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In re Cox Enterprises, Inc. Set-Top Cable Television Box Antitrust Litigation

United States Court of Appeals, Tenth Circuit

September 19, 2017

In re: COX ENTERPRISES, INC. SET-TOP CABLE TELEVISION BOX ANTITRUST LITIGATION
v.
COX COMMUNICATIONS, INC., Defendant-Appellee/Cross-Appellant. RICHARD HEALY, Plaintiff - Appellant/Cross-Appellee,

         Appeal from the United States District Court for the Western District of Oklahoma (D.C. No. 5:12-ML-02048-C)

          Todd M. Schneider (Jason H. Kim and Kyle G. Bates Schneider Wallace Cottrell Konecky Wotkyns, LLP, Emeryville, California, Rachel Lawrence Mor, Rachel Lawrence Mor, P.C., Oklahoma City, Oklahoma, Michael J. Blaschke, Michael J. Blaschke, P.C., Oklahoma City, Oklahoma, S. Randall Sullivan, Randall Sullivan, P.C., Oklahoma City, Oklahoma, A. Daniel Woska, WoskaLawFirm, PLLC, Oklahoma City, Oklahoma, Allan Kanner and Cynthia St. Amant, Kanner & Whiteley, LLC, New Orleans, Louisiana, Garrett W. Wotkyns, Schneider Wallace Cottrell Konecky Wotkyns, LLP, Scottsdale, Arizona, Joe R. Whatley, Jr., Whatley Kallas, LLP, New York, New York, W. Tucker Brown, Whatley Kallas, LLP, Birmingham, Alabama, Henry C. Quillen, Whatley Kallas, LLP, Portsmouth, New Hampshire, with him on the briefs), Schneider Wallace Cottrell Konecky Wotkyns, LLP, Emeryville, California, for Plaintiff-Appellant/Cross-Appellee.

          Margaret M. Zwisler (J. Scott Ballenger, Jennifer L. Giordano, Andrew J. Robinson, Latham & Watkins LLP, Washington, D.C., Alfred C. Pfeiffer, Jr., Latham & Watkins LLP, San Francisco, California, and D. Kent Meyers, Crowe & Dunlevy, P.C., Oklahoma City, Oklahoma, for Defendant-Appellee/Cross-Appellant.

          Before BRISCOE, EBEL, and PHILLIPS, Circuit Judges.

          PHILLIPS, Circuit Judge

         Cox Cable subscribers cannot access premium cable services-features such as interactive program guides, pay-per-view programming, and recording or rewinding capabilities-unless they also rent a set-top box from Cox. Dissatisfied with this arrangement, a class of plaintiffs in Oklahoma City ("Plaintiffs") sued Cox under the antitrust laws. They alleged that Cox had illegally tied cable services to set-top-box rentals in violation of § 1 of the Sherman Act, which prohibits illegal restraints of trade. See 15 U.S.C. § 1.

         Though a jury found that Plaintiffs had proved the necessary elements to establish a tying arrangement, the district court disagreed. In granting Cox's Fed.R.Civ.P. 50(b) motion, the court determined that Plaintiffs had offered insufficient evidence for a jury to find that Cox's tying arrangement "foreclosed a substantial volume of commerce in Oklahoma City to other sellers or potential sellers of set-top boxes in the market for set-top boxes." Healy v. Cox Commc'ns, Inc. (In re Cox Enters., Inc. Set-Top Cable Television Box Antitrust Litig.), No. 12-ML-2048-C, 2015 WL 7076418, *1 (W.D. Okla. Nov. 12, 2015).[1]

         In assessing the district court's ruling, we first examine how the Supreme Court's treatment of tying arrangements has evolved. Next, we turn to how we and other circuit courts have applied this precedent and how tying law has evolved in the circuit courts. Finally, we analyze the district court's assessment of what the evidence showed in light of the evolving state of the law. Ultimately, we agree with the district court that Plaintiffs failed to show that Cox's tying arrangement foreclosed a substantial volume of commerce in the tied-product market, and therefore the tie did not merit per se condemnation. Because we agree with the district court on the foreclosure element, we affirm.

