Sky Angel U.S., LLC v. National Cable Satellite Corporation

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
SKY ANGEL U.S., LLC, :
:
Plaintiff, : Civil Action No.: 12-1834 (RC)
:
v. : Re Document No.: 5
:
NATIONAL CABLE SATELLITE :
CORPORATION d/b/a C-SPAN, :
:
Defendant. :
MEMORANDUM OPINION
GRANTING DEFENDANT’S MOTION TO DISMISS
I. INTRODUCTION
This litigation arises out of the defendant’s termination of a contract in which it granted
the plaintiff a right to distribute reception of the C-SPAN television networks in real-time by
means of a secure internet-based protocol stream. The plaintiff now brings claims under
Sections 1 and 2 of the Sherman Act, alleging that the members of the defendant’s board of
directors partook in a group boycott and sought to maintain a monopoly over the market for real-
time, multichannel video programming distribution services. The defendant moves to dismiss
the complaint for lack of subject matter jurisdiction and failure to state a claim. The Court finds
that it has subject matter jurisdiction over the plaintiff’s claims, but will dismiss the complaint
without prejudice based on the plaintiff’s failure to state a claim. The plaintiff will be given
leave to amend its complaint.
II. BACKGROUND
A. The Parties
The plaintiff, Sky Angel U.S., LLC (“Sky Angel”), is a Florida-based company that
operates FAVE-TV—a subscription service that distributes the content of television networks in
real time, with a focus on “faith-based” and “family oriented” video programming. See Compl.
(Dkt. No. 1) ¶¶ 7–8. FAVE-TV’s programming lineup includes some mainstream networks,
such as Fox News Channel and the Hallmark Movie Channel, as well as some lesser-known
religious programming as part of its faith-based repertoire. See Compl. Exs. A & B (Dkt.
Nos. 1-2 & 1-3). Sky Angel’s system uses a closed and encrypted fiber-optic transmission path
to carry the video programs to central locations, then distributes the programming from those
central locations to television-connected set-top boxes via high-speed internet connections. See
Compl. (Dkt. No. 1) ¶ 9.
The defendant, National Cable Satellite Corp., doing business as C-SPAN (“C-SPAN”),
is a D.C.-based non-profit corporation that was created by the cable television industry and
distributes video of legislative proceedings and other programming via three networks—
C-SPAN, C-SPAN2, and C-SPAN3. See id. ¶ 13. C-SPAN’s board of directors consists of
many high-ranking executives and board members from some of the nation’s largest
telecommunications companies, including representatives from some of the largest multichannel
video programming distributors (“MVPDs”). See id. ¶ 36. Sky Angel alleges that C-SPAN is
controlled by cable industry MVPDs, the top ten largest of which hold seats on C-SPAN’s board.
See id. ¶ 37.
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B. The Parties’ 2009 Contract
On May 28, 2009, Sky Angel and C-SPAN entered into an affiliation agreement (the
“IPTV Agreement”), under which C-SPAN granted to Sky Angel a non-exclusive right to carry
the C-SPAN networks “by means of an internet-protocol based stream which shall be secure and
capable of being accessed only in a manner which would not allow any form of subsequent
distribution . . . , including without limitation, distribution over public Internet.” See Compl. Ex.
E (Dkt. No. 1-6) § 1(a). The IPTV Agreement had a term of two years and was subject to
renewal. See id. § 2.
C-SPAN and C-SPAN2 went “live” on FAVE-TV on or about July 10, 2009. See Compl.
(Dkt. No. 1) ¶ 33. But on July 13, 2009, Peter Kiley sent an email on behalf of C-SPAN to Sky
Angel’s Executive Vice President that, on its face, confirms Sky Angel’s earlier “agree[ment] to
take C-SPAN and C-SPAN2 off [FAVE-TV] pending [C-SPAN’s] review of [Sky Angel’s]
distribution technology and a precise legal framework.” Id. Mr. Kiley’s email also expresses
C-SPAN’s belief that the “IPTV [A]greement does not allow for the type of delivery”
implemented by Sky Angel. Id. Sky Angel alleges that, following this review, C-SPAN never
provided a “valid explanation” for its termination of the IPTV Agreement. See id. ¶ 35.
C-SPAN, in its filings, has asserted that Sky Angel’s distribution technology includes use of
public internet and thus breaches the IPTV Agreement, see Def.’s Mot. Dismiss & Mem. Supp.
(Dkt. No. 5) at 29, but Sky Angel claims that it was not informed of the basis for C-SPAN’s
breach of contract theory until C-SPAN made the assertion before the Court, see Pl.’s Mem.
P. & A. Opp’n Mot. Dismiss (Dkt. No. 7) at 34. To date, C-SPAN’s networks have not been
reintroduced into FAVE-TV’s lineup.
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C. Procedural Background
Before bringing suit in this Court, Sky Angel filed a complaint with the Federal
Communications Commission (“FCC”) against Discovery Communications, LLC (“Discovery”)
arising out of a separate, but similar, contract dispute. As it did with C-SPAN, Sky Angel had
entered into an affiliate agreement with Discovery (the “Discovery Agreement”) allowing Sky
Angel to distribute Discovery’s programming networks—including Discovery Channel and
Animal Planet—on FAVE-TV. See Compl. (Dkt. No. 1) ¶ 58. After deciding that Sky Angel’s
distribution method was “not satisfactory,” Discovery notified Sky Angel of its intention to
terminate the Discovery Agreement. See Sky Angel U.S., LLC, 25 FCC Rcd. 3879, 3880 (Apr.
