[Federal Register Volume 59, Number 149 (Thursday, August 4, 1994)]
[Unknown Section]
[Page 0]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 94-19050]


[[Page Unknown]]

[Federal Register: August 4, 1994]


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DEPARTMENT OF JUSTICE
Antitrust Division

 

United States v. Tele-Communications, Inc. and Liberty Media 
Corporation Comment and Response on Proposed Final Judgment

    Pursuant to the Antitrust Procedures and Penalties Act, 15 U.S.C. 
16(a) and (b), the United States publishes below the comments it 
received on the proposal Final Judgment in United States v. Tele-
Communications, Inc. and Liberty Media Corporation, Civil Action No. 
94-0948, United States District Court for the District of Columbia, 
together with the response of the United States to those comments.
    Copies of the response are available on request for inspection and 
copying in Room 3233 of the Antitrust Division, U.S. Department of 
Justice, Tenth Street and Pennsylvania Avenue, NW., Washington, DC 
20530 and for inspection at the Office of the Clerk of the United 
States District Court for the District of Columbia, Third and 
Constitution Avenue, NW., Washington, DC 20001.
Constance K. Robinson,
 Director of Operations, Antitrust Division.

Response to Public Comments

    Pursuant to Section 2(b) of the Antitrust Procedures and Penalties 
Act (15 U.S.C. 16(b)-(h))(``APPA''), the United States of America 
hereby files its Response to Public Comments.
I.

Introduction

    The United States has carefully reviewed the comments submitted on 
the proposed Final Judgment and remains convinced that entry of the 
proposed Final Judgment is in the public interest.
II.

Background

    This action was commenced on April 28, 1994, when the United States 
filed a complaint alleging that the defendant's proposed merger 
violated Section 7 of the Clayton Act, as amended, 15 U.S.C. 18. On the 
same date, the United States submitted a proposed Final Judgment and a 
Stipulation between the United States and the dependents pursuant to 
which the United States and the defendants consented to entry of the 
proposed Final Judgment. The Stipulation provides that the proposed 
Final Judgment may be entered by the Court after completion of the 
procedures required by the APPA.
III.

Compliance With the APPA

    Upon publication of this Response in the Federal Register, the 
procedures required by the APPA prior to entry of the proposed Final 
Judgment were completed, and the Court is free to enter the proposed 
Final Judgment.
IV.

