UNITED STATES DISTRICT COURT FOR THE DISTRICT OF COLUMBIA
March 3, 1982
UNITED STATES OF AMERICA, Plaintiff,
NATIONAL ASSOCIATION OF BROADCASTERS, Defendant.
The opinion of the court was delivered by: GREENE
This action involves the application of the antitrust laws
to certain advertising standards adopted by the National Association of Broadcasters (NAB) for television networks and local television stations. The provisions under challenge in this lawsuit, inter alia, impose limitations upon the number of minutes per hour a network or station may allocate to commercials; the number of commercials which may be broadcast in an hour of television time; and the number of products which may be advertised on certain types of commercials.
Both parties have moved for summary judgment. In its motion, the NAB defends the provisions at issue as simple, voluntary guidelines which, in the public interest, set sensible limits on the commercialization of television. The government replies that the standards, far from serving the public interest, have as their actual purpose and effect the artificial manipulation of the supply of commercial television time, with the end result that the price of time is raised, to the detriment of both advertisers and the ultimate consumers of the products promoted on the air.
For the reasons elaborated on below, the Court concludes that none of the defenses asserted by NAB in support of the entry of summary judgment in its favor has merit. See Parts VI through IX infra. The government has presented persuasive arguments in support of its motion indicating that the NAB standards represent a broadcast industry combination which has the effect, and possibly the purpose, of raising the price of commercial time, and summary judgment will be entered in its favor as to one of the three sets of standards at issue. See Part V infra. Determination of the validity of the remaining two groups of standards must, however, await the presentation of evidence by the parties at trial. See Parts II through IV infra.
The National Association of Broadcasters is an industry trade association whose membership includes the three major commercial television networks and over five hundred individual television stations. Since 1952, it has sponsored a Television Code
which provides broadcasters with guidelines for meeting their statutory obligation to serve the public interest.
Any television station, whether or not a member of NAB, may subscribe to the Code.
In 1978, over 65 percent of all commercial television stations did so subscribe, and these stations accounted for an estimated 85 percent of all television viewing.
Subscribers are permitted to display the "NAB Television Seal of Good Practice."
The NAB Code Authority is charged with enforcing the Code and monitoring subscriber compliance.
If found guilty, after a formal hearing, of violations of the Code, a subscriber may be suspended.
Alleged violations are investigated by the Television Code Board, and the final decision concerning suspension is made by NAB's Television Board of Directors. A suspended subscriber loses the right to display the seal of good practice.
The Code includes a variety of standards governing television programming and advertising.
The government here charges that three types of advertising standards violate the antitrust laws.
The first set of rules which are claimed to violate the law (referred to herein as the time standards) are those Code provisions which limit the amount of commercial material
which may be broadcast each hour.
The provisions limit network-affiliated stations to 9-1/2 minutes of commercials per hour of prime time
(plus 1/2 minute for promotional announcements) and 16 minutes per hour at all other times. Independent stations are allowed more advertising time, and the amount of such material on children's programs also has a different time limit.
The second group of provisions under challenge (referred to herein as the program interruption standards) set a maximum limit on the number of commercial interruptions per program
as well as on the number of consecutive announcements per interruption.
In general, network-affiliated stations may interrupt prime time programs four times per hour; they may schedule a maximum of five announcements consecutively within an interruption (of which four may be commercial announcements); and they may schedule three announcements consecutively within each station break. Public service announcements do not count toward these limits.
The third Code provision challenged in this action (referred to herein as the multiple product standard) prohibits the advertising of two or more products or services in a single commercial if that commercial is less than sixty seconds in duration.
In passing on the motions for summary judgment, the Court must determine, with respect to each of the three sets of Code provisions at issue, whether either party has established its entitlement to a judgment in its favor at this stage of the proceedings. If neither the government nor defendant can demonstrate such entitlement, a trial is required. Summary judgment may not be granted if there is a "genuine issue as to any material fact." Rule 56(c), Federal Rules of Civil Procedure. If material facts adequate to a final decision have not been developed or if the facts remain in dispute, summary judgment is inappropriate. See, e.g., Nixon v. Freeman, 670 F.2d 346, 216 U.S. App. D.C. 188, slip op. at p. 34 (D.C. Cir. 1982); Worthen Bank & Trust Co. v. Nation Bankamericard, Inc., 485 F.2d 119 (8th Cir. 1973); 10 C. Wright & A. Miller, Federal Practice and Procedure § 2725, p. 501 (1973).