          DISCUSSION

         I. Standard of Review

         We review de novo a district court's ruling on a Rule 50(b) motion, drawing all reasonable inferences in favor of the nonmoving party and applying the same standard as applied in the district court. Lantec, Inc. v. Novell, Inc., 306 F.3d 1003, 1023 (10th Cir. 2002). The standard of review for Rule 50 motions "mirrors the standard" for summary-judgment motions under Rule 56(c). Farthing v. City of Shawnee, 39 F.3d 1131, 1139 n.10 (10th Cir. 1994) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986)). Under Rule 50(b), the district court may allow judgment on the jury's verdict, order a new trial, or enter judgment as a matter of law for the moving party. We may grant judgment as a matter of law only when "a party has been fully heard on an issue during a jury trial and the court finds that a reasonable jury would not have a legally sufficient evidentiary basis to find for the party on that issue." Fed.R.Civ.P. 50(a)(1). In other words, "[j]udgment as a matter of law is appropriate only if the evidence points but one way and is susceptible to no reasonable inferences which may support the nonmoving party's position." Auraria Student Hous. at the Regency, LLC v. Campus Vill. Apartments, 843 F.3d 1225, 1247 (10th Cir. 2016) (quoting Elm Ridge Expl. Co. v. Engle, 721 F.3d 1199, 1216 (10th Cir. 2013)).

         II. Background

         Considering its expansive reach, the Sherman Act contains remarkably little text and hasn't been amended since it was enacted in 1890. Thus, antitrust law's various doctrines are almost entirely judge-made; courts have created these doctrines based on their own interpretations of the Sherman Act's statutory language and background. For this reason, the statute's limited language goes only so far, and theory must fill in the gaps. So to understand how and why tying arrangements came to be condemned by antitrust law, we must dive into their theoretical underpinnings.

         A tie exists when a seller exploits its control in one product market to force buyers in a second market into purchasing a tied product that the buyer either didn't want or wanted to purchase elsewhere. Jefferson Par. Hosp. Dist. No. 2 v. Hyde, 466 U.S. 2, 12 (1984), abrogated on other grounds by Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28 (2006). For example, "[a] supermarket that will sell flour to consumers only if they will also buy sugar is engaged in tying. Flour is referred to as the tying product, sugar as the tied product." Id. at 33 (O'Connor, J., concurring). Courts typically apply a per se rule to tying claims.[2] See Int'l Salt Co. v. United States, 332 U.S. 392 (1947), abrogated on other grounds by Ill. Tool Works Inc., 547 U.S. 28. Under a per se rule, plaintiffs prevail simply by proving that a particular contract or business arrangement-in this case, a tie- exists; no further market analysis is necessary, and defendants may not present any defenses. See 9 Phillip E. Areeda & Herbert Hovenkamp, Antitrust Law ¶ 1720a (3d ed. 2003) ("The paradigmatic per se rule condemns a readily identified practice without proof of power, effect, or intention and without weighing possible justifications.").

         Early in the Sherman Act's history, the Supreme Court decided that "tying" two products together disrupted the natural functioning of the markets and violated antitrust law. See Int'l Salt, 332 U.S. at 396. It analyzed tying claims under the per se rule: if a plaintiff could show that a tying arrangement existed, the tie was illegal per se. Id. But the way courts view ties has evolved substantially since tying arrangements first attracted attention in antitrust law. Thus, today's per se rule against tying is dramatically more nuanced than the typical per se rule. See Areeda & Hovenkamp, supra, ¶ 1720a (explaining the per se tying rule's multitude of deviations from typical per se rule application). Though the typical antitrust per se rule requires no analysis of market conditions or effects, the Supreme Court has declared that the per se rule for tying arrangements demands a showing that the tie creates "a substantial potential for impact on competition." Jefferson Par., 466 U.S. at 16. Today's plaintiffs must therefore do more than show that a tie exists to trigger the application of the per se rule; they must also meet certain threshold requirements-including that the tie had the substantial potential to harm competition in the market for the tied product.

