Viamedia, Inc. v. Comcast Corporation et al

Northern District of Illinois, ilnd-1:2016-cv-05486

SUR-REPLY by Plaintiff Viamedia, Inc. to motion to dismiss {{22}}, In Opposition to Motion to Dismiss.

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Case: 1:16-cv-05486 Document #: 32 Filed: 10/17/16 Page 1 of 10 PageID #:169 IN THE UNITED STATES DISTRICT COURT NORTHERN DISTRICT OF ILLINOIS VIAMEDIA, INC.,)) Plaintiff,) Case No. 16-cv-5486) v.) Hon. Amy J. St. Eve) COMCAST CORPORATION and) COMCAST SPOTLIGHT, LP,)) Defendants.) SURREPLY IN OPPOSITION TO DEFENDANTS' MOTION TO DISMISS Pursuant to the Court's Order of October 6, 2016 (Dkt. 31), Viamedia respectfully submits this surreply brief, limited to the issues the Court noted in its Order. The Complaint describes in detail Comcast's scheme to monopolize the market for providing third-party spot cable representation services to Multichannel Video Programming Distributors (MVPDs), a market in which Comcast Spotlight competes directly with Viamedia, and shows that Comcast has succeeded in excluding all competition of representation services in key geographic markets where it controls the Interconnect.1 In its reply brief, and for the first time, Comcast suggests that Viamedia was required to follow ritualistic pleading rules in order to state a Section 2 claim, including invoking the word "tying" in its Complaint. Comcast's formalism is simply wrong as a matter of law and any fair reading of the Complaint shows that it painstakingly sets out the substance of anticompetitive tying and exclusive dealing. "[A] complaint does not fail to state a claim merely because it fails to plead certain 'magic words'"; to the contrary, "the relevant inquiry is whether [v]iewed as a 1 Viamedia responded to Comcast's initial arguments concerning refusals to deal and the essential facilities doctrine in its Response Brief and will not repeat that response here. See Pl. Resp. (Dkt. 28) 1, 6–7. 1 Case: 1:16-cv-05486 Document #: 32 Filed: 10/17/16 Page 2 of 10 PageID #:169 whole, the complaint supports a plausible inference that defendants violated the law." Surgery Ctr. at 900 N. Mich. Ave., LLC v. Am. Physicians Assurance Corp., 2015 WL 9489926, at *2 (N.D. Ill. Dec. 30, 2015) (quotations omitted, alteration in original). Nor is a Section 2 plaintiff required to frame its allegations in terms of a particular species of antitrust claim; allegations that the defendant has obtained a monopoly through anticompetitive conduct are all that are required. 3 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 651a (4th ed. 2015).2 Quite simply, in none of the cases cited by Comcast was there an allegation that monopoly power was used to completely foreclose competition in another market. Viamedia, however, alleges that competition in the third-party representation services market has been entirely eliminated as a result of Comcast's exercise of monopoly control over key Interconnects. Prohibiting this abuse of monopoly power is a core concern of Section 2 of the Sherman Act. I. Viamedia Has Adequately Alleged Unlawful Tying. Viamedia's tying allegations are straightforward: Comcast has tied access to Comcast- controlled Interconnects for MVPDs that wish to sell regional advertising to those firms' agreement to use Comcast Spotlight as their sole spot cable advertising representative. Compl. (Dkt. 1) ¶¶ 11–12, 108, 113, 124–25, 133. Comcast argues that the Complaint does not establish two distinct markets in its tying allegations. Def. Reply (Dkt. 29) 12–14. The Complaint unmistakably describes two distinct markets: "Spot Cable Advertising" regional markets (Compl. ¶¶ 23–48) and "The Market for Spot Cable Advertising Representation" (id. ¶¶ 70–84). As to the first, the regional markets for spot cable advertising are those Designated Marketing Areas (DMAs) in which MVPDs sell regional advertising. Id. ¶¶ 4, 2 See also Caribbean Broad. Sys., Ltd. v. Cable & Wireless PLC, 148 F.3d 1080, 1087 (D.C. Cir. 1998) ("Anticompetitive conduct can come in too many different forms, and is too dependent upon context, for any court or commentator ever to have enumerated all the varieties."). 