Essential facilities doctrine
Encyclopedia
The essential facilities doctrine (sometimes also referred to as the essential facility doctrine) is a legal doctrine
which describes a particular type of claim of monopolization
made under competition law
s. In general, it refers to a type of anti-competitive behavior in which a firm with market power
uses a "bottleneck" in a market to deny competitors entry into the market. It is closely related to a claim for refusal to deal
.
The doctrine has its origins in United States law, but it has been adopted (often with some modification) into the legal systems of the United Kingdom
, Australia
, South Africa
, and the European Union.
is required to show to establish liability, are:
The U.S. Supreme Court
's ruling in Verizon v. Trinko
, 540 U.S. 398 (2004), in effect added a fifth element: absence of regulatory oversight from an agency (the Federal Communications Commission
, in that case) with power to compel access.
These elements are difficult for potential plaintiffs to establish for several reasons. It is quite difficult for a plaintiff to demonstrate that a particular facility is "essential" to entry into and/or competition within the relevant market
. The plaintiff must demonstrate that the "facility" must be something so indispensable to entry or competition that it would be impossible for smaller firms to compete with the market leader. Likewise, the plaintiff must show that compelling the dominant firm
to permit others to use the facility would not interfere with the ability of the dominant firm to serve its own customers.
Similar decisions include,
such as utilities
and owners of transportation facilities, it has also been applied in situations involving intellectual property
. For example, it is possible for a court to apply the doctrine in a case where one competitor refuses to sell materials protected by copyright
or patent
to potential competitors.
Legal doctrine
A legal doctrine is a framework, set of rules, procedural steps, or test, often established through precedent in the common law, through which judgments can be determined in a given legal case. A doctrine comes about when a judge makes a ruling where a process is outlined and applied, and allows...
which describes a particular type of claim of monopolization
Monopolization
The term monopolization refers to an offense under Section 2 of the American Sherman Antitrust Act, passed in 1890. Section 2 states that any person "who shall monopolize . ....
made under competition law
Competition law
Competition law, known in the United States as antitrust law, is law that promotes or maintains market competition by regulating anti-competitive conduct by companies....
s. In general, it refers to a type of anti-competitive behavior in which a firm with market power
Market power
In economics, market power is the ability of a firm to alter the market price of a good or service. In perfectly competitive markets, market participants have no market power. A firm with market power can raise prices without losing its customers to competitors...
uses a "bottleneck" in a market to deny competitors entry into the market. It is closely related to a claim for refusal to deal
Refusal to deal
Refusal to deal is one of several anti-competitive practices forbidden in countries which have restricted market economies. For example:-History:...
.
The doctrine has its origins in United States law, but it has been adopted (often with some modification) into the legal systems of the United Kingdom
Law of the United Kingdom
The United Kingdom has three legal systems. English law, which applies in England and Wales, and Northern Ireland law, which applies in Northern Ireland, are based on common-law principles. Scots law, which applies in Scotland, is a pluralistic system based on civil-law principles, with common law...
, Australia
Law of Australia
The law of Australia consists of the Australian common law , federal laws enacted by the Parliament of Australia, and laws enacted by the Parliaments of the Australian states and territories...
, South Africa
Law of South Africa
South Africa has a 'hybrid' or 'mixed' legal system, made of the interweaving of a number of distinct legal traditions: a civil law system inherited from the Dutch, a common law system inherited from the British, and a customary law system inherited from indigenous Africans...
, and the European Union.
Overview
The basic elements of a legal claim under this doctrine under United States antitrust law, which a plaintiffPlaintiff
A plaintiff , also known as a claimant or complainant, is the term used in some jurisdictions for the party who initiates a lawsuit before a court...
is required to show to establish liability, are:
- control of the essential facility by a monopolist
- a competitor’s inability to practically or reasonably duplicate the essential facility
- the denial of the use of the facility to a competitor; and
- the feasibility of providing the facility to competitors
The U.S. Supreme Court
Supreme Court of the United States
The Supreme Court of the United States is the highest court in the United States. It has ultimate appellate jurisdiction over all state and federal courts, and original jurisdiction over a small range of cases...
's ruling in Verizon v. Trinko
Verizon Communications v. Law Offices of Curtis V. Trinko, LLP
Verizon Communications v. Law Offices of Curtis V. Trinko, LLP, often shortened to Verizon v. Trinko, 540 U.S. 398 , is a case decided by the Supreme Court of the United States in the field of Antitrust law...
, 540 U.S. 398 (2004), in effect added a fifth element: absence of regulatory oversight from an agency (the Federal Communications Commission
Federal Communications Commission
The Federal Communications Commission is an independent agency of the United States government, created, Congressional statute , and with the majority of its commissioners appointed by the current President. The FCC works towards six goals in the areas of broadband, competition, the spectrum, the...
