Cable Networks and Distributors Alike Face Difficult Burdens of Pleading and Proving Carriage Dispute Claims

by Davis Wright Tremaine LLP

Two recent court decisions illustrate the difficult burdens of pleading and proof that face cable networks and distributors alike in asserting carriage dispute claims, whether based on an MVPD’s alleged discrimination in violation of the FCC’s program access rules or on a network’s alleged refusal to license its content in violation of the antitrust laws. These decisions, in Comcast Cable Communications, LLC v. FCC (D.C. Cir., May 28, 2013) (the “Tennis Channel case”), and Sky Angel U.S., LLC v. National Cable Satellite Corporation (D.D.C., June 3, 2013) (the “C-SPAN case”), underscore the rigorous review such claims receive and provide insight into how such claims may be treated by courts and the FCC in the future.

The Tennis Channel Case
In the Tennis Channel case, the complainant, Tennis Channel, alleged that Comcast illegally discriminated against it by placing the channel on a limited-distribution sports tier while putting Golf Channel and Versus (now known as NBC Sports Network), two networks affiliated with Comcast, on a more widely distributed tier. Tennis Channel asserted that such placement violated the FCC’s program access rules, which forbid a vertically integrated cable television company from discriminating against unaffiliated program networks when the effect will be to “unreasonably restrain the ability an unaffiliated video program vendor to compete fairly.” 47 C.F.R 76.1301(c); see also 47 U.S.C. 536(a)(3). An administrative law judge, and later the full FCC, ruled against Comcast, ordering it to provide Tennis Channel with carriage equal to that which it provided to Golf and Versus.

Although the parties framed a number of issues on appeal, the Court of Appeals rested its opinion on what it perceived as the basic failure of the FCC and Tennis Channel to carry their burden of proof in demonstrating illegal discrimination. “…[I]f the MVPD treats vendors differently based on reasonable business purpose (obviously excluding any purpose to illegitimately hobble the competition from Tennis), there is no violation. *** Comcast [argues] that the Commission could not lawfully find discrimination because Tennis offered no evidence that its rejected proposal would have afforded Comcast any benefit. If this is correct, as we conclude below, the Commission has nothing to refute Comcast’s contention that its rejection of Tennis’s proposal was simply ‘a straight up financial analysis’”—i.e., that it was not the result of illegal discrimination. 

In reviewing the record compiled before the FCC, the Court pointed to several factors as refuting the notion that Comcast had engaged in illegal discrimination:

  • Tennis Channel’s proposal to be carried more broadly, on par with Golf and Versus, explained what the increased cost to Comcast would be, but failed to identify any corresponding benefits that Comcast would receive;
  • Tennis Channel did not present evidence regarding the number of subscribers that would have switched to Comcast had Tennis been granted broader carriage; and 
  • Comcast checked with division and system employees, who identified no subscriber interest in having Tennis Channel distributed on a broader tier. 

The Court found that the only evidence offered by Tennis Channel and the FCC—that Tennis charges less per “rating point” than Golf or Versus—was not affirmative evidence that broader carriage of Tennis would have provided Comcast any net gain or benefit, and characterized the discussion of cost-per-ratings point as “mere handwaving”. Consequently, while the Court acknowledged that there were “important similarities between Tennis on the one hand and Golf and Versus on the other”, it found that nothing in the record suggested that Comcast’s decision was based on illegal discrimination, or that its “otherwise valid business consideration” was “merely pretextual cover for some deeper discriminatory purpose”. 

One of the two concurring opinions issued by the judges that decided the case would, if followed in later cases, raise the bar for complaining parties even higher—and perhaps substantially higher. Noting that the “unreasonably restrain” language used in Section 616 of the program access laws mirrors an “antitrust term of art”, Circuit Judge Kavanaugh expressed his view that “the statute applies only to discrimination that amounts to an unreasonable restraint under antitrust law”. Viewing the program access laws as incorporating traditional antitrust principles in general, and antitrust principles governing “unreasonable restraints” in particular, Judge Kavanaugh opined that discrimination by an MVPD does not violate the program access laws unless (1) the distributor has “market power in the relevant market”, and (2) the discrimination hinders overall competition in the marketplace, not just competition by the complaining party, neither of which he found to be the case here. And, as if to drive one more nail in the coffin, he noted that courts’ duty to construe statutes so as to avoid “serious constitutional concerns” supports his limited reading of Section 616 because application to MVPDs that lack market power would pose serious First Amendment concerns. Absent a showing of market power, he said, “the FCC cannot tell Comcast how to exercise its editorial discretion about what networks to carry any more than the Government can tell Amazon or Politics and Prose or Barnes & Noble what books to sell; or tell the Wall Street Journal or Politico what columns to carry; or tell the MLB Network or ESPN or CBS what games to show ….”