Beyond that, the Supreme Court has cautioned that, because of the many novel and complicated circumstances that are typically involved in antitrust litigation, summary judgment should not readily be granted in such litigation. Poller v. Columbia Broadcasting System, Inc., 368 U.S. 464, 473, 82 S. Ct. 486, 7 L. Ed. 2d 458 (1962). Even in antitrust actions, however, summary judgment may be appropriate where, unlike in Poller, motive and intent are not centrally involved. White Motor Co. v. United States, 372 U.S. 253, 259, 83 S. Ct. 696, 9 L. Ed. 2d 738 (1963); see generally, 2 P. Areeda & D. Turner, Antitrust Law § 316 (1978).
It is in light of these principles that the parties' motions for summary judgment must be evaluated.
Section 1 of the Sherman Act applies only to agreements which are "unreasonably restrictive of competitive conditions." Standard Oil Co. v. United States, 221 U.S. 1, 58, 31 S. Ct. 502, 55 L. Ed. 619 (1911). Over the years, two types of analysis have been developed to determine whether an agreement fits this standard. These may be summarized, as the Supreme Court did in National Society of Professional Engineers v. United States, 435 U.S. 679, 692, 98 S. Ct. 1355, 55 L. Ed. 2d 637 (1978), as follows:
In the first category are agreements whose nature and necessary effect are so plainly anticompetitive that no elaborate study of the industry is needed to establish their illegality -- they are 'illegal per se.' In the second category are agreements whose competitive effect can only be evaluated by analyzing the facts peculiar to the business, the history of the restraint, and the reasons why it was imposed.
In its motion, the government argues that the NAB Code provisions constitute a per se violation of the antitrust laws or, in the alternative, that they are unlawful under the broader reasonableness, or Rule of Reason, analysis. The Court will first consider the government's contention that the time standards and the program interruption standards per se violate the Sherman Act.
There is no question that the fixing of prices is illegal per se. Catalano, Inc. v. Target Sales, Inc., 446 U.S. 643, 100 S. Ct. 1925, 64 L. Ed. 2d 580 (1980); United States v. Socony-Vacuum Oil Co., 310 U.S. 150, 60 S. Ct. 811, 84 L. Ed. 1129 (1940); United States v. Trenton Potteries Co., 273 U.S. 392, 47 S. Ct. 377, 71 L. Ed. 700 (1927). This per se rule is not limited to agreements which fix price directly; it extends to any agreement which "interferes with the setting of price by free market forces." United States v. Container Corp. of America, 393 U.S. 333, 337, 89 S. Ct. 510, 21 L. Ed. 2d 526 (1969); United States v. Socony-Vacuum Oil Co., supra, 310 U.S. at 221, 223. Included under this rubric of per se illegality are agreements between competitors which limit the production or supply of a product, the obvious reason being that an artificial limitation on supply normally has a direct effect on price. See United States v. Socony-Vacuum Oil Co., supra ;
Hartford-Empire Co. v. United States, 323 U.S. 386, 65 S. Ct. 373, 89 L. Ed. 322 (1945); United States v. Aluminum Co. of America, 148 F.2d 416, 445 (2d Cir. 1945); United States v. American Radiator and Standard Sanitary Corporation, 433 F.2d 174 (3d Cir. 1970); United States v. American Smelting & Refining Co., 182 F. Supp. 834 (S.D.N.Y. 1960).
Relying upon these decisions, the government contends that, since the time and program interruption standards constitute an agreement limiting the supply of time for the broadcasting of commercial announcements, they fall squarely within the scope of the per se rule, and that judgment holding them to be violative of the antitrust laws should be entered without further inquiry. In the Court's view, such an approach is not justified with regard to these provisions.
Per se rules are based upon broad generalizations about the effect of certain commercial practices. Continental T.V., Inc. v. GTE Sylvania Inc., 433 U.S. 36, 50 n. 16, 97 S. Ct. 2549, 53 L. Ed. 2d 568 (1977). They are designed to reach only those "agreements or practices which because of their pernicious effect on competition and lack of any redeeming virtue are conclusively presumed to be unreasonable." Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5, 78 S. Ct. 514, 2 L. Ed. 2d 545 (1958). Because the per se approach does not allow the defendant to proffer explanations,
courts have been cautious in applying it, and the Supreme Court has in recent years emphasized the need for finding the requisite degree of perniciousness inherent in the challenged practice before judging it to be in the per se category. See Continental T.V., Inc. v. GTE Sylvania Inc., supra ; Silver v. New York Stock Exchange, 373 U.S. 341, 83 S. Ct. 1246, 10 L. Ed. 2d 389 (1963).