Response to Public Comments

    The Department has received two comments relating to the proposed 
Final Judgment. The first comment, filed by K. Lawrence Kemp, a 
bankruptcy trustee, was filed on behalf of Dennis F. Gianotti, the 
owner of GTV, a regional sports video programming company which has 
filed for bankruptcy in the United States Bankruptcy Court for the 
Western District of Pennsylvania. The second comment was submitted by 
GTE Service Corporation, on behalf of its affiliated domestic telephone 
operating companies and GTE Laboratories Incorporated.
    The issue of the standard of judicial review, raised by the 
comments, will be discussed below in Section IV(C).
A. K. Lawrence Kemp
    Mr. Kemp submitted a copy of an antitrust complaint that has been 
filed on behalf of Mr. Gianotti and GTV. The complaint alleges that KBL 
Sports Network, Inc. and the defendants have attempted to monopolize 
sports television programming of collegiate athletics for cable 
distribution in Western Pennsylvania by interfering with Mr. Gianotti's 
and GVT's exclusive rights to produce and distribute such programming. 
Among other allegations, the complaint alleges that defendants refused 
carriage of GTV programming as part of an attempt to monopolize. Mr. 
Kemp asserts that for the reasons alleged in the aforementioned 
complaint, he objects to the proposed Final Judgment.
    The proposed Final Judgment does not directly address issues 
relating to competition among firms seeking television production and 
distribution rights for sports events.\1\ The Department has no basis 
for a general concern that the proposed transaction will lessen 
competition among firms competing for television rights for sports 
events. However, to the extent that defendants discriminate against 
non-affiliated programming in the selection, terms, or conditions of 
carriage, such conduct is encompassed within the proposed Final 
Judgment.
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    \1\The omission of this issue from the proposed Final Judgment, 
however, in no way signifies an opinion by the Department as to the 
merits of the GTV private lawsuit, nor does entry of the proposed 
Final Judgment in any way effect the private lawsuit.
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    Section IV(A) of the proposed Final Judgment enjoins defendants' 
cable systems and multichannel subscription television distributors 
(``MSTDs'') from discriminating against non-affiliated video 
programmers in the selection, terms, or conditions of carriage, where 
the effect of such conduct is unreasonably to restrain competition. 
This provision does not create an automatic right of access for any 
individual video programmer to any of defendants' individual MSTDs, nor 
is it intended to inhibit good faith negotiations between defendants 
and unaffiliated programmers regarding the terms and conditions of 
carriage. However, where the effect of discrimination by defendants is 
to restrain competition, such conduct is prohibited.
    In addition, Section IV(C) extends the prohibitions set forth in 
Section IV(A) to prevent defendants from seeking or supporting, with 
respect to any MSTD in which defendants have any financial interest but 
do not control, conduct that would violate Section IV(A) if engaged in 
by defendants.
    By prohibiting conduct by defendants that might restrain 
competition in the provision of video programming, the Department 
believes that the anticompetitive effects of the proposed merger 
alleged in the Complaint will be fully remedied. The Department's view 
as to the sufficiency of this relief also rests on the existence of 
Sections 12 and 19 of the Cable Television Protection and Competition 
Act, Pub. L. 102-385, 106 Stat. 1460 (1992) (``1992 Cable Act''), and 
its implementing Federal Communications Commission (``FCC'') 
regulations, as well as the judgments recently entered in U.S. v. 
Primestar Partners, L.P., et al.\2\ and State of New York, et al. v. 
Primestar Partners, L.P., et al.\3\ (``Primestar cases'').
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    \2\No. 93 Civ. 3913 (S.D.N.Y. Apr. 4, 1994).
    \3\1993-2 Trade Cas. (CCH) 70,403-4 (S.D.N.Y. Sept. 14, 1993).
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B. GTE Service Corporation
    GTE supports the entry of the proposed Final Judgment but argues 
that its duration is too short. In addition, GTE expresses concern that 
the proposed Final Judgment would allow defendants to withdraw highly 
appealing programming from distribution--and specifically from 
competing systems--upon expiration of the proposed Final Judgment.
    GTE recommends (1) that the term of the existing provisions of the 
proposed Final Judgment be increased from five to seven years; and (2) 
that upon expiration of this seven year period, defendants should be 
restrained from withdrawing any programming from distribution in a 
particular market unless that market is found to be subject to 
``effective competition'' within the meaning of Section 623(l)(1) of 
the 1992 Cable Act\4\ or unless such programming is withdrawn from all 
markets, specifically including any and all systems in which defendants 
have an interest.
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    \4\47 U.S.C. 543(l)(1).
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    In the Competitive Impact Statement, the United States explains why 
it limited the term of the proposed Final Judgment to five years. The 
five year term reflects the United States' ``recognition that this 
industry is one that has experienced major changes in MSTD technologies 
that are on-going, and the effects of the 1992 Cable Act and its 
implementing FCC regulations.''\5\ The United States continues to 
believe that for this transaction in this industry, with changing 
technology, substantial new entry as well as recent and substantial 
government regulation, a term of five years is a sufficient period of 
time and is in the public interest.
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    \5\U.S. v. TCI, et al., Competitive Impact Statement at 8.
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    The United States also believes that it is in the public interest 
not to place additional restrictions upon defendants after the 
expiration of the proposed Final Judgment. Federal antitrust laws as 
well as the 1992 Cable Act and its implementing FCC regulations should 
provide adequate protection against potential anticompetitive behavior 
in programming distribution upon expiration of the proposed Final 
Judgment.
C. Standard of Judicial Review
    The APPA requires that proposed consent judgments in antitrust 
cases brought by the United States are subject to a sixty-day comment 
period, after which the court shall determine whether entry of the 
proposed final judgment ``is in the public interest.'' In making that 
determination, the court may consider:
    (1) The competitive impact of such judgment, including termination 
of alleged violations, provisions for enforcement and modification, 
duration or relief sought, anticipated effects of alternative remedies 
actually considered, and any other considerations bearing upon the 
adequacy of such judgment;
    (2) The impact of entry of such judgment upon the public generally 
and individuals alleging specific injury from the violations set forth 
in the complaint including consideration of the public benefit, if any, 
to be derived from a determination of the issues at trial.

15 U.S.C. 16(e) (emphasis added). The courts have recognized that the 
term ``public interest'' ``take[s] meaning from the purposes of the 
regulatory legislation.'' NAACP v Federal Power Comm'n, 425 U.S. 662, 
669 (1976); United States v American Cyanamid Co., 719 F.2d 558, 565 
(2d Cir. 1983), cert. denied, 465 U.S. 1101 (1984). Since the purpose 
of the antitrust laws is to ``preserv[e] free and unfettered 
competition as the rule of trade,'' Northern Pacific Railway Co. v 
United States, 356 U.S. 1, 4 (1958), the focus of the ``public 
interest'' inquiry under the Tunney Act is whether the proposed final 
judgment would serve the public interest in free and unfettered 
competition. United States v Waste Management, Inc., 1985-2 Trade Cas. 
66,651, at 63,046 (D.D.C. 1985). In conducting this inquiry, ``the 
Court is nowhere compelled to go to trial or to engage in extended 
proceedings which might have the effect of vitiating the benefits of 
prompt and less costly settlement through the consent decree 
process.''\6\ Rather, absent a showing of corrupt failure of the 
government to discharge its duty, the Court, in making the public 
interest finding, should * * * carefully consider the explanations of 
the government in the competitive impact statement and its responses to 
comments in order to determine whether those explanations are 
reasonable under the circumstances.

    \6\119 Cong. Rec. 24598 (1973). See United States v Gillette 
Co., 406 F. Supp. 713, 715 (D. Mass. 1975). A ``public interest'' 
determination can be made properly on the basis of the Competitive 
Impact Statement and Response to Comments filed pursuant to the 
APPA. Although the APPA authorizes the use of additional procedures, 
15 U.S.C. 16(f), those procedures are discretionary. A court need 
not invoke any of them unless it believes that the comments have 
raised significant issues and that further proceedings would aid the 
court in resolving those issues. See H.R. Rep. 93-1463, 93rd Cong. 
2d Sess. 8-9, reprinted in (1974) U.S. Code Cong. & Ad. News 6536, 
6538.
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United States v Mid-America Dairymen, Inc., 1977-1 Trade Cas. 61,508, 
at 71,980 (W.D. Mo. 1977).
    It is also unnecessary for the district court to ``engage in an 
unrestricted evaluation of what relief would best serve the public.'' 
United States v Bechtel Corp., 648 F.2d 660, 666 (9th Cir.), cert. 
denied, 454 U.S. 1083 (1981). Precedent requires that

