The opinion of the court was delivered by: Padova, J.
Presently before the Court in this class action suit alleging violations of sections 1 and 2 of the Sherman Act, 15 U.S.C. §§ 1, 2, is the motion of Defendants Comcast Corporation, Comcast Holdings Corporation, Comcast Cable Communications, Inc., Comcast Cable Communications Holdings, Inc., and Comcast Cable Holdings, LLC (collectively "Comcast") for summary judgment pursuant to Fed. R. Civ. P. 56. The Third Amended Complaint alleges that Comcast entered into agreements with its competitors to allocate the nation's regional cable markets amongst themselves through swaps of their respective cable assets. The Class alleges that, as a result of all the swap agreements, Comcast unreasonably restrained trade and willfully obtained and maintained monopoly power in the relevant geographic market, the Philadelphia direct marketing area ("DMA"). The Class contends that Comcast has used its monopoly power to raise cable prices to artificially high, supra-competitive levels. For the following reasons, we grant Comcast's motion for summary judgment on the Class's section 1 claim, insofar as it charges that Comcast's conduct was a per se violation of the antitrust laws. We also grant the motion in part on the Class's section 2 claims.
II. SUMMARY JUDGMENT STANDARD
Summary judgment is appropriate "if the movant shows that there is no genuine dispute as to any material fact and the movant is entitled to judgment as a matter of law." Fed. R. Civ. P. 56(a). An issue is "genuine" if "the evidence is such that a reasonable jury could return a verdict for the nonmoving party." Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 248 (1986). A factual dispute is "material" if it might affect the outcome of the case under governing law. Id.
"[A] party seeking summary judgment always bears the initial responsibility of informing the district court of the basis for its motion, and identifying those portions of [the record] which it believes demonstrate the absence of a genuine issue of material fact." Celotex Corp. v. Catrett, 477 U.S. 317, 323 (1986). When the moving party also bears the burden of proof at trial, that party must support its motion with sufficient evidence that would entitle it to a directed verdict. In re Bressman, 327 F.3d 229, 237 (3d Cir. 2003) (citations omitted). Once the moving party has made such a showing, the non-moving party can defeat the motion "with probative evidence that would demonstrate the existence of a triable issue of fact." Id. at 238 (citations omitted).
III. SECTION 1 PER SE LIABILITY BASED UPON HORIZONTAL MARKET ALLOCATION
In order to prove its antitrust claims, the Class must establish: (1) a violation of the antitrust laws, here sections 1 and 2 of the Sherman Act, (2) individual injury resulting from that violation (antitrust impact), and (3) measurable damages. 15 U.S.C. § 15; In re Hydrogen Peroxide Antitrust Litig., 552 F.3d 305, 311 (3d Cir. 2008) (citing Am. Bearing Co. v. Litton Indus., Inc., 729 F.2d 943, 948 (3d Cir. 1984)). Section 1 of the Sherman Act condemns contracts, conspiracies, and combinations in restraint of trade. 15 U.S.C. § 1. Because even beneficial legitimate contracts or combinations restrain trade to some degree, section 1 has long been interpreted to prohibit only those contracts or combinations that are "unreasonably restrictive of competitive conditions." Standard Oil Co. of N.J. v. United States, 221 U.S. 1, 58 (1911). "Three general standards have emerged for determining whether a business combination unreasonably restrains trade under section 1." United States v. Brown Univ., 5 F.3d 658, 668 (3d Cir. 1993).
Under traditional "rule of reason" analysis, a fact finder "weighs all of the circumstances of a case in deciding whether a restrictive practice should be prohibited as imposing an unreasonable restraint on competition." Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 49 (1977). "The inquiry is whether the restraint at issue 'is one that promotes competition or one that suppresses competition.'" Deutscher Tennis Bund v. ATP Tour, Inc., 610 F.3d 820, 830 (3d Cir. 2010) (quoting Nat'l Soc'y of Prof'l Eng'rs v. United States, 435 U.S. 679, 691 (1978)). To establish a section 1 violation under the rule of reason test, a plaintiff must prove: (1) concerted action by the defendants; (2) that produced anti-competitive effects within the relevant product and geographic markets; (3) that the concerted action was illegal; and (4) that the plaintiff was injured as a proximate result of the concerted action. Rossi v. Standard Roofing, Inc., 156 F.3d 452, 464-65 (3d Cir. 1998) (citation omitted).
