Cablevision Systems Corporation et al v. Viacom International Inc. et al

Filing 45

MEMORANDUM ORDER. For the reasons in this Memorandum Order, Viacom's motion to dismiss the amended complaint is denied, without prejudice to the parties' positions concerning the propriety and viability of Cablevision's demand for an o rder requiring Viacom to license only the Core Networks to Cablevision on the terms specified for those Networks and ancillary services in the current agreement. This Order resolves docket entry number 27. Denying 27 Motion to Dismiss. (Signed by Judge Laura Taylor Swain on 6/20/2014) (rjm)

UNITED STATES DISTRICT COURT
SOUTHERN DISTRICT OF NEW YORK
-------------------------------------------------------x
CABLEVISION SYSTEMS
CORPORATION et al.,
Plaintiffs,

No. 13 Civ. 1278 (LTS) (JLC)

-against-

VIACOM INTERNATIONAL INC. et al.,
Defendants.
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MEMORANDUM ORDER
Plaintiffs Cablevision Systems Corporation and CSC Holdings, LLC
(collectively, “Cablevision”), bring this antitrust action against Defendants Viacom International
Inc. and Black Entertainment Television LLC (collectively, “Viacom”) pursuant to 15 U.S.C. § 1
and New York General Business Law § 340. Asserting that provisions of its licensing agreement
with Viacom, which requires Cablevision to contract for certain programming networks in
addition to the programming networks that Cablevision considers most desirable, constitute
illegal tying and block booking arrangements under the federal antitrust laws and also violate
New York state law, Cablevision seeks damages and injunctive relief pursuant to 15 U.S.C.
§§ 15(a) and 26, and declaratory relief pursuant to 28 U.S.C. §§ 2201 and 2202. The Court has
jurisdiction of this action pursuant to 28 U.S.C. §§ 1331 and 1337.
Viacom moves to dismiss each of the claims asserted in Plaintiffs’ amended
complaint. In the alternative, Viacom moves to strike Cablevision’s request for equitable relief.
The Court has reviewed and considered carefully all of the parties’ submissions and arguments.
For the following reasons, the motion is denied in its entirety.
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BACKGROUND
The following brief factual summary is drawn from Cablevision’s amended
complaint (the “Complaint”). Cablevision entered into a licensing agreement with Viacom in
2012. In the negotiations, Viacom required Cablevision to license a dozen less popular
programing networks (termed “Suite Networks” in the Complaint) in order to gain license rights
to what Cablevision alleges are “four commercially critical” programming networks, which
Cablevision terms “Core Networks.” Cablevision alleges that Viacom threatened it with a
substantial financial “penalty” for declining to purchase the licenses for, and distribute, the Suite
Networks along with the Core Networks. Cablevision further alleges that the channels on which
it is able to offer programming are limited and that, were it to be able to forego the Suite
Networks, it would seek out programming from other suppliers.
DISCUSSION
In deciding a motion to dismiss a complaint pursuant to Rule 12(b)(6) of the
Federal Rules of Civil Procedure, the Court accepts as true the non-conclusory factual
allegations in the complaint and draws all reasonable inferences in the plaintiffs’ favor. Roth v.
Jennings, 489 F.3d 499, 501 (2d Cir. 2007); see also Ashcroft v. Iqbal, 556 U.S. 662, 677 (2009).
“A pleading that offers labels and conclusions or a formulaic recitation of elements of a cause of
action will not do.” Iqbal, 556 U.S. at 677 (internal citations omitted). Rather, to survive a
motion to dismiss, a complaint must plead “enough facts to state a claim to relief that is plausible
on its face.” Bell Atlantic v. Twombly, 550 U.S. 544, 570 (2007). The Court addresses each of
Cablevision’s claims, and Viacom’s principal arguments, in turn.

