Third Circuit Affirms Dismissal In Favor Of Defendant Internet Service Provider By Disconnecting Monopsony And Conspiracy Claims
04/30/2019On April 19, 2019, the Third Circuit Court of Appeals affirmed the Middle District of Pennsylvania’s dismissal of monopsony, antitrust conspiracy, and race discrimination claims by two plaintiff cable installer contractors against defendant, a dominant provider of internet services. Cable Line, Inc. v. Comcast Cable Communications of Pennsylvania, Inc., No. 18-2316 (3d Cir. Apr. 19, 2019). On the antitrust claims, the Third Circuit held that plaintiffs did not adequately allege facts to show that they suffered antitrust injury from the allegedly anticompetitive conduct, that defendant held monopsony power and used it to exclude other buyers of cable installation services, or that defendant had any agreement with the installers it chose as part of its RFP process to restrain trade in the cable installation market. The Third Circuit did, however, suggest that plaintiffs consider a retooled complaint alleging that defendant ties cable installation to its cable services, which may cause higher installation prices and reduce downstream competition.
Plaintiffs are cable installation service companies that installed coaxial cable, fiber optic cable, and related devices in Pennsylvania homes, mainly for defendant’s internet service customers. In 2009, defendant announced a nationwide plan to reduce cable installers from 176 contractors to a more manageable number. To that end, defendant launched an RFP process, during which it allegedly told both plaintiffs that they should “‘ramp up’ their operations,” so both installers invested heavily in new facilities, vehicles, and technicians. However, neither won a long-term contract with defendant. Instead, defendant chose two other cable installers and entered into exclusive arrangements for their services in the mid-Atlantic region. Plaintiffs, left with sunk costs from their investments, alleged that defendant intended to induce cable installer consolidation and foreclose those not chosen from the market—all while rigging the RFP process by using manipulated performance metrics and ensuring that newly-minted contractors for cable installation services would “defraud [defendant’s] shareholders by under-reporting” or falsely reporting on metrics such as “service follow-up calls.” From these allegations rose claims that defendant had exercised monopsony power to exclude other cable providers from the downstream cable installer market, and that defendant conspired with its chosen contractors to restrain competition in the downstream cable installer market.
The Third Circuit rejected the monopsony claims because plaintiffs did not allege that defendant used its market power to exclude other cable service providers from the market for cable installation services. Instead, according to the Third Circuit, plaintiffs asked the court “to impose antitrust ‘monopsony’ liability merely because a purchaser with market power in a vaguely defined market decided to reduce the number of its suppliers.” Plaintiffs conceded that defendant was not the only buyer of installation services in the region, and failed to allege a relevant antitrust market. As a result, the Third Circuit affirmed dismissal of the monopsony claims.
The Third Circuit also rejected plaintiffs’ claims that defendant and its two chosen cable installers operated a hub-and-spoke conspiracy because they failed to adequately allege facts to support any conspiratorial agreement between the installers and defendant. On its face, the complaint alleged that the chosen installers did not become aware of defendant’s allegedly anticompetitive scheme until after they were selected as exclusive installers. Without a plausible claim of agreement, the Third Circuit did not address other Sherman Act Section 1 elements for a conspiracy.
Interestingly, however, the Court provided plaintiffs with guidance for pleading a future claim, should they seek to pursue it. Before oral argument, the Third Circuit asked the parties to discuss whether plaintiffs’ allegations were more appropriately viewed as tying and exclusive dealing claims under Jefferson Parish Hospital District No. 2 v. Hyde, 466 U.S. 2 (1984). Ultimately, the Court stated that this theory was “not fairly before us” but that it “express[ed] no view on whether an antitrust claim could be made against defendant based on allegations that it extracts monopoly-like margins in the cable installation market by using exclusive cable installers and tying” that installation to defendant’s cable television services. Notably, the district court did not dismiss plaintiffs’ claims with prejudice, so it is possible for them to re-plead.
The Third Circuit’s opinion spurs a few important takeaways for antitrust litigants: (1) courts continue to take the antitrust injury requirement quite seriously, specifically the prudential purpose of the antitrust laws that they were designed to protect competition, not competitors, (2) it is possible to successfully reduce supplier bloat and navigate the antitrust laws, and (3) courts occasionally provide indirect encouragement to plaintiffs on additional theories to consider, so it is important to prepare for alternative theories despite a complaint with only a scant few substantive allegations. While this opinion continues the trend of holding antitrust plaintiffs’ feet to the fire at the pleading stage, it also provides guidance for those that may hold a strong market position looking to reduce input costs and avoid antitrust liability.