"The plaintiff bears an initial burden under the rule of reason of showing that the alleged combination or agreement produced adverse, anticompetitive effects within the relevant product and geographic markets." Brown [Univ.], 5 F.3d at 668. "The plaintiff may satisfy this burden by proving the existence of actual anticompetitive effects," or defendant's market power. Id. "If a plaintiff meets his initial burden of adducing adequate evidence of market power or actual anti-competitive effects, the burden shifts to the defendant to show that the challenged conduct promotes a sufficiently pro-competitive objective." Id. at 669. "To rebut, the plaintiff must demonstrate that the restraint is not reasonably necessary to achieve the stated objective." Id.
Deutscher Tennis Bund, 610 F.3d at 830.
Certain restraints are per se illegal "'because of their pernicious effect on competition and lack of any redeeming virtue. . . .'" Id. (quoting Brown Univ. 5 F.3d at 669); see also N.W. Wholesale Stationers, Inc. v. Pac. Stationery and Printing Co., 472 U.S. 284, 289-90 (1985). However, "'[p]er se liability is reserved for only those agreements that are so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality.'" Deutscher Tennis Bund, 610 F.3d at 830 (quoting Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006) (stating "this Court presumptively applies rule of reason analysis. . . .") (quoting Nat'l Soc'y of Prof'l Eng'rs, 435 U.S. at 692)); see also State Oil v. Khan, 522 U.S. 3, 10 (1997) ("Per se treatment is appropriate '[o]nce experience with a particular kind of restraint enables the Court to predict with confidence that the rule of reason will condemn it.'" (quoting Arizona v. Maricopa County Med. Soc'y, 457 U.S. 332, 344 (1982) (alteration in original)). A horizontal market allocation agreement is one of the species of perniciously anticompetitive conduct that is per se illegal. See Palmer v. BRG of Ga., Inc., 498 U.S. 46, 49-50 (1990) (per curium); United States v. Topco Assocs., Inc., 405 U.S. 596, 608 (1972).
Finally, courts apply an intermediate or "quick look" rule of reason analysis "in cases where per se condemnation is inappropriate but where no elaborate industry analysis is required to demonstrate the anticompetitive character of an inherently suspect restraint." Deutscher Tennis Bund, 610 F.3d at 830 (quoting Brown Univ., 5 F.3d at 669 (internal quotation marks omitted)). "Under 'quick look' analysis, the competitive harm is presumed, and 'the defendant must promulgate 'some competitive justification' for the restraint.'" Id. at 831 (quoting Brown Univ., 5 F.3d at 669 quoting NCAA v. Bd. of Regents, 468 U.S. 85, 110 (1984)).*fn1
Comcast argues that application of the per se rule here is improper for several reasons. First, it asserts that courts are increasingly reluctant to apply the per se label, especially where the economic impact of the challenged business practice is not immediately obvious. Second, no court has previously condemned as a per se violation transactions that have been approved by federal antitrust or regulatory agencies.*fn2 Third, it asserts that the alleged market allocation here was not among competing firms.*fn3 Finally, Comcast contends that the swap transactions were not naked restraints on trade because no markets were actually allocated since the swap agreements did not contain no-compete clauses restricting the Counterparties from re-entering the market and competing with one another. The Class responds that the summary judgment record establishes a horizontal allocation of markets between competitors that is a naked restraint on trade constituting a per se violation of section 1.
A. Comcast's Acquisition of Cable Companies and Cable Assets Beginning in 1998, Comcast embarked upon a course of conduct to create a cable "cluster" in the Philadelphia DMA by acquiring the cable systems of other large multi-system operators ("MSOs") that operated and offered multichannel video programming distributor ("MVPD") service in various franchise areas in the Philadelphia DMA. (See Class Certification Memorandum Opinion, Doc. No. 430, entered January 7, 2010 ("Class Cert. Mem."), at 7-8 n. 8; Def. Ex. 59, Deposition of Michael A. Williams, Ph. D. on May 29, 2009 ("Williams Dep."), at 104-105.) In the first acquisition transaction, occurring in April 1998, Comcast acquired from Marcus Cable certain cable systems operating as the incumbent wireline MVPD provider in franchise areas located in Kent County, Delaware, serving approximately 27,000 subscribers. (See Compl., ¶ 52(a)*fn4 ; Class Cert. Mem., p. 7-8 n.8.) In June 1999, Comcast acquired from Greater Philadelphia Cablevision, Inc. certain cable systems operating as the incumbent wireline MVPD provider in franchise areas located in one of the four franchise areas in the City of Philadelphia. The system had approximately 79,000 subscribers. (Compl. ¶ 52(b); Class Cert. Mem., p. 7-8 n.8.)
