able to compete with them and the price of pay television programming services will rise." (Compl. P 28.) In pursuit of this end, Plaintiffs allege, Defendants engage and have engaged in various prohibited activities, including monopolization of certain local markets for cable television.
In every paragraph of the Complaint in which an allegation of anticompetitive activity within a local sable market occurs, there appears a reference to Defendants' supposed ultimate goal, which is the maintenance and entrenchment of HBO, Inc.'s monopoly power and the continuing advantage of its subsidiary programming services, HBO and Cinemax. Thus Paragraph 37, which opens the section of the Complaint entitled "Defendant ATC's Refusal to Deal with Viacom's Services," avers that "to disadvantage pay services which compete with Defendant HBO, Inc. and maintain and entrench HBO, Inc.'s monopoly power, Defendant ATC has refused access on its cable systems to competing pay services, notably Showtime and The Movie Channel, or has provided access only on a discriminatory basis . . . ." Paragraph 44 alleges that "Defendants . . . have abused and misused the monopoly power of Defendants ATC and MCTV in the local cable television market in which Defendants ATC and MCTV operate so as to exclude . . . Showtime and The Movie Channel, the key competitors of Defendant HBO, Inc."
Although generally supportive of the monopoly leveraging theory (see supra pp. 11-18), these allegations do not state a claim of monopolization in the local markets. Simply put, the purported "local monopolization" claim is not free-standing: in the place of allegations that Defendants exercise local monopoly power to exclude other cable systems operators or otherwise to impede competition in the local market (i.e., the market for the delivery of cable television to subscribers), the Complaint alleges that Defendants use and abuse their local monopoly power to impede the progress of Plaintiffs' subsidiary pay programming services, which are players in the national market for those services and competitors not of Defendants ATC and MCTV (the alleged local monopolists) but rather of their sister company, HBO, Inc. and its subsidiaries. Except in connection with allegations concerning ultimate manipulation of the market for pay programming services in which HBO, Inc. is a competitor, the Complaint contains no allegation (beyond the conclusory statements of the Fourth Claim for relief) that Defendants ATC and MCTV have willfully acquired, maintained or exercised monopoly power in the local markets in which they operate under franchise.
Conspiracy to Monopolize
In further support of the motion to dismiss the Fourth Claim for Relief, Defendants attack the sufficiency of the "conspiracy claim" assertedly contained in lines 6-7 of P 134. Defendants' argument that the Fourth Claim for Relief contains a frivolous allegation of conspiracy to monopolize in violation of The Sherman Act, Section Two, is unpersuasive. As a preliminary matter, the Court notes that the Fourth Claim, by its terms, incorporates the preceding 131 paragraphs of the Complaint--including paragraphs 65 through 96, in which Plaintiffs allege that Defendant HBO, Inc. engaged in the coercion of unaffiliated cable companies in an anticompetitive effort to expand the market shares of HBO and Cinemax, and thereby to enhance and entrench the market power of Defendant Time. The incorporation by reference of these allegations defeats Defendants' argument that the Fourth Claim is insufficient in that it fails to identify the plurality of economic actors required to support an allegation of conspiracy to monopolize under the Sherman Act. See Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752 (1984).
Nor does the Court agree that Plaintiffs "have not alleged, and could not prove," the specific intent to achieve unlawful monopoly that is an element of a conspiracy claim under 15 U.S.C. § 2. Although the language of Paragraphs 132-135 contains no express allegation of specific intent to monopolize, the incorporated paragraphs 65 through 96 refer clearly and repeatedly to activities allegedly undertaken with the intent to distort or destroy competition through product preemption (Compl. PP 65-72), predatory pricing (Compl. PP 73-82), and exclusionary promotional campaigns (Compl. PP 83-96). With respect to Plaintiffs' asserted inability to prove specific intent to monopolize, the Court rejects Defendants' argument based on Plaintiffs' failure to allege that refusals to deal by Defendants ATC and MCTV result in the foreclosure of Plaintiffs' pay programming services from a substantial portion of the national market. For the reasons set forth above in connection with the monopoly leveraging element of the Fourth Claim for Relief, the Court declines to find as a matter of law that the insubstantiality of Defendants ATC and MCTV's percentage share of the nation's cable subscriber base necessarily precludes a showing by Plaintiffs that their subsidiaries have been effectively foreclosed from competition in the national market for pay programming services.