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Per Se Tying Claim Under 15 U.S.C. § 1
Cablevision alleges that its agreement with Viacom constitutes a per se illegal
tying arrangement in violation of 15 U.S.C. § 1. See Jefferson Parish Hosp. Dist. No. 2 v. Hyde,
466 U.S. 2, 9 (1984) (“[C]ertain tying arrangements pose an unacceptable risk of stifling
competition and therefore are unreasonable ‘per se’”). The harm that the per se illegal tying
doctrine is intended to address is the “substantial potential for impact on competition” that
occurs when a seller’s dominant position in a tying product market is used as leverage to force
the sale of tied products. Id. at 14–15. Cablevision asserts that Viacom uses the Core Networks
as a tying product to force the licensing of Suite Networks.
The parties generally agree that, to determine whether a particular tying
arrangement is illegal per se, a court must examine whether there exists: (1) a tying and tied
product; (2) evidence of actual coercion by the seller that forced the buyer to accept the tied
product; (3) sufficient economic power in the tying product market to coerce purchaser
acceptance of the tied product; and (4) the involvement of a “not insubstantial” amount of
interstate commerce in the tied market. See In re Visa Check/Master Money Antitrust Litig.,
280 F.3d 124, 13 n.5 (2d Cir. 2001); In re Wireless Telephone Services Antitrust Litig., 385 F.
Supp. 2d 403, 414 (S.D.N.Y. 2005). Viacom’s first attack on Cablevison’s per se tying claim is
premised on the assertion that a fifth factor – anticompetitive effects – must be pleaded and
proven. The per se tying doctrine and the cases applying it do not, however, support Viacom’s
position. As Judge Cote has cogently explained:
[a]nalysis under the per se rule is, by definition, without inquiry into actual
market conditions. Put another way, where a tying arrangement may be
condemned as illegal per se, plaintiffs need not allege, let alone prove, facts
addressed to the [anticompetitive effects] element. If a plaintiff succeeds in
establishing the existence of sufficient market power to create a per se violation,
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the plaintiff is also relieved of the burden of rebutting any justifications the
defendant may offer for the tie.
In Re Wireless Telephone Services Antitrust Litig., 385 F. Supp. 2d at 414 (internal citations and
quotations omitted).
Cablevision has, in any event, pleaded facts sufficient to support plausibly an
inference of anticompetitive effects. For example, Cablevision alleges that if it were not forced
to carry the Suite Networks, it “would carry other networks on the numerous channel slots that
Viacom’s Suite Networks currently occupy.” (Compl. ¶ 10.) Cablevision also alleges that
Cablevision would buy other “general programming networks” from Viacom’s competitors
absent the tying arrangement. (Id.) Viacom’s motion is therefore denied to the extent it seeks
dismissal of Cablevision’s per se tying claim for failure to allege anticompetitive effects.
Viacom also argues that the tying claim is insufficient because Cablevision has
failed to identify distinct tying and tied product markets. “To survive a 12(b)(6) motion to
dismiss, an alleged product market must bear a rational relation to the methodology courts
prescribe to define a market for antitrust purposes—analysis of the interchangeability of use or
the cross-elasticity of demand, and it must be plausible.” Todd v. Exxon Corp., 275 F.3d 191,
200 (2d Cir. 2001) (internal citations and quotations omitted).
Here, Cablevision has offered three alternative definitions of the relevant tying
product market. First, it asserts that each of the so-called Core Networks – Nickelodeon,
Comedy Central, BET, and MTV – may be considered a standalone tying product market based
on consumer demand for its particular programming. (Compl. ¶¶ 40–59.) Second, Cablevision
posits that the “Core Networks,” comprised of the Nickelodeon, Comedy Central, BET, and
MTV networks, as a group, constitute a relevant tying product market based on the combined

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market power of the Core Networks. (Compl. ¶¶ 60–62.) Third, Cablevision offers
programming type classifications and posits that the relevant tying markets can be distinguished
on the basis of the programming type and the popularity of a particular Core Network within that
programming type – for example, “Popular Comedy Programming” or “Popular Children’s
Programming.” (Compl. ¶¶ 62–98.) Cablevision alleges that each of the Core Networks is so
dominant in its class as to give Viacom market power within the particular class. (Id.)
As for the tied product, Cablevision denominates the group of all other networks
it is required to carry under the licensing agreement as “Suite Networks.” These “Suite
Networks” are, Cablevision alleges, part of a “general programming market” consisting of all
“non-local programming that does not fall into a commercially critical category” (i.e., all such
programming other than the defined “Tying Networks”). (Compl. ¶ 118; see generally Compl.
¶¶ 102–25.) Cablevision has proffered subscription, demographic and other statistical
information, as well as factual allegations regarding cross-elasticity of demand and barriers to
entry, that suffice at this pleading stage to make plausible its market definition allegations.
Accordingly, Viacom’s motion is denied insofar as it is premised on insufficiency of market
definition allegations.
Donnelly Act Claim
A state antitrust cause of action under the Donnelly Act, N.Y. Gen. Bus. Law
§ 340, is evaluated by the same criteria applied in analyzing a claim of illegal tying under 15
U.S.C. § 1. See Yankees Enter. and Sports Network, LLC v. Cablevision Sys. Corp., 224 F.
Supp. 2d 657, 677–78 (S.D.N.Y. 2008). The Court therefore declines to dismiss Cablevision’s
Donnelly Act claim for the reasons set forth in the preceding section of this Memorandum Order.

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Block-booking Claim Under 15 U.S.C. § 1
Cablevision alleges that its agreement with Viacom constitutes an illegal blockbooking arrangement in violation of 15 U.S.C. § 1. (Compl. ¶¶ 186–90.) In a 1948 opinion
outlawing movie production companies’ practice of conditioning the sale and exhibition of
popular movies on the exhibition of less desirable movies, the Supreme Court defined blockbooking as “the practice of licensing, or offering for license, one feature or group of features on
condition that the exhibitor will also license another feature or group of features released by the
distributors during a given period.” United States v. Paramount Pictures, 334 U.S. 131, 156–58
(1948). The Supreme Court reasoned that, “[w]here a high quality film greatly desired is
licensed only if an inferior one is taken, the latter borrows quality from the former and
strengthens its monopoly by drawing on the other. The practice tends to equalize rather than
differentiate the reward for the individual copyrights.” Id. at 158. Viacom asserts that the blockbooking doctrine has been abrogated and seeks dismissal of Cablevision’s claim on that basis.
Viacom’s cited authority does not, however, support its abrogation assertion. Illinois Tool
Works Inc. v. Independent Ink, Inc., 547 U.S. 28, 44 (2006), on which Viacom relies, abrogated
the presumption or inference of market power based on a patent, not the doctrine of blockbooking itself, which was derived from the notion that the use of tying arrangements to extend
the monopoly privileges inherent in a patent or copyright is improper. See Paramount Pictures at
158–59; Illinois Toolworks, 547 U.S. at 38–40. It appears that block-booking claims are not
prohibited but would, rather, properly be subjected to market power analysis under the principles
enunciated in Jefferson Parish. See Illinois Toolworks, 547 U.S. at 42–43. For this reason, and
for the reasons set forth in the Court’s discussion of Cablevision’s tying claim, Viacom’s motion
to dismiss the block-booking claim is denied.
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Viacom’s Motion to Strike
In its prayer for relief, Cablevision requests that, inter alia, the Court void the
licensing agreement and issue a mandatory injunction prohibiting Viacom from conditioning the
licensing of the Core Networks on licensing of Suite Networks, and compelling Viacom to
license its Core Networks and provide ancillary services with respect to those Networks to
Cablevision on the existing contract terms. Viacom attacks this demand as legally unfounded
and inequitable. The Court declines to address the propriety and viability of the demand at this
early stage of the litigation. The motion to strike the demand is therefore denied, without
prejudice to the parties’ positions.
The Court has considered all of Viacom’s other arguments and finds them
insufficient to warrant dismissal of the Complaint.
CONCLUSION
For the foregoing reasons, Viacom’s motion to dismiss the amended complaint is
denied, without prejudice to the parties’ positions concerning the propriety and viability of
Cablevision’s demand for an order requiring Viacom to license only the Core Networks to
Cablevision on the terms specified for those Networks and ancillary services in the current
agreement. This Order resolves docket entry number 27.

SO ORDERED.
Dated: New York, New York
June 20, 2014
/s/ Laura Taylor Swain
LAURA TAYLOR SWAIN
United States District Judge

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