2 Case: 1:16-cv-05486 Document #: 32 Filed: 10/17/16 Page 3 of 10 PageID #:169 24, 28. Several such regional markets are identified in the Complaint. An Interconnect is the critical infrastructure that enables MVPDs to sell regional advertising as each Interconnect is "the central marketplace around which all regional Spot Cable Advertising sales in the DMA are transacted." Id. ¶ 37. These marketplaces were historically "open to all MVPDs and their representatives" and open access "is critical for MVPDs, enabling them to participate in regional Spot Cable Advertising sales and to receive revenue generated from regional sales." Id. ¶¶ 38, 43. Comcast controls these Interconnects in multiple cities. Id. ¶¶ 87–94. A wholly separate and distinct market is the "market for the provision of third-party Spot Cable Advertising Representation services to independent MVPDs," which is "the business of representing MVPD clients for the purpose of selling their Spot Cable Avails." Id. ¶¶ 72, 74. In the representation services market, Viamedia and other spot cable advertising representatives compete with Comcast Spotlight "to represent MVPDs for purposes of controlling and selling these competing MVPDs' Spot Cable Advertising." Id. ¶ 79. This representation extends across the three distinct types of cable advertising: regional sales via Interconnects, national sales via NCC, and local sales. Id. ¶¶ 70, 72. Put simply, there is a relevant antitrust market for selling regional advertising time for which access to the Comcast-controlled Interconnects is required, and a separate market for representing MVPDs in all aspects of their spot cable advertising business—not just regional sales conducted through Interconnects. As the Complaint alleges, Comcast has explicitly tied MVPDs' access to the first market to their contracting with Comcast Spotlight as their representative in the second market: Comcast conditioned the entry and reentry of multiple MVPDs to Interconnects on the MVPDs' capitulation to dropping Viamedia and hiring Comcast as their exclusive representative in all aspects of their spot cable advertising. Id. ¶¶ 108, 110, 3 Case: 1:16-cv-05486 Document #: 32 Filed: 10/17/16 Page 4 of 10 PageID #:169 113, 124–28. This is blatant tying and anticompetitive exclusionary conduct under Section 2 of the Sherman Act. See Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 461 (1992) (defining tying as "an agreement by a party to sell one product but only on the condition that the buyer also purchases a different (or tied) product, or at least agrees that he will not purchase that product from any other supplier"); Jefferson Parish Hosp. v. Hyde, 466 U.S. 2, 13 (1984) (tying "lies in the seller's exploitation of its control over the tying product to force the buyer into the purchase of a tied product that the buyer either did not want at all, or might have preferred to purchase elsewhere").3 Having ignored these allegations initially, Comcast asserts in its reply that its control over the Interconnects and access to regional advertising on the one hand, and the spot cable advertising representation market on the other hand, "are part of the same alleged product market." Def. Reply 13. Comcast's plea that the Court adopt market definitions other than those alleged in the Complaint is woefully premature, as "market definition is a deeply fact-intensive inquiry"; accordingly, "courts hesitate to grant motions to dismiss for failure to plead a relevant product market." Todd v. Exxon Corp., 275 F.3d 191, 199–200 (2d Cir. 2001) (collecting cases); see also Avnet, Inc. v. Motio, Inc., 2015 WL 5307515, at *4 (N.D. Ill. Sept. 9, 2015) (citing Todd, 275 F.3d at 199–200); In re Dairy Farmers of Am., Inc. Cheese Antitrust Litig., 767 F. Supp. 2d 880, 901 (N.D. Ill. 2011) (same); DSM Desotech Inc. v. 3D Sys. Corp., 2009 WL 3 The Seventh Circuit has repeatedly affirmed that tying is a valid theory of antitrust liability. See, e.g., Sheridan v. Marathon Petroleum Co., 530 F.3d 590, 593 (7th Cir. 2008) ("The Court has not discarded the tying rule, and we have no authority to do so."); Reifert v. S. Cent. Wis. MLS Corp., 450 F.3d 312, 316–17 (7th Cir. 2006). In Scheiber v. Dolby Laboratories, Inc., despite expressing skepticism in dicta that tying could be used in the pricing context "to lever your way to a second. . . monopoly," the court upheld tying as a valid theory in defense to patent misuse. 