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A federal appeals court has withdrawn its own opinion upholding the cable industry’s practice of bundling channels to consumers. The U.S. Court of Appeals for the 9th Circuit on Oct. 31 withdrew the opinion, issued on June 3, after an array of amicus organizations showered it with petitions to reconsider. As a result of the withdrawal, the petitions for rehearing were moot, the panel wrote. “I’m very hopeful that in vacating the opinion they think it needs to be rewritten,” said Maxwell Blecher, founding partner of Blecher & Collins in Los Angeles, who petitioned the court to rehear his antitrust case against the nation’s largest cable companies and producers of television programming. “It’s very rare you’ll see someone vacate a decision on their own accord.” Bradley Phillips, a partner at Munger Tolles & Olson whose firm filed the defendants’ brief opposing rehearing, did not return a call for comment. The case was filed in 2007 on behalf of a class of consumers of cable and satellite television shows who alleged that programmers, including NBC Universal and The Walt Disney Co., and distributors, including Time Warner and DirecTV, sold packages of multiple channels in violation of Section 1 of the Sherman Act. The packages include “must-have” channels bundled with low-demand channels, creating market power for the programmers and prohibiting distributors from selling the channels à la carte, the suit alleged. “We say that’s a restraint of trade because distributors left on their own would be putting together smaller, consumer-friendly packages that would save people money and offer them a wider array of choice than they now have, where they take it all or none,” Blecher said. “That’s what the case came down to.” The plaintiffs amended their complaint to allege that the bundling of cable channels forced independent programmers out of the market, but dropped that argument and insisted that they did not need to prove that competitors were “foreclosed” from the market, according to the panel’s June opinion. On Oct. 15, 2009, U.S. District Judge Christina Snyder disagreed and dismissed the case, and the plaintiffs appealed. In its original opinion, the panel concluded that the plaintiffs had failed to allege how the defendants’ practices kept other companies from competing in the cable industry. The methods by which distributors competed with one another, and allegedly reduced choice and increased prices to consumers, were not sufficient to bring a Section 1 claim, the panel wrote. “Although plaintiffs may be required to purchase bundles that include unwanted channels in lieu of purchasing individual cable channels, antitrust law recognizes the ability of businesses to choose the manner in which they do business absent an injury to competition,” the panel wrote. “In the absence of any allegation to injury to competition, as opposed to injuries to consumers, we conclude that plaintiffs have failed to state a claim for an antitrust violation.” In his petition for rehearing, Blecher called the opinion “fundamentally wrong.” The complaint, he asserted, demonstrated how the industry’s practice suppresses competition among distributors of the channels, which in turn harms consumers. “With no explanation, the panel simply ignored this language,” he wrote. “A number of distributors have declared that if freed of forced restraints, they would offer smaller or a la carte packages attractive to consumers.” Among the amicus organizations was the American Antitrust Institute, which called the opinion “inconsistent with the fundamental purposes of the antitrust laws” with a potential for “far-reaching consequences.” “If left standing, this radical constriction of antitrust law will impair the ability of private plaintiffs and the government to protect consumers against all manner of vertical restraints that have ‘collusive effects’ or otherwise impair consumer welfare without excluding competitors, in contravention of decades of Supreme Court precedent,” wrote Richard Brunell, the group’s director of legal advocacy. The institute cited recent antitrust actions filed by the U.S. Department of Justice challenging “most favored nation” clauses in the health insurance industry, which prevent other insurers from entering markets, and agreements in the credit card industry that prevent merchants from steering customers to cheaper forms of payment offered by competitors. Another amicus organization, the Consumer Attorneys of California, urged rehearing to provide “a clear articulation of the standard” that lawyers must meet to assert an injury to competition. “That is, this Court fails to address what would have been sufficient, other than to assert, we believe incorrectly, that injury to consumers is not proof of injury to competition,” wrote Kirk Wolden of the Arnold Law Firm in Sacramento, Calif., counsel to the organization. “Without further extrapolation of the Court’s meaning on the difference between consumer and competitive injuries, the District Court, and plaintiff and defense bars, will be handicapped in their ability to consider and prosecute similar claims in a meaningful fashion.” The Parents Television Council, which contributed a brief on behalf of a consortium of eight organizations promoting consumer rights and the rights of families against sex and violence on television, also urged the 9th Circuit to rehear the case. “Because both Congress and the FCC have, for political reasons, been stymied in dealing with this important issue, there is a critical need for judicial review,” wrote council president Timothy Winter. The defendants, in their brief, called the opinion a “well-reasoned decision” consistent with U.S. Supreme Court and 9th Circuit case law. “These courts uniformly have required plaintiffs challenging these practices, however denominated, to allege and prove that the practices ‘foreclose’ sales from the competitors of the party imposing the restrictions–not just that they reduce choice or raise prices at the downstream retail level,” wrote David Dinielli, a former partner at Los Angeles-based Munger, Tolles & Olson, on behalf of all the defendants. Dinielli and Glenn Pomerantz, another partner at Munger Tolles & Olson who argued the case before the 9th Circuit, resigned from their firm last month to join the U.S. Department of Justice as co-counsel in its antitrust fight against AT&T Inc.’s proposed merger with T-Mobile USA Inc. The other defendants were The Walt Disney Co., Viacom Inc., Time Warner Inc.’s Turner Broadcasting System Inc. and Time Warner Cable Inc., NBC Universal Inc., Comcast Corp. and its Comcast Cable Communications LLC subsidiary, CoxCom Inc., Cablevision Systems Corp., DirecTV Inc., and Dish Network LLC. Judges Consuelo Callahan and Sandra Ikuta, who wrote the original opinion, directed the court clerk to reconstitute the panel by replacing its third member, Pamela Rymer, who died on Sept. 21 at age 70. Amanda Bronstad can be contacted at [email protected].

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