Certification of Cable TV Subscriber Class in Antitrust Action Was Proper

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

Certification of a class of approximately two million non-basic cable television programming services customers in the Philadelphia area—alleging that cable provider Comcast engaged in unlawful monopolization, attempted monopolization, and market or customer allocation through a series of acquisitions and cable system swap arrangements—was a proper exercise of discretion, the U.S. Court of Appeals in Philadelphia has ruled.

The trial court satisfied the "rigorous analysis" standard established in In re Hydrogen Peroxide Antitrust Litigation (2008-2 Trade Cases ¶76,453) in determining that questions of fact or law common to class members predominated over individual issues, for purposes of meeting the certification requirements of Federal Rule of Civil Procedure 23(b)(3). Certification (2010-1 Trade Cases ¶76,869) was therefore affirmed.

The trial court’s finding that the plaintiffs established by a preponderance of evidence that they would be able to prove, through common evidence, not only class-wide antitrust impact in the form of higher costs for programming but also a common methodology to quantify damages on a class-wide basis was not clearly erroneous, the appellate court decided.

In granting certification, the lower court had limited the class’s theories of class-wide impact to the theory that Comcast’s clustering conduct through the swaps and acquisitions had deterred competition from overbuilders in the Philadelphia market.

Relevant Geographic Market, Antitrust Impact

Arguments that the trial court had failed to apply the correct legal standard for determining the relevant geographic market and had made clearly erroneous factual findings by relying on the plaintiffs' expert for proof of class-wide antitrust impact were rejected by the appellate court.

Comcast’s contention that the relevant geographic market was each complaining individual’s household would have set a market so small as to be impractical and inefficient, whereas the class’s market definition capturing the whole of the Philadelphia area was based on record evidence showing that customers throughout the aggregated area faced similar competitive choices.

Moreover, the trial court had carefully considered the plaintiffs’ theories of class-wide impact before concluding that the class met its burden of demonstrating that the anticompetitive effect of clustering on overbuilder competition was capable of proof through evidence common to the class.

The econometric analysis of the plaintiffs’ damages expert demonstrating that the alleged antitrust impact was class-wide and utilizing a “but-for” pricing model to reach a final conservative estimated overcharge value was sufficiently sound, the appellate court also concluded. The damages model provided a methodology that could establish damages on a class-wide basis using common proof.

Attacks by the cable provider on the merits of the model were premature and missed the point, the court said. Some variation of damages among class members did not defeat certification, the court noted.

Finally, the trial court did not lack any legal authority to certify a per se claim based on the class’s allegations, the appellate court held. Comcast’s request to have the appellate court declare on the merits that the plaintiffs could not establish a per se antitrust violation was beyond the scope of the certification decision from which it appealed, the court explained.

Partial Dissent

A separate opinion partially dissenting from the majority’s conclusion argued that damages could not be proven using evidence common to the entire class. According to the partial dissent, the damages expert’s testimony was incapable of identifying any damages caused by reduced overbuilding in the Philadelphia area—the plaintiffs’ only viable theory of antitrust impact—and thus did not fit the case. Therefore, it was irrelevant and should be deemed inadmissible at trial, leaving the class with no evidence of class-wide proof of damages.

Because of this, the partial dissent stated, the certification order should have been vacated to the extent that it provided for a single class as to proof of damages and remanded to the lower court to consider whether the class could be divided into subclasses for the purpose of proving damages.

The decision in Behrend v. Comcast Corp. will be reported at 2011-2 Trade Cases ¶77,575.

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.

Damages

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.