October 11, 2012
Is it anticompetitive for cable and satellite TV programmers and distributors to force consumers to purchase channels in predetermined bundles, instead of simply allowing them to choose the ones they want à la carte?
But just because something is an anticompetitive business practice doesn’t mean that it’s unlawful under the Sherman Act of 1890, which explicitly prohibits “[e]very contract, combination in the form of trust or otherwise, or conspiracy, in restraint of trade or commerce.”
That may take some explaining, though.
We’ll start with the case at hand: Brantley v. NBC Universal, Inc., an appeals court ruling made in March of this year from the Ninth Circuit.
The case is a suit brought by a group of cable and satellite TV subscribers who argue that TV programmers’ and distributors’ practice of selling multi-channel cable packages violate the Sherman Act.
The consumers are ultimately seeking to compel the programmers and distributors to sell each cable channel separately.
After several dismissals and submissions of amended complaints, the Ninth Circuit ruled that the practice of “tiering” – selling different bundles of channels together based on their level of demand – “did not injure competition under rule of reason,” and dismissed the action.
Hot Doc: Brantley v. NBC Universal Inc.
What is this “rule of reason” to which the Ninth Circuit is referring?
That is a legal standard invented by the Supreme Court in 2007’s Leegin Creative Leather Products, Inc. v. PSKS, Inc.
In that case, Leegin, a women’s accessories manufacturer, instituted minimum price agreements with the retailers who sold its products.
One retailer – PSKS – discounted some Leegin products below the minimum price, and Leegin dropped the retailer.
PSKS sued, claiming that the price agreements were illegal under the Sherman Act and Dr. Miles Medical Co. v. John D. Park & Sons Co., a 1911 Supreme Court case interpreting the Act.
Dr. Miles held that mandatory minimum price agreements are per se illegal under the Sherman Act.
Sounds like a pretty clear cut case, right?
Well, Leegin didn’t shake down that way.
The Supreme Court ruled in Leegin that “vertical” minimum price agreements are different from “horizontal” ones.
“Vertical” means between businesses at different levels in a supply chain (e.g., manufacturer-retailer), whereas “horizontal” means between businesses at the same level of the supply chain (e.g., manufacturer-manufacturer or retailer-retailer).
The Court cited economic works by Robert Bork, a jurist rivaling (if not exceeding) Scalia’s conservatism, to reach a conclusion that held that vertical price restraints actually improve competition.
I know that sounds counterintuitive, but you have to remember that Bork has been arguing for decades that corporate monopolies are very good and serve to benefit consumers.
Anyhow, you can probably see where this is going: the Court overruled Dr. Miles – 5-4 along ideological lines.
The odd part is that the majority, which consisted of Kennedy, Roberts, Scalia, Thomas, and Alito, held that the Sherman Act’s use of “restraint of trade” should not be viewed in a textualist context – that is, how the Act’s drafters would have viewed the term.
Instead, they held that it should be viewed as “common law,” that its meaning was not “static,” and that the definition needs to be updated to be relevant to today’s circumstances.
That’s right; Justices Scalia and Thomas joined in a majority opinion that explicitly stated, “The Court should be cautious about putting dispositive weight on doctrines from antiquity but of slight relevance.”
In overruling Dr. Miles thus, the Supreme Court rolled back Sherman Act anti-trust restrictions by instituting the “rule of reason” in vertical price-fixing arrangements.
This rule requires the plaintiff to demonstrate that the anticompetitive behavior was “unreasonable.”
Of course, the problem with this is that if everyone in the market is doing it, the practice is not really that unreasonable, is it?
Now, back to Brantley: since the Ninth Circuit didn’t find the bundling of cable and satellite channels as “unreasonable,” it doesn’t run afoul of the Sherman Act.
However, given how much the Supreme Court has been dismantling anti-trust laws in the past ten years, even if the Court agrees to hear the case, the plaintiffs are likely to lose.
All we can do is hope that Bork’s philosophy, espoused by the right wing of the Court, is correct, and that everything will be fine for consumers as long as monopolies flourish.