February 10, 2017 11:40 AM

Pai: Putting the Lifeline Program Integrity First

It interesting to note how former FCC Chairman Tom Wheeler passively and aggressively defied the House and Senate post-election requests for the agency to focus "only on matters that require attention under the law."  In ignoring that Congressional request, on December 1, 2016, Wheeler ordered the Wireline Competition Bureau to designate 4 carriers as "eligible telecommunications carriers" ("ETC's") for purposes of participating, as broadband providers, in the Commission's "Lifeline" program, which offers a $9.25/month subsidy to carriers serving low-income customers.  Then only two days before Chairman Wheeler left the Commission, the Wireline Competition Bureau, without Commissioner input, went ahead and designated 5 additional carriers as broadband ETCs.  
 
To put the Bureau's actions into context, consider that since the FCC first initiated reform of its Lifeline Rules back in March, 2011--it has designated exactly 0 carriers as wireless, or broadband, ETCs.  Thus, in more than 6 years the FCC made no ETC designations, despite having applications that have been pending for longer, and from equally--or better--qualified applicants.  Oddly, the recent ETC Designation Orders offer no explanation for why these carriers, out of all the pending applications, were chosen for approval.  
 
So, it's against this backdrop, that Chairman Pai took the incredibly wise and unremarkable step to request a pause and take a second look at the two orders, which represented the first agency action on ETC designation in at least 6 years.  Nevertheless, that did not hold the Washington Post back from breathlessly issuing a sensational, and misleading headline that the "FCC is stopping 9 companies from providing subsidized broadband to the poor." 
 
By Monday, the story grew only more misleading as activists on the Left amplified it on social media.  Against this backdrop (keeping in mind that Chairman Pai's very first policy pronouncement to the FCC's staff prioritized the importance of improving the quality/speed of broadband service available to rural and low income Americans), the Chairman, on Tuesday, personally penned an article on Medium, explaining in detail the Commission's recent decision.  
 
Perhaps concerned that a good fake-news-cum-Twitter-outrage-campaign story was going to die from exposure to the cold hard facts, Gigi Sohn, a former senior advisor to previous FCC Chairman Wheeler, penned her own blog post yesterday--to address a "controversy" resulting from a misleading article (that she probably sourced in the first place).  In her post, she argues that Chairman Pai's Medium article "doth protest too much" and that his "arguments fail to mask two clear truths."

While the normal use of the Hamlet line "doth protest too much" means the person protesting actually supports the conclusion they argue against, it's obvious that Sohn does not think that Pai secretly supports the previous FCC's post-election change of policy.  Moreover, even though the "clear truths," to which she refers, are both actually "arguments;" let's look at these. 
 
The first "clear truth" she argues is that Pai's "actions will make the market for Lifeline broadband services less competitive, limiting choice and keeping prices high."  But if you read the two ETC Designation Orders, you will see that the only firms that are already selling their "broadband" services are wireless resellers offering 3G and 4G data as part of overall wireless plans.  This is not to impugn these firms' offerings, but to clarify that the same offers were already available to Lifeline consumers from other carriers, e.g., here,--and will remain so, despite Pai's decision to rescind these designations. 
 
Yet, if Sohn felt this strongly about the merits of Lifeline "competition," why didn't she and Chairman Wheeler approve more qualified providers as ETCs, starting at the beginning of his term as Chairman?  I, personally, have a client that--during the terms of the last 3 Democratic FCC Chairs--has consistently been rated as the "best," or among the very best, wireless service providers in the country, and which has been waiting over 7 years for ETC Designation.  
 
The second "clear truth," which Ms. Sohn believes Chairman Pai's Medium article exposes, is that "[Pai] and fellow FCC Commissioner Michael O'Rielly, fundamentally disagree with the structure and goals of the Lifeline program and will seek to undermine it in word and deed."  This statement is a textbook example of the logical fallacy of ad hominem, in which an argument is rebutted "by attacking the character, motive, or other attribute of the person making the argument, or persons associated with the argument, rather than attacking the substance of the argument itself."  Here, Ms. Sohn fails to refute any reason proffered by Chairman Pai for taking a second look at the ETC Designation orders, and simply accuses Pai, and the other Republican FCC Commissioner, for having some broader "evil" motive ["disagree[ing] with the 'structure and goals of the Lifeline program'"] unrelated to this specific dispute.
 
