Otter Tail Power Co. v. United States, 410 U.S. 366 (1973), is a United States Supreme Court decision often cited as the first case in which the Court held violative of the antitrust laws a single firm's refusal to deal with other firms that denied them access to a facility essential to engaging in business (a so-called essential facility).The Court had held illegal a combination of firms' denial of access to an essential facility (the only railroad bridge across the Mississippi River at St. Louis) in .

Background

Facts

Otter Tail Power Company (Otter Tail) is an investor-owned electric power utility with headquarters at Fergus Falls, Minnesota. In addition to energy generated within its own plants, it purchased power from other sources. One of these sources was the United States Bureau of Reclamation's Red Wing Dam power generation facility and other Bureau sites. Power purchased from government sources was transmitted ("wheeled") over high-voltage power transmission lines that Otter Tail owns. Most of the wheeled power was to serve the municipal utilities and electric cooperatives within the company's territory across northwestern Minnesota, eastern North Dakota, and northeastern South Dakota. A portion of this energy was also used to meet the company's retail customer needs.

The case involved two principal types of conduct, both of which resulted from Otter Tail's desire to prevent small towns in which it sold power to customers from establishing municipal power systems of their own instead of the residents continuing to be retail customers of Otter Tail. One type of conduct was bringing allegedly frivolous and vexatious suits to prevent the towns from being able to sell municipal bonds to finance the establishment of their municipal power systems. The more important conduct, leading to the essential facilities legal precedent, was Otter Tail's refusal to wheel and sell power to the proposed new local power systems that would replace Otter Tail as power supplier in their towns.331 F. Supp. at 57–58.

The United States sued Otter Tail for monopolizing the retail distribution and sale of power to towns in its operating area.

District court opinion

The district court (Devitt, J.) ruled for the Government. It acknowledged:

It is not contended that defendant acted illegally or improperly in achieving this claimed monopoly position but rather in its actions seeking to preserve this position. Specifically, it is urged that Otter Tail's refusal to sell or wheel power to towns desiring to establish municipal systems, and its actions participating in local municipal power political campaigns, and sponsoring, encouraging, and financially supporting court litigation are all intended to impede and frustrate attempts to establish independent municipal electric systems.

Otter Tail does not deny its refusal to sell or wheel power to municipalities which it formerly served at retail but argues that to supply power to these municipalities would aid in its own demise. It admits its participation in local municipal political campaigns and in litigation surrounding attempts to establish municipal systems but contends this is proper and legal conduct. Such actions were taken, defendant argues, to preserve the electric power free enterprise system for the benefit of its customers, shareholders and employees.331 F. Supp. at 58.

The court found that Otter Tail had a monopoly in the sale of electric power at retail in the area in which it operated—more than 75% of the relevant market. Many towns cannot obtain power from the Bureau because Otter Tail owns the only transmission lines and refuses to deal with them. It is not economically feasible or practical for a municipality to construct its own transmission lines.331 F. Supp. at 59–60.

The court concluded "that Otter Tail has a strategic dominance in the transmission of power in most of its service area.331 F. Supp. at 60. The court found that Otter Tail used its refusal to deal and its dominance to prevent towns such as Elbow Lake, Minnesota, from obtaining power to supply the town's municipal power system.

The court ruled that this and similar conduct toward other towns was monopolization in violation of section 2 of the Sherman Act:

Here the defendant does not dispute that its purpose in refusing to deal with municipalities desiring to establish municipally owned systems is to protect itself in the position it now enjoys in the area. Such is a monopoly position, and the law prohibits conduct such as this when such is intended to preserve the monopoly.

. . . Here Otter Tail refuses to sell power to municipalities which would thereby take retail power business from defendant and refuses to wheel power for others willing to sell to these municipalities. Because of its dominant position Otter Tail is able to deprive towns of the benefits of competition which would result from municipally owned facilities.

Pertinent to an examination of the law is a reference to cases expressive of the "bottleneck theory" of antitrust law. This theory reflects in essence that it is an illegal restraint of trade for a party to foreclose others from the use of a scarce facility.331 F. Supp. at 61.

The court then turned to Otter Tail's litigation, finding "Otter Tail either instituted or sponsored and financially supported court litigation which had the effect of frustrating the sale of revenue bonds to finance the municipal systems." The effect was "halting, or appreciably slowing, efforts for municipal ownership" and "the large financial burden imposed on the towns' limited treasury dampened local enthusiasm for public ownership."331 F. Supp. at 62. The court analogized this to litigation under spurious patents and concluded that it was part of a monopolistic scheme.