The Cable Act of 1984
Defendants' third argument in support of the motion to dismiss the Fourth Claim centers on the interplay between the antitrust laws and the policies underlying the Cable Act of 1984. In essence, Defendants contend that the cause of action on which Plaintiffs seek relief pursuant to the Sherman Act is precluded by the existence of the Cable Act insofar as any recovery by Plaintiffs could entitle them to treble damages under the antitrust laws which are not available under the provisions of the Cable Act. According to Defendants, Plaintiffs seek recovery for the refusal to deal of individual cable systems whose sole obligations arise under the detailed regulatory provisions of the Cable Act, and who therefor are not subject to a generalized duty to deal under the antitrust laws. Defendants do not assert that the Cable Act expressly immunizes their activities from antitrust liability; rather, they advance a theory of "implied immunity" from prosecution under the antitrust laws. In this argument, too, the Court is unpersuaded by Defendants' reasoning and declines to dismiss the Fourth Claim for Relief on the grounds urged.
In certain circumstances, the pervasiveness of a regulatory scheme enacted by Congress may be such that courts will infer legislative intent to assign primary authority to the regulatory agency, thus displacing application of the antitrust laws. See Otter Tail Power Co. v. United States, 410 U.S. 366, 373-374 (1973). It is by now axiomatic, however, that the courts do not casually infer such repeals by implication: "Only where there is a 'plain repugnancy between the antitrust and regulatory provisions' will repeal be implied." Gordon v. New York Stock Exchange, Inc., 422 U.S. 659, 682 (1975) (quoting United States v. Philadelphia National Bank, 374 U.S. 321, 351 (1963)). As the Second Circuit has pointed out, "the touchstone of [the implied immunity] analysis is Congressional intent . . . since the principle is founded on the notion that, in some circumstances, a Congressional delegation of regulatory authority carries with it the implication that the antitrust laws shall not apply to the conduct thus regulated." Northeastern Telephone Co. v. American Telephone and Telegraph Co., 651 F.2d 76, 82 (2d Cir. 1981), cert. denied, 455 U.S. 943 (1982) (citation omitted).
In enacting the Cable Act, Congress made manifest its intention to accommodate--rather than to displace--the pro-competitive goals of the antitrust statutes. The legislative history of P.L. 98-549 clearly sets forth Congress' interest in ensuring, in cable as elsewhere in the communications industry, "the widest possible dissemination of information from diverse and antagonistic sources" that is the goal of the First Amendment. H.R. Rep. No. 934, 98th Cong., 2d Sess. (1984), reprinted in 1984 U.S.C.C.A.N. 4655, 4668 (quoting Associated Press v. United States, 326 U.S. 1, 20 (1945)). Noting that regulations addressed to the structure of the communications industry are consistent with the First Amendment insofar as they foster the ends of diversity without significantly interfering with the content of speech, Congress suggested that permissible "structural" regulation of the communications media includes both enforcement of the antitrust laws and the kind of regulatory scheme contemplated by the Cable Act. Id. And in enacting the leased access provisions upon which Defendants' implied immunity argument principally relies, the drafters of the Cable Act emphasized their intention to affect only the exercise of the sable operators' editorial control, and not their economic position:
The Committee recognizes that cable operators could frustrate the intent of this section by establishing price, terms and conditions which provide financial disincentives for third party programmers to offer their cable services. Thus, while the Committee is very sensitive to the notion that this scheme of mandated leased access not undermine the economic viability of a cable system, a cable operator's decisions respecting price, terms and conditions are subject to a standard of reasonableness . . . . Moreover, the Committee does not intend in any way to affect the applicability of the antitrust laws to the cable operator with respect to the provision or use of channel capacity by unaffiliated parties.
Id. at 4687.
The Fifth Claim for Relief
Plaintiffs' Fifth Claim for Relief, captioned "Sherman Act § 1: Unreasonable Restraint of Trade by all Defendants," alleges that particular conduct of Defendants Time and HBO, Inc. set forth in previous allegations of the Complaint
constitutes a contract, combination, or conspiracy in unreasonable restraint of trade in violation of Section 1 of the Sherman Act, 15 U.S.C. § 1, in that, inter alia, each of the refusals of access, each of the time lock promotions, each of the refusals to promote Showtime and The Movie Channel, each of the buy through requirements, and each of the no switch provisions constitutes a contract, combination, and/or conspiracy that has unreasonably restrained trade in the market for pay television programming services in the United States.
