Antitrust Law Daily Wrap Up, STATE UNFAIR TRADE PRACTICES—Cal. App.: Cable subscribers’ suit over Lakers and Dodgers bundling gets dunked, (Feb 24, 2015)

By Linda O’Brien, J.D., LL.M.

Cable subscribers’ claims that the bundling of basketball and baseball games in an enhanced basic cable package constituted an unfair business practice within the California consumer protection law were expressly preempted by federal regulations implementing federal communications statutes, the California Court of Appeals in Los Angeles has ruled. A trial court’s dismissal of the action was affirmed (Fischer v. Time Warner Cable Inc., February 23, 2015, Rubin, L.).

Backgound. Time Warner Cable (TWC) is the primary provider of cable television throughout several Southern California counties. In 2011, TWC paid the Los Angeles Lakers $3 billion for the rights to televise their games for 20 years over two channels. In 2013, TWC paid the Los Angeles Dodgers $8 billion for the rights to televise their games for 25 years. TWC’s subscription rates rose as a result of the bundling of those channels into an enhanced basic cable package.

Sherry Fischer, Stewart R. Graham, Todd Crow, and Gavin McKiernan filed a class action complaint against TWC, The Los Angeles Lakers, and the Los Angeles Dodgers Holding Company, LLC, claiming that the bundling of programming content violated California’s Unfair Competition Law (UCL). The trial court sustained the defendants’ demurrer of the complaint and entered judgment for the defendants. The plaintiffs timely appealed.

Cable Act. In sustaining the demurrer of the complaint, the trial court properly determined that federal regulations implementing federal communications statutes that govern the cable television industry expressly permit the bundling of channels, thereby preempting state unfair competition laws.

The Federal Communications Commission (FCC) regulates cable television service through the Cable Television Consumer Protection and Competition Act (Cable Act). Section 543 of the Act prohibits cable companies from providing a service that the customer has not expressly requested and then charging for that service if the customer fails to exercise the negative option of opting out of the service. The FCC has promulgated a regulation implementing the prohibition but also created an exception for the restructuring of existing tiers of service or adjustment of rates as a result of the addition, deletion, or substitution of channels. The regulation also provides that state governments may not enforce consumer protection laws that conflict with the exception.

According to the appellate court, changes to a service tier that do not amount to a fundamental change in the nature of service do not violate the negative option billing prohibition, and such changes can be made with a subscriber’s express agreement. The trial court determined that TWC’s addition of three sports channels to its enhanced basic service tier and rate adjustment did not fundamentally alter the nature of the existing tier.

The subscribers’ argument that the regulation did not apply because TWC’s unilateral addition of new channels at a higher rate was a negative option billing practice prohibited by Section 543 was rejected. The appellate court found that the regulation was a proper exercise of the FCC’s authority and preempted the plaintiffs’ UCL claim. Looking at the channel lineup before and after the new sports channels were added demonstrated that only three of almost 100 channels in the non-broadcast basic cable tier were affected. Such a change was minor in nature even when accompanied by a rate increase, the court ruled.

Finally, the appellate court noted that the FCC regulation made it clear that state consumer protection laws were preempted with respect to negative option billing practices that result in rate hikes due to the addition of a small number of channels, since those rate hikes do not represent a “fundamental change” in service. Therefore, the judgment of dismissal based on the order sustaining the defendants’ demurrers was affirmed.

The case is No. B254863.

Attorneys: Maxwell M. Blecher and Courtney A. Palko (Blecher Collins Pepperman & Joye) for Sherry Fischer. Daniel G. Swanson, Jay P. Srinivasan, and Brandon J. Stoker (Gibson, Dunn & Crutcher) for Time Warner Cable Inc. Bryan A. Merryman, Rachel J. Feldman, and Lauren M. Mutch (White & Case) for The Los Angeles Lakers, Inc. David B. Enzminger, Dan K. Webb, Derek J. Sarafa, and William C. O’Neil (Winston & Strawn) for Los Angeles Dodgers Holding Company LLC.

Companies: Time Warner Cable Inc.; The Los Angeles Lakers, Inc.; Los Angeles Dodgers Holding Company LLC

Cases: StateUnfairTradePractices CaliforniaNews