For these reasons, it is generally held that the per se approach should be employed only after a determination that the theoretical generalization underlying the rule would probably apply in fact to the particular agreement at issue. United States v. Studiengesellschaft Kohle, M.B.H., 670 F.2d 1122, 216 U.S. App. D.C. 303, slip op. at pp. 16-17 (D.C. Cir. 1981); United States v. Realty Multi-List, Inc., 629 F.2d 1351, 1363 (5th Cir. 1980); Virginia Academy of Clinical Psychologists v. Blue Shield, 624 F.2d 476, 484-85 (4th Cir. 1980). Thus, the per se rule against price fixing should be limited to situations where the effect of the challenged practice is
to threaten the proper operation of our predominantly free-market economy -- that is [if] the practice facially appears to be one that would always or almost always tend to restrict competition and decrease output . . . instead [of] one designed to 'increase economic efficiency and render markets more, rather than less, competitive.'
Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., 441 U.S. 1, 19-20, 99 S. Ct. 1551, 60 L. Ed. 2d 1 (1979).
The necessary corollary to these principles is that the per se approach is inappropriate in industries which possess characteristics which appear to contradict the anticompetitive effect presumed by the rule. See, for example, Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., supra, 441 U.S. at 19-24, where the Court carefully examined the music licensing market and, upon finding that it had special characteristics,
declined to apply the per se rule although price fixing was implicated in the licensing agreement at issue.
The per se approach has also been rejected where the industry in question was subject to government regulation, because such regulation might, again, endow the industry with special characteristics that could well affect the generalization underlying the per se rule. See Silver v. New York Stock Exchange, supra ; Jacobi v. Bache & Co., 520 F.2d 1231, 1237-39 (2d Cir. 1975).
The per se rule is thus inappropriate in a supply limitation case if the industry which is the subject of the litigation possesses attributes which in a fundamental way contradict the assumed link between supply and price that underlies the per se treatment of supply restrictions. See note 52 infra. An examination of television broadcasting reveals that it possesses unusual characteristics which may be disruptive of that linkage.
In the first place, the broadcast media pose "unique and special problems" because they are "subject to an inherent physical limitation. Broadcast frequencies are a scarce resource; they must be portioned out among applicants." Columbia Broadcasting System, Inc. v. Democratic National Committee, 412 U.S. 94, 101, 93 S. Ct. 2080, 36 L. Ed. 2d 772 (1973). See also Red Lion Broadcasting Co. v. FCC, 395 U.S. 367, 388-89, 89 S. Ct. 1794, 23 L. Ed. 2d 371 (1969); National Broadcasting Co. v. United States, 319 U.S. 190, 226-27, 63 S. Ct. 997, 87 L. Ed. 1344 (1943).
There is also the somewhat related factor that, unlike most industries, broadcasting is faced with an absolute physical limitation on its product; there are, after all, only sixty minutes to each hour.
Like the absolute limit on the size of the broadcast spectrum, this factor is, at a minimum, an unusual complication to be taken account of in an antitrust analysis. Finally, the industry is subject to government regulation and, in order to retain their licenses, broadcasters must operate their stations in the "public interest." See note 3 supra ; see also Red Lion Broadcasting Co. v. FCC, supra. Because of this public interest requirement, the amount of time which may be devoted to commercials and other nonprogram material is necessarily limited. See 47 C.F.R. § 0.281(a)(7) (1980), as amended 46 Fed. Reg. 13888 (1981); In re WMOZ, Inc., 36 F.C.C. 201, 241 (1964).
These factors on their face appear to limit the free play of market forces in the broadcasting industry so that, even in the absence of the Code, the supply of commercial time might not, or perhaps could not, expand in response to a high demand. Since it may well be that on this basis the supply of broadcast time does not result from the NAB Code but from unrelated factors, it would be improper to presume conclusively that the time and program interruption provisions have the effect on the price of commercial time which the per se rule seeks to prevent. In short, the per se rule is not logically, and hence not legally, applicable.
It follows that a broader inquiry than is possible under that rule is necessary to determine whether the time and program interruption standards actually have an anticompetitive effect. That analysis must and will be conducted under the Rule of Reason doctrine.
The basic inquiry under the Rule of Reason
is "whether the challenged agreement is one that promotes competition or one that suppresses competition." National Society of Professional Engineers v. United States, supra, 435 U.S. at p. 691. See also White Motor Co. v. United States, supra, 372 U.S. at pp. 261-62; Chicago Board of Trade v. United States, 246 U.S. 231, 238, 38 S. Ct. 242, 62 L. Ed. 683 (1918). In making this determination, the Court must examine all the evidence regarding the impact of the agreement upon competition, including "facts peculiar to the business to which the restraint is applied; its condition before and after the restraint was imposed; the nature of the restraint and its effect, actual or probable." Chicago Board of Trade v. United States, supra, 246 U.S. at p. 238. Facts concerning the history and purpose of the agreement are also relevant because they may assist the court in determining its probable effect.
In considering the effect
of the Code on competition, it is necessary to consider the two
sets of standards separately.