         III. The Evolution of Tying Law

         From the Supreme Court's tying cases, circuit courts have pulled several elements needed to prove per se tying claims, though these elements differ across the circuits. To succeed on a per se tying claim in the Tenth Circuit, a plaintiff must show that "(1) two separate products are involved; (2) the sale or agreement to sell one product is conditioned on the purchase of the other; (3) the seller has sufficient economic power in the tying product market to enable it to restrain trade in the tied product market; and (4) a 'not insubstantial' amount of interstate commerce in the tied product is affected." Suture Express, Inc. v. Owens & Minor Distrib., Inc., 851 F.3d 1029, 1037 (10th Cir. 2017) (quoting Sports Racing Servs., Inc. v. Sports Car Club of Am., Inc., 131 F.3d 874, 886 (10th Cir. 1997)).

         If a plaintiff fails to prove an element, the court will not apply the per se rule to the tie, but then may choose to analyze the merits of the claim under the rule of reason. See Fortner Enters, Inc. v. U.S. Steel Corp., 394 U.S. 495, 500 (1969) (explaining that failure to satisfy per se requirements isn't always fatal to a tying claim and that a plaintiff "can still prevail on the merits whenever he can prove, on the basis of a more thorough examination of the purposes and effects of the practices involved, that the general standards of the Sherman Act have been violated"). The fight in this case is over the fourth element. Plaintiffs claim that "this element only requires consideration of the gross volume of commerce affected by the tie, " and that they "met this requirement by the undisputed evidence that Cox obtained over $200 million in revenues from renting [set-top boxes] during the class period." Appellants' Opening Br. at 29. In other words, Plaintiffs would have us infer that because Cox makes a substantial amount of money on set-top-box rentals, the tie necessarily has the requisite potential for anticompetitive effects in the set-top-box market. But both Cox and the district court maintain that this element requires a showing that the tie actually foreclosed some amount of commerce, or some current or potential competitor, in the market for set-top boxes.

         Plaintiffs' argument reflects an outdated view of the law. As we explain below, recent developments in the way courts treat tying arrangements validate the district court's order and support Cox's interpretation of tying law's foreclosure element.

         A. The Supreme Court's Per Se Rule & the Evolution of Tying Law

         Two Supreme Court cases, Jefferson Parish and Fortner Enterprises, establish that proof of foreclosure is necessary to prove a per se tying claim. But when the Supreme Court first addressed tying arrangements, it concluded that they served "hardly any purpose beyond the suppression of competition." E.g., Standard Oil Co. of Cal. v. United States, 337 U.S. 293, 305 (1949). At that time, the Court placed tying arrangements in the class of "agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use." N. Pac. Ry. Co. v. United States, 356 U.S. 1, 5 (1958). Still, even at this early juncture, the Court seemed to recognize that, unlike price-fixing and market division between competitors, "there is nothing inherently anticompetitive about packaged sales." Jefferson Par., 466 U.S. at 25. So, without claiming to modify its per se rule, the Supreme Court stated that tying arrangements are "unreasonable in and of themselves, " but only "when[] a party has sufficient economic power with respect to the tying product to appreciably restrain free competition in the market for the tied product and a 'not insubstantial' amount of interstate commerce is affected." Fortner Enters., 394 U.S. at 499 (quoting N. Pac. Ry. Co., 356 U.S. at 6).