293 F.3d 1014, 1019–21 (7th Cir. 2002) (noting that a 1988 amendment to the patent statute retained tying as a defense to infringement). In contrast, as detailed herein, Viamedia's allegations clearly set out a case of Comcast tying its power over the Interconnects to exclusivity in the representation market. 4 Case: 1:16-cv-05486 Document #: 32 Filed: 10/17/16 Page 5 of 10 PageID #:169 174989, at *8 (N.D. Ill. Jan. 26, 2009) (observing that "market definitions are questions of fact ordinarily determined at trial"). II. Viamedia Has Adequately Alleged Unlawful Exclusive Dealing. The Complaint unambiguously alleges that Comcast excluded MVPDs that had contracted with Viamedia for advertising representation services from the Interconnects, over which it had sole control, and required those MVPDs who wanted to be readmitted to enter into exclusive spot cable advertising representation contracts with Comcast Spotlight. See Compl. ¶¶ 2, 12, 113, 124–25, 132–52. This is classic unlawful exclusive dealing by a monopolist in violation of Section 2 of the Sherman Act. Using its Interconnect power as a club, Comcast forced MVPDs into exclusionary arrangements that had "adverse economic consequences by allowing one supplier of goods or services unreasonably to deprive other suppliers of a market"—here, shutting Viamedia and other firms out of the market for spot cable advertising representation. Jefferson Parish, 466 U.S. at 45 (O'Connor, J., concurring). Comcast does not appear to genuinely dispute that the Complaint establishes exclusive dealing. Instead, according to Comcast, "exclusivity in the Spot Cable Advertising Representation business is the norm," from which Comcast concludes that its own exclusionary contracts were therefore "efficient" and also "procompetitive." Def. Reply 14–15. But Comcast fails to supply any rationale or support for its assertion that its contracts with MVPDs were procompetitive. In any event, the clear allegations in the Complaint—that these agreements were powerfully exclusionary and thus anticompetitive—must govern. Compl. ¶¶ 85, 124–35. Comcast's "perfunctory and undeveloped" arguments on this point cannot overcome the clear 5 Case: 1:16-cv-05486 Document #: 32 Filed: 10/17/16 Page 6 of 10 PageID #:169 allegations of the Complaint at the pleading stage.4 Argyropoulos v. City of Alton, 539 F.3d 724, 738 (7th Cir. 2008). Regardless, Comcast ignores the core anticompetitive nature of its exclusive dealing arrangements with MVPDs as alleged in the Complaint: they are the product of coercion backed by Comcast's monopoly control over the Interconnects. This monopoly control permitted Comcast to exclude MVPDs unless they agreed to use Comcast as their spot cable advertising representative. See, e.g., Compl. ¶ 135 (alleging that MVPDs have been completely closed out of several markets unless they agree to "deal[ ] exclusively with Comcast Spotlight"). These arrangements have resulted in Comcast's sole control of the representation market in the geographic areas identified in the Complaint. Id. ¶ 96. These allegations clearly distinguish this case from Comcast's reliance on VBR Tours LLC v. National Railroad Passenger Corp., 2015 WL 5693735 (N.D. Ill. Sept. 28, 2015). In VBR Tours, unlike here, the defendant's exclusive-dealing arrangement "provide[d] no monopolistic benefit to. . . [the defendant] that it does not already enjoy and would not continue to enjoy if the exclusive distributorship were enjoined." Id. at *13 (quoting E & L Consulting, Ltd. v. Doman Indus. Ltd., 472 F.3d 23, 29 (2d Cir. 2006)). III. Viamedia's Claims Are Not Based Upon An Impermissible "Free-standing Monopoly Leveraging Theory." Comcast further attempts to cast Viamedia's claims as representing a "'free-standing' monopoly leveraging theory" of the type that the Seventh Circuit rejected in Schor v. Abbott Laboratories, 457 F.3d 608, 611–13 (7th Cir. 2006). Def. Reply 12. But in doing so, Comcast again misrepresents the nature of Viamedia's claims, which are distinguishable from the theories rejected in Schor for at least three reasons. 4 Moreover, Comcast's citation to a single sentence within the single contract it attached to its motion to dismiss cannot establish an industry "norm." See Def. Reply 15 n.10. 6 Case: 1:16-cv-05486 Document #: 32 Filed: 10/17/16 Page 7 of 10 PageID #:169 First, the "leveraging" at issue in Schor was "free-standing" because, unlike in this case, it was unaccompanied by allegations of "any of the normal exclusionary practices—tie-in sales (or another form of bundling), group boycotts, exclusive dealing and selective refusal to deal, or predatory pricing." Id. at 610–11. In Schor, Abbott allegedly priced an HIV drug above-market when sold as a standalone product and below-market when sold in combination with other Abbott drugs. Id. The plaintiffs alleged that this made it more difficult for rival manufacturers of HIV-drug cocktails, who needed to include Abbot's drug in their competing HIV cocktails, to compete against Abbott. Id. But there was no tie or exclusive dealing because "Abbott will sell to anyone willing to pay its price: there is no refusal to deal." Id. at 610. Thus, the "leveraging" theory in Schor was that Abbott offered a low price on a combination that included a monopoly product, which the Court described as an "unalloyed benefit for consumers." Id. at 611. Similarly, in VBR Tours, the court rejected a claim where, unlike here, the defendant did not exclude any firm from competing. At issue in VBR Tours was a favorable pricing arrangement between Amtrak and a travel agency that allowed the preferred agency to offer travel packages ("Amtrak Vacations") at below-market prices. 2015 WL 5693735, at *10. The plaintiff alleged that, by entering into less favorable arrangements with competing travel agencies, the ultimate result might someday be to "drive competitors out of business and then sell Amtrak Vacations® for more." Id. But the plaintiff did not allege "a complete denial of access or its functional equivalent" to Amtrak's rail system at normal retail prices. Id. at *11. Critical to dismissal of the complaint was plaintiff's "acknowledge[ment] that Amtrak has not withheld tickets from tour operators." VBR Tours, LLC v. Nat'l R.R. Passenger Corp., 2016 WL 4945015, at *5 (N.D. Ill. Sept. 15, 2016). 7 Case: 1:16-cv-05486 Document #: 32 Filed: 10/17/16 Page 8 of 10 PageID #:169 Here, Viamedia has alleged that its MVPD customers have been subject to a complete denial of access to Comcast-controlled Interconnects. No MVPD that uses Viamedia or any non- Comcast entity as its sales representative is permitted any access to a Comcast-controlled Interconnect. Compl. ¶¶ 2, 113, 131–32, 135, 138. These allegations, along with the Complaint's straightforward tying and exclusive dealing theories, fundamentally distinguish this case from Schor. If anything, the situation here would be comparable to Abbott in Schor refusing to sell its standalone HIV drug to competing drug makers entirely and refusing to provide the drug to any consumer who did not also agree to use Abbott for all of its other pharmaceutical needs— straightforward tying and exclusive dealing conduct that Judge Easterbrook recognized in Schor as violative of the Sherman Act. 457 F.3d at 610. Second, in Schor the defendant utilized its monopoly in one market only to gain a relative advantage over competitors in a second market (i.e., by offering lower prices on a complementary good)—not to foreclose all