Healy v. Cox Communications, Inc.

FILED
United States Court of Appeals
PUBLISH Tenth Circuit
UNITED STATES COURT OF APPEALS September 19, 2017
Elisabeth A. Shumaker
FOR THE TENTH CIRCUIT Clerk of Court
_________________________________
In re: COX ENTERPRISES, INC. SET-
TOP CABLE TELEVISION BOX
ANTITRUST LITIGATION
------------------------------ Nos. 15-6218 & 15-6222
RICHARD HEALY,
Plaintiff - Appellant/Cross-
Appellee,
v.
COX COMMUNICATIONS, INC.,
Defendant - Appellee/Cross-
Appellant.
_________________________________
Appeal from the United States District Court
for the Western District of Oklahoma
(D.C. No. 5:12-ML-02048-C)
_________________________________
Todd M. Schneider (Jason H. Kim and Kyle G. Bates Schneider Wallace Cottrell
Konecky Wotkyns, LLP, Emeryville, California, Rachel Lawrence Mor, Rachel
Lawrence Mor, P.C., Oklahoma City, Oklahoma, Michael J. Blaschke, Michael J.
Blaschke, P.C., Oklahoma City, Oklahoma, S. Randall Sullivan, Randall Sullivan, P.C.,
Oklahoma City, Oklahoma, A. Daniel Woska, WoskaLawFirm, PLLC, Oklahoma City,
Oklahoma, Allan Kanner and Cynthia St. Amant, Kanner & Whiteley, LLC, New
Orleans, Louisiana, Garrett W. Wotkyns, Schneider Wallace Cottrell Konecky Wotkyns,
LLP, Scottsdale, Arizona, Joe R. Whatley, Jr., Whatley Kallas, LLP, New York, New
York, W. Tucker Brown, Whatley Kallas, LLP, Birmingham, Alabama, Henry C.
Quillen, Whatley Kallas, LLP, Portsmouth, New Hampshire, with him on the briefs),
Schneider Wallace Cottrell Konecky Wotkyns, LLP, Emeryville, California, for Plaintiff-
Appellant/Cross-Appellee.
Margaret M. Zwisler (J. Scott Ballenger, Jennifer L. Giordano, Andrew J. Robinson,
Latham & Watkins LLP, Washington, D.C., Alfred C. Pfeiffer, Jr., Latham & Watkins
LLP, San Francisco, California, and D. Kent Meyers, Crowe & Dunlevy, P.C., Oklahoma
City, Oklahoma, for Defendant-Appellee/Cross-Appellant.
_________________________________
Before BRISCOE, EBEL, and PHILLIPS, Circuit Judges.
_________________________________
PHILLIPS, Circuit Judge.
_________________________________
Cox Cable subscribers cannot access premium cable services—features such as
interactive program guides, pay-per-view programming, and recording or rewinding
capabilities—unless they also rent a set-top box from Cox. Dissatisfied with this
arrangement, a class of plaintiffs in Oklahoma City (“Plaintiffs”) sued Cox under the
antitrust laws. They alleged that Cox had illegally tied cable services to set-top-box
rentals in violation of § 1 of the Sherman Act, which prohibits illegal restraints of trade.
See 15 U.S.C. § 1.
Though a jury found that Plaintiffs had proved the necessary elements to establish
a tying arrangement, the district court disagreed. In granting Cox’s Fed. R. Civ. P. 50(b)
motion, the court determined that Plaintiffs had offered insufficient evidence for a jury to
find that Cox’s tying arrangement “foreclosed a substantial volume of commerce in
Oklahoma City to other sellers or potential sellers of set-top boxes in the market for set-
top boxes.” Healy v. Cox Commc’ns, Inc. (In re Cox Enters., Inc. Set-Top Cable
2
Television Box Antitrust Litig.), No. 12–ML–2048–C, 2015 WL 7076418, *1 (W.D.
Okla. Nov. 12, 2015).1
In assessing the district court’s ruling, we first examine how the Supreme Court’s
treatment of tying arrangements has evolved. Next, we turn to how we and other circuit
courts have applied this precedent and how tying law has evolved in the circuit courts.
Finally, we analyze the district court’s assessment of what the evidence showed in light
of the evolving state of the law. Ultimately, we agree with the district court that Plaintiffs
failed to show that Cox’s tying arrangement foreclosed a substantial volume of commerce
in the tied-product market, and therefore the tie did not merit per se condemnation.
Because we agree with the district court on the foreclosure element, we affirm.
1
The district court also concluded that Plaintiffs had failed to show
anticompetitive injury, meaning that Plaintiffs’ evidence was insufficient for the jury
to conclude “that loss or injury arose from the competition-reducing aspect of
[Cox’s] behavior.” In re Cox Enters., 2015 WL 7076418, at *2. On appeal, the parties
dispute whether Plaintiffs needed to show antitrust injury, which we have defined as
“injury of the type the antitrust laws were intended to prevent and that flows from
that which makes defendant’s acts unlawful.” Elliot Indus. Ltd. P’ship v. BP Am.
Prod. Co., 407 F.3d 1091, 1124 (10th Cir. 2005) (quoting Reazin v. Blue Cross &
Blue Shield of Kan., Inc., 899 F.2d 951, 962 n.15 (10th Cir. 1990)). We need not
reach that question, however, because we agree with the district court that Plaintiffs
failed to meet their burden to show that Cox foreclosed a substantial amount of
competition, the fourth element of a per se tying claim.
Similarly, because we affirm the district court, we decline to address the issues
that Cox raises in its cross-appeal. Specifically, Cox asked us to review Plaintiffs’
failure to define a viable tying product, the proper geographic market for the tying
product, and a valid theory of damages, as well as Plaintiffs’ failure to address the
impact of the National Cooperative Research and Production Act, whether certain
class members should have been excluded from the claim, whether the “verdict in
this case provides a permissible basis for awarding damages to the individual class
members,” and whether we must remand for a new trial “because the jury instructions
did not accurately convey the essential elements of a tying claim.” Appellee’s
Response Br. at 4.
3
DISCUSSION
I. Standard of Review
We review de novo a district court’s ruling on a Rule 50(b) motion, drawing all
reasonable inferences in favor of the nonmoving party and applying the same standard as
applied in the district court. Lantec, Inc. v. Novell, Inc., 306 F.3d 1003, 1023 (10th Cir.
2002). The standard of review for Rule 50 motions “mirrors the standard” for summary-
judgment motions under Rule 56(c). Farthing v. City of Shawnee, 39 F.3d 1131, 1139
n.10 (10th Cir. 1994) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250
(1986)). Under Rule 50(b), the district court may allow judgment on the jury’s verdict,
order a new trial, or enter judgment as a matter of law for the moving party. We may
grant judgment as a matter of law only when “a party has been fully heard on an issue
during a jury trial and the court finds that a reasonable jury would not have a legally
sufficient evidentiary basis to find for the party on that issue.” Fed. R. Civ. P. 50(a)(1). In
other words, “[j]udgment as a matter of law is appropriate only if the evidence points but
one way and is susceptible to no reasonable inferences which may support the
nonmoving party’s position.” Auraria Student Hous. at the Regency, LLC v. Campus Vill.
Apartments, 843 F.3d 1225, 1247 (10th Cir. 2016) (quoting Elm Ridge Expl. Co. v. Engle,
721 F.3d 1199, 1216 (10th Cir. 2013)).
II. Background
Considering its expansive reach, the Sherman Act contains remarkably little text
and hasn’t been amended since it was enacted in 1890. Thus, antitrust law’s various
doctrines are almost entirely judge-made; courts have created these doctrines based on
4
their own interpretations of the Sherman Act’s statutory language and background. For
this reason, the statute’s limited language goes only so far, and theory must fill in the
gaps. So to understand how and why tying arrangements came to be condemned by
antitrust law, we must dive into their theoretical underpinnings.
A tie exists when a seller exploits its control in one product market to force buyers
in a second market into purchasing a tied product that the buyer either didn’t want or
wanted to purchase elsewhere. Jefferson Par. Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12
(1984), abrogated on other grounds by Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S.
28 (2006). For example, “[a] supermarket that will sell flour to consumers only if they
will also buy sugar is engaged in tying. Flour is referred to as the tying product, sugar as
the tied product.” Id. at 33 (O’Connor, J., concurring). Courts typically apply a per se rule
to tying claims.2 See Int’l Salt Co. v. United States, 332 U.S. 392 (1947), abrogated on
other grounds by Ill. Tool Works Inc., 547 U.S. 28. Under a per se rule, plaintiffs prevail
simply by proving that a particular contract or business arrangement—in this case, a tie—
exists; no further market analysis is necessary, and defendants may not present any
defenses. See 9 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1720a (3d ed.
2
Only some types of antitrust claims receive per se treatment; all others are
analyzed using a rule of reason. See Fortner Enters., Inc. v. U.S. Steel Corp., 394
U.S. 495, 499–500 (1969) (plaintiffs who fail to establish a per se tying violation
“can still prevail on the merits whenever [they] can prove, on the basis of a more
thorough examination of the purposes and effects of the practices involved, that the
general standards of the Sherman Act have been violated”). Under the rule of reason,
plaintiffs must prove “the actual effect of the [tying arrangement] on competition.”
Jefferson Par., 466 U.S. at 29.
5
2003) (“The paradigmatic per se rule condemns a readily identified practice without
proof of power, effect, or intention and without weighing possible justifications.”).
Early in the Sherman Act’s history, the Supreme Court decided that “tying” two
products together disrupted the natural functioning of the markets and violated antitrust
law. See Int’l Salt, 332 U.S. at 396. It analyzed tying claims under the per se rule: if a
plaintiff could show that a tying arrangement existed, the tie was illegal per se. Id. But
the way courts view ties has evolved substantially since tying arrangements first attracted
attention in antitrust law. Thus, today’s per se rule against tying is dramatically more
nuanced than the typical per se rule. See Areeda & Hovenkamp, supra, ¶ 1720a
(explaining the per se tying rule’s multitude of deviations from typical per se rule
application). Though the typical antitrust per se rule requires no analysis of market
conditions or effects, the Supreme Court has declared that the per se rule for tying
arrangements demands a showing that the tie creates “a substantial potential for impact
on competition.” Jefferson Par., 466 U.S. at 16. Today’s plaintiffs must therefore do
more than show that a tie exists to trigger the application of the per se rule; they must also
meet certain threshold requirements—including that the tie had the substantial potential
to harm competition in the market for the tied product.
III. The Evolution of Tying Law
From the Supreme Court’s tying cases, circuit courts have pulled several elements
needed to prove per se tying claims, though these elements differ across the circuits. To
succeed on a per se tying claim in the Tenth Circuit, a plaintiff must show that “(1) two
separate products are involved; (2) the sale or agreement to sell one product is
6
conditioned on the purchase of the other; (3) the seller has sufficient economic power in
the tying product market to enable it to restrain trade in the tied product market; and (4) a
‘not insubstantial’ amount of interstate commerce in the tied product is affected.” Suture
Express, Inc. v. Owens & Minor Distrib., Inc., 851 F.3d 1029, 1037 (10th Cir. 2017)
(quoting Sports Racing Servs., Inc. v. Sports Car Club of Am., Inc., 131 F.3d 874, 886
(10th Cir. 1997)).