21, 2010). In March 2010, before the termination took effect, Sky Angel filed a program access
complaint against Discovery with the FCC pursuant to Section 628(b) of the Communications
Act, 47 U.S.C. § 548(b), and its implementing regulations. See id. Sky Angel’s complaint
alleged that, like C-SPAN, Discovery was motivated by an intent to stifle competition and never
explained why it determined that Sky Angel’s distribution method was unsatisfactory. See id.Shortly after filing its petition, Sky Angel also moved the agency for a temporary
standstill to keep the Discovery Agreement in effect while the administrative proceeding was
pending. See id. at 3879–80. Applying a four-factor test similar to that used by the courts in a
preliminary injunction analysis, the FCC denied Sky Angel’s emergency petition for a temporary
standstill and found that Sky Angel “has not carried its burden of demonstrating that it is likely
to succeed in showing on the merits that it is an MVPD entitled to seek relief under the program
access rules.” Id. at 3882. Specifically, the agency found that the term “channel” might not
apply to Sky Angel, whose distribution method relies on the subscriber’s internet service
provider rather than its own transmission path. See id. at 3883. The FCC noted, however, that
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this finding was not an ultimate conclusion as to the merits of Sky Angel’s complaint, but was
instead made solely to determine whether Sky Angel was entitled to the “extraordinary relief of a
standstill . . . .” Id. at 3884. In March 2012, the FCC issued a notice seeking public comment on
the proper interpretation of “channel” and “MVPD” under the Communications Act, noting that
“[t]he interpretation of these terms has legal and policy implications that extend beyond the
parties to this complaint.” Public Notice: Media Bureau Seeks Comment on Interpretation of
the Terms “Multichannel Video Programming Distributor” and “Channel” as Raised in
Pending Program Access Complaint Proceeding, 27 FCC Rcd. 3079, 3079 (Mar. 30, 2012). Sky
Angel maintains that it “competes directly in the MVPD market” but alleges that the FCC has
“withdrawn from or declined to occupy the field on which Sky Angel must compete . . . .”
Compl. (Dkt. No. 1) ¶¶ 24, 59.
In November 2012, Sky Angel filed a complaint against C-SPAN in this Court asserting
two claims under the Sherman Antitrust Act of 1890 (the “Sherman Act”). See id. ¶¶ 60–67.
Count I of the complaint alleges that C-SPAN’s termination of the IPTV Agreement constitutes
an agreement among C-SPAN’s cable MVPD board members unreasonably restraining trade
with Sky Angel—a group boycott and per se violation of Section 1 of the Sherman Act. See id.
¶ 44. Under Count II, Sky Angel alleges that C-SPAN’s cable MVPD board members possess
monopoly power in the market for real-time multichannel video distribution services, and that
C-SPAN’s termination of the IPTV Agreement was an unlawful maintenance of that monopoly
in violation of Section 2 of the Sherman Act. See id. ¶¶ 64–67. Among other relief, Sky Angel
seeks an order requiring that C-SPAN license its programming to Sky Angel under the terms of
the IPTV Agreement “as if it had been perpetually renewed through the date of the order and
thereafter for a period of no less than ten (10) years . . . .” See id. ¶ VIII.B.
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III. ANALYSIS
C-SPAN moves to dismiss Sky Angel’s entire complaint for lack of subject matter
jurisdiction and failure to state a claim pursuant to Federal Rules of Civil Procedure 12(b)(1) and
12(b)(6). See Def.’s Mot. Dismiss & Mem. Supp. (Dkt. No. 5). With respect to subject matter
jurisdiction, it is C-SPAN’s position that Section 628 of the Communications Act, 47 U.S.C.
§ 548, grants the FCC exclusive jurisdiction over this case.1 C-SPAN also argues that Sky Angel
does not state a claim because it has not sufficiently pleaded “concerted activity” as required for
its Section 1 claim, the “relevant market” nor market power for its Section 2 claim, nor the
antitrust injury required for both claims. The Court will address each of these arguments in turn.
A. Subject Matter Jurisdiction
1. Legal Standard
Federal courts are courts of limited jurisdiction, and the law presumes that “a cause lies
outside this limited jurisdiction . . . .” Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375,
377 (1994); see also Gen. Motors Corp. v. Envtl. Prot. Agency, 363 F.3d 442, 448 (D.C. Cir.
2004) (“As a court of limited jurisdiction, we begin, and end, with an examination of our
jurisdiction.”). It is the plaintiff’s burden to establish by a preponderance of the evidence that the
court has subject matter jurisdiction. Lujan v. Defenders of Wildlife, 504 U.S. 555, 561 (1992).
Because subject matter jurisdiction focuses on the Court’s power to hear a claim, the
Court must give the plaintiff’s factual allegations closer scrutiny than would be required for a
Rule 12(b)(6) motion for failure to state a claim. See Macharia v. United States, 334 F.3d 61,
1
C-SPAN also moves to dismiss for lack of injury. See Def.’s Mot. Dismiss & Mem.
Supp. (Dkt. No. 5) at 27–32. Because that analysis encompasses additional considerations of
“antitrust injury” beyond the minimum constitutional requirement established by Article III, the
Court will analyze injury as part of its Rule 12(b)(6) analysis and not as a matter of jurisdiction.
See also Sprint Nextel Corp. v. AT&T Inc., 821 F. Supp. 2d 308, 312 n.1 (D.D.C. 2011).
6
64, 69 (D.C. Cir. 2003); Grand Lodge of Fraternal Order of Police v. Ashcroft, 185 F. Supp. 2d
9, 13 (D.D.C. 2001). Thus, the court is not limited to the allegations contained in the complaint.
Hohri v. United States, 782 F.2d 227, 241 (D.C. Cir. 1986), vacated on other grounds, 482 U.S.
64 (1987). Instead, “where necessary, the court may consider the complaint supplemented by
undisputed facts evidenced in the record, or the complaint supplemented by undisputed facts plus
the court’s resolution of disputed facts.” Herbert v. Nat’l Acad. of Scis., 974 F.2d 192, 197 (D.C.
Cir. 1992) (citing Williamson v. Tucker, 645 F.2d 404, 413 (5th Cir. 1981)).
2. FCC Exclusive Jurisdiction
C-SPAN’s motion to dismiss begins with the curious assertion that the district court lacks
subject matter jurisdiction over Sky Angel’s two Sherman Act claims. But the Sherman Act
plainly falls within the Court’s federal question jurisdiction. Under Section 4, “[t]he several
district courts of the United States are invested with jurisdiction to prevent and restrain violations
of” the Sherman Act. 15 U.S.C. § 4; see also 28 U.S.C. § 1331 (“The district courts shall have
original jurisdiction of all civil actions arising under the Constitution, laws, or treaties of the
United States.”).
