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Alleging a Negative: The Challenges of Bringing a Refusal-to-Deal Claim

What does to take to state a claim under Section 2 of the Sherman Act for refusal to deal?  Last week’s decision in Viamedia, Inc. v. Comcast Corp. and Comcast Spotlight, LP, a case out of the Northern District of Illinois, highlights the difficulty of plausibly alleging a negative:  that a defendant monopolist’s exclusionary conduct lacks any procompetitive purpose. 

Plaintiff Viamedia, a spot cable advertising representation company, alleged that Comcast violated Section 2 of the Sherman Act by refusing to allow two of Viamedia’s clients (WOW and RCN) to participate in the Chicago and Detroit “Interconnects,” or cable cooperatives that facilitate spot cable advertising sales, whose advertising Comcast controls because of its majority-interest ownership therein.  In June 2012, after Viamedia’s clients had participated in the Interconnects for a decade, Comcast told WOW and RCN that they could not continue to access the Interconnects as long as they used Viamedia as their advertising representative.  Rather, Viamedia’s clients would be required to retain Comcast Spotlight.  Since Comcast collects fees from its management of the Interconnects, Viamedia claimed that Comcast’s economic incentives favor maximizing participation in the Interconnects, rather than limiting it, as Comcast’s ultimatum to WOW and RCN would do.  Accordingly, Viamedia alleged, Comcast’s conduct went against its economic incentives.

Viamedia based its refusal-to-deal allegations on the theory adopted by the Supreme Court in Aspen Skiing v. Aspen Highlands Skiing, 472 U.S. 585 (1985).  In that case, the monopolist chose to end a partnership with a competitor that had been in existence for a long time—namely, bundling ski lift tickets for different mountains.  The Court noted that “Ski Co.’s decision to terminate the all-Aspen ticket was thus a decision by a monopolist to make an important change in the character of the market.”  (Emphasis added.)  It was crucial to the Aspen Skiing Court that “the monopolist elected to make an important change in a pattern of distribution that had originated in a competitive market and had persisted for several years”—a fact to which Viamedia’s case would seem to draw a strong parallel.

In opposing the motion to dismiss, Viamedia argued that the “only plausible purpose” of Comcast’s conduct “is to eliminate Viamedia as a competitor to Comcast Spotlight” in the relevant market.  But Comcast nevertheless successfully argued that “[c]onspciuously absent from the additional allegations [in the amended complaint] are any facts showing that Comcast’s refusal to deal with Viamedia ‘has no rational procompetitive purpose[.]’”  (Emphasis added.)

In siding with Comcast, the Viamedia court appears to suggest that, to plead the negative—that the alleged monopolist had no procompetitive purpose for its conduct—a refusal-to-deal plaintiff faces an enhanced pleading requirement: “plaintiffs seeking to establish an unlawful refusal to deal must show that the defendant’s actions serve no rational anticompetitive purpose.”  The court equates with this with a requirement that Viamedia “adequately allege that Comcast’s refusal to deal was irrational but for its anticompetitive effects.”  It went on to hold, as it did in granting Comcast’s prior motion to dismiss, that Comcast’s conduct “offered ‘potentially improved efficiency’ because it replaced an intermediary with a direct relationship.”  That is, the District Court’s ability to identify a potential procompetitive purpose negates the plausibility of the refusal-to-deal plaintiffs’ claims.

As the Supreme Court noted in Verizon Communications v. Trinko, 540 U.S. 398 (2004), “Aspen Skiing is at or near the outer boundary of §2 liability.”  Last week’s decision in Viamedia suggests things may indeed be going further downhill for the refusal-to-deal doctrine.