(Compl. P 137.)
Defendants argue that the Fifth Claim for Relief should be dismissed as against Defendants ATC and MCTV. The Court agrees. With respect to Defendants ATC and MCTV, the allegations of the Complaint, taken as a whole and read in the light most favorable to Plaintiffs, are insufficient to state a claim of contract, combination or conspiracy in violation of Section One of the Sherman Act. As Defendants point out, the reach of 15 U.S.C. § 1 does not extend to conduct that is "wholly unilateral." See Copperweld, 467 U.S. at 768. Plaintiffs do not appear to dispute Defendants' assertion that individually named Defendants ATC, MCTV, Time, and HBO, Inc. represent a single enterprise for the purposes of the Sherman Act § 1 analysis.
Paragraphs 57 through 108 of the Complaint contain Plaintiffs' allegations with respect to the allegedly anticompetitive "buy through" and "no switch" requirements (PP 57-64), "product preemption" (PP 65-72), "predatory pricing" (PP 73-82), "time lock" campaigns (PP 83-96), and exclusive contracts for first run feature films (PP 97-108). None of the activities described in these paragraphs of the Complaint is specifically alleged to involve Defendants ATC or MCTV, and although ATC and MCTV are presumably among the local cable television systems referred to, these paragraphs contain no allegation of activity undertaken by ATC or MCTV in concert with any unaffiliated entity.
Paragraphs 31 through 56 allege anticompetitive efforts by Defendants Time and HBO, Inc. to defeat the "multi pay" phenomenon through affiliation agreements with cable operators (PP 33-36), anticompetitive refusals of access to Showtime and The Movie Channel by Defendants ATC and MCTV (PP 37-51), and discriminatory treatment of Plaintiff Viacom's services by Defendant Time, acting through Defendants HBO, Inc. and ATC (PP 52-56). Although the allegations of these paragraphs do refer specifically to activities of Defendants ATC and MCTV, none alleges the concerted action by separate economic entities that is prerequisite to a finding of liability under the Sherman Act, Section 1. Copperweld, 467 U.S. at 768. In effect, the Fifth Claim for Relief can be read to implicate Defendants ATC and MCTV only insofar as it incorporates allegations that ATC and MCTV act in concert with Time and HBO, Inc. to refuse access to Plaintiffs' subsidiaries Showtime and The Movie Channel in an anticompetitive effort to restrain trade in the market for pay television programming and thereby to solidify the advantage allegedly enjoyed by Defendants' pay services, Cinemax and HBO. This much alone cannot support a claim as against Defendants ATC and MCTV under Copperweld.17
The Pendent State Law Claims
Defendants' final argument in support of the motion to dismiss is addressed to the Seventh Claim for Relief, in which Plaintiffs seek to recover as against all Defendants based on asserted violations of state law prohibiting unfair competition. Defendants urge dismissal of the Seventh Claim as against ATC and MCTV on grounds that Plaintiffs' state law claims cannot independently survive dismissal of the Fifth Claim for Relief as against ATC and MCTV, and of the Fourth Claim for Relief as against all Defendants. Having declined Defendants' invitation to dismiss the Fourth Claim, the Court declines similarly their invitation to dismiss the Seventh for lack of pendent jurisdiction.
Dismissal of the Fifth Claim as against Defendants ATC and MCTV does not militate against the Court's retention of jurisdiction over the state law unfair competition claims asserted against those Defendants. As elaborated above, numerous activities of ATC and MCTV alleged in the Complaint cannot--by reason of their intracorporate nature--support a claim of contract, combination or conspiracy in unreasonable restraint of trade by Defendants ATC and MCTV in violation of the Sherman Act § 1. Notwithstanding this deficiency with respect to the Section One claim, however, the allegations contained in paragraphs 145 through 148 of the Complaint (and the Preceding paragraphs incorporated by reference therein) are sufficient to state a claim for state law unfair competition by Defendants ATC and MCTV. The retention of jurisdiction over those claims is therefore proper.
Dated: New York, New York
February 3, 1992
LAWRENCE M. McKENNA