C-SPAN does not directly challenge this basic rule of jurisdiction, but attempts to cast
doubt upon it by suggesting—without arguing explicitly—that Section 628 of the
Communications Act supersedes the Sherman Act insofar as it relates to program access disputes
and vests exclusive jurisdiction over such claims to the FCC. See, e.g., Def.’s Mot. Dismiss &
Mem. Supp. (Dkt. No. 5) at 9 (“Sky Angel may not circumvent the exclusive jurisdiction of the
FCC and the courts of appeal by reframing its program access claim as an antitrust count rather
than a Section 628 count.”). But C-SPAN does not provide any on-point legal support for its
assertion. “Provisions for agency review do not restrict judicial review unless the ‘statutory
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scheme’ displays a ‘fairly discernible’ intent to limit jurisdiction, and the claims at issue ‘are of
the type Congress intended to be reviewed within th[e] statutory structure.’” Free Enter. Fund v.
Pub. Co. Accounting Oversight Bd., 130 S.Ct. 3138, 3150 (2010) (quoting Thunder Basin Coal
Co. v. Reich, 510 U.S. 200, 207, 212 (1994)). “Whether a statute is intended to preclude initial
judicial review is determined from the statute’s language, structure, and purpose, its legislative
history, and whether the claims can be afforded meaningful review.” Thunder Basin Coal Co. v.
Reich, 510 U.S. 200, 207 (1994).
Section 628 was enacted as part of the Cable Television Consumer Protection and
Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460. The act included an express
savings clause providing that “[n]othing in this Act or the amendments made by this Act shall be
construed to alter or restrict in any manner the applicability of any Federal or State antitrust
law.” See id. § 27, 106 Stat. 1503 (codified at 47 U.S.C. § 521 note). Congress left the
implementation of Section 628 and determination of its boundaries up to the FCC, see 47 U.S.C.
§ 548(c), and the FCC has determined that “Congress specifically adopted the program access
regime, including Section 628(b), as a new remedy separate and apart from antitrust
enforcement” and “that antitrust and program access laws address similar but not identical
concerns.” Verizon Tel. Cos., 26 FCC Rcd. 13,145 ¶ 45 (Sept. 22, 2011) (emphasis added)
(internal quotation marks omitted); see also S. Rep. No. 102-92, at 29 (1991), reprinted in 1992
U.S.C.C.A.N. 1133, 1162 (“The legislation provides new FCC remedies and does not amend
existing antitrust laws. All antitrust and other remedies which can be pursued under current law
by multichannel video programming distributors are therefore unaffected by this section.”).
C-SPAN’s proposed interpretation of the Communications Act’s procedural structure would also
deprive parties of meaningful review of Sherman Act claims, as the FCC lacks jurisdiction to
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hear claims arising directly under that law. See, e.g., Crystal Clear Commc’ns, Inc. v. Sw. Bell
Tel. Co., 415 F.3d 1171, 1178 (10th Cir. 2005); see also United States v. Radio Corp. of Am.,
358 U.S. 334, 343–44 (1959) (“[T]he FCC was not intended to have any authority to pass on
antitrust violations as such . . . .”). C-SPAN cannot dodge this Court’s jurisdiction over the
Sherman Act claims in this case by arguing that the facts overlap in part with a potential Section
628 claim, and nothing more.2
National Cable Television Co-op, Inc. v. Lafayette City-Parish, No. 10-2554-KHV-DJW,
2010 WL 4868158 (D. Kan. Nov. 23, 2010), which C-SPAN relies upon, is inapposite. That
case involved a claim in which the plaintiff sought declaratory judgment as to the applicability of
Section 628 itself. See id. at *1. Because the Declaratory Judgment Act does not itself create a
case or controversy within the jurisdiction of the Article III courts, the justiciability of the
plaintiff’s claim thus relied directly on Section 628. See id. at *3. Because the court found that
Section 628 lies within the exclusive jurisdiction of the FCC in the first instance and the court of
appeals upon review, the claim was dismissed under Rule 12(b)(1). See id. at *4–7. By contrast,
Sky Angel brings two claims directly under the Sherman Act and not under Section 628 or the
2
The Court similarly finds curious C-SPAN’s characterization of this issue as a failure to
exhaust administrative remedies, as C-SPAN denies that “exhaustion” of the Section 628
administrative adjudication process would then confer jurisdiction upon this Court.
It seems appropriate for the Court to consider the doctrine of primary jurisdiction, under
which it may postpone this case and direct Sky Angel to pursue this matter as a Section 628
claim before the FCC in the first instance. See, e.g., United States v. W. Pac. R.R. Co., 352 U.S.
59, 63–64 (1956) (“Primary jurisdiction . . . applies where a claim is originally cognizable in the
courts, and comes into play whenever enforcement of the claim requires the resolution of issues
which, under a regulatory scheme, have been placed within the special competence of an
administrative body; in such a case the judicial process is suspended pending referral of such
issues to the administrative body for its views.” (internal quotation marks omitted)). C-SPAN,
however, has expressly disavowed any desire to pursue this option, see Def.’s Reply Supp. Mot.
Dismiss (Dkt. No. 8) at 4 n.1, and the Court will not invoke the primary jurisdiction doctrine sua
sponte at this juncture.
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Declaratory Judgment Act, and so the Kansas court’s analysis is not appropriate here. The Court
finds that it has subject matter jurisdiction over Sky Angel’s Sherman Act claims.
B. Failure to State a Claim
Having determined that it has jurisdiction over Sky Angel’s Sherman Act claims, the
Court now turns to C-SPAN’s arguments that the complaint fails to state a claim under Rule
12(b)(6). First, C-SPAN argues that Sky Angel failed to plead the requisite “concerted activity”
to support its Section 1 claim. With respect to the Section 2 claim, C-SPAN asserts that Sky
Angel neither defined a sufficient “relevant market” nor adequately pleaded that C-SPAN wields
monopoly power over that market. Finally, C-SPAN argues that neither count is supported by
the required “antitrust injury” element. The Court addresses each of these issues in turn.