[t]he balancing of competing social and political interests affected 
by a proposed antitrust consent decree must be left, in the first 
instance, to the discretion of the Attorney General. The court's 
role in protecting the public interest is one of insuring that the 
government has not breached its duty to the public in consenting to 
the decree. The court is required to determine not whether 
particular decree is the one that will best serve society, but 
whether the settlement is ``within the reaches of the public 
interest.'' More elaborate requirements might undermine the 
effectiveness of antitrust enforcement by consent decree.\7\

    \7\United States v Bechtel, 648 F.2d at 666 (quoting United 
States v Gillette Co., 406 F. Supp. at 716). See United States v 
BNS, Inc., 858 F.2d 456, 463 (9th Cir. 1988); United States v 
National Broadcasting Co., 449 F. Supp. 1127, 1143 (C.D. Cal. 1978); 
see also United States v American Cyanamid Co., 719 F.2d at 565
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    A proposed consent decree is an agreement between the parties which 
is reached after exhaustive negotiations and discussions. Parties do 
not hastily and thoughtlessly stipulate to a decree because, in doing 
so, they

waive their right to litigate the issues involved in the case and 
thus save themselves the time, expense, and inevitable risk of 
litigation. Naturally, the agreement reached normally embodies a 
compromise; in exchange for the saving of cost and the elimination 
of risk, the parties each give up something they might have won had 
they proceeded with the litigation.

United States v. Armour & Co., 402 U.S. 673, 681 (1971).

    The proposed consent decree, therefore, should not be reviewed 
under a standard of whether it is certain to eliminate every 
conceivable anticompetitive effect of a merger or whether it mandates 
certainty of free competition in the future. The court may reject the 
agreement of the parties as to how the public interest is best served 
only if it has ``exceptional confidence that adverse antitrust 
consequences will result * * *'' United States v. Western Electric Co., 
993 F.2d 1572, 1577 (D.C. Cir. 1993).
    Court approval of a final judgment requires a standard more 
flexible and less strict than the standard required for a finding of 
liability. ``[A] proposed decree must be approved even if it falls 
short of the remedy the court would impose on its own, as long as it 
falls within the range of acceptability or is `within the reaches of 
public interest.'''\8\ Under the public interest standard, the Court's 
role is limited to determining whether the proposed decree is within 
the ``zone of settlements'' consistent with the public interest, not 
whether the settlement diverges from the Court's view of what would 
best serve the public interest. United States v. Western Electric Co., 
993 F.2d at 1576 (quoting United States v. Western Electric Co., 900 
F.2d 283, 307 (D.C. Cir. 1990).
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    \8\United States v. American Tel. and Tel. Co., 552 F. Supp. 
131, 150 (D.D.C.), aff'd sub nom. Maryland v. United States, 460 
U.S. 1001 (1982) (quoting United States v. Gillette Co., 406 F. 
Supp. at 716); United States v. Alcan Aluminum, Ltd., 605 F. Supp. 
619, 622 (W.D. Ky 1985).
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    Clearly, there has been no showing that the proposed settlement 
constitutes an abuse of the Department's discretion or that it is not 
within the zone of settlements consistent with the public interest. The 
proposed Final Judgment would enjoin defendants' cable systems and 
other multichannel subscription television distributors from 
discriminating against non-affiliated video programmers in the 
selection, terms, or conditions of carriage where the effect of such 
conduct is unreasonably to restrain competition. Defendants also would 
be enjoined, with respect to their video programming, from refusing to 
license on nondiscriminatory terms to any competing multichannel 
subscription television distributor where the effect of such conduct is 
unreasonably to restrain competition. The Department believes that 
entry of the proposed Final Judgment willfully remedy the 
anticompetitive effects of the proposed merger alleged in the 
Complaint, by prohibiting conduct by defendants that might restrain 
competition in the provision of video programming or multichannel 
subscription television distribution.

        Respectfully submitted,
N. Scott Sacks, Patricia A. Shapiro,
Attorneys, U.S. Department of Justice, Antitrust Division, 555 4th 
Street, N.W., Washington, D.C. 20001, (202) 514-5815.

May 31, 1994.
Richard L. Rosen, Chief, Communications and Finance Section, 
Antitrust Division, Department of Justice, 555 Fouth Street, NW, 
Room 8104, Washington, DC 20001.

    Re: Telecommunications, Inc., and Liberty Media Proposed Final 
Judgment and Competitive Impact Statement
    Dear Mr. Rosen: Please be advised the I represent myself as 
bankruptcy trustee and Dennis F. Gianotti t/d/b/a GTV in a civil 
action pending in United States Bankruptcy for the Western District 
of Pennsylvania which bears upon the suitability of the proposed 
merger and its impact on competition in video programming. A copy of 
that Complaint is enclosed for your review and for inclusion in the 
record concerning this matter. For the reason stated in the 
Complaint, objection is made to the proposed final judgment and 
competitive impact statement.
    Very truly yours,
        K. Lawrence Kemp
KLK:jj
c. D.F. Gianotti
Encl.