The time standards of the NAB Code (see pp. 3-4 supra) will not survive a Rule of Reason analysis if it is determined that they have the anticompetitive effect of raising or stabilizing the price of commercial time. In an inquiry somewhat similar to that required by the per se rule,
the Court must ascertain whether it is the limitations imposed by these Code provisions which actually affect the supply of commercial time or whether supply is otherwise determined.
Should it be found that the Code does limit supply, it must still be determined what effect that limitation may have on the price of commercial time. If the effect of the Code on price is de minimis, that is, if price is set essentially by other factors -- e.g., the type of programming, the day of the week and the time of day a program is broadcast, the size of the audience and its demographics, the marketing strategy of the particular advertiser, the placement of the advertisement vis-a-vis other non-program material, the limit on the number of broadcast stations -- the Code will not be regarded as violative of the Sherman Act.
On the other hand, the Code will not survive antitrust scrutiny if it has an effect on price that is more than de minimis even if other, neutral factors also determine or affect price.
Whatever may be the ultimate conclusion on these questions, it is clear that the extent to which the supply and the price of commercial time are influenced by the NAB Code is a disputed issue of material fact.
That issue cannot be resolved on summary judgment but must be determined by the normal fact-finding process of a trial.
The government's motion for summary judgment on the time standards must therefore be denied.
Likewise requiring a trial are the program interruption standards, that is, those Code provisions which limit the number of times a program may be interrupted for commercials and the number of consecutive commercials permitted within each interruption. The government contends that these provisions standardize the placement and length of commercials and that in so doing they eliminate important forms of competition among networks and stations both for advertisers and for viewers.
Depending upon their nature, agreements between horizontal competitors to standardize their products may either increase competition or they may hinder it. On the one hand, the interchangeable nature of standardized products permits consumers more readily to take advantage of price differences among competitors;
on the other, it is easier for competitors to fix prices when their products are identical: all that is necessary is an exchange of price information.
The dual nature of standardization agreements has long been recognized. Their likely effect, and hence their status under the antitrust laws, has been said to depend upon a variety of factors, such as the type of product involved, the structure of the industry, and the presence or absence of other anticompetitive activity therein. If, on a balance of these factors, an agreement increases price competition, it is upheld; if it facilitates price coordination, it is rejected. C-O-Two Fire Equipment Co. v. United States, 197 F.2d 489 (9th Cir. 1952); Bond Crown & Cork Co. v. FTC, 176 F.2d 974 (4th Cir. 1949); Tag Manufacturers Inst. v. FTC, 174 F.2d 452 (1st Cir. 1949); Zenith Radio Corp. v. Matsushita Elec. Indus. Co., 513 F. Supp. 1100, 1153-54 (E.D. Pa. 1981); L. Sullivan, Antitrust, supra, § 98.
Although one may well speculate that the program interruption rules, particularly when combined with the time standards, do, in fact, foster a standard station format,
it is not possible on the basis of the meager record before the Court to make a definitive judgment in that regard. Beyond that, neither the government nor the defendant has presented any significant information regarding the likely economic effects of standardization in this instance. A decision on the issues which will govern the validity of the program interruption standards must therefore also await the presentation of evidence at a trial.
Different considerations dictate a different result with regard to the multiple product standard. That standard prohibits the advertisement of more than one product in a commercial lasting less than sixty seconds.
It is apparent from the face of this standard that it has the effect of compelling some, perhaps many, advertisers to purchase more commercial time than their economic interests might dictate. In thus artificially increasing the demand for commercial time -- and perhaps limiting its supply as well (see infra) -- the standard raises both the price of time and the revenues of the broadcasters, to the detriment of the users of the broadcast medium and the consumers of their products.
An advertiser is not free, under the multiple product standard, to purchase one thirty-second spot to advertise two products; if he wishes to promote more than one item, he must purchase at least sixty seconds of time -- twice as much as he may actually want or need. The distinction is by no means trivial, just as the difference in cost between a single thirty-second spot and a sixty-second spot is not: on a highly-rated network program it can apparently run into well over $ 100,000.
Translated into lengthy advertising campaigns, that difference might conceivably add up to millions of dollars in revenues to the broadcasters and in costs to the advertisers -- and indirectly to the consumers of the products these advertisers sell.
The burden of this standard falls especially heavily upon smaller enterprises. A relatively small business which is able to promote one successful product in a series of thirty-second commercials is precluded by the standard from using any portion of that thirty seconds to launch a second product the sales of which will not, or not yet, support a commercial of its own.
Yet its larger competitor, with the resources to purchase sixty seconds of time, is free to use any part of that period to advertise a number of different products (some of which may be in direct competition with the smaller firm's product kept off the air by NAB's rule). For a discussion of NAB's defense of this policy, see note 73 infra.
The history of the standard bears out the conclusion that its effect is anticompetitive.
In 1964, NAB considered a proposal to prohibit "piggyback" commercials.