In January 2000, Comcast acquired certain cable systems previously owned and operated by Lenfest Communications, Inc. ("Lenfest") in the Philadelphia region. The Lenfest systems operated as the incumbent wireline MVPD operator in franchise areas located in Berks, Bucks, Chester, Delaware, and Montgomery Counties, Pennsylvania; Atlantic, Camden, Burlington, Cape May, Cumberland, and Salem Counties, New Jersey; and New Castle County, Delaware. These cable systems served approximately 1.1 million cable subscribers. (See Compl., ¶ 52(c); Class Cert. Mem., p. 7-8, n.8.) Comcast also acquired Lenfest's ownership interests in Garden State Cablevision L.P. and its 212,000 subscribers located in the Philadelphia DMA. (Expert Decl. of Michael Williams, Ph.D. ¶ 113 ("Williams Decl.").) Thus, Comcast acquired a total of approximately 1.25 million subscribers from Lenfest.
Comcast's acquisition of the Lenfest systems was part of a larger course of conduct of swapping cable assets to build Comcast's cable cluster in the Philadelphia DMA. In December 2000 and April 2001, Comcast and AT&T Corporation swapped certain cable system assets that were previously owned by MediaOne Group, Inc., including AT&T-owned systems operating as the incumbent wireline MVPD provider in franchise areas located in the Philadelphia region. (See Compl., ¶ 55(a), (c); Class Cert. Mem., p. 7-8, n. 8.) Prior to the transaction, Comcast had sought a merger agreement with MediaOne, but AT&T had made a superior bid. (Pl. Ex. 32 at COMPA1151021.) Rather than engage in "another round of competitive bidding," Comcast and AT&T "reach[ed] an amicable and acceptable alternative" calling for Comcast to terminate its proposed merger and for the two companies to divide the MediaOne assets between themselves. (Id.) In the transaction, Comcast acquired from AT&T approximately 1.365 million MediaOne and legacy AT&T subscribers in the Philadelphia DMA -- representing all of AT&T's cable assets and subscribers in the Philadelphia DMA -- in exchange for AT&T's receipt of all of Comcast's cable assets and subscribers in Chicago and certain parts of California, Colorado, Florida, Georgia and Pennsylvania (all of which were outside the Philadelphia DMA). (Williams' Decl. ¶ 113; Compl. ¶ 55(b).) As a result of the transaction, AT&T exited the Philadelphia DMA.
Leo Hindery, the former CEO of TCI, as well as AT&T Broadband after it acquired TCI, authored a book in which he described how Comcast's acquisition of Lenfest was intimately tied to the AT&T/Comcast/MediaOne swap transaction. At that time, AT&T owned 50% of Lenfest, with the other 50% owned by the company's founder, Harold "Gerry" Lenfest, and his family. Hindery, who wanted to acquire MediaOne to both build AT&T's cable business and to create cross-marketing opportunities for AT&T's branded telephone service, developed a strategy to combat Comcast's bid for MediaOne by attempting to purchase the other half of Lenfest in order to offer it as "trade bait" to Comcast in exchange for Comcast dropping its pursuit of MediaOne. (Pl. Ex. 52, Hindery, The Biggest Game of All, p. 133, 146-151.) Hindery was successful, and the combined result of the transactions gave Comcast control of its own legacy franchises in the Philadelphia DMA, the much larger holdings of Lenfest, and AT&T's former legacy franchises in the Philadelphia DMA.
In January 2001, Comcast and Adelphia Communications Corporation swapped certain cable system assets, including Adelphia-owned systems operating as the incumbent wireline MVPD provider in franchise areas located in Chester, Delaware and Montgomery Counties, Pennsylvania, involving 464,000 subscribers -- representing all of Adelphia's cable assets and subscribers in the Philadelphia DMA. As a result of the transaction, Adelphia exited the Philadelphia DMA. (See Compl., ¶ 55(b); Class Cert. Mem., p. 7-8, n. 8; Williams Decl. ¶ 113.)