If a plaintiff fails to prove an element, the court will not apply the per se rule to the
tie, but then may choose to analyze the merits of the claim under the rule of reason. See
Fortner Enters, Inc. v. U.S. Steel Corp., 394 U.S. 495, 500 (1969) (explaining that failure
to satisfy per se requirements isn’t always fatal to a tying claim and that a plaintiff “can
still prevail on the merits whenever he can prove, on the basis of a more thorough
examination of the purposes and effects of the practices involved, that the general
standards of the Sherman Act have been violated”). The fight in this case is over the
fourth element. Plaintiffs claim that “this element only requires consideration of the gross
volume of commerce affected by the tie,” and that they “met this requirement by the
undisputed evidence that Cox obtained over $200 million in revenues from renting [set-
top boxes] during the class period.” Appellants’ Opening Br. at 29. In other words,
Plaintiffs would have us infer that because Cox makes a substantial amount of money on
set-top-box rentals, the tie necessarily has the requisite potential for anticompetitive
effects in the set-top-box market. But both Cox and the district court maintain that this
element requires a showing that the tie actually foreclosed some amount of commerce, or
some current or potential competitor, in the market for set-top boxes.
7
Plaintiffs’ argument reflects an outdated view of the law. As we explain below,
recent developments in the way courts treat tying arrangements validate the district
court’s order and support Cox’s interpretation of tying law’s foreclosure element.
A. The Supreme Court’s Per Se Rule & the Evolution of Tying Law
Two Supreme Court cases, Jefferson Parish and Fortner Enterprises, establish
that proof of foreclosure is necessary to prove a per se tying claim. But when the
Supreme Court first addressed tying arrangements, it concluded that they served “hardly
any purpose beyond the suppression of competition.” E.g., Standard Oil Co. of Cal. v.
United States, 337 U.S. 293, 305 (1949). At that time, the Court placed tying
arrangements in the class of “agreements or practices which because of their pernicious
effect on competition and lack of any redeeming virtue are conclusively presumed to be
unreasonable and therefore illegal without elaborate inquiry as to the precise harm they
have caused or the business excuse for their use.” N. Pac. Ry. Co. v. United States, 356
U.S. 1, 5 (1958). Still, even at this early juncture, the Court seemed to recognize that,
unlike price-fixing and market division between competitors, “there is nothing inherently
anticompetitive about packaged sales.” Jefferson Par., 466 U.S. at 25. So, without
claiming to modify its per se rule, the Supreme Court stated that tying arrangements are
“unreasonable in and of themselves,” but only “when[] a party has sufficient economic
power with respect to the tying product to appreciably restrain free competition in the
market for the tied product and a ‘not insubstantial’ amount of interstate commerce is
affected.” Fortner Enters., 394 U.S. at 499 (quoting N. Pac. Ry. Co., 356 U.S. at 6).
8
This case primarily concerns the foreclosure element of tying claims, which stems
from Fortner. In Fortner, the Supreme Court stated that “[t]he requirement that a ‘not
insubstantial’ amount of commerce be involved makes no reference to the scope of any
particular market or to the share of that market foreclosed by the tie.” 394 U.S. at 501.
But the Court then clarified that “normally the controlling consideration is simply
whether a total amount of business, substantial enough in terms of dollar-volume so as
not to be merely de minimis, is foreclosed to competitors by the tie.” Id. To reach this
holding, the Court relied on an earlier case in which it stated that “it is ‘unreasonable, per
se, to foreclose competitors from any substantial market’ by a tying arrangement.” Id.
(quoting Int’l Salt, 332 U.S. at 396).
After Fortner, the Court again addressed tying claims in Jefferson Parish.
There, the Court modified its view of tying arrangements. It explained that the rule
prohibiting ties aims to prevent sellers from using their power in one market to gain
control in a separate market. 466 U.S. at 12. It also emphasized that antitrust law
protects competition, not competitors or even consumer choice or price. Id. at 14–15.
As the Court stated,
[T]he law draws a distinction between the exploitation of market power
by merely enhancing the price of the tying product, on the one hand, and
by attempting to impose restraints on competition in the market for a
tied product, on the other. When the seller’s power is just used to
maximize its return in the tying product market . . . the competitive
ideal of the Sherman Act is not necessarily compromised. But if that
power is used to impair competition on the merits in another market, a
potentially inferior product may be insulated from competitive
pressures. This impairment could either harm existing competitors or
create barriers to entry of new competitors in the market for the tied
product, and can increase the social costs of market power by
9
facilitating price discrimination, thereby increasing monopoly profits
over what they would be absent the tie.
Id. (footnote and citations omitted); see also Areeda & Hovenkamp, supra, ¶ 1726c
(“Interference with customer choice is not itself the concern of tying law; rather, the
relevant interference is the one that results from an anticompetitive effect in the tied
market—namely, from the threat of increased concentration, higher prices, or perhaps
an increase in the social costs of preexisting power in the tying market.”). Thus, the
Court realized “that every refusal to sell two products separately cannot be said to
restrain competition.” Jefferson Par., 466 U.S. at 11.
Attempting to screen out tying arrangements that posed no danger to
competition, the Jefferson Parish Court enumerated several threshold requirements
necessary to trigger application of the per se rule against tying. From these
requirements, circuit courts have shaped the elements required for per se claims.
These requirements included a seller’s power in the tying market, the tying of two
distinct products, and, most importantly for our purposes, the likelihood of
anticompetitive conduct. Id. at 15–16. Discretely amending its approach from
previous cases such as Fortner and International Salt, the Court also required as a
threshold matter a “substantial potential for impact on competition” before it would
apply its per se rule to a tying arrangement. Id. at 16. Even though the Court said that
“[t]he rationale for per se rules in part is to avoid a burdensome inquiry into actual
market conditions in situations where the likelihood of anticompetitive conduct is so
great as to render unjustified the costs of determining whether the particular case at
10
bar involves anticompetitive conduct,” it simultaneously “refused to condemn tying
arrangements unless a substantial volume of commerce is foreclosed thereby.” Id.
at 15 n.25, 16. It went on to explain that “[o]nce this threshold is surmounted, per se
prohibition is appropriate if anticompetitive forcing is likely.” Id. at 16 (emphasis
added). So, not only must plaintiffs demonstrate the existence of certain threshold
conditions, they must also show that anticompetitive forcing is likely because of the
tie. In this way, the Court acknowledged that some ties have little or no potential to
harm competition, and therefore shouldn’t trigger the per se rule.
So, as outlined above, Jefferson Parish modified Fortner. And most recently,
the Supreme Court modified the law even further by prohibiting courts from inferring
market power over the tying product from a seller’s patent on that product. Ill. Tool
Works Inc., 547 U.S. at 31. Though that decision isn’t factually relevant to our case
and bears on a different element, it signifies that “[o]ver the years, . . . [the Supreme]
Court’s strong disapproval of tying arrangements has substantially diminished.” Id.
at 35. This attitude is on display in Jefferson Parish, where the Court stated without
qualification that “we have refused to condemn tying arrangements unless a
substantial volume of commerce is foreclosed thereby.” 466 U.S. at 16.
So, even if tying plaintiffs show that a tie affected a substantial dollar volume of
sales, they must still show that the tie meets Jefferson Parish’s threshold requirements to
trigger the per se rule. In other words, the tying arrangement must be the type of tie that
could potentially harm competition in the tied-product market. If “no portion of the
market which would otherwise have been available to other sellers has been foreclosed,”
11
then no amount of tied sales could cross the threshold to per se condemnation. Id.;
Areeda & Hovenkamp, supra, ¶ 1721d (explaining that if there are no rival sellers of the
tied product or if the buyer would not have bought the tied product even from a different
seller, then, “[n]otwithstanding a substantial dollar volume of sales . . . the foreclosure is
zero and therefore fails to cross the per se ‘threshold.’” (quoting Jefferson Par., 466 U.S.
at 16)). Thus, though the per se rule against tying doesn’t require an exhaustive analysis
into a tie’s anticompetitive effects in the tied product market, the rule “can be coherent
only if tying is defined by reference to the economic effect of the arrangement.” Jefferson
Par., 466 U.S. at 21 n.33.
B. Per Se Tying Law in Other Circuit Courts
Circuit courts have undergone a similar theoretical shift. They first picked up on
the peculiar nature of tying claims in Coniglio v. Highwood Servs., Inc., 495 F.2d 1286,
1292 (2d Cir.), cert. denied, 419 U.S. 1022 (1974). See Areeda & Hovenkamp, supra,
¶ 1722b. In that case, the Second Circuit began explicitly requiring “anticompetitive
effect[s]” as an element of a per se tying claim. Coniglio, 495 F.2d at 1292. The plaintiff
complained that the Buffalo Bills forced fans to buy tickets to exhibition games along
with regular-season home games in season-ticket packages, and that he had no interest in
going to the exhibition games. Id. at 1288–89. Without declaring that it was creating a
new requirement for tying claims, the court announced that the plaintiff’s claim failed
because he couldn’t show any anticompetitive effects in the tied-product market. Id.
at 1291–92. Because the Buffalo Bills necessarily had a monopoly over regular-season
games as well as exhibition games, “there were neither actual nor potential competitors to
12
the Bills in the professional football market.” Id. at 1291 (footnote omitted). Thus, noting
that the plaintiff had completely failed “to demonstrate any adverse effect on
competition, actual or potential,” the court affirmed the district court’s grant of summary
judgment to Highwood Services (the owner and operator of the Buffalo Bills). Id.
at 1293.
Other circuits have since taken up this mantle—some have done so explicitly and
others implicitly. See Areeda & Hovenkamp, supra, ¶ 1722a (listing circuits requiring
anticompetitive effects to succeed on tying claims). The Fifth Circuit explicitly required
Coniglio’s anticompetitive effects in Driskill v. Dallas Cowboys Football Club, Inc., 498
F.2d 321, 323 (5th Cir. 1974), in which a Dallas Cowboys fan brought the exact same
claim as the plaintiff in Coniglio. The Eleventh Circuit then cited Driskill in granting
summary judgment to a condominium vendor that required condominium buyers to lease
individual interest in common areas. Commodore Plaza at Century 21 Condo. Ass’n v.
Saul J. Morgan Enters., Inc., 746 F.2d 671, 672 (11th Cir.), cert. denied, 467 U.S. 1241
(1984). The court stated, “In this case, as in Driskill, the plaintiffs failed to make any
showing of coercion or anticompetitive effects.” Id.