The court therefore enjoined Otter Tail's monopolistic conduct. Its judgment prohibited Otter Tail from: refusing to sell electric power at wholesale to existing or proposed municipal electric power systems in the areas serviced by Otter Tail, refusing to wheel electric power over the lines from the electric power suppliers to existing or proposed municipal systems in the area, entering into or enforcing any contract which prohibits use of Otter Tail's lines to wheel electric power to municipal electric power systems, or from entering into or enforcing any contract which limits the customers to whom and areas in which Otter Tail or any other electric power company may sell electric power. The district court also enjoined Otter Tail from instituting, supporting, or engaging in litigation, directly or indirectly, against municipalities and their officials who have voted to establish municipal electric power systems for the purpose of delaying, preventing, or interfering with the establishment of a municipal electric power system.See 410 U.S. at 368–69.

Supreme Court ruling

The Supreme Court affirmed (4-3) the essential facility part of the case but remanded for additional findings on the litigation part. Justice William O. Douglas delivered the opinion of the Court, in which Justices William J. Brennan, Byron White, and Thurgood Marshall joined. Justice Potter Stewart filed an opinion concurring in part and dissenting in part, in which Chief Justice Warren Burger and Justice William Rehnquist joined.

Majority opinion

The Court explained that proposed municipal systems face "great obstacles." They must purchase the electric power at wholesale. To do so, they must have access to existing transmission lines. The only ones available belong to Otter Tail. While the Bureau of Reclamation has high-voltage bulk-power supply lines in the area, it does not operate a network for local power delivery, but relies on wheeling contracts with Otter Tail and other utilities to deliver power to its wholesale customers.410 U.S. at 370.

When Otter Tail's franchise in several towns expired, the citizens voted to establish their own municipal distribution systems. Otter Tail refused to sell the new systems energy at wholesale and refused to agree to wheel power from other suppliers of wholesale energy to these towns.410 U.S. at 371.

The Court said: "The record makes abundantly clear that Otter Tail used its monopoly power in the towns in its service area to foreclose competition or gain a competitive advantage, or to destroy a competitor, all in violation of the antitrust laws." Otter Tail used its "dominance to foreclose potential entrants into the retail area from obtaining electric power from outside sources of supply."410 U.S. at 377.

Otter Tail argued that, "without the weapons which it used, more and more municipalities will turn to public power and Otter Tail will go downhill." The Court responded that Otter Tail should "protect itself against loss by operating with superior service, lower costs, and improved efficiency."410 U.S. at 380.

While the Court affirmed the part of the judgment enjoining the monopolistic practices relating to denial of access to electric power, it did not affirm the injunction against litigation. After the district court's judgment was entered, the Supreme Court decided California Motor Transport Co. v. Trucking Unlimited,. in which it held that "the right to petition extends to all departments of the Government [and] [t]he right of access to the courts is indeed but one aspect of the right of petition" that the First Amendment protects. The Court also held in that case, however, that "where the purpose to suppress competition is evidenced by repetitive lawsuits carrying the hallmark of insubstantial claims," the conduct "is within the 'mere sham' exception" to that protection and is thus subject to antitrust prohibitions. The Court therefore vacated this part of the judgment "and remand[ed] for consideration in light of our intervening decision in California Motor Transport Co."

Dissent/concurrence

The dissent agreed with the part of the Court's opinion that vacated and remanded for consideration of Otter Tail's litigation activities in light of the Court's decision in California Motor Transport Co, but disagreed with the remainder dealing with monopolistic denial of access to electric power.

In the dissenting justices' view, "As a retailer of power, Otter Tail asserted a legitimate business interest in keeping its lines free for its own power sales and in refusing to lend a hand in its own demise by wheeling cheaper power from the Bureau of Reclamation to municipal consumers which might otherwise purchase power at retail from Otter Tail itself."410 U.S. at 388. Furthermore, "Otter Tail's refusal to wheel or wholesale power was conduct exempt from the antitrust laws and . . . the District Court's decree improperly preempted the jurisdiction of the Federal Power Commission."410 U.S. at 395.

Subsequent developments

Remand

In accordance with the Supreme Court's order for a remand as to the litigation prong of the case, in United States v. Otter Tail Power Co., the district court (Devitt, J.) reconsidered that aspect of the case. After hearing arguments but without taking additional evidence, the court found: [T]he repetitive use of litigation by Otter Tail was timed and designed principally to prevent the establishment of municipal electric systems and thereby to preserve defendant's monopoly. I find the litigation comes within the sham exception to the Noerr doctrine as defined by the Supreme Court in California Transport, and reaffirm the Findings and Conclusions previously entered.360 F. Supp. at 451-52.

Otter Tail appealed this ruling, but the Supreme Court affirmed it without opinion..

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