If there is one thing that Ms. Sohn's blog post does successfully convey, it is to give us a better idea of where the first misleading headline came from, at least in terms of motive.  Perhaps if Sohn took less "surprise and delight" in someone else having to defend themselves against misinformation, then she could have advised Chairman Wheeler to take an interest in Lifeline competition before being asked by Congress to focus only on matters "that require attention under the law" prior to the change in presidential administrations.
 
February 8, 2017 2:33 PM

Humble Pai

In his first two weeks on the job, newly-appointed FCC Chairman Ajit Pai seems to have already distinguished himself from his predecessor, Chairman Wheeler.  The distinction is not merely one of political philosophies--which was apparent when Wheeler was still Chairman.  Rather, the two are distinguished by differences in leadership styles and goals.  

Wheeler, for his part, took the reins of the Commission with more industry-specific knowledge than any prior Chairman--having been the head of two major industry associations.  However, Wheeler had no specific policy goals, a general philosophy ("competition, competition, competition"), and a leadership style more accustomed to dictation than persuasion and cooperation.  Thus, Wheeler's legacy as Chairman may have been destined to end up as bitterly disputed as the rules he would adopt.  

Chairman Pai, on the other hand, has chosen to be much more inclusive--of both his fellow Commissioners and the public--in order to progress toward an ambitious policy priority; bridging the digital divide.  Notwithstanding some predictable hyperbole from "net neutrality" advocates (dedicated to a dogma that "protects" consumers from a non-existent "threat"), and a sensational headline about "stopping services" to few, if any, customers (which Pai himself debunked), Chairman Pai has been very well-received.  Importantly, Pai deserves credit for his commitment to humble/inclusive leadership, and for prioritizing the goal of improving access to advanced communications services of rural, and low income, Americans.

Good Ideas Don't Just Come from the Boss

The advantage of being the Chairman of an independent agency is not only the ability to set the agency's agenda, but also in the Chairman's solitary ability to control every matter on the agenda until the last minute, changing the item as needed to get the votes the Chairman wants.  To give up this power requires real humility, but it offers the prospect of getting the best possible advice/information/criticism from one's Commission colleagues and the public. 

Ajit-Pai-text.jpg

On February 2nd, as part of a "pilot program," Chairman Pai elected to release to the public complete drafts of two items (an NPRM and a Report & Order) at the same time the items were included on the agenda for the FCC's next Open Meeting, on February 23, 2017.  Pai hopes to make this a routine Commission practice in the future. Likewise, on Monday of this week, Chairman Pai pledged to share with the other Commissioners the content of matters that would be voted on at future FCC Open Meetings before disclosing this information to the public or members of the press. Finally, yesterday, he adopted two additional process reforms--at the suggestion of his fellow Commissioners, Michael O'Rielly (R) and Mignon Clyburn (D).

Leading Toward a Specific Goal

Chairman Pai's decision to enlist everyone's talents is smart; because he's going to need all the help he can get.  You see, Pai has chosen to address a formidable problem that has long confounded policy-makers: the "digital divide," which has left many Americans without access to advanced communications services.  In his first speech as Chairman (to Commission staff), Pai stated his belief that "one of our core priorities going forward should be to close that divide--to do what's necessary to help the private sector build networks, send signals, and distribute information to [all Americans]." 

This was not, by any means, the first time that Pai has drawn attention to this problem.  As recently as September of last year, then Commissioner, Pai released his "Digital Empowerment Agenda" which contained a number of ideas for things the Commission could do, either by itself or as part of a partnership with local governments, to spur broadband buildout to underserved communities throughout the country.   

Yet, despite having his own ideas about how to help bridge the digital divide, Chairman Pai, consistent with his process reforms, seems more interested in soliciting the best ideas of others.  Thus, at his first Open Meeting as FCC Chairman, Pai announced the formation of a "Broadband Deployment Advisory Committee" ("BDAC") to "provide advice and recommendations to the FCC on how to [accelerate broadband deployment in underserved areas]."  And, while the group's first project will be to provide recommendations for how to bridge the digital divide "by reducing and/or removing regulatory barriers to infrastructure investment," there is no reason to think the group will only be used for one project.  See Announcement and also Public Notice

Nothing to Lose

The problem that Pai has chosen is as vexing as it is worthy, and Chairman Pai's willingness to "tie himself" to this problem is both ambitious and risky.  However, as someone once said, "it's amazing what you can accomplish if you don't care who gets the credit."   