Various advertisers objected on economic grounds,
and, instead of an outright ban on piggybacks, NAB adopted the present standard. There again were protests, some claiming illegality under the Sherman Act, but the standard has remained in effect.
The multiple product standard may be regarded as an artificial device to enhance the demand for commercial time, as a means to limit the supply of such time,
or as a practice akin to a tying arrangement. Regardless of the label that is applied, the provision per se violates the antitrust laws.
The standard, as indicated supra, is an artificial rule, adopted by the broadcasters acting in concert, which requires advertisers to purchase more commercial television time than they might wish and in excess of what they would be able to purchase if free market conditions prevailed.
Its effect on a single advertiser is to increase his demand for commercial time, and its overall effect on broadcast industry-advertising industry relations is to enhance the aggregate demand for such time.
On this basis, the multiple product standard bears a strong conceptual resemblance to the agreement involved in National Macaroni Manufacturers Ass'n v. FTC, 345 F.2d 421 (7th Cir. 1965). In that case, manufacturers agreed upon a standard formula for the ingredients to be used in their macaroni and spaghetti products. The court found that the agreement had the purpose and effect of depressing demand for, and therefore the price of, durum wheat (a raw material used in the manufacture of macaroni and spaghetti), and it held such a standardization agreement to constitute a per se violation of the antitrust laws.
Defendant has presented no valid reasons for not applying the per se rule of National Macaroni in this case,
and none occurs to the Court. The agreement there fixed the composition of the members' product so as to reduce the demand for, and therefore the price of, a raw material they were using. The agreement here prescribes a rule for subscribers which necessarily has the effect of increasing the demand for, and therefore the price of, commercial time. The result is the same,
and so are the legal consequences.
Nor does the reasoning which led the Court to decline in Part III supra to hold that the per se rule does not apply to the Code's time standards help the defendant on this aspect of the case. As indicated above, it is possible that the intrinsic characteristics of the broadcasting industry rather than the Code's time standards are instrumental in limiting the overall supply of commercial time, and for that reason these standards might not be found to have the specific effect on supply that is presumed by the general rule against supply restrictions. But the industry's characteristics are not relevant to the National Macaroni principle; the only significant consideration under the branch of the per se rule it represents is whether the agreement tampers with demand. Demand results directly from advertisers' need for commercial time; their need for time is not affected by various inherent limits on broadcast time or governmental rules against overcommercialization. Even when supply remains constant, it is clear that, in a free market, an increase in demand will lead to an increase in price.
If the multiple product standard is viewed as a supply limitation, on the theory that it limits the number of commercials possible in a given amount of time, the same result obtains. For the reasons cited above, the total supply of commercial time may be presumed to be limited, as a consequence either of the special characteristics of the industry, or of the Code's time standards, or both. Upon this limited amount of time the television broadcasters have imposed through NAB an additional restriction in the form of the multiple product standard. That standard makes commercial time available to the advertisers in such a manner, i.e., in segments of a particular size, as to reduce the supply of time even further.
When producers combine to impose a rule that so limits supply they artificially inflate price and act per se in an anticompetitive manner. See pp. 6-7 supra.
Finally, as indicated above, the multiple product standard is in significant respects analogous to the practice of tying -- also a per se violation of the Sherman Act. Northern Pacific Railway Co. v. United States, supra. See generally, L. Sullivan, Antitrust, supra, at §§ 150-162. Tying occurs when a seller requires purchasers of one product to purchase also a second product which the purchaser does not or may not want. The rationale of the prohibition against tying is that it
denies competitors free access to the market for the tied product, not because the party imposing the tying requirements has a better product or a lower price but because of his power or leverage in another market. . . . Buyers are forced to forego their free choice between competing products.
Northern Pacific Railway Co. v. United States, supra, 356 U.S. at 6.
The tying cases, to be sure, are not technically applicable in this instance because the additional amount of commercial time advertisers are required to purchase under the multiple product standard does not represent a "different product" from the time the advertisers actually desire to purchase.
However, the rationale underlying the rule against tying -- that sellers should be precluded from using their market power to force a buyer to purchase and to pay for something he does not want -- applies precisely in this case. NAB has used its dominance in the television industry to require companies who desire to advertise more than one product on television to buy more than they wish to purchase. Thus, the coercive use of market power to restrict buyers' decision-making which is at the heart of tying is also present in the provision at issue here. See P. Areeda, Antitrust Analysis P 541 (1981).
