[Federal Register Volume 82, Number 70 (Thursday, April 13, 2017)]
[Notices]
[Pages 17859-17879]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-07463]
=======================================================================
-----------------------------------------------------------------------
DEPARTMENT OF JUSTICE
Antitrust Division
United States v. DIRECTV Group Holdings, LLC, and AT&T, Inc.,
Proposed Final Judgment and Competitive Impact Statement
Notice is hereby given pursuant to the Antitrust Procedures and
Penalties Act, 15 U.S.C. Sec. 16(b)-(h), that a proposed
[[Page 17860]]
Final Judgment, Stipulation and Order, and Competitive Impact Statement
have been filed with the United States District Court for the Central
District of California (Western Division) in United States of America
v. DIRECTV Group Holdings, LLC, and AT&T, Inc., Civil Action No. 2:16-
cv-08150-MWF-E. On November 2, 2016, the United States filed a
Complaint alleging that DIRECTV unlawfully shared confidential,
forward-looking information with competitors during the companies'
negotiations to carry the SportsNet LA ``Dodgers Channel,'' in
violation of Section 1 of the Sherman Act, 15 U.S.C. Sec. 1. The
proposed Final Judgment, filed on March 23, 2017, requires the
Defendants to stop illegally sharing competitively-sensitive
information with their rivals, to monitor certain communications their
programming executives have with their rivals, and to implement
antitrust training and compliance programs.
Copies of the Complaint, proposed Final Judgment, and Competitive
Impact Statement are available for inspection on the Antitrust
Division's website at http://www.justice.gov/atr and at the Office of
the Clerk of the United States District Court for the Central District
of California (Western Division). Copies of these materials may be
obtained from the Antitrust Division upon request and payment of the
copying fee set by Department of Justice regulations.
Public comment is invited within 60 days of the date of this
notice. Such comments, including the name of the submitter, and
responses thereto, will be posted on the Antitrust Division's website,
filed with the Court, and, under certain circumstances, published in
the Federal Register. Comments should be directed to Scott A. Scheele,
Chief, Telecommunications and Media Section, Antitrust Division,
Department of Justice, 450 Fifth Street NW., Suite 7000, Washington, DC
20530 (telephone: 202-514-5621).
Patricia A. Brink,
Director of Civil Enforcement.
JONATHAN SALLET (DC Bar No. 336198)
JUAN A. ARTEAGA (NY Bar No. 4125464)
PATRICIA BRINK (CA Bar No. 144499)
SCOTT SCHEELE (DC Bar No. 429061)
LAWRENCE FRANKEL (DC Bar No. 441532)
JARED HUGHES (VA Bar No. 65571)
CORY BRADER (NY Bar No. 5118732)
PATRICIA CORCORAN (DC Bar No. 461905)
MATTHEW JONES (DC Bar No. 1006602)
JONATHAN JUSTL (NY Bar No. 4928222)
DAVID LAWRENCE (CT Bar No. 430642)
ANNA SALLSTROM (CA Bar No. 300281)
U.S. DEPARTMENT OF JUSTICE
ANTITRUST DIVISION
450 5th Street NW., Washington, DC 20001, Telephone: 202-514-5621,
Facsimile: 202-514-6381, E-mail: [email protected]
Additional Counsel Listed on Signature Page
Counsel for Plaintiff,
UNITED STATES OF AMERICA
UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA
UNITED STATES OF AMERICA, Plaintiff, v. DIRECTV GROUP HOLDINGS, LLC
and AT&T, Inc. Defendants.
Case No. 2:16-cv-08150
COMPLAINT
Hon. Michael W. Fitzgerald
The United States of America, by its attorneys acting under the
direction of the Attorney General of the United States, brings this
civil antitrust action against Defendants DIRECTV Group Holdings, LLC
(``DIRECTV'') and AT&T, Inc. (``AT&T'') to obtain equitable relief to
prevent and remedy violations of Section 1 of the Sherman Act, 15
U.S.C. Sec. 1.
I. NATURE OF THE ACTION
1. For almost 60 years, the Los Angeles Dodgers have been a beloved
professional sports team in Los Angeles (``LA''). During this time, LA
Dodgers fans have seen their team win five World Series championships,
closely followed the Hall of Fame careers of baseball greats such as
Sandy Koufax and Tommy Lasorda, and listened to the play-by-play calls
of broadcast legend Vin Scully. But a significant number of Dodgers
fans have had no opportunity in recent years to watch their team play
on television because overlapping and competitive pay television
providers did not telecast Dodgers games. Those consumers were deprived
of a fair competitive process when DIRECTV unlawfully exchanged
strategic information with three competitors during their parallel
negotiations concerning carrying Dodgers games.
2. This Complaint focuses on DIRECTV, the ringleader of information
sharing agreements with three different rivals that corrupted the
Dodgers Channel carriage negotiations and the competitive process that
the Sherman Act protects. DIRECTV was the one company that unlawfully
exchanged information with multiple rivals, and without it competition
would not have been harmed and none of the violations would have
occurred. Accordingly, the United States seeks declaratory and
injunctive relief against DIRECTV and its corporate successor AT&T.
3. In early 2013, SportsNet LA (the ``Dodgers Channel''), a
partnership between the LA Dodgers and Time Warner Cable (``TWC''),
acquired the exclusive rights to telecast almost all live Dodgers games
in the LA area. Beginning in January 2014, TWC offered various
multichannel video programming distributors (``MVPDs''),\1\ including
satellite pay television provider DIRECTV, the opportunity to purchase
a license to telecast the Dodgers Channel to their customers in the LA
area. Distributing live local sports, like the Dodgers Channel, is a
significant characteristic of competition between MVPDs, because MVPDs
directly compete for subscribers who want to watch that content.
---------------------------------------------------------------------------
\1\ MVPD is an industry acronym standing for multichannel video
programming distributor, and it applies to a variety of providers of
pay television services, including satellite companies (such as
DIRECTV), cable companies (such as Cox and Charter), and telephone
companies (such as AT&T).
---------------------------------------------------------------------------
4. During negotiations with TWC and as he prepared for those
negotiations, DIRECTV's Chief Content Officer, Daniel York, exchanged
information with his counterparts at Cox, Charter, and AT&T about their
carriage plans for the Dodgers Channel. These unlawful exchanges were
intended to reduce each rival's fear that competitors would carry the
Dodgers Channel, thereby providing DIRECTV and its competitors
artificially enhanced bargaining leverage to force TWC to accept their
terms. Through each of these information sharing arrangements, Mr. York
disclosed non-public information about the status of DIRECTV's
negotiations with TWC and DIRECTV's future carriage plans and, in
return, learned similar non-public information from each of these
competitors.
5. The sharing of this competitively sensitive information among
direct competitors made it less likely that any of these companies
would reach a deal because they no longer had to fear that a decision
to refrain from carriage would result in subscribers switching to a
competitor that offered the channel. As each company's contemporaneous
business documents show, the elimination of this risk was valuable
because each company identified a competitor's decision to telecast the
Dodgers Channel as a significant
[[Page 17861]]
development that could force it to reach a deal with TWC.
6. These competitor information exchanges took place against the
backdrop of limited competition among pay television providers. Most
residential consumers in the LA area had a choice of only three or four
pay television providers: the incumbent cable company (like Charter,
Cox, or TWC); the two national satellite pay television providers (like
DIRECTV) and sometimes a telephone incumbent (like AT&T).
7. Among the small group of competitors, DIRECTV stood apart.
Unlike its cable company rivals such as Cox and Charter, which have
concentrated geographic footprints within the LA area, DIRECTV directly
competes for subscribers with every MVPD in the LA area. Consequently,
DIRECTV--which has sought to distinguish itself from other MVPDs by
offering subscribers the broadest range of live sports content--was
more susceptible than other MVPDs to pressure to reach a deal with TWC.
In addition, DIRECTV had the most subscribers that could watch the
Dodgers Channel on TWC.
8. Conversely, as the largest direct competitor of every MVPD in
the LA area, a DIRECTV plan to carry the Dodgers Channel would have
increased the pressure on other MVPDs to do the same in order to avoid
the risk of losing subscribers to DIRECTV. As one senior DIRECTV
executive noted, with its competitors ``sit[ting] on the sidelines,''
the company was the ``first domino in the sequencing of deals.'' This
potential domino effect made DIRECTV a central player in the Dodgers
Channel negotiations. Indeed, Cox, Charter, and AT&T all viewed DIRECTV
as the competitor whose decision to carry the Dodgers Channel could
force them to reach a deal with TWC, even if doing so meant paying a
price above the one targeted in their internal financial analyses.
9. DIRECTV executives expressly acknowledged that they would be in
a stronger bargaining position if DIRECTV's competitors stayed on the
sidelines and did not launch the Dodgers Channel. For instance,
DIRECTV's CEO Mike White told Mr. York that he believed the
distributors ``may have more leverage if we all stick together'' and
Mr. York ``[a]greed'' that ``others holding firm is key.'' A DIRECTV
content executive believed that TWC would ``become more creative to
improve [DIRECTV's] deal'' as the rest of the industry was ``waiting
for us to launch.'' In May of 2014, while the negotiating process was
ostensibly proceeding, Mr. White spoke publicly--and proudly--about
what DIRECTV had achieved, telling the audience for a large
telecommunications and media industry conference that it was important
that ``the distributors start to stand together, like most of us have
been doing in Los Angeles for the first time ever, by the way, with the
Dodgers on outrageous increases and excesses.''
10. Mr. York--the DIRECTV executive who orchestrated these
bilateral information sharing agreements--regularly communicated with
his counterparts at Cox, Charter, and AT&T during their Dodgers Channel
negotiations with TWC. Many of these communications occurred at
important points in the negotiations with TWC, such as within days of
each company receiving TWC's initial offer and when Mr. York and his
counterparts were preparing to make recommendations to their CEOs.
11. During some of these communications, Mr. York assured his
counterparts at Cox, Charter, and AT&T that DIRECTV would not be
launching the Dodgers Channel any time soon and received similar
assurances.
12. For example, when informed by Cox's senior content executive
that TWC had indicated that it was close to reaching a deal with
another MVPD, Mr. York told this executive that DIRECTV was not the
MVPD that was supposedly close to signing a deal with TWC--which was
important because DIRECTV was the largest competitor to Cox in Cox's LA
service area.
13. Mr. York and his counterpart at AT&T exchanged texts and voice
messages that improperly discussed non-public information about their
content negotiations and future plans, including the Dodgers Channel.
For example:
In March 2014, AT&T's most senior content executive, who
was in frequent contact with Mr. York, left Mr. York a voicemail: ``I
had three things to catch up with you on, ah, two sports and one
news.'' A few days later, they spoke on the phone for twelve minutes.
That same AT&T executive recommended not launching the Dodgers Channel
to AT&T's CEO the following day.
Later that month, TWC told AT&T it was unlikely to lower
its initial offer for Dodgers Channel carriage rights. That same AT&T
executive--who has referred to content offers as ``pitches''--again
texted Mr. York: ``Forgot to tell you but we got a [##] mph pitch
yesterday,'' \2\ and ``Consistent with what you got?'' Mr. York
responded, ``Hope u hit it out!''
---------------------------------------------------------------------------
\2\ The actual price figures have not been included throughout
the Complaint to protect competitively sensitive information. The
speed of the quoted pitch in this text matched the cents in TWC's
offer to AT&T.
---------------------------------------------------------------------------
14. Mr. York and his counterpart at Charter also communicated at
key points in the Dodgers Channel negotiations. During those
communications they shared non-public strategic information about their
Dodgers Channel negotiations and future plans for the channel. For
example, Charter's most senior content executive recommended a Dodgers
Channel strategy to his CEO for the first time the day after a phone
call with Mr. York. The executive told the CEO he thought Charter
should ``sit[] [the Dodgers Channel] out until at least if and when
Direct does a deal.'' He testified that he based his recommendation on
a ``gut feeling'' rather than a formal financial analysis. When a
subordinate pushed back against his choice of strategy, the executive
declined to change course, explaining ``I think Direct will not be
there at launch.'' The Charter executive also texted Mr. York to ask to
speak with him the day that he and Charter's CEO met to set Charter's
2014 content budget, including for the Dodgers Channel. Later in the
negotiations, Mr. York and the Charter executive spoke in person about
``the high price that TWC paid for the rights to SportsNet LA and was
demanding for carriage.'' The Charter executive testified that they
discussed that the price TWC offered their respective companies for
carriage was ``outrageous.''
15. Based on these private communications and a series of public
communications, Mr. York and his counterparts at Cox, Charter, and AT&T
knew they were unlikely to lose subscribers to each other while they
waited to carry the Dodgers Channel. For example, when Mr. York's
counterpart at Charter recommended that Charter delay launching the
Dodgers Channel because ``I think Direct will not be there at launch,''
he explained that as a result there would be ``nowhere to get the games
in [Charter's] markets.'' Similarly, Mr. York assured DIRECTV's CEO,
Mr. White, that DIRECTV's competitors appeared ``in no rush to do a
deal'' for the Dodgers Channel, which was a ``strategic consideration''
against DIRECTV launching the channel itself.
16. The information that was exchanged as part of this scheme had
an anticompetitive effect on DIRECTV's and its competitors' decision-
making about whether to carry the Dodgers Channel. DIRECTV's unlawful
[[Page 17862]]
information exchanges harmed competition by corrupting the competitive
process that should have resulted in each company making an independent
decision on whether to carry the Dodgers Channel, subject to
competitive pressures arising from independent decisions made by other,
overlapping MVPDs. Instead, key competing executives knew that they
were safer than they should have been under a competitive process;
safer because they had reason to believe that they would not lose
subscribers to other MVPDs if they opted not to telecast Dodgers games.
The information they shared was a material factor in their companies'
Dodgers Channel decisions, with the effect of making each company less
likely to reach a deal. The ultimate result: Many consumers in LA had
fewer--or no--means by which to watch the Dodgers Channel. DIRECTV's
unlawful information exchanges harmed consumers by making it less
likely that they would be able to watch Dodgers games on television
and, in the TWC territory, on the MVPD of their choice.
17. DIRECTV and each of Cox, Charter, and AT&T, respectively,
agreed to share forward-looking strategic information about the Dodgers
Channel, and did share that information. Their information exchanges
demonstrate their agreements and reflect concerted action between
horizontal competitors.
18. DIRECTV's unlawful information exchanges with Cox, Charter, and
AT&T concerning carriage of the Dodgers Channel lack any countervailing
procompetitive benefits and should therefore be condemned as unlawful.
19. The United States, through this action, asks this Court to
declare Defendants' conduct unlawful and to enjoin Defendants from
sharing strategic competitive information with other MVPDs and their
executives in order to prevent further harm to competition and
consumers.
II. DEFENDANTS
20. Defendant DIRECTV is a Delaware corporation with headquarters
located in El Segundo, California, offering direct broadcast satellite
service nationwide. As of 2014, DIRECTV had approximately 1.25 million
video subscribers in the LA area. In 2015, Defendant AT&T acquired
DIRECTV in a transaction valued at approximately $49 billion.
