BOSTON (CN) — Another attempt by the Maine legislature to rein in cable companies — this time by forcing them to give pro-rata refunds to TV customers who quit in the middle of a month — faced friendlier questioning at the First Circuit Monday than it did in its previous effort.
Just four months ago the First Circuit killed off a different Maine law that required cable providers to “unbundle” their services and allow customers to sign up for individual channels, saying it violated the First Amendment.
Matthew Hellman, a Washington attorney with Jenner & Block, argued this morning for the cable companies that, if cable companies can force customers to sign up for a package of stations, they should also be able to charge them by the month. He framed it as an area of competitive advantage.
“But what exactly is the competitive advantage, other than you get to keep people’s money even after they quit?” asked a skeptical U.S. Circuit Judge David Barron.
Hellman replied that not allowing pro-rata refunds made billing predictable.
“But allowing pro-rata refunds would be just as predictable,” Barron countered.
Maine’s popular law was a response to Charter Communications’ decision to stop offering pro-rata refunds in June 2019. The bill was introduced in January 2020 and within two months it passed the Maine Senate unanimously and the Maine House by a vote of 131-6. The governor signed it in March 2020 and it went into effect in June.
But a federal court struck down the law in October, saying it violated the 1984 federal Cable Act which prohibits states from regulating “rates for the provision of cable services.”
On appeal to the Boston-based First Circuit, Maine argued that the law doesn’t regulate rates at all; it just prohibits companies from charging for services once they stop providing them.
The law is “a basic consumer protection measure intended to stop cable companies from nickel-and-diming customers,” the brief states.
In the earlier unbundling case, the First Circuit found that “a beneficent consumer protection purpose does not insulate a law from the possible application of the First Amendment.” But it appeared that Maine had a bit more of a leg to stand on here because the Cable Act explicitly says that it doesn’t preempt state consumer protection laws.
Similar laws have gotten mixed results in other courts, with a federal judge in New Jersey issuing a preliminary injunction against that state’s pro-rata law under the Cable Act and a Nebraska state trial judge finding that such a law conflicted with other state statutes. Back in 1992, however, the Second Circuit said the Cable Act didn’t prevent a state consumer protection law that prohibited excessive “downgrade fees” when a customer switched to a less expensive package.
Hellman said Charter’s monthly billing was similar to a supermarket charging $1.50 for a bottle of cola but $6 if you buy a six-pack. “If a customer agrees to pay for a month but decides he’s seen all he wants to on HBO and quits after 10 days, that’s like a customer who says I only want three bottles of cola but I want to pay the six-pack rate,” Hellman said.
“But can’t you just raise your rates so you make up the difference?” asked Barron, an Obama appointee. “I’m sure cable companies are good at figuring out how to do that.”
U.S. Circuit Judge O. Rogeriee Thompson, a Clinton appointee, seemed skeptical of Charter’s position. “So could you have a yearly rate?” she asked, implying that under Charter’s argument it could bill people for a year even if they quit after a week.
Hellman seemed embarrassed by the question and finally said that a cable company could have a yearly rate but that the market wouldn’t accept it. Congress wanted a free market for cable services, he said.
Maine’s lawyer, Assistant Attorney General Paul Suitter, replied that the Maine law enhanced the free market by making it easier for customers to switch providers.
Hellman acknowledged that Maine can pass a consumer protection law but said the pro-rata requirement doesn’t amount to consumer protection because the customer agreed to pay the monthly rate. “A consumer protection law would be if the customer bought a six-pack of cola and three of the bottles turned out to be empty,” he said.
This spurred grumbling from Judge Timothy Dyk, a Clinton appointee sitting on the panel by designation from the Federal Circuit. “I don’t find these analogies to supermarkets to be helpful,” said Dyk, who got little response from the lawyers after demanding to know what states were doing at the time Congress passed the law in 1984.
When Congress preempted state laws, it was primarily concerned that states were going to comprehensively set cable rates as for a utility, he proposed. “Doesn’t the law suggest that Congress just wasn’t thinking of these details of termination fees and so on?” Dyk asked.
And Thompson kept coming back to the fact that Congress preempted state laws governing rates “for the provision of cable services.” “What do we do with ‘for the provision of cable services’ when you’re not providing service for half the month?” she asked Hellman.
“The deal is, you agree to pay for 30 days,” Hellman replied. “That is the provision of service. You can quit if you saw your HBO show but that’s the rate.”
But Thompson was still doubtful. “It seems like the consumer is saying ‘I want to pay for a service that’s provided as opposed to a service I’m not getting,’” she commented.
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