USDC C.D. California, October 15, 2009
- Court dismisses plaintiff consumers’ antitrust action against defendant television networks and their cable and satellite distributors because plaintiffs failed to show that the practice of tying or bundling channels for sale to consumers results in foreclosure of third party competitors
The plaintiffs are consumers of television programming. The defendants are several television networks and cable and satellite distributors, including NBC Universal, Inc.; Viacom, Inc.; The Walt Disney Company; Fox Entertainment Group, Inc.; Turner Broadcasting Systems, Inc.; Time Warner Cable, Inc.; Comcast Corp.; Echostar Satellite L.L.C.; Charter Communications, Inc.; and Cablevision Systems Corp.
The defendant networks license or sell television programming to the distributors in bundles, and not on a per channel basis. In turn, the defendant distributors sell these bundles of television channels to consumers in prepackaged bundles or on a tier system. As a result, consumers do not have the option to purchase individual channels from distributors or to pay for only the channels that they use.
The plaintiff consumers brought an action against the networks and distributors for violating section 1 of the Sherman Antitrust Act. According to the plaintiffs, channel bundling or “tying” agreements harm consumers by depriving consumers of the option to purchase individual channels or smaller bundles of channels. Additionally, the tying arrangements are anti-competitive because distributors who must purchase a full lineup of channels have no incentive to offer these channels to consumers individually.
The plaintiffs argued that they need neither allege nor prove that the tying arrangement foreclosed third-party distributors from entering the market for television distribution in order to succeed on their antitrust claim. The plaintiffs claimed that it was sufficient that they show injury in the form of deprivation of choice and overcharges, even if such injuries were not caused by foreclosure of competition in the market. The parties agreed that the issue of whether the plaintiffs must allege and prove foreclosure was dispositive of the plaintiffs’ antitrust case.
The court held that foreclosure was an element of the plaintiffs’ antitrust claim and granted the defendants’ motion to dismiss. The court found that the tying agreements between the networks and the distributors may restrict consumer choice and that such arrangements may prevent television distributors from abandoning the practice of selling channels prepackaged to consumers. However, a private antitrust claim must include both an alleged injury to the consumer and an injury to the competitive process.
As the court noted, antitrust laws only protect consumers from harm flowing from the foreclosure or exclusion of competitors from the market. Although some types of arrangements, such as horizontal price-fixing, are presumed to be injurious to competition, plaintiffs must prove that vertical product-tying agreements are harmful to the competitive process. Here, the plaintiffs must do more than allege that an industry practice excludes a desirable product from the market or restricts consumer choice: the plaintiffs must allege that this injury results from the foreclosure of third-party competitors.