Suit Over Time Warner's Set-Top Box Requisite Tossed

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By Alexis Kramer

Sept. 2 — A federal appellate court Sept. 2 upheld a lower court's dismissal of an antitrust lawsuit claiming that Time Warner Inc. illegally required customers of premium cable channels to lease set-top boxes from the company ( In re Time Warner Inc. Set-Top Cable Television Box Antitrust Litig., 2d Cir., No. 11-02512, 9/2/16 ).

The plaintiffs in the class action case didn't sufficiently allege that the cable services and set-top boxes were in separate product markets and that Time Warner had market power over premium cable services, the U.S. Court of Appeals for the Second Circuit ruled in a 2-1 decision. They failed to show “consumers are coerced into ‘leasing' set-top boxes from Time Warner that they would otherwise purchase elsewhere,” the court said.

The decision comes as the Federal Communications Commission continues to work on a plan to open the set-top box market to competition. The agency's March proposal would require pay-TV providers to deliver three core information streams to parties that make alternatives to traditional set-top boxes (2016 TLN 6, 3/1/16). Equipment manufacturers, app developers or other parties would then have access to those information streams through open technical standards.

The FCC may be considering a revised approach after receiving criticism from lawmakers, the cable industry and the copyright community (2016 TLN 9, 9/1/16).

Time Warner spokesman Justin Venech told Bloomberg BNA the company is pleased with the decision. Robert I. Harwood, senior partner at Harwood Feffer LLP in New York, who represented the plaintiffs in the case, said that “Judge Droney got it right,” referring to Judge Christopher F. Droney's dissenting opinion.

Same Market

Subscribers of Time Warner's cable services alleged that tying premium cable channel subscriptions to the leasing of set-top boxes violated the Sherman Act, 15 U.S.C. § 1. A federal district court in New York dismissed the plaintiffs' third amended complaint because it failed to allege anti-competitive effects.

A tying arrangement is an agreement in which a party will sell a product only on the condition that the buyer also purchase a different product. To state a claim under the Sherman Act over a tying arrangement, a plaintiff must show that the two products are separate, and that the seller has sufficient market power over the tying product.

The Second Circuit said the plaintiffs failed to allege that set-top boxes and cable services are sold separately in the U.S. The court rejected their argument that Time Warner doesn't manufacture its own set-top boxes, and that set-top boxes are sold separately outside the country.

Time Warner's lack of manufacturing operations doesn't address consumer demand, the court said. The plaintiffs didn't allege that the foreign set-top box markets were sufficiently similar to the U.S. market, it also said.

The court said the FCC's failure as of yet to separate set-top boxes from the cable services they deliver “bolsters our conclusion that the plaintiffs have not plausibly alleged separate product markets.”

Also, the plaintiffs failed to plead market power over premium cable services, the court said. The plaintiffs alleged that Time Warner has power over the market for basic cable, but they alleged no facts showing Time Warner's share of the market for premium services, it said.

Harwood Feffer LLP represented the plaintiffs. Latham & Watkins LLP represented Time Warner.

To contact the reporter on this story: Alexis Kramer in Washington at akramer@bna.com

To contact the editor responsible for this story: Keith Perine at kperine@bna.com

For More Information

The majority opinion is available at http://src.bna.com/ihE.

The dissenting opinion is available at http://src.bna.com/ihF.

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