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Behrend v. Comcast Corp.

June 4, 2009

CAROLINE BEHREND, ET AL.
v.
COMCAST CORPORATION, ET AL.



The opinion of the court was delivered by: Padova, J.

MEMORANDUM

I. INTRODUCTION

Comcast Corporation has Moved to Strike the Expert Declaration submitted by the Class

Plaintiffs' expert Dr. Hal Singer, as well as portions of the Expert Declarations of Dr. James T. McClave and Michael A. Williams, Ph.D., to the extent that the latter rely upon Dr. Singer's Declarations. Comcast seeks to preclude Plaintiffs from complaining of, arguing injury or common impact resulting from, or seeking damages based in whole or in part upon, the non-carriage of Comcast-affiliated regional sports programming by DirecTV and/or Echo Star (a/k/a Dish Network) in the Philadelphia area. Comcast argues that the experts' discussion of the antitrust impact of its alleged refusals to provide its affiliated regional sports programming channels -- Comcast Sportsnet ("CSN") and CN8*fn1 -- to direct broadcast satellite (DBS) providers such as DirecTV and Dish Network, is a new claim or a new theory of liability that was never pled by the Class, and for which Comcast has not been properly placed on notice. It also argues that the experts have altered the product and geographic markets previously alleged by the Class. For the following reasons, we deny the motion. However, because we recognize that the Class has presented new expert opinion that relies in part on DBS foreclosure of regional sports programming to support its claims under Sections 1 and 2 of the Sherman Act, we will, as a matter of fairness, permit Comcast to conduct additional discovery on the factual basis of that new expert opinion.

II. BACKGROUND

The Class's Third Amended Complaint ("TAC") alleges that Comcast acquired cable systems and cable subscribers from their competitors in the Philadelphia and Chicago cable markets until the number of competing cable providers in those markets was substantially reduced. (TAC ¶¶ 3, 49, 51-53.) Comcast then entered into agreements with those companies to avoid competition by allocating the nation's regional cable markets amongst themselves through swaps of their respective cable assets, including subscribers (collectively, the "Cable System Transactions"). (TAC ¶ 4.) The alleged result of the Cable System Transactions was that Comcast willfully obtained and maintained monopoly power in the relevant geographic market, defined as Comcast's cable franchises located in Philadelphia and geographically contiguous areas and areas in close geographic proximity to Philadelphia in designated counties (hereinafter, the Philadelphia "cluster"). (TAC ¶¶ 6, 31.) The TAC also contains allegations that Comcast further violated § 2 of the Sherman Act by engaging in conduct excluding and preventing competition, including competition from an overbuilder, RCN Telecom Services, Inc. ("RCN") (TAC ¶¶ 86-97.)*fn2

The TAC mentions DBS providers in only three paragraphs. In TAC ¶ 47, the Class alleges that "the presence of competition from a [DBS] provider does not restrain, or restrains only slightly, the prices of cable services provided by large cable companies." (TAC ¶ 47 (emphasis added).) This allegation supplements the Class's contentions in the prior two paragraphs "that competition from another cable company is essential to restrain prices of a dominant cable provider" (TAC ¶ 45), and that the "FCC has also found that the prices charged by large cable companies are restrained by the presence of an overbuilder in the market." (TAC ¶ 46.) The Class goes on to assert that the "FCC has determined that in areas where DBS has achieved a degree of market presence, there is no significant effect on prices of cable services . . . [and] the presence of DBS companies has not led to lower cable prices." (TAC ¶ 47.)

After setting forth the factual basis of its claims, the Class again mentions DBS providers in its definition of the relevant product market in its monopolization claim, Count II. The Class states the "relevant product market is defined as multichannel video programming services, which are distributed by multichannel video programming distributors ("MVPDs"), including cable television operators such as Defendants, overbuilders and direct broadcast satellite operators." (TAC ¶ 79.) Finally, later in Count II, in describing the monopolization claim involving overbuilder RCN, the Class avers that Comcast "initially denied RCN access to 'Comcast Sportsnet' programming in Philadelphia . . . then provided RCN access to 'Comcast Sportsnet' programming only on a short-term basis and refused to provide access to 'Comcast Sportsnet' to RCN on a long-term basis." (TAC ¶ 90.) As a predicate to this allegation about RCN, the Class averred that "Comcast has stated in its promotional materials: 'Sportsnet provides a significant marketing advantage against satellite TV and other competition.'" (TAC ¶ 89.)*fn3

In no instance does the Class specifically contend that the denial of regional sports programming to DBS competitors was itself anticompetitive conduct. The Class also did not raise any assertion about DBS competition in the extensive prior motions practice or the prior class certification process. Specifically, its expert did not opine in the report appended to the first certification motion that denial of regional sports programming to DBS competitors was a predominating common issue.