United States District Court for the Western District of 
Pennsylvania

Civil Action No. 93-1564

Amended Complaint

    Dennis F. Gianotti, individually and trading and doing business as 
GTV and K. Lawrence Kemp, Trustee in Bankruptcy for Dennis F. Gianotti, 
bring this civil action against KBL Sports Network, Inc., for 
compensatory damages in excess of $50,000.00 together with liquidated 
damages, punitive damages and attorneys fees, and, in support thereof 
respectfully represent as follows:

Jurisdiction

    1. This Court has subject matter jurisdiction because this action 
is based in part on 15 U.S.C. 1,2 and 18 and thus subject matter 
jurisdiction is confered by 15 U.S.C. 15.
    2. This Court has personal jurisdiction over defendant, KBL Sports 
Network, Inc., (hereinafter ``KBL'') as it regularly conducts business 
in this state and within the geographic territory assigned to this 
Court and maintains an office at 1301 Grandview Avenue, Pittsburgh, 
Pennsylvania, and has in the past maintained a place of business in the 
Ramada Hotel in Pittsburgh, Pennsylvania.
    3. This Court has personal jurisdiction over Tele-Communications, 
Inc., (hereinafter ``TCI'') as it regularly conducts or has conducted 
business in the State of Pennsylvania and because the transactions and 
occurrences out of which the causes of action arise took place within 
the State of Pennsylvania.
    4. This Court has personal jurisdiction over Liberty Media, Inc., 
as it regularly conducts or has conducted business in the State of 
Pennsylvania and because the transactions and occurrences out of which 
the causes of action arise took place within the State of Pennsylvania.
    5. Venue exists in this Court pursuant to 28 U.S.C. 1391(b) because 
all claims arose in this district; and pursuant to 28 U.S.C. 1391(c) 
because defendant is a corporation which is doing business in this 
district.

Parties

    6. Dennis F. Gianotti is an individual who resides in the City of 
New Kensington, Westmoreland County, Pennsylvania, and his traded under 
the name of GTV and will hereafter be referred to as ``Gianotti.''
    7. K. Lawrence Kemp was appointed interim trustee of the bankruptcy 
case of Gianotti and Nancy C. Gianotti, his wife, at No. 91-03156 BM in 
the United States Bankruptcy Court for the Western District of 
Pennsylvania.
    8. The claims made herein are assets of the said bankruptcy case 
except to the extent exempted or surplus beyond that needed to pay 
claims and administrative expenses.
    9. Defendants are corporations organized under the laws of Colorado 
which do substantial business in Western Pennsylvania.