21. Defendant AT&T is a Delaware corporation with headquarters
located in Dallas, Texas. AT&T is a multinational telecommunications
company offering mobile telephone service, wireline Internet and
television service, and satellite television service through its 2015
acquisition of DIRECTV. AT&T offers wireline television service through
its U-verse video product, which distributes video content using AT&T's
telecommunications infrastructure. Following its acquisition of
DIRECTV, AT&T is now the largest pay television provider in the United
States with more than 25 million video subscribers nationwide. As of
2014, AT&T had approximately 400,000 video subscribers in the LA area.
III. JURISDICTION, VENUE, AND INTERSTATE COMMERCE
22. The United States brings this action pursuant to Section 4 of
the Sherman Act, 15 U.S.C. Sec. 4, to obtain equitable and other
relief to prevent and restrain Defendants' violations of Section 1 of
the Sherman Act, 15 U.S.C. Sec. 1.
23. This Court has subject matter jurisdiction over this action
under Section 4 of the Sherman Act, 15 U.S.C. Sec. 4, and 28 U.S.C.
Sec. Sec. 1331, 1337(a), and 1345.
24. This Court has personal jurisdiction over each Defendant and
venue is proper in the Central District of California under 28 U.S.C.
Sec. 1391 and Section 22 of the Clayton Act, 15 U.S.C. Sec. 22. Each
Defendant transacts business in this District. Each Defendant provides
pay television services to customers in this District and has
substantial contacts in this District. DIRECTV committed acts in
furtherance of unlawful concerted action in this District.
25. Both DIRECTV and AT&T are engaged in, and their activities
substantially affect, interstate trade and commerce. Each Defendant
sells video distribution services throughout the United States to
millions of consumers. These sales substantially affect interstate
commerce. In 2014, U.S. consumers spent a total of about $26 billion on
DIRECTV's video distribution services, and a total of about $6.8
billion on AT&T's video distribution services. Each Defendant also
purchases television content from numerous content providers in the
flow of interstate commerce. In addition, each Defendant's decision not
to carry the Dodgers Channel substantially affected interstate
commerce. DIRECTV and AT&T could have acquired the right to offer the
channel to thousands of subscribers outside of California, including
subscribers in parts of Nevada and Hawaii. Moreover, each Defendant's
decision not to carry the Dodgers Channel affected the sale of
advertisements on that channel to companies based outside of California
that would run during Dodgers games.
26. AT&T is DIRECTV's successor in interest, including for purposes
of this action. When AT&T acquired DIRECTV, it acquired all of
DIRECTV's stock (by merging DIRECTV into a subsidiary company wholly
owned by AT&T), and thereby acquired all of DIRECTV's assets. AT&T
proceeded to fully integrate DIRECTV's operations into its own, with
the result that DIRECTV's operations have been continued within AT&T.
Additionally, the merger agreement did not expressly limit AT&T's
liabilities. These circumstances indicate AT&T's intent to assume
DIRECTV's liability for these Sherman Act violations.
27. The Chief Content Officer of AT&T negotiates and supervises the
negotiation of content agreements for DIRECTV, as well as for AT&T's
other video platforms. These contracts may be negotiated across all
AT&T's video platforms; in fact, when AT&T acquired DIRECTV, it noted
that the combined companies' scale would give them greater leverage
with content providers. The presence of AT&T is therefore necessary in
order to effectuate the requested relief.
IV. DIRECTV UNLAWFULLY EXCHANGED INFORMATION WITH COX, CHARTER, AND
AT&T WHEN NEGOTIATING CARRIAGE OF THE DODGERS CHANNEL
A. MVPDs Are Motivated to Seek Bargaining Leverage When Negotiating
With Video Programmers
28. MVPDs spend billions of dollars on sports content each year.
Over the years, MVPDs have complained about the rising cost of such
content. The desire to depress the cost of sports content--often a key
component of competition between MVPDs--provides MVPDs a strong
incentive to obtain bargaining leverage. MVPDs may seek to unlawfully
obtain bargaining leverage by engaging in collusive action designed to
force sports content providers--such as TWC in this case--to accept
different terms than they otherwise would in a negotiating process
where MVPDs make carriage decisions independent of each other. Such
collusive activity harms competition by corrupting the competitive
process and ultimately harms consumers by causing likely reductions in
quality and output, as happened with respect to the blackout of the
Dodgers Channel, which has now covered three baseball seasons.
[[Page 17863]]
B. TWC Successfully Employed a Divide and Conquer Strategy When
Negotiating Carriage of the Lakers Channel
29. In 2011, TWC acquired the rights to locally telecast and
distribute LA Lakers basketball games in the LA area.\3\ As it would
later do with the Dodgers Channel, TWC launched a new regional sports
network (``RSN'') to serve as the exclusive channel telecasting these
games (the ``Lakers Channel'').
---------------------------------------------------------------------------
\3\ The Lakers ownership sold TWC the rights to telecast certain
Lakers games to the local LA television market. This type of local,
team-based rights deal, exemplified in TWC's acquisition of the
rights to both the Lakers and the Dodgers Channels, is distinct from
the broadcasting deals negotiated by the leagues themselves, such as
the NBA or MLB. Those national deals convey the rights to broadcast
a certain number of league games on nationwide networks, such as
ESPN or the Turner channels.
---------------------------------------------------------------------------
30. DIRECTV initially declined to carry the Lakers Channel,
reasoning that TWC's asking price was too high and that it could
negotiate a better rate than its smaller competitors if it held out.
However, TWC sought to increase the competitive pressure on DIRECTV,
realizing that DIRECTV would be more likely to carry the Lakers Channel
if its smaller competitors carried the channel because such a move
would expose DIRECTV to the risk of losing subscribers to these
competitors. Accordingly, TWC approached the smaller MVPDs with a time-
sensitive offer: in exchange for an early agreement to carry the Lakers
Channel, the smaller distributors would receive a size-insensitive most
favored nation clause (``MFN'') in their carriage agreements. This
clause would guarantee the smaller distributors that they would get the
same price for the Lakers Channel as a larger distributor, such as
DIRECTV (although it is common industry practice that larger companies
with more subscribers pay a lower price per subscriber than their
smaller competitors).
31. During the negotiations over carriage of the Lakers Channel,
Mr. York heard a ``rumor'' about TWC's size-insensitive MFN offer. Mr.
York was concerned that if the smaller distributors buckled under the
pressure of the MFN offer and agreed to carry the Lakers Channel before
the larger distributors negotiated a deal, it would ``empower[ ] TWC to
hold firm on their price.'' Mr. York was right.
32. Charter signed a Lakers Channel carriage agreement on October
25, 2012, just before the NBA season started. At that time, Mr. York
told a colleague that he believed Charter agreed to TWC's rates in
order to get the MFN protection.
33. Two days later, on October 27, 2012, AT&T signed a Lakers
Channel carriage deal.
34. The Lakers season tipped off on October 30, 2012.
35. The MVPDs that had already launched the Lakers Channel
aggressively marketed against their competitors that had not reached a
deal with TWC. They sensed an opportunity to win subscribers who wanted
to watch Lakers games live on television but could not due to their
video provider's lack of carriage. For example, Charter ran radio
advertisements targeting AT&T before AT&T's U-verse video service
launched the Lakers Channel. Similarly, after launching the Lakers
Channel, AT&T began using a marketing campaign in its stores targeting
Cox subscribers: ``See both Padres and Lakers on U-verse TV but not
Cox.''
36. TWC succeeded in its strategy. On November 7, 2012, less than
one week after the NBA season started, Cox agreed to carry the Lakers
Channel. Cox had intended to hold out, but AT&T--which offers its U-
verse video service inside the Cox local market--was offering the
Lakers Channel. Cox agreed to pay TWC's full asking price despite
internal analyses estimating the Lakers Channel was worth significantly
less. Indeed, Cox paid nearly 60% higher than its analyses had
initially suggested the Lakers Channel was worth.
37. DIRECTV faced a similar dilemma. Most of its competing video
distributors in the LA area had launched the Lakers Channel, and it was
losing hundreds of customers per week to them. Consequently, on
November 14, 2012, ten days after Cox agreed to carry the Lakers
Channel, DIRECTV agreed to pay TWC's initial asking price, even though
DIRECTV's internal analyses estimated that carriage of the Lakers
Channel was worth significantly less. DIRECTV agreed to pay almost 50%
more than its internal financial analysis suggested.
38. Moreover, TWC was able to point to the size-insensitive MFNs in
the smaller distributor carriage agreements as a reason not to offer
DIRECTV a lower per subscriber fee for the Lakers Channel.
39. Thus, DIRECTV rolled the dice during the Lakers Channel
negotiations but lost because TWC was able to pursue a divide-and-
conquer strategy by offering DIRECTV's smaller competitors financial
incentives to sign a deal early in the negotiating process. Having been
burned by this experience, DIRECTV approached the Dodgers Channel
negotiations determined not to allow TWC to successfully employ such a
strategy again.
C. DIRECTV Was Intent on Ensuring That Its Competitors Stood With It
Against TWC When Negotiating Carriage of the Dodgers Channel
40. A few months after successfully outmaneuvering DIRECTV during
the Lakers Channel negotiations, TWC acquired, in January 2013, the
local telecast rights for Dodgers baseball games beginning in the 2014
season. As it had with the Lakers, TWC launched a new RSN--the Dodgers
Channel--to serve as the exclusive home for Dodgers games. Media
reports at the time suggested that TWC would likely seek monthly
distribution rates close to $5 a month per subscriber for the Dodgers
Channel.
41. In January 2014, TWC began discussing carriage of the Dodgers
Channel with other LA area video distributors. In doing so, TWC sought
a higher per subscriber rate from each distributor for carriage in the
LA area (``Zone 1''), and lower per subscriber rates in other zones,
located in regions further from LA.
42. But, unlike TWC's experience with the Lakers Channel, none of
TWC's competitors agreed to carry the Dodgers Channel that year.
43. Hundreds of thousands of LA area residents--essentially,
everyone living outside of TWC's service area--were unable to watch
most televised Dodgers games during the 2014 baseball season.\4\
---------------------------------------------------------------------------
\4\ Bright House Networks, which is affiliated with TWC but does
not operate in the LA area, carried the Dodgers Channel in its first
season. Charter reached an agreement to carry the Dodgers Channel in
2015, after signing a deal to acquire TWC. Champion Broadband
reached a deal to carry the Dodgers Channel in 2014, but had only
about 3,000 video subscribers in Arcadia and Monrovia, California,
and has since gone out of business.
---------------------------------------------------------------------------
44. To this day, TWC and its affiliates remain the only LA area
video distributors that carry the Dodgers Channel, following a
negotiation process corrupted by DIRECTV's orchestration of unlawful
information sharing agreements with Cox, Charter, and AT&T.
i. DIRECTV, Cox, Charter, and AT&T Acknowledged That Their Competitors'
Carriage Decisions Would Significantly Influence Whether They Decided
to Launch the Dodgers Channel
45. In assessing whether to carry the Dodgers Channel, DIRECTV
conducted financial analyses indicating that DIRECTV's decision not to
carry the Dodgers Channel would cause it to lose tens of millions of
dollars in subscriber revenues in 2014 and each year thereafter. These
financial analyses also indicated that this anticipated loss would be
reduced by approximately
[[Page 17864]]
40% if none of DIRECTV's competitors (other than TWC) carried the
Dodgers Channel. Thus, DIRECTV calculated exactly how much money it
would save if other MVPDs in the LA area did not launch the Dodgers
Channel. Moreover, DIRECTV understood that, in order to reduce the
likelihood that its subscribers would switch providers, it might have
to pay more than its financial analyses suggested it should pay if any
of its competitors decided to carry the Dodgers Channel, which is
precisely what had happened with the Lakers Channel.
46. Similarly, Cox, Charter, and AT&T each concluded that the
decision of a competitor to carry the Dodgers Channel would be a
significant development that could force each of them to reach a deal
with TWC. For example, on September 18, 2013, Charter's head of content
acquisition suggested to Charter's CEO that ``we discuss sitting this
one out until at least if and when Direct does a deal.'' Similarly, an
undated Cox ``Dodgers Discussion'' document states that Cox should
``consider a rate MFN'd deal only in the event DirecTV, Dish or ATT do
a deal, accept any related rate penalty if we are forced to.'' In
addition, a February 26, 2014 Dodgers Channel presentation by AT&T's
President of Content recommended to his direct supervisor that a ``key
decision point[ ]/risk factor[ ]'' would be ``carriage decisions by
DirecTV.''
D. DIRECTV Orchestrated and Implemented Dodgers Channel Carriage
Information Exchanges With Cox, Charter, and AT&T
47. Given that TWC's negotiating strategy had forced DIRECTV to pay
more for the Lakers Channel than it thought the channel was worth,
DIRECTV and its Chief Content Officer, Mr. York, were determined not to
let that happen again. To achieve this objective, Mr. York orchestrated
a series of unlawful bilateral information sharing agreements with
three of DIRECTV's MVPD competitors: Cox, Charter, and AT&T.
48. In numerous phone calls and other private conversations, Mr.
York and his counterparts at DIRECTV's rivals Cox, Charter, and AT&T
discussed non-public information about the status of their negotiations
with TWC and their future plans about whether to carry the Dodgers
Channel. For instance:
Cox's senior content executive, the Senior Vice President
of Content Acquisition, testified under oath that he and Mr. York
discussed their companies' Dodgers Channel carriage plans on multiple
occasions. During one of these conversations, the Cox executive
inquired about the status of DIRECTV's negotiations with TWC because
TWC had indicated to him that it was close to reaching a deal with a
video distributor. Mr. York responded that DIRECTV was not close to
signing a deal and the two executives agreed to give one another a
``heads-up'' before launching the Dodgers Channel.
Mr. York also offered to give this Cox executive an
opportunity to sign a Dodgers Channel deal with TWC first before
DIRECTV and thus protect any MFN terms.
Charter's senior content executive, the Senior Vice
President of Programming, testified under oath that he and Mr. York
discussed that the price TWC offered their respective companies for the
right to carry the Dodgers Channel was ``outrageous.''
In a two-hour span the day after DIRECTV received TWC's
initial Dodgers Channel offer, Mr. York spoke or attempted to speak
with his counterparts at Cox, Charter, and AT&T. Mr. York later
recommended against launching the channel because ``other MVPDs appear
in no rush to do a deal.'' At that point in time, no distributor had
made public statements about its Dodgers Channel carriage negotiations
or plans.
AT&T's senior content executive, the President of Content
and Advertising Sales, called Mr. York on the day that he presented his
recommendation against AT&T carrying the Dodgers Channel to his direct
supervisor. Over the course of the next few weeks, this AT&T senior
executive attempted to speak with Mr. York on multiple occasions and
did speak to him the day before he presented his recommendation to
AT&T's CEO.
49. Despite reservations about the carriage price TWC would request
for the Dodgers Channel, DIRECTV's content team indicated in October
2013 that the company should ``Plan to Launch'' the Dodgers Channel and
directed DIRECTV's technical staff to allocate sufficient satellite
capacity to accommodate the network.