Rather, the TAC and the Class's position in dispositive motions and the prior certification motion has been that Comcast's acquisition of wireline cable competitors that could have acted as potential overbuilders, created a lack of overbuilder competition, resulting in insufficient restraint on the price of wireline basic cable service because competition from DBS did not restrain prices, or restrained prices only slightly. It should also be noted that, while the TAC extensively alleges that Comcast engaged in specific anticompetitive conduct against RCN, including denying RCN access to CSN, it makes no similar averments with regard to Comcast's DBS competitors.

III. DISCOVERY RESPONSES

A review of the discovery materials shows that the Class's initial document requests and initial responses to Comcast's merits interrogatories do not mention DBS competitors or regional sports programming. However, in subsequent depositions of Comcast witnesses and third party witnesses the Class specifically asked questions on the issue of DBS foreclosure of regional sports programming. Based on the information discovered in these depositions, the Class filed supplementary responses to the merits interrogatories in March and April 2009, which clearly placed Comcast on notice that the Class considered competition from DBS providers to be a price constraint, and that the denial of regional sports programming to its DBS competition was an act of attempted monopolization.

A. The Initial Production Requests and Responses

The Class's initial document production requests, submitted on May 3, 2007, focused on Comcast documents relating to the Cable System Transactions, pricing strategies, infrastructure contractors, RCN, non-uniform discount price offers, and market share. (Ex. D to Reply Mem. at 12-24.) Notably, however, the Class also asked for all documents relating to "any barriers to entry for the provision of multichannel video programming or cable services"; "any request by any person for access to programming in any portion of [the Philadelphia cluster that] was or is controlled by" Comcast; and any document that Comcast provided to any government agency concerning "any refusal by you to provide any other person or company access to cable programming services, including sports programming." (Id. at 24-25.)*fn4 In a supplemental disclosure submitted on August 7, 2007, Comcast disclosed to the Class that it intended to use documents concerning the distribution of CSN as part of its defense. (Ex. 5 to Decl. of Daniel H. Charest at 4.)

The Class submitted its initial responses to Comcast's merits interrogatories in January 2008. When the Class was asked to identify each and every actual or potential competitor that Comcast allegedly removed from the market, the Class identified only those competitor wireline cable companies referred to in the TAC. (Ex. C to Reply Mem. at 8.) When asked if it was the Class's contention that MVPDs that operate in Comcast franchise areas or adjacent areas exerted price restraint and, if so, to identify each such MVPD, the Class responded only that the competitors removed through the Cable System Transactions exerted price restraint. The Class did not mention DBS providers in this initial response. When asked to state the factual bases for its claims that the Cable System Transactions were unlawful and lacked any legitimate pro-competitive justification, the Class offered only generic references to the allegations of the TAC and the declaration of its former expert. (Id. at 12-13, 21.)*fn5

In a letter dated October 2, 2008, Class counsel for the first time specifically requested documents submitted by Comcast to the FCC in 2005 that referenced the "CSN Philly Model." According to counsel, such documents recognized that exclusive distribution of CSN resulted in the "'Con' of foregone revenue but also results in the 'Pro' that satellite penetration is much lower in Philadelphia than elsewhere in the country." (Ex. 9 to Decl. of Daniel H. Charest at 2.) The Class also sought documents Comcast had received as discovery from DirecTV in an FCC action, which apparently quoted a Comcast employee as stating that the company "wants to dominate the sports world," and admitting that the CSN model had artificially reduced DBS penetration in Philadelphia. (Id. at 3.)