Factual Background

    10. Gianotti was engaged in the business of producing television 
programs primarily for use on cable television and primarily of a 
sports nature.
    11. On or about October 19, 1989, Gianotti entered into a written 
agreement with the University of Pittsburgh Athletic Department for the 
production of certain sports telecasts. The Agreement was for a term of 
two years from October 21, 1989, to October 21, 1991. The Agreement 
gave exclusive broadcast and cable distribution rights to Gianotti. The 
Agreement provided for an exclusive 30-day negotiating period following 
October 21, 1991.
    12. During the term of the said Agreement, Gianotti produced 
various sports television programs involving University of Pittsburgh 
athletic events and arranged for the viewing of such programs through 
KBL.
    13. Gianotti provided KBL with a copy of his said Agreement with 
the University of Pittsburgh Athletic Department prior to the first 
cable distribution of such a program.
    14. Although Gianotti's dealings were formally with KBL, he was 
paid for programming by checks of TCI mailed to his address is 
Pennsylvania from TCI's office.
    15. Before the end of the term of the said agreement, in August, 
1991, KBL successfully negotiated directly with the University of 
Pittsburgh Athletic Department to provide for the production of the 
same sports events covered by the said Agreement.
    16. In the spring of 1991, in order to harm Gianotti's chances of 
extending his contractual relationship with the University of 
Pittsburgh, KBL refused to provide cable distribution of University of 
Pittsburgh men's baseball games and other sports events such as auto 
racing from Gianotti.
    17. In a concerted effort to take over Gianotti's business, KBL 
cancelled his Steeler Talk Show and replaced it with its own Sports 
Beat.
    18. KBL directly approached and contracted with advertisers 
developed by Gianotti, such as Carriage Limousine and Coors Beer.
    19. In February, 1991, in a meeting between William Craig, a 
managerial employee of KBL, and Gianotti, William Craig told Gianotti 
that KBL would not distribute any University of Pittsburgh athletic 
events unless KBL could distribute men's basketball. When Gianotti 
offered to produce men's basketball, William Craig rejected the offer 
and advised him that KBL wanted to negotiate that directly with the 
University of Pittsburgh.
    20. At and after the meeting, Gianotti offered to buy or barter 
time to get his programs distributed by defendant, but KBL refused to 
quote him a price.
    21. KBL is and was owned directly or indirectly by TCI.
    22. TCI directly or indirectly (through its subsidiary TCI of 
Pennsylvania, Inc.) dominated the Metropolitan Pittsburgh cable 
television market by having approximately half the cable television 
subscribers in the said market.
    23. Because KBL was owned by TCI and/or Liberty (the two of which 
were related) which had more than half the cable subscribers in this 
area, KBL could and did exercise market power over collegiate sports 
television programming in the Metropolitan Pittsburgh area.
    24. The existence of market power by KBL and TCI is evidenced by 
the following:
    (a) One of TCI's subsidiaries, TCI of Pennsylvania, refused to deal 
with TCS, an entity which first acquired cable television transmission 
rights to Pittsburgh Pirate baseball games.
    (b) TCI through various of its subsidiaries refused to deal with 
Sportschannel, an entity which offers sports programming of national 
and regional interest. If TCI of Pennsylvania had carried 
Sportschannel, Sportschannel would have competed with KBL for rights to 
regional sports events.
    (c) KBL reasonably believed it could impose a seat fee on 
commercial establishments such as bars which provide a television set 
for its patrons to watch programs on KBL and actually did impose such a 
fee.
    (d) KBL refused to deal with Gianotti on programming it previously 
found acceptable for the sole purpose of eliminating him as an 
intermediary between sports programming sources such as the University 
of Pittsburgh and other programming sources on the one side and KBL and 
the cable television systems on the other.
    (e) KBL and/or TCI is now attempting to acquire the Pittsburgh 
Pirates so that it can control broadcast, telecast and cable casting of 
Pirate games.
    (f) TCI became a co-owner of K-Prime Partners, Limited Partnership 
also known as Primestar on February 8, 1990, in an effort to dominate 
video sports programming.
    (g) TCI through its subsidiary TCI of Pennsylvania, Inc., has had 
the only cable television service within the City of Pittsburgh between 
1984 and the present.
    (h) In December, 1993, TCI of Pennsylvania had approximately 
385,000 cable television subscribers in the Metropolitan Pittsburgh 
area, more than half the total subscribers in this area.
    (i) TCI directly or indirectly through a subsidiary bought the City 
of Pittsburgh cable television franchise from Warner Cable Corp. in 
1984 for approximately $93,400,000.00.
    (j) The Chief Executive Officer of TCI is John Malone, who also 
owns 50.4% of the common stock of Liberty Media, Inc., a Colorado 
business corporation. TCI and Liberty Media through their various 
subsidiaries have 10 million cable television subscribers, more than 
25% of the total number of cable television subscribers of the United 
States.
    (k) John Malone, TCI and Liberty Media during the past two decades 
have embarked on a course of conduct designed to control cable 
television and by acquiring control over programming sources, 
technology and franchises. In particular, TCI and Liberty have, during 
this period of time acquired
    (1) 22% of Turner Broadcasting which provides TBS, TNT, CNN and the 
Cartoon Network.
    (2) 49% of QVC
    (3) 49% of the Discovery Channel
    (4) 42% of the Home Shopping Network
    (5) 33% of Court TV
    (6) 21% of Home Team Sports
    (7) 68% of SportsCom
    (8) 18% of Black Entertainment Network
    (9) 90% of Encore
    (10) 15.6% of The Family Channel
    (11) 15% of Interactive Network
    (1) In addition TCI and/or Liberty Media have become involved in 
partnerships or joint ventures in The Children's Channel, the 
Parliamentary Channel, TeleWest, The Sega Channel and Viewer Controlled 
Cable Television.
    (m) In April, 1993, KBL acquired exclusive broadcast rights for 4 
years for the Pittsburgh Penguins for approximately $22,000,000.00. 
This acquisition enabled KBL to sell rights to certain games to 
broadcast stations such as KDKA-TV and to institute pay-per-view as to 
certain games.
    (n) KBL also acquired exclusive television broadcasting rights to 
the Pittsburgh Pirates.
    (o) KBL, after contracting with the University of Pittsburgh for 
men's basketball, was able to charge an additional fee to cable system 
operators for such programming, a fee over and above the regular charge 
for KBL programming
    25. John Malone, through TCI and its subsidiaries and liberty Media 
and its subsidiaries has engaged in an effort to exercise monopolistic 
control over programming sources by the above acquisitions and by 
encouraging independent programming sources, such as The Learning 
Channel, to merge into entities over which they have control such as, 
The Discovery Channel.
    26. The elimination of GTV as a programming source enabled KBL, an 
entity controlled by Malone, TCI and/or Liberty Media, to deal directly 
with the University of Pittsburgh on terms favorable to defendants for 
basketball by tying the acceptance of minor sports programming to 
basketball.