The full support of the FCC--and the private stakeholders, whose support the FCC is currently enlisting--will lead to cooperation from, at least some, state and local governments, and will improve access for some Americans.  But, even in the worst case scenario, policymakers will at least have a better conception of the problem than they did before.  In other words, by choosing a specific goal--along with his humble commitment to including the public, private stakeholders, and fellow Commissioners--Chairman Pai has made it more likely that some of the country's most neglected consumers will see a bigger slice by the end of his term.


January 18, 2017 10:01 AM

Wheeler's Last "Because-I-Said-So"

Last Wednesday, January 11th, we were treated to what is hopefully the last instance of Chairman Tom Wheeler's "because-I-said-so" policy-making, when the FCC released a "Report" from the Wireless Telecommunications Bureau ("WTB Report") regarding the WTB's "Policy Review" of the sponsored data and zero-rated offerings of major wireless broadband ISPs.  The WTB Report asserts that it is applying the Commission's "General Conduct Rule" in its 2015 Open Internet Order ("Order")  to 4 offerings from 3 carriers (AT&T, T-Mobile, and Verizon Wireless).  The WTB Report concludes that AT&T's "Sponsored Data" offering, and Verizon's "FreeBee 360" plan "present significant risks to consumers and competition in downstream industry sectors because of network operators' potentially unreasonable discrimination in favor of their own affiliates."  WTB Report at p.1.

 

Commissioner Ajit Pai, in a separate statement,  decried the FCC's "midnight regulation of free data."  Commissioner Pai also succinctly identifies one of the major errors in the WTB Report's application of the Commission's Rules, noting that the plans "are popular among consumers precisely because they allow more access to online music, videos, and other content free of charge."  Pai statement (emphasis added).

 

As Commissioner Pai implicitly notes, the Commission's "General Conduct Rule" is, on its face, consumer focused.  Yet, the WTB's analysis ignores the market targeted by the plans, and their corresponding consumer benefits. 

 

The WTB Report Analysis Ignores the Open Internet Order

 

The WTB Report notes that it "expresses no concern with retail zero rating per se." Report at 1. Rather, the report notes that FCC acknowledged the potential benefits of zero rating in its Open Internet Order.  Specifically, the FCC noted that,

 

evidence in the record suggests that these business models may in some instances provide benefits to consumers, with particular reference to their use in the provision of mobile services. Service providers contend that these business models increase choice and lower costs for consumers.

 

Order at para 151 (emphasis added and internal citations omitted).  While not explicitly mentioned by the Commission in its Open Internet Order, the WTB Report argues that "[t]hese benefits may include increased video competition by facilitating the availability of over-the-top (OTT) offerings." WTB Report at p.1.

 

Thus, the Commission recognized that a potential benefit of zero-rating, in the provision of mobile broadband Internet access services, would be greater competition in the broadband Internet access market.  On the other hand, the specific potential benefit mentioned in the WTB Report is in the increased availability of OTT video offerings.  This difference is important, because, as noted by Commissioner Pai, the WTB Report does indeed ignore the benefit of enhanced competition in the primary market: the market for mobile broadband Internet access. 

 

The WTB Report Misapplied the Commission's General Conduct Rule

 

With respect to carrier-specific zero-rated data promotions, the WTB Report focuses its criticism primarily on AT&T's "Sponsored Data" program.  This program allows AT&T Wireless subscribers, who also purchase AT&T's "DirecTV" or "DirecTV Now" subscription television services, to watch that video content without accruing data usage charges. 

 

The Commission's General Conduct Rule, provides that a broadband ISP "shall not unreasonably interfere with or unreasonably disadvantage" either, 1) a consumer's ability to access Internet applications/content/services, or 2) an edge provider's ability to provide any application/content/service to consumers.  See Order at para 136 (emphasis added and internal citations omitted). The WTB Report notes that among the "guiding factors" identified by the FCC in the application of this Rule, the WTB chose to focus primarily on "competitive effects." See Report at 10, and Order at para 140.