50. On January 21, 2014, TWC presented its first formal Dodgers
Channel carriage offer to a group of DIRECTV content executives,
including Mr. York.
51. The next day, Mr. York spoke with his Cox counterpart for
twenty minutes and his Charter counterpart on a call or voicemail
lasting about thirty seconds. Later that day, Mr. York and his AT&T
counterpart spoke for twelve minutes. Mr. York spoke with his Charter
counterpart for twenty minutes on January 29, 2014.
52. Around this time period, a senior DIRECTV content executive
emailed Mr. York to discuss the disagreement between DIRECTV's
marketing and content groups about whether to carry the Dodgers
Channel. He asked for Mr. York's ``thoughts about having a meeting''
with the marketing team before the groups met with DIRECTV's CEO, Mr.
White, on February 4, 2014 about carrying the Dodgers Channel, because
the content team ``think[s] don't do a deal,'' while the marketing team
``want[s] to do a deal.'' The DIRECTV marketing team had calculated
that TWC's asking price was higher than financial analysis suggested it
was worth--but nonetheless recognized that other factors not captured
in that calculation made the Dodgers Channel worth carrying.
53. In preparing for the meeting with DIRECTV's CEO, the marketing
team put together a draft presentation deck that emphasized the
Dodgers' iconic reputation and the fact that carrying the Dodgers
Channel was important to DIRECTV's marketing strategy of being a leader
in sports content. For example, the deck listed as reasons for doing a
deal that ``LA is our largest subscriber market'' and that ``not
offering a marquee franchise will significantly diminish our sports
leadership claim.'' Mr. York edited this deck before it was presented
to DIRECTV's CEO. Notably, on a slide listing strategic considerations
for and against carrying the Dodgers Channel, Mr. York, having spoken
with his counterparts at Cox, Charter, and AT&T added that one reason
DIRECTV should not carry the channel at TWC's asking price was that
``[o]ther MVPDs appear in no rush to do a deal.''
[[Page 17865]]
[GRAPHIC] [TIFF OMITTED] TN13AP17.000
54. At the time that Mr. York made this edit, no other distributor
had made public statements about its Dodgers Channel carriage
negotiations or plans.
55. On February 4, 2014, Mr. York, along with members of his
content team and DIRECTV's marketing team, met with Mr. White to
discuss their strategy for responding to TWC's offer. At this meeting,
Mr. York and his colleagues recommended against carrying the Dodgers
Channel at TWC's asking price. To support this recommendation, Mr. York
used the presentation deck mentioned above, which incorporated his edit
indicating that ``[n]o other MVPD appears to be in a rush to do the
Dodgers deal'' in the final text.
[GRAPHIC] [TIFF OMITTED] TN13AP17.001
56. Based on the information he was provided, Mr. White ``planned
to carry the channel'' and ``budgeted to carry the channel,'' but hoped
to negotiate TWC down from its initial asking price. Following the
February 4, 2014 meeting with Mr. White, DIRECTV informed TWC that its
initial asking price was too high.
57. About one month later, Mr. White sent an email to Mr. York
declaring that the MVPDs ``may have more leverage if we all stick
together'' on the Dodgers Channel. Mr. York ``[a]greed'' that ``others
holding firm is key.'' This email exchange occurred right before the
start of the 2014 baseball season and during the heart of TWC's Dodgers
Channel negotiations.
58. Two months later, Mr. White made a similar pronouncement during
an industry conference, stating that MVPDs should ``start to stand
together, like most of us have been doing in Los Angeles for the first
time ever, by the way, with the Dodgers on outrageous increases and
excesses.'' At the time that Mr. White made this public statement, Mr.
York had already been having discussions with his counterparts at Cox,
Charter, and AT&T and, unsurprisingly, none of them had reached a deal
with TWC to carry the Dodgers Channel.
59. During DIRECTV's negotiations with TWC, at least one person
informed DIRECTV that Mr. York had exchanged strategic information with
competitors in order to facilitate a Dodgers Channel blackout in the LA
area. In April 2014, an anonymous complaint filed on the DIRECTV ethics
portal claimed that Mr. York had been ``[s]peaking with other
satellite, cable, and telco companies about NOT carrying the Dodgers on
DIRECTV.'' Similar internal ethics complaints about Mr. York's
exchanges of information with competitors were filed in May and
September 2014.
60. Publicly messaging its opposition to TWC's initial offer for
Dodgers Channel carriage also helped DIRECTV to further its information
sharing scheme. A DIRECTV executive told Mr. York and others that
DIRECTV's competitors were emboldened to ``sit on the sidelines''
because they had not ``seen any `not if, but when' rhetoric from DTV''
regarding carriage of the Dodgers Channel, and encouraged DIRECTV
employees to ``message internally and externally alike that we are NOT
doing the Dodgers deal.'' A DIRECTV executive testified that if DIRECTV
had ``started messaging that we are going to do a deal, that probably
would have spurred on others to do the deal'' and that such a scenario
``wouldn't benefit [DIRECTV] in any way.'' This testimony further
reflects the fact that DIRECTV understood that its expected carriage
plans would have a domino effect on competitors in the Dodgers Channel
negotiations with TWC.
61. Accordingly, DIRECTV employees regularly touted their
opposition to carrying the Dodgers Channel in the press. For instance,
in March 2014, Mr. York was quoted in the press stating that it was
``highly unlikely that anybody of any real merit will be carrying that
network soon.'' The same article also reported that Mr. York
``predict[ed]'' that the Dodgers carriage ``logjam will not break
before the first week of the new season is over and perhaps not for a
long time after that.'' In April 2014, Mr. York was quoted as stating
that DIRECTV had an obligation to ``not say[ ] yes to everything that's
proposed'' to it when he was asked about carriage of the Dodgers
Channel.
62. At the beginning of the 2014 baseball season, on March 29,
2014, TWC offered DIRECTV incentives and
[[Page 17866]]
other terms of value that significantly improved its offer. DIRECTV did
not accept the offer, but rather, on April 16, 2014, responded by
counter-proposing a lower rate structure and several free months.
63. After no MVPD agreed to carry the Dodgers Channel, TWC offered
in August 2014 to allow immediate carriage of the Dodgers Channel by
any video distributor that agreed to binding arbitration. Specifically,
TWC proposed that both it and any interested distributor submit their
best-and-final offer to a mutually agreed-upon arbitrator, who would
then decide which proposal reflected the most fair carriage terms. This
offer had no price floor, but no video distributor agreed to
arbitration, even though arbitration would have allowed each MVPD to
present its valuation analysis to a neutral party who could order TWC
to accept that valuation without regard to TWC's previous bargaining
position.
64. DIRECTV still does not carry the Dodgers Channel even though it
has otherwise sought to distinguish itself from competitors by offering
consumers the broadest range of sports content.
ii. DIRECTV and Cox Shared Non-Public Competitively Sensitive
Information About Their Future Dodgers Channel Carriage Plans
65. Mr. York and his counterpart at Cox, the Senior Vice President
of Programming, agreed to share forward-looking strategic information
about the Dodgers Channel, and did share that information. Their
exchanges of information demonstrate their agreement and reflect
concerted action between horizontal competitors.
66. On October 2, 2013, Cox's then-incoming Senior Vice President
of Programming and his colleagues met to discuss their carriage plans
for the Dodgers Channel. They concluded that Cox should decline
carrying the network unless one of the video distributors that
overlapped with Cox's service area, such as DIRECTV or AT&T, reached a
deal with TWC, at which point Cox would need to reassess its position.
67. Eight days later, on October 10, 2013, Cox's incoming Senior
Vice President of Programming met Mr. York for breakfast in New York
City. That executive has admitted that he and Mr. York discussed the
``rising sports costs'' their competing companies faced, including the
Dodgers Channel.
68. On January 21, 2014, TWC presented its initial formal Dodgers
Channel carriage offer to DIRECTV. The next day, Mr. York called his
Cox counterpart and they spoke for twenty minutes. That same day, Mr.
York also spoke or attempted to speak with his counterparts at Charter
and AT&T.
69. On January 27, 2014, TWC presented its formal Dodgers Channel
carriage offer to Cox. TWC asked for the same rate structure as it had
sought from DIRECTV and other video distributors.
70. On February 4, 2014, Cox decided that it was interested in
pursuing an a la carte carriage deal under which Cox would only pay a
rate based on subscribers that watched the Dodgers Channel instead of a
rate based on all its subscribers. That same day, Mr. York gave
DIRECTV's CEO a presentation reflecting Mr. York's knowledge that
DIRECTV's competitors ``appear[ed] in no rush to do a deal.''
71. During the first quarter of 2014, Cox increased its monthly
fees for all subscribers in the LA area. Cox increased its prices in
part to recoup the anticipated cost of carrying the Dodgers Channel,
which it never launched.
72. Mr. York spoke with his Cox counterpart, the Senior Vice
President of Programming, on at least ten separate occasions between
March and July 2014 as the baseball season began and the companies'
Dodgers Channel carriage negotiations continued. At least seven of
their phone conversations were more than ten minutes long.
73. Cox's Senior Vice President of Programming has admitted under
oath that he and Mr. York shared strategic information about their
companies' non-public, future Dodgers Channel carriage plans on at
least two calls.
74. During one call, which took place between March and June of
2014, Cox's Senior Vice President of Programming reached out to Mr.
York after TWC told him that ``an agreement between another distributor
and SportsNet LA was imminent.'' The Cox executive called Mr. York to
ask ``if DIRECTV was the other distributor.'' Mr. York told the Cox
executive that DIRECTV was not close to launching. During this
conversation, they expressly agreed to ``give each other a heads-up if
their respective MVPDs were going to launch'' the Dodgers Channel
``before it was public knowledge.''
75. In another call during the same time period, Mr. York called
his Cox counterpart and said that ``before DIRECTV were to sign a deal
[to carry the Dodgers Channel], Mr. York would let [him] know, in case
[he] wanted to sign a deal and protect any MFN terms, so [Cox] could
choose to sign first.'' Mr. York's offer to forgo a first-mover
advantage was contrary to DIRECTV's own economic interest as his plan
could risk the terms DIRECTV would have negotiated with TWC and could
also reduce the costs of one of DIRECTV's competitors.
76. Cox did not carry the Dodgers Channel in 2014 and has still not
reached an agreement to carry the channel. Consumers located in the Cox
service territory in the LA area did not have regular access to most
televised Dodgers games during the 2014, 2015, and 2016 baseball
seasons.
iii. DIRECTV and Charter Shared Non-Public Competitively Sensitive
Information About Their Future Dodgers Channel Carriage Plans
77. Mr. York and his counterpart at Charter, the Senior Vice
President of Programming (the most senior content executive at
Charter), agreed to share forward-looking strategic information about
the Dodgers Channel, and did share that information. Their exchanges of
information demonstrate their agreement and reflect concerted action
between horizontal competitors.
78. Charter conducted no formal analysis to assess the value of
offering the Dodgers Channel. Instead, Charter's Senior Vice President
of Programming recommended a strategy--that Charter hold out until
DIRECTV carried the Dodgers Channel and then reevaluate. Charter's
senior content executive testified that his recommendation on this
important carriage decision was based on a ``gut feeling early on in
the process'' that Charter should not be the first MVPD to launch the
Dodgers Channel, which ``sort of solidified, came together by the end
of summer, fall of 2013.'' Mr. York and his counterpart at Charter
spoke on the phone at least twice during that time period.
79. Mr. York and his Charter counterpart had a history of sharing
information with one another about strategic negotiations and plans
while negotiations were ongoing. In January 2014 (as discussions about
the Dodgers Channel began to heat up), DIRECTV's carriage negotiations
with The Weather Channel failed and the channel went into a blackout on
DIRECTV. During the blackout, The Weather Channel sought to run
advertisements attacking DIRECTV over Charter's service. Charter's
Senior Vice President of Programming left a voicemail for Mr. York. In
the voicemail, this Charter senior executive assured Mr. York that he
would stop The Weather Channel from running such an ad over Charter's
service, calling the favor ``my little bit for the planet earth.''
80. Similarly, in September 2014, Charter's Senior Vice President
of Programming left Mr. York several voicemails concerning Charter's
negotiations with the co-owner of Hulu
[[Page 17867]]
about Hulu's online subscription video service, letting him know that
Charter was not inclined to allow its video subscribers to access
Hulu's service using their Charter accounts, and asking if DIRECTV
planned to reach a deal concerning Hulu. Charter's Senior Vice
President of Programming left Mr. York at least one voicemail speaking
in coded language about Charter's ongoing negotiations with Hulu's co-
owner: ``I was going to get doing it if I had to, but then I remembered
a little birdie saying that you were busy with my heavyweight friend
perhaps.''
81. On September 17, 2013, Mr. York and his counterpart at Charter
spoke to one another on the phone. The day after this conversation, Mr.
York's Charter counterpart proposed for the first time to Charter's CEO
that Charter adopt a strategy of waiting for DIRECTV to carry the
Dodgers Channel. Specifically, this senior executive ``[s]uggest[ed] we
discuss sitting this one out until at least if and when Direct does a
deal.''
82. On October 24, 2013, Charter's Senior Vice President of
Programming met with his CEO to set Charter's content budget for 2014,
including estimated costs for carrying the Dodgers Channel. This senior
executive proposed that Charter ``hold tight, see where we are in July
. . . if Direct goes in May/June we can still get that deal. But let it
play out.'' Later that day, this senior executive texted Mr. York:
``Can I call you now? Funny had something for u. Where can I call.''
83. On November 5, 2013, a subordinate of Charter's Senior Vice
President of Programming suggested that Charter take a ``first in
strategy'' with the Dodgers Channel that would ``guarantee[ ] carriage
and put[ ] pressure on others'' while affording Charter ``solid MFN''
protection, such as the MFN protection Charter received from TWC during
the Lakers Channel negotiations. Charter's Senior Vice President of
Programming declined to pursue the same strategy that Charter had used
for the Lakers Channel, explaining that ``I think Direct will not be
there at launch. Maybe AT&T will but if no [satellite] carriage at
launch there is nowhere to get the games in our markets.'' At the time,
DIRECTV had not made any public statements about its Dodgers Channel
carriage plans.
84. On January 21, 2014, TWC made its initial offer to DIRECTV. Mr.
York called his counterpart at Charter the following afternoon (and
spoke with both his Cox counterpart and AT&T counterpart). On January
23, 2014, TWC sent Charter its Dodgers Channel offer. After playing
phone tag for several days, Mr. York and his Charter counterpart had a
twenty-minute call on January 29, 2014.
85. Charter's Senior Vice President of Programming consistently
told TWC that Charter would not consider carrying the Dodgers Channel
unless DIRECTV launched first.
86. Charter's Senior Vice President of Programming admitted that,
on April 30, 2014, about one month after the baseball season began but
while negotiations were still continuing, he and Mr. York discussed
``the high cost of sports programming, including the high price that
TWC paid for the rights to SportsNet LA and was demanding for
carriage.'' He also testified that he and Mr. York discussed that the
price TWC offered their respective companies for carriage was
``outrageous.''