Building on this growing trend, the First Circuit has stated that tying claims “must
fail absent any proof of anti-competitive effects in the market for the tied product.” Wells
Real Estate, Inc. v. Greater Lowell Bd. of Realtors, 850 F.2d 803, 815 (1st Cir.), cert.
denied, 488 U.S. 955 (1988). The court moderated this holding, stating that plaintiffs
need not prove “the actual scope of anti-competitive effects in the market,” but ultimately
adopted Jefferson Parish’s reasoning in stating that “as a matter of practical inferential
13
common sense,” the plaintiff had to “make some minimal showing of real or potential
foreclosed commerce caused by the tie.” Id. at 815 n.11.
Similarly, the Seventh Circuit has declined to apply the per se rule to condemn ties
that pose no danger to competition. See Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 585
F.2d 821 (7th Cir.), cert. denied, 440 U.S. 930 (1978). In Ohio-Sealy, the court
acknowledged that it was “not free to inquire whether such tying in any given case
injures market competition,” but still stated that “if a given tying arrangement has no
potential to foreclose access to the tied product market, it does not exemplify the vice that
led the [Supreme] Court to declare tying a [p]er se [o]ffense.” Id. at 835.
So, like the Supreme Court, the circuit courts generally recognize that a tie should
not be condemned under the per se rule unless it has the potential to harm competition.
C. Per Se Tying Claims in the Tenth Circuit
Similarly, we have acknowledged that even under a per se rule, we must at least
make a threshold determination of potential harm to competition before we can condemn
a tying arrangement under the Sherman Act. In Fox Motors, Inc. v. Mazda Distributors
(Gulf), Inc., 806 F.2d 953, 955 (10th Cir. 1986), we integrated this caveat to the per se
rule into the fourth element of a per se tying claim. There, a company that imported
Mazda cars and distributed them to car dealerships refused to sell the dealerships a
popular car model, the RX-7, unless the dealers sold a sufficient amount of the less-
popular car model, the GLC. Id. at 955–56. The dealerships sued, alleging that the
distributor’s allocation method constituted a per se illegal tie under § 1 of the Sherman
Act. Id. at 956. While acknowledging that the Supreme Court has deemed certain tying
14
arrangements illegal per se, we specified that tying arrangements pose no risk of
foreclosing competition in the tied-product market unless certain elements are present.
See id. at 957.
Specifically, we held that tying arrangements must “foreclose to competitors of the
tied market a ‘not insubstantial’ volume of commerce.” Id. at 957 (emphasis added)
(quoting Fortner, 394 U.S. at 499). In Fox Motors, “[t]he record contain[ed] no
indication that the alleged tying arrangement, as distinct from consumer demand,
influenced the level” of competition in the tied-product market. Id. at 958. Therefore,
even though proof of anticompetitive effects was not an explicit element of tying claims
in the Tenth Circuit, we still concluded that the tying arrangement “simply [did] not
imply a sufficiently great likelihood of anticompetitive effect.” Id. Because the tie failed
to foreclose any competing car manufacturers, it didn’t meet Jefferson Parish’s threshold
requirements for per se treatment. Id. Thus, we incorporated proof of actual or likely
anticompetitive effect into the foreclosure element of tying claims. In doing so, we
heeded Jefferson Parish’s warning that some tying arrangements simply don’t pose the
same level of risk as those behaviors whose potential to harm competition is so
pronounced as to deserve per se condemnation without regard to their actual impact on
the market.
D. Per Se Tying Law & Technology
Courts have also acknowledged that some industries or products are sufficiently
distinct that per se treatment is inappropriate. This is especially true in the world of
15
technology, where courts are often unfamiliar with the products and market structure, and
thus can’t be certain of the potential for anticompetitive effects.
Per se rules of antitrust illegality are reserved for those situations where
logic and experience show that the risk of injury to competition from the
defendant’s behavior is so pronounced that it is needless and wasteful to
conduct the usual judicial inquiry into the balance between the behavior’s
procompetitive benefits and its anticompetitive costs.
Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 486–87 (1992) (Scalia, J.,
dissenting). The D.C. Circuit applied this principle in United States v. Microsoft Corp.,
253 F.3d 34 (D.C. Cir. 2001). Though the factual circumstances of that case are quite
different from our own, we find the D.C. Circuit’s reliance on Eastman Kodak and
Jefferson Parish illuminating. There, the court faced a novel tying arrangement in which
Microsoft had integrated the internet web browser, Internet Explorer, into Windows, its
computer operating system. Id. at 45. Noting that some business relationships “represent
entire, novel categories of dealings,” the court concluded that “simplistic application of
per se tying rules” would be inappropriate. Id. at 84. The court acknowledged that tying
arrangements can impact buyers’ independent judgment in the tied-product market, but it
went on to state that when “competitive firms always bundle the tying and tied goods,”
the tie should not trigger the per se rule. Id. at 86. “Indeed, if there were no efficiencies
from a tie (including economizing on consumer transaction costs such as the time and
effort involved in choice),” consumers would always purchase a product’s component
parts separately. Id. at 87. Thus, because even firms without market power integrated
internet web browsers and computer operating systems, and the court was dealing with a
16
relatively novel tying arrangement, the court refused to apply the per se rule to condemn
the tying arrangement. Id. at 93.
A recent Second Circuit case, Kaufman v. Time Warner, 836 F.3d 137 (2d Cir.
2016), builds on Microsoft and is even more relevant to our analysis because it concerns
the same tie by a different cable company. Similar to our case, the plaintiffs were a class
of Time Warner Cable subscribers who were forced to rent set-top boxes to receive
premium cable services. Though tying claims in the Second Circuit differ from ours by
explicitly requiring a showing of anticompetitive effects in the tied-product market, the
court’s analysis in Kaufman is still very useful. See id. at 141. The court thoroughly
explained the technology behind premium cable and set-top boxes and demonstrated why
the tying arrangement at issue didn’t trigger the application of the per se rule.3
To start, the court explained that cable providers sell their subscribers the right to
view certain packages of programming. Id. at 144. But the content creators—companies
like HBO that produce television shows—require the cable companies to prevent viewers
from stealing their content. Id. Set-top boxes solve this problem—cable providers “code
their signals to prevent theft,” and cable boxes receive the providers’ coded signals and
“unscramble” them. Id. “Unsurprisingly, providers do not share their codes with cable
box manufacturers. . . . Therefore, to be useful to a consumer, a cable box must be cable-
provider specific, like the keys to a padlock.” Id.
3
Though the Second Circuit rejected the plaintiffs’ claim because set-top
boxes and premium cable services aren’t two distinct products, its analysis supports
the conclusion we reach here today—namely, that the tie at issue doesn’t meet the per
se rule’s threshold requirements.
17
After explaining the function of set-top boxes, the Second Circuit turned to the
regulatory environment and the history of the cable industry’s use of set-top boxes.
Significantly, the court pointed out that “[a]ntitrust analysis must always be attuned to the
particular structure and circumstances of the industry at issue” because “the existence of
a regulatory structure designed to . . . perform[] the antitrust function” might “diminish[]
the likelihood of major antitrust harm.” Id. at 145 (second and third alterations in
original) (quoting Verizon Commc’ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540
U.S. 398, 411–12 (2004)). The court described the Federal Communication
Commission’s (“FCC”) attempts over the past twenty years to disaggregate set-top boxes
from the delivery of premium cable, and stated that the FCC’s failure is at least partly
attributable to shortcomings in the new technologies designed to make premium cable
available without set-top boxes. See id. at 146 (“[A] new approach that would work with
two-way services [failed because it] was not sophisticated enough to meet content
companies’ content protection demands.” (alterations in original) (quoting Expanding
Consumers’ Video Navigation Choices; Commercial Availability of Navigational
Devices, 81 Fed. Reg. 14,033, 14,033–04 (Mar. 16, 2016))).
The court also pointed out that one FCC regulation actually caps the price that
cable providers can charge customers who rent set-top boxes.4 See 47 C.F.R. § 76.923(f)–
(g). Under the regulation, cable companies must calculate the cost of making such set-top
4
Neither Healy nor Cox addresses this regulation. Still, it is relevant to the
issue at hand because it limits the amount of power Cox can obtain in the tied-
product market.
18
boxes functional and available for consumers, and must charge customers according to
those costs, including only a “reasonable profit” in their leasing rates. Id. § 76.923(c).
The Second Circuit ultimately concluded that the plaintiffs’ factual allegations against
Time Warner couldn’t survive summary judgment because they didn’t trigger the
application of the per se tying rule. Id. at 147.
In sum, it is now clear that before applying the per se rule to tying arrangements,
courts must carefully analyze the tie to ensure that it meets Jefferson Parish’s threshold
requirements. If it does not, the court may further analyze the tie using the rule of reason
to determine whether it actually harms or threatens to harm competition.5
IV. Analysis
A. Foreclosure of a Substantial Volume of Commerce
This case comes down to what it means to foreclose a “not insubstantial” volume
of commerce. As we discussed, a per se tying claim has four elements, and we have
concluded that the fourth element—foreclosure—requires proof of actual or potential
anticompetitive effects in the tied-product market. Based on the Supreme Court’s tying
cases and our own precedent, Plaintiffs failed to show that the tie had the substantial
potential to foreclose competition. See Jefferson Par., 466 U.S. at 15–16; Fox Motors,
806 F.2d at 957–58.
5
Courts need apply a rule-of-reason analysis to a per se tying claim only if
plaintiffs argue that the tie is illegal under the rule of reason as well. See Fox Motors,
806 F.2d at 959 n.3 (“Because the challenged allocation system was not unlawful
under the per se rule and because plaintiffs have not challenged its legality under the
Rule or [sic] Reason, we need not consider whether the evidence of a conspiracy
between defendants was sufficient.”).
19
The jury found that Plaintiffs had met their burden of showing that Cox’s tie had
foreclosed a substantial amount of commerce in the set-top-box market. The jury-verdict
form asked, “Has the alleged tying arrangement foreclosed a substantial volume of
commerce in the Oklahoma City subsystem to other sellers or potential sellers of set-top
boxes in the market for set-top boxes?” Joint App. vol. III at 614. The jury circled “Yes.”
Id. But a careful review of the record in light of post-Jefferson Parish law reveals that the
record does not support the jury’s conclusion. Rather, just as the district court found,
Cox’s tie didn’t foreclose any commerce, nor did it prevent or even discourage other
competitors from entering the market. Therefore, Cox’s tie didn’t meet the foreclosure
element’s threshold requirements necessary to trigger the per se rule against tying.
B. The Jury Instruction Was Correct
Plaintiffs vehemently argue that they presented enough evidence to show that
Cox’s tie affected a substantial volume of commerce. But before we can reach the
evidence, we must address Plaintiffs’ claim that the law and the foreclosure-of-commerce
jury instruction required them to show only that Cox’s set-top-box rental proceeds
yielded more than a de minimis dollar amount. Plaintiffs argue that to satisfy this element
of their claim, the jury instructions properly required them to show only that Cox’s set-
top-box rental profits were more than de mimimis. They claim that neither the jury
instruction nor the law required any further proof for them to meet their burden on this
issue. Their argument fails because it emphasizes one line of the jury instruction at the
expense of the remainder. When read as a whole, the jury instruction implements the
overall goals of tying law and Jefferson Parish’s threshold requirements.
