Time Warner Cable Gets Appellate Victory in Antitrust Case

The industry has been on the defensive about the expensive set-top boxes that customers rent in order to receive cable television services.
Courtesy of Technicolor

In the past year, the issue of expensive cable set-top boxes has been an explosive one both in courts and in regulatory quarters. The latest development came on Friday when the 2nd Circuit Court of Appeals affirmed a decision to reject an antitrust lawsuit accusing Time Warner Cable of impermissibly tying premium cable television services to the leasing of these cable boxes.

The action reviewed by the 2nd Circuit was a consolidated, multidistrict suit that targeted TWC (now a part of Charter Communications) for allegedly abusing its market power over premium cable services in 53 markets. According to the complaint, consumers weren't able to use their own cable box to get certain cable television services like VOD programming, program guides, parental control devices and "start over" functionality.

In the majority opinion, 2nd Circuit judges Ralph Winter and Denny Chen write that to state a valid tying claim, plaintiffs must plausibly show that the sale of one product is conditioned on the purchase of a separate product, and that the seller has sufficient market power and uses actual coercion to convince a consumer to buy both products. Winter and Chen add that no tying arrangement can exist unless there is sufficient demand for the tied product separate from the tying product. With that framework, they conclude that cable boxes and premium cable services haven't plausibly been held up as separate, in-demand products.

"The Complaint alleges that, '[b]ut for Time‐Warnerʹs unlawful tying requirement ... there would be a thriving market in which consumers would have a choice in their purchase of cable boxes,'" states the opinion. "However, the Complaint lacks any allegation that there have ever been separate sales of set‐top boxes and cable services, whether or not 'premium,ʺ in the United States, even in markets where cable providers face competition and, more specifically, in markets where Premium Cable Services are available through competing fiber optic networks that do not use set‐top boxes."

The latest decision (read here, including a dissent from 2nd Circuit judge Christopher Droney) follows a flurry of court activity on this topic.

For example, last October in Oklahoma, Cox Communication suffered a $6.31 million jury verdict in a cable TV tying case before a judge two weeks later overturned it. And on Wednesday, the 3rd Circuit Court of Appeals allowed class certification to move forward in what likely clears Comcast's proposed $15.5 million settlement with its subscribers.

The newest 2nd Circuit decision nods to FCC acknowledgements that efforts to create separate markets have failed. For the past year, the agency has been navigating cable and content companies in an effort to reform rules and inject competition into the set-top market. The industry has been discussing whether it's fair and legally permissible to require cable and satellite operators to provide "information streams" for the creation of new apps and devices. After feedback, the FCC is expected by insiders to circulate its latest set-top box proposal by the end of next week with a possible vote at a Sept. 29 open meeting.

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