         This case primarily concerns the foreclosure element of tying claims, which stems from Fortner. In Fortner, the Supreme Court stated that "[t]he requirement that a 'not insubstantial' amount of commerce be involved makes no reference to the scope of any particular market or to the share of that market foreclosed by the tie." 394 U.S. at 501. But the Court then clarified that "normally the controlling consideration is simply whether a total amount of business, substantial enough in terms of dollar-volume so as not to be merely de minimis, is foreclosed to competitors by the tie." Id. To reach this holding, the Court relied on an earlier case in which it stated that "it is 'unreasonable, per se, to foreclose competitors from any substantial market' by a tying arrangement." Id. (quoting Int'l Salt, 332 U.S. at 396).

         After Fortner, the Court again addressed tying claims in Jefferson Parish. There, the Court modified its view of tying arrangements. It explained that the rule prohibiting ties aims to prevent sellers from using their power in one market to gain control in a separate market. 466 U.S. at 12. It also emphasized that antitrust law protects competition, not competitors or even consumer choice or price. Id. at 14-15. As the Court stated,

[T]he law draws a distinction between the exploitation of market power by merely enhancing the price of the tying product, on the one hand, and by attempting to impose restraints on competition in the market for a tied product, on the other. When the seller's power is just used to maximize its return in the tying product market . . . the competitive ideal of the Sherman Act is not necessarily compromised. But if that power is used to impair competition on the merits in another market, a potentially inferior product may be insulated from competitive pressures. This impairment could either harm existing competitors or create barriers to entry of new competitors in the market for the tied product, and can increase the social costs of market power by facilitating price discrimination, thereby increasing monopoly profits over what they would be absent the tie.

Id. (footnote and citations omitted); see also Areeda & Hovenkamp, supra, ¶ 1726c ("Interference with customer choice is not itself the concern of tying law; rather, the relevant interference is the one that results from an anticompetitive effect in the tied market-namely, from the threat of increased concentration, higher prices, or perhaps an increase in the social costs of preexisting power in the tying market."). Thus, the Court realized "that every refusal to sell two products separately cannot be said to restrain competition." Jefferson Par., 466 U.S. at 11.

         Attempting to screen out tying arrangements that posed no danger to competition, the Jefferson Parish Court enumerated several threshold requirements necessary to trigger application of the per se rule against tying. From these requirements, circuit courts have shaped the elements required for per se claims. These requirements included a seller's power in the tying market, the tying of two distinct products, and, most importantly for our purposes, the likelihood of anticompetitive conduct. Id. at 15-16. Discretely amending its approach from previous cases such as Fortner and International Salt, the Court also required as a threshold matter a "substantial potential for impact on competition" before it would apply its per se rule to a tying arrangement. Id. at 16. Even though the Court said that "[t]he rationale for per se rules in part is to avoid a burdensome inquiry into actual market conditions in situations where the likelihood of anticompetitive conduct is so great as to render unjustified the costs of determining whether the particular case at bar involves anticompetitive conduct, " it simultaneously "refused to condemn tying arrangements unless a substantial volume of commerce is foreclosed thereby." Id. at 15 n.25, 16. It went on to explain that "[o]nce this threshold is surmounted, per se prohibition is appropriate if anticompetitive forcing is likely." Id. at 16 (emphasis added). So, not only must plaintiffs demonstrate the existence of certain threshold conditions, they must also show that anticompetitive forcing is likely because of the tie. In this way, the Court acknowledged that some ties have little or no potential to harm competition, and therefore shouldn't trigger the per se rule.

         So, as outlined above, Jefferson Parish modified Fortner. And most recently, the Supreme Court modified the law even further by prohibiting courts from inferring market power over the tying product from a seller's patent on that product. Ill. Tool Works Inc., 547 U.S. at 31. Though that decision isn't factually relevant to our case and bears on a different element, it signifies that "[o]ver the years, . . . [the Supreme] Court's strong disapproval of tying arrangements has substantially diminished." Id. at 35. This attitude is on display in Jefferson Parish, where the Court stated without qualification that "we have refused to condemn tying arrangements unless a substantial volume of commerce is foreclosed thereby." 466 U.S. at 16.