20
The jury instruction on the foreclosure-of-commerce element, Jury Instruction 19,
contained two paragraphs:
The fourth element that Plaintiff[s] must prove is whether, during the
class period, [Cox] has foreclosed a substantial amount of commerce to
other sellers or potential sellers of set-top boxes in the market for set-top
boxes. This occurs when the tying of two products either prevents
competitors from selling the tied product or limits the choice available to
consumers in the purchase of the tied product.
In determining whether [Cox] has foreclosed a substantial amount of
commerce in the relevant market for set-top boxes, you should first
consider the total dollar amount of [Cox’s] leases of set-top boxes in
Oklahoma City achieved by the tying arrangement in absolute terms. If the
dollar amount of [Cox’s] leases of set-top boxes was substantial, then you
should find that [Cox] has foreclosed a substantial amount of commerce.
Joint App. vol. III at 601 (emphasis added). Upon Cox’s renewed Rule 50(b) motion, the
district court concluded that Plaintiffs had failed to prove the foreclosure element of their
tying claim because “Plaintiff[s] failed to offer evidence from which a jury could
determine that any other manufacturer wished to sell set-top boxes at retail or that Cox
had acted in a manner to prevent any other manufacturer from selling set-top boxes at
retail.” In re Cox Enters., 2015 WL 7076418, at *1.
Plaintiffs contend that nothing in the jury instructions required them to offer such
evidence. Instead, they seize upon the last sentence of the jury instruction, arguing that to
prevail on the foreclosure element, they needed to show only that Cox made a substantial
amount of money on its set-top-box leases. We acknowledge that reading the last
sentence in isolation could lead a jury to believe that plaintiffs met the foreclosure
element just by showing that the defendant made a substantial amount of money on the
21
tied product. But, though inartfully drawn, the instruction must be read as a whole.6 And
when doing so, we believe it evident that Plaintiffs’ reading—elevating the last sentence
above the rest of the instruction—is incorrect.7
In fact, Plaintiffs’ interpretation of Jury Instruction 19 would render the entire first
paragraph of the jury instruction meaningless. This paragraph is not merely explanatory;
it defines the fourth element’s affirmative requirements. As a threshold matter, it provides
that Plaintiffs must show not only that Cox has foreclosed a substantial volume of
commerce, but that it has foreclosed this commerce “to other sellers or potential sellers of
6
A proper reading of the instruction does not cast off earlier requirements just
because the instruction does not go to the trouble, and length, to repeat them in every
sentence. When the last sentence is read as part of the whole instruction, it gives
effect to earlier language, meaning this: “If the dollar amount of [Cox’s] leases of
set-top boxes [achieved by the tying arrangement] was substantial, then you should
find that [Cox] has foreclosed a substantial amount of commerce [to other sellers or
potential sellers of set-top boxes in the market for set-top boxes].”
7
Plaintiffs argue that “[e]ven if . . . the jury instructions were incomplete or
incorrect, the remedy is a new trial under correct instructions and not judgment in
favor of Cox.” Appellants’ Response Br. at 23–24. But a new trial with a jury
instruction that more clearly explained the foreclosure element wouldn’t change the
outcome of this case.
As we explained above, the foreclosure element of a per se tying claim in our
circuit requires a showing that the tie had the potential to or actually did harm
competition in the tied-product market. Having “been fully heard on [the] issue . . .
there is no legally sufficient evidentiary basis for a reasonable jury to find for
[Plaintiffs]” under the law. Fed. R. Civ. P. 50(a)(1). In other words, the record shows
that Cox’s tie was not the sole—or even the primary—reason that Plaintiffs couldn’t
purchase set-top boxes or their alternatives from other manufacturers. See In re Cox
Enters., 2015 WL 7076418, at *1 (“Plaintiff[s] failed to offer evidence from which a
jury could determine that any other manufacturer wished to sell set-top boxes at retail
or that Cox had acted in a manner to prevent any other manufacturer from selling set-
top boxes at retail.”). Therefore, the tie didn’t foreclose competition in the tied-
product market and the district court properly granted Cox judgment as a matter of
law under Rule 50(b).
22
set-top boxes.” Joint App. vol. III at 601 (emphasis added). The paragraph then goes on
to explain that in a tying claim, plaintiffs must show that the tying arrangement caused
the foreclosure—either by preventing new competitors from entering or by driving
existing competitors out of the tied-product market.
When read in context, the first paragraph of Jury Instruction 19 restricts the
meaning of its last sentence. The dollar amount of Cox’s set-top-box leases that is
relevant to the foreclosure element must have been achieved by the tie. This is
important—the foreclosure must result from the tie itself, not from any other
anticompetitive conduct (which would be a different claim altogether), or from any
external factors unrelated to the tie. But the total dollar amount of the leases doesn’t
matter if Cox’s tie wasn’t the reason its customers leased set-top boxes from Cox. In
other words, Jury Instruction 19 properly explains that making money from a tying
arrangement doesn’t violate § 1 of the Sherman Act unless the defendant, by doing so,
has actually or potentially foreclosed or injured competition in the tied-product market.
This interpretation of the jury instruction accords with the Supreme Court’s tying-
law precedent. See Jefferson Par., 466 U.S. at 15–16 (“Per se condemnation—
condemnation without inquiry into actual market conditions—is only appropriate if the
existence of forcing is probable. Thus, application of the per se rule focuses on the
probability of anticompetitive consequences. Of course, as a threshold matter there must
be a substantial potential for impact on competition in order to justify per se
condemnation.”). It also accords with our own tying-law precedent. See Fox Motors, 806
F.2d at 959 (declining to condemn the alleged tying arrangement because it didn’t
23
foreclose competing manufacturers and therefore “cannot be characterized as a tying
arrangement of the kind presumptively condemned under the antitrust laws”).
As we discussed above, the question of whether to apply the per se rule to tying
claims has become increasingly complex as courts have begun to question whether tying
arrangements actually deserve per se condemnation. See Ill. Tool Works, 547 U.S. at 35
(noting that “strong disapproval of tying arrangements has substantially diminished”);
Jefferson Par., 466 U.S. at 35 (O’Connor, J., concurring) (“The time has . . . come to
abandon the ‘per se’ label and refocus the inquiry on the adverse economic effects, and
the potential economic benefits, that the tie may have.”). Because tying claims often
present little or no potential to harm competition—and thus, no antitrust concerns—
plaintiffs alleging per se unlawful tying arrangements must do more to meet the
foreclosure element than point to a dollar amount. See Jefferson Par., 466 U.S. at 15–16.
They must show that the alleged tying arrangement had the potential to or actually did
injure competition. Thus, even before we reach the application of the per se rule, the
plaintiffs must show that this is the type of tie that threatens to harm competition such
that it deserves per se treatment. Here, the jury instruction properly required the Plaintiffs
to do so, and the Plaintiffs failed to meet their burden.
C. Plaintiffs Failed to Show Foreclosure
Turning to the district court’s order granting Cox’s Rule 50(b) motion, the district
court found that Cox hadn’t foreclosed any commerce because, through no fault of Cox’s,
no manufacturers sold or even wanted to sell set-top boxes directly to consumers. In re
Cox Enters., 2015 WL 7076418, at *1. Plaintiffs argue that they presented more than
24
enough evidence to show that the lack of competition in the set-top-box market resulted
from Cox’s tying arrangement. We acknowledge that we must not disregard the jury’s
verdict. But in light of our analysis of the foreclosure element, we agree with the district
court that Plaintiffs failed to present evidence sufficient to show that Cox’s alleged tie
foreclosed a substantial volume of commerce in the market for set-top boxes. In other
words, “the evidence points but one way and is susceptible to no reasonable inferences
which may support [Plaintiffs’] position.” Auraria Student Hous., 843 F.3d at 1247
(quoting Elm Ridge Expl. Co., 721 F.3d at 1216). We therefore conclude that the tie did
not trigger the application of the per se rule.
Similar to Fox Motors and Microsoft, our case simply doesn’t merit per se
condemnation. Four factors support our conclusion. First, Cox was an intermediary
between set-top-box manufacturers and cable customers. Second, Cox had no competitors
in the set-top-box market. Third, all cable companies similarly tie premium cable services
to set-top-box rentals, suggesting that net efficiencies and technological constraints—
rather than desire to gain monopoly power in the tied-product market—necessitated the
tie. Finally, the FCC’s regulatory involvement in set-top boxes further diminishes the
possibility that Cox’s tie could harm competition in that market.
We begin with the significant fact that Cox does not manufacture the set-top boxes
that it rents to customers. On appeal, Plaintiffs completely failed to address this unique
market structure. Cox acts as an intermediary between the set-top-box manufacturers and
the consumers that use them. That Cox purchases the boxes from manufacturers—and
does not make the boxes itself—means that what it later does with the boxes has little or
25
no effect on competition between set-top-box manufacturers in the set-top-box market.
See Areeda & Hovenkamp, supra, ¶ 1709e4 (when sellers simply buy a product from
existing manufacturers and resell them to tied customers at a profit, “the tie neither limits
the marketing opportunities of the several manufacturers of the second product nor
impairs the vitality of competition in their market. Each of those manufacturers remains
free to compete for the patronage or blessing of the tying defendant . . . .”).
In fact, competition in the set-top-box market might continue to be robust because
set-top-box manufacturers must continue to innovate and compete with each other to
maintain their status as the preferred manufacturer for as many cable companies as
possible. Id. As a prominent antitrust scholar has noted, “a foreclosure is of doubtful
significance when the tying seller does not make the tied product but merely purchases it
from independent suppliers,” id. ¶ 1709a, because “[a] tie cannot bring the defendant
power in a market that it does not inhabit. . . . [S]uch a defendant does not itself ‘invade’
or ‘dominate’ the market for the tied product,” id. ¶ 1726d1 (citing Carl Sandburg Vill.
Condo. Ass’n No. 1 v. First Condo. Dev. Co., 758 F.2d 203, 207 (7th Cir. 1985); Ohio-
Sealy, 585 F.2d at 834–35).
Though the risk of foreclosing competition increases when the seller’s
customers—here, Cox’s premium cable subscribers—are the only purchasers of the tied
product, the risk is offset in this case because if they chose to, set-top-box manufacturers
could sell their wares directly to cable customers. But none do. If enough customers
demanded to buy set-top boxes or set-top-box alternatives directly from manufacturers,
the manufacturers could have chosen to sell them directly; Cox’s tie did not preclude
26
them from doing so. In fact, Cox presented testimony from the executives of several set-
top-box manufacturers confirming that Cox had no impact on their decisions not to sell
set-top boxes at retail or directly to consumers.
Second, that no manufacturers chose to sell their products to consumers, either
directly or at retail, means that Cox has no existing rivals in the set-top-box market (as
the district court pointed out). Though Plaintiffs maintain that they don’t need to prove
the existence of any competitors in the tied-product market, they allege that Cox’s tie
likely caused the lack of competitors in the set-top-box market. Even if Cox had created
an effective tie—and it very well might have done so—the lack of competitors in the set-
top-box market doesn’t prove that the tie foreclosed commerce or harmed competition in
that market.