 

Given the emphasis on the word "unreasonable" in the FCC's General Conduct Rule, one would expect that any "competitive effects" analysis under the rule would look a lot like the "Rule of Reason" in antitrust analysis under Section 2 of the Sherman Act.  This analysis looks at the intent of the conduct in question, as well as its effects, in terms of whether the conduct increases or restricts consumer welfare (output) in the relevant market.   

 

The WTB Report notes that its concern is "that AT&T offers Sponsored Data to third party content providers at terms and conditions that are effectively less favorable than those it offers to its affiliate, DIRECTV."  WTB Report at 13. This, the WTB argues, will "likely obstruct competition for video programming services delivered over mobile Internet platforms and harm consumers by inhibiting unaffiliated edge providers' ability to provide such service to AT&T's wireless subscribers." Id.

 

There are several problems with the WTB Report's "competitive effects" analysis.  First, the WTB Report never defines a market, much less attempts to assess AT&T's intent in offering the service, or to determine the actual consequences of AT&T's Sponsored Data program in that market.  Instead, the WTB Report seems to regard its analysis as more of an exercise in imagination, asking, "Could there ever be a situation in which future output could be limited as a result of this plan?"    


Mobile Broadband Competition Expands--Rather than Restricts--OTT Video Availability

 

The WTB Report's own description of all carriers' zero rated data plans makes it clear that the purpose of each plan is to entice mobile broadband Internet consumers to use their service instead of that of a competitor.   This point could not have been made more clearly by T-Mobile's prompt response to AT&T's Sponsored Data program--in which it offered AT&T Wireless customers a free year of DirecTV Now.  

 

In fact, the original provider of AT&T's Sponsored Data with DirecTV was competitor Sprint, which offered new DirectTV customers a free year of wireless service in "celebration" of AT&T's purchase of DirectTV--well over a year before AT&T came out with its DirecTV/mobile broadband offer.  The purpose of sponsored data is obvious in the competitive effect that each new offer sparks in the marketplace--more access to Internet content at a lower price--and this is what makes mobile broadband Internet access the relevant market.

 

But, what about that hypothetical future OTT service?  As every mobile broadband provider has more video content available--without charge--to its subscribers than ever before, what is clear is that mobile Internet video content has grown as a result of sponsored data, and not in spite of it.   

November 18, 2016 3:37 PM

Wheeler's FCC: Decisionmaking by Political Favoritism

An independent, "expert agency," like the FCC, is at its most effective when it is focused on keeping the industries it regulates running smoothly, in the interests of consumers, by filling policy "potholes."  On the other hand, nothing incites partisan rancor like addressing "problems" that look a lot more like ideological crusades, rather than good faith efforts to address genuine consumer grievances.  

Under Chairman Tom Wheeler, the FCC became a battlefield for "proxy wars" pitting business interests against each other in the name of ideology--that, itself, was a disguise for transparent political favoritism.  These battles were fought not by the traditional strength of evidence and argument, but instead through PR campaigns, produced social media outrage, and 3rd party Hessians claiming the "public" or "progressive" interest mantle. This approach has devalued the deliberative process and the role of  the majority and minority commissioners in driving consensus at the expert agency.

A Regulatory "Pothole"

A good example of a regulatory "pothole" is the agency's response to rapid adoption of VoIP technology by consumers in the early 2000's.  Though VoIP calls were a cheaper substitute for PSTN calls in most respects, because VoIP calls didn't use the PSTN, consumers could not access E911 service.  

After some well-publicized tragedies, the FCC quickly focused on this specific issue (out of a larger number of issues) in its already-pending 2004 VoIP NPRM.  Acting quickly, and unanimously, the FCC issued an Order in 2005, adopting some interim measures to: 1) better inform consumers of the limits of nomadic VoIP services, and 2) to ensure that "interconnected" VoIP providers quickly became able to offer E911 service to their customers by terminating calls through CLECs.  

But, if the VoIP 911 matter was an example of interested stakeholders (carriers and public safety/law enforcement) forthrightly putting their interests on the table, and the FCC balancing those interests to find the best solution for consumers, the FCC's recent Broadband Privacy Order provides a good illustration of the exact opposite type of proceeding. 

