Tuesday, February 24, 2015
C.A. Rejects Subscribers’ Suit Against TWC, Teams Over Cable Deals
By KENNETH OFGANG, Staff Writer
Federal law bars cable subscribers from suing over exclusive rights deals with professional sports teams, the costs of which are passed on to all customers—including those who don’t watch the games—in the form of higher charges, this district’s Court of Appeal ruled yesterday.
Div. Eight upheld Los Angeles Superior Court Judge Amy Hogue’s ruling that a putative class action brought by Time Warner Cable subscribers is preempted by the Cable Television Consumer Protection and Competition Act of 1992 and its implementing regulations.
The plaintiffs sued TWC, along with the Los Angeles Dodgers and Los Angeles Lakers, claiming that the defendants’ rights deals violate the Unfair Competition Law by fostering a monopoly in which TWC acts as both programmer and distributor, creates new channels to carry the games, and forces all subscribers to pay increased charges rather than offer the channels on an “a la carte” basis to those willing to pay for the programming.
TWC is in the third year of a 20-year deal to carry all local Laker telecasts on dedicated English- and Spanish-language channels, TWC Sportsnet and TWC Deportes. The upcoming season will mark the second year of a 25-year deal to carry the Dodger games on a separate channel, Sportsnet LA.
The plaintiffs alleged that each subscriber is paying an extra $9 per month for the channels, even though surveys show that 60 percent of the population doesn’t watch sports on television. The total increase in fees, the complaint said, will amount to $11 billion over the terms of the contracts.
TWC demurred on the ground that the Cable Act expressly permits bundling of channels, thus providing a “safe harbor” against unfair competition claims. The Dodgers and Lakers demurred on the ground that they did not engage in unfair competition by entering into the agreements.
The trial judge sustained TWC’s demurrer, based on both the “safe harbor” argument and express preemption based on 47 C.F.R. §76.981(c), which creates an exception to the Cable Act prohibition against “negative option billing.”
Negative Option Billing
Negative option billing is the practice of charging subscribers for services or equipment that they did not order, forcing them to affirmatively act to remove the charges from their bills. The regulation, however, provides that “the addition or deletion of a specific program from a service offering, the addition or deletion of specific channels from an existing tier or service, the restructuring or division of existing tiers of service, or the adjustment of rates as a result of the addition, deletion or substitution of channels” does not constitute negative option billing.
Justice Laurence Rubin, writing for the Court of Appeal, said the trial judge was correct.
He cited Time Warner Cable v. Doyle (7th Cir. 1995) 66 F.3d 867, in which the court overturned a district court ruling allowing the attorney general of Wisconsin to sue Time Warner for changing its rate structure by removing channels from its basic and standard tiers, the price of which was then reduced, with the removed channels being offered a la carte.
Existing subscribers were then billed for all of the channels, with no net rate change because the cost of the a la carte channels offset the reduction in the cost of basic or standard service. New subscribers, however, had the choice of receiving the basic or standard package, without the a la carte channels, at a lesser rate.
“The Seventh Circuit observed that [47 U.S.C.] section 552 permits the enforcement of state consumer protection laws absent their express preemption by the Cable Act. But the court held that the FCC had reasonably interpreted section 543(8)(f) to preempt state challenges to negative option billing practices that did not fundamentally alter a service tier, as expressly permitted by Regulation section 76.981.”
The same reasoning applies to the plaintiffs’ challenge to Time Warner’s addition of the three sports channels, Rubin said.
“…[T]he FCC, pursuant to its statutory authority, has made it clear that state consumer protection laws are preempted in regard to negative option billing practices that result in rate hikes due to the addition of a small number of channels because those rate hikes do not represent a ‘fundamental change’ in service. The essence of appellants’ complaint is to the contrary—nonfundamental changes are not preempted.”
The justice added in a footnote that while the court found the claims preempted:
“We do so keenly aware of how this issue affects millions of our fellow Southern California residents. With apologies to Bruce Springsteen, we appreciate the lament of cable television subscribers who feel that although they now receive 10 times 57 channels or more, mostly nothing’s on that they wish to view. We simply hold that federal preemption principles bar application of state consumer protection laws in this case. Thus, consumers must present their complaints to Congress or the FCC.”
Maxwell M. Blecher and Courtney A. Palko of Blecher Collins Pepperman & Joye represented the plaintiffs on appeal. Daniel G. Swanson, Jay P. Srinivasan and Brandon J. Stoker of Gibson, Dunn & Crutcher represented Time Warner; Bryan A. Merryman, Rachel J. Feldman and Lauren M. Mutch of White & Case represented the Lakers, and Winston & Strawn’s David B. Enzminger, Dan K. Webb, Derek J. Sarafa and William C. O’Neil represented the Dodgers.
The case is Fischer v. Time Warner Cable Inc., 15 S.O.S. 1049.
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