1. Legal Standard
Under the Federal Rules of Civil Procedure, a complaint must contain “a short and plain
statement of the claim” in order to give the defendant fair notice of the claim and the grounds
upon which it rests. Fed. R. Civ. P. 8(a)(2); accord Erickson v. Pardus, 551 U.S. 89, 93 (2007).
Thus, a motion to dismiss pursuant to Rule 12(b)(6) tests whether a plaintiff has properly stated a
claim; not the plaintiff’s ultimate likelihood of success. See Scheuer v. Rhodes, 416 U.S. 232,
236 (1974). A court considering such a motion presumes that the complaint’s factual allegations
are true and construes them liberally in favor of the plaintiff. See, e.g., United States v. Philip
Morris, Inc., 116 F. Supp. 2d 131, 135 (D.D.C. 2000). It is not necessary for the plaintiff to
plead all elements of its prima facie case in the complaint. See Swierkiewicz v. Sorema N.A., 534
U.S. 506, 511–14 (2002); Bryant v. Pepco, 730 F. Supp. 2d 25, 28–29 (D.D.C. 2010).
Nonetheless, “[t]o survive a motion to dismiss, a complaint must contain sufficient
factual matter, accepted as true, to state a claim to relief that is plausible on its face.” Ashcroft v.
10
Iqbal, 556 U.S. 662, 678 (2009) (internal quotation marks omitted). The factual matter “must be
enough to raise a right to relief above the speculative level . . . .” Bell Atl. Corp. v. Twombly,
550 U.S. 544, 555 (2007). Under this “plausibility” standard, “[t]hreadbare recitals of the
elements of a cause of action, supported by mere conclusory statements,” are insufficient to
withstand a motion to dismiss. Iqbal, 556 U.S. at 678. A court considering a motion to dismiss
need not accept a plaintiff’s legal conclusions as true, id., nor must a court presume the accuracy
of legal conclusions that are couched as factual allegations. See Twombly, 550 U.S. at 555.
2. Per Se Group Boycott (Count I)
Sky Angel alleges that C-SPAN’s board of directors made a horizontal agreement to
boycott Sky Angel—a per se illegal restraint of trade under the Sherman Act. A party seeking
redress under Section 1 of the Sherman Act must allege “(1) that defendants entered into some
agreement for concerted activity (2) that either did or was intended to unreasonably restrict trade
in the relevant market, which (3) affects interstate commerce.” ASA Accugrade, Inc. v. Am.
Numismatic Ass’n, 370 F. Supp. 2d 213, 215 (D.D.C. 2005); see also 15 U.S.C. § 1. The parties’
dispute centers on the first of these elements—namely, whether the allegations in Sky Angel’s
complaint give rise to a reasonable inference that C-SPAN’s termination of the IPTV Agreement
was part of an express or tacit “agreement for concerted activity” by its cable MVPD board
members to unreasonably restrain competition.
a. Agreement Within a Single Entity
C-SPAN argues that Sky Angel’s complaint against C-SPAN alone cannot stand because
“[t]he sine qua non of a Section 1 violation is the involvement of multiple parties.” Def.’s Mot.
Dismiss & Mem. Supp. (Dkt. No. 5) at 16. While C-SPAN is correct that Section 1 “does not
reach conduct that is ‘wholly unilateral[,]’” Copperweld Corp. v. Independence Tube Corp., 467
11
U.S. 752, 768 (1984) (quoting Albrecht v. Herald Co., 390 U.S. 145, 149 (1968)), the concerted
action analysis “does not turn simply on whether the parties involved are legally distinct
entities.” Am. Needle, Inc. v. Nat’l Football League, 130 S.Ct. 2201, 2209 (2010). Because the
Sherman Act “is aimed at substance rather than form[,]” United States v. Yellow Cab Co., 332
U.S. 218, 227 (1947), the Supreme Court has “eschewed such formalistic distinctions in favor of
a functional consideration of how the parties involved in the alleged anticompetitive conduct
actually operate.” Am. Needle, 130 S.Ct. at 2209.
When determining whether a single entity is capable of engaging in concerted action for
purposes of Section 1, “[t]he relevant inquiry . . . is whether there is a contract, combination[,] or
conspiracy amongst separate economic actors pursuing separate economic interests such that the
agreement deprives the market place of independent centers of decisionmaking, and therefore of
diversity of entrepreneurial interests.” Id. at 2212 (citations and internal quotation marks
omitted). And although there is a presumption that agreements within a single firm constitute
independent action, “[a]greements made within a firm can constitute concerted action . . . when
the parties to the agreement act on interests separate from those of the firm itself . . . .” Id. at
2215.
C-SPAN attempts to distinguish American Needle by arguing that the coverage provided
on the C-SPAN networks is unique and would not be separately provided by the cable MVPDs if
the C-SPAN entity did not exist. See Def.’s Mot. Dismiss & Mem. Supp. (Dkt. No. 5) at 17 n.6.
The football teams who formed a joint venture to administer their intellectual property in
American Needle, by contrast, had individually licensed their intellectual property before
forming the joint venture. See id. While that was a factor in the Supreme Court’s application of
its “functionality” test, the Court did not frame it as a bright-line rule. See Am. Needle, 130 S.Ct.
12at 2214–15. Moreover, although the production of C-SPAN programming is uniquely in
C-SPAN’s hands, the MVPDs each distribute the C-SPAN networks on individually-priced cable
or satellite plans. See Compl. (Dkt. No. 1) ¶ 50. Indeed, Sky Angel alleges that the termination
of the IPTV Agreement resulted in a sacrifice of C-SPAN’s revenue for no legitimate purpose
other than to create barriers for those who compete with the cable MVPDs and who would exert
downward pressure on the prices of their independently-priced subscription packages. See id.¶¶ 38–40. This supports a plausible inference that the cable MVPD board members may have
“act[ed] on interests separate from the firm itself” and that refusal to license C-SPAN’s content
to other carriers “deprives the marketplace of independent centers of decisionmaking, and
therefore of diversity of entrepreneurial interests, and thus of actual or potential competition” in
the form of competitive pricing for real-time, multichannel video programming distribution
subscription packages. Am. Needle, 130 S.Ct. at 2212, 2215 (citations and internal quotation
marks omitted); see also Robertson v. Sea Pines Real Estate Cos., 679 F.3d 278, 287 (4th Cir.
