Brantley v. NBC Universal, Inc.
55 Communications Reg. (P&F) 915, 2012 U.S. App. LEXIS 6441, 675 F.3d 1192 (2012)
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Rule of Law:
To state a claim for an unreasonable restraint of trade under Section 1 of the Sherman Act based on a tying arrangement, a plaintiff must allege an actual adverse effect on competition in the relevant market, such as foreclosing competitors or creating barriers to entry. Allegations of harm to consumers, such as reduced choice or higher prices, are insufficient on their own to plead a cognizable injury to competition.
Facts:
- Television programmers, such as NBC Universal and Fox Entertainment Group, own both popular, high-demand ('must-have') channels and less desirable, low-demand channels.
- Programmers sell their channels wholesale to distributors, such as Time Warner and Echostar.
- As a condition of purchasing the 'must-have' channels, Programmers require Distributors to also purchase their entire portfolio of less desirable channels.
- Programmers' agreements with Distributors also prohibit the Distributors from offering channels to consumers on an individual, a la carte basis.
- As a consequence, Distributors can only offer consumers pre-packaged tiers of channels, forcing consumers to buy unwanted channels to access the 'must-have' channels.
- A group of retail cable and satellite television subscribers brought a suit challenging this industry practice.
Procedural Posture:
- A putative class of television subscribers (Plaintiffs) sued television Programmers and Distributors in federal district court, alleging violations of Section 1 of the Sherman Act.
- The district court dismissed the plaintiffs' first amended complaint.
- After plaintiffs filed a second amended complaint alleging the practice foreclosed independent programmers, the district court denied a motion to dismiss.
- Following discovery, plaintiffs stipulated to filing a third amended complaint that abandoned the foreclosure theory.
- The Programmers and Distributors moved to dismiss the third amended complaint for failure to state a claim.
- The district court granted the motion and dismissed the complaint with prejudice, holding that plaintiffs failed to allege a cognizable injury to competition.
- Plaintiffs (as appellants) appealed the dismissal to the U.S. Court of Appeals for the Ninth Circuit.
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Issue:
Does a television programmer's practice of 'tying' the sale of desirable channels to the purchase of less desirable channels, which reduces consumer choice and increases prices, constitute an actual injury to competition sufficient to state a claim under Section 1 of the Sherman Act, without allegations of market foreclosure or barriers to entry?
Opinions:
Majority - Ikuta, Circuit Judge
No. A tying arrangement that merely reduces consumer choice and increases prices does not, by itself, constitute a cognizable injury to competition under Section 1 of the Sherman Act. To state a claim, plaintiffs must plead an actual injury to the competitive process itself, not just harm to consumers. The Sherman Act outlaws only unreasonable restraints on trade, and under the rule of reason, a plaintiff must allege a contract or conspiracy that actually injures competition. Tying arrangements are not inherently anticompetitive and can be consistent with pro-competitive behavior. The typical competitive harms from tying—foreclosing competitors in the tied product market or creating barriers to entry—were not alleged in this case; in fact, the plaintiffs expressly abandoned that theory. Allegations of reduced consumer choice and increased prices describe potential antitrust injury to the plaintiffs, but they do not describe the underlying injury to competition necessary to make the defendants' conduct unlawful. These effects are often consistent with a free, competitive market and do not plausibly suggest an antitrust violation without more.
Analysis:
This decision solidifies the high pleading standard for antitrust claims post-Twombly, emphasizing that consumer harm is not a substitute for competitive harm. It clarifies that to challenge a tying arrangement, a plaintiff must plausibly allege how the practice harms the market structure or the competitive process, for instance, by excluding rival firms. By rejecting reduced consumer choice and higher prices as standalone theories of competitive harm, the court makes it significantly more difficult for consumers to challenge bundling practices without concrete evidence of market foreclosure. This ruling protects common business practices like product bundling from antitrust scrutiny unless a direct negative impact on competitors can be demonstrated.
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