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Appeals Court Rejects Challenge to Cable Channel Bundling

Less choice and higher cable fees isn't enough to allege injury under antitrust law, according to latest appellate decision.

In a published decision on Friday, the Ninth Circuit Court of Appeals has declined to overrule a lower court's dismissal of a lawsuit that contended that NBC Universal, Fox, and other TV programmers are using their market power to force consumers to accept bundled packages of channels.

The plaintiffs, a group of unhappy cable customers, have amended their complaint several times in an effort to move the class action forward.

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In their latest attempt, the plaintiffs asserted that programmers like NBCU, Fox, Viacom, Disney, and others exploit their market power by forcing cable distributors "as a condition for purchasing each programmer's broadcast channel and its 'must have' cable channels" to "also acquire and resell to consumers all the rest of the cable channels owned or controlled by each programmer" and "agree they will not offer unbundled [i.e. individual] cable channels to consumers."

A court was asked to address the legality of prepackaged tiers of cable channels. If successful, the plaintiffs demanded an injunction that would have forced programmers to make available channels on an individual basis. For example, consumers would get to choose whether they wanted FX and Fox News and Fox Business Channel instead of being forced to accept all for one fee.

Originally, the consumer plaintiffs joined with independent programmers that were allegedly excluded from distribution as a result of monopolistic practices, but after failures to adequately show how these small programmers were muscled out, the plaintiffs went with a new approach that deleted references to independent programmers to focus on the broader harm.

But in 2009, a district court ruled that the plaintiffs had still failed to allege cognizable injury to competition, a requirement when pleading a violation of the Sherman Act. the U.S.' main antitrust law. The plaintiffs appealed to the Ninth Circuit.

On Friday, a unanimous opinion by Circuit Judge Sandra Ikuta granted that the cable industry operates by use of "tying" arrangements, where programmers force distributors to accept programming in bulk.

But that's not enough. According to the opinion, "Tying arrangements, without more, do not necessarily threaten an injury to competition...plaintiffs must also allege facts showing that an injury to competition flows from these tying arrangements."

The appellate circuit details some of the allegations not made in the amended complaint -- that low-demand channels are excluded from the marketplace, that consumers forgo substitutes for the tied product, or that the arrangement facilitates "horizontal collusion."

Merely showing that consumers have less choice and pay more for their cable service is not sufficient because it's not directly about "competition," writes Ikuta, adding that "Businesses may choose the manner in which they do business absent an injury to competition."

The media company appellees were represented by Glenn Pomerantz at Munger Tolles & Olson and Arthur Burke at Davis Polk & Wardell.

E-mail: eriq.gardner@thr.com

Twitter: @eriqgardner