87. Charter did not carry the Dodgers Channel during the 2014
baseball season. Subscribers located in the Charter service territory
in the LA area did not have regular access to most televised Dodgers
games during the 2014 baseball season or at the start of the 2015
season.
88. Charter announced that it would acquire TWC in May 2015. Soon
thereafter, Charter agreed to carry the Dodgers Channel.
iv. DIRECTV and AT&T Shared Non-Public Competitively Sensitive
Information About Their Future Dodgers Channel Carriage Plans
89. Mr. York and his counterpart at AT&T, the most senior content
executive there, agreed to share forward-looking strategic information
about the Dodgers Channel, and did share that information. Their
exchanges of information demonstrate their agreement and reflect
concerted action between horizontal competitors.
90. Mr. York's AT&T counterpart became President of Content and
Advertising Sales (``President of Content'') in June 2013 and Mr. York,
who previously had worked at AT&T, cultivated a close relationship with
this person. Mr. York offered to ``show [him] around [LA] and help meet
the players in this crazy content world.'' Thus, as AT&T's President of
Content testified, Mr. York ``helped [him] get a lay of the land in the
industry'' and introduced him to ``various players in the industry.''
91. AT&T's President of Content understood the importance of
developing relationships with AT&T's direct competitors. In a
handwritten note taken a few weeks after assuming his new position, he
wrote that he ``need[ed] to go meet industry peers,'' including
DIRECTV. Mr. York organized a one-on-one breakfast with his AT&T
counterpart several weeks later at a hotel near AT&T's offices.
92. On January 16, 2014, TWC presented its formal Dodgers Channel
carriage offer to AT&T. TWC asked for the same rate structure as it
later sought from DIRECTV and other video distributors.
93. On January 21, 2014, AT&T's President of Content met with other
members of his content team to discuss TWC's offer. Like Charter's
Senior Vice President of Programming, AT&T's President of Content
indicated that his ``gut'' instinct was to ``sit on sidelines,'' but
noted that the possibility that ``DIRECTV may move'' was a factor that
could cause AT&T to revisit its position.
94. On January 22, 2014, Mr. York and his AT&T counterpart spoke
for twelve minutes. At the time of this call, DIRECTV and AT&T had both
recently received Dodgers Channel offers from TWC.
95. On February 25, 2014, an AT&T Vice President expressed concern
that his earlier public comments to Bloomberg News about the Dodgers
Channel were ``too vanilla'' and stated that AT&T might ``need to take
more of a stand.'' Ten days later, the executive suggested that AT&T
publicly communicate its Dodgers Channel carriage ``position more
aggressively to influence other MVPD's strategy.''
96. On February 26, 2014, AT&T's President of Content and his
content team recommended to his direct supervisor that AT&T decline to
launch the Dodgers Channel at TWC's asking price. They described AT&T's
``initial implementation strategy'' as ``[h]old-out as long as DirecTV
does not carry.'' The day of this presentation, AT&T's President of
Content left a voicemail for Mr. York. He then tried to reach Mr. York
on February 28, 2014, texting ``Just tried you. I am around if you free
up. I will try u tomorrow if not.'' Then, the next day, AT&T's
President of Content left another voicemail for Mr. York, this time
stating ``I had three things to catch up with you on, ah, two sports
and one news.''
97. After leaving this message, AT&T's President of Content went to
AT&T's Dallas headquarters for a series of strategy meetings and kept
trying to reach Mr. York. This AT&T senior executive and Mr. York
finally spoke for twenty minutes on March 4, 2014. The next day, this
same AT&T executive met with AT&T's CEO to discuss TWC's Dodgers
Channel offer. AT&T's President of Content ``recommend[ed] not
launching [the Dodgers Channel] unless TWC reduces the rate
materially,'' but noted that DIRECTV launching was an ``outstanding
risk
[[Page 17868]]
factor.'' This AT&T executive's handwritten notes explained that AT&T's
``intent [was] to message but hold, pivot if we have to--DTV!''
98. On March 11, 2014, TWC told an AT&T negotiator that it ``was
unlikely to move off [its] initial asking price of $[#.##] now because
[TWC] wouldn't be able to offer [AT&T] a lower rate and not offer it to
a larger distributor.''
99. The next day, Mr. York texted AT&T's President of Content ``Got
a sec to talk?'' and Mr. York's AT&T counterpart responded ``Yep. You
on cell or work?'' Mr. York responded ``Work.'' The following day,
AT&T's President of Content--who has referred to carriage offers as
``pitches''--again texted Mr. York ``Forgot to tell you but we got a
[##] mph pitch yesterday.'' \5\ A few hours later, AT&T's President of
Content continued ``Consistent with what you got?'' and Mr. York
responded ``Hope u hit it out!'' This exchange occurred only two days
after TWC had informed AT&T that it was unlikely to change its initial
asking price.
---------------------------------------------------------------------------
\5\ As explained above, although the actual price figures have
been omitted to protect competitively sensitive information, the
speed of the quoted pitch in this text matched the cents in TWC's
offer to AT&T.
---------------------------------------------------------------------------
100. AT&T acquired DIRECTV in July 2015. AT&T still does not carry
the Dodgers Channel. AT&T subscribers outside of TWC's service
territory in the LA area did not have regular access to most televised
Dodgers games during the 2014, 2015, or 2016 baseball seasons.
V. DIRECTV'S INFORMATION EXCHANGES HAD THE LIKELY EFFECT OF HARMING
COMPETITION
A. Defendants Have Market Power--the Ability to Harm Competition--in
the Market for Video Distribution Services
101. One tool that courts use to assess the competitive effects of
concerted action is defining a relevant market--the zone of competition
among the agreeing rivals in which the agreement may affect
competition. A relevant market contains both a product dimension (the
``product market'') and a geographic dimension (the ``geographic
market''). This case concerns the distribution of professional video
content (especially sports content) by MVPDs in multiple geographic
markets.
i. Video Distribution Service Is a Relevant Product Market
102. Video distributors acquire the rights to transmit video
content from programmers, then aggregate that content and distribute it
to subscribers who pay for the service. For example, subscribers to an
MVPD's pay television service typically purchase access to a sizeable
array of channels, including for example news, dramas, and reality
television programs, as well as the type of sports content at issue in
this case. Subscribers, as well as industry participants, view these
services as reasonably interchangeable with each other. Moreover,
subscribers and industry participants view video distribution services
as distinct from--and not reasonably interchangeable with--other forms
of entertainment, such as attending live sports games or a music
concert. The distribution of professional video programming services to
residential or business customers (``video distribution services'') is
a relevant product market.
103. Video distributors compete with each other on price and
programming content to attract and retain paid video customers. MVPDs,
especially DIRECTV, often attempt to distinguish themselves from their
competitors on the basis of sports content. DIRECTV bills itself as the
``undisputed leader'' for sports content among video distributors and,
to support that claim, spends over $1 billion each year to obtain the
exclusive rights to provide NFL Sunday Ticket and features it
prominently in its marketing materials.
104. Local sports content is a crucial component of competition
between video distributors. Sports are often telecast locally on RSNs,
and DIRECTV has publicly identified the availability of RSNs as vital
to its ability to compete. In filings submitted to the Federal
Communications Commission (``FCC'') regarding its program access
regulations, which had previously reduced DIRECTV access to local RSNs,
DIRECTV described local sports content on RSNs as ``some of the most
popular and expensive in the market'' and questioned whether a video
distributor could compete at all without access to this programming.
DIRECTV even complained that a cable company's decision to deny DIRECTV
access to an RSN ``caused a 33 percent reduction in the households
subscribing to [satellite TV] service.''
ii. The Cox and Charter LA Service Areas Are Relevant Geographic
Markets
105. Consumers seeking to purchase video distribution services must
choose from among those providers that can offer such services directly
to their home or business. Direct broadcast satellite providers, such
as DIRECTV, can serve customers almost anywhere in the United States.
In addition, online video distributors are available to any consumer
with internet service sufficient to deliver video of an acceptable
quality. In contrast, wireline video distributors such as cable and
telephone companies, which include Cox, Charter, and AT&T, serve only
distinct geographic areas where they have deployed network facilities.
A customer cannot purchase video distribution services from a wireline
distributor that does not operate network facilities that connect to
the customer's home or business.
106. Thus, from a customer's perspective, the relevant geographic
market for video distribution services is whatever services are
available on an individual location-by-location basis. For ease of
analysis, however, these markets can be aggregated to portions of the
local franchise areas, or footprints, of the various video distribution
service providers where consumers face similar service-provider
choices.
107. In the Dodgers Channel carriage area in 2014, three cable
companies offered video distribution services to a significant area:
TWC, Cox, and Charter.\6\ The service areas of these three cable
providers did not overlap.
---------------------------------------------------------------------------
\6\ Mediacom and Suddenlink also operated in the LA area in
2014, but each had fewer than 5,000 video subscribers. With less
than 0.5% of LA area total subscribers, neither was competitively
significant for purposes of this case. For comparison, TWC (30%),
Charter (6.3%), and Cox (5.3%) each had at least 200,000 video
subscribers in the LA area.
---------------------------------------------------------------------------
108. Cox's service area within the LA area is a relevant geographic
market. As discussed further below, consumers within this area
generally faced the same service-provider choices. Customers within the
Cox service area could choose from Cox, DIRECTV, DISH, and nationwide
online providers. Some customers within the Cox service area might have
AT&T or Verizon as an additional competitive option, but not both.
Nevertheless, because a small but significant price increase by a
hypothetical monopolist of video distribution services in this area
would not be made unprofitable by consumers switching to other services
offered outside of the area, the Cox LA service area is a relevant
geographic market.
109. Charter's service area within the LA area is also a relevant
geographic market. As discussed further below, consumers within this
area generally faced the same service-provider choices. Customers
within the Charter service area could choose from Charter, DIRECTV,
DISH, and nationwide online providers. Some customers within the
Charter service area might have AT&T or Verizon as an additional
competitive option, but not both. Nevertheless, because a small but
significant price
[[Page 17869]]
increase by a hypothetical monopolist of video distribution services in
this area would not be made unprofitable by consumers switching to
other services offered outside of the area, the Charter LA service area
is a relevant geographic market.
iii. There Are High Barriers to Entry, Expansion and Repositioning in
Local Video Distribution Services Markets
110. Local video distribution service markets are characterized by
high barriers to entry. Providers seeking to expand their geographic
reach or reposition themselves to offer such services in a particular
area face high entry barriers as well.
111. In order to offer video distribution services, wireline and
direct broadcast satellite providers must incur enormous upfront
investment to construct a distribution infrastructure. Wireline
distributors must construct network facilities that reach every home or
business that they wish to serve. Likewise, satellite companies such as
DIRECTV must launch satellites and deploy earth stations to receive
signals from those satellites.
112. Providers may also need to obtain the proper regulatory
authority prior to offering video distribution services. Wireline
providers generally must obtain a franchise from local, municipal, or
state authorities. Direct broadcast satellite providers must obtain
approval from the FCC prior to operating the satellites and earth
stations that comprise their networks.
113. Online video distributors represent the most likely prospect
for successful and significant competitive entry, but they face
significant barriers that limit their ability to compete with MVPDs in
the short-to-medium term. One such barrier is the need to obtain access
to a sufficient amount of content to become viable substitutes. Online
video distributors generally offer less content than MVPDs and fewer
live sports telecasts of local games. Due in part to these limitations,
online video distributors account for only 5% of total video
distribution service revenues.
iv. DIRECTV, Cox, and AT&T Have Market Power in the Highly Concentrated
Cox LA Service Area
114. Consumers in the Cox service area faced limited choices for
video distribution services in 2014. In many parts of this area,
customers could access video distribution services from only three
providers: Cox, DISH, or DIRECTV. In some areas within the Cox
footprint, customers could also access video services from either AT&T
or Verizon (but not both) where those companies had upgraded their
telephone networks to offer video service as a fourth alternative for
consumers.
115. DIRECTV acted in concert with Cox and, therefore, it is
appropriate to consider the combined market power of the two firms in
the relevant geographic market. DIRECTV and Cox combined account for a
greater than 70% share of the Cox local market. By acting in concert
under these circumstances, DIRECTV and Cox had the ability to reduce
output and product quality to subcompetitive levels.
116. DIRECTV also acted in concert with AT&T in Cox's service area.
DIRECTV, Cox, and AT&T combined account for a greater than 75% share of
the Cox local market. By acting in concert under these circumstances,
the three companies had the ability to reduce output and product
quality to subcompetitive levels.
v. DIRECTV, Charter, and AT&T Have Market Power in the Highly
Concentrated Charter LA Service Area
117. Consumers in the Charter service area also faced limited
choices for video distribution services in 2014. In many parts of the
Charter service area, customers could access video services from only
three providers: Charter, DISH, or DIRECTV. In some areas within the
Charter footprint, customers could also access video services from
either AT&T or Verizon (but not both) where those companies had
upgraded their telephone networks to offer video service as a fourth
alternative for consumers.
118. DIRECTV acted in concert with Charter and, therefore, it is
appropriate to consider the combined market power of the two firms in
the relevant geographic market. DIRECTV and Charter combined account
for a greater than 50% share of the Charter local market. By acting in
concert under these circumstances, DIRECTV and Charter had the ability
to reduce output and product quality to subcompetitive levels.
119. DIRECTV also acted in concert with AT&T in Charter's service
area. DIRECTV, Charter, and AT&T combined account for a greater than
55% share of the Charter local market. By acting in concert under these
circumstances, DIRECTV, Charter, and AT&T had the ability to reduce
output and product quality to subcompetitive levels.
B. The Information Exchanges Orchestrated by DIRECTV Are of the Type
That Is Likely to Harm Competition When Carried Out by Parties With
Market Power
120. The market for video distribution services in the LA area is
highly concentrated. The local markets for video distribution services
are characterized by high barriers to entry, just three to four
entrenched competitors, and a history of interdependent price and
output.
121. Competition is likely to be harmed when competitors with
market power in concentrated markets, such as the markets at issue,
directly exchange strategic information about current and forward-
looking plans for product features on which they compete. Here, the
information exchanged directly concerned the negotiating positions that
were being taken by competitors leading up to and during their
negotiations with a common programming supplier. That supplier had
every legitimate reason to believe that the companies were viewing each
other warily and calculating the risk that the other might move first.
122. The strategic information that DIRECTV exchanged with Cox,
Charter, and AT&T was competitively sensitive and a material factor to
their decisions not to carry the Dodgers Channel. Like price, content
carriage--and particularly local sports content carriage--is a crucial
aspect of competition between video programming distributors to attract
and retain subscribers. Just as a subscriber might switch away from a
distributor in order to obtain a lower price, a subscriber might switch
away from a distributor in order to watch programming that the
subscriber's current distributor does not offer. But if the subscriber
has no alternative video programming distributor from which to obtain
the desired content, the possibility that this subscriber might switch
to a competitor is eliminated. When video distributors that are
competing for the same subscribers exchange their strategic carriage
plans, comfort replaces uncertainty and reduces their incentives to
launch that content. After all, if no competitor offers particular
content, there is no risk current subscribers would switch to a
competitor in order to watch that content on another distributor's
video service.
