Since 2008, cable customers have sued cable operators across the country alleging that the operators violate antitrust laws by forcing customers to rent set-top boxes from the operator to access “premium” cable service. The plaintiffs allege that the operators have “tied” one product (the service) to another product (the box) and that the agreement is a as from violation of antitrust laws (that is, illegal regardless of any purported pro-competitive benefits).

The lawsuits have taken a number of different paths, with some surprising twists:

  • The first jury trial resulted in a verdict against Cox in 2015. But the court then overturned the verdict on the grounds that it had previously dismissed in a summary judgment.
  • When another operator agreed to settle claims in a Philadelphia case, the district court refused to approve the settlement, holding that the transaction class was “not ascertainable.” But last week, the Third Circuit quietly withdrew in a summary decision, ruling that ascertainability is not relevant where the parties have agreed on the settlement class definition.
  • Meanwhile, the FCC has jumped (again) into the fray by proposing rules to force cable operators to “Unlock the box” -or maybe, give the keys to the FCC.

A number of courts have dismissed set-top box tying claims for failure to allege or demonstrate that the cable operator has sufficient “market power” to compel a customer to lease the set-top box because the cable operators must face competition from “overbuilders” and/or satellite services. Others were rejected because there was no evidence that anyone would have sold standalone boxes “if it weren’t for” the alleged tying.

Just before Labor Day weekend, however, the Second Circuit set a new and different course. In Kaufmann vs. Time Warnerno. 11-2512-cv (2d Cir. 2 September 2016), a panel upheld 2-1 the district court’s ruling that the plaintiffs did not claim market power. But that sentence was only a prop. Of the majority principal reason for claiming the dismissal was premium cable services and the interactive boxes used to access them they are by no means separate products. As such, the fundamental premise of any “binding” claim—two otherwise separate products bound together by the seller—simply doesn’t exist.

Most took two main points.

First, it has been analogized to a lock and key set: the lock (interactive cable service) works only with a particular key (a box programmed with specific codes for that operator’s services that a particular customer has paid for), and vice versa. Thus, according to the majority, “the central issue is a cable provider’s right to refuse to enable cable boxes that it does not control to decipher its own scrambled signal.”

Second, when the plaintiffs claimed that the third-party boxes could be programmed remotely by the cable operator, the majority said it didn’t matter because that fact only had a potential impact. supplywhile product markets are defined by the consumer request. A majority believed that the plaintiffs’ claims were doomed by the fact that the services and premium boxes had never been sold separately in the United States, even where cable faces competition from other pay TV providers. The majority determined that the lack of a separate, historical market “implies strong net efficiencies” and that consumers prefer to buy services and boxes together, such as locks and keys.

Finally, while many plaintiffs have cited the FCC’s (old) “CableCARD” initiative and (new) “Unlock the Box” initiative as evidence that there is it should be a separate set-top box market, the majority concluded just the opposite: the FCC’s efforts most likely failed due to the inefficiencies of creating a third-party market for protected content. The majority also doubted that a lucrative “tying” scheme was plausible given the regulatory price controls on set-top boxes.

The set-top box wars have been long and unpredictable. But the Kaufmann the majority approach could be a game-changer that allows cable operators to quickly cut the knot of “tying” requests.

Tags: antitrust, set-top box litigation