South-Western Bell Telephone Co et al Application for Authority to Section 214 o f the Communications Act o f 1934 to Cease Providing Dark Fibre Service, FCC 93-165 (realised March 29 1993).

Chapter V______________________________________________________________Antonio F. Bavasso

the private initiatives and freedom o f determination inherent in the essential facility doctrine.

It is undoubtedly crucial to spell out that the essentiality o f a facility itself is to be determined with reference to the interest o f the public at large not to the interests o f competitors who are merely instrumental to the pursuit o f public in s tru m e n t.^ ^ This

theme recurs often in the different approaches o f competitive analysis. In contrast with the common carrier doctrine however, the interest o f consumers in an essential facility is not that o f access to the product or the service nor that o f non-discrimination. This need is addressed by the separate but linked notion o f universal service which is mainly and more efficiently pursued by regulatory measures and action. From the perspective o f citizens and consumers, the issue is that o f increased choice through competition. Clearly enhanced choice must be reconciled with long term benefits for the public at large such as price reductions, quality control, and technological advancement. These used to be seen as the prerogatives o f non-profitable entities such as public utilities. In the context o f essential facilities discrimination has to be prevented and access is to be guaranteed vis à vis both actual or potential competitors. Those who will benefit from the essential facilities’ regime and the consequent right o f access would in the first instance be competitors and only indirectly, through them, consumers. The modem interpretation o f the essential facility doctrine originated in the United States and therefore an analysis o f that jurisdiction is the necessary starting point o f our reconstruction.

The origins o f this notion lie in the Terminal Railroad case^^ o f the beginning o f the century. In that case the essential facility actually consisted in a group facilities: bridges, ferries, tunnel, connecting tracks, terminal buildings and even the Saint Louis Union Station which were all gradually acquired by the Terminal Railroad Association. In particular the association owned the only Mississippi river railroad bridge which controlled the passages in and out o f St Louis. A second bridge was built and initially

Oscar Bronner, supra note 1-49 above, para 34 per A.G. Jacobs.

United States v. Terminal Railroad Association, 244 US 383 (1912); M L. Azcuenanaga, “Essential Facilities and Regulation: Court of Agency }\ix\sA\ci\onT\ Antitrust Law Journal, 58 [1990] 879, p. 884.

Congress, in authorising the construction, prohibited the Association from acquiring an interest in the bridge company. Once the ban was lifted Terminal Railroad took majority control over the new bridge company. This transaction put the merged entity in a position to exclude competitors from passing through St Louis which was an important railroad junction. The litigation which followed was brought by the Missouri Attorney General and reached the US Supreme Court. The Court recognised the monopoly and the potential harm for competition which could result from the take over. However, instead o f requiring a divestment, it imposed a behavioural remedy. The Association would have had to eliminate surcharges on freight shipments originating or terminating in St Louis. It was also ordered to allow other railroads to join the Association and eliminate discrimination against non-members in the use o f the facility.

Another important but more controversial precedent can be traced in another association case: the Associated P r e s s In this case 1,200 newspapers had formed an association whereby each member was given access to news produced by other members. Associated Press also had its own staff which constituted a further source o f information for the benefit o f the associates. The association aimed at achieving economies o f scale and accepted new members under the condition that they did not compete with an existing member. In this case the anticompetitive behaviour consisted o f a concerted discriminatory action. It is somewhat controversial to consider this as an essential facilities case. The Court in examining the circumstances came to the conclusion that the Association ought not to be required to adopt an admission policy o f free unconditional ac c e ss.^ ^ Nonetheless it ruled as unlawful the practice whereby applicants were not accepted solely on the basis o f the fact that they were competitors.

This case is particularly interesting for the position adopted by Justice Frankfurter whose opinion was critical in obtaining the final majority. His opinion has actually been regarded^® as the only one supporting an essential facility notion. He considered a press association to be a public utility^^ inherently entrusted with a public interest to serve all.

Associated Press v. United States, 326 US 1 (1945). See in particular pp. 23-25 (Douglas J. concurring). P. Areeda, supra note V-14 above, at 843.

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He specified that the term ‘public utility’ in that context did not have to be obscured or read in the light o f the '^specialized notions that have gathered around t[his] legal c o n ce p f\ In his opinion the expression ‘public utility’ was used to describe the services offered by the association in relation to the fimction that the firee press performed in a democratic society. Justice Frankfurter linked the notion o f essentiality to that o f utility o f the public and to constitutional values pursued in the public interest.

Whilst this opinion has been regarded as "an exceedingly limited approach'\^'^ it is extremely interesting for the development o f the concept o f essential facility and in the reconstruction o f a set o f coherent guiding principles for the application o f this doctrine. As we have seen above the notion o f essentiality could in theory be linked to overriding public values or interests. In this sense Areeda’s are to be shared. He imagines the torment suffered by Justice Frankfurter in seeing his noble concept o f public utility invoked in cases which do not meet the interest o f the public.^^ Many o f the circumstances in which the essential facilities doctrine has been invoked, particularly before the US Courts, do not actually seem to require the reinforced support o f this doctrine. Particularly, the interests which are intended to be protected do not appear to justify on balance the duties which can be imposed on the incumbent, as a result o f its

acceptance.