123. Information regarding sports content is particularly
significant, as sports are an important aspect of the video
distribution that customers in the LA region purchase. As noted above,
DIRECTV has recognized that RSN
[[Page 17870]]
content is ``some of the most popular and expensive in the market'' and
it has attempted to differentiate itself as ``the undisputed leader in
sports.''
124. The direct competitor communications at issue here took place
between DIRECTV's Chief Content Officer and his counterparts at Cox,
Charter, and AT&T. These high-level executives had direct authority
over their respective companies' content carriage negotiations and
significant influence over their companies' content carriage decisions,
thereby allowing them to act on the information that they learned and
steer their companies' decisions and negotiation strategies for the
Dodgers Channel.
125. These direct communications took place in private settings and
involved the exchange of confidential, non-public information. The
information was at times exchanged in coded language intended to mask
the content of the communications. In addition to the direct
communications, DIRECTV executives consistently messaged DIRECTV's
opposition to carriage of the Dodgers Channel through the press.
C. DIRECTV'S Information Exchanges Corrupted the Competitive Process
and Contributed to the Blackout of Dodgers Games
126. The information sharing agreements that DIRECTV orchestrated
with its direct competitors at Cox, Charter, and AT&T tainted the
competitive process for carriage of the Dodgers Channel. They dampened
the incentives of the companies to negotiate for and carry the Dodgers
Channel, reduced their responsiveness to customer demand, and deprived
LA area Dodgers fans of a competitive process that took into full
account market demand for watching Dodgers games on television.
127. The information shared between DIRECTV and its competitors was
a material factor in their decisions about whether and when to offer
the Dodgers Channel in competition with one another.
128. During the Dodgers Channel carriage negotiations, DIRECTV
learned valuable strategic information from Cox, Charter, and AT&T that
reduced the uncertainty that DIRECTV should have faced from not knowing
whether its subscribers would have the option of switching to these
competitors in order to watch Dodgers games on television. This
knowledge was a material factor in DIRECTV's decision not to launch the
Dodgers Channel. Mr. York testified that other MVPDs not appearing to
be in any rush to do the Dodgers Channel deal was a strategic
consideration against DIRECTV doing the deal. Indeed, he edited a
presentation given to DIRECTV's CEO to make sure the presentation
included that important factor. One of Mr. York's subordinates
testified that information about competitors' plans could lead DIRECTV
to be less aggressive in its proposals because the company would be
``less inclined to engage more meaningfully if everybody was going to
collectively sit on the sidelines.''
129. Cox, Charter, and AT&T each used strategic information
obtained from DIRECTV to reduce the uncertainty that they each should
have faced from not knowing whether their respective subscribers would
be able to switch to DIRECTV in order to watch Dodgers games on
television. This strategic information was a material factor in their
decisions not to launch the Dodgers Channel. Thus, this knowledge
tainted what should have been their independent decisions about whether
to launch the Dodgers Channel.
130. Because the information sharing agreements made it less likely
that DIRECTV and its major MVPD competitors would carry the Dodgers
Channel, those agreements had the tendency to reduce the quality of the
video distribution services DIRECTV, Cox, Charter, and AT&T provided in
the LA area. They likewise had the tendency to reduce output by
delaying the day when, if ever, the Dodgers Channel will be widely
carried. These effects were ultimately felt throughout the Dodgers
Channel broadcast territories where these companies offer service. The
reduction in quality and output was felt acutely in the spring of 2014,
when the actions of these MVPDs contributed to the Dodgers Channel not
being carried during the first weeks of the new season, a time when
DIRECTV believed ratings would peak. It continues to be felt by
consumers today.
VI. DIRECTV'S UNLAWFUL INFORMATION EXCHANGES HAVE NO PROCOMPETITIVE
JUSTIFICATION
131. DIRECTV's unlawful information exchanges with Cox, Charter,
and AT&T were not reasonably necessary to further any procompetitive
purpose. The information directly and privately shared between high-
level executives was disaggregated, company specific, forward-looking,
confidential, and related to a core characteristic of competition
between them.
VII. VIOLATIONS ALLEGED
Count 1: DIRECTV Violated Section 1 of the Sherman Act by Entering Into
an Unlawful Information Sharing Agreement with Cox
132. DIRECTV and Cox have engaged in an information sharing
agreement in unreasonable restraint of interstate trade and commerce,
constituting a violation of Section 1 of the Sherman Act, 15 U.S.C.
Sec. 1. This offense is likely to continue and recur unless the
requested relief is granted.
133. This information exchange scheme consisted of an agreement
between DIRECTV and Cox to share strategic information about their
companies' Dodgers Channel carriage negotiations and plans in order to
limit the competitive pressure on either of them to carry the Dodgers
Channel.
134. The information sharing agreement between DIRECTV and Cox has
harmed competition. Their exchange of strategic information blunted the
companies' competitive incentives and corrupted the competitive
process, which had the likely and foreseeable result of decreasing
quality and reducing output by contributing to a blackout of the
Dodgers Channel in part of the LA area.
Count 2: DIRECTV Violated Section 1 of the Sherman Act by Entering Into
an Unlawful Information Sharing Agreement with Charter
135. DIRECTV and Charter have engaged in an information sharing
agreement in unreasonable restraint of interstate trade and commerce,
constituting a violation of Section 1 of the Sherman Act, 15 U.S.C.
Sec. 1. This offense is likely to continue and recur unless the
requested relief is granted.
136. The information exchange scheme consisted of an agreement
between DIRECTV and Charter to share strategic information about their
companies' Dodgers Channel carriage negotiations and plans in order to
limit the competitive pressure on either of them to carry the Dodgers
Channel.
137. The information sharing agreement between DIRECTV and Charter
has harmed competition. Their exchange of strategic information blunted
the companies' competitive incentives and corrupted the competitive
process, which had the likely and foreseeable result of decreasing
quality and reducing output by contributing to a blackout of the
Dodgers Channel in part of the LA area.
[[Page 17871]]
Count 3: DIRECTV Violated Section 1 of the Sherman Act by Entering Into
an Unlawful Information Sharing Agreement with AT&T
138. DIRECTV and AT&T have engaged in an information sharing
agreement in unreasonable restraint of interstate trade and commerce,
constituting a violation of Section 1 of the Sherman Act, 15 U.S.C.
Sec. 1.
139. The information exchange scheme consisted of an agreement
between DIRECTV and AT&T to share strategic information about their
companies' Dodgers Channel carriage negotiations and plans in order to
limit the competitive pressure on either of them to carry the Dodgers
Channel.
140. The information sharing agreement between DIRECTV and AT&T has
harmed competition. Their exchange of strategic information blunted the
companies' competitive incentives and corrupted the competitive
process, which had the likely and foreseeable result of decreasing
quality and reducing output by contributing to a blackout of the
Dodgers Channel in part of the LA area.
VIII. REQUEST FOR RELIEF
141. WHEREFORE, the United States requests that final judgment be
entered against DIRECTV and AT&T declaring, ordering, and adjudging
that:
a. The aforesaid bilateral information sharing agreements
unreasonably restrain trade and are unlawful under Section 1 of the
Sherman Act, 15 U.S.C. Sec. 1;
b. DIRECTV and AT&T be permanently enjoined from transmitting non-
public information concerning DIRECTV's and/or AT&T's negotiating
position, strategy, or tactics concerning potential agreements for
video programming distribution with any other MVPD when DIRECTV and/or
AT&T and another MVPD anticipate negotiating, or are negotiating, with
a common programming provider, in violation of Section 1 of the Sherman
Act, 15 U.S.C. Sec. 1;
c. DIRECTV and AT&T be required to monitor communications or other
contacts between, on the one hand, the executives involved in these
unlawful information sharing agreements and others who may take their
place in the future, and on the other hand, their horizontal
competitors, and to periodically report the time, place, participants,
and substance of any such communications to the Department of Justice;
d. DIRECTV and AT&T be required to implement training and
compliance programs to instruct their executives that exchanging non-
public strategic information about competitive offerings with
competitors when not necessary to further a procompetitive purpose is a
violation of the antitrust laws and report on these programs to the
Department of Justice; and
e. The United States be awarded its costs of this action and such
other relief as may be appropriate and as the Court may deem just and
proper, and such other relief as may be appropriate and as the Court
may deem proper.
/s/Jonathan Sallet
-----------------------------------------------------------------------
JONATHAN SALLET,
Deputy Assistant Attorney General for Litigation
/s/Juan A. Arteaga
-----------------------------------------------------------------------
JUAN A. ARTEAGA,
Deputy Assistant Attorney General for Civil Enforcement
/s/Patricia Brink
-----------------------------------------------------------------------
PATRICIA BRINK,
Director of Civil Enforcement
/s/Scott Scheele
-----------------------------------------------------------------------
SCOTT SCHEELE,
Chief, Telecommunications & Media Enforcement Section
LAWRENCE FRANKEL,
Assistant Chief
JARED HUGHES,
Assistant Chief
/s/Patricia C. Corcoran
-----------------------------------------------------------------------
PATRICIA CORCORAN
CORY BRADER
DYLAN CARSON
PETER GRAY
DANIEL HAAR
MATTHEW JONES
JONATHAN JUSTL
DAVID LAWRENCE
ANNA SALLSTROM
KRISTINA SRICA
Attorneys for the United States
U.S. Department of Justice
Antitrust Division
450 5th Street N.W.
Washington, D.C. 20001
Telephone: 202-598-2529
Facsimile: 202-514-6381
E-mail: [email protected]
Dated: November 2, 2016
FOR PLAINTIFF UNITED STATES OF AMERICA:
FREDERICK S. YOUNG (DC Bar No. 421285)
[email protected]
CORY BRADER (NY Bar No. 5118732)
[email protected]
U.S. DEPARTMENT OF JUSTICE
ANTITRUST DIVISION
450 5th Street N.W.
Washington, D.C. 20530
Telephone: 202-307-2869
Facsimile: 202-514-6381
Counsel for Plaintiff,
UNITED STATES OF AMERICA
UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
UNITED STATES OF AMERICA, Plaintiff, v. DIRECTV GROUP HOLDINGS, LLC, et
al., Defendants.
Case No. 2:16-cv-08150-MWF-E
COMPETITIVE IMPACT STATEMENT
Hon. Michael W. Fitzgerald
Plaintiff United States of America (``United States''), pursuant to
the Antitrust Procedures and Penalties Act (``APPA'' or ``Tunney
Act''), 15 U.S.C. Sec. 16(b)-(h), files this Competitive Impact
Statement relating to the proposed Final Judgment against Defendants
DIRECTV Group Holdings, LLC (``DIRECTV'') and its corporate successor
AT&T, Inc. (``AT&T'') submitted for entry in this civil antitrust
proceeding.
I. NATURE AND PURPOSE OF THE PROCEEDING
On November 2, 2016, the United States filed a civil antitrust
Complaint alleging that DIRECTV acted as the ringleader of a series of
unlawful information exchanges between DIRECTV and three of its
competitors--Cox Communications, Inc., Charter Communications, Inc. and
AT&T (prior to its 2015 acquisition of DIRECTV)--during the companies'
parallel negotiations to carry SportsNet LA, which holds the exclusive
rights to telecast almost all live Dodgers games in the Los Angeles
area. The Complaint alleges that DIRECTV unlawfully exchanged
competitively sensitive information with Cox, Charter and AT&T during
the companies' negotiations for the right to telecast SportsNet LA (the
``Dodgers Channel'').
Specifically, the Complaint alleges that DIRECTV and each of these
competitors agreed to and did exchange non-public information about
their companies' ongoing negotiations to telecast the Dodgers Channel,
as well as their companies' future plans to carry--or not carry--the
channel. The Complaint also alleges that each company engaged in this
conduct in order to obtain bargaining leverage and reduce the risk that
the company's rival would choose to carry the Dodgers Channel (while
the company did not), resulting in a loss of subscribers to that rival.
The Complaint further alleges that the information learned through
these
[[Page 17872]]
unlawful agreements was a material factor in the companies' decisions
not to carry the Dodgers Channel, harming the competitive process for
carriage of the Dodgers Channel and making it less likely that any of
these companies would reach a deal because they no longer had to fear
that a decision to refrain from carriage would result in subscribers
switching to a competitor that offered the channel.
The Complaint alleges that these agreements amounted to a restraint
of trade in violation of Section 1 of the Sherman Act, which outlaws
``[e]very contract, combination in the form of trust or otherwise, or
conspiracy, in restraint of trade or commerce among the several
States.'' 15 U.S.C. Sec. 1. The Complaint seeks injunctive relief to
prevent DIRECTV and AT&T from sharing non[dash]public information with
any other multichannel video programming distributor (``MVPD'') \7\
about Defendants' negotiating position, strategy, or tactics concerning
potential agreements for video programming distribution.
---------------------------------------------------------------------------
\7\ MVPD is an industry acronym standing for multichannel video
programming distributor, and it applies to a variety of providers of
pay television services, including satellite companies (such as
DIRECTV and DISH Network), cable companies (such as Cox and
Charter), and telephone companies (such as AT&T and Verizon).
---------------------------------------------------------------------------
The Defendants filed a motion to dismiss the Complaint for failure
to state a claim on January 10, 2017 (ECF No. 16), and the United
States filed its corrected memorandum in opposition to that motion on
February 8, 2017 (ECF No. 23). The Defendants filed their reply brief
in support of their motion on February 21, 2017 (ECF No. 24), and the
motion was due to be argued at a hearing set for March 13, 2017 (ECF
No. 18). Prior to the hearing, the United States and the Defendants
filed a stipulation seeking a two-week continuance of the motion
hearing because the parties were engaged in productive settlement
negotiations (ECF No. 27), and the Court granted the requested
continuance (ECF No. 28).
The United States today filed a Stipulation and Order and proposed
Final Judgment which would remedy the violation alleged in the
Complaint by prohibiting Defendants from sharing or seeking to share
competitively sensitive information with any MVPD. Such information
includes without limitation non-public information relating to
negotiating position, tactics or strategy, video programming carriage
plans, pricing or pricing strategies, costs, revenues, profits,
margins, output, marketing, advertising, promotion, or research and
development.
The United States and the Defendants have stipulated that the
proposed Final Judgment may be entered after compliance with the APPA,
unless the United States withdraws its consent. Entry of the proposed
Final Judgment would terminate this action, except that this Court
would retain jurisdiction to construe, modify, and enforce the proposed
Final Judgment and to punish violations thereof.
II. DESCRIPTION OF THE EVENTS GIVING RISE TO THE ALLEGED VIOLATION
A. Defendants and the Parties to the Alleged Agreements
Defendant DIRECTV is a Delaware corporation with headquarters
located in El Segundo, California, offering direct broadcast satellite
television service nationwide. As of 2014, DIRECTV was the second
largest MVPD in the United States, selling subscriptions to pay
television services to approximately 20 million consumers. As of 2014,
DIRECTV had approximately 1.25 million video subscribers in the Los
Angeles area. In 2015, Defendant AT&T acquired DIRECTV in a transaction
valued at approximately $49 billion. Following that acquisition, AT&T
is now the largest pay television provider in the United States with
more than 25 million video subscribers nationwide.