2012) (finding that, sufficient to survive the Rule 12(b)(6) stage, the plaintiff’s allegations
“reasonably support . . . an inference” that members of a single entity acted as a plurality for
purposes of Section 1). The Court finds that the complaint raises a plausible inference that
C-SPAN, as a single entity, may be capable of violating Section 1.
b. Agency
Separate from whether C-SPAN board members are capable of concerted activity under
Section 1, the parties also dispute whether Sky Angel has pleaded a factual context sufficient to
support a plausible inference that an agreement among C-SPAN’s cable MVPD board members
did, in fact, exist. “Because [Section 1] does not prohibit all unreasonable restraints of trade but
only restraints effected by a contract, combination, or conspiracy, the crucial question is whether
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the challenged anticompetitive conduct stems from independent decision or from an agreement,
tacit or express.” Twombly, 550 U.S. at 553 (citations and internal quotation marks omitted). At
the Rule 12(b)(6) stage, the Supreme Court has held, “stating such a claim requires a complaint
with enough factual matter (taken as true) to suggest that an agreement was made.” Id. at 556.
Sky Angel relies on an agency theory to support its allegation that the cable MVPDs on
C-SPAN’s board were behind the decision to terminate the IPTV Agreement. Specifically,
without alleging any direct involvement by the board of directors—such as a formal vote to
terminate the contract or an off-the-record direction given to C-SPAN’s management—Sky
Angel simply alleges that “[t]he acts charged in [its] complaint as having been done by defendant
or its co-conspirators were authorized, ordered, or done by its officers, agents, employees, or
representatives while actively engaged in the management of defendant’s business or
affairs . . . .” Compl. (Dkt. No. 1) ¶ 12; see also, e.g., id. ¶ 34 (alleging that Peter Kiley’s
communication seeking removal of C-SPAN networks from FAVE-TV “was performed in his
official capacity as an authorized agent of C-SPAN and reflected the corporate act of C-SPAN’s
management and its Board of Directors”). The complaint identifies only a single agent on behalf
of C-SPAN, and Sky Angel argues that it “is entitled to presume that C-SPAN’s actions are the
product of an authorized majority of its governing body.” Pl.’s Mem. P. & A. Opp’n Mot.
Dismiss (Dkt. No. 7) at 33 (emphasis added). But liability under Section 1 of the Sherman Act
requires a “plurality of actors[,]” Copperweld, 467 U.S. at 769, and Sky Angel has not
demonstrated that agency principles can be used to impute the actions of one individual to
multiple superiors. “Concerted action” between multiple persons remains a fact that must be
pleaded.
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American Society of Mechanical Engineers, Inc. v. Hydrolevel Corp., 456 U.S. 556(1982), cited by Sky Angel, is not to the contrary. In Hydrolevel, the Supreme Court applied
agency principles to hold that an agent acting within the scope of his apparent authority could
participate in a conspiracy on behalf of a business entity for purposes of a Section 1 claim. See
id. at 571. But the agent in that case did not act alone; rather, he conspired with other defendants
who, in turn, were acting on behalf of different corporate entities. The “plurality of actors”
requirement was thus still satisfied, and courts have since declined to extend Hydrolevel to
allegations against a single individual acting on behalf of multiple others without co-
conspirators. See, e.g., Alvord-Polk, Inc. v. F. Schumacher & Co., 37 F.3d 996, 1008–10 (3d Cir.
1994) (distinguishing Hydrolevel).
Once the conclusory inference of agreement—through use of agency law—is stripped
away from the complaint, Sky Angel’s Section 1 claim rests solely on the fact that the top cable
MVPDs have representatives on C-SPAN’s board of directors. But merely pleading that
multiple entities hold positions on a board of directors does not establish a horizontal agreement
for purposes of Section 1. See Nat’l ATM Council, Inc. v. Visa Inc., No. 11-cv-01831 (ABJ),
2013 WL 525463, at *17 (D.D.C. Feb. 13, 2013) (citing Kendall v. Visa U.S.A., Inc., 518 F.3d
1042, 1048 (9th Cir. 2008)). Because Sky Angel does not provide any factual context for the
cable MVPD board members’ alleged agreement, the Court will dismiss Count I without
prejudice.
3. Monopoly Maintenance (Count II)
For its second claim, Sky Angel alleges that C-SPAN terminated the IPTV Agreement in
order to maintain monopoly power over the real-time, multichannel video programming
distribution services market in violation of Section 2 of the Sherman Act. See Compl. (Dkt.
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No. 1) ¶¶ 64–67. C-SPAN argues that this claim should be dismissed for failure to plead that
C-SPAN holds market power in the relevant market. “The offense of monopoly under [Section
2] has two elements: (1) the possession of monopoly power in the relevant market and (2) the
willful acquisition or maintenance of that power as distinguished from growth or development as
a consequence of a superior product, business acumen, or historic accident.” United States v.
Grinnell Corp., 384 U.S. 563, 570–71 (1966); accord United States v. Microsoft Corp., 253 F.3d
34, 50 (D.C. Cir. 2001) (en banc) (per curiam); see also 15 U.S.C. § 2. An important part of the
analysis relates to the definition of the “relevant market,” which traditionally has two
components: the product market and the geographic market. See S. Pac. Commc’ns Co. v. Am.
Tel. & Tel. Co., 740 F.2d 980, 1000 (D.C. Cir. 1984). “The plaintiff bears the burden of
establishing the relevant market.” Neumann v. Reinforced Earth Co., 786 F.2d 424, 429 (D.C.
Cir. 1986) (citing Walker Process Equip. Co. v. Food Mach. & Chem. Corp., 382 U.S. 172, 177–
78 (1965)). Once the relevant market is defined, a plaintiff must show that the defendant holds
market power over the relevant market. See S. Pac. Commc’ns Co., 740 F.2d at 1000.
a. Product Market
According to the complaint, the relevant market here is “[r]eal-time, multichannel video
programming distribution services delivered by MVPDs . . . .” Compl. (Dkt. No. 1) ¶ 22.
