[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