SAN JOSE, Calif. (CN) — Disney cannot escape some claims from a class of customers who claim the company engaged in anticompetitive conduct to block new players in the content streaming market, a federal judge ruled Monday.
U.S. District Judge Edward Davila allowed some of the antitrust claims to proceed against Disney, including claims that the media giant conspired with DirecTV to raise prices and shun competitors from the "Streaming Live Pay TV" market. The judge said the plaintiffs showed how Disney used anticompetitive conduct to strengthen barriers to entry within the streaming market, making it more difficult for new players to compete.
Plaintiffs from five different states brought the class action lawsuit against The Walt Disney Company on behalf of all DirecTV Stream monthly subscribers since April 1, 2019. They are seeking injunctive relief, treble damages, attorney fees and costs and compensation for overpayment for services.
The plaintiffs say that Disney and cable providers entered into carriage agreements that restrain competition, and that they are horizontal agreements between direct competitors functioning as one enterprise. They cited Disney's revenue from ESPN as an example, as it owns an 80% interest share of ESPN and makes billions of dollars per year through affiliate fees from cable television networks in the U.S.. Affiliate fees charge cable companies to broadcast a TV channel as part of a package or bundle, and ESPN’s are the most expensive in the country.
Disney moved to dismiss the case and stay discovery, arguing that the carriage agreements are vertical restraints because they are made between competitors at the same level of the distribution chain.
In a 25-page order filed Monday, Davila granted and denied parts of the motion to dismiss and terminated the motion to stay as moot.
The Barack Obama appointee denied Disney’s motion to dismiss the plaintiffs’ claim that it violated the Sherman Act under the rule of reason.
The judge noted that many courts have applied “single enterprise” language to establish a subsidiaries’ or affiliates’ individual participation in an anticompetitive conspiracy by claiming that the entities in question are part of a “corporate family.”
He said he was the plaintiffs had sufficiently alleged that Disney’s control of the second largest provider, Hulu, and ESPN, in combination with the base term and clauses in the carriage agreements enable it to impose inflated costs on competitors and set a price floor.
The judge also found that the plaintiffs sufficiently alleged that Disney’s anticompetitive conduct has increased the difficulty for rivals to enter the market. A rival would need to contract with Disney in order to obtain “several notable channels,” which Davila said is sufficient evidence to support a claim of an injury to competition in violation of the Sherman Act.
However, Davila granted Disney’s motion to dismiss the plaintiffs’ claim that Disney per se violated the Sherman Act,.
He said that the plaintiffs claimed that Disney can impose ESPN affiliate fees on providers without meaningfully increasing costs for its own product, Hulu. They claimed that “Programmers’ practice of selling packaged cable channels foreclosed independent programmers from entering and competing in the upstream market for programming channels.”
“The court agrees with Disney that, to the extent plaintiffs rely on allegations of reduced consumer choice and increased subscription prices, these allegations are insufficient to allege an injury to competition,” Davila said. He noted that the Ninth Circuit decided that a statement that two parties entered into a contract limiting some freedom of action, such as the distributors’ ability to offer smaller packages or channels on an unbundled basis, “is not sufficient to allege an injury to competition.’”
The judge also said that the co-conspirator exception applies only to conspiracies among horizontal competitors to fix prices.
“Because the court has determined that plaintiffs fail to allege a horizontal agreement between competitors to restrain trade, this exception is not available to plaintiffs,” he said. “Accordingly, plaintiffs cannot maintain their claim for damages.”
Attorneys for both parties did not immediately respond to requests for comment.
The plaintiffs have until Oct. 16 to file an amended complaint.Follow @nhanson_reports
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