Feb. 25 (Bloomberg) -- The U.S. Supreme Court made it tougher to sue companies for antitrust violations, ruling in favor of an AT&T Inc. subsidiary accused of illegally thwarting competing sellers of high-speed Internet access.

The justices today unanimously rejected a claim that AT&T’s Pacific Bell Telephone unit engaged in a “price squeeze” aimed at driving out competition in the market for digital subscriber line, or DSL, service. The ruling, which reversed a lower court, extends a line of decisions limiting antitrust suits.

The case stemmed from the federal requirement that AT&T and other dominant local phone carriers make their lines available on a wholesale basis to rivals looking to compete at the retail level. The issue was whether the larger companies could be sued for setting their wholesale rates so high -- and their DSL retail rates so low -- that rivals couldn’t compete for DSL customers.

“If both the wholesale price and the retail price are independently lawful, there is no basis for imposing antitrust liability simply because a vertically integrated firm’s wholesale price happens to be greater than or equal to its retail price,” Chief Justice John Roberts wrote for the court.

Favoring Defendants

The high court over the past two decades has repeatedly ruled in favor of defendants in antitrust cases, including several rulings involving the telecommunications industry. Today’s decision reinforced some of those earlier pronouncements, saying companies should be afforded “clear rules” so they can avoid potential antitrust liability.

“This decision shows the continued willingness of the Supreme Court to consider clear rules and safe harbors that will allow the early disposition of cases even if that risks some under-enforcement,” said Stephen A. Stack Jr., an antitrust lawyer with Dechert LLP in Philadelphia.

The court left open the possibility that the companies suing the AT&T unit could refashion their complaint using a different legal theory, known as predatory pricing, although a majority of justices suggested skepticism.

Roberts, writing for five justices, pointed to a 2007 Supreme Court decision that required more specificity from plaintiffs in antitrust cases. He said a predatory pricing claim “may not survive a motion to dismiss.”

Long-Term Survival

“Chief Justice Roberts seems to have set up some obstacles to our long-term survival,” said Maxwell Blecher, the lawyer who represented the companies suing AT&T, a group that includes a unit of MobilePro Corp. “But at least we get to fight over those in the district court, and the case isn’t over yet.”

AT&T spokeswoman Fletcher Cook said the company is “gratified” by the high court ruling.

“We highly value our ISP customers, and believe we operated, and continue to operate, properly and fairly in setting wholesale and retail prices,” she said in an e-mail.

The San Francisco-based 9th U.S. Circuit Court of Appeals had said the price squeeze claim could go forward.

In rejecting the lower court’s reasoning, Roberts invoked a 2004 Supreme Court decision that shielded AT&T, Verizon Communications Inc. and Qwest Communications International Inc. from some lawsuits by would-be telephone-service competitors. That ruling said phone companies can’t be sued under the antitrust laws for not complying with a 1996 federal law requiring they give competitors access to local networks.

Predatory Pricing

Roberts also pointed to a 1993 ruling that said predatory pricing suits must show below-cost retail pricing and a “dangerous probability” that the defendant will recoup any lost profit.

Allowing a price-squeeze claim in the absence of below-cost pricing would encourage companies to “raise their retail prices or refrain from aggressive price competition to avoid potential antitrust liability,” Roberts wrote.

“Basically they are telling us they don’t want to listen to any kind of pricing claim unless there’s an allegation that prices are below the correct measure of cost,” said Herbert Hovenkamp, an antitrust expert at the University of Iowa College of Law.

The case is Pacific Bell Telephone v. LinkLine, 07-512.

To contact the reporter on this story: Greg Stohr in Washington at gstohr@bloomberg.net.

Last Updated: February 25, 2009 17:03 EST