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Sky Angel U.S, LLC v. National Cable Satellite Corp.

United States District Court, District Circuit

June 3, 2013

SKY ANGEL U.S., LLC, Plaintiff,
v.
NATIONAL CABLE SATELLITE CORPORATION d/b/a C-SPAN, Defendant.

MEMORANDUM OPINION GRANTING DEFENDANT'S MOTION TO DISMISS

RUDOLPH CONTRERAS, District Judge.

I. INTRODUCTION

This litigation arises out of the defendant's termination of a contract in which it granted the plaintiff a right to distribute reception of the C-SPAN television networks in real-time by means of a secure internet-based protocol stream. The plaintiff now brings claims under Sections 1 and 2 of the Sherman Act, alleging that the members of the defendant's board of directors partook in a group boycott and sought to maintain a monopoly over the market for real-time, multichannel video programming distribution services. The defendant moves to dismiss the complaint for lack of subject matter jurisdiction and failure to state a claim. The Court finds that it has subject matter jurisdiction over the plaintiff's claims, but will dismiss the complaint without prejudice based on the plaintiff's failure to state a claim. The plaintiff will be given leave to amend its complaint.

II. BACKGROUND

A. The Parties

The plaintiff, Sky Angel U.S., LLC ("Sky Angel"), is a Florida-based company that operates FAVE-TV-a subscription service that distributes the content of television networks in real time, with a focus on "faith-based" and "family oriented" video programming. See Compl. (Dkt. No. 1) ¶¶ 7-8. FAVE-TV's programming lineup includes some mainstream networks, such as Fox News Channel and the Hallmark Movie Channel, as well as some lesser-known religious programming as part of its faith-based repertoire. See Compl. Exs. A & B (Dkt. Nos. 1-2 & 1-3). Sky Angel's system uses a closed and encrypted fiber-optic transmission path to carry the video programs to central locations, then distributes the programming from those central locations to television-connected set-top boxes via high-speed internet connections. See Compl. (Dkt. No. 1) ¶ 9.

The defendant, National Cable Satellite Corp., doing business as C-SPAN ("C-SPAN"), is a D.C.-based non-profit corporation that was created by the cable television industry and distributes video of legislative proceedings and other programming via three networks- C-SPAN, C-SPAN2, and C-SPAN3. See id. ¶ 13. C-SPAN's board of directors consists of many high-ranking executives and board members from some of the nation's largest telecommunications companies, including representatives from some of the largest multichannel video programming distributors ("MVPDs"). See id. ¶ 36. Sky Angel alleges that C-SPAN is controlled by cable industry MVPDs, the top ten largest of which hold seats on C-SPAN's board. See id. ¶ 37.

B. The Parties' 2009 Contract

On May 28, 2009, Sky Angel and C-SPAN entered into an affiliation agreement (the "IPTV Agreement"), under which C-SPAN granted to Sky Angel a non-exclusive right to carry the C-SPAN networks "by means of an internet-protocol based stream which shall be secure and capable of being accessed only in a manner which would not allow any form of subsequent distribution..., including without limitation, distribution over public Internet." See Compl. Ex. E (Dkt. No. 1-6) § 1(a). The IPTV Agreement had a term of two years and was subject to renewal. See id. § 2.

C-SPAN and C-SPAN2 went "live" on FAVE-TV on or about July 10, 2009. See Compl. (Dkt. No. 1) ¶ 33. But on July 13, 2009, Peter Kiley sent an email on behalf of C-SPAN to Sky Angel's Executive Vