UNITED STATES OF AMERICA et al v. COMCAST CORPORATION et al

Filing 27

MEMORANDUM ORDER, Ordered that for no less than two years, the parties shall create and maintain a report which details (a) how many OVDs initiate arbitration under the FCC Order and the result of those arbitrations; (b) how many times OVDs appeal th e result of their arbitration, and to which judicial bodies, if any, they appeal; (c) how many OVDs seek permission from the Department of Justice to arbitrate under the Final Judgment and how many are granted permission; and(d) how many times the Un ited States denies an OVD's request to initiate arbitration under the Final Judgment, and how many of those denied susequently elect to initiate arbitration under the FCC Order. It is further ORDERED that the United States shall prepare this rep ort and share it with all parties in advance of a yearly hearing before this Court; and it is further ORDERED that the United States shall prepare this report and share it with all parties in advance of a yearly hearing before this Court; and it is f urther ORDERED that the parties shall convene for an annual hearing with this Court to explain and discuss the report and any other non-arbitration-related issues that may have arisen during the previous year to ensure that the Final Judgment does, and continues to, satisfy the public interest. SO ORDERED. Signed by Judge Richard J. Leon on 9/1/2011. (see memorandum order) (kc )

UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
UNITED STATES OF AMERICA,
STATE OF CALIFORNIA,
ST ATE OF FLORIDA,
STATE OF MISSOURI,
STATE OF TEXAS, and
STATE OF WASHINGTON,

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Plaintiffs,

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v.

) Civil Case No. 11-106 (RJL)

COMCAST CORP., GENERAL
ELECTRIC CO., and NBC
UNIVERSAL, INC.,
Defendants.

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MEMORANDUM ORDER
(September-/-, 2011) [Dkt. #25]
BACKGROUND
This case is before the Court on the United States' Motion to Enter Final Judgment
[Dkt. #25]. In January 2011, plaintiffs United States of America ("the Government") and
the States of California, Florida, Missouri, Texas, and Washington ("plaintiffs"), brought
a civil anti-trust l action to permanently enjoin a proposed joint venture and related
transactions, purportedly worth $30 billion, between defendant Comcast Corporation
The Government brought suit under Section 15 of the Clayton Act, 15 U.S.C.
§ 25, to "prevent and restrain [defendants] from violating Section 7 of the Clayton Act,
15 U.S.C. § 18." Compl. ~ 11. Plaintiff states brought suit under Section 16 of the
Clayton Act, 15 U.S.C. § 26. Id.

("Comcast" or "defendant") and General Electric Company ("GE" or "defendant") that
would allow Comcast, the largest cable company in the United States, to control, among
other things, popular video programming which included NBC Television Network
("NBC broadcast network") and the cable networks of NBC Universal, Inc. ("NBCU" or
"defendant"). Complaint ("Comp!."), Jan. 18, 2011 [Dkt. # 1]. The Government
simultaneously issued a Competitive Impact Statement contending that under the
proposed merger, Comcast would obtain majority control of highly valued video
programming that would prevent rival video-distribution companies from competing
against the post-merger entity. See Competitive Impact Statement at 1, Jan. 18,2011
[Dkt. #4].
On February 20, 2011, this Court signed a Stipulation and Order [Dkt. #21],
pursuant to which the defendants agreed to abide by the provisions of a proposed Final
Judgment that would allow the merger to go forward, while also putting into place certain
remedies for what the Government alleged was anti-competitive behavior. Defendants
also agreed to comply with the requirements of the Antitrust Procedures and Penalties
Act ("APPA"), IS U.S.c. § 16, including publishing - at defendants' expensenewspaper notice of the merger, a summary of its terms, and a copy of the proposed Final
Judgment. Stipulation and Order at ~~ 2-3; see also P!. United States' Response to Public
Comments, June 6, 2011 [Dkt. #23]. On April 18,2011, defendants filed a Report and
Certification of Compliance with Tunney Act Requirements ("Report") [Dkt. #22], in
which they certified compliance with Section 2(g) of the APP A and detailed
communications by or on behalf of defendants with the United States regarding the Final
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Judgment. See Report at 1. On June 6, 2011, the Government filed a Response to Public
Comments ("Response") [Dkt. #23] in which it summarized and responded to the eight
public comments filed after the sixty-day notice required by the APP A. Resp. at 2. After
analyzing the public comments, the United States professed a continued "belie[ f] that the
proposed Final Judgment will provide an effective and appropriate remedy for the
antitrust violations alleged in the Complaint." Id. at 1.
Then, on June 29, 2011, the Government filed a Certificate of Compliance with
Provisions of the Antitrust Procedures and Penalty Act [Dkt. #24], wherein it certified
compliance with all requirements of APP A Sections 16(b )-(h) and requested that the
Court make the necessary public-interest determinations required by 15 U.S.C. § 16(e)
and, ultimately, enter the proposed Final Judgment.
This Court held a fairness hearing on July 27, 2011. See Minute Entry, Case 11cv-l06, July 27, 2011. The parties were given the opportunity to present oral argument
and to answer the Court's questions. Upon conclusion of the fairness hearing, the
Government filed a Supplemental Statement In Support of Entry of the Final Judgment
("Supp. Stmt."), Aug. 5,2011 [Dkt. #26], in which it further explained the proposed Final
Judgment and renewed its request for this Court to enter Final Judgment.
Upon review of the pleadings, the record, and the applicable law, the Court
determines that entry of the proposed Final Judgment is in the public interest and
therefore GRANTS the Government's Motion for Entry of Final Judgment [Dkt. #25].
However, given a number of potential uncertainties regarding the Final Judgment's
implementation, and consistent with this Court's "jurisdiction to issue orders and
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directions necessary and appropriate to carry out or construe any provision of the Final
Judgment and to 'enforce compliance, and to punish violations of its provisions, '" Supp.
Stmt. at 6 (quoting Final Judgment § IX), I hereby order that certain future steps,
described herein, be taken for no less than two years to ensure that the public interest
continues to be served.

STANDARD OF REVIEW
Before entering any consent judgment offered by the United States under 15
U.S.C. § 16(e), this Court must determine whether entry of the judgment "is in the public
interest." To make that determination, the Court shall consider:
"(A) the competitive impact of such judgment, including
termination of alleged violations, provisions for enforcement
and modification, duration of relief sought, anticipated effects
of alternative remedies actually considered, whether its terms
are ambiguous, and any other competitive considerations
bearing upon the adequacy of such judgment that the court
deems necessary to a determination of whether the consent
judgment is in the public interest; and
(B) the impact of entry of such judgment upon competition in
the relevant market or markets, upon the public generally and
individuals alleging specific injury from the violations set
forth in the complaint including consideration of the public
benefit, if any, to be derived from a determination of the
issues at trial." 15 U.S.c. § 16(e).

ANALYSIS
On July 27, 2011, the Court held a public hearing during which the Government
and defendants presented arguments as to why entry of Final Judgment was in the public
interest. In essence, both sides relied upon their assessment that the Final Judgment was
carefully crafted by all parties to facilitate a merger, consistent with the existing antitrust
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laws, that carefully protected the public's interest by maintaining the competitive
equilibrium of the emerging online-video market.
While asking the parties questions at that hearing, however, I grew increasingly
concerned that the Government's non-appealable arbitration mechanism for online video
distributors ("OVDs") did not serve the public interest. See, e.g., Fairness Hearing
Transcript ("Tr."), July 27, 2011, at 23. Moreover, I was unsure whether the proposed
Final Judgment adequately empowered the Department of Justice to enforce the terms of
the agreement. See, e.g., id. at 5-6.
Not surprisingly, the Government filed a Supplemental Statement after the hearing
in which it described, in detail, the dual-track arbitration mechanism OVDs may use to
acquire Comcast and NBCU content under certain conditions. 2 See Supplemental
Statement ("Supp. Stmt.") [Dkt. #26]. To start, the Government clarified that OVDs have
two options for arbitration: the FCC process, and the new process outlined in the
proposed Final Judgment. Id. at 2. Arbitration under the FCC Order, they stressed,

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matter of right, see Supp. Stmt. at 4 (citing FCC Order, App. A, §§ IV.A.3, VILA,
VILC), and is appealable, whereas arbitration under the proposed Final Judgment is not. 3

Id. at 4-5. And although an OVD which is dissatisfied with its result in an FCC

The Government's Supplemental Statement also offers a helpful and satisfactory
explanation of the logistics and benefits of "baseball-style" arbitration. See Supp. Stmt.
at 3 n.4.
The Government contends, however, that arbitration under the proposed Final
Judgment offers a valuable tradeoff: expedited and final resolution. See, e.g., Supp. Stmt.
at 2, 5-6.
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arbitration may not then take a second bite at the apple by requesting arbitration under the
proposed Final Judgment, an OVD whose requested arbitration under the proposed Final
Judgment is denied 4 by the Department of Justice may still proceed as a matter of right
with arbitration under the FCC Order. See Supp. Stmt. at 5.
Of course, the Government contends that because the "FCC is the expert
communications industry regulator ... OVD requests will ordinarily proceed through the
FCC [arbitration] process." Supp. Stmt. at 5; see also id. at 2. Even if this is true,
however, the Government concedes that there is still "some uncertainty about the ability
of OVDs to obtain timely relief under the FCC Order." Id. at 5. Thus, it remains to be
seen how well the FCC arbitration process will work for OVDs, and how many of the
OVDs who request - and are denied - arbitration under the new streamlined approached
created by the proposed Final Judgment will pursue relief under the FCC Order.
Moreover, because of the way the Final Judgment is structured, the Government's
ability to "enforce" the Final Judgment, and, frankly, this Court's ability to oversee it,
are, to say the least, limited. Indeed, notwithstanding the fact that the Final Judgment
vests the Government with the "responsibility" to investigate and report to the Court the
complaint of an OVD alleging "fraud or malfeasance" in the proposed arbitration
process, Supp. Stmt. 6 (citing Final Judgment § IX); see also Tr. at 5-6, 8-9, the
Under the arbitration proposed in the Final Judgment, an OVD must first seek
permission from the United States to arbitrate under this "alternative" yet
"complementary" mechanism. Supp. Stmt. at 4-5 (citing Proposed Final Judgment
§ VILC). If the Government allows arbitration to move forward, any arbitration award is
non-appealable. Id. at 4. If the Government denies an OVD's request to arbitrate, the
OVD may still initiate arbitration under the FCC Order, which is available as a matter of
right and is appealable. Id. at 3-4.
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Government, at the public hearing, freely admitted that "[w]e can't enforce this decree."
Tr. at 11: 14. In addition, it is undisputed that neither the FCC nor the Department of
Justice has any experience yet in administering either course of arbitration in the onlinevideo-distribution context. See, e.g., Supp. Stmt. at 5; see also Tr. at 10:8 (Government's
admission that "this is a nascent market" and that "[t]hese are nascent competitors").
And despite the Government's assurances that "this Court retains jurisdiction to issue
orders and directions necessary and appropriate to carry out or construe any provision of
the Final Judgment," Supp. Stmt. at 6, and "to enforce compliance, and to punish
violations of its provisions," id. (citing Final Judgment § IX), I am not completely certain
that these safeguards, alone, will sufficiently protect the public interest in the years
ahead.
Accordingly, since neither the Court nor the parties has a crystal ball to forecast
how this Final Judgment, along with its arbitration mechanisms, will actually function,
see Tr. at 22, I believe that certain additional steps are necessary to monitor imp-

lementation of the Final Judgment to ensure that it satisfies the public-interest
requirement mandated by statute. See 15 U.S.c. § 16(e). Therefore, pursuant to the
authority Section IX of the Final Judgment vests in this Court, and to ensure that the
Final Judgment is, and continues to be, in the public interest, it is hereby

ORDERED that for no less than two years, the parties shall create and maintain a
report which details (a) how many OVOs initiate arbitration under the FCC Order and the
result of those arbitrations; (b) how many times OVOs appeal the result of their
arbitration, and to which judicial bodies, if any, they appeal; (c) how many OVOs seek
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permission from the Department of Justice to arbitrate under the Final Judgment and how
many are granted permission; and (d) how many times the United States denies an
OVD's request to initiate arbitration under the Final Judgment, and how many of those
denied subsequently elect to initiate arbitration under the FCC Order. It is further
ORDERED that the United States shall prepare this report and share it with all

parties in advance of a yearly hearing before this Court; and it is further
ORDERED that the parties shall convene for an annual hearing with this Court to

explain and discuss the report and any other non-arbitration-related issues that may have
arisen during the previous year to ensure that the Final Judgment does, and continues to,
satisfy the public interest.

SO ORDERED.

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