competition in the tied market. See, e.g., id. at 611 (without allegation that defendant would "knock out" rivals from the market, "[a]nd without any prospect of rivals' exit, there is also no prospect of higher prices later. . . and no antitrust worry"); VBR Tours, 2015 WL 5693735, at *10–11 (preferential pricing scheme did not implicate the "prime concern" of "prevent[ing] a monopolist from using its monopoly power in one market as a lever to impede or destroy competition in other markets"). This case is not about preferential pricing that results in a mere competitive advantage for Comcast. And this is not a circumstance—as in Schor or VBR Tours—where the monopolization of a second market was an abstract, un-alleged, or remote potential consequence of price discrimination. The Complaint expressly alleges that Comcast has exercised monopoly control over Interconnects to eliminate all competition in the relevant markets for advertising 8 Case: 1:16-cv-05486 Document #: 32 Filed: 10/17/16 Page 9 of 10 PageID #:169 representation services, achieving complete monopolies in key DMAs. See, e.g., Compl. ¶¶ 86– 87 (noting that Comcast has gained control of "100 percent" of all Spot Cable Advertising inventory sold in Chicago and Detroit); see also id. ¶ 135. This conduct violates the Sherman Act. Ploss v. Kraft Foods Grp., Inc., 2016 WL 3476678, at *21–22 (N.D. Ill. June 27, 2016) (allegations that a defendant has used "its position of control" to "exclude[] others from the market" are sufficient to plead a violation of Section 2). Third, this case does not, as Comcast claims, implicate the single monopoly profit theory—that "a monopolist can take its monopoly profit just once"—described in Schor, 457 F.3d at 611–12. See also Sheridan, 530 F.3d at 592–93; Scheiber, 293 F.3d at 1020. The single monopoly profit theory assumes that, even for a monopolist, there is a maximum price that can profitably be charged for a product. A monopolist might attempt to discount what it charges for its monopoly product to customers who also purchase other, "complementary" products for which there is competition. E.g., Schor, 457 F.3d at 610. Some cases refer to this strategy as "price discrimination" because purchasers of the bundle may receive a lower price on the monopoly product. See Sheridan, 530 F.3d at 593. But a rational customer—so the theory goes— will not pay more for the combination of products than the sum of the monopoly price for the monopoly product and the competitive price for the complementary products. See Schor, 457 F.3d at 611–12. This means that the "price discrimination" serves only as a way to allocate a single stream of monopoly profits over multiple goods. When there is no danger of eliminating competition in the "tied" products, and thus creating potential for a second stream of monopoly rents, this type of tying may not be anticompetitive. See, e.g., Sheridan, 530 F.3d at 593. However, Viamedia does not allege "price discrimination." The Complaint could not be more clear that Comcast has used its monopoly control over Interconnects, the key infrastructure 9 Case: 1:16-cv-05486 Document #: 32 Filed: 10/17/16 Page 10 of 10 PageID #:169 in the market to provide regional spot cable advertising, to completely eliminate competition in the market for representation services. To use Judge Easterbrook's language, Comcast's scheme has successfully "knock[ed] out" all would-be competition in key geographic markets where it controls the Interconnect. Schor, 457 F.3d at 611. CONCLUSION Comcast's Motion to Dismiss should be denied. Dated: October 17, 2016 Respectfully submitted, /s/__Britt M. Miller______________ Britt M. Miller MAYER BROWN LLP 71 South Wacker Drive Chicago, IL 60606 Tel: 312.782.0600 Facsimile: 312.701.7711 bmiller@mayerbrown.com AND Mark W. Ryan (pro hac vice) Sean P. McDonnell MAYER BROWN LLP 1999 K Street NW Washington, DC 20001 Tel: 202.263.3000 Facsimile: 202.263.3300 mryan@mayerbrown.com smcdonnell@mayerbrown.com Attorneys for Plaintiff Viamedia, Inc. 10