         So, even if tying plaintiffs show that a tie affected a substantial dollar volume of sales, they must still show that the tie meets Jefferson Parish's threshold requirements to trigger the per se rule. In other words, the tying arrangement must be the type of tie that could potentially harm competition in the tied-product market. If "no portion of the market which would otherwise have been available to other sellers has been foreclosed, " then no amount of tied sales could cross the threshold to per se condemnation. Id.; Areeda & Hovenkamp, supra, ¶ 1721d (explaining that if there are no rival sellers of the tied product or if the buyer would not have bought the tied product even from a different seller, then, "[n]otwithstanding a substantial dollar volume of sales . . . the foreclosure is zero and therefore fails to cross the per se 'threshold.'" (quoting Jefferson Par., 466 U.S. at 16)). Thus, though the per se rule against tying doesn't require an exhaustive analysis into a tie's anticompetitive effects in the tied product market, the rule "can be coherent only if tying is defined by reference to the economic effect of the arrangement." Jefferson Par., 466 U.S. at 21 n.33.

         B. Per Se Tying Law in Other Circuit Courts

         Circuit courts have undergone a similar theoretical shift. They first picked up on the peculiar nature of tying claims in Coniglio v. Highwood Servs., Inc., 495 F.2d 1286, 1292 (2d Cir.), cert. denied, 419 U.S. 1022 (1974). See Areeda & Hovenkamp, supra, ¶ 1722b. In that case, the Second Circuit began explicitly requiring "anticompetitive effect[s]" as an element of a per se tying claim. Coniglio, 495 F.2d at 1292. The plaintiff complained that the Buffalo Bills forced fans to buy tickets to exhibition games along with regular-season home games in season-ticket packages, and that he had no interest in going to the exhibition games. Id. at 1288-89. Without declaring that it was creating a new requirement for tying claims, the court announced that the plaintiff's claim failed because he couldn't show any anticompetitive effects in the tied-product market. Id. at 1291-92. Because the Buffalo Bills necessarily had a monopoly over regular-season games as well as exhibition games, "there were neither actual nor potential competitors to the Bills in the professional football market." Id. at 1291 (footnote omitted). Thus, noting that the plaintiff had completely failed "to demonstrate any adverse effect on competition, actual or potential, " the court affirmed the district court's grant of summary judgment to Highwood Services (the owner and operator of the Buffalo Bills). Id. at 1293.

         Other circuits have since taken up this mantle-some have done so explicitly and others implicitly. See Areeda & Hovenkamp, supra, ¶ 1722a (listing circuits requiring anticompetitive effects to succeed on tying claims). The Fifth Circuit explicitly required Coniglio's anticompetitive effects in Driskill v. Dallas Cowboys Football Club, Inc., 498 F.2d 321, 323 (5th Cir. 1974), in which a Dallas Cowboys fan brought the exact same claim as the plaintiff in Coniglio. The Eleventh Circuit then cited Driskill in granting summary judgment to a condominium vendor that required condominium buyers to lease individual interest in common areas. Commodore Plaza at Century 21 Condo. Ass'n v. Saul J. Morgan Enters., Inc., 746 F.2d 671, 672 (11th Cir.), cert. denied, 467 U.S. 1241 (1984). The court stated, "In this case, as in Driskill, the plaintiffs failed to make any showing of coercion or anticompetitive effects." Id.

         Building on this growing trend, the First Circuit has stated that tying claims "must fail absent any proof of anti-competitive effects in the market for the tied product." Wells Real Estate, Inc. v. Greater Lowell Bd. of Realtors, 850 F.2d 803, 815 (1st Cir.), cert. denied, 488 U.S. 955 (1988). The court moderated this holding, stating that plaintiffs need not prove "the actual scope of anti-competitive effects in the market, " but ultimately adopted Jefferson Parish's reasoning in stating that "as a matter of practical inferential common sense, " the plaintiff had to "make some minimal showing of real or potential foreclosed commerce caused by the tie." Id. at 815 n.11.