, in that case) with power to compel access.
These elements are difficult for potential plaintiffs to establish for several reasons. It is quite difficult for a plaintiff to demonstrate that a particular facility is "essential" to entry into and/or competition within the relevant market
Relevant market
In competition law the Relevant market defines the market in which one or more goods compete. Therefore, the Relevant market defines whether two or more products can be considered substitute goods and whether they constitute a particular and separate market for competition analysis.The relevant...
. The plaintiff must demonstrate that the "facility" must be something so indispensable to entry or competition that it would be impossible for smaller firms to compete with the market leader. Likewise, the plaintiff must show that compelling the dominant firm
Dominance (economics)
Market dominance is a measure of the strength of a brand, product, service, or firm, relative to competitive offerings. There is often a geographic element to the competitive landscape...
to permit others to use the facility would not interfere with the ability of the dominant firm to serve its own customers.
Development
The first case to use the idea was the Supreme Court's judgment in United States v. Terminal Railroad Association, 224 U.S. 383 (1912). A group of railroads controlling all railway bridges and switching yards into and out of St. Louis prevented competing railway companies from offering transportation to and through that destination. The court held it to be an illegal restraint of trade.Similar decisions include,
- Associated Press v. United StatesAssociated Press v. United StatesAssociated Press v. U.S. 326 U.S. 1 , was a United States Supreme Court case that held that the Associated Press had been violating the Sherman Antitrust Act by prohibiting member newspapers from selling or providing news to nonmember organizations as well as...
, 326 U.S. 1 (1945), in which the Supreme Court found that the Associated Press bylaws which limited membership and therefore access to copyrighted news services violated the Sherman Act.
- In Lorain Journal Co. v. United States, 342 U.S. 143, 146-49 (1951), the Lorain Journal was the only local business doing news and advertisements in town. The case was that refusing to place an ad for the customers of a small radio station was a Sherman Act violation. In the end, the court accepted an offer to simply accept the advertisements.
- Otter Tail Power Co. v. United States, 410 U.S. 366, 377-79 (1973), in which the Supreme Court found that Otter Tail, an electrical utility which sold electricity at both directly to consumers and to municipalities who resold to consumers, violated the Sherman Act by refusing to supply electricity at wholesale, instead serving customers directly itself.
- Aspen Skiing Co. v. Aspen Highlands Skiing Corp.Aspen Skiing Co. v. Aspen Highlands Skiing Corp.Aspen Skiing Co. v. Aspen Highlands Skiing Corp., 472 U.S. 585 , was a case decided by the Supreme Court of the United States, notable as "the very last gasp" of the Harvard School of antitrust....
, 427 U.S. 585 (1985), upholding the Lorain Journal decision in holding that Aspen Skiing violated § 2 of the Sherman Act by refusing to honor vouchers and ski liftSki liftThe term ski lift generally refers to any transport device that carries skiers up a hill. A ski lift may fall into one of the following three main classes:-Lift systems and networks:...
tickets after it had previously done so.
Application of the doctrine
There is controversy about what exactly constitutes an "essential facility". While the doctrine has most frequently been applied to natural monopoliesNatural monopoly
A monopoly describes a situation where all sales in a market are undertaken by a single firm. A natural monopoly by contrast is a condition on the cost-technology of an industry whereby it is most efficient for production to be concentrated in a single form...
such as utilities
Public utility
A public utility is an organization that maintains the infrastructure for a public service . Public utilities are subject to forms of public control and regulation ranging from local community-based groups to state-wide government monopolies...
and owners of transportation facilities, it has also been applied in situations involving intellectual property
Intellectual property
Intellectual property is a term referring to a number of distinct types of creations of the mind for which a set of exclusive rights are recognized—and the corresponding fields of law...
. For example, it is possible for a court to apply the doctrine in a case where one competitor refuses to sell materials protected by copyright
Copyright
Copyright is a legal concept, enacted by most governments, giving the creator of an original work exclusive rights to it, usually for a limited time...
or patent
Patent
A patent is a form of intellectual property. It consists of a set of exclusive rights granted by a sovereign state to an inventor or their assignee for a limited period of time in exchange for the public disclosure of an invention....
to potential competitors.
External links
- Law review article by Professor Robert PitofskyRobert PitofskyRobert Pitofsky, born December 27, 1929, was chairman of the Federal Trade Commission of the United States from April 11, 1995 to May 31, 2001. He had previously been Dean of the Georgetown University Law Center from 1983 to 1989, and is currently a professor there, teaching in the areas of...
from arnoldporter.com - Brief explanation of the doctrine from the International Telecommunication UnionInternational Telecommunication UnionThe International Telecommunication Union is the specialized agency of the United Nations which is responsible for information and communication technologies...
- Article on the doctrine from the Competition Commission of South Africa