Set-Top Cable Television Box Antitrust Litig. Richard Healy v. Cox Commc'ns, Inc. (In re Cox Enters., Inc.)

871 F.3d 1093

IN RE: COX ENTERPRISES, INC. Set–Top Cable Television Box Antitrust Litigation

Richard Healy, Plaintiff–Appellant/Cross–Appellee,

v.Cox Communications, Inc., Defendant–Appellee/Cross–Appellant.

Nos. 15–6218

15–6222

United States Court of Appeals, Tenth Circuit.

September 19, 2017

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 CableTelevision 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, 106 S.Ct. 2505, 91 L.Ed.2d 202 (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, 104 S.Ct. 1551, 80 L.Ed.2d 2 (1984), abrogated on other grounds by Ill. Tool Works Inc. v. Indep. Ink, Inc., 547 U.S. 28, 126 S.Ct. 1281, 164 L.Ed.2d 26 (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 tyingproduct, sugar as the tiedproduct." Id.at 33, 104 S.Ct. 1551 (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, 68 S.Ct. 12, 92 L.Ed. 20 (1947), abrogated on other grounds by Ill. Tool Works Inc., 547 U.S. 28, 126 S.Ct. 1281. 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. See9 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, 68 S.Ct. 12. 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. SeeAreeda & 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, 104 S.Ct. 1551. 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, 89 S.Ct. 1252, 22 L.Ed.2d 495 (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...