Broadband Privacy ≠ Internet Privacy

The Commission's classification of broadband Internet access service as a "telecommunications service," in its 2015 Open Internet Order, in turn, allowed the FCC to define what information, with respect to this service, it would define as "customer proprietary network information" ("CPNI") under Section 222 of the Act.  Section 222 defines CPNI as, essentially, information that the service provider knows by virtue of providing a telecom service to a customer, and requires the carrier to obtain customer permission before selling the customer's CPNI to a third party.  

The Interent Service Providers ("ISPs") argued that consumer Internet usage information is not information uniquely held by the ISP, in the way that CPNI was uniquely in possession of a telecommunications carrier in 1996 (when Congress wrote the law).  See, e.g., AT&T Comments pp.9-30.  Rather, the primary market for consumers' internet usage information is the online advertising market. , in which the ISPs do not possess sufficient unique, or valuable, consumer information to even possess a measurable share of the market.

Indeed, consumer Internet usage information is "monetized" in the online advertising market--a market in which almost 2/3's of all revenue, and 90% of growth since 1Q 2015, is controlled by Google and Facebook!  Significantly, the online advertising market is also one in which no ISP even possess a measurable share of the market.  Not surprisingly, according to Princeton University researchers, Google and Facebook account for all of the top 10 third party trackers on the Web

 The ISPs explained that, despite the FCC's rhetoric in its NPRM about consumer "privacy,"

[n]o matter what the Commission does in this proceeding, major actors in the Internet ecosystem will continue to track and use all of the same information the proposed rules would keep ISPs from efficiently tracking and using.

See, e.g., AT&T Comments at p. 35 (emphasis added).  Thus, they argued, the FCC's proposed rules would not enhance consumer privacy, but merely foreclose competition in the online advertising market.

Party Participation vs. Proxy Participation

Given the competitive significance of the FCC's proposed rules, you might think the record in this proceeding would pit edge providers and ISPs against each other, with each side trying to show why the ISPs do/don't possess some unique information about their customers that is worthy of rules protecting its disclosure.  If this was your guess, you'd be half right; the ISPs definitely showed up with their best information/arguments.  

On the other side, though, neither Google/Alphabet, nor Facebook appears in any search of this docket.  Yet, the FCC had no trouble finding support in the record for its contention  that it is the ISPs from whom consumers' information needed protection, and not the two dominant firms in the business of collecting and selling that information.  If you look through the Order, you'll see that a majority of the support the FCC cites is supplied by parties with ties to Google, Facebook, or other edge providers.

For example, the Electronic Frontier Foundation (cited 45 times in the Order) is a frequent advocate for, and recipient of funding from, both Google and Facebook.  We've discussed Public Knowledge (56 cites) here before, but it and other groups that the Commission cites frequently, like the Center for Democracy & Technology (61 cites),  and the New America Foundation Open Technology Institute (72 cites) are also supported by Google.  The Commission also cited a paper filed by Upturn, which is a legal/policy advocacy group, whose involvement was sponsored by the Media Democracy Fund (supported by edge providers Microsoft and Tumblr.) 

Even groups with names as innocuous as Consumer Federation of America/California, Consumer Watchdog, and National Consumers League are groups for which Google discloses support.  Academics, as well, may have more than an "academic" interest.

Princeton University Professor, Nick Feamster comments, but doesn't disclose that he has received $1.6  million from Google over the past 5 years.  Other Princeton faculty members filed comments similar to Feamster's.  And, in May, Princeton's Center for Information Technology Policy, of which Feamster is Acting Director, was a co-sponsor, along with Google-funded Center for Democracy and Technology, of a policy conference on the topic of "broadband privacy."  The Google Transparency Project notes that 5 of the 7 panelists at the event had received support from Google.   

You Need Not Be Present to Win

The reasons behind some parties' participation doesn't mean that their advocacy/arguments were wrong, but the FCC woud have benefited more from a direct exchange between both sides with first-hand knowledge of the consumer information they track.  And, why weren't Google and Facebook in the record, making these points, themselves? 

