Antitrust Law Daily Wrap Up, ANTITRUST—M.D. Tenn.: Neighborhood developers, telecom sellers did not violate antitrust law through exclusive pacts, (Aug 18, 2016)

By E. Darius Sturmer, J.D.

Homeowners in three planned neighborhoods in a suburb of Nashville, Tennessee, failed to assert a cognizable federal antitrust claim against the developers of the neighborhoods, homeowners associations established by the developers, an affiliated telecommunications reseller, or telecom giant DirecTV arising out of agreements that allegedly required the homeowners to purchase basic telecommunications services from the defending reseller, the federal district court in Nashville has held. The alleged agreements did not amount to tying or market allocation prohibited by the Sherman Act. The claims were therefore dismissed without prejudice (Cates v. Crystal Clear Technologies, LLC, August 17, 2016, Trauger, A.).

The homeowners complained that they were bound by the agreements to purchase basic telephone, Internet, and cable services only from the defending reseller, Crystal Clear Technologies, regardless of whether they wanted or actually used the services or whether they also obtained telecommunications services from another provider. Crystal Clear, the homeowners asserted, held itself out as an independent telecom provider but operated under the ownership and control of the developers and held no ability to provide telecom services itself. Rather, it acted as an exclusive agent to procure those services from DirecTV using Crystal Clear’s poorly-built infrastructure and resell them to residents at a marked-up rate.

Tying claims. The homeowners failed to assert that any of the defendants held sufficient power over a tying product market to support a tying claim under the Sherman Act, the court found. The complaint referenced no market for the tying product—residential homes in the neighborhoods—let alone one that the court could find plausible. Their conclusory charge that the developers had "sufficient market power in the sale of lots in the [n]eighborhoods and/or the sale of telecommunications in the [n]eighborhoods" did not explain why they might have the type of market power that would deprive consumers of a meaningful choice as to whether to purchase those lots and to coerce them to also purchase the tied product of Crystal Clear’s telecom services, the court said.

It was self-evident that the developer defendants had substantial market power over the sale of their own particular market. However, the homeowners failed to allege that the residential lots in the neighborhood were unique or could not be interchanged with lots in other planned neighborhoods in the region, the court explained. They made no attempt to define the geographic market within which the developers competed in their sale of lots in the neighborhoods, to show that the defending developers controlled a substantial share of that market, to enumerate how many other interchangeable residential lots in planned neighborhoods might be available in the relevant geographic region, or even to describe what that region would be.

Further, the court noted, the homeowners failed to assert that any of the defendants had power within the market encompassing lots in the neighborhoods, ignoring the matter of the tying product market entirely in their briefings. Their claim that the defendants had substantial market power over the sale of telecommunications services to the neighborhoods "confuse[d] the burden to show market power over the tying product with the burden to also show a significant volume of commerce in the tied market," in the court’s view.

Even with respect to the tied product market, which had to consist of telecom services across the region more generally, the complaining homeowners made no allegations as to how that region-wide market might be impacted by a transaction that affected the sales of services in the neighborhoods, the court said.

Market allocation. The homeowners’ market allocation claim was unsustainable for the simple reason that they had failed to show two horizontal competitors capable of agreeing to restrict competition, the court determined. The conclusory allegation that DirecTV and Crystal Clear were horizontal competitors was directly belied by all of the other allegations in the complaint. Crystal Clear was unable to provide the type of services sold by DirecTV. Therefore, it was forced to purchase them from an outside provider and to resell them. In choosing to contract with DirecTV, Crystal Clear did not eliminate competition between itself and any other entity. Rather, DirecTV had to compete with other outside providers to secure Crystal Clear’s business. Thus, their pact amounted to a vertical agreement between parties providing very different services, in which each party profited solely from a different level of the chain of commerce. This reality was unchanged by the fact that Crystal Clear’s website billed it as a provider of cable and Internet services, the court remarked.

The case is No. 3:16-cv-08.

Attorneys: Benjamin A. Gastel (Branstetter Stranch & Jennings, PLLC) for Courtney Cates. D. Alexander Fardon (Law Office of Alex Fardon) and Craig V. Gabbert, Jr. (Bass, Berry & Sims PLC) for Crystal Clear Technologies LLC and Carbine & Associates LLC. Christopher E. Thorsen (Bradley Arant Boult Cummings, LLP) for Hood Development, LLC.

Companies: Crystal Clear Technologies LLC; Carbine & Associates LLC; Hood Development, LLC

Cases: Antitrust TennesseeNews