Plaintiffs alternatively argue that numerous actual and potential competitors
existed in the retail market for set-top boxes. To support their claim, Plaintiffs point to
evidence that many manufacturers were certified to offer CableCard-enabled products at
retail. But in doing so, Plaintiffs again ignore that representatives of these manufacturers
testified that they chose not to sell their set-top boxes at retail for reasons unrelated to
Cox’s tie. Plaintiffs also argue that TiVo wanted to sell a set-top box at retail but couldn’t
move forward with this plan due to a falsely manufactured “indemnification issue” on
Cox’s part. Appellant’s Opening Br. at 25.
But contrary to Plaintiffs’ contention, the record suggests instead that both Cox
and TiVo thought their first attempt at TiVo boxes that integrated Cox’s premium cable
services operated too slowly to offer to customers, and that after the indemnification issue
27
stalled their second project (which was not close to completion in any case), Cox and
TiVo moved on to a third initiative to continue trying to make TiVo’s box compatible
with Cox’s premium cable services. Finally, Plaintiffs point out that many other
manufacturers were interested in the set-top-box market, and that a few companies
offered Tru2Way products for sale at retail. But Plaintiffs failed to show that Cox’s tie, as
opposed to consumer choice, defeated these products or kept their manufacturers from
selling them.
So here, we have no foreclosure, and zero-foreclosure ties present no antitrust
concerns. See Areeda & Hovenkamp, supra, ¶ 1723a (“When there are no rival sellers of
the tied product, then the alleged tie might affect a substantial volume of commerce in the
tied product and yet not foreclose anyone.”). Because set-top-box manufacturers choose
not to sell set-top boxes at retail or directly to consumers, “no rival in the tied market
could be foreclosed by” Cox’s tie, and therefore “the alleged tie ‘does not fall within the
realm of contracts “in restraint of trade or commerce” proscribed by Section 1 of the
Sherman Act . . . .’” Id. ¶ 1723b (quoting Coniglio, 495 F.2d at 1292).
Plaintiffs contend that the zero-foreclosure rule applies only where consumers
don’t want the tied product or where no other seller is capable of selling the tied product
for reasons unrelated to the tie. This argument misreads the case law. Though some
courts have found that no rival sellers exist when no other sellers are capable of selling
the tied product, see Coniglio, 495 F.2d at 1291, nowhere did those courts state that this
was the only occasion where the lack of rival sellers would excuse a tie. Here, the record
shows that Cox’s tie didn’t cause the lack of competitors in the set-top-box market
28
because several manufacturers testified that Cox’s actions had no impact on their decision
to enter the retail market. This removes the tie from the category of tying claims
deserving per se condemnation.
Third, as the D.C. Circuit found so significant in Microsoft, all cable companies
rent set-top boxes to consumers. See Microsoft, 253 F.3d at 86; see also Kaufman, 836
F.3d at 144 (“[T]he Complaint lacks any allegation that there have ever been separate
sales of set-top boxes and cable services . . . in the United States, even in markets where
cable providers face competition . . . .”). This suggests that tying set-top-box rentals to
premium cable is simply more efficient than offering them separately. Microsoft, 253
F.3d at 88 (“[B]undling by all competitive firms implies strong net efficiencies.”); see
also Areeda & Hovenkamp, supra, ¶ 1729e2 (“[T]he most likely inference to be drawn
from similar ties imposed by each firm in a market, whether concentrated or
unconcentrated, is that competition rather than oligopoly has forced the tie.”). Here,
technology requirements dictate that consumers rent or buy set-top boxes to receive all of
Cox’s services. See Kaufman, 836 F.3d at 144 (“A cable box must be designed to receive
the signal from a particular provider, which requires the provider’s cooperation. And
because providers code their signals to prevent theft, a cable box must also be able to
unscramble the coded signal of the particular provider.”). Plaintiffs point out that
efficiency and technology aren’t the only reasons for Cox’s tying arrangement, because
cable companies make a hefty profit on set-top-box rentals. But the mere fact that Cox
profited from set-top-box rentals doesn’t justify applying the per se rule. See Carl
Sandburg, 758 F.2d at 208 (“[P]laintiff does not establish the requisite economic interest
29
in the tied product market merely by alleging that the tying seller is receiving a profit
from the transaction as a whole.”). Tying law is concerned with protecting competition;
“high prices standing alone are not the evil that antitrust tying law condemns.” Areeda &
Hovenkamp, supra, ¶ 1724a.
Still, Plaintiffs also suggest that this profit-making potential drove Cox to
propagate its tie by refusing to support technologies that allowed or would allow
customers to access Cox’s services without renting set-top boxes from Cox. Even if such
support was required,8 the record simply fails to show that Cox withheld that support.
Cox submitted abundant evidence that it supported both CableCard and Tru2Way
technologies.9
Plaintiffs don’t contest that evidence; they simply say that Cox’s efforts to open
the set-top-box market to other competitors were insufficient. They claim that Cox didn’t
do enough to inform its customers that it would support CableCard and Tru2Way.
Assuming that this evidence is even relevant to whether Cox’s tie foreclosed competition
in the set-top-box market, Plaintiffs’ argument fails. They argue that Cox sabotaged
8
Such support is not required. See Kaufman, 836 F.3d at 144 (“[T]he core
issue is a cable provider’s right to refuse to enable cable boxes it does not control to
unscramble its coded signal.”).
9
The former enabled Cox customers to receive one-way services without a set-
top box, and the latter enabled them to receive two-way services without a set-top
box. Importantly, though, both technologies still required additional hardware to
work. The customer would need a CableCard- or Tru2Way-enabled television or a
TiVo box to avoid having to purchase or rent a set-top box. As explained above, this
functionality strongly indicates a need for the tie that is separate from Cox’s desire to
profit from set-top-box rentals.
30
CableCard by not planning any “proactive marketing initiatives” to promote it.
Appellant’s Opening Br. at 19 (internal citation and quotation marks omitted). But Cox
had no obligation to promote CableCard, and when customers chose to use that
technology, Cox did nothing to stop them. See Christy Sports, LLC v. Deer Valley Resort
Co., 555 F.3d 1188, 1197 (10th Cir. 2009) (“The Sherman Act does not force [a business]
to assist a competitor in eating away its own customer base . . .”). Cox’s communication
to customers that they couldn’t access interactive cable services without renting a set-top
box was simply a true statement based on the technological limitations of CableCard.
Until Tru2Way was ready for release, the only interactive cable service available to Cox
customers without a set-top box was pay-per-view, which customers could obtain by
phone.10
Moreover, when Tru2Way became available, Cox told customers in its annual
notice that it was preparing to support, and then in a later notice that it did support, the
technology. Plaintiffs fault Cox for hiding that information in brochures that no one
reads, but we decline to hold Cox liable under the Sherman Act simply because
customers failed to read Cox’s annual published statements. Moreover, Cox has no duty
to support new technology by affirmatively pushing it on consumers. See Christy Sports,
10
Whether Cox should have required its sales force to explain to each
customer exactly what was available with a set-top box versus CableCard technology
is a different question that is irrelevant to whether the tie foreclosed a substantial
amount of commerce. Cox supported the CableCard and Tru2Way technologies,
meaning that it spent money to make its systems compatible with both technologies.
When asked, Cox sales representatives accurately told customers what they could
obtain by using CableCard.
31
555 F.3d at 1197. Accepting that the CableCard and Tru2Way technologies—along with
the televisions or TiVo boxes customers needed to use those technologies—qualified as
substitutes for set-top boxes, we still could not say that Cox’s tie had any detrimental
effect on their vitality. Consumers were free to pursue those technologies instead of
renting set-top boxes from Cox, but even the FCC concluded that they failed for reasons
unrelated to cable companies’ tying arrangements. See 81 Fed. Reg. at 14,033.
Plaintiffs also point to evidence that Cox refused to support one customer who had
purchased a set-top box on eBay. Their argument assumes that in doing so, Cox
foreclosed what could have been a thriving, second-hand set-top-box market by refusing
to provide cable to customers who purchased their set-top boxes from such marketplaces.
We agree with Plaintiffs that this refusal implicates the concern of tying law: that by
refusing to support a customer who actually did purchase a set-top box from someone
other than Cox, the cable company used its monopoly power in the premier cable market
to foreclose competition in the set-top-box market. But Cox, in turn, presented
compelling evidence justifying its refusal. Based on Cox’s experience and knowledge, no
set-top box manufacturers sold their wares directly to consumers, so it surmised that a
customer had rented this set-top box from some other cable company and, instead of
returning it, sold it on eBay. Therefore, for reasons other than the tie, Cox justifiably
refused to enable the set-top box to decode its protected content.
32
Fourth, the regulatory environment of the cable industry precludes the possibility
that Cox could harm competition with its tie.11 We agree with the Second Circuit that the
“regulatory price control on the tied product makes the plaintiffs’ tying claim implausible
as a whole.” Kaufman, 836 F.3d at 146. After all, the regulatory cap on the profits that
cable companies can procure in the set-top-box market diminishes the already-low
likelihood that Cox is attempting to or could possibly obtain monopoly power in the set-
top-box market. Moreover, cable companies’ obligation to protect the content they
provide to their viewers justifies their refusal to enable set-top-box manufacturers to
decode such content. As Cox pointed out, cable providers are accountable to content
creators to protect such content; thus, their tie serves a functional purpose. Because “as a
threshold matter there must be a substantial potential for impact on competition in order
to justify per se condemnation,” Jefferson Par., 466 U.S. at 16, the tie in this case doesn’t
trigger the application of tying’s per se rule. See Kaufman, 836 F.3d at 147 (“The
insufficiency of the allegations of a separate market for bidirectional cable boxes, the
inability of the FCC to create such a market, and the price regulation of the tied product
further persuade us that the Complaint does not plead a plausible tying claim.”).
11
Plaintiffs point out that Congress passed the 1996 Telecommunication Act to
“assure the commercial availability, to consumers . . . of . . . equipment used . . . to
access multichannel video programming and other services offered over multichannel
video programming systems, from manufacturers, retailers, and other vendors not
affiliated with any multichannel video programming distributor.” Appellants’
Opening Br. at 15 (quoting 47 U.S.C. § 549). But this law does nothing to help their
cause. As Plaintiffs explain, this law led to the development of CableCard and
Tru2Way, which both failed for technological reasons. Kaufman, 836 F.3d at 146.
33
Plaintiffs do not contest the goals of antitrust tying law. Indeed, the fatal flaw in
their argument is that it elevates form over function and fails to acknowledge the
reasoning behind the Supreme Court’s threshold requirements for triggering the per se
rule against tying. Instead of explaining why the tie is dangerous despite Cox’s lack of
competitors in the set-top-box market, Plaintiffs insist that they need to show only that
set-top-box rentals accounted for a substantial dollar amount. They insist that the “tying
arrangement[] [is] illegal in and of [itself], without any requirement that the plaintiff
make a showing of unreasonable competitive effect.” Foremost Pro Color, Inc. v.
