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Court Okays Suit To Untangle Cable Boxes

Posted  April 14, 2011

An antitrust suit by customers seeking to untangle services provided by their cable company, Insight Communications, has been given a green light by Judge Joseph McKinley of the U. S. District Court for the Western District of Kentucky, who denied a motion to dismiss.

The customers allege that Insight illegally ties two separate products – its interactive cable service and the rental of a set-top box.  The court’s decision rejected Insight’s arguments about the technological linkage between the service and the box, and about FCC regulations trumping the Sherman Act.

Insight’s “Interactive Premium Cable” is available only to subscribers who lease a proprietary set-top box from Insight.  Customers claimed that, were it not for Insight’s preventing its service from working with other hardware, set-top boxes could be available in stores in a competitive market, in the same way that modems and telephones are.  They claimed that by requiring customers to lease the box as a condition of receiving the cable service, Insight had “tied” the two products in violation of Section 1 of the Sherman Act.

The court decided that, based on the customers’ allegations, the service and the box could be separate products – one of the requirements for a tying claim – even though the box is useless without the service.  Customers’ perception of the two as separate products, not their technological linkage, was the controlling factor, said the court.

Another requirement for a tying claim is that the defendant have enough market power to coerce customers into buying the two products together.  The court found that interactive cable service, which includes features like “on-demand programming, the interactive user guide, and pay-per-view,” was a separate product market, because satellite TV does not provide these features, and Web-based video has a much smaller library of shows.  The court concluded that no substitutes for interactive cable existed in the Kentucky, Indiana, and Ohio cities where Insight has service.  The customers alleged that the price of Insight’s interactive cable has increased three times faster than inflation, and that Insight has no close competitors to constrain its price.  This was enough to convince the court that Insight could have power to coerce tying.

Insight also claimed that because the Federal Communications Commission has detailed rules about how cable boxes are to be provided and priced, an antitrust decision by a court could conflict with the FCC’s policy judgment.  Insight cited to Verizon Communications v. Law Offices of Curtis V. Trinko, in which the Supreme Court dismissed a claim that FCC rule violations were also antitrust violations.  The Kentucky court ruled that Trinko did not apply to cases dealing with “established antitrust standards” and did not bar the customers’ suit.

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