THE ESSENTIAL FACILITIES DOCTRINE UNDER U.S.

ANTITRUST LAW (Robert Pitofsky)

70 Antitrust Law Journal

BACKGROUND CONCEPTS: WHAT IS THE ESSENTIAL FACILITIES DOCTRINE? (note: NOT in the paper)
 Monopolistic, anti-competitive behavior which a firm engages in to deny entry into the market, by restricting access to
the “essential facility”
 Under this doctrine, the owner of the “essential facility” would be mandated to provide access to such
 US Antitrust law is essentially competition law
 Sherman Act

HISTORY AND CORE ELEMENTS

A. GENERAL PRINCIPLES
 Origin: 1912 SC decision, US vs. Terminal Road Association
o Group of railroads controlling all railway bridges prevented competing railroad services was held to be an illegal
restraint of trade and attempt to monopolize
 US courts have long recognized the general rule that a firm has no obligation to deal with its competitors, but subject
to certain exceptions
 Essential facility doctrine → subset of the “refusal to deal” cases, placing limitations on a monopolist’s ability to exclude
actual or potential rivals from competing with it
 Alaska Airlines vs. United Airlines: “The essential facilities doctrine imposes liability, when one firm, which controls an
essential facility, denies a second firm access to a product or service that the second firm must obtain, in order to
compete with the first.”
 Associated Press vs. US: AP bylaws violated the Sherman Act by limiting membership and thus access to its copyrighted
news services
 Lorain Journal vs. US: Defendant newspaper, the only local business circulating news and ads in town, violated the
Sherman Act by refusing to accept advertising business from businesses which also advertised with a small radio
station
 Otter Tail Power vs. US: Otter Tail violated the Sherman Act by refusing to sell electricity wholesale so it could service
customers directly itself
 The essential facilities doctrine renders a unilateral refusal to deal subject to potential liability as a monopolization
violation of Section 2 of the Sherman Act.
 The 'essential facilities' doctrine is not an independent cause of action, but rather a type of monopolization claim.
 MCI Communications vs. AT&T: EFD was applied to require monopolist telco provider to provide access to its local
service network to competitors in long distance services
 Aspen Highlands Skiing vs. Aspen Skiing: EFD applied to a ski resort’s decision to terminate its participation in selling
a “multi-area” ski ticket
B. LIMITATIONS ON APPLICABILITY
 To establish antitrust liability under the EFD, a party must prove:
o Control of the essential facility by a monopolist
o Competitor’s inability to duplicate the essential facility
o Denial of the use of the facility to a competitor
o Feasibility of providing facility to competitors
 Courts rarely impose liability under the EFD, because it requires a showing that the facility is truly essential to
competition
o “Essential” only if control carries with it the power to eliminate competition
o Element does not go so far as to require that the restriction caused the party denied access to go out of business
o Facility is not deemed essential if equivalent facilities exist or where its benefits can be derived from other sources
 EFD does not impose liability where a defendant monopolist has a legitimate business or technological justification for
declining access to its competitor
C. ROLE OF INTENT
 While not required to establish liability under the EFD, liability is particularly appropriate when denial of access is
motivated by an anticompetitive animus
 Numerous courts have held that a refusal to deal plus anticompetitive intent may support a finding of antitrust liability
even without proof that the withheld input constitutes an essential facility
D. RELATIONSHIP OF EFD AND BROADER ANTITRUST POLICY
 EFD is consistent with welfare-enhancing goals of US antitrust policy, which aims to preserve and enhance competition
 EFD seeks to prevent a firm with monopoly control over an essential asset from unlawfully excluding actual or
potential rivals
 Preserving competition ensures that firms will have efficiency incentives to lower costs and prices, and to develop
consumer welfare-enhancing innovations
 Policy justification applies to intellectual property as well

APPLICABILITY OF THE EFD TO INTELLECTUAL PROPERTY

A. RECENT CASES
 While “classic” applications of the EFD related to natural monopolies, recent cases demonstrate the EFD’s application
to intellectual property, such as copyrighted databases or software
 Data General Corp. vs. Grunman Systems Support Corp.: EFD applied to a claim that a competitor service provider
needed access to the copyrighted software by the manufacturer, which competed in the service aftermarket.
 AT&T vs. North American: EFD applied to services
B. LESSONS FROM REFUSAL TO DEAL CASES
 Antitrust liability will attach notwithstanding claims of intellectual property protection
 Image Technical Services vs. Kodak: Abuse of intellectual property rights could give rise to antitrust liability, if “a seller
exploits his dominant position in one market to expand his empire into the next.”
o A firm could be subject to antitrust liability for refusal to deal in protected intellectual property where the presumption
of a valid reason not to license was rebutted by evidence of anticompetitive intent
C. MESSAGES FROM US ENFORCEMENT AGENCIES
 EFD may be applied to intellectual property “bottlenecks”
 DOJ/FTC IP Guidelines: the use of market power by an intellectual property holder will be treated no differently than
that of other monopolists

HOW MANY RELEVANT MARKETS MUST BE PROVEN?

 Typically, the doctrine describes 2 vertically-related markets
 However, there is no requirement that a plaintiff alleging anticompetitive denial of access to an essential facility
demonstrate the existence of 2 separate relevant product markets
o May simultaneously be customers and competitors in a single market (e.g. Aspen skiing case)
 Sufficient that the parties compete (or would compete) in the same ultimate market
 It is plaintiff’s status as competitor of the alleged monopolist that allows a firm to seek relief under the EFD
 Touchstone of liability under the EFD is the competitive relationship between the parties

CONCLUSION
 In those rare and exceptional circumstances where a facility is truly essential to competition, the anticompetitive
effects of denial of access are severe, and there is no business justification (and particularly when there is evidence of
a specific intent to injure a rival), U.S. courts will impose antitrust liability for a monopolist's refusal to license access
to an essential facility
 US antitrust law permits a court to order compulsory licensing of such intellectual prop- erty. Indeed, notwithstanding
the defendant-monopolist's arguments against applying the doctrine where the subject asset was intellectual property
or in situations that did not involve vertically related markets, courts in the United States have applied this rule in
appropriate cases like Kodak, Data and Aspen Skiing.
 While it is important that the essential facilities doctrine not be allowed to expand into a vague and amorphous set of
"rights," the approach of most lower courts in the United States-applying the doctrine cautiously and pursuant to
limiting principles-seems to work well.