One reason could have been that more information about these firms' dominance in online advertising came out over the summer, including a paper by one of the Princeton academics in this proceeding, noting that Google and Facebook controlled all the top 10 third-party trackers.  Another reason for Google's absence may have been that it went back on its self-imposed ban on using consumers' personally-identifiable information in its web tracking, according to this ProPublica report

Would it have been embarrassing for the leading edge providers to ask the government for protection from competition?  Maybe, but consumers deserved the ability to transparently see which side--between two interested parties--the government was choosing, and why.  

   *    *    *

The FCC's leadership has been willing to undertake ideological crusades for the sole purpose of advantaging politically-favored firms.  The transparent nature of the FCC's actions ensure that they will quickly be undone by a subsequent Commission.  The legacy of such leadership leaves only acrimony among the majority of Commissioners trying to put consumers first.  Hopefully, the next FCC will  learn from history.


  

November 4, 2016 11:09 AM

Why Is DoJ Siding Against Consumers in its DirecTV Complaint?

On Wednesday of this week (11/02), the Antitrust Division of the U.S. Department of Justice ("DoJ") sued AT&T arguing that its DirecTV subsidiary was the "ringleader of information sharing agreements" among rivals that "corrupted" competition among rivals to carry the Dodgers' cable TV channel. Complaint at para 2.  According to the DoJ, this is the primary reason that Dodgers' fans in L.A.--living outside of Time Warner Cable's ("TWC") service area have not been able to watch Dodgers' games since the 2013 season.

Unfortunately, the DoJ seems dangerously unaware of findings by a federal court--in an antitrust case on the exact same subject matter being litigated during the same time frame as the facts in the DoJ complaint--that the exclusive sports distribution contracts (that raise consumer rates) may well be the more obvious Sherman Act violation. When we know what DirecTV knew--as a defendant to that litigation--we can better understand why the DoJ could not be more wrong in this case.

L.A. Regional Sports Networks ("RSNs")

Until 2011, Fox Sports was the leading RSN in the L.A. area.  It had two channels, one of which distributed games of the Lakers, Kings, and the Anaheim Angels, and the other of which distributed the games of the Clippers, Dodgers, and Anaheim Ducks. 

But, as Fox's contract with the Lakers was ending in 2011, TWC swooped in and paid $3 billion for the rights to broadcast the Lakers' non-national games for the next 20 years.  As DoJ recounts in its complaint, TWC raised the prices to carry the Lakers (as a standalone channel) well above any range of what any of the other pay TV distributors considered fair value. DoJ Complaint paras. 29-39.
 
In 2013, Guggenheim Partners paid an unheard of $2.15 billion for the Los Angeles Dodgers baseball team ("Dodgers").   The private equity investors then turned around and sold the exclusive rights to distribute Dodgers' games--in the form of a dedicated "Dodgers channel"--to TWC for an even-more-unheard-of price of $8.3 billion.

Reportedly, TWC never budged on its demands, that every pay TV distributor (i.e., competitors and other cable/satellite companies), would have to pay it--on a per-subscriber basis for the rights to broadcast Dodgers games--regardless of how many of these distributor's customers want to watch the games.  Until Wednesday, the narrative was that TWC's "unmitigated disaster" of a deal showed that perhaps there was some limit to the ever skyrocketing costs of sports programming.

DoJ to TWC's Rescue

The DoJ contends that DirecTV privately told other pay TV companies that it was not going to pay TWCs outrageous demands. The DoJ argues that, but for this exchange of information, TWC's competitors, and other pay TV distributors in the L.A. Dodgers home market, would have been happy to pay (and pass along to their consumers) the supra-monopoly prices being demanded by TWC.

Bizarrely, DoJ contrasts the "anticompetitive" situation of today with an earlier--presumably "competitive"--negotiation period, in which TWC (as the new RSN for the Lakers) extorts a price from Cox Communications' subscribers of "60% more" than Cox's internal analysis indicated the content was worth. Complaint at para. 36. No, the DoJ's thinking is that if cable companies aren't just spending their customers' money and passing through rate increases, then something illegal is afoot.

The fact, though, is that the vertical distribution contracts--which are responsible for the sports programming price increases (that  DoJ is incomprehensibly fighting for)--were under antitrust scrutiny, and coming up short, throughout the relevant time period covered by the DoJ suit.  After looking at these contracts in the light of antitrust precedent, we can truly appreciate just how wrong the DoJ was to go after the victim--and not the cause--of spiraling sports programming costs.

