyers for privilege or whatever you want to call it. I think it’s bad for them if they have to get into intent for all those reasons and more.
But I wanted to get your take on intent and storytelling and why that’s kind of part of the thing that’s going on here in terms of like how you can revive more refusal to deal enforcement because it lets you talk about intent. Which if you have a good story, if there’s a good story there, that can be a good thing.
DANIEL HANLEY: Yeah. So, like in the 1992 Kodak case, there’s this, well, I don’t have the case in front of me. But you need a legitimate business justification. Or in absence, this whole idea of absent any efficiency. Or in Lorraine Journal, it was this idea of just purely to crush a competitor with no redeeming social value or justification.
And I think to your point, yeah, a lot of what, you know, especially in the Big Tech cases has been revealed, is that they don’t want to do these actions to either provide a better service to customers or provide a more robust part, that they’re purely trying to use their financial dominance, their privileged position, their privileged access to capital, befriending Wall Street, and to by competitors cross like, not even degrade their services. I forget which tech company said it, but I think to throw it in the trash bin. There was like a quote that involves a trash can about why they’re engaging in certain conduct. And yeah, I think, again, that the essence of refusal to deal claims is that like what are you doing this for?
So, I think this is especially relevant with tech because there’s so many dependencies. If you look at Apple’s App Store, there are a lot of businesses dependent on the rules that Apple sets, the limitations on the App Store, how an app is approved. I mean, that’s a whole exclusive channel of commerce there, which Apple also competes in. Because they have apps that are direct rivals to other competing services.
So again, I’m just using the App Store as an example. When you look at either a rule change or a terms of service change or whatever it is, are these actually just to ensure that there’s a fair playing field? Or is it actually to ensure that some sort of, either unlawful or not socially desirable, business practice is we don’t want that on their platform? Or is it just because Apple wants to give itself privileged terms and ensure that no one can undermine its direct competition for a specific app that it competes with directly with other apps on its App Store?
So, I think you’re right that the more we dig into the intent that it’s not good. And, in part, you could almost say maybe the reason why they were so blatant, they were so explicit, is because they thought—I don’t know if they were thinking—I don’t know if Mark Zuckerberg or Larry Page or any of them were thinking about antitrust law in such explicit terms. But they must have felt safe to think that, oh, it doesn’t matter what I do because I have this inherent business right to do whatever I want. And in reality, you don’t and you never had. You never had that. You never had that in that way. And I think we’re going to see that—maybe this is what makes this so important is what you’re going to—when you have a refusal to deal regime, businesses are going to understand, have to think more about, the impact of their decisions, how it’s affecting their dependent trading partners or just dependence in general. And to ensure that what they are doing is actually in the public interest, is actually compliant with the broad directives with the antitrust laws. And that’s a good thing. That’s how the antitrust laws are supposed to operate. They tailor conduct towards, again, fair methods, fair and permissible methods of competition, unfair and impermissible methods of competition.
Similar with merger law. When you restrict mergers, what do companies often do? They pay their workers more. They engage in more research and development. And refusals to deal operate similarly. You can’t just refuse to deal. You’re going to set fairer terms, provide fairer terms for your dependents. It works similarly.
TEDDY DOWNEY: Thank you so much. I think that’s a good way to end. We don’t have any questions in the queue. This was an incredible, and maybe illuminating, conversation. If anyone hasn’t read it, please check out “Illuminating the Anti-Coercion Foundations of Refusals to Deal”. Thank you so much for doing this, Daniel. It was awesome.
DANIEL HANLEY: Of course. Thank you so much, Teddy. Appreciate it. Have a nice day.
TEDDY DOWNEY: And thanks to everyone for joining the call. And this concludes the call. Have a good one. Bye-bye.