Eastman Kodak Co., 703 F.2d 534, 540 (9th Cir. 1983), overruling recognized by
Chroma Lighting v. GTE Prods. Corp., 111 F.3d 653 (9th Cir. 1997). They urge that we
must presume anticompetitive effects based on nothing more than the dollar amount of
Cox’s set-top-box sales. See Digidyne Corp. v. Data Gen. Corp., 734 F.2d 1336, 1338
(9th Cir. 1984).
But as thoroughly discussed above, “the Supreme Court has continued to add more
real-market analysis to the requirements of a per se tying claim.” Suture Express, 851
F.3d at 1038. In doing so, it has informed us that not all ties threaten to harm competition
such that they must be declared illegal per se. And here, Cox’s tie has no potential to
foreclose competition in the set-top-box market, and therefore fails to meet Jefferson
Parish’s threshold requirements to trigger the per se rule against tying.12
12
We express no opinion here over whether Plaintiffs could have shown a
“contract, combination . . ., or conspiracy, in restraint of trade” under § 1 of the
Sherman Act. 15 U.S.C. § 1. Leaving aside testimony from set-top box manufacturers
34
D. Application of the Rule of Reason
Plaintiffs also contend that the district court improperly applied the rule of reason
to their claim instead of using a per se analysis. As discussed above, the per se analysis
for tying arrangements differs from other types of per se antitrust claims because tying
arrangements often pose no risk to competition. Because we conclude this tie falls outside
the realm of the traditional per se analysis, the district court rightly refused to condemn
Cox’s tie as illegal per se. And we don’t have to apply the rule of reason unless Plaintiffs
also argued that the tie was unlawful under a rule of reason analysis. See Fox Motors, 806
F.2d at 959 n.3. Because Plaintiffs argued that tying arrangements must be analyzed
under the per se rule, we need not address whether Cox’s tie would be illegal under a rule
of reason analysis.13
CONCLUSION
For the foregoing reasons, we affirm the district court’s order granting Cox
judgment as a matter of law under Rule 50(b).
that Cox had nothing to do with their decision not to sell directly to consumers, Cox
could have engaged in nefarious conduct with other cable companies that diminished
competition in the set-top-box market. To protect their profits, cable companies could
have banded together to dissuade manufacturers from selling set-top boxes at retail.
But Plaintiffs don’t make this claim, nor did they present evidence of any such
behavior.
13
Still, we note that Plaintiffs’ claim would likely have failed either way.
Because their claim failed under the more plaintiff-friendly per se analysis, it would
also likely fail under the more demanding rule-of-reason analysis. See Areeda &
Hovenkamp, supra, ¶ 1726f (explaining that when a seller purchases the tied product
from a third party, “the very doubt that ousted per se treatment also makes it unlikely
that an alleged tie of this character will be found to be unreasonable”).
35
Nos. 15-6218, 15-6222, Healy et al. v. Cox Communications, Inc.
BRISCOE, Circuit Judge, dissenting.
After a nine-day jury trial in this antitrust case, the district court instructed
the jury as to the elements of a per se tying claim. Those instructions correctly
stated the law. The jury found for plaintiffs on each element and awarded $6.313
million in damages to the plaintiffs. The evidence presented at trial was
sufficient to support the jury’s conclusion on each element. Nevertheless, the
district court granted the defendant’s renewed motion for judgment as a matter of
law, and the majority affirms that decision, vacating the jury’s verdict.
I respectfully dissent. I would reverse the grant of judgment as a matter of
law and reinstate the jury verdict against the defendant on the issue of liability.
Were we to reach the issues raised by defendant in its cross-appeal, I would
remand for a new trial as to damages under a package approach instruction.
I
According to the Supreme Court, the law is and always has been that
“certain tying arrangements pose an unacceptable risk of stifling competition and
therefore are unreasonable ‘per se.’” Jefferson Par. Hosp. Dist. No. 2 v. Hyde,
466 U.S. 2, 9 (1984). Of course, “not every refusal to sell two products
separately can be said to restrain competition.” Id. at 11. Thus, our inquiry is
whether the alleged tie is one which merits per se condemnation. In fact, per se
claims, by their nature, focus on the character of the alleged anticompetitive
conduct, not on the actual market effects that conduct may or may not have
caused. Per se illegal agreements or practices are those that, “because of their
pernicious effect on competition and lack of any redeeming virtue are
conclusively presumed to be unreasonable and therefore illegal without elaborate
inquiry as to the precise harm they have caused or the business excuse for their
use.” N. Pac. R.R. Co. v. United States, 356 U.S. 1, 5 (1958). In cases alleging
per se violations of the Sherman Act, unlike general claims that a particular
practice unreasonably restrains trade, courts look to the nature of the agreement
or practice, not the actual market effects of that conduct. See id.; Jefferson Par.,
466 U.S. at 21 (“The definitional question depends on whether the arrangement
may have the type of competitive consequences addressed by the rule.”). If the
challenged conduct, by its nature, is of the type that has been declared
presumptively illegal, then the inquiry ends; courts need not, and should not
consider the actual market effects. NCAA v. Board of Regents, 468 U.S. 85,
103–04 (1984) (“Per se rules are invoked when surrounding circumstances make
the likelihood of anticompetitive conduct so great as to render unjustified further
examination of the challenged conduct.” (emphasis added). In such cases, the
harm to competition is presumed. Id. (distinguishing between per se claims and
general Sherman Act claims based on “whether the ultimate finding is the product
of a presumption or actual market analysis” (emphasis added)).
In Jefferson Parish Jefferson Hospital District Number 2 v. Hyde, 466 U.S.
2 (1984), the Supreme Court stated unequivocally, “[i]t is far too late in the
2
history of our antitrust jurisprudence to question the proposition that certain tying
arrangements pose an unacceptable risk of stifling competition and therefore are
unreasonable ‘per se.’” Jefferson Par., 466 U.S. at 9. This rule has been
endorsed by the Court many times since it was “first enunciated in International
Salt Co. v. United States, 332 U.S. 392, 396 (1947),” and it “reflects
congressional policies underlying the antitrust laws.” Jefferson Par., 466 U.S.
at 9–11 (citing H.R. Rep. No. 627, 63d Cong., 2d Sess., 10–13 (1914); S. Rep.
No. 698, 63d Cong., 2d Sess., 6–9 (1914)). Thus, our analysis must focus on the
nature of the challenged conduct, not on a market analysis of the actual effects
that conduct has had. In a per se tying claim “we must consider whether
[defendants] are selling two separate products that may be tied together, and, if
so, whether they have used their market power to force their [customers] to accept
the tying arrangement.” 1 Id. at 18.
1
Despite the majority’s assertion that the Court “modified its view of tying
arrangements” in Jefferson Parish, Maj. Op. at 9, the elements of a tying claim
have always been, and continue to be, as they are stated in Jefferson Parish. See
Eastman Kodak Co. v. Image Tech. Servs., 504 U.S. 451, 461–62 (1992) (“A
tying arrangement . . . violates § 1 of the Sherman Act if the seller has
‘appreciable economic power’ in the tying product market and if the arrangement
affects a substantial volume of commerce in the tied market.’” (quoting Fortner
Enters., Inc. v. United States Steel Corp. (Fortner I), 394 U.S. 495, 503 (1969)));
Fortner I, 394 U.S. at 499 (“[Tying agreements] are unreasonable in and of
themselves whenever a party has sufficient economic power with respect to the
tying product to appreciably restrain free competition in the market for the tied
product and a ‘not insubstantial’ amount of interstate commerce is affected.”
(quoting Int’l Salt Co. v. United States, 332 U.S. 392, 396 (1947))); N. Pac. R.R.
Co., 356 U.S. at 6 (same); Times-Picayune Pub. Co. v. United States, 345 U.S.
3
A. Separate Products
Our first inquiry is whether the products in question are actually separate
products that may be illegally tied. This question has also been framed by the
Supreme Court as a question of whether “a substantial volume of commerce is
foreclosed” by the tie. Id. at 16 (citing Fortner Enters. v. United States Steel
Corp. (Fortner I), 394 U.S. 495, 501–02 (1969); N. Pac. R.R., 356 U.S. at 6–7;
Times-Picayune Pub. Co. v. United States, 345 U.S. 594, 608–10 (1953); Int’l
Salt, 332 U.S. at 396. More recently the Court described it as “a threshold
matter” of whether there is “a substantial potential for impact on competition in
order to justify per se condemnation.” See Jefferson Par., 466 U.S. at 16.
This threshold question is necessary because “[i]f only a single purchaser
were ‘forced’ with respect to the purchase of a tied item, the resultant impact on
competition would not be sufficient to warrant the concern of antitrust law.” Id.
“Similarly, when a purchaser is ‘forced’ to buy a product he would not have
otherwise bought even from another seller in the tied-product market, there can be
594, 608–09 (1953) (“When the seller enjoys a monopolistic position in the
market for the ‘tying’ product, or if a substantial volume of commerce in the
‘tied’ product is restrained, a tying arrangement violates the narrower standards
expressed in § 3 of the Clayton Act because from either factor the requisite
potential lessening of competition is inferred. And because for even a lawful
monopolist it is ‘unreasonable, per se, to foreclose competitors from any
substantial market,’ a tying arrangement is banned by § 1 of the Sherman Act
whenever both conditions are met.” (emphasis added)).
4
no adverse impact on competition because no portion of the market which would
otherwise have been available to other sellers has been foreclosed.” Id.
According to the Supreme Court, “the answer to the question whether one
or two products are involved turns not on the functional relation between them,
but rather on the character of the demand for the two items.” Id. at 19. Courts
must determine whether the products are “distinguishable in the eyes of
buyers” — whether there is “a sale involving two independent transactions,
separately priced and purchased from the buyer’s perspective.” Id. at 19–20.
Courts should consider whether other sellers offer or could offer the products
separately, whether customers are charged separately for the two products, and
whether the tied product is fungible. Id. at 22–23; id. at 23 n.39 (citing United
States v. Jerrold Elecs. Corp., 187 F. Supp. 545 (E.D. Pa. 1960), aff’d, 365 U.S.
567 (1961) (per curiam)). Whether two products or services “are functionally
linked . . . is not in itself sufficient” to answer the question. Id. at 19 n.30. The
Court “ha[s] often found arrangements involving functionally linked products at
least one of which is useless without the other to be prohibited tying devices.” Id.
(collecting cases). “In fact, in some situations the functional link between the
two items may enable the seller to maximize its monopoly return on the tying
item as a means of charging a higher rent or purchase price to a larger user of the
tying item.” Id.
5
Only once has the Supreme Court held that two products were not separate.
“In Times-Picayune Publishing Co. v. United States, 345 U.S. 594 (1953), the
Court held that a tying arrangement was not present because the arrangement did
not link two distinct markets for products that were distinguishable in the eyes of
buyers.” Jefferson Par., 466 U.S. at 19. Specifically, in that case, the Court held
that, although two newspapers were separate and distinct from the perspective of
readers, that “d[id] not necessarily imply that advertisers bought separate and
distinct products when insertions were placed in the [two papers].” Id. at 19 n.31.