In July 2006, Time Warner Cable, Inc. ("Time Warner") and Comcast acquired, pursuant to a joint bid, certain cable systems from the bankruptcy estate of Adelphia (the "Time Warner/Comcast/Adelphia Transaction"). As part of the Time Warner/Comcast/Adelphia Transaction, Comcast and Time Warner swapped certain cable systems, including both self-owned systems as well as Adelphia-owned systems. One of the systems Comcast acquired was a Time Warner-owned cable system operating as the incumbent wireline MVPD provider in the city of Philadelphia, serving approximately 40,000 subscribers. (See Adelphia Comm'ns Corp., 21 FCC Rcd 8203 (2006) ("Time Warner/Comcast/Adelphia Order"), ¶ 12; see also Class Cert. Mem., p. 7-8, n. 8.) The transaction involved all of Time Warner's cable assets and subscribers in the Philadelphia DMA. As a result of the transaction, Time Warner exited the Philadelphia DMA.
Finally, in August of 2007, Comcast acquired from Patriot Media & Communications ("Patriot") certain cable systems operating as the incumbent wireline MVPD provider in franchise areas located in Somerset, Hunterdon, Morris and Mercer counties in New Jersey, serving approximately 81,000 subscribers. (See Class Cert. Mem., p. 7-8, n. 8; Def. Ex. 38, Plaintiffs' Class Certification Hearing Ex. 91; see also Def. Ex. 27, Comcast Press Release, Comcast Corporation to Acquire Patriot Media, April 3, 2007.)
B. The Class's Evidence of Comcast's Anticompetitive Intent in Forming the Philadelphia Cluster.
The Class presents evidence in several areas to support its contention that there are genuine issues of material fact concerning whether Comcast had anticompetitive intent in entering into the swap transactions.
1. Evidence that Comcast had a long-standing corporate strategy to develop clusters.
The Class cites to internal Comcast documents evincing a twenty-year strategy of acquiring cable properties in contiguous areas, including the Philadelphia DMA. (See e.g., Pl. Ex. 49, "Comcast History - 1998-1999," p. 3 ("For nearly twenty years, Comcast had pursued a strategy of acquiring cable properties in contiguous areas, especially in the Atlantic seaboard region. . . ."); Pl. Ex. 51, Special Board Mtg. Minutes of May 24, 1999, p. 1 (concerning the Adelphia swaps, Comcast CEO Brian Roberts "noted that the Company, under the proposed swaps, would acquire cable systems in New Jersey and Eastern Pennsylvania to enhance the Company's clustering strategy in its mid-Atlantic region.").) In announcing the bid to acquire MediaOne assets, CEO Roberts emphasized that the combination would have a direct clustering effect, giving Comcast clusters in the top 20 markets representing 80% of the cable market and would leave Comcast a "well-clustered company." (Pl. Ex. 54, Tr. of Conf. Call of March 22, 1999, p. 2.) After the agreement with AT&T supplanted Comcast's initial MediaOne bid, and resulted in Comcast and AT&T allocating Lenfest's cable systems to Comcast, Roberts stated that Comcast's "clustering position becomes even better." (Pl. Ex. 49, Comcast History 1998-1999, p.12.) Comcast COO Steven Burke testified that Comcast's goal was "to have clusters that were as big as possible in each DMA, our goal was and is." (Pl. Ex. 82, Dep. of Steven Burke on December 5, 2008 ("S. Burke Dep."), 117:10-12.) Burke wrote to the attendees of a corporate retreat that, "[f]ully 85% of our 8.2 million subscribers will be in clusters over 200,000 subscribers. These clusters represent a unique opportunity to maximize our business if we learn how to manage them as efficiently as possible." (Pl. Ex. 63, "Clusters/2000 Management Retreat," p.1 (emphasis in original).) Robert Pick, Comcast's executive in charge of corporate development wrote that clustering "is the impetus for the next wave of cable acquisitions." (Pl. Ex. 26A, "Trades/Swap Memo.") In testimony before the FTC in the Adelphia acquisition case, Pick stated that Comcast and Time Warner agreed to divide Adelphia assets between themselves to enable geographic clustering, which "was really most important to Comcast. . . . [T]o the extent we could get an entire market, that was important because we wanted -- we wanted clustering." (Pl. Ex. 26, Dep. of Robert Pick of July 19, 2005, 36:5-21.)
