Suit Challenging Cable Bundling Survives Motion to Dismiss

Cable subscribers, tired of being forced to purchase more obscure channels like VH1 Classic and Teen Nick in order to get their nightly Daily Show fix on Comedy Central, should be encouraged by a recent antitrust decision out of the Southern District of New York.

In the case of Cablevision Systems Corporation v. Viacom International, Inc., cable operator Cablevision sued cable programmer Viacom based on Viacom’s practice (like virtually all large cable programmers) of pricing its channels so that the all of its offerings must be taken in order to purchase popular channels at a lower price.  Cablevision alleges that Viacom abuses its market power over access to its most popular cable networks (including BET, Comedy Central, MTV, and Nickelodeon) to force cable operators to license and distribute its less popular channels, which many subscribers do not want (like CMT Pure Country, Logo, MTV Hits, MTV Jams, Nick Jr., Nick 2, Nicktoons, Teen Nick, VH1 Classic, and VH1 Soul).  Cablevision argues that Viacom’s practices inflict on-going harm to Cablevision, consumers, and competition generally and constitute illegal “tying” and “block booking” in violation of Section 1 of the Sherman Act and New York state antitrust laws.

Viacom filed a motion to dismiss the complaint, alleging that Cablevision had not sufficiently alleged harm to competition (a critical element of a Sherman Act claim) and waited too long to bring its complaint.  This week the judge denied Viacom’s motion to dismiss, allowing the case to proceed to discovery on all counts.  While Cablevision will still face a difficult road as it is forced to prove its claims, the opinion constitutes a significant victory for cable operators and consumers seeking an alternative to current cable bundling practices. 

Cablevision is not the first to make this type of antitrust claim, but it is significant because it is the first to survive a motion to dismiss.  A prior suit out of the Ninth Circuit, Brantleyv. NBC Universal, Inc., which was brought as a class action by consumers seeking to unbundle cable, was dismissed before reaching the merits.  The Court found that anticompetitive harm not been alleged, because plaintiffs were merely alleging harm to consumers, rather than competition.  Cablevision’s lawyers have gone to great lengths in their filings to differentiate themselves from the consumer plaintiffs in the Brantley case and have beefed up their complaint with nearly 70 pages of in-depth economic analysis and market data in support of their allegations of abuse of market power and harm to competition.  (Ironically, however, Cablevision was a defendant in the Brantley case and took many positions contrary to those in its current complaint in its pleadings in that case—a fact not lost on Viacom in its motion to dismiss.)

Cablevision’s suit is also interesting, because it constitutes the first time a cable operator has sued a cable programmer, alleging that cable bundling practices are the result of programmer demands, and not a practice agreed upon between operators and programmers, as was alleged in Brantley.  By claiming the practices—much loathed by many cable subscribers—are solely the result of programmers’ demands, Cablevision’s antitrust suit seeks to put an end to these practices and, presumably, open up more possibilities for alternative cable pricing arrangements. 

More Discussion of Antitrust and Sports Leagues

My colleague Amanda Ames has written an interesting article about the O'Bannon v. NCAA case, which is all over the news these days.  Additionally, Law360 published an article that I wrote about LCA v. Virginia High School League.  This is the antitrust case in the Western District of Virginia, previously discussed on this blog, in which a private school is seeking to force its admission into a public school sports league.  A description of my article is available here, and you can read the whole thing with a Law360 subscription here.

Three Questions for the Third Week of the O’Bannon v. NCAA Trial

As the O’Bannon v. NCAA trial enters its third week, commentators are already predicting the fall of the “college sports cartel.” In the case, a group of about 20 current and former college men’s basketball and football players, led by former UCLA basketball player Ed O’Bannon, are alleging that NCAA restrictions, which prevent payment to players for use of their name, image, and likeness, violate federal antitrust laws.  They say that by exerting control over the athletes’ publicity, the NCAA deprives athletes of profitable use of their likeness and fixes the price of players’ names and images at zero in violation of the Sherman Act.  The players are seeking to enjoin the NCAA’s practices. 

The NCAA counters that the plaintiffs’ arguments are baseless.  They claim that their amateurism rules are necessary and the future of college sports will be jeopardized if amateur rules are overturned by the courts.  Much of the trial has been consumed by expert testimony, as both sides have put forth experts to opine about whether the amateurism rules are necessary for maintaining the public’s interest in college sports.  The NCAA also claims that the athletes have waived their right to use their own images, pointing to the NCAA bylaws and forms which must be signed by all players, authorizing the NCAA to use an athlete’s name or picture to promote the NCAA. 

Even before the judge issues her ruling in the case (expected later this summer), this case has highlighted many interesting questions related to antitrust law as applied to college sports.  First, is “promoting amateurism” a sufficient pro-competitive justification for the NCAA’s actions to survive antitrust scrutiny?  The NCAA argues that banning athlete compensation is pro-competitive, leveling the playing field among colleges and promoting the education of college athletes.  But the judge in the case has already shown she will not tolerate a general appeal to “amateurism,” noting that the term is generally difficult to define.  Instead, the NCAA is attempting to show how the compensation restrictions promote fair recruiting and athletic and educational integration. 

Second, is there a market for players’ licensing rights?  In order to prove a violation of the Sherman Act, plaintiffs must show that there is a market that is being harmed.  Executives from EA sports, a company that uses players’ likenesses in video games, have testified in the trial that they would have been willing to pay players for the use of their likeness, but were prohibited by NCAA rules.  Interestingly, in a related settlement, athletes have already settled claims against EA Sports, whereby about $40 million will be paid out to athletes whose images were used in the company’s games.  Under the terms of this settlement, payment will be much higher to some players—whose game avatars are used more frequently—than to others who are not prominently featured in the game.  This in itself may suggest that there is a market for individual players’ likenesses. 

