Antitrust Law Daily Wrap Up, ANTITRUST—W.D. Okla.: Class certification granted in action against cable service provider over required rental of set-top boxes, (Jan 10, 2014)

By Linda O’Brien, J.D., LL.M.

The federal district court in Oklahoma City, Oklahoma has granted class certification to a putative class of purchasers of premium cable subscribers against a cable service provider (In re Cox Enterprises, Inc. Set-Top Cable Television Box Antitrust Litigation, January 9, 2014, Cauthron, R.). The plaintiff’s proposed class sufficiently satisfied the prerequisites of Federal Rule of Civil Procedure 23(a) and (b).

Cox Enterprises, Inc. is one of the largest cable service providers of multi-channel video programming distributors (MVPD) in the United States. Cox offers several different tiers of cable packages, including basic and digital cable. Under Federal Communications Commission (FCC) regulations, before a customer may subscribe to digital video programming (premium cable), the customer must subscribe to basic cable, which is primarily over-the-air broadcast stations without interactive digital programming. Unlike basic cable, premium cable requires customers to have a device to unscramble the encrypted signals. One such device, a set-top box (STB), also allows cable providers and customers to communicate so customer can utilize features, such as pay-per-view, video on demand, and interactive programming guide.

Cox customers who subscribed to premium cable services filed class action suits in various jurisdictions against Cox, alleging that Cox illegally required customers to rent a Cox STB in order to gain full access to Cox’s premium cable services in violation of Section 1 of the Sherman Act. A named plaintiff, Richard Healy, moved for class certification in the Oklahoma City geographic market for persons who subscribed to Cox premium cable and rented an STB from February 2005 through December 2012.

Numerosity. The proposed class includes thousands of current and former Cox customers within the Oklahoma City market who subscribed to premium cable and rented a Cox STB. The large number of class members in the geographic area established that the number was too great to render individual joinder of the class members practicable.

Commonality. Cox customers were required to rent a Cox STB to access Cox’s premium cable programming. The alleged conduct was a common practice applied to all members of the class, regardless of the specific package they subscribed to, and served as a basis for the plaintiff’s illegal tying claim and resolution of the claim was common to the class.

Typicality. The claims of the class representative and proposed class members were based on the same legal theory of illegal tying of the cable services to the STB rental, and the differing fact situations of class members did not defeat typicality. All class members were at risk of being subject to the same alleged harmful practices regardless of their individual circumstances.

Predominance. To establish an illegal tying claim, the plaintiff must show that (1) two separate products or services were involved; (2) the sale or agreement to sell the product or service was coerced or conditioned upon the purchase of another; (3) the seller had sufficient market power to restrain trade in the tied product market; (4) a substantial amount of interstate commerce in the tied product was affected; and (5) the class suffered an antitrust injury or impact. In this case, the plaintiff defined the tying product as premium cable and the tied product as the STBs and Cox presented no evidence that the products were not separate. The plaintiff claimed that, since there no written contract requiring the rental of an STB, Cox coerced customers into renting an STB when purchasing premium cable through its internal policies and procedures.

In rejecting Cox’s argument that individualized proof was necessary to prove coercion, the court noted that coercion could be established by generalized proof, such as Cox’s internal policies and sales materials requiring the rental of an STB in order to receive full access to all interactive digital features.

Market power. An in-depth review of individual consumer preferences was not necessary to determine the relevant product market, according to the court. The plaintiff adequately established that evidence common to the class defined the relevant product market for premium cable as Cox, another cable service provider, and two satellite providers. Additionally, the determination of the relevant geographic market could be made with proof common to the class.

The geographic area of Oklahoma City corresponded with the commercial realities and competition in the MVPD industry and Cox presented no evidence that it or any competitor considered an area smaller than the Oklahoma City metropolitan area as economically feasible to target. The plaintiff also showed that a substantial amount of commerce in the tied product was involved. The plaintiff presented evidence common to the class that Cox received over $200 million in revenue from STB leases in the relevant market from 2005 through 2012. Finally, the plaintiff adequately alleged that he suffered an antitrust injury by paying supracompetitive prices for the tied product – an overcharge imposed by Cox on STB rentals. His expert’s formula for determining the overcharge to class members used common evidence to measure damages across the class and was sufficient to show an antitrust injury or impact suffered by the class.

The case is No. 12-ML-2048-C.

Attorneys: Daniel Woska (Daniel Woska & Associates PC) for Richard Healy. Bruce D. Sokler (Mintz Levin Cohn Ferris Glovsky & Popeo) and Kent Meyers (Crowe & Dunlevy) for Cox Enterprises, Inc.

Companies: Cox Enterprise, Inc.

Cases: Antitrust OklahomaNews