Cox Communications (``Cox'') is a privately held Delaware
corporation with its headquarters in Atlanta, Georgia. Cox is currently
the third-largest cable provider in the United States. As of 2014, Cox
was the fourth-largest cable provider in the United States and had
approximately 500,000 subscribers in the Los Angeles area.
In 2014, Charter Communications (``Charter'') was the third-largest
cable company in the United States and had approximately 270,000
subscribers in the Los Angeles area. In 2016, Charter merged with Time
Warner Cable (``TWC''), which owns the rights to the Dodgers Channel.
As of 2014, TWC was the second-largest cable company in the United
States with approximately 1.3 million subscribers in the Los Angeles
area.
AT&T, a Delaware corporation with headquarters located in Dallas,
Texas, is a defendant in this action as the corporate successor to
DIRECTV. AT&T is a multinational telecommunications company offering
mobile telephone service, wireline Internet and television service, and
satellite television service through its 2015 acquisition of DIRECTV.
AT&T offers wireline television service through its U-verse video
product, which distributes video content using AT&T's
telecommunications infrastructure. As of 2014, AT&T had approximately
400,000 U-Verse video subscribers in the Los Angeles area.
In early 2013, TWC announced that it had partnered with the Los
Angeles Dodgers to acquire the exclusive rights to telecast almost all
live Dodgers games in the Los Angeles area. The Dodgers Channel was set
to launch at the beginning of the 2014 baseball season. TWC approached
MVPDs in Los Angeles--including DIRECTV, Cox, Charter and AT&T--and
attempted to negotiate agreements for carriage of the Dodgers Channel.
TWC failed to reach agreement with any other MVPD. Currently, apart
from TWC itself (and Charter following its 2015 agreement to acquire
TWC), no MVPD in the Los Angeles area carries the Dodgers Channel,
leaving hundreds of thousands of area consumers without access to live
telecasts of Dodgers games.
B. The Relevant Markets and Market Power
MVPDs acquire the rights to transmit content from video programmers
and then distribute that content to subscribers who pay for the
service. MVPDs compete with each other to attract and retain paying
subscribers, both through the prices they charge and the programming
content they offer. The Complaint alleges that the distribution of
professional video programming services to residential or business
customers is a relevant product market in which to evaluate the effects
of the alleged antitrust violations.
MVPDs particularly depend on sports content as a way to distinguish
themselves from their competitors. For example, DIRECTV refers to
itself as the ``undisputed leader'' for sports content and spends over
$1 billion annually to obtain the exclusive rights to provide its
Sunday Ticket package of live National Football League games. MVPDs
also consider offering local, live sports content to be a crucial
component of competition between them. Telecasts of local sports games
are often available only through a regional sports network (``RSN''),
like the Dodgers Channel. DIRECTV has publicly highlighted the
popularity of RSNs and considers offering RSN content to be essential
to its ability to compete. Similarly, MVPDs will purchase the right to
telecast certain sports events and create an RSN to carry the
telecasts, as TWC did with the Dodgers Channel. Residential and
business consumers in the Los Angeles area can only watch Dodgers
telecasts by subscribing to a video distribution
[[Page 17873]]
service that carries the Dodgers Channel.
The Complaint alleges that Cox's and Charter's Los Angeles service
areas are relevant geographic markets in which to evaluate the effects
of the alleged antitrust violations. The availability of video
distribution services is controlled by which MVPDs offer services to a
given location. In the Los Angeles area in 2014, the market for
purchasing video distribution services was highly concentrated and
consumers could choose from only a handful of providers. Direct
broadcast satellite providers, like DIRECTV, can serve customers almost
anywhere in the United States. But wireline video distributors,
including cable companies like Cox and Charter and telephone companies
like AT&T, serve only geographic areas where they have installed
infrastructure that reaches a consumer's home or business.
Consumers thus can purchase video distribution services only from
those providers that offer services to their location. In 2014, only
three cable companies--TWC, Charter, and Cox--offered video
distribution services to a significant portion of the Los Angeles
area.\8\ Their service areas did not overlap.
---------------------------------------------------------------------------
\8\ Mediacom and Suddenlink also operated small service areas in
the LA area, although neither had more than 5,000 subscribers and
neither was competitively significant. Champion Broadband reached a
deal to carry the Dodgers Channel in 2014, but had only about 3,000
video subscribers in Arcadia and Monrovia, California, and has since
gone out of business.
---------------------------------------------------------------------------
The Complaint alleges that the relevant market is represented by
the competitive choices for video distribution services faced by a
consumer at a given location. For ease of analysis, these markets can
be aggregated to geographic areas where consumers face similar
competitive choices. In the Cox and Charter areas, many consumers could
access video programming services only from the cable provider (Cox or
Charter) or one of the two satellite providers, DIRECTV and DISH
Network. In some areas within these footprints, consumers could choose
from four MVPD providers because they could also access video services
from either AT&T or Verizon (but not both). The Complaint alleges that
these markets are highly concentrated and that, by acting in concert,
DIRECTV, Charter, Cox, and AT&T had market power in these geographic
markets.
C. The Alleged Agreements To Share Information
As detailed in the Complaint, during the negotiations with TWC
regarding carriage of the Dodgers Channel, DIRECTV orchestrated a
series of agreements with Cox, Charter and AT&T to exchange
competitively sensitive, forward-looking, strategic information about
whether or not they would carry the Dodgers Channel. DIRECTV competes
with every other MVPD in the Los Angeles area, making it the natural
ringleader of these anticompetitive agreements. By contrast, cable
companies serve discrete geographic areas and do not compete with each
other for subscribers. Likewise, legacy telephone companies also serve
limited territories and compete with the cable companies but not with
each other. This meant that if DIRECTV did not carry the Dodgers
Channel, it risked losing subscribers to any MVPD in the Los Angeles
area that chose to carry the channel. If DIRECTV chose to carry the
Dodgers Channel, it stood to gain subscribers from any MVPD that did
not. Cox, Charter, and AT&T understood that if DIRECTV decided to carry
the Dodgers Channel, competitive pressure could force them to carry it
too. DIRECTV also recognized that it would lose leverage with TWC and
risk losing subscribers each time any other MVPD chose to carry the
channel.
In January 2013, TWC acquired the rights to telecast Dodgers games
starting with the 2014 season. DIRECTV, Cox, Charter, and AT&T formed
their strategies for the channel in fall 2013, and negotiations with
TWC began in January 2014 and continued past the start of the 2014
Major League Baseball season in the Spring. Throughout this period, Dan
York--DIRECTV's Chief Content Officer--exchanged strategic information
about the Dodgers Channel with rival executives at Cox, Charter, and
AT&T.\9\ All told, during the period when each MVPD formed its strategy
and negotiated for the Dodgers Channel, Mr. York and his rival
executives had over 30 communications, some of which explicitly related
to carriage plans and some of which coincided with key moments in each
companies' negotiations.
---------------------------------------------------------------------------
\9\ The Complaint alleges that Mr. York's agreements to exchange
confidential information about content negotiations went further
than just those about the Dodgers Channel, as Mr. York and his
counterpart at Charter also agreed to exchange competitively
sensitive information about non-sports programming deals.
---------------------------------------------------------------------------
For example, Mr. York agreed with his Cox rival to give each other
a ``heads-up'' ``before it was public knowledge'' if either company was
going to launch the channel. On another occasion, Mr. York offered to
give Cox advance notice before DIRECTV signed a Dodgers Channel deal so
that Cox could choose to sign first. Mr. York told his competitor this
would help Cox ``protect any MFN terms''--that is, it would enable Cox
to sign a contract with a most favored nation term and thereby gain the
benefit of any better bargain DIRECTV subsequently could extract from
TWC due to its larger size. In making this offer, Mr. York was likely
sacrificing the benefits of the better deal he could negotiate because
of DIRECTV's size and undercutting DIRECTV's claim to be the
``undisputed leader'' for sports content.
Mr. York and Charter's senior content executive also discussed
their respective Dodgers Channel negotiations while they were ongoing.
Charter's executive and Mr. York discussed ``the high price'' that TWC
had paid for the Dodgers Channel and the ``outrageous'' price that TWC
``was demanding for carriage.'' Charter's executive spoke to Mr. York
the day before recommending to his CEO that Charter wait for DIRECTV to
launch, and he relied on his knowledge of DIRECTV's plans, telling a
colleague ``I think Direct will not be there at launch.'' The Charter
executive tried to speak with Mr. York again the day Charter set its
content budget for the 2014 fiscal year. The two executives checked in
after each company had received TWC's offer, and as negotiations
continued, the Charter executive maintained to TWC that Charter would
not carry the channel unless DIRECTV launched first.
Mr. York also agreed to exchange competitively sensitive Dodgers
Channel information with the senior content executive at AT&T. Mr. York
and the AT&T executive exchanged text messages that discussed the price
of the Dodgers Channel. After the AT&T executive sent Mr. York a coded
text message with Time Warner Cable's latest asking price, Mr. York
responded by suggesting that he would not want AT&T to accept that
offer. The AT&T executive tried to contact Mr. York the same day the
AT&T executive recommended that AT&T adopt a Dodgers strategy that
depended on DIRECTV. The AT&T executive continued to reach out, leaving
Mr. York a voicemail asking to catch up on ``three things . . . two
sports and one news.'' The two connected over the phone the day before
the AT&T executive met with AT&T's CEO and recommended that AT&T not
carry the channel.
The Complaint alleges that Mr. York instigated and continued these
information exchanges with his
[[Page 17874]]
counterparts at rival MVPDs in order to benefit DIRECTV's own Dodgers
Channel negotiations. In a two-hour span the day after DIRECTV received
TWC's first Dodgers Channel offer, Mr. York spoke or attempted to speak
with all three of his co-conspirators, ultimately connecting with each
of them. After those conversations, Mr. York informed DIRECTV's CEO
that none of DIRECTV's competitors ``appear[ed] in a rush to do a
deal'' with TWC for the Dodgers Channel, even though it was early in
the negotiations and none of the distributors had made public
statements about their plans. In April 2014, DIRECTV received an
anonymous complaint that Mr. York had been speaking with competitors
``about NOT carrying the Dodgers on DIRECTV.'' In May 2014, DIRECTV CEO
Mike White told investors that distributors were ``start[ing] to stand
together, like most of us have been doing in Los Angeles for the first
time ever, by the way, with the Dodgers on outrageous increases and
excesses.'' With uncertainty reduced, the co-conspirators could
comfortably resist TWC's offers to carry the Dodgers.
D. Anticompetitive Effects of the Alleged Information-Sharing
Agreements
The Complaint alleges that DIRECTV's information-sharing agreements
with its direct competitors at Cox, Charter, and AT&T harmed
competition by making it less likely each competitor would carry the
Dodgers Channel and by disrupting the competitive process. These
agreements dampened the incentives of the companies to negotiate for
and carry the Dodgers Channel, reduced their responsiveness to customer
demand, and deprived Los Angeles area Dodgers fans of a competitive
process that took into full account market demand for watching Dodgers
games on television. The harm to competition and consumers stems from
the basic principle that an MVPD need not worry about losing
subscribers to a competitor over content if it has learned the
competitor will not carry that content.
The sharing of competitively sensitive information among direct
competitors made it less likely that any of the MVPDs would reach a
deal for the Dodgers Channel because it increased their confidence that
a decision to refrain from carriage would not result in subscribers
switching to a competitor that offered the channel. The reduction of
this uncertainty was valuable because each company identified a
competitor's decision to telecast the Dodgers Channel as a significant
development that could force it to reach a deal with TWC. Indeed, the
information shared between DIRECTV and its competitors was a material
factor in their decisions not to launch the Dodgers Channel. These
unlawful exchanges were intended to reduce--and did reduce--each
rival's uncertainty about whether competitors would carry the Dodgers
Channel, thereby providing DIRECTV and its competitors artificially
enhanced bargaining leverage.
Because the information sharing agreements made it less likely that
DIRECTV and its major MVPD competitors would carry the Dodgers Channel,
those agreements had the tendency to reduce the quality of the co-
conspirator video distribution services in the Los Angeles area and to
reduce output by delaying the day when, if ever, the Dodgers Channel
will be widely carried. These effects were ultimately felt throughout
the Dodgers Channel broadcast territories where these companies offer
service. DIRECTV's unlawful information exchanges harmed consumers by
making it less likely that they would be able to watch Dodgers games on
television, and this harm continues to be felt by consumers today.
DIRECTV's unlawful information exchanges also harmed competition by
corrupting the competitive process that should have resulted in each
company making an independent decision on whether to carry the Dodgers
Channel, subject to competitive pressures arising from independent
decisions made by other, overlapping MVPDs.
DIRECTV's three bilateral agreements to share forward-looking
strategic information concerning carriage of the Dodgers Channel lacked
any countervailing procompetitive benefits and were not reasonably
necessary to further any legitimate business purpose. The information
directly and privately shared between high-level executives was
disaggregated, company specific, forward-looking, confidential, and
related to a core characteristic of competition between them.
III. EXPLANATION OF THE PROPOSED FINAL JUDGMENT
The terms of the proposed Final Judgment closely track the relief
sought in the Complaint and are intended to provide prompt, certain and
effective remedies that will ensure that Defendants and their
executives will not impede competition by sharing competitively
sensitive information with their counterparts at rival MVPDs. The
requirements and prohibitions provided for in the proposed Final
Judgment will terminate Defendants' illegal conduct, prevent recurrence
of the same or similar conduct, and ensure that Defendants establish a
robust antitrust compliance program. The proposed Final Judgment
protects consumers by putting a stop to the anticompetitive information
sharing alleged in the Complaint, while permitting certain potentially
beneficial collaborations and transactions as detailed below.
The proposed Final Judgment does not and is not intended to compel
any MVPD to reach an agreement to carry any particular video
programming, including the Dodgers Channel. Negotiations between video
programmers and MVPDs are often contentious, high-stakes undertakings
where one or both sides threatens to walk away, or even temporarily
terminates the relationship (sometimes called a ``blackout'' or ``going
dark'') in order to secure a better deal. The proposed Final Judgment
is not intended to address such negotiating tactics, or to impose any
agreement upon TWC, which owns rights to the Dodgers Channel, or any
MVPD that is not the result of an unfettered negotiation in the
marketplace. Rather, the Final Judgment is intended to prevent the
competitive process for acquiring video programming from being
corrupted by improper information sharing among rivals and to prevent
harm to consumers when such collusion taints that competitive process
and makes carriage on competitive terms less likely.
A. Prohibited Conduct
The proposed Final Judgment broadly prohibits Defendants from
sharing strategic competitive information with direct competitors and
thus protects the competitive process for negotiating video
programming. Specifically, Section IV ensures that Defendants will not,
directly or indirectly, communicate a broad array of competitively
sensitive, non-public strategic information (such as negotiating
strategy, carriage plans or pricing) to any MVPD, will not request such
information from any MVPD, and will not encourage or facilitate the
communication of such information from any MVPD.