B. The Merits Depositions

Following document production, the parties began taking merits depositions sometime in late 2008. At their depositions, at least eight Comcast officers and employees were asked about DBS foreclosure of regional sports programming.*fn6 Brian Roberts testified on September 13, 2008, that, although DBS providers have asked Comcast for the rights to CSN, Comcast has declined their offers to provide the programming. (Ex. 15 to Decl. of Daniel H. Charest at 263.) Joseph Donnelly, a Comcast employee who performed evaluations for purposes of the Cable System Transactions, testified at his November 19, 2008 deposition to an email in which he listed companies that competed with Comcast. Among those he listed was DirecTV. (Ex. 18 to Decl. of Daniel H. Charest at 113.) He also testified that Comcast had never offered CSN to satellite companies. (Id. at 158.) Michael Doyle, a Comcast employee, testified in his deposition on November 20, 2008 about Comcast's refusal to provide CSN to satellite companies. (Ex. 17 to Decl. of Daniel H. Charest at 187-88.) He disagreed that CSN gave Comcast a competitive advantage, but conceded that the fact that local sports contests are on Comcast was "certainly something that is an advantage for Comcast versus satellite." (Id. at 189-90.) He was also asked if his co-workers believed that CSN was the reason that DBS penetration has been so low in Philadelphia, and testified to company emails discussing CSN's impact on DBS penetration. (Id. at 193-200.) David Scott, in a deposition taken on December 3, 2008, was asked whether Comcast considered the rates charged by DBS providers in setting its own rates. (Ex. 19 to Decl. of Daniel H. Charest at 108-09.) Steve Burke testified on December 5, 2008 that Comcast refused to offer CSN to DBS providers because, under the terrestrial exception rule, it was not required to do so. (Ex. 14 to Decl. of Daniel H. Charest at 122-23.) He also conceded that CSN gave Comcast a competitive advantage and that this advantage was the primary reason for Comcast's decision not to provide the programming to DBS providers. (Id. at 123-24.) Burke admitted that CSN charges Comcast less for its programming than it charges to those Comcast terrestrial competitors to whom it makes its programming available. (Id. at 130-31.)

Jack Williams, the chief executive officer of CSN, also testified at his December 16, 2008 deposition that Comcast refused to provide CSN to DBS providers because of the terrestrial exception rule. (Ex. 20 to Decl. of Daniel H. Charest at 40-41.) He stated that he determined that Comcast could maximize revenue by selling to terrestrial cable companies but not to DBS providers. (Id. at 62-63.) Julian Brodsky testified on January 27, 2009 that CSN was not made available to DBS providers because Comcast was permitted to withhold it from these providers under the terrestrial exception rule, and because it was not in Comcast's business interests to make it available to the satellite providers. (Ex. 21 to Decl. of Daniel H. Charest at 37-38.) He stated that CSN exclusivity made Comcast more competitive with DBS operators who had exclusive sports programming of their own. (Id. at 39.) Finally, Ralph Roberts testified on January 28, 2008 that the terrestrial exception rule gave Comcast control over what it could do with CSN, and that the consideration of making a profit on CSN was not a factor in denying the programming to DBS competitors because being able to offer exclusive content to its own subscribers was more important. (Ex. 22 to Decl. of Daniel H. Charest at 16-17.)

At her deposition, Susan Eid, DirecTV's corporate designee, stated in response to questioning from Class counsel that DirecTV has asked permission to carry CSN; Comcast has never permitted DirecTV to carry CSN; to her knowledge, Comcast has never permitted any DBS provider to carry CSN; CSN is must-have programming; sports fans are more likely to switch MVPD providers in order to obtain regional sports programming; there is no alternative to regional sports programming; and competing MVPDs are at a competitive disadvantage because they cannot offer CSN, resulting in lower penetration rates. (Ex. 13 to Decl. of Daniel H. Charest at 11-14.)*fn7 On cross-examination, Comcast sought to elicit testimony that DirecTV can create competitive advantages with its own exclusive sports content, namely NFL Sunday Ticket, which provides coverage of all out-of-market games, and could, if it so chose, acquire programming rights to local sports teams. (Id. at 30-31.) Ms. Eid testified, however, that because DirecTV broadcasts nationally, acquiring its own rights to local sports programming would not be economically viable. (Id.)

C. The Class's Supplemental Responses

In March 2009, following the completion of the depositions, the Class filed timely supplements to its initial responses to Comcast's merits ...


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