2. Evidence that the purpose behind the swaps and acquisitions strategy was to control, dominate and consolidate cable markets.
The Class cites numerous Comcast internal documents as evidencing its strategy to gain control over cable markets. In announcing Comcast's acquisition of Lenfest, Roberts stated that "Comcast views geographic consolidation of key markets as critically important to the company's future." (Pl. Ex. 62, Comcast Press Release of January 18, 2000, p.1.) Joseph Donnelly of Comcast's corporate development unit wrote about the Adelphia acquisition, "step back and say where does it get us -- ie -- can we dominate mkt, etc." (Pl. Ex. 29, Handwritten note on Letter of July 22, 1999.) An analysis of a Toledo, Ohio cable company noted its acquisition "would present Comcast with the opportunity to own approximately 50% of the 66th largest DMA in the nation." (Pl. Ex. 39, Memo of May 27, 1999.) An analysis of Cablevision properties stated that the "Cleveland market offers Comcast the opportunity to consolidate the 13th largest DMA in the country, as currently, no MSO dominates this market" and the "Kalamazoo system offers Comcast the opportunity to dominate a top-50 DMA, provided Comcast does a second swap with AT&T to obtain its subscriber base in this market." (Pl. Ex. 40, Memo of October 13, 1999, p. 4.) A 2005 memo about New Hampshire stated Comcast had a "real opportunity to consolidate this market along DMA-rational lines and effectively lock up one of the real growth areas in New England." (Pl. Ex. 41, Email of October 19, 2005.)
3. Evidence that clustering was a common strategy among market participants. In his book, Leo Hindery declared that shared markets made no sense in the cable industry; that the industry would benefit from clustering with one cable operator per market; and to effectuate this happening, cable operators would have to voluntarily swap systems across the country. (Pl. Ex.52, Hindery, The Biggest Game of All, p. 73-74.*fn5 ) In his deposition, Hindery testified that "the whole premise . . . was that some operators would leave an area and others would stay and you would become the significant operator in that DMA." (Pl. Ex. 89, Dep. of Leo Hindery of November 14, 2008 ("Hindery Dep."), 190:14-16.) He stated that "all of the cable operators by 1997, 1998, at TCI's urging, adopted [his strategy]. . . . Every major company participated in the exchange of systems over those 24 months, roughly." (Id. at 86:14-18.)
When asked about Comcast's desire to control DMAs, Brian Roberts stated in his deposition that, during the time frame of the July 2006 Time Warner/Comcast/Adelphia swap transaction, "there was a lot of swapping going on, as you referred to, that Mr. Hindery facilitated. Satellite is there, as a real competitor. There are other competitors in the market, real and future competitors, like phone companies. I think it's, you know, the notion of aggregating more customers in one cluster. Once you do so, there's only an incumbent cable company in each of these different 30,000 franchises, and if somebody is able to secure acquiring them, then they have a major presence in the market." (Pl. Ex. 93, Roberts Dep., 127:22-128:11.)
4. Evidence that the swap agreements were naked restraints of trade as market and customer allocations.
To support its position that Comcast engaged in an illegal market allocation scheme, the Class cites to numerous Comcast internal documents, wherein company executives discussed "rationalizing" the cable industry through possible cable swaps and acquisitions that would consolidate Comcast's position in certain markets in exchange for its giving up positions in other markets. (See Pl. Ex. 28, Memo of August 15, 1996, p. 2 ("Both Comcast and Adelphia would like to obtain the other's eastern Florida systems."); Pl. Ex. 32, Special Bd. Mtg. Minutes of May 4, 1999, p. 3 (listing systems to be swapped between Comcast and AT&T); Pl. Ex. 36, Memo of July 11, 1996 (discussing Philadelphia DMA as a "Comcast Sacrosanct System"; and proposing swaps in California); Pl. Ex. 37, Memo of September 29, 1997 (discussing swap of Pittsburgh system for New Jersey and Tennessee systems to "further rationalize the NYC"); Pl. Ex. 38, Memo of May 25, 1999 (discussing clustering opportunity in Southeast Georgia and South Carolina, including swaps of Savannah and Macon, Georgia systems where Comcast "currently dominates each of these markets"); Pl. Ex. 42, Memo of April 6, 2000 (discussing swap of Muncie, Indiana for Kentucy systems to enable Comcast to "get even better clustered" in the Indianapolis DMA in exchange for "get[ting] out of Kentucky"); Pl. Ex. 44 at COM-PA2107968, (attachment to email of April 8, 2003 discussing swaps in Ohio, Kentucy, Indiana, and New Mexico "to rationalize the large Ohio markets"); Pl. Ex. 46, Email of November 13, 2003 (discussing swaps in Tennessee, Colorado and New Mexico that were never consummated)). The Class also cites Steve Burke's testimony that Comcast and AT&T agreed to swap their respective cable assets in Philadelphia and Chicago because "there was no clear path to [Comcast] having a big cluster in Chicago, it would make more sense for us to get Philadelphia and to swap Chicago." (Pl. Ex. 82, S. Burke Dep. 109-110.) Robert Pick described the swapping of cable assets between Comcast and Time Warner as "horse trading" among the companies. (Pl. Ex. 26, Pick FTC Testimony, at 23:25-25:6; Pl. Ex. 92, Pick Dep. 228:3-8.)