C-SPAN argues that Sky Angel does not state a claim under Section 2 because this product
market lacks the precision courts have required at the pleading stage. See Def.’s Mot. Dismiss &
Mem. Supp. (Dkt. No. 5) at 20–22.3 “The outer boundaries of a product market are determined
by the reasonable interchangeability of use or the cross-elasticity of demand between the product
3
C-SPAN also argues that the product market definition fails because C-SPAN does not
compete in that market. However, the Court finds that such an analysis is better undertaken
when determining whether the defendant holds market power over the relevant market, however
defined. See infra Part III.B.3.c.
16
itself and substitutes for it.” Brown Shoe Co. v. United States, 370 U.S. 294, 325 (1962).
Although courts have not required such an economically technical recitation of the market
boundaries at the pleading stage, “an alleged product market must bear a rational relation to the
methodology courts prescribe to define a market for antitrust purposes . . . , and it must be
plausible.” Todd v. Exxon Corp., 275 F.3d 191, 200 (2d Cir. 2001) (internal quotation marks
omitted).
C-SPAN argues that “[i]t is impossible to know” whether the market includes broadcast
television stations, distributors of recorded video programming, and online video distributors
(“OVDs”)—all of which are mentioned in the complaint as participants in the video program
industry. See Compl. (Dkt. No. 1) ¶ 15; Def.’s Mot. Dismiss & Mem. Supp. (Dkt. No. 5) at 22.
The Court finds this argument to be disingenuous. The complaint clearly states that such
participants “are not distributors of real-time, multichannel programming”—the relevant product
market at issue here. See Compl. (Dkt. No. 1) ¶ 22. C-SPAN’s additional argument that it is
unclear whether Netflix and Hulu Plus play any role in the relevant product market is similarly
flawed, as both services appear to be OVDs and neither offers “real-time, multichannel”
programming.
However, while the boundaries of the alleged product market can be ascertained from the
complaint, its “rational relation to the methodology courts prescribe to define a market” is thin.
Todd, 275 F.3d at 200. The complaint specifically alleges that the services of OVDs are not a
substitute for those of real-time MVPDs, see Compl. (Dkt. No. 1) ¶ 22, but it does not provide a
similar “lack of interchangeability” allegation supporting the exclusion of other video program
industry participants whose programming is not “real-time” and “multichannel.” “If it is not
clear whether a product is interchangeable with others, then some detail about lack of
17
interchangeability should be given” in the complaint. 2B Phillip E. Areeda et al., Antitrust Law
¶ 531f (3d ed. 2007); see also, e.g., Queen City Pizza, Inc. v. Domino’s Pizza, Inc., 124 F.3d 430,
436–37 (3d Cir. 1997) (stating that failure to define the market by reference to the reasonable
interchangeability—or lack thereof—of services is valid ground for dismissal at the Rule
12(b)(6) stage). Due to the technical intricacies and developments in the video program
industry, the FCC’s own caution in delineating the boundaries of the statutory MVPD market,
and Sky Angel’s further narrowing of the statutory MVPD market to only those offering “real-
time” services, the Court requires more detailed allegations by Sky Angel regarding the supposed
lack of interchangeability between “real-time, multichannel video programming distribution
services delivered by MVPDs” and the other video program industry participants.
b. Geographic Market
C-SPAN also argues that Count II must fail for the independent reason that it does not
sufficiently allege a relevant geographic market. The complaint contains a bare allegation that
“[t]he 50 states of the United States and its districts and territories comprise the relevant
geographic market for MVPD services.” Compl. (Dkt. No. 1) ¶ 23. “[T]he relevant geographic
market must be sufficiently defined so that the Court understands in which part of the country
competition is threatened.” Fed. Trade Comm’n v. Cardinal Health, Inc., 12 F. Supp. 2d 34, 49
(D.D.C. 1998). A geographic market “need not—indeed cannot—be defined with scientific
precision . . . .” United States v. Conn. Nat’l Bank, 418 U.S. 656, 669 (1974). However, the
Supreme Court has held that “the area of effective competition . . . must be charted by careful
selection of the market area in which the seller operates, and to which the purchaser can
practicably turn for supplies.” Tampa Elec. Co. v. Nashville Coal Co., 365 U.S. 320, 327 (1961)
(emphasis added). It is not plausible that competition among real-time MVPDs occurs on a
18
national level, because purchasers do not practicably turn to a national market for real-time,
multichannel video programming distribution services. It is conceivable that Sky Angel operates
nationwide and competes with the cable MVPDs in many individual metropolitan and regional
markets comprising the overall United States geographic area, but that is not what Sky Angel has
pleaded. To provide C-SPAN and the Court with notice regarding the scope of the alleged
geographic market—or markets—Sky Angel must provide more detail about the geographic
scale on which competition actually occurs.
c. Market Power
Even assuming that the product and geographic boundaries of the relevant market were
adequately pleaded, C-SPAN argues that the complaint does not allege that C-SPAN holds
monopoly power over the relevant market. “Monopoly power is the power to control prices or
exclude competition.” United States v. E.I. du Pont de Nemours & Co., 351 U.S. 377, 391
(1956). “The existence of such power ordinarily may be inferred from the predominant share of
the market.” Grinnell, 384 U.S. at 571.
C-SPAN, of course, is a programming network and not a direct competitor in the market
for real-time, multichannel video programming distribution services. See Compl. (Dkt. No. 1)
¶ 11; Def.’s Mot. Dismiss & Mem. Supp. (Dkt. No. 5) at 25. Sky Angel argues that the market
power lies not in the C-SPAN entity itself, but in “the authorized majority of the Board of
Directors of C-SPAN.” Pl.’s Mem. P. & A. Opp’n Mot. Dismiss (Dkt. No. 7) at 37. The
complaint alleges that cable MVPDs “dominate” the real-time, multichannel video programming
distribution services market with a collective sixty percent market share. See Compl. (Dkt.
