Ties that Bind: Trial Date Nears for Cox Communications on the Legality of Linking Access to Premium Cable Services and Proprietary Set-Top Boxes
Trial is set for October 13th on an antitrust class action lawsuit alleging that Cox Communications used its monopoly power over premium cable services in Oklahoma City to force consumers to rent its set-top box. The trial will be conducted before Judge Robin J. Cauthron of the Western District of Oklahoma. The plaintiff, Richard Healy, is seeking nearly $49 million in damages on behalf of Oklahoma City cable subscribers who paid Cox to rent a set-top box from February 1, 2005 through January 9, 2014.
At trial, the jury will be asked to determine if Cox’s tying arrangement impaired or altogether barred competition in the set-top box market. Tying is a per se violation of the Sherman Act if four elements are proven:
• Two separate products;
• A “tie,” meaning conditioning the sale of one product on the purchase of another;
• Sufficient economic power in the tying product market; and
• A substantial volume of commerce affected in the tied product market
While Cox subscribers were not contractually obligated to rent set-top boxes in order to access premium cable services, Cox’s internal policies on sales and materials available to customers all stated that rental of a set-top box was required in order to receive premium services. For example, Cox stated on its website that customers needed to rent a Cox set-top box in order to receive certain premium cable services (like video-on-demand and an interactive programming guide) and Cox reiterated that when subscribers called and asked about receiving these services.
At summary judgment, Cox argued that there could be no illegal tie because no one else sold the tied product, a set-top box capable of receiving Cox’s premium cable services. The court rejected that argument, reasoning that the lack of competition for the tied product could be because Cox’s tying arrangement precluded entry into the market. The court also rejected Cox’s argument that the presence of competition in the market for premium cable and set-top boxes should prevent a finding of anticompetitive conduct. The court explained that the presence of other competitors goes towards Cox’s market power, and the plaintiffs had already presented evidence that Cox had sufficient market power in the relevant market. The court offered Cox a narrow opening by holding that there is a material factual dispute over whether Cox worked with outside set-top box manufacturers to develop a product that would allow access to premium cable services through non-Cox boxes. However, the court seemed skeptical that that argument would carry the day, and again observed that all of Cox’s marketing materials said that their set-top box was required.
Based on the court’s previous rulings, it appears that Cox has limited options for avoiding liability at trial. The court’s narrow definition of the relevant geographic market as “Cox’s Oklahoma City subsystem” will make it difficult for Cox to argue that it did not “possess sufficient economic power in the tying market.” Cox could try to prove that their set-top box and premium cable services are not actually “separate products,” but Cox’s expert herself acknowledged that they were. Cox could assert that it did not require customers to rent a set-top box, and that there was still a viable market for non-Cox set-top boxes, but as noted above, the Court is very skeptical of these arguments. The outcome of this trial has huge implications for the cable industry. Millions of people around the country have very limited choices when choosing a cable provider, meaning it may not be difficult to establish market power in certain regions. A victory for the plaintiffs could result in myriad follow-on lawsuits, miring cable companies in litigation for years to come.