5. Evidence that Comcast had anticompetitive intent to allocate markets.
The Class asserts that Comcast had an anticompetitive intent to allocate the Philadelphia DMA in entering into the AT&T transaction, based primarily upon the content of Leo Hindery's book describing the negotiations between Comcast and AT&T.*fn6 The Class describes the deal as an agreement by Comcast to stand down from competitive bidding with AT&T for MediaOne in return for receiving Lenfest. (Class Pl. Mem. at 43.) Its evidence of anticompetitive intent includes the Comcast Board minutes describing "discussions with AT&T to reach an amicable and acceptable alternative to another round of competitive bids," (Pl. Ex. 32, Special Mtg. Of Bd. Minutes of May 4, 1999, p. 2), as well as deposition evidence that the transaction made Comcast the dominant cable operator in the Philadelphia DMA. (See Pl. Ex. 31, Donnelly "Lenfest Due Diligence" Memo at 4
("The acquisition of Lenfest will make Comcast the dominant CATV operator in the Philadelphia DMA (rank -- 4th)"); Pl. Ex. 89, Hindery Dep., 53:16-20 ("Q. When it attained Lenfest, did Comcast become dominant within the Philadelphia DMA? . . . A. It certainly became the largest cable operator in that market, yes.); Pl. Ex. 102, AT&T Bd. of Directors Mtg. of March 17, 1999 "Executive Summary" (noting Lenfest "is the leading cable television operator in the greater Philadelphia market.").*fn7
6. Evidence of non-compete provisions.
The Class argues that the existence of non-compete clauses further supports application of the per se rule. Contrary to Comcast's factual assertion, the Class asserts that following the MediaOne deal, Comcast obtained non-compete agreements with Gerry Lenfest and members of his family. (Pl. Ex. 25, Non-Compete Agreement of January 18, 2000.) The term was 3 years and covered Pennsylvania, Delaware and New Jersey. (Id.) While it does not assert that the non-compete agreements were themselves a per se violation,*fn8 the Class asserts that the non-compete agreements are evidence that Lenfest exited the market, and of Comcast's intention to dominate the Philadelphia market.
7. Evidence of the consequences of the swaps.
Finally, the Class contends that there is ample evidence of anticompetitive consequences arising from Comcast's clustering activity. It offers Dr. Williams' opinions that Comcast's gain in market share was a consequence of the swap transactions, making the Philadelphia DMA more concentrated, creating entry barriers, removing firms that competed in the geographic market, deterring overbuilding, and increasing prices. (Williams Decl. ¶ 56 ("In sum, economic analysis shows that Comcast's alleged anticompetitive conduct in the Philadelphia DMA reduced the extent of competition provided by overbuilders in the Philadelphia DMA. Econometric evidence shows that reductions in overbuilding cause cable rates to increase, all else equal. Thus, Comcast's conduct led to rates being increased or maintained above the level that would prevail in the absence of that conduct throughout the Philadelphia DMA."); ¶ 120 ("the effect of the swaps is to allocate that geographic market between the firms;" "market allocation has diminished competition in the Philadelphia DMA".)