There was no evidence “that advertisers viewed the city’s newspaper readers,
morning or evening, as other than fungible customer potential.” Id. The Court
“assume[d], therefore, that the readership ‘bought’ by advertisers in [one paper]
was the selfsame ‘product’ sold by the [other paper] . . . .” Id. “The common
core of the adjudicated unlawful tying arrangements is the forced purchase of a
second distinct commodity with the desired purchase of a dominant ‘tying’
product, resulting in economic harm to competition in the ‘tied’ market.” Id.
(quoting Times-Picayune, 345 U.S. at 613–14). The Court concluded, “two
newspapers under single ownership at the same place, time, and terms sell
indistinguishable products to advertisers; no dominant ‘tying’ product
exists . . . no leverage in one market excludes sellers in the second, because for
present purposes the products are identical and the market the same.” Id. (quoting
Times-Picayune, 345 U.S. at 613–14). In short, if the tied and tying product
6
markets are in fact the same market, there can be no unlawful tie because the
seller is not exploiting its power in one market to coerce buyer behavior in
another.
In addition, courts of appeals have found that tying arrangements are not
deserving of per se condemnation when no other seller could potentially sell the
product. These are cases in which the seller has a natural monopoly over both the
tied and tying products. See, e.g., Coniglio v. Highwood Services, Inc., 495 F.2d
1286, 1291–92 (2d Cir. 1974) (concluding there was no illegal tie between tickets
to regular season professional football games and tickets to exhibition football
games because the seller of tickets had a natural monopoly in both the tying and
the tied product markets); Driskill v. Dallas Cowboys Football Club, Inc., 498
F.2d 321, 323 (5th Cir. 1974) (following Coniglio and concluding that “the [seller
has] a complete monopoly in the tied market . . . and there can thus be no adverse
effect on any competitors, even if a tying scheme exists”); Ohio-Sealy Mattress
Mfg. Co. v. Sealy, Inc., 585 F.2d 821, 835 (7th Cir. Ill. Oct. 11, 1978) (citing
Coniglio and Driskill for the proposition that when the seller has a complete
monopoly in both the tied and tying markets, there can “be no foreclosure of
competitive access to the tied market resulting from the tie-in”). In these cases, it
is not merely that potential sellers of the tied product were uninterested in selling
the tied product due to any number of market realities, but that those potential
sellers were incapable of selling the tied product because some other seller
7
already possessed a lawfully obtained monopoly in that market. If the seller has a
natural monopoly in both the tying and tied product markets, a tying arrangement
cannot harm competition in the tied product market, so there can be no illegal tie.
Similarly, when the tied product is completely unwanted by the buyer such
that no market exists for that product, there can be no per se illegal tying
arrangement. See, e.g., Blough v. Holland Realty, Inc., 574 F.3d 1084, 1089 (9th
Cir. 2009) (“Zero foreclosure exists where the tied product is completely
unwanted by the buyer.”); Reifert v. S. Cent. Wisconsin MLS Corp., 450 F.3d
312, 323 (7th Cir. 2006) (“Despite Reifert’s desire to avoid purchasing a Realtors
Association membership, without evidence of competitors in the market for
services offered by the Realtors Association, there can be no foreclosure of
competition.”); Wells Real Estate, Inc. v. Greater Lowell Bd. of Realtors, 850
F.2d 803, 815 (1st Cir. 1988) (“Wells has failed to demonstrate the slightest
market for membership in real estate boards that might have been affected by the
defendants’ alleged tying arrangement.”); id. at 815 n.11 (“Wells’ real error here
was in failing to show that there was a ‘market’ at all for real estate board
membership.”). These cases dealt with purported ties between a real estate listing
service and membership in a realtors’ association, Reifert, 450 F.3d at 323; Wells
Real Estate, 850 F.2d at 805, or between sale of undeveloped lots and realtor’s
commission for the sale of those lots, Blough, 574 F.3d at 1088. In these
circumstances, the “tied product” was not a separate product at all, but merely an
8
item tacked on by the seller to increase the total price for the primary product. Id.
at 1089–90. These arrangements have “nothing to do with gaining power in the
[tied] market or upsetting competition there.” Id. at 1090 (quoting IX Phillip E.
Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1724b, at 270(2004 & Supp.
2009)). A buyer cannot purchase a realtor’s services separate from the purchase
of land, and membership in a realtors’ association provides no benefits aside from
the ability to use the multiple listing service, so the markets for those “products”
did not exist. Instead, the “products” were merely an additional cost included in
the desired product or service. See id. If the market for the tied product does not
exist at all, then competition cannot be harmed in that non-existent market, so
there can be no illegal tie.
Although courts have framed this inquiry as several various elements of a
tying claim, the essential inquiry is the same: Has the seller linked two distinct
product markets in a way that could impair competition in the tied market? This
is the threshold inquiry described by the Supreme Court in Jefferson Parish.
B. Market Power
When two separate products are tied, courts must next consider whether the
seller has “sufficient economic power with respect to the tying product to
appreciably restrain free competition in the market for the tied product.” N. Pac.
R.R. Co., 356 U.S. at 6. “[T]he essential characteristic of an invalid tying
arrangement lies in the seller’s exploitation of its control over the tying product to
9
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 on different terms.”
Jefferson Par., 466 U.S. at 12. This is because, when a seller conditions the sale
of one commodity on the purchase of another, it “coerces the abdication of
buyers’ independent judgment as to the ‘tied’ product’s merits and insulates it
from the competitive stresses of the open market.” Id. at 12–13. Thus, “when the
seller has some special ability — usually called ‘market power’ — to force a
purchaser to do something that he would not do in a competitive market,” id. at
13–14, then “‘forcing’ is present, competition on the merits in the market for the
tied item is restrained and the Sherman Act is violated,” id. at 12.
C. Tenth Circuit Case Law
The Supreme Court has instructed us to answer two questions: First, has
the seller linked two separate product markets? Second, has the seller used its
market power in the tying product market to coerce buyer behavior in the tied
product market? Each Circuit, including ours, defines the elements of a tying
claim slightly differently. We have required plaintiffs to show:
(1) two separate products are involved; (2) the sale or agreement to
sell one product is conditioned on the purchase of the other; (3) the
seller has sufficient economic power in the tying product market to
enable it to restrain trade in the tied product market; and (4) a “not
insubstantial” amount of interstate commerce in the tied product is
affected.
10
Suture Express, Inc. v. Owens & Minor Distrib., 851 F.3d 1029, 1037 (10th Cir.
2017) (quoting Sports Racing Servs., Inc. v. Sports Car Club of Am., Inc., 131
F.3d 874, 886 (10th Cir. 1997)). In my view, our first, second, and fourth
elements address whether two separate product markets have been tied together
by the seller such that there is a substantial potential for impact on competition in
order to justify per se condemnation; our third element addresses whether the
seller has market power in the tying product market sufficient to enable it to
coerce buyer behavior in the tied product market.
II
With that framework in mind, I turn to the evidence presented in this case.
Because there is no small amount of disagreement as to what is meant by the
Tenth Circuit’s expression of the elements, and because the Tenth Circuit’s
expression of the test is presumptively within the bounds set by the Supreme
Court, I will focus on the elements as the Supreme Court has described them. The
evidence presented at trial was sufficient to support a jury finding that Cox linked
the otherwise separate product markets for premium cable services 2 and set-top
boxes, and that Cox used its market power in the market for premium cable
services to coerce its customers into renting set-top boxes from Cox, thereby
presumptively harming competition in the market for set-top boxes.
2
Plaintiffs defined the tying product as “premium cable.” Cox’s particular
product was called “Advanced TV.”
11
A. The Tie
The evidence presented at trial was sufficient to support a jury finding that
Cox conditioned the sale of Advanced TV services on rental of a set-top box from
Cox. Throughout the relevant period, Cox’s website stated: “In order to receive
interactive TV services offered by Cox, such as the interactive programming
guide, on-demand, pay-per-view, and all-digital programming options, you must
rent a digital receiver.” 3 J.A. vol. L, at 6165–66 (emphasis added). If consumers
wanted to get interactive TV services from Cox, “they had to rent that set-top
receiver from Cox.” Id. at 6166.
Further, Colleen Langer, Vice President of Marketing for Cox, testified that
the Cox website for ordering cable “would force you to say what type of box do
you want.” J.A. vol. XXVII, at 4014–15. When asked to elaborate, she stated:
[The website] won’t let you go any further unless you click one of
those — check one of those boxes. You can’t order advanced TV
without having equipment. So at that point in time the system knows
that in order to complete your order that this customer is going to
need either a digital set-top box or advanced set-top box, which
3
Throughout the trial, there was much testimony designed to determine
exactly which Advanced TV services were and were not available to consumers
through other means, such as by ordering pay-per-view over the phone instead of
through a set-top box. See, e.g., J.A. vol. L, at 6191; J.A. vol. LI, at 6366–67.
Regardless of which or how many services consumers might have been able to
acquire through other means, Cox conditioned the provision of Advanced TV on
the rental of a set-top box. In order to acquire Advanced TV services, a consumer
was forced to choose which type of set-top-box or cableCARD they wished to
rent from Cox. There was no option to order Advanced TV without accepting
equipment rental. J.A. vol. XXVII, at 4014–18.
12
would be the HD DVR and they would have to click on it and that
price would show up.
Id. at 4015 (emphasis added). When asked, “[i]s there an option for ‘none of the
above’ or ‘I don’t want a box’ for a customer to say they don’t want a box?,”
Langer responded “[t]he only other option is if they want a CableCARD,”
“[w]hich they would also have to rent from Cox.” Id. at 4016. She also testified
that there was no option for customers to order digital cable without also ordering
equipment, specifically, “they cannot complete the order” without doing so; “[i]t
would error.” Id. at 4016–18.
This coercion was not limited to internet sales. Charles Wise, Vice
President of Customer Care for Cox, testified that, when customers call for
services, “[t]he service representative communicates to the customer that the
services that they desire either require a DCR or require a Set-Top box for those
advanced features, and then they’re communicated to what the cost of the package
is and what the cost of the equipment is.” Id. at 4040 (emphasis added). As a
general matter, Steve Necessary, Vice President of Video Product Development
and Management for Cox, testified that “[f]rom 2005 to 2012 in Oklahoma, to
fully access all of the content and services . . . customers had to lease set-top
boxes from Cox.” J.A. vol. LI, at 6416.
13
B. Separate Products
This arrangement, conditioning the provision of premium cable services on
the rental of a set-top box, will merit per se condemnation only if premium cable
services and set-top boxes are two separate products from the perspective of
buyers. They are.