The Court concludes that for these reasons, both individually and on the basis of their interrelationship, NAB's multiple product standard falls within the per se rule and is violative of the Sherman Act. It follows that the conduct it represents must conclusively be presumed to be unreasonable, and defenses available in a Rule of Reason context (Parts VI through IX) are foreclosed. Broadcast Music, Inc. v. Columbia Broadcasting System, Inc., supra, 441 U.S. at 8; Klor's Inc. v. Broadway-Hale Stores, Inc., 359 U.S. 207, 211-12, 79 S. Ct. 705, 3 L. Ed. 2d 741 (1959); Northern Pacific Railway Co. v. United States, supra, 356 U.S. at 5.
The first defense upon which NAB relies is that the Code is voluntary, in the sense that no one is compelled to join and allegedly no sanctions are imposed for a violation. The voluntariness argument has several facets.
Initially, defendant contends that, because subscription to the Code is voluntary, it is not the kind of "contract, combination . . . or conspiracy" that is contemplated by section 1 of the Sherman Act. This jurisdictional argument wholly lacks merit. The NAB Code is an agreement among competing television networks and stations, and it restricts the availability of one of the principal services these competitors offer -- the broadcasting of commercial announcements. As such, it is the classical horizontal agreement which the Sherman Act was designed to reach, and it is a "contract" within the meaning of that statute. United States v. National Association of Real Estate Boards, 339 U.S. 485, 488-89, 70 S. Ct. 711, 94 L. Ed. 1007 (1950).
But, says defendant, because of its voluntary character, the Code is at a minimum a "reasonable" restraint on competition and therefore not violative of the law.
Although there appear to be no decisions directly addressing the question whether the voluntary character of an agreement may be taken into account in determining the reasonableness of a particular combination, it is well established that the parties to an agreement which per se violates the antitrust laws may not defend on the basis that they have applied no coercion to bring about adherence to the combination or to compel obedience to its terms. American Column & Lumber Co. v. United States, 257 U.S. 377, 42 S. Ct. 114, 66 L. Ed. 284 (1921); National Macaroni Manufacturers Association v. FTC, supra. As the Court said in United States v. National Association of Real Estate Boards, supra, 339 U.S. at 488-89:
The Board's code of ethics provides that 'Brokers should maintain the standard rates of commission adopted by the board and no business should be solicited at lower rates.' Members agree to abide by this code. The prescribed rates are used in the great majority of transactions, although in exceptional situations a lower charge is made. But departure from the prescribed rates has not caused the Washington Board to invoke any sanctions. Hence the District Court called the rate schedules 'non-mandatory.' . . . The fact that no penalties are imposed for deviations from the price schedules is not material. . . . Subtle influences may be just as effective as the threat or use of formal sanctions to hold people in line.
Logic and experience would seem to dictate that the same principle should apply in the context of a Rule of Reason analysis. As indicated supra, the Sherman Act was designed to reach all anticompetitive concerted action by competitors, whether accomplished by an express, legally-enforceable contractual obligation or by more subtle means. See United States v. McKesson & Robbins, Inc., 351 U.S. 305, 309-10, 76 S. Ct. 937, 100 L. Ed. 1209 (1956).
It is, indeed, difficult to see why legal unenforceability or lack of formal sanctions should be considered a valid defense. Combinations of entities which fix prices, manipulate supplies, or engage in other anticompetitive conduct are almost always "voluntary" in the sense that a recalcitrant co-conspirator cannot be required, in a court of law, to keep his bargain. But that lack of legally-enforceable coercion -- needless to say -- does not establish a defense under the antitrust laws.
It is not necessary to resolve that legal question, however, because the documents submitted by the government, coupled with defendant's failure to respond, require a decision in favor of the former on factual grounds.
The government's documents show that the NAB Code is not a mere set of advisory standards which subscribers may choose to ignore
but a contractual arrangement to which they are obligated to adhere.
This obligation does not exist merely on paper: NAB administers a comprehensive monitoring and enforcement program,
and its officials have stated that the threat of disciplinary action is effective in maintaining Code compliance:
The mere fact that we have that power to threaten to drop people from the Code has its own inhibiting value. . . . [A station] would rather not be known as someone bucking what appears to be a good system. So [the Code] tends to operate to get it into line.
If anything, this comment tends to understate the effectiveness of the Code; its influence is so pervasive that in real terms it stands between the nation's airwaves and even the most powerful business enterprise. As NAB itself has said in another forum, "national advertisers need to insure that commercials are Code compliant in order to gain access to the networks " (emphasis added).
Defendant has not contradicted these specific facts but is content to rely on conclusory statements to the effect that the Code is "voluntary."
Such general statements are insufficient to establish an issue of fact under Rule 56(e), Federal Rules of Civil Procedure.
The NAB Code is supported by a more structured enforcement program and more visible sanctions than the usual anticompetitive agreement,
and the defense based on its allegedly voluntary character must be rejected.
NAB argues next that the government had a duty to show that the Code was formulated with an anticompetitive purpose and that its failure to do so is fatal to its case. That argument is not well taken, for two independent reasons.