The C-SPAN Case
In the C-SPAN case, the plaintiff, Sky Angel, brought an antitrust suit against C-SPAN in federal court in Washington DC. Sky Angel, operator of a subscription television service (FAVE-TV) that distributes television content over the internet, challenged C-SPAN’s termination of the contract pursuant to which Sky Angel had been authorized to distribute C-SPAN’s channels. C-SPAN’s termination was based on its concern over the method by which Sky Angel was delivering FAVE-TV to subscribers. 

This wasn’t the first time that Sky Angel had challenged such action by a network. In March 2010, Sky Angel filed a program access complaint at the FCC against Discovery Communications, which had terminated Sky Angel’s authorization to distribute Discovery Channel and Animal Planet based on its concern regarding Sky Angel’s distribution method. Sky Angel’s request for a temporary standstill order, which would have enabled it to continue distributing the Discovery channels during the pendency of the agency proceedings, was denied by the FCC due to the Commission’s finding that Sky Angel “has not carried its burden of demonstrating that it is likely to succeed on the merits that it is an MVPD entitled to seek relief under the program access rules.” Finding that Sky Angel might not constitute a “channel” entitled to protection under the program access rules because it is not delivered over its “own transmission path”, the FCC commenced a rulemaking proceeding regarding the proper interpretation of that term, effectively derailing Sky Angel’s case against Discovery. That rulemaking proceeding is still pending. 

In November 2012, now embroiled in a similar dispute with C-SPAN, Sky Angel brought an antitrust suit in federal court rather than filing a program access complaint at the FCC. Sky Angel alleged that C-SPAN’s termination of its distribution contract resulted from, first, a conspiracy of C-SPAN’s board members, which include the nation’s largest cable television operators, to engage in a per se illegal group boycott of Sky Angel, and second, an attempt by those cable companies to maintain a monopoly over the national market of “real-time multichannel video programming distribution services”. 

Preliminarily, the Court rejected C-SPAN’s assertion that the FCC had exclusive jurisdiction over the controversy, even though it contained elements similar to program access disputes, and likewise held that Sky Angel had no obligation to exhaust its remedies before the FCC prior to proceeding in court. However, while finding that Sky Angel could get in the courthouse door, the Court then tossed it out, holding that Sky Angel had failed to satisfy its burden of sufficiently pleading either of the claims it was asserting against C-SPAN. Turning to Sky Angel’s first claim, the Court noted that stating a conspiracy claim “requires a complaint with enough factual matter (taken as true) to suggest that an agreement was made”. But the Court found that the complaint was devoid of any allegation of direct involvement by the C-SPAN board members in the decision to terminate Sky Angel’s contract (e.g., a vote or an off-the-record direction to C-SPAN’s management to take such action). In the Court’s view, “‘concerted action’ between multiple persons remains a fact that must be pleaded.” Merely asserting that multiple entities hold positions on the C-SPAN board, without any factual context showing an actual agreement among those entities, doomed Sky Angel’s conspiracy claim.

Sky Angel fared no better on its second claim of monopoly maintenance, which depends on a showing of (1) illegal acquisition or maintenance of monopoly power (2) in the “relevant market.” In both respects, the Court found that the complaint’s allegations were “thin”, with the Court requiring more detailed allegations regarding the contours of the supposed geographic and product markets that must be proved to sustain a monopoly maintenance claim. In particular, the Court held that Sky Angel must present more detailed facts in support of its allegations regarding the supposed “lack of interchangeability of ‘real-time, multichannel video programming distribution services delivered by MVPDs’ and the other video program industry participants”; that competition among “real-time MVPDs” occurs on a national basis; and that C-SPAN (as opposed to the cable companies represented on its board) possesses monopoly power. While the Court did find that Sky Angel had sufficiently alleged that it suffered injury, that was not enough to save the complaint from being dismissed, although the Court did grant Sky Angel leave to file an amended complaint.

While the FCC has not yet indicated whether it will seek further review of the Court of Appeal’s decision, Tennis Channel has vowed to seek such review, although it is not clear whether it will petition the full Court of Appeals to re-hear the case en banc, or seek direct review by the U.S. Supreme Court. Likewise, it is not known whether Sky Angel will file an amended complaint that seeks to cure the pleading deficiencies noted by the District Court, or file an appeal with the Court of Appeals. Likely, we have not heard the last word in either of these cases. And we also will eventually hear from the FCC regarding the Game Show Network’s program access complaint against Cablevision, the hearing on which has been delayed several times and is now scheduled for later this Summer.

Regardless of their future course, the Tennis and C-SPAN cases illustrate how difficult it is for a network that claims to have been denied non-discriminatory carriage terms by an MVPD, or a distributor that alleges it has been improperly denied the right to distribute a network, to successfully pursue a claim, whether based on program access rules or on the antitrust laws, and whether at the FCC or in court. On either basis, and in either forum, the complaining party will be required to plead its allegations of illegal discrimination with particularity, and to later prove them with credible, market-based evidence. Those may be difficult burdens to carry.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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