19
No. 1) ¶ 37.4 But as C-SPAN points out, “Sky Angel may not aggregate the shares of multiple
other entities” to arrive at a monopoly. See Def.’s Mot. Dismiss & Mem. Supp. (Dkt. No. 5) at
26 (collecting cases). “[W]hen a small number of large sellers dominates a market, this is
described as an oligopoly.” Oxbow Carbon & Minerals LLC v. Union Pac. R.R. Co., No. 11-cv-
01049 (PLF), 2013 WL 673778, at *7 (D.D.C. Feb. 26, 2013). “A monopoly arises when a
single firm ‘controls all or the bulk of a product’s output, and no other firm can enter the market,
or expand output, at comparable costs.’” Id. (quoting 2B Areeda et al., supra, ¶ 403a) (emphasis
added).
Although there is no D.C. Circuit case law on point, several other courts and at least one
other judge in this district have held that a “shared monopoly” theory cannot support a Section 2
claim. See id. at *6 (collecting cases). The Court agrees. Where the alleged monopoly is held
by multiple separate companies within a market, there is no “monopoly” at all. Section 1—not
Section 2—serves the purpose of prohibiting agreements unreasonably restraining trade in a
shared market. See Sun Dun, Inc. of Wash. v. Coca-Cola Co., 740 F. Supp. 381, 390 (D. Md.
1990) (“Oligopoly can, in some cases, violate Sections 1 and/or 3 of the Sherman Act, but
competitors, by conspiring to maintain or create an oligopoly, do not run afoul of the Section 2
prohibitions against monopoly.”). The Court sees no plausible inference from the pleaded facts
that a single entity wields or threatens to attain monopoly power over the alleged relevant market
(both components of which are inadequately pleaded). Indeed, the complaint is premised on the
alleged collective action of several cable MVPDs within a single, national market. For these
reasons, the Court will dismiss Count II.
4
Sky Angel’s allegation appears to include all cable MVPDs, and not just those
represented on C-SPAN’s board.
20
4. Injury
C-SPAN also argues that both claims are inadequately pleaded because the complaint
does not sufficiently allege injury. While Sections 1 and 2 of the Sherman Act illegalize
concerted activity restraining trade and monopoly maintenance, respectively, see 15 U.S.C.
§§ 1–2, Section 4 of the Clayton Antitrust Act of 1914 (the “Clayton Act”) provides a civil,
private right of action to “any person who shall be injured in his business or property by reason
of anything forbidden in the antitrust laws . . . .” Id. § 15; see also id. § 12 (defining “antitrust
laws” to include the Sherman Act); id. § 26 (providing a private right of action for injunctive
relief). To achieve standing to bring forward a federal antitrust claim, the plaintiff must show
that it has suffered both Article III injury and “antitrust injury”—that is, “injury of the type the
antitrust laws were intended to prevent and that flows from that which makes defendants’ acts
unlawful.” Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477, 489 (1977).5 This
additional requirement of “antitrust injury” exists where a plaintiff seeks treble damages pursuant
to Section 4 of the Clayton Act, as well as cases in which a plaintiff seeks injunctive relief under
Section 16. See Cargill, Inc. v. Monfort of Colo., Inc., 479 U.S. 104, 111 (1986).
The Clayton Act, however, does not “allow suit by every party affected by an antitrust
violator’s ‘ripples of harm.’” Andrx Pharms., Inc. v. Biovail Corp. Int’l, 256 F.3d 799, 806
(D.C. Cir. 2001) (quoting Blue Shield of Va. v. McCready, 457 U.S. 465, 476–77 (1982)). To
establish the “irreducible constitutional minimum” of injury to present a case or controversy
under Article III, the plaintiff must show (1) that it suffered “injury in fact”—that is, “an
5
Although some courts use the term “antitrust injury” to sweep in the full scope of injury
analysis in an antitrust case—including the Article III standard required in every federal
proceeding—the Court uses the term “antitrust injury” in this opinion to refer specifically to the
additional requirement articulated in Brunswick. See also 2A Areeda et al., supra, ¶¶ 335c4,
337a.
21
invasion of a legally protected interest” that is “concrete and particularized” and “actual or
imminent, not conjectural or hypothetical,” (2) “a causal connection between the injury and the
conduct complained of . . . ,” and (3) that it is “likely, as opposed to merely speculative, that the
injury will be redressed by a favorable decision.” Lujan, 504 U.S. at 560–61 (internal quotation
marks omitted); accord Cheeks of N. Am., Inc. v. Fort Myer Constr. Corp., 807 F. Supp. 2d 77,
92 (D.D.C. 2011) (applying the Lujan standard to an antitrust case). In addition to the minimum
constitutional standing set forth in Lujan, in antitrust cases “[t]he injury should reflect the
anticompetitive effect either of the violation or of anticompetitive acts made possible by the
violation.” Brunswick, 429 U.S. at 489.
a. Injury in Fact
Sky Angel alleges that C-SPAN’s termination of the IPTV Agreement resulted in “lost
profits, lost [sic] of business opportunity, loss of the ability to effectively compete, and injury to
Sky Angel’s prestige and reputation.” Compl. (Dkt. No. 1) ¶ 53. These harms are plausibly tied
to FAVE-TV’s loss of C-SPAN programming, as Sky Angel alleges that customers “wrote to
inquire, complain, or request that C-SPAN’s programming be restored.” Id. ¶ 54. C-SPAN
argues that, given FAVE-TV’s “extremely limited” lineup, “the loss of C-SPAN . . . is highly
unlikely to have had any competitive effect at all on Sky Angel.” Def.’s Mot. Dismiss & Mem.