In United States v. United States Gypsum Co., 438 U.S. 422, 436 n. 13, 98 S. Ct. 2864, 57 L. Ed. 2d 854 (1978), the Supreme Court stated that under the Sherman Act "a civil violation can be established by proof of either an unlawful purpose or an anticompetitive effect" (emphasis added).
See also, McLain v. Real Estate Board of New Orleans, Inc., 444 U.S. 232, 243, 100 S. Ct. 502, 62 L. Ed. 2d 441 (1980). Thus, the government's failure, at this stage,
to establish that NAB acted with an anticompetitive purpose, would not ipso facto entitle NAB to summary judgment: the government could prevail in this action by showing simply that the Code has an anticompetitive effect.
And, as the previous discussion demonstrates, NAB has not established that there are no facts from which the Court could find that such an effect is present.
Defendant could not prevail on its motion even if anticompetitive purpose were a necessary element of the government's proof, for on the record before the Court there is a genuine dispute of material fact on that question.
The government's evidence includes the following. First, NAB's own Manual for Self-Regulation states that, by serving the public interest, self-regulation "advances the reasonable self-interest of broadcasters. It directly backstops sales departments' revenue producing. It provides 'insurance' in that it is a basic defense of licensees profit and loss sheets." See also, note 44 supra. Second. The time and clutter rules for network affiliates differ from those which apply to independent stations, and different rules apply to the more lucrative prime time hours than to the financially less rewarding daytime and nighttime viewing periods.
Third. Code officials have stated that "the 80-second break provides [certain broadcasters] with better revenue possibilities than does a 70-second break"; that a recommended reduction in prime time offers "obvious revenue opportunities for all"; and that certain proposed time standards "should alleviate the economic discomfort of most Code stations now concerned over present commercial allocations."
To counter this evidence, NAB has presented affidavits from its officials indicating that the various Code standards had no purpose other than the avoidance of excessive commercial advertising in the interest of the viewing audience, and that competitive considerations did not enter into their adoption.
Whatever weight may be given to these statements, they certainly cannot be deemed conclusive. There is thus at least a dispute on NAB's purpose, summary judgment is inappropriate,
and the question will have to be decided after a trial.
NAB argues at great length and with considerable vigor that there is a public interest in preventing the overcommercialization of television and that this interest should be given substantial weight in the evaluation of the Code's reasonableness under the antitrust laws. Specifically, NAB reasons that if the time limitation standards of the Code were struck down, the inevitable consequence would be either a substantial increase in the television time alloted to commercials or regulatory action by the Federal Communications Commission to take the place of NAB's self-regulation, and that neither alternative is desirable as a matter of public policy.
There are two principal branches to the government's response.
Factually, the government urges the following. Because of the competition that is likely to accompany the elimination of the standard Code provisions, it is unlikely that the television networks and stations would find it to their business advantage to reduce regular program time in favor of additional or longer commercial interruptions. This pressure to hold down the length and improper placement of commercials will be further strengthened by the emergence of new technologies (e.g., satellites) and the proliferation of new entertainment sources (e.g., cable, videotape). Thus, competition may be expected to be at least as effective in curbing the overcommercialization of television as is the NAB Code. Should these expectations prove to be erroneous, either generally or in the short run, the safety valve of "neutral" regulation by the FCC -- as distinguished from the economically-interested regulation by NAB -- would remain available.
It is not necessary for the Court to speculate on the accuracy of either party's set of predictions, for the government's second response, which rests on settled Supreme Court precedent, is conclusive.
In National Society of Professional Engineers v. United States, supra, it was claimed by the society that a declaration of invalidity under the antitrust laws of its rule barring members from engaging in competitive bidding would entail such consequences inimical to the public interest as cost-cutting and poor workmanship. The Court held that these consequences, even if they could be established, were irrelevant under the antitrust laws. The Judiciary, said the Supreme Court, must confine its analysis solely to the "competitive significance" of a challenged practice; it "is not to decide whether a policy favoring competition is in the public interest, or in the interest of the members of an industry. . . . That policy decision has been made by the Congress." 435 U.S. at p. 692 (footnote omitted). See also Smith v. Pro Football, Inc., supra, 593 F.2d at pp. 1186-87.
Justice Rehnquist dissenting on other grounds in Community Communications Co. v. City of Boulder, 455 U.S. 40, 102 S. Ct. 835, 70 L. Ed. 2d 810, 50 U.S.L.W. 4144, 4150 (January 13, 1982) has recently restated the applicable law in language which, with but slight modifications to take account of the different facts, is directly pertinent here:
In National Society of Professional Engineers v. United States, 435 U.S. 679, 695, 98 S. Ct. 1355, 55 L. Ed. 2d 637 (1978), we held that an anticompetitive restraint could not be defended on the basis of a private party's conclusion that competition posed a potential threat to public safety and the ethics of a particular profession. 'The Rule of Reason does not support a defense based on the assumption that competition itself is unreasonable.' Id. at 696. Professional Engineers holds that the decision to replace competition with regulation is not within the competence of private entities. Instead, private entities may defend restraints only on the basis that the restraint is not unreasonable in its effect on competition or because its pro-competitive effects outweigh its anticompetitive effects.