Count I

    27. By its conduct Defendants have violated 15 U.S.C. Sec. 1 in 
that KBL has, by contracting directly with the University of Pittsburgh 
Athletic Department to produce and distribute sports events covered by 
the Agreement with Gianotti, restrained trade and commerce by 
interfering with Gianotti's opportunity to do business with the 
University of Pittsburgh.
    28. One of the purposes of KBL said conduct was to monopolize 
sports television production of collegiate athletics for cable 
distribution in Western Pennsylvania in violation of 15 U.S.C. Sec. 2.
    29. Another of the purposes of KBL said conduct was to tie the 
distribution of men's basketball to the distribution of other sports 
events in order to deprive others from an opportunity to telecast or 
distribute by cable men's basketball programs.
    30. Defendants' conduct had a substantially adverse affect on 
competition in that it eliminated a major cable television programming 
source and left Defendants in the position to exercise market power 
over the origination of sports programming for cable television in the 
Pittsburgh Metropolitan Area.
    31. KBL is capable of monopolizing this market because of its 
relationship with TCI of Pennsylvania, Inc., which has more than half 
the cable subscribers in the Pittsburgh Metropolitan Area.
    32. In this instance and in the past, defendants and their 
affiliated corporations have used refusals to deal with program sources 
as a means to exercise their market power to control programming 
sources.
    33. The various actions taken by defendants and their affiliated 
corporations have decreased competition by eliminating Gianotti and 
possibly others such as TCS and possibly discouraging them and others 
from entering this expanding market.
    34. Although broadcast television stations also show some local 
sports events, they are restrained by two factors:
    (a) Because of their necessity to maintain certain minimum numbers 
of viewers and correspondingly certain minimum advertising rates, they 
cannot show minor collegiate athletic events or other sports and non-
sports programming not designed to appeal to significant segments of 
the Viewing population.
    (b) Defendants through their acquisition of exclusive rights to 
University of Pittsburgh Basketball, the Pittsburgh Penguins and the 
Pittsburgh Pirates now control which of these events can be shown on 
regular broadcast stations. For example, WPXI Channel 11 had to 
contract with KBL to be able to show certain University of Pittsburgh 
Basketball games.
    35. Because of the conduct of defendants, Gianotti was forced out 
of the business he was building which in 1990 generated gross receipts 
of $325,102.65 and a net profit to him of $12,273.80.
    36. Gianotti was the largest source of independent local video 
programming in the Pittsburgh Metropolitan area between 1988 and 1990.
    37. Had defendants not so conducted themselves, Gianotti's business 
would have grown and he would have been able to earn far more than 
$50,000.00.
    38. The fair market value of Gianotti business prior to the said 
course of conduct of defendants was in excess of $100,000.00.
    39. Pursuant to 15 U.S.C. 15 plaintiffs are entitled to recover 
threefold the damages sustained plus prejudgment interest plus 
attorneys fees.
    Wherefore, Plaintiffs request judgment against Defendant for 
$300,000.00 plus interest from October 21, 1991, at the federal 
judgment rate plus reasonable attorneys fees.

Count II

    40. In violation of 15 U.S.C. 18, KBL acquired an asset of Gianotti 
in the form of his exclusive right to negotiate a renewal of his 
contract with the University of Pittsburgh Athletic Department, where 
the effect of such acquisition substantially lessened competition by 
driving Gianotti out of business chilling interest in entry into this 
market by others, depriving advertisers and sports teams of 
alternatives and tended to create a monopoly in the production of 
sports television programming for cable distribution.
    41. Because of the conduct of defendants, Gianotti was forced out 
of the business he built up which in 1990 generated gross receipts of 
$325,102.65 and a net profit to him of $12,273.80.
    42. Had defendants not so conducted themselves, Gianotti's business 
would have grown and he would have been able to earn far more than 
$50,000.00.
    43. The fair market value of the Gianotti's business prior to the 
said course of conduct of defendants was in excess of $100,000.00.
    44. Pursuant to 15 U.S.C. 15 plaintiffs are entitled to recover 
threefold the damages sustained plus prejudgment interest plus 
attorneys fees.
    Wherefore, Plaintiffs request judgment against Defendant for 
$300,000.00 plus interest from October 21, 1991, at the federal 
judgment rate plus reasonable attorneys fees.

Count III

    45. By dealing directly with the University of Pittsburgh Athletic 
Department before the expiration of the exclusive negotiating period 
under the Department's contract with Gianotti, KBL tortiously 
interfered with his advantageous contractual and business relationship 
with the Department.
    46. By dealing directly with Gianotti's advertisers such as 
Carriage Limousine and Coors Beer, KBL tortiously interfered with his 
advantageous business relationships with them.
    47. Because of the conduct of KBL, Dennis F. Gianotti was forced 
out of the business he built up which in 1990 generated gross receipts 
of $325,102.65 and a net profit to him of $12,273.80.
    48. Had KBL not so conducted itself, Gianotti's business would have 
grown and he would have been able to earn far more than $50,000.00.
    49. The fair market value of the Gianotti's business prior to the 
said course of conduct of defendants was in excess of $100,000.00.
    Wherefore, Plaintiffs demand compensatory damages of at least 
$100,000.00 and such punitive damages as the court deems just.
K. Lawrence Kemp,
Kemp and Kemp, Attorneys for Plaintiffs, 953 Fifth Avenue, New 
Kensington, PA 15068, (412) 339-4363, PA ID #21926.

Certificate of Service

    I, K. Lawrence Kemp, hereby certify that on February 7, 1994, I 
served the foregoing Amended Complaint by sending a true and correct 
copy of the same by first class United States Mail, postage prepaid, 
addressed as follows: Michael E. Lowenstein, Reed, Smith, Shaw & 
McClay, P.O. Box 2009, Pittsburgh, PA 15230.
K. Lawrence Kemp

United States District Court for the District of Columbia

Civil Action No. 94-0948

Comments of GTE

    GTE Service Corporation, on behalf of its affiliated domestic 
telephone operating companies and GTE Laboratories Incorporated (GTE), 
herewith respectfully submits these Comments to the proposed Final 
Judgment in the above-captioned action.