C. Comcast's Evidence of Pro-Competitive Justifications.
Comcast responds to the Class's evidence by contending that none of the swap transactions were "naked" market allocation agreements with no other purpose or effect; that each involved real, substantial exchanges of plant, infrastructure, employees, contracts and other business resources; and its growth strategy to use clustering did not transform otherwise lawful swap agreements into a horizontal market allocation because cable firms have legitimate business reasons for clustering that have been recognized by regulators and the Class's own experts. Comcast asserts that the summary judgment record establishes that clustering the Philadelphia DMA allowed it to introduce new products, such as high-speed internet, telephone, pay per view, video on demand, digital video recorders, digital cable, substantially increased channel choice and high-definition television. (Def. Statement of Undisputed Facts ¶ 48; Def. Ex. 50, Doyle Dep., 91:12-92:3.*fn9 ). It also asserts that the economies of scale associated with clustering enable cable providers to compete against DBS companies with a national footprint, as well as telephone companies, who by virtue of their existing telephone clusters, and possessing vastly larger resources, were emerging as competitors in multiple product markets -- video, data and telephone. (Def. Statement of Undisputed Facts ¶ 49-51; Def. Ex. 54, Deposition of Robert S. Pick on October 28, 2008 ("Pick Dep."), 56:1-57:23*fn10 ; see also Def. Ex. 51, Hindery Dep., 132:11-15*fn11 ; Def. Ex. 56, Roberts Dep., 144:23-145:22.*fn12 ). Finally, it asserts that the FCC has recognized the efficiencies associated with clustering and expressly considered the potential effects of clustering when it approved the Time Warner/Comcast/Adelphia transaction in 2006, well after clustering in the Philadelphia DMA had already occurred. (Def. Statement of Undisputed Facts ¶ 52-53; Def. Ex. 17, FCC 99-418, Sixth Annual Competition Report, ¶¶ 161-162*fn13 ; see also Def. Ex. 18, FC C 01-1, Seventh Annual Competition Report, ¶ 166 (clustering "permits cable operators to . . . gain efficiencies related to economies of scale and scope resulting in lower administrative costs, enhanced deployment of new technologies and services, and encouraging the extension into previously unserved areas"); Def. Ex. 19, FCC 01-389, Eighth Annual Competition Report, ¶ 14 ("By clustering their systems, cable operators may be able to achieve efficiencies that facilitate the provision of cable and other services, such as telephony.").).
Based in large part upon these governmental reports, Comcast's expert Dr. David Tecce opined that the entry of the DBS companies, who were capable of offering higher quality digital television in a nationwide footprint, created a competitive crisis for cable firms, who up to that time were providing analog signals to non-contiguous individual franchise areas.
The need to make significant investments in order to upgrade cable systems to compete with DBS providers led to consolidation among cable operators. DBS had large-scale national operations, which gave them ability to take advantage of scale economies. To compete effectively, most cable firms needed to achieve larger scale. (April 10, 2009 Expert Report of David J. Teece, Ph.D. ("Teece Report") at ¶ 17.) "As a result, cable firms sought to achieve economies of scale through mergers and acquisitions. Many old-line cable firms decided to sell their systems rather than make the investments in system upgrades necessary to stay competitive with DBS providers in the new competitive environment." (Id. ¶ 18.) Teece recounts the history of the "deployment of digital cable transmission that paved the way for cable firms to offer other advanced services. In addition to offering superior video picture quality, digital transmission allows for the provision of several other advanced digital services such as HDTV, Video-on-Demand ("VOD"), Digital Video Recorder ("DVR"), broadband Internet, and cable telephony. These technological advances have ushered a new paradigm in the telecommunications industry, dubbed 'convergence,' under which multiple forms of telecommunications content (audio, video, and data) are delivered to the consumer by a single firm." (Id. ¶ 16 (citations omitted).) He concludes that:
Accordingly, it can enable cable operators to offer a wider variety of broadband services at lower prices to customers in geographic areas that are larger than single cable franchise areas. Clustering can thus make cable operators more effective competitors to LECs whose local service areas are usually much larger than a single cable franchise area. The General Accounting Office, in its report on the changing status of competition to cable television, also found that ownership ties and clustering strategies may provide cost savings and possible competitive advantages. (Def. Ex. 17, FCC 99-418, Sixth Annual Competition Report, ¶ 162.)
Regional clustering created significant efficiencies, including achieving economies of scale in upgrading systems to digital and to offer advanced services such as broadband Internet and cable telephony. . . . Clustering allowed cable operators to achieve regional scale comparable to DBS providers and ILECs. For instance, a former TCI and AT&T executive testified that clustering "had everything to do with putting ourselves in an ...