4:30pm PT by Eriq Gardner
Comcast Faces Trial for Monopolizing Local Ad Sales
Comcast suffered a great legal setback on Monday when the Seventh Circuit Court of Appeals not only revived an antitrust lawsuit against the cable TV giant but also concluded that Viamedia had alleged enough to bring to trial its case over the alleged monopolization of local ad markets.
Viamedia filed its claims in 2016. According to the complaint, Comcast gained control of "interconnects" — local cooperatives serving pay-TV providers as well as networks like ESPN, Discovery and MTV — and excluded Viamedia from offering advertising representation services in the Chicago, Detroit and Hartford, Connecticut, metropolitan areas. The giant used acquisitions to gain this control, continued the plaintiff, and in an effort to keep independent firms out of the multi-billion dollar spot advertising business, allegedly refused to deal with Viamedia and any cable competitor that bought ad services from Viamedia.
A federal judge subsequently dismissed Viamedia's refusal-to-deal claim, faulting the plaintiff for failing to demonstrate through its allegations that Comcast’s conduct was “irrational but for its anticompetitive effects.” The district court also pointed to the potential procompetitiveness of a "one-stop shop" for selling regionalized advertisements.
That decision (along with a follow-up one where the district judge rejected Viamedia's other antitrust claims) is the subject of a 105-page opinion (read here) authored by Seventh Circuit judge David Hamilton.
"Viamedia alleged sufficiently, and at summary judgment offered sufficient evidence, that Comcast violated Section 2 of the Sherman Act," states the opinion's conclusion. "Viewing the allegations and evidence in the light most favorable to Viamedia, Comcast abruptly terminated decade-long, profitable agreements and sacrificed short-term profits to obtain and entrench long-term market power, and used its monopoly power in Interconnect services market to force its MVPD competitors into a relationship that makes Comcast a gatekeeper of its competitors’ advertising revenue. This conduct reveal[s] a distinctly anticompetitive bent.”
The opinion (as well as a concurrence) not only details the history and discussion surrounding vertical integration in the television industry, but also addresses the standards where a refusal to sell to rivals becomes actionable.
That's a subject that interested the Department of Justice's Antitrust Division, which filed an amicus brief in this case. While ostensibly supporting neither party, the DOJ nevertheless espoused a viewpoint favorable to Comcast, that being that exclusionary or predatory conduct gets condemned only when it "would make no economic sense for the defendant but for its tendency to eliminate or lessen competition.”
This appeals court rejects that test as well as any particular standard. What's most important, writes Hamilton, is market power and exclusionary foreclosure of a competitor. Stating a proper refusal-to-deal claim may be shown through a prior course of conduct, a sacrifice of short-term profits and a refusal to sell to rivals on the same terms as other potential buyers, though the appellate judge adds that another case might present other factors that support the inference that a refusal to deal is prompted by anticompetitive malice.
Regardless, Viamedia is said to have shown Comcast's irrationality anyhow by showing things like how the cable TV giant degraded the value of the interconnects and suffered financial losses to accomplish its aims in markets where there wasn't much competition.
The opinion remands the case and concludes that Comcast is free to contest at trial the allegation that it has abused monopoly power. At trial, Comcast will also have the opportunity to present procompetitive justifications for its conduct in the market.