I. Introduction

    Although the proposed Final Judgment (hereinafter, Consent Decree) 
is a worthy attempt to stem the anti-competitive conduct rampant in the 
cable industry today--of which Tele-Communications, Inc. (TCI) and 
Liberty Media Corp. (Liberty) are major players--it suffers from two 
primary flaws. First, the term of the Consent Decree is clearly 
inadequate. Second, the Consent Decree would permit TCI/Liberty to 
withdraw high appealing programming from distribution--and specifically 
from competing systems--upon expiration of the term of the Consent 
Decree. To remedy these flaws, GTE recommends: (1) That the term of the 
existing provisions of the Consent Decree be increased to seven years, 
and (2) that upon expiration of this seven year period, TCI/Liberty 
should be restrained from withdrawing any programming from distribution 
in a particular market unless that market is found to be subject to 
``effective competition'' within the meaning of Section 623(l)(1) of 
the Act\1\ or unless such programming is withdrawn from all markets, 
specifically including any and all systems in which TCI or Liberty has 
an interest.
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    \1\47 U.S.V. Sec. 543(l)(1).
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II. Statement of Facts

    Currently, the distribution of multichannel video programming is 
overwhelmingly dominated by the cable industry. Cable systems are 
accessible to ninety-six percent of television households in American 
and over sixty percent of those households subscribe. Annual cable 
revenues now exceed twenty-one billion dollars, and the industry has 
been increasingly controlled by large Multiple Systems Operators 
(MSOs), including TCI and Liberty.\2\ From the customer's perspective, 
ninety-nine percent of all cable customers have only one cable operator 
to choose from.\3\ As the industry exists today, the transport of video 
programming to consumers is a monopoly service.\4\
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    \2\See National Cable Television Association, Cable Television 
Developments (March, 1993). The merged TCI and Liberty entities will 
serve more than thirteen million customers--a quarter of the 
nation's cable subscribers--and have financial interests in a wide 
range of programming services including a number of the most popular 
and widely-carried services. See Competitive Impact Statement,  
ll.A, at 3.
    \3\Pub. L. No. 102-385, section 2(a)(2), 106 Stat. 1460; see 
also S. Rep. No. 92 102d Cong., 1st Sess. 8 (1991), reprinted in 
1992 U.S.C.C.A.N. 1133, 1141.
    \4\Chesapeake & Potomac Telephone Co. v. United States, 830 F. 
Supp. 909, 927 (E.D. Va. 1993), appeal pending, No. 93-2340 (4th 
Cir).
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    The most promising potential competition to entrenched cable 
interests comes from local exchange carriers (LECs), including GTE's 
domestic telephone operating companies. While LECs are presently 
prohibited from providing video programming to customers in their own 
service territories,\5\ recent action by the Federal Communications 
Commission (FCC) allows LECs to provide common carrier transport of the 
video signals of unaffiliated programmers, know a video dialtone 
(VDT).\6\ While LECs look forward to providing consumers with a 
competitive alternative to incumbent cable operators like TCI and 
Liberty, these operators have fought vigorously to stave off 
competition at every turn.\7\
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    \5\47 U.S.C. 533(b); 47 CFR 63.54(c). GTE has challenged this 
ban on video programming. GTE California Incorporated v. Federal 
Communications Commission, No. 93-70924 (9th Cir.). Two district 
courts have already struck down the ban as unconstitutional. 
Chesapeake & Potomac, supra; US East, Inc. v. United States, No C 
93-1523 R, Order Granting Plaintiffs' Motion for Summary Judgment 
(W.D. Wash., June 15, 1994). Numerous other district court actions 
are also pending. See, e.g., Pacific Telesis Group v. United States, 
No. C 93-20915 JW EAI (N.D. Cal.). Additionally, Congress is 
considering lifting the ban. See H.R. 3636 (103d Cong., 2d Sess.), 
S. 1822 (103d Cong., 2d Sess.).
    \6\Telephone Company-Cable Television Cross-Ownership Rules, 
Sections 63.54-65.58, Second Report and Order, Recommendation to 
Congress, and Second Further Notice of Proposed Rulemaking, CC Dkt. 
87-266, FCC 92-327, 7 FCC Rcd 5781 (1992) (Video Dialtone Order), 
pets, for recon. pending, appeal pending sub nom. Mankato Citizens 
Telephone Co. v. Federal Communications Commission, No. 92-1404 et 
al. (D.C. Cir.). See Competitive Impact Statement,  II.C, at 7.
    \7\See, e.g., the National Cable Television Association's July 
5, 1994 Petition to Deny the Applications of Contel of Virginia, 
Inc. d/b/a GTE Virginia, GTE Florida Incorporated, GTE California 
Incorporated and GTE Hawaiian Telephone Company, Inc. for authority 
under Section 214 of the Communications Act to construct, own, 
operate and maintain video dialtone facilities, Nos. W-P-C 6955, 
6956, 6957, 6958.
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III. The Consent Decree Must be Modified

