Contractor Sues DirecTV for $84 Million

(CN) - An independent contractor that brought new subscribers to DirecTV sued the satellite giant for $84 million in a state antitrust complaint, claiming DirecTV ruined it by canceling its longstanding contract and refusing to let it sell its sales leads for their true market value.

Basic Your Best Buy Inc. sued DirecTV in Los Angeles Superior Court.

Basic claims that since it was founded in 1994, DirecTV "has relied on small business owners to serve as marketers and advertisers ... to attract and sign up new DirecTV subscribers." Basic claims it has been one of DirecTV's most successful small business contractors since 1996.

Typically, DirecTV's small business contractor are responsible for paying for their own advertising; they are paid a fee by DirecTV for each new customer they sign up.

Contractors - which DirecTV calls National Sales Partners (NSPs) - use direct mail, the Internet, the Yellow Pages and whatever other methods they could to drum up business for DirecTV.

They were so successful that at the end of 2010 DirecTV had 19.2 million subscribers and more than $24 billion in annual revenue. Basic claims that more than 50 percent of DirecTV's new customers through 2006 were signed up by its network of 30,000 contractors.

Basic says it was one of DirecTV's top five providers of new subscriptions, using what it calls as a "sophisticated Yellow Pages and White Pages advertising platform."

But "Starting around 2005, DirecTV enacted an internal policy decision to shrink the total number of NSPs and move much of their marketing and sign-up efforts to its own direct sales team," Basic says. DirecTV wanted to boost its own share of direct sales from 5 percent to 55 percent - but it never informed its contractors of this, Basic says.

"To ensure that it would have first opportunity on any terminated small business owners' remaining assets, DirecTV coerced an illegal conspiracy in restraint of trade with its remaining small business owners," the complaint states.

"DirecTV coerced its small business owners into agreeing not to bid for other terminated small business owners; assets unless and until they received approval from DirecTV. This policy was actively enforced and in place in late 2008. Accordingly, there was an anticompetitive scheme set up whereby DirecTV would have the first opportunity to buy a terminated sales agency's assets, and other small business owners would not participate in the marketplace for these assets. Because DirecTV faced no competition in bidding for these assets, it could force an artificially low price for them.

"Remaining small business owners were threatened by being told they would be terminated if they did not abide by this agreement.

"DirecTV's coercive policy was communicated both through direct statements made by DirecTV employees to small business owners as well as actions that were taken against small business owners when they failed to abide by it."

Basic says this is the situation in which it found itself when DirecTV terminated its contract in October 2009.

Worse, it says, unlike in past cases, in which DirecTV allowed its former contractors to follow up on their sales leads and earn back their marketing investments, DirecTV made no such concession to Basic.

Basic says it continued to field calls for DirecTV for another two months, but DirecTV stiffed it for more than $2 million in new customer commissions.

"DirecTV not only wanted to completely take over the Yellow Pages marketing channel, but it evidently wanted to take over Basic's extraordinarily successful business as well," the complaint states.

Ultimately, DirecTV forced Basic to accept a deal "where it only paid for closed calls (as opposed to incoming sales calls), paid a below market price for each closed call, and was not required to set a minimum close rate or establish any other metric for success," Basic says says.

Basic demands $27.9 million in compensatory damages, trebled, and punitive damages for conspiracy, unfair competition, deceptive trade and violation of state antitrust law, the California Cartwright Act.

Basic is represented by Gregory D. Call with Crowell & Moring of San Francisco.

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