         Similarly, the Seventh Circuit has declined to apply the per se rule to condemn ties that pose no danger to competition. See Ohio-Sealy Mattress Mfg. Co. v. Sealy, Inc., 585 F.2d 821 (7th Cir.), cert. denied, 440 U.S. 930 (1978). In Ohio-Sealy, the court acknowledged that it was "not free to inquire whether such tying in any given case injures market competition, " but still stated that "if a given tying arrangement has no potential to foreclose access to the tied product market, it does not exemplify the vice that led the [Supreme] Court to declare tying a [p]er se [o]ffense." Id. at 835.

         So, like the Supreme Court, the circuit courts generally recognize that a tie should not be condemned under the per se rule unless it has the potential to harm competition.

         C. Per Se Tying Claims in the Tenth Circuit

         Similarly, we have acknowledged that even under a per se rule, we must at least make a threshold determination of potential harm to competition before we can condemn a tying arrangement under the Sherman Act. In Fox Motors, Inc. v. Mazda Distributors (Gulf), Inc., 806 F.2d 953, 955 (10th Cir. 1986), we integrated this caveat to the per se rule into the fourth element of a per se tying claim. There, a company that imported Mazda cars and distributed them to car dealerships refused to sell the dealerships a popular car model, the RX-7, unless the dealers sold a sufficient amount of the less-popular car model, the GLC. Id. at 955-56. The dealerships sued, alleging that the distributor's allocation method constituted a per se illegal tie under § 1 of the Sherman Act. Id. at 956. While acknowledging that the Supreme Court has deemed certain tying arrangements illegal per se, we specified that tying arrangements pose no risk of foreclosing competition in the tied-product market unless certain elements are present. See id. at 957.

         Specifically, we held that tying arrangements must "foreclose to competitors of the tied market a 'not insubstantial' volume of commerce." Id. at 957 (emphasis added) (quoting Fortner, 394 U.S. at 499). In Fox Motors, "[t]he record contain[ed] no indication that the alleged tying arrangement, as distinct from consumer demand, influenced the level" of competition in the tied-product market. Id. at 958. Therefore, even though proof of anticompetitive effects was not an explicit element of tying claims in the Tenth Circuit, we still concluded that the tying arrangement "simply [did] not imply a sufficiently great likelihood of anticompetitive effect." Id. Because the tie failed to foreclose any competing car manufacturers, it didn't meet Jefferson Parish's threshold requirements for per se treatment. Id. Thus, we incorporated proof of actual or likely anticompetitive effect into the foreclosure element of tying claims. In doing so, we heeded Jefferson Parish's warning that some tying arrangements simply don't pose the same level of risk as those behaviors whose potential to harm competition is so pronounced as to deserve per se condemnation without regard to their actual impact on the market.

         D. Per Se Tying Law & Technology

         Courts have also acknowledged that some industries or products are sufficiently distinct that per se treatment is inappropriate. This is especially true in the world of technology, where courts are often unfamiliar with the products and market structure, and thus can't be certain of the potential for anticompetitive effects.

Per se rules of antitrust illegality are reserved for those situations where logic and experience show that the risk of injury to competition from the defendant's behavior is so pronounced that it is needless and wasteful to conduct the usual judicial inquiry into the balance between the behavior's procompetitive benefits and its anticompetitive costs.