B. Permitted Conduct
Section IV makes clear that the proposed Final Judgment does not
prohibit Defendants from sharing or receiving competitively sensitive
strategic information in certain specified circumstances where the
information sharing appears unlikely to cause harm to competition.
Section IV(D) allows the communication of competitively
[[Page 17875]]
sensitive information with rival MVPDs when counsel and the Antitrust
Compliance Officer required by Section V of the proposed Final Judgment
(see Paragraph IV.C., below) determine that such communication is
reasonably related to a lawful purpose, such as a lawful joint venture,
due diligence for a potential transaction, or enforcement of a most-
favored-nation term.
Section IV(E) permits the communication of competitively sensitive
information pursuant to negotiations with another MVPD to sell video
programming to that MVPD, or to buy video programming from it.
Likewise, Section IV(F) permits Defendants to communicate
competitively sensitive information with video programmers, including
those affiliated with MVPDs, so long as the information pertains only
to the potential or actual carriage of the programmer's content by
Defendants.
Section IV(G) permits Defendants to respond to news media questions
about programming distribution and carriage negotiations, provided
Defendants' negotiating strategy is not disclosed.
Finally, Section IV(H) confirms that the proposed Final Judgment
does not prohibit petitioning conduct protected by the Noerr-Pennington
doctrine.
C. Antitrust Compliance Obligations
As outlined in Section V, Defendants must designate an Antitrust
Compliance Officer, who is responsible for implementing training and
antitrust compliance programs and achieving full compliance with the
Final Judgment. Among other duties, the Antitrust Compliance Officer
will be required to distribute copies of the Final Judgment; ensure
training related to the Final Judgment and the antitrust laws is
provided to Defendants' directors, officers, and certain other
executives; certify annual compliance with the Final Judgment; and
maintain and submit periodically a log of all communications relating
to competitively sensitive information between Defendants' covered
executives and employees of other MVPDs. The Defendants are subject to
these compliance obligations for the five-year term of the proposed
Final Judgment. This compliance program is necessary considering the
extensive communications among rival executives that facilitated
Defendants' agreements.
IV. REMEDIES AVAILABLE TO POTENTIAL PRIVATE LITIGANTS
Section 4 of the Clayton Act, 15 U.S.C. Sec. 15, provides that any
person who has been injured as a result of conduct prohibited by the
antitrust laws may bring suit in federal court to recover three times
the damages the person has suffered, as well as costs and reasonable
attorneys' fees. Entry of the proposed Final Judgment will neither
impair nor assist the bringing of any private antitrust damage action.
Under the provisions of Section 5(a) of the Clayton Act, 15 U.S.C.
Sec. 16(a), the proposed Final Judgment has no prima facie effect in
any subsequent private lawsuit that may be brought against Defendants.
V. PROCEDURES AVAILABLE FOR APPROVAL OR MODIFICATION OF THE PROPOSED
FINAL JUDGMENT
The United States and Defendants have stipulated that the proposed
Final Judgment may be entered by the Court after compliance with the
provisions of the APPA, provided that the United States has not
withdrawn its consent. The APPA conditions entry upon the Court's
determination that the proposed Final Judgment is in the public
interest.
The APPA provides a period of at least sixty (60) days preceding
the effective date of the proposed Final Judgment within which any
person may submit to the United States written comments regarding the
proposed Final Judgment. Any person who wishes to comment should do so
within sixty (60) days of the date of publication of this Competitive
Impact Statement in the Federal Register, or the last date of
publication in a newspaper of the summary of this Competitive Impact
Statement, whichever is later. All comments received during this period
will be considered by the United States, which remains free to withdraw
its consent to the proposed Final Judgment at any time prior to the
Court's entry of judgment. The comments and the response of the United
States will be filed with the Court. In addition, comments will be
posted on the U.S. Department of Justice, Antitrust Division's website
and, under certain circumstances, published in the Federal Register.
Written comments should be submitted to:
Scott A. Scheele, Chief, Telecommunications and Media Enforcement
Section Antitrust Division, United States Department of Justice, 450
Fifth Street, N.W., Suite 7000, Washington, DC 20530
The proposed Final Judgment provides that the Court retains
jurisdiction over this action, and the parties may apply to the Court
for any order necessary or appropriate for the modification,
interpretation, or enforcement of the Final Judgment.
VI. ALTERNATIVES TO THE PROPOSED FINAL JUDGMENT
The United States considered, as an alternative to the proposed
Final Judgment, seeking injunctive relief against Defendants' conduct
through a full trial on the merits. The United States is satisfied,
however, that the relief in the proposed Final Judgment will terminate
the anticompetitive conduct alleged in the Complaint and prevent its
recurrence, preserving competition for the acquisition and carriage of
video programming in the United States. Thus, the proposed Final
Judgment would protect competition as effectively as would any remedy
available through litigation, but avoids the time, expense, and
uncertainty of a full trial on the merits.
VII. STANDARD OF REVIEW UNDER THE APPA FOR THE PROPOSED FINAL JUDGMENT
The Clayton Act, as amended by the APPA, requires that proposed
consent judgments in antitrust cases brought by the United States be
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.'' 15 U.S.C. Sec. 16(e)(1). ``The APPA was enacted in
1974 to preserve the integrity of and public confidence in procedures
relating to settlements via consent decree procedures.'' United States
v. BNS Inc., 858 F.2d 456, 459 (9th Cir. 1988) (noting that the APPA
``mandates public notice of a proposed consent decree, a competitive
impact statement by the government, a sixty-day period for written
public comments, and published responses to the comments'' (citations
omitted)). In making that ``public interest'' determination, the court,
in accordance with the statute as amended in 2004, is required to
consider:
(A) the competitive impact of such judgment, including termination
of alleged violations, provisions for enforcement and modification,
duration of relief sought, anticipated effects of alternative remedies
actually considered, whether its terms are ambiguous, and any other
competitive considerations bearing upon the adequacy of such judgment
that the court deems necessary to a determination of whether the
consent judgment is in the public interest; and
(B) the impact of entry of such judgment upon competition in the
relevant market or markets, upon the public generally and individuals
alleging specific injury from the violations set forth in the complaint
[[Page 17876]]
including consideration of the public benefit, if any, to be derived
from a determination of the issues at trial.
15 U.S.C. Sec. 16(e)(1)(A) & (B). In considering these statutory
factors, the Court's inquiry is necessarily a limited one as the
government is entitled to ``broad discretion to settle with the
defendant within the reaches of the public interest.'' United States v.
Microsoft Corp., 56 F.3d 1448, 1461 (D.C. Cir. 1995); see generally
United States v. SBC Commc'ns, Inc., 489 F. Supp. 2d 1 (D.D.C. 2007)
(assessing public interest standard under the Tunney Act); United
States v. U.S. Airways Group, Inc., 38 F. Supp. 3d 69, 75 (D.D.C. 2014)
(explaining that the ``court's inquiry is limited'' in Tunney Act
settlements); United States v. InBev N.V./S.A., No. 08-1965, 2009 U.S.
Dist. LEXIS 84787, at *3 (D.D.C. Aug. 11, 2009) (noting that the
court's review of a consent judgment is limited and only inquires
``into whether the government's determination that the proposed
remedies will cure the antitrust violations alleged in the complaint
was reasonable, and whether the mechanism to enforce the final judgment
are clear and manageable'').\10\
---------------------------------------------------------------------------
\10\ The 2004 amendments substituted ``shall'' for ``may'' in
directing relevant factors for courts to consider and amended the
list of factors to focus on competitive considerations and to
address potentially ambiguous judgment terms. Compare 15 U.S.C.
Sec. 16(e) (2004), with 15 U.S.C. Sec. 16(e)(1) (2006); see also
SBC Commc'ns, 489 F. Supp. 2d at 11 (concluding that the 2004
amendments ``effected minimal changes'' to Tunney Act review).
---------------------------------------------------------------------------
As the United States Court of Appeals for the District of Columbia
Circuit has held, under the APPA a court considers, among other things,
the relationship between the remedy secured and the specific
allegations set forth in the government's complaint, whether the decree
is sufficiently clear, whether enforcement mechanisms are sufficient,
and whether the decree may positively harm third parties. See
Microsoft, 56 F.3d at 1458-62; see also BNS, 858 F.2d at 462-63
(``[T]he APPA does not authorize a district court to base its public
interest determination on antitrust concerns in markets other than
those alleged in the government's complaint.''); United States v. Nat'l
Broad. Co., 449 F. Supp. 1127, 1144 (C.D. Cal.1978) (``[I]n evaluating
a proposed consent decree, one highly significant factor is the degree
to which the proposed decree advances and is consistent with the
government's original prayer for relief.'' (citation omitted)). With
respect to the adequacy of the relief secured by the decree, a court
may not ``engage in an unrestricted evaluation of what relief would
best serve the public.'' BNS, 858 F.2d at 462 (quoting United States v.
Bechtel Corp., 648 F.2d 660, 666 (9th Cir. 1981)); see also Microsoft,
56 F.3d at 1458-62; United States v. Alcoa, Inc., 152 F. Supp. 2d 37,
40 (D.D.C. 2001); InBev, 2009 U.S. Dist. LEXIS 84787, at *3. As the
Ninth Circuit has explained:
[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. See United States
v. Nat'l Broad. Co., 449 F. Supp. 1127 (C.D. Cal. 1978). 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 a 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.
Bechtel, 648 F.2d at 666 (emphasis added) (additional citations
omitted).\11\ In determining whether a proposed settlement is in the
public interest, a district court ``must accord deference to the
government's predictions about the efficacy of its remedies, and may
not require that the remedies perfectly match the alleged violations.''
SBC Commc'ns, 489 F. Supp. 2d at 17; see also U.S. Airways, 38 F. Supp.
3d at 75 (noting that a court should not reject the proposed remedies
because it believes others are preferable); Microsoft, 56 F.3d at 1461
(noting the need for courts to be ``deferential to the government's
predictions as to the effect of the proposed remedies''); United States
v. Archer-Daniels-Midland Co., 272 F. Supp. 2d 1, 6 (D.D.C. 2003)
(noting that the court should grant due respect to the United States'
prediction as to the effect of proposed remedies, its perception of the
market structure, and its views of the nature of the case).
---------------------------------------------------------------------------
\11\ Cf. BNS, 858 F.2d at 464 (holding that the court's
``ultimate authority under the [APPA] is limited to approving or
disapproving the consent decree''); Nat'l Broad. Co., 449 F. Supp.
at 1142 (under the APPA, ``a court's power to do very much about the
terms of a particular decree, even after it has given the decree
maximum, rather that minimum, judicial scrutiny, is a decidedly
limited power'' (citation omitted)); United States v. Gillette Co.,
406 F. Supp. 713, 716 (D. Mass. 1975) (noting that, in this way, the
court is constrained to ``look at the overall picture not
hypercritically, nor with a microscope, but with an artist's
reducing glass''). See generally Microsoft, 56 F.3d at 1461
(discussing whether ``the remedies [obtained in the decree are] so
inconsonant with the allegations charged as to fall outside of the
`reaches of the public interest''').
---------------------------------------------------------------------------
Courts have greater flexibility in approving proposed consent
decrees than in crafting their own decrees following a finding of
liability in a litigated matter. ``[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.' '' United States v. Am. Tel. & Tel. Co.,
552 F. Supp. 131, 151 (D.D.C. 1982) (citations omitted) (quoting United
States v. Gillette Co., 406 F. Supp. 713, 716 (D. Mass. 1975)), aff'd
sub nom. Maryland v. United States, 460 U.S. 1001 (1983); see also U.S.
Airways, 38 F. Supp. 3d at 75 (noting that ``room must be made for the
government to grant concessions in the negotiation process for
settlements'' (quoting SBC Commc'ns, 489 F. Supp. 2d at 1461) (citing
Microsoft, 56 F.3d at 1461)); United States v. Alcan Aluminum Ltd., 605
F. Supp. 619, 622 (W.D. Ky. 1985) (approving the consent decree even
though the court would have imposed a greater remedy). To meet this
standard, the United States ``need only provide a factual basis for
concluding that the settlements are reasonably adequate remedies for
the alleged harms.'' SBC Commc'ns, 489 F. Supp. 2d at 17 (citation
omitted).
Moreover, the court's role under the APPA is limited to reviewing
the remedy in relationship to the violations that the United States has
alleged in its Complaint, and does not authorize the court to
``construct [its] own hypothetical case and then evaluate the decree
against that case.'' Microsoft, 56 F.3d at 1459; see also U.S. Airways,
38 F. Supp. 3d at 75 (noting that the court must simply determine
whether there is a factual foundation for the government's decisions
such that its conclusions regarding the proposed settlements are
reasonable); InBev, 2009 U.S. Dist. LEXIS 84787, at *20 (``[T]he
`public interest' is not to be measured by comparing the violations
alleged in the complaint against those the court believes could have,
or even should have, been alleged.''). Because the ``court's authority
to review the decree depends entirely on the government's exercising
its prosecutorial discretion by bringing a case in the first place,''
it follows that ``the court is only authorized to review the decree
itself'' and not to ``effectively redraft the complaint'' to inquire
into other matters that the United States did not pursue. Microsoft, 56
F.3d at 1459-60. As the United States District Court for the District
of Columbia confirmed in SBC Communications, courts ``cannot look
beyond the complaint in making the public interest determination unless
the complaint is drafted so narrowly as to
[[Page 17877]]
make a mockery of judicial power.'' SBC Commc'ns, 489 F. Supp. 2d at
15.\12\
---------------------------------------------------------------------------
\12\ See United States v. Enova Corp., 107 F. Supp. 2d 10, 17
(D.D.C. 2000) (noting that the ``Tunney Act expressly allows the
court to make its public interest determination on the basis of the
competitive impact statement and response to comments alone'');
United States v. Mid-Am. Dairymen, Inc., No. 73-CV-681-W-1, 1977
U.S. Dist. LEXIS 15858, at *22 (W.D. Mo. May 17, 1977) (``Absent a
showing of corrupt failure of the government to discharge its duty,
the Court, in making its 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.''); S. Rep. No. 93-298, at 6 (1973) (``Where the
public interest can be meaningfully evaluated simply on the basis of
briefs and oral arguments, that is the approach that should be
utilized.'').
---------------------------------------------------------------------------
In its 2004 amendments, Congress made clear its intent to preserve
the practical benefits of utilizing consent decrees in antitrust
enforcement, adding the unambiguous instruction that ``[n]othing in
this section shall be construed to require the court to conduct an
evidentiary hearing or to require the court to permit anyone to
intervene.'' 15 U.S.C. Sec. 16(e)(2); see also U.S. Airways, 38 F.
Supp. 3d at 76 (indicating that a court is not required to hold an
evidentiary hearing or to permit intervenors as part of its review
under the Tunney Act). The language wrote into the statute what
Congress intended when it enacted the Tunney Act in 1974, as Senator
Tunney explained: ``[t]he 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.'' 119 Cong. Rec. 24,598 (1973) (statement of
Sen. Tunney). Rather, the procedure for the public interest
determination is left to the discretion of the court, with the
recognition that the court's ``scope of review remains sharply
proscribed by precedent and the nature of Tunney Act proceedings.'' SBC
Commc'ns, 489 F. Supp. 2d at 11. ``A court can make its public interest
determination based on the competitive impact statement and response to
public comments alone.'' U.S. Airways, 38 F. Supp. 3d at 76 (citation
omitted).