Consumers Fight Anticompetitive RSN Contracts

In 2012, consumers filed class action antitrust lawsuits against the MLB and the NHL in the Southern District of New York. See, e.g., Laumann v. NHL, et al. and Garber v. Office of the Commissioner of Baseball, et al., 907 F. Supp.2d. 462 (SDNY 2012).  These cases squarely attacked the contracts at the heart of the exclusive "home television territory" ("HTT") distribution model.  Specifically, consumers alleged that the contracts between the teams, MLB (and the NHL), and the RSNs of DirecTV and Comcast, illegally restricted competition in the broadcasting/streaming markets because these agreements also restrict the right of the "away" team--a non-party to these contracts--to sell its own broadcast feed to anyone in the HTT area of another RSN.
 
MLB fans can only watch games of their "home team" by purchasing a cable package from the RSN (or a distributor of the RSN, such as AT&T, Verizon FiOS, or a satellite or cable company).  Fans of other teams could only watch the games of out-of-market teams by purchasing an out-of-market package ("OMP") from the leagues (for streaming customers) or from the RSN (distributing on behalf of the leagues).

The plaintiffs' successfully argued (at every pre-trial stage) that the complicated web of contracts between the teams, the leagues, and DirecTV and Comcast (which prevented a non-party to the contract (i.e., any "away team") from selling its own independently-produced feed of the game to any fan in any part of the country) were "contracts . . . in restraint of trade" in violation of the Sherman Act.  The plaintiffs' contention was that, but for these contracts, fans could purchase the away-team feeds of games on an "a la carte" basis, even if they did not want to buy home team's cable package.

The Case History/Court Findings

Throughout the case, DirecTV and Comcast (in the same role as TWC in the DoJ case), vigorously argued at every possible stage that, as the RSNs, they were merely accepting terms set forth by the Leagues and that they did not benefit from the exclusivity--and the higher-than-competitive consumer prices--that this exclusivity produced.  The court rejected this argument in both the defendant's motions to dismiss in 2012 (opinion) and their motions for summary judgment in 2014 (opinion).

The court explained that,

evidence that the Television Defendants would not have entered the contracts at the prices prescribed but for the territorial restrictions, is sufficient evidence from which a fact finder could infer a tacit horizontal agreement among the RSNs and MVPDs

See, Opinion Denying Defendant's Motions for Summary Judgment, at 50 (emphasis added). Further, in rejecting the defendant's motions for summary judgment, the court found,

The clubs in each League have entered an express agreement to limit competition between the clubs - and their broadcaster affiliates - based on geographic territories. There is also evidence of a negative impact on the output, price, and perhaps even quality of sports programming.
See, Id. at 30/57.

In May of 2015, the court certified the plaintiff's class to go forward to trial in order to seek injunctive relief, but not money damages, because there was no common monetary impact among the class members. This decision pretty much guaranteed that the case would settle, which it did, on the eve of trial, earlier this year.  The settlement agreement, unfortunately, leaves intact the geographic market exclusivity, which, in turn, ensures that sports content costs will continue to spiral.

To What End?

In many ways, this is/was the perfect case for an antitrust enforcement agency to bring--meritorious, but without the profit potential to ensure the efficacy of private enforcement. However, there is no evidence the DoJ was even aware of this antitrust litigation.

So, instead of taking up the consumer's side, the DoJ chose to sue on behalf of conduct that a United States District Court has already characterized as "express agreement[s] to limit competition between the clubs - and their broadcaster affiliates - based on geographic territories" and their corresponding "evidence of a negative impact on the output, price, and perhaps even quality of sports programming." It is sad that the DoJ didn't follow antitrust developments in this field closely enough to know that agreements which result in distributors paying 60% premiums over value is the result of a "corruption of competition"--rather than competition itself.

Finally, it is interesting to consider that, until several months ago, DirecTV had every reason to believe that a court would be likely to find that its RSN contracts were an illegal restraint of trade.  How ironic that, having dodged a bullet with respect to its RSN agreements, DirecTV would find itself the target of another lawsuit for not agreeing to pay the most anti-consumer RSN contract in America!