Antitrust Law Daily Wrap Up, TOP STORY—S.D. N.Y.: Cablevision’s bundling suit against Viacom may proceed, (Jun 23, 2014)

By Linda O’Brien, J.D., LL.M.

A major cable television provider alleged sufficient facts to pursue claims against an entertainment media company for engaging in illegal tying and block-booking arrangements by requiring the bundling of less popular cable channels into commercially desirable subscriber packages, the federal district court in New York City has decided (Cablevision Systems Corporation v. Viacom International Inc., June 20, 2014, Swain, L.).

Cable television system operator Cablevision Systems Corporation filed suit against mass media company Viacom International and Black Entertainment Television LLC, alleging that its licensing agreement with Viacom—which required the bundling of individual cable channels into subscriber packages—constituted illegal tying and block booking arrangements in violation of the Sherman Act and New York Donnelly Act. Cablevision alleged that it was required to contract for certain less popular programming networks in addition to eight commercially critical “core” networks and that Viacom threatened a substantial financial penalty for declining to purchase the less popular networks. Viacom moved to dismiss the complaint.

Tying claim. The court determined that Cablevision pleaded sufficient facts to plausibly support an inference of anticompetitive effects of its tying claim. To determine whether a tying arrangement is per se illegal, a court must examine (1) the tying and tied product; (2) actual coercion by seller to for acceptance of the tied product; (3) sufficient economic power in the tying market to coerce buyer acceptance of the tied product; and (4) the involvement of “not insubstantial” amount of interstate commerce in the tied market. In rejecting Viacom’s argument that a fifth factor—anticompetitive effects—must be pleaded and proven, the court noted that, although the plaintiff was not required to do so, Cablevision sufficiently pleaded facts to show anticompetitive effects of the licensing agreement. Cablevision alleged that it would carry other networks on the numerous channel slots currently occupied by the less popular programming networks if it were not forced to do so under the licensing agreement and that it would license other programming networks from Viacom competitors absent the tying arrangement.

Cablevision also sufficiently identified the relevant tying and tied product markets, according to the court. Cablevision offered three alternative definitions of the tying product market: (1) the “core” networks may be considered a standalone tying market based on consumer demand; (2) the “core” networks constitute a tying product market based on combined market power; and (3) the programming type classifications on the basis of type and popularity within a certain type classification. Cablevision also presented subscription, demographic, and other statistical evidence as well as allegations regarding cross-elasticity of demand and barriers to entry that were sufficient to plausibly support its market definitions.

Block-booking claim. The court also found that Cablevision adequately alleged that its agreement constituted an illegal block-booking arrangement. Block-booking is the practice of licensing one feature or group of features on the condition that the exhibitor will also license the feature or group of features released by the distributor during a given period. In rejecting Viacom’s argument that the block-booking doctrine was abrogated by the Supreme Court in Illinois Tool Works, Inc. v. Independent Ink, Inc., 547 U.S. 28 (2006), the court concluded that block-booking claims were not prohibited but would instead be subjected to a market power analysis. Thus, Viacom’s motion to dismiss was denied.

The case is No. 13 Civ. 1278.

Attorneys: Jerome Charles Katz (Ropes & Gray, LLP) for Cablevision Systems Corp., and CSC Holdings, LLC. Joseph Frank Tringali (Simpson Thacher & Bartlett LLP) for Viacom International Inc., and Black Entertainment Television LLC.

Companies: Cablevision Systems Corporation; Viacom International; Black Entertainment Television LLC

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