Under established law, then, it would not matter if NAB's public interest arguments were correct.
The Congress has determined where the public interest lies when antitrust liability is in issue;
it lies in free and fair competition. The enactment of the Sherman Act represents a basic policy decision regarding the centrality of competition in American commercial life. If there are to be exceptions from that policy in favor of other, different public interest considerations, they must be made -- as occasionally they have been
-- by the Congress; they cannot be read into the antitrust laws by the courts in the guise of construction or interpretation.
Defendant finally relies on what it claims to be endorsements of its Code by various governmental bodies. These endorsements do not have weight defendant assigns to them.
First. None of the governmental actions cited is sufficient to confer upon the NAB and its Code an immunity from the antitrust laws. Such an immunity would have to be granted by the Congress, either directly in the form of an exemption from the antitrust laws,
or indirectly by legislation which vests explicit authority over the practice involved in an administrative agency or permits such an agency to exercise pervasive regulatory authority over the affected industry.
Congress has not done so with respect to television advertising; no governmental entity other than the Congress has the authority to grant such immunity;
and defendant has acknowledged that it is not relying on the immunity principle.
Second. Assuming, without deciding, that governmental sanction of conduct short of a grant of immunity may be an appropriate element for consideration in a Rule of Reason analysis,
it is clear that NAB's factual showing is, for the most part, insufficient to establish that governmental bodies endorsed the Code provisions at issue in this lawsuit.
Two congressional committees may have expressed their support for self-regulation in the broadcast industry some fifteen years ago;
but that support was couched in the most general terms and it did not focus in the slightest upon the advertising standards here at issue.
Self-regulation can obviously have many purposes and can be carried out in many different ways. Endorsement of the general principle can therefore hardly be read to imply endorsement of discrete implementing documents such as the NAB Code, let alone of specific, contested provisions in advance of such contest.
Similar observations may appropriately be made concerning a Justice Department letter, also written in the 1960s,
and regarding most of the FCC words and actions relied upon by defendant.
Third. NAB has not referred the Court to any governmental approval, either by the FCC or by any other department or agency, of the Code's program interruption standards. For the reasons stated above, NAB's governmental endorsement defense with respect to these standards must therefore be rejected.
Fourth. The time standards, by contrast, have been the subject of explicit comment by the Federal Communications Commission. The Commission favorably noted in a number of license renewal proceedings that the licensee had complied with these standards.
Moreover, in Children's Television Report and Policy Statement, 50 F.C.C.2d 1, 13 (1974), the Commission stated that the time standards, as they apply to children's programs, "are comparable to the standards which we would have considered adopting by rule in the absence of industry reform," and it went on to say that it would "expect all licensees . . . to review their commercial practices in programs designed for children in light of the policies outlined by the Commission and the standards now agreed upon by substantial segments of the industry."
As indicated, these various FCC actions and comments all relate directly only to the Code's time standards. Inasmuch as the validity of these standards must await a trial decision in any event (see Part III supra) the Court need not now decide on the extent to which these comments may be regarded as a governmental sanction of the standards, and the effect, if any, of such a sanction on this antitrust suit. The parties may at trial present evidence regarding the question of FCC approval of the time standards, and they should be prepared at that time also to submit arguments on the legal effect of such approval.
None of the charges brought by the government will be dismissed. The government's motion for summary judgment will be granted with respect to the multiple product standard,
and an injunction is being issued this date ordering NAB to cancel and to cease enforcing that standard. The motions for summary judgment of both parties will be denied with respect to the time standards and the program interruption standards, and these matters will be set down for trial.
Harold H. Greene
United States District Judge
Dated: March 3, 1982
For the reasons set forth in the Opinion accompanying this order, it is this 3rd day of March, 1982,
ORDERED That defendant's motion for summary judgment be and it is hereby denied, and it is further
ORDERED That plaintiff's motion for summary judgment be and it is hereby granted with respect to Advertising Standard IX § 5 of the National Association of Broadcasters' Television Code, and it is further
ORDERED That the remainder of plaintiff's motion be and it is hereby denied, and it is further
ORDERED That the National Association of Broadcasters and its officers, agents, and employees, shall forthwith cancel and stop enforcing Advertising Standard IX § 5 of the Code and every rule, opinion, resolution, or statement of policy based upon such Standard.
Harold H. Greene
United States District Judge