Supp. (Dkt. No. 5) at 31 n.10. But it stands to reason that, to the contrary, the loss of one of Sky
Angel’s few mainstream offerings may more likely prevent it from effectively competing with
the major cable MVPDs, all of whom carry C-SPAN. See Compl. (Dkt. No. 1) ¶ 50. At this
stage, the Court cannot make that determination. C-SPAN also points out that Sky Angel’s
complaint does not quantify its lost profits or number of subscribers, but that is not required in
order to establish injury in fact at the pleading stage. See Zenith Radio Corp. v. Hazeltine Res.,
22
Inc., 395 U.S. 100, 114 n.9 (1969) (noting that a plaintiff’s “burden of proving the fact of
damage under . . . the Clayton Act is satisfied by its proof of some damage flowing from the
unlawful conspiracy; inquiry beyond this minimum point goes only to the amount and not the
fact of damage”).
b. Antitrust Injury
C-SPAN also argues that Sky Angel has not sufficiently alleged its injury was caused by
C-SPAN’s supposed violation of antitrust laws—in other words, that Sky Angel’s alleged harms
do not “flow[] from that which makes defendants’ acts unlawful.” 6 Brunswick, 429 U.S. at 489.
“The antitrust injury requirement ensures that a plaintiff can recover only if the loss stems from a
competition-reducing aspect or effect of the defendant’s behavior.” Atl. Richfield Co. v. USA
Petroleum Co., 495 U.S. 328, 344 (1990). This requirement serves to prevent application of the
antitrust laws where the defendant’s violation actually increases competition—for example,
where an illegal merger allows firms to stay in business, thereby preserving competition.7 See,
6
C-SPAN also argues that Sky Angel has not alleged any injury to competition. See
Def.’s Mot. Dismiss & Mem. Supp. (Dkt. No. 5) at 30; Def.’s Reply Supp. Mot. Dismiss (Dkt.
No. 8) at 14. This, however, would not mean that Sky Angel lacks “antitrust standing,” but
would instead mean that there is no antitrust violation at all. See 2A Areeda et al., supra, ¶ 337a
(“To say that the plaintiff has not shown any injury to competition is to conclude that the
antitrust laws have not been violated at all. [This is not] ‘antitrust injury’ in the sense that
Brunswick used the term . . . .”). Regardless, the complaint clearly alleges that termination of
C-SPAN’s programming on the lower-priced FAVE-TV has allowed the cable MVPDs to
“shield themselves from the downward pressure on market prices that would result from the
competitive effect of” Sky Angel’s participation and that, “[b]y artificially maintaining their
dominance in the MVPD market in this way, the cable MVPDs have perpetuated the current,
high-price status quo and denying [sic] millions of U.S. consumers the full economic benefit of
competition.” Compl. (Dkt. No. 1) ¶ 51.
7
Because there can be no antitrust violation without an injury to competition, it may
seem contradictory to “postulate[] that competition can be simultaneously impaired (thereby
violating the antitrust laws) and enhanced (thereby causing the plaintiff noncognizable losses).
There is no real contradiction, because the impairment and enhancement lie in different temporal
or market dimensions, as the Brunswick case itself illustrates.” 2A Areeda et al., supra, ¶ 337a.
23
e.g., Brunswick, 429 U.S. at 488. “It is competition, not competitors, which the [Clayton] Act
protects.” Brown Shoe Co., 370 U.S. at 344.
Sky Angel alleges that it lost profits and business opportunities due to C-SPAN’s
termination of the IPTV Agreement. See Compl. (Dkt. No. 1) ¶¶ 53–57. The complaint also
alleges that this same termination served to boycott Sky Angel and maintain the cable MVPDs’
monopoly, thereby reducing competition and allowing the cable MVPDs to maintain artificially
high prices. See id. ¶ 51. From the face of the complaint, it therefore appears plausible that the
same alleged violation both reduced competition and injured Sky Angel—that Sky Angel’s
injury “flows from that which makes [C-SPAN’s] acts unlawful.” Brunswick, 429 U.S. at 489.
This is sufficient to allege antitrust injury at the pleading stage. See also Andrx Pharms., 256
F.3d at 813 (holding that an agreement preserving a monopoly, constituting an illegal restraint of
trade, caused both antitrust injury and injury in fact to a rival whose exclusion was effected by
the agreement).
C-SPAN would have the Court dismiss Sky Angel’s complaint on the basis that its
termination of the IPTV Agreement was caused by Sky Angel’s supposed breach of contract,
rather than any antitrust violation by C-SPAN. See Def.’s Mot. Dismiss & Mem. Supp. (Dkt.
No. 5) at 29–30. Specifically, C-SPAN argues that Sky Angel’s distribution method uses public
internet—a distribution method not permitted by the contract. See Compl. Ex. E (Dkt. No. 1-6)
§ 1(a). Although contract interpretation is a matter of law, see Adkins Ltd. P’ship v. O St. Mgmt.,
LLC, 56 A.3d 1159, 1167 (D.C. 2012); see also Compl. Ex. E (Dkt. No. 1-6) § 11(c) (selecting
District of Columbia law to govern the contract), the Court declines to undertake a breach of
contract analysis at the pleading stage, where the contract interpretation issue is not fully briefed
and the only facts describing Sky Angel’s distribution method are those set forth briefly in the
24
complaint. In any event, Sky Angel’s complaint alleges that C-SPAN’s termination of the IPTV
Agreement was motivated by anticompetitive animus, see Compl. (Dkt. No. 1) ¶¶ 38–40, and the
Court will accept the truth of that allegation for purposes of the pleading stage. See Iqbal, 556
U.S. at 678.
Although Sky Angel’s two Sherman Act claims are inadequately pleaded, the Court finds
that, if such violations did occur, the complaint sufficiently alleges injury in fact and antitrust
injury at this stage.
IV. CONCLUSION
For the foregoing reasons, the Court grants C-SPAN’s motion to dismiss (Dkt. No. 5).
The Court finds that it does have subject matter jurisdiction over the two alleged Sherman Act
violations and that, presuming at least one of those violations occurred, Sky Angel has pleaded
both injury in fact and antitrust injury. However, the Court also finds that Sky Angel’s
complaint inadequately pleads causes of action for violations of Sections 1 and 2 of the Sherman
Act, and will therefore dismiss the complaint without prejudice. The Court will grant Sky Angel
leave to amend its complaint. An order consistent with this Memorandum Opinion is separately
and contemporaneously issued this 3rd day of June, 2013.
RUDOLPH CONTRERAS
United States District Judge
25