Appeals Court Dismisses Time Warner Cable Set-Top Suit

Judges say TWC did not have requisite market power for tying premium services to leased boxes
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The FCC is trying to spur separate competition to cable-leased set-tops in the delivery of video programming, but according to one federal court, the two are inseparable.

A panel of the U.S. Court of Appeals for the Second Circuit has upheld a lower court decision dismissing a class action suit against Time Warner Cable (now part of Charter Communications) for allegedly tying premium cable services to leasing cable boxes, finding that for the purposes of antitrust law, at least, cable boxes and the premium cable service they transmit are not separate products so can't be anticompetitively tied.

"A cable box must be cable-provider-specific, like the keys to a padlock," the court found. "Although the plaintiffs frame their claim as a tie-in, the core issue is a cable provider's right to refuse to enable cable boces it doesn not control to unscramble its coded signal."

The decision was handed down Friday.

A group of subs had alleged antitrust violations, but a district court judge dismissed two different iterations of the suit, after which the complainants appealed.

A three-judge panel of the court--Judges Denny Chin and Ralph Winter supporting, Judge Christopher Droney dissenting --concluded that the complaint failed to come up with facts adequate to prove, if established, "that 1) the set-top cable boxes and the premium programming they transmit are separate products for the purposes of antitrust law, and that 2) Time Warner possesses sufficient market power in the relevant markets to establish and illegal tie-in."

The majority judges also point to the FCC rule capping the price of leased set-tops, saying: "We doubt that Time Warner would attempt to monopolize the market for bi-directional cable boxes when an FCC regulation caps the amount of profits that Time Warner may reap from that market."

The court also said the FCC's inability to create a competitive market also argues against the tying claim.

In his dissent, Droney said the complainants had produced evidence that "plausibly alleges a separate product market for consumer-purchased cable boxes, which is suppressed by Time Warner's anticompetitive conduct." He said concluding otherwise "imposes too high a bar on plaintiffs."

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