VIII. DETERMINATIVE DOCUMENTS
No determinative documents or material within the meaning of the
APPA were considered by the Department in formulating the proposed
Final Judgment.
This document will also be made available on the Antitrust
Division's website at https://www.justice.gov/atr/case/us-v-directv-group-holdings-llc-and-att-inc.
Dated: March 23, 2017
Respectfully submitted,
PLAINTIFF
UNITED STATES OF AMERICA
By: /s/FREDERICK S.YOUNG
FREDERICK S. YOUNG
CORY BRADER
DYLAN M. CARSON
PATRICIA CORCORAN
MATTHEW JONES
DAVID LAWRENCE
LAWRENCE A. REICHER
ANNA SALLSTROM
SEAN SANDOLOSKI
CURTIS STRONG
Attorneys for the United States
U.S. Department of Justice
Antitrust Division
450 5th Street N.W.
Washington, D.C. 20530
Telephone: 202-307-2869
Facsimile: 202-514-6381
Email: [email protected]
ATTACHMENT A
FREDERICK S. YOUNG (DC Bar No. 421285)
[email protected]
CORY BRADER (NY Bar No. 5118732)
[email protected]
U.S. DEPARTMENT OF JUSTICE
ANTITRUST DIVISION
450 5th Street N.W.
Washington, D.C. 20530
Telephone: 202-307-2869
Facsimile: 202-514-6381
Counsel for Plaintiff,
UNITED STATES OF AMERICA
UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA
WESTERN DIVISION
UNITED STATES OF AMERICA, Plaintiff, v. DIRECTV GROUP HOLDINGS, LLC, et
al., Defendants.
Case No. 2:16-cv-08150-MWF-E
PROPOSED FINAL JUDGMENT
Hon. Michael W. Fitzgerald
WHEREAS, Plaintiff, United States of America, filed its Complaint
on November 2, 2016, alleging Defendants' violation of Section 1 of the
Sherman Act, 15 U.S.C. Sec. 1, and Plaintiff and Defendants, by their
respective attorneys, have consented to the entry of this Final
Judgment without trial or adjudication of any issue of fact or law, and
without this Final Judgment constituting any evidence against or
admission by any party regarding any issue of fact or law;
AND WHEREAS, Defendants agree to be bound by the provisions of this
Final Judgment pending its approval by the Court;
AND WHEREAS, the essence of this Final Judgment is the prohibition
of certain alleged information sharing between Defendants and their
competitors;
NOW THEREFORE, before any testimony is taken, without trial or
adjudication of any issue of fact or law, and upon consent of the
parties, it is ORDERED, ADJUDGED AND DECREED:
I. JURISDICTION AND VENUE
This Court has jurisdiction over the subject matter of and the
parties to this action. Venue is proper in the Central District of
California. For the purposes of this Final Judgment only, Defendants
stipulate that the Complaint states a claim upon which relief may be
granted against Defendants under Section 1 of the Sherman Act (15
U.S.C. Sec. 1).
II. DEFINITIONS
A. ``AT&T'' means AT&T, Inc., a Delaware corporation with its
headquarters in Dallas, Texas, its successors and assigns, and its
subsidiaries, divisions, groups, affiliates, partnerships and joint
ventures, and their directors, officers, managers, agents, and
employees.
B. ``Communicate,'' ``Communicating,'' and ``Communication'' means
any transfer or dissemination of information, whether directly or
indirectly, and regardless of the means by which it is accomplished,
including without limitation orally or by printed or electronic means.
C. ``Competitively Sensitive Information'' means any non-public
information of Defendants or any competing MVPD relating to Video
Programming distribution services in the United States, including
without limitation non-public information relating to negotiating
position, tactics or strategy, Video Programming carriage plans,
pricing or pricing strategies, costs, revenues, profits, margins,
output, marketing, advertising, promotion, or research and development.
D. ``Defendants'' means DIRECTV and AT&T.
E. ``DIRECTV'' means DIRECTV Group Holdings, LLC, a Delaware
corporation with its headquarters in El Segundo, California, its
successors and assigns, and its subsidiaries, divisions, groups,
affiliates, partnerships and joint ventures, and their directors,
officers, managers, agents, and employees.
F. ``MFN Clause'' means a contractual provision that entitles an
MVPD to modify a programming agreement to incorporate more favorable
rates, contract terms, or conditions that the Video Programmer agrees
to with another MVPD.
G. ``MVPD'' means a multichannel video programming distributor as
that
[[Page 17878]]
term is defined on the date of entry of this Final Judgment in 47
C.F.R. Sec. 76.1200(b).
H. ``Person'' means any natural person, corporation, company,
partnership, joint venture, firm, association, proprietorship, agency,
board, authority, commission, office, or other business or legal
entity, whether private or governmental.
I. ``Video Programmer'' means any Person that provides Video
Programming for distribution through MVPDs.
J. ``Video Programming'' means programming provided by, or
generally considered comparable to programming provided by, a
television broadcast station or cable network, regardless of the medium
or method used for distribution.
III. APPLICABILITY
This Final Judgment applies to Defendants, as defined above, and
all other Persons in active concert or participation with any of them
who receive actual notice of this Final Judgment by personal service or
otherwise.
IV. PROHIBITED CONDUCT
Defendants shall not, directly or indirectly:
A. Communicate Competitively Sensitive Information to any MVPD;
B. Request Competitively Sensitive Information from any MVPD; or
C. Encourage or facilitate the Communication of Competitively
Sensitive Information to or from any MVPD.
Notwithstanding the foregoing, nothing in this Final Judgment shall
prohibit Defendants from:
D. After securing advice of counsel and in consultation with the
Antitrust Compliance Officer, Communicating Competitively Sensitive
Information to or requesting Competitively Sensitive Information from
any MVPD when such communication is reasonably related to a lawful
purpose, such as a lawful joint venture or legally supervised due
diligence for a potential transaction, or the enforcement of MFN
clauses;
E. Communicating Competitively Sensitive Information to or
requesting Competitively Sensitive Information from an MVPD if such
Competitively Sensitive Information pertains only to either (a)
Defendants' supply of Video Programming to that MVPD, or (b) that
MVPD's carriage or potential carriage of Defendants' Video Programming;
F. Communicating Competitively Sensitive Information to or
requesting Competitively Sensitive Information from a Video Programmer,
including one affiliated with an MVPD, if such Competitively Sensitive
Information pertains only to either (a) that Video Programmer's supply
of Video Programming to Defendants, or (b) Defendants' carriage or
potential carriage of that Video Programmer's Video Programming;
G. Responding to any question from any news organization related to
the distribution of Video Programming or to any actual or proposed
transaction with any MVPD, provided that response does not disclose
Defendants' negotiation strategy; or
H. After securing advice of counsel and in consultation with the
Antitrust Compliance Officer, engaging in conduct in accordance with
the doctrine established in Eastern Railroad Presidents Conference v.
Noerr Motor Freight, Inc., 365 U.S. 127 (1961), United Mine Workers v.
Pennington, 381 U.S. 657 (1965), and their progeny.
V. COMPLIANCE PROGRAM
A. Defendants shall implement a training and antitrust compliance
program to instruct their executives and employees responsible for, or
participating in, content carriage negotiations that Communicating
Competitively Sensitive Information with competing MVPDs when not
reasonably related to a lawful purpose may be a violation of the
antitrust laws. This compliance program shall include designating,
within thirty (30) days of entry of this Final Judgment, an Antitrust
Compliance Officer with responsibility for implementing the training
and antitrust compliance program and achieving full compliance with
this Final Judgment.
B. The Antitrust Compliance Officer shall, on a continuing basis,
be responsible for the following:
1. Distributing, within thirty (30) days from the effective date
hereof, a copy of this Final Judgment to (i) each of the officers of
Defendants who has duties or responsibilities related to the
acquisition of Video Programming or to Video Programming carriage plans
and decisions; (ii) each of the other employees and agents of
Defendants who has duties or responsibilities related to the
acquisition of Video Programming or to Video Programming carriage plans
and decisions; and (iii) each of the other employees or agents of
Defendants who has duties or responsibilities related to reviewing any
submissions to Defendants' ethics portal or to any other anonymous
suggestion or complaint vehicle available to Defendants' employees or
agents.
2. Distributing within thirty (30) days a copy of this Final
Judgment to any person who succeeds to a position described in Section
V(B)(1).
3. Briefing annually those persons identified in Sections V(B)(1)
and (2) on the meaning and requirements of this Final Judgment and of
the antitrust laws, and advising them that Defendants' legal advisors
are available to confer with them regarding compliance with both the
Final Judgment and the antitrust laws.
4. Obtaining from each person identified in Sections V(B)(1) and
(2) an annual written certification that he or she: (i) has read,
understands, and agrees to abide by the terms of this Final Judgment;
(ii) is not aware of any violation of this Final Judgment that has not
been reported to the Antitrust Compliance Officer; (iii) has been
advised and understands that his or her failure to comply with this
Final Judgment may result in an enforcement action for civil or
criminal contempt of court against Defendants or any other person who
violates this Final Judgment; and (iv) has maintained and submitted a
record of all Communications of Competitively Sensitive Information
with any MVPD, other than those consistent with Sections IV(D), (E),
(F), (G) and (H).
5. Maintaining (i) a record of all certifications received pursuant
to Section V(B)(4); (ii) a file of all documents in existence at the
commencement of and related to any investigation by the Antitrust
Compliance Officer of any alleged violation of this Final Judgment; and
(iii) a record of all communications generated after the commencement
of any such investigation and related to any such alleged violation,
which shall identify the date and place of the communication, the
persons involved, the subject matter of the communication, and the
results of any related investigation.
6. Maintaining, and furnishing to the United States, on a quarterly
basis for the first year and annually thereafter, a log of all
Communications, between or among any person identified in Sections
V(B)(1) and (2) and any person employed by or associated with any other
MVPD, relating, in whole or in part, to Competitively Sensitive
Information, excluding those communications consistent with Sections
IV(D), (E), (F), (G) and (H). The log shall include but not be limited
to an identification (by name, employer and job title) of all
participants in the communication; the date, time, and duration of the
communication; the medium of the communication; and a description of
the subject matter of the communication.
[[Page 17879]]
C. If Defendants' Antitrust Compliance Officer learns of any
allegations of a violation of any of the terms and conditions contained
in this Final Judgment, Defendants shall immediately investigate to
determine if a violation has occurred and appropriate action is
required to comply with this Final Judgment. If Defendants' Antitrust
Compliance Officer learns of any violation of any of the terms and
conditions contained in this Final Judgment, Defendants shall
immediately take appropriate action to terminate or modify the activity
so as to comply with this Final Judgment. Defendants shall report any
such investigation or action in the annual compliance statement
required by Section VI(B).
D. If Defendants' Antitrust Compliance Officer learns any
Competitively Sensitive Information has been communicated from an MVPD
to any person identified in Sections V(B)(1) and (2), excluding those
communications consistent with Sections IV(D), (E), (F), (G) and (H),
the Antitrust Compliance Officer shall instruct that person that he or
she must not consider the Competitively Sensitive Information in any
way, shall advise counsel for the MVPD which communicated the
Competitively Sensitive Information that such information must not be
communicated to Defendants, and report the circumstances of the
Communication of the Competitively Sensitive Information and the
response by the Antitrust Compliance Officer in the annual compliance
statement required by Section VI(B).
VI. CERTIFICATION
A. Within sixty (60) days after entry of this Final Judgment,
Defendants shall certify to Plaintiff whether they have designated an
Antitrust Compliance Officer and have distributed the Final Judgment in
accordance with Section V(B) above. This certification shall include
the name, title, business address, email address, and business phone
number of the Person designated as Antitrust Compliance Officer.
B. For the term of this Final Judgment, on or before its
anniversary date, Defendants shall file with the Plaintiff an annual
statement as to the fact and manner of its compliance with the
provisions of Section V, including the record(s) created in accordance
with Section V(B)(4) above.
VII. COMPLIANCE INSPECTION
A. For purposes of determining or securing compliance with this
Final Judgment, or of determining whether this Final Judgment should be
modified or vacated, and subject to any legally recognized privilege,
from time to time authorized representatives of the United States
Department of Justice, including consultants and other persons retained
by the United States shall, upon written request of an authorized
representative of the Assistant Attorney General in charge of the
Antitrust Division, and on reasonable notice to Defendants, be
permitted:
1. access during Defendants' office hours to inspect and copy, or
at the United States' option, to require Defendants and their members
to provide copies of all books, ledgers, accounts, records, and
documents in their possession, custody, or control, relating to any
matters contained in this Final Judgment; and
2. to interview, either informally or on the record, Defendants'
officers, employees, or other representatives, who may have their
individual counsel present, regarding such matters. The interviews
shall be subject to the reasonable convenience of the interviewee and
without restraint or interference by Defendants.
B. Upon the written request of an authorized representative of the
Assistant Attorney General in charge of the Antitrust Division,
Defendants shall submit written reports and interrogatory responses,
under oath if requested, relating to any of the matters contained in
this Final Judgment as may be requested.
C. No information or documents obtained by the means provided in
this section shall be divulged by the United States to any person other
than an authorized representative of the executive branch of the United
States, except in the course of legal proceedings to which the United
States is a party (including grand jury proceedings), or for the
purpose of securing compliance with this Final Judgment, or as
otherwise required by law.
D. If at the time information or documents are furnished by
Defendants to the United States, Defendants identify in writing the
material in any such information or documents to which a claim of
protection may be asserted under Rule 26(c)(7) of the Federal Rules of
Civil Procedure, and Defendants mark each pertinent page of such
material, ``Subject to claim of protection under Rule 26(c)(7) of the
Federal Rules of Civil Procedure,'' then the United States shall give
ten (10) calendar days notice prior to divulging such material in any
legal proceeding (other than a grand jury proceeding).
VIII. RETENTION OF JURISDICTION
This Court retains jurisdiction to enable any party to this Final
Judgment to apply to this Court at any time for further orders and
directions as may be necessary or appropriate to carry out or construe
this Final Judgment, to modify any of its provisions, to enforce
compliance, and to punish violations of its provisions.
IX. EXPIRATION OF FINAL JUDGMENT
Unless this Court grants an extension, this Final Judgment shall
expire five (5) years from its date of entry.
X. PUBLIC INTEREST DETERMINATION
The parties have complied with the requirements of the Antitrust
Procedures and Penalties Act, 15 U.S.C. Sec. 16, including making
copies available to the public of this Final Judgment, the Competitive
Impact Statement, and any comments thereon and the United States'
responses to comments. Based upon the record before the Court, which
includes the Competitive Impact Statement and any comments and
responses to comments filed with the Court, entry of this Final
Judgment is in the public interest.
SO ORDERED:
Dated:__2017
Michael W. Fitzgerald
United States District Judge
[FR Doc. 2017-07463 Filed 4-12-17; 8:45 am]
BILLING CODE P