    To its credit, the Consent Decree seeks to discourage TCI/Liberty's 
anti-competitive conduct with respect to multichannel subscription 
television distributors (MSTDs) and video programming providers 
(VPVs).\8\ However, TCI/Liberty's existing monopoly position, the cable 
industry's long history of anti-competitive conduct, coupled with their 
current attempts to derail all potential competition, present a clear 
and present danger that the provisions of the Consent Decree will be 
woefully inadequate. In particular, the restraints imposed by the 
Consent Decree appear to be lifted at the very point in time when 
competition will likely be becoming a reality.
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    \8\See Proposed Final Judgment  II.D and E, at 2. Sections 616 
and 628 of the Act, 47 U.S.C. 536 and 548, refer to these entities 
as multichannel video programming distributors and video programming 
vendors.
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    A consent decree is not merely a private contract between the 
parties; it is a judicial decree backed by the contempt power of the 
Court. Thus, in approving the decree, ``the Court performs a judicial 
function and is called upon to decide whether it is equitable to enter 
the decree as proposed by [the parties].'' United States v. Carter 
Products, Inc., 211 F.Supp. 144, 147-48 (S.D.N.Y. 1962). The decree 
``must be scrutinized carefully and approved, both as to form and 
content, by the court entering it, prior to such entry.'' Esso Corp. v. 
United States, 340 F.2d 1000, 1005 (9th Cir. 1965). Indeed, the Court 
is required ``to make an independent determination of the propriety and 
equity of the decree proposed.'' United States v. F.&M. Schaefer 
Brewing Co., 1968 Trade Cas. (CCH)  72,345 (E.D.N.Y. 1967).
    As presently proposed,the Consent Decree fails this standard. 
Because the Consent Decree does not adequately serve the public 
interest, it must be modified or rejected by the Court. See, e.g., 
United States v. AT&T, 552 F. Supp. 131,216 (D.D.C. 1982); State of New 
York v. Dairylea Cooperative, 547 F.Supp. 306, 308 (S.D.N.Y. 1982). It 
is therefore incumbent upon the Department of Justice, consistent with 
its responsibilities under the Tunney Act,\9\ to seek modification of 
the Consent Decree before any request for entry of judgment is made to 
the Court.
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    \9\Antitrust Procedures and Penalties Act, 15 U.S.C. 16(b)-(h).
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    The development of viable competition to entrenched monopoly cable 
interests is wholly contingent upon two requirements: competitors' 
access to appealing programming, and use of existing and proposed 
distribution networks. To be viable, a competitor must be able to 
assemble an attratctive package of programs to offer to consumers and 
have the ability to distribute its offerings. Because of these 
requirements, the merged TCI-Liberty entitles constitute a bottleneck--
if not a stranglehold--upon the development of viable competition in 
the video marketplace. Only the closest scrutiny of the merged entity's 
conduct will ensure that the public interest is served in the 
development of effective alternatives to cable.
    The primary flaw in the Consent Decree is its term. The five-year 
period proposed is simply inadequate. The video dialtone facilities 
proposed by LECs--the principal potential competition to cable--will 
not reach a payback point for least seven years.\10\ During this 
period, as nascent competition to cable more fully develops, LECs' 
video dialtone networks may be particularly vulnerable to anti-
competitive conduct by TCI/Liberty. Indeed, as actual competition 
develops toward the end of this period, TCI/Liberty will have even 
greater incentives to engage in anti-competitive conduct to stem the 
loss of market share. In order to cure this deficiency, the term of the 
Consent Decree must be not less than seven years.
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    \10\For example, Bell Atlantic has projected a seven year 
payback period. Ameritech has projected seven to nine years. Pacific 
Bell has projected nine years. US West has projected seven to eight 
years.
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    A transition period is also necessary as the Consent Decree period 
comes to an end. In particular, at that point, it would be in TCI/
Liberty's interest to withdraw appealing programming from competitive 
systems and packages. To prevent this from happening, the Consent 
Decree must be modified to prohibit TCI/Liberty from withdrawing any 
programming from a particular market unless the market in question is 
found to be subject to ``effective competition,'' as defined by Section 
623(l)(1) of the Act. Of course, TCI/Liberty might have legitimate 
reasons for the withdrawal of some programming. Therefore, this 
prohibition would not apply to the extent that TCI/Liberty also 
withdrew the same programming from all systems in which it has an 
interest. Once withdrawn, this programming could not be made 
subsequently available to any TCI/Liberty system unless made generally 
available to all MSTDs under similar terms and conditions.
    In addition to these serious deficiencies, the Consent Decreee 
allows TCI/Liberty broad latitude for de facto discrimination. For 
example, TCI/Liberty could construct a price per volume table so that 
most local packagers could not afford appealing programming. TCI/
Liberty could also set the volume price for programming high, charge 
this high price to its own systems and utilize the greater profit to 
reward those systems meeting market retention and growth incentive 
objectives. In essence, TCI/Liberty could provide its own systems with 
both incentives and a discount. Careful scrutiny on a going-forward 
basis is therefore required if TCI/Liberty is to be restrained from 
crushing developing competition.
    Without rectification of these inadequacies, the court will not be 
able to affirmatively find ``the propriety and equity of the decree 
proposed.'' Since the Consent Decree, as presently proposed, does not 
serve the public interest, it must be modified or rejected by the 
Court.

IV. Conclusion

    For the reasons stated hereinabove, GTE beleives that the 
Department must withdraw its stipulation to the Consent Decree unless 
(1) the term of the existing provisions of the Consent Decree be 
increased to at least seven years, and (2) upon expiration of this 
seven year period, TCI/Liberty is further restrained from withdrawing 
any programming from distribution unless such programming is similarly 
withdrawn from all markets, specifically including all systems in which 
TCI or Liberty has an interest, or the specific market from which it is 
withdrawn has been found to be subject to ``effective competition'' 
within the meaning of Section 621(l)(1) of the Act.

    Respectfully submitted,
Gail L. Polivy,
D.C. Bar No. 941963, An Attorney for GTE Corporation, 1850 M Street, 
N.W., Suite 1200, Washington, D.C. 20036, (202) 453-5214.

Of Counsel:
    C. Daniel Ward, An Attorney for GTE Corporation, One Stamford 
Forum, Stamford, CT 06904, (203) 965-3071.

    John F. Raposa, an Attorney for GTE Service Corporation, P.O. 
Box 152092, Irving TX 75015-2092, (214) 718-6969.

    Dated: July 1994.
[FR Doc. 94-19050 File 8-3-94; 8:45 am]
BILLING CODE 4410-01-M