As an initial matter, Cox stipulated that, based on the nature of consumer
demand for premium cable services and set-top box rental, these were separate
products. See J.A. vol. XXIII, at 3440; J.A. vol. II, at 276. The jury was
instructed to find for the plaintiffs on this element. J.A. vol. III, at 588. At trial,
Steve Necessary also testified that the set-top box and the service were separate
products. J.A. vol. LI, at 6491–92. Because there is apparently some confusion
as to what legal significance Cox intended this admission to have, I will address
the separate products analysis by considering those factors the Supreme Court has
instructed us to consider: whether other sellers offer or could offer the products
separately, whether customers are charged separately for the two products, and
whether the tied product is fungible
First, there was evidence that other sellers did offer the products separately.
Lawrence Harte testified as an expert witness for the plaintiffs and provided his
conclusion that other cable companies did provide cable services separate from
set-top box rental or purchase. Id. at 6367. Specifically, he cited Rogers in
Canada and Virgin Media in the U.K. Id. Further, there was evidence that
14
numerous other sellers in the United States could also offer the products
separately if they so chose. Harte testified that Cisco was already manufacturing
a box that was technologically compatible with Cox’s Advanced TV service
system — the very same box, in fact that Cox was buying from Cisco and then
renting to its customers. Id. at 6399–6400. According to the contract between
Cox and Cisco, nothing prevented Cisco from selling those boxes directly to
customers, separate from the provision of premium cable services. Id. 6376.
Further, Cisco’s conditional access security function, PowerKEY, was installed
on Cisco’s set-top boxes and allowed content providers to limit the content
accessible on a given box. Id. at 6398–99. Cisco was free to license PowerKEY
to other manufacturers and did in fact license it to at least Pioneer, Pace,
Panasonic, and Motorola. Id. at 6399–6400. Harte also testified that “Cox did
have the technical ability to provide . . . support for customers to buy and use
their own set-top boxes” because
Cox was already allowing retail television devices, in particular,
cable modems. You could buy a cable modem at a Best Buy or an
Amazon. You could hook it up and get it activated on the Cox
system, which is somewhat similar to a set-top box. In fact, it’s a
form of set-top box, but it just doesn’t do television.
Id. at 6367. Specifically, Harte testified that, during the period from 2005 to
2012, Cox did have the technical “ability to bring a TiVo box online that provided
two-way services” but that it did not do so. Id. at 6372.
15
More directly to this point, there was an incident in which a customer
acquired a Motorola set-top box on eBay and tried to use it to receive Cox
Advanced TV services. Cox’s response to that incident indicates that it was
capable of connecting the box, but decided not to do so. On March 5, 2009,
Christine Martin sent an e-mail describing a customer complaint. She stated:
They are claiming that we can and have to hook up outside boxes
because of the FCC Act of 1996. They think we are holding out
simply because we are greedy and want to collect “our $42 a month”.
So, someone needs to call these folks and first of all find out what
kind of box they have. I’m assuming that will solve the issue since it
likely won’t be compatible with our system. And then we’ll need to
talk them down and explain that we aren’t being greedy or breaking
any rules.
J.A. vol. XXXVII, at 5000. In a reply e-mail to Christine Martin that same day,
Delbert Biggs wrote:
As I understand, once a true “retail” box is available (which is not
available at this time) we will connect with our cable card, but since
this customer bought the box on e-bay, it belongs to some cable
system as neither Motorola or SA are providing retail boxes at this
time.
Id. at 4999. The next day, March 6, 2009, Kevin Rider responded to the e-mail
chain that the boxes the customer had purchased were boxes that had been
purchased from Motorola by Advanced Media Technologies, Inc., and Time
Warner Cable, Inc. Id. at 4996. Then, on April 10, 2009, Terry Shorter wrote to
the e-mail chain that the customer had contacted Advanced Media Technologies
and Time Warner Cable. He stated, “Both DVR’s are no longer in the other cable
16
providers systems & they don’t want them back.” Id. at 4993. Billy Hill then
replied, “Kevin I was not on the last conference call but wasn’t it communicated
that we would not support there boxes in our system?” Id. Kevin Rider then
confirmed, “At this time, other than a TIVO box, or cable card TV, no other
device is designed for consumer purchase to operate in our system. It was
mutually agreed on the conference call that we will not support these devices that
[the customer] purchased on Ebay.” Id. Whether or not we believe Cox’s
argument that it did not want to connect the boxes because they were stolen, Cox
stated that it was unwilling, not unable to connect the box as a technical matter.
In sum, there was ample evidence in the record that sellers were capable of
selling premium cable services and set-top boxes separately, and that, at least in
Canada and the U.K., sellers did sell the products separately.
Second, Cox charged customers separately for service and for set-top box
rental. J.A. vol. LI, at 6326–27. And Cox viewed rental revenue and service
revenue separately. J.A. vol. XLI, at 5328.
Third, there was evidence that set-top boxes are not fungible. Harte offered
testimony about the various features that set-top boxes can include, such as
“Netflix and apps, programming guides with skipping the television commercials,
multinetwork programming guides, the ability to download a movie on a flash
drive and take that with you on the plane.” J.A. vol. LI, at 6371. Further, Percy
Kirk, Senior Vice President and General Manager for Cox in Oklahoma, testified
17
that boxes were constantly being updated with new and better features and
functionality. J.A. vol. L, at 6252. Steve Necessary also testified that different
boxes displayed different interactive guides. Id. at 6449. Given these various
features and updates, consumers would not see all set-top boxes as equivalent.
Because premium cable services and set-top boxes were sold separately by
other sellers, could be sold separately by additional other sellers, were billed
separately to buyers, and were not fungible, they were separate products, as Cox
stipulated.
To the extent the majority concludes otherwise, it appears to do so on the
basis that, as a technical matter, it does not believe that Advanced TV from Cox
cannot be provided without a set-top box from Cox. For this conclusion, it relies
upon factual findings from the Second Circuit in Kaufman v. Time Warner, 836
F.3d 137 (2d Cir. 2016). Specifically, the majority cites Kaufman for the
propositions that (1) cable providers must “code their signals to prevent theft,”
and “providers do not share their codes,” so, in order “to be useful to a consumer,
a cable box must be cable-provider specific, like the keys to a padlock”; (2) that
the FCC was unable to force a competitive retail market for set-top boxes, at least in part
due to “shortcomings in the new technologies designed to make premium cable available
without set-top boxes”; and (3) that “one FCC regulation actually caps the price that cable
providers can charge customers who rent set-top boxes.” Maj. Op at 18–19 (citing
Kaufman, 836 F.3d at 144, 146, 147).
18
Evidence supporting these findings presumably was presented to the court in
Kaufman, but it was not presented to the court in this case. The majority notes that the
FCC regulation capping set-top box rental prices is not addressed by either party in this
case. Maj. Op. at 19 n.4. Further, there was evidence presented in this trial that Cisco
could have sold or rented its set-top boxes directly to customers instead of selling only to
Cox, that other manufacturers had licensed PowerKEY from Cisco, enabling them to also
make boxes that would connect to Cox’s system, and that Cox was technologically
capable of connecting set-top boxes to its system whether or not they were rented from
Cox, but chose not to do so.
The majority concludes, “plaintiffs failed to show that Cox’s tie, as opposed to
consumer choice, defeated these products or kept their manufacturers from selling them.”
Maj. Op. at 28. It asserts that “[i]f enough customers demanded to buy set-top boxes or
set-top-box alternatives directly from manufacturers, the manufacturers could have
chosen to sell them directly; Cox’s tie did not preclude them from doing so.” Id. at 27.
This characterization ignores the reality of tying arrangements. Cox’s customers could
not demand boxes from manufacturers. As discussed above, if customers did acquire
boxes from another source, Cox refused to connect them. Further, the nature of a per se
tying claim entitles us to presume that the lack of consumer demand was a direct effect of
Cox’s requirement that all its customers rent their set-top boxes from Cox rather than
from any other source. Certainly such an arrangement is likely to increase barriers to
entry for other potential sellers of set-top boxes because they must compete with a
19
monopolist who can benefit from economies of scale and who has already dominated the
market-share. Fortner I, 394 U.S. at 509; see also Jefferson Par., 466 U.S. at 14.
The evidence presented to the jury was sufficient for it to conclude that premium
cable services and set-top boxes were separate products from the perspective of buyers,
and that this is not a case of “zero foreclosure” because other sellers were able to sell the
products separately.
C. Market Power
The plaintiffs also presented ample evidence that Cox controlled a substantial
share of the market for video services in Oklahoma City. According to Cox’s
calculations, from the third quarter of 2009 to the third quarter of 2011, Cox controlled
between 68% and 71.5% of the market for video services in Oklahoma City. J.A. vol.
XLII, at 5375–76. Those calculations did not take into account “over-the-top” services
Cox provides, which are streaming video services such as Hulu and Netflix, but Jennifer
Rich, Director of Competitive Strategy for Cox, testified that only 1.5% of customers had
“chosen over-the-top video instead of paid TV.” J.A. vol. XXVII, at 4114. She also
testified that 35% to 40% of Cox customers subscribed to over-the-top services in
addition to cable services. Id. at 4116–17. This indicates that consumers did not view
over-the-top services as a substitute for cable services and, even if over-the-top services
should have been included in the tying product market, the 1.5% of customers that chose
over-the-top services instead of cable would not have a material effect on Cox’s 68% to
71.5% market share.
20
III
Satisfied that the evidence presented at trial was sufficient to support the jury
verdict, I must make one additional point which perhaps explains why my views differ
from those of the majority. When considering a motion for judgment as a matter of law,
it is not our job to decide the case anew, but to uphold the jury verdict unless “the
evidence points but one way and is susceptible to no reasonable inferences supporting the
party for whom the jury found.” Weese v. Schukman, 98 F.3d 542, 547 (10th Cir. 1996)
(quoting Ralston Dev. Corp. v. United States, 937 F.2d 510, 512 (10th Cir. 1991)). This
is particularly true in light of the fact that “summary procedures should be used sparingly
in complex antitrust litigation where motive and intent play leading roles.” Fortner I, 394
U.S. at 503; see also id. at 505 (“[S]ummary judgment in antitrust cases is disfavored.”);
Eastman Kodak Co. v. Image Tech. Servs., 504 U.S. 451, 467 (1992) (“This Court has
preferred to resolve antitrust claims on a case-by-case basis, focusing on the ‘particular
facts disclosed by the record.’” (quoting Maple Flooring Mfrs. Ass’n v. United States,
268 U.S. 563, 579 (1925))); Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 43
(rejecting a per se rule or rebuttable presumption of market power and instead requiring
proof of market power in each case). We are not dealing here with a situation in which
one party has asked us to review a grant of summary judgment before a jury has heard all
the evidence. But rather, we are dealing with a situation in which the jury has heard that
evidence and found for the plaintiff. Thus, when compared to our review of a grant of
summary judgment, we should be more hesitant to overturn the verdict of a jury after it
21
has considered all the facts presented at trial. Our role on appeal is to determine only
whether there was sufficient evidence in the record to support the jury’s decision. Here,
there was.
I respectfully dissent. I would reverse the grant of judgment as a matter of law,
reinstate the jury’s verdict on the issue of liability, and remand for a new trial on the issue
of damages.
22