Thursday, January 21, 2010

Cable TV Subscribers May Bring Class Antitrust Action Against Provider

This posting was written by Darius Sturmer, Editor of CCH Trade Regulation Reporter.

A proposed class of approximately two million non-basic cable television programming service customers in the Philadelphia area were entitled to proceed as a class with antitrust claims against their cable provider, Comcast Corporation, because they sufficiently demonstrated that common issues of law and fact predominated over individual matters in the litigation, the federal district court in Philadelphia has ruled. The predominance requirement was the only certification issue remaining in dispute.

Sherman Act Claims

The class representatives alleged a per se Sherman Act, Sec. 1 claim based on market allocation and a rule of reason Sherman Act Sec. 1 claim that certain transactions with other programming providers amounted to contracts and conduct in restraint of trade.

In addition, they alleged a Sherman Act Sec. 2 claim of monopolization and attempted monopolization. The attempted monopolization claim was based on anticompetitive conduct not only in the cable transactions, but also in regard to the provider's:

(1) Refusal to deal with a potential competitor,

(2) Substantial interference with the potential competitor's access to the contractors needed to build competing cable systems, and

(3) Pricing campaigns designed to prevent or destroy competition from the potential competitor.

The subscribers had previously been granted class certification in 2007 (2007-1 Trade Cases ¶75,696). Reconsideration of that decision was granted in light of an appellate holding in a hydrogen peroxide price fixing suit (2008-2 Trade Cases ¶76,453), suggesting that trial courts had been applying too lenient a standard of proof to the issue of whether proposed class plaintiffs would be able to use common evidence to prove antitrust impact.

Antitrust Impact

In the instant suit, the proposed class offered sufficient expert testimony to meet its burden of demonstrating that the element of antitrust impact was capable of proof at trial through evidence that was common to the class rather than individual to its members, the court said.

The common evidence of antitrust impact alleged by the class included swaps and transactions in the relevant geographic market that eliminated competition and resulted in increased prices, as well as the clustering of the Philadelphia market and regional sports programming content that led to decreased competition from direct broadcast satellite (DBS) competitors and, consequently, higher prices for all class members.

Geographic and Product Markets

The expert offered ample basis in support of his relevant geographic market definition and his market structure analysis to show that Comcast possessed market power in the geographic and product markets, the court found.

The court did, however, reject the expert’s theory of market allocation based on an allegation that cable companies acquired by Comcast had previously-competed for the award of original cable franchises, as well as a contention that the non-compete clauses contained in the acquisition agreements made reentry by the acquired firms into the Philadelphia market unlikely.

A market performance analysis, which offered several economic explanations for Comcast's ability to charge higher prices, included at least one theory susceptible to proof at trial through available evidence common to the class.

Anticompetitive Effects

The class failed to demonstrate that three of the expert’s contentions regarding the anticompetitive effects of Comcast’s clustering activity could be proven through common evidence:

(1) That its clustering activity made it economically feasible for the company to withhold regional sports programming from its competitors, resulting in reduced penetration rates by DBS competitors;

(2) That it reduced benchmark competition, on which customers rely to compare the prices charged by competitors in a market; and

(3) That it increased Comcast’s bargaining power in its negotiations with its content providers, such as cable networks, which allowed Comcast to negotiate lower prices for its content.

The class met its burden of demonstrating that Comcast’s clustering activity affected prices by reducing the extent of competition provided by overbuilders. The class successfully showed that the presence of an overbuilder constrained cable prices, the court noted.


Further, the subscribers made an adequate showing that there was a common methodology available to measure and quantify damages on a class-wide basis. Their damages expert's econometric analysis, which estimated benchmark prices against which to compare actual prices during the relevant period in the Philadelphia market, was appropriate, the court decided. His use of the national average DBS penetration rate for Comcast markets was a valid screen for the model.

The decision is Behrend v. Comcast Corporation, 2010-1 Trade Cases ¶76,869.

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