Eastman Kodak Co. v. Image Tech. Servs., Inc., 504 U.S. 451, 486-87 (1992) (Scalia, J., dissenting). The D.C. Circuit applied this principle in United States v. Microsoft Corp., 253 F.3d 34 (D.C. Cir. 2001). Though the factual circumstances of that case are quite different from our own, we find the D.C. Circuit's reliance on Eastman Kodak and Jefferson Parish illuminating. There, the court faced a novel tying arrangement in which Microsoft had integrated the internet web browser, Internet Explorer, into Windows, its computer operating system. Id. at 45. Noting that some business relationships "represent entire, novel categories of dealings, " the court concluded that "simplistic application of per se tying rules" would be inappropriate. Id. at 84. The court acknowledged that tying arrangements can impact buyers' independent judgment in the tied-product market, but it went on to state that when "competitive firms always bundle the tying and tied goods, " the tie should not trigger the per se rule. Id. at 86. "Indeed, if there were no efficiencies from a tie (including economizing on consumer transaction costs such as the time and effort involved in choice), " consumers would always purchase a product's component parts separately. Id. at 87. Thus, because even firms without market power integrated internet web browsers and computer operating systems, and the court was dealing with a relatively novel tying arrangement, the court refused to apply the per se rule to condemn the tying arrangement. Id. at 93.

         A recent Second Circuit case, Kaufman v. Time Warner, 836 F.3d 137 (2d Cir. 2016), builds on Microsoft and is even more relevant to our analysis because it concerns the same tie by a different cable company. Similar to our case, the plaintiffs were a class of Time Warner Cable subscribers who were forced to rent set-top boxes to receive premium cable services. Though tying claims in the Second Circuit differ from ours by explicitly requiring a showing of anticompetitive effects in the tied-product market, the court's analysis in Kaufman is still very useful. See id. at 141. The court thoroughly explained the technology behind premium cable and set-top boxes and demonstrated why the tying arrangement at issue didn't trigger the application of the per se rule.[3]

         To start, the court explained that cable providers sell their subscribers the right to view certain packages of programming. Id. at 144. But the content creators-companies like HBO that produce television shows-require the cable companies to prevent viewers from stealing their content. Id. Set-top boxes solve this problem-cable providers "code their signals to prevent theft, " and cable boxes receive the providers' coded signals and "unscramble" them. Id. "Unsurprisingly, providers do not share their codes with cable box manufacturers. . . . Therefore, to be useful to a consumer, a cable box must be cable-provider specific, like the keys to a padlock." Id.

         After explaining the function of set-top boxes, the Second Circuit turned to the regulatory environment and the history of the cable industry's use of set-top boxes. Significantly, the court pointed out that "[a]ntitrust analysis must always be attuned to the particular structure and circumstances of the industry at issue" because "the existence of a regulatory structure designed to . . . perform[] the antitrust function" might "diminish[] the likelihood of major antitrust harm." Id. at 145 (second and third alterations in original) (quoting Verizon Commc'ns Inc. v. Law Offices of Curtis V. Trinko, LLP, 540 U.S. 398, 411-12 (2004)). The court described the Federal Communication Commission's ("FCC") attempts over the past twenty years to disaggregate set-top boxes from the delivery of premium cable, and stated that the FCC's failure is at least partly attributable to shortcomings in the new technologies designed to make premium cable available without set-top boxes. See id. at 146 ("[A] new approach that would work with two-way services [failed because it] was not sophisticated enough to meet content companies' content protection demands." (alterations in original) (quoting Expanding Consumers' Video Navigation Choices; Commercial Availability of Navigational Devices, 81 Fed. Reg. 14, 033, 14, 033-04 (Mar. 16, 2016))).

         The court also pointed out that one FCC regulation actually caps the price that cable providers can charge customers who rent set-top boxes.[4] See 47 C.F.R. § 76.923(f)- (g). Under the regulation, cable companies must calculate the cost of making such set-top boxes functional and available for consumers, and must charge customers according to those costs, including only a "reasonable profit" in their leasing rates. Id. § 76.923(c). The Second Circuit ultimately concluded that the plaintiffs' factual allegations against Time Warner couldn't survive summary judgment because they didn't trigger the application of the per se tying rule. Id. at 147.

         In sum, it is now clear that before applying the per se rule to tying arrangements, courts must carefully analyze the tie to ensure that it meets Jefferson Parish's threshold requirements. If it does not, the court may further analyze the tie using the rule of reason ...


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