In fact the idea o f using the essential facility doctrine only when public interests are at stake is an intriguing one. In legal terms this might lead to a use restricted to the protection o f constitutional values such as freedom o f expression. However, this approach would also lead to a number o f problems and eventually would confuse rather than clarify the situation.

p. Areeda, supra note V-14 above, at 843.

See for instance Berkeley Photo v. Eastman Kodak Co., 603 F.2d 263 (7th Circ. 1979), cert, denied, 444 S Ct. 1063 (1980) in which Berkeley complained that it wanted to have access to Kodak’s research result before it started marketing its innovations; or Northwest Wholesales Stationers, Inc. v. Pacific Stationery & Printing Co., 472 US 284 (1985) dealing with a paper retailer complaining that its competitors did not admit him to a wholesale buying consortium; or the famous Aspen Skiing Co. v. Aspen Highlands Skiing Co., 472 US 585, (1985) in which a ski resort operator complained that another operator did not engage in a joint marketing operation; or Olympia Equip. Leasing Co.. v. Western Union Tel. Co., 979 F.2d 370 (7th Circ.), cert, denied, 107 S Ct. 1574 (1987) dealing with a teletype machine marketer complaining that its competitor would not sell machines for it; or Flip Side Prods., Inc. v. Jam Prods., Ltd., 842 F.2d 1024 (7th Circ.), cert, denied, 109 S Ct. 261 (1988) dealing with an impresario seeking admission in the local auditorium; or Florida Fuels, Inc. v. Belcher Oil Co., 717 F. Suppl. 1528 (S.D. Fla 1989) concerning a potential oil seller without a storage facility seeking access to the incumbent’s facility; and finally the case o f a body-building food

Firstly it may introduce a complex balancing process o f potentially conflicting values or rights o f the same rank (for instance freedom o f expression and freedom in private economic initiative). Secondly in most cases the pursuit o f a public interest (for instance the provision o f telecommunication services, or the provision o f information services) is achieved by means o f commercial activities. The essential facility might be at one or more level o f a multi stage production process which eventually deals with a service or product o f public interest. For instance whilst broadcasting is to be considered one o f the economic activities in which the public interest is more clearly expressed (because o f its links with the fundamental freedom o f expression), the segmentation, diversification and commercialisation o f this sector might undermine an argument which tries to distinguish this sector from others on the basis o f a public interest test. Yet, in the communications sector more than in others, the economic structure o f the market, the convergence and the interrelation o f different activities created a “fertile” ground for exclusionary practices which the essential facility doctrine aims at eliminating. Finally, limiting an essential facility on the basis o f the public value o f the activity carried by the incumbent introduces a considerable risk of uncertainty and potentially o f discrimination. In this sense an economic approach appears much more preferable. Nevertheless the doctrine cries out for a rigorous approach to avoid its over-application. This will help preserve its exceptional character and protect the fundamental role in balancing economical and social values.

Both Terminal Road and Associated Press, which are considered the foundations o f the essential facility concept in antitrust theory, dealt with concerted actions. To a certain extent these cases are easier to deal with by means o f judicial remedies. In fact, apart from the problem o f determining the cost (including that o f bearing the risks) o f the original venturers at the time when the joint venture was created, in these cases access can be ordered on the basis o f the same terms already applied to the existing participants. Furthermore, in some circumstances, the co-operation o f various parties

supplements producer requesting a body-building magazine to accept its ads Twin Laboratories, Inc. v. Weider Health & Fitness Corp., 720 F. Suppl. 31 (S.D.N.Y. 1989).

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might in itself be evidence o f essentiality.^"^ However, essential facilities are in most circumstances owned or managed by single entities in a monopoly situation and may involve both withdrawal and refusal to supply.

2.3 Essential facilities: monopoly or monopolisation

Under US law, essential facilities case law has been developed mostly on the basis o f Section 2 o f the Sherman Act. Section 2 condemns as an act o f felony the action o f anyone who shall ''...monopolize or attempt to monopolize or combine or conspire with any other person or persons, to monopolize any p a rt o f the trade or the commerce among several states or with foreign nations.''^^

W ithout engaging in a detailed analysis o f US antitrust law, a major characteristic o f that system is that it focuses primarily on the conduct o f the monopolist. US antitrust laws condemn any element o f impropriety in the achievement or m a in te n a n c e ^ ^ o f a monopoly and exclusionary conduct is evidence o f this impropriety. For the purposes o f Section 2 if the “monopoly was not improperly obtained or maintained, then exploiting the monopoly - to charge whatever price the market will bear - does not violate the statute.”^"^

In developing the doctrine o f essential facilities US authorities shifted the focus onto the mere existence o f a bottleneck facility. The essential facility doctrine can actually be regarded as an exception to the rule established in US v. Colgate^^ whereby 'fi] n the absence o f any purpose to create and maintain a monopoly'^ even a monopolist can "exercise his own independent discretion as to the parties with whom he will deaF. This doctrine however overlaps, to a considerable extent, with other very similar strands

See P. Areeda, supra note V-14 above, at 845.

Section 2 provides that; “Every person who shall monopolize, or attempt to monopolize, or combine or conspire with