Third, and perhaps of most interest for those of us who love college sports, what will happen if the NCAA is found to be in violation of the Sherman Act?  The plaintiffs are seeking an injunction in the case, barring the NCAA from forcing athletes to sign forms which give up the right to use their own likeness.  If the NCAA was enjoined from the use of this form, regulation could fall on the individual conferences, who could then determine how players’ likenesses may be used and whether their athletes could be compensated.  If each conference had its own rules related to player compensation and publicity, then a particular conference’s rule could arguably survive, assuming that conference did not have market power.  Alternately, athletes could begin to negotiate payments as part of the recruiting process and licensing agreements for use of their name and image. 

As the trial wraps up, we will continue to see the parties’ attempts to answer these (and other) antitrust questions in the case, and the judge’s ruling will determine whether college sports as we know it begins to look a little different.  Regardless of the outcome of the case, you may want to buy your favorite player’s jersey while you still can—some schools have already removed specific player names and numbers from their fan jerseys in response to the suit.

Washington's Football Team's Trademark

Very interesting article on Slate about the "Redskins" as a trademark, and why the USPTO's decision has more of a cultural or political impact than a legal impact. 

Why Washington’s NFL Team Might Not Need to Worry About Losing Its Trademarks 
http://www.slate.com/blogs/moneybox/2014/06/18/washington_football_team_loses_trademark_case_why_it_might_not_matter.html

And more in depth analysis from my Womble Carlyle colleagues:

U.S. Trademark Trial and Appeal Board Finds REDSKINS Trademark Disparaging… Again: Five Things to Know About This Decision

http://bit.ly/1qeGWKL

Supreme Court Decision May Lead to More False Advertising Claims in Food and Beverage Industry

The Supreme Court's ruling in Pom Wonderful LLC v. Coca-Cola Co. may open the door to more false advertising claims regarding food and beverage labeling.

The Lanham Act permits one competitor to sue another for unfair competition arising from false or misleading product descriptions.  The FDA also regulates food and drink labeling in a myriad of labeling requirements and standards authorized by the Federal Food, Drug and Cosmetic Act ("FDCA").  Competitors, however, are not allowed to bring claims to enforce the FDCA standards.

In the recent case before the Supreme Court, POM Wonderful LLC, which sells a pomegranate-blueberry juice blend, filed a lawsuit against Coca-Cola, alleging that the name and label of one of Coca-Cola's juice blends mislead consumers into believing the product consists predominantly of pomegranate and blueberry juice when it actually consisted mostly of apple and grape juice.  Coca-Cola argued that the lawsuit was barred because its label complied with FDCA standards.  The FDCA distinguishes between a product's label and ingredients.  The Supreme Court, however, ruled that the false advertising claim could continue under the Lanham Act because "Congress did not intend FDA oversight to be the exclusive means of ensuring proper food and beverage labeling."  The Court explained: "The FDCA's enforcement is largely committed to the FDA, while the Lanham Act empowers private parties to sue competitors to protect their interests on a case-by-case basis. Allowing Lanham Act suits takes advantage of synergies among multiple methods of regulation."  The case will be remanded to trial court for a decision on the merits.

You can read more about the Court's ruling here and here.

Do Public School Athletic Leagues Have To Admit Private High Schools?

Liberty Christian Academy (LCA), a private high school in Lynchburg, Virginia, has filed an antitrust action against the Virginia High School League (VHSL), a non-profit organization of public high schools in Virginia.  The lawsuit was filed June 2, 2014 in the Charlottesville Division of the Western District of Virginia.

The VHSL organizes public schools into districts and regions for purposes of conducting athletic competitions and statewide playoffs.  LCA filed its lawsuit because, as a private school, LCA is barred from membership in the VHSL and claims to be unable, with limited exceptions, to schedule athletic games with the nearby public schools.  LCA complains that it has to travel far distances to play games against inferior opponents.  LCA argues that the VHSL's rules are akin to a group boycott and constitute an unreasonable restraint of trade in violation of federal and state antitrust laws.  The relevant markets alleged in the Complaint are the markets for commercial exhibition of high school football contests and basketball contests in Virginia. 

Although some states allow private high schools to join their public high school athletic leagues, other states have separate private and public leagues, such as Virginia, Maryland and Texas.  In the lawsuit, LCA argues that the prohibition on non-public high school membership in the VHSL has no pro-competitive purpose and cannot be justified on any claimed basis that it is necessary to promote fair on-field competition.  I suspect that the ability of private schools to recruit and give scholarships to football and basketball players from a wide geographic area (unlike public schools who have to find players within their own geographic district) would be one of the reasons for the VHSL's rule.

The Complaint's reference to the "integration of public and private schools into one athletic association" appears to suggest a strained analogy to civil rights and the racial integration of public schools in Virginia.  LCA should be very careful in suggesting any such analogy, given that LCA was specifically founded in 1967 as a segregation academy in response to the integration of public schools in Virginia.  There is no small amount of irony in LCA's complaint that it is being excluded and segregated from public school athletic competition.

Several public high school athletic programs are described in the Complaint.  These schools are very familiar to my ears: T.C. Williams in Alexandria, famous from the movie Remember the Titans; football powerhouse Oscar Smith High School in Chesapeake; and Brookville High School outside Lynchburg, my fathers' almar mater and the arch rival of my high school, Jefferson Forest.

More about the lawsuit can be found here and here.

Out of Trial

I just finished a very interesting, week-long trial in Albemarle County regarding stormwater management and streams within a new shopping center.  It was fascinating to learn about how much engineering and construction goes into dealing with water issues -- most of which is all underground!  Now that I am out of trial, I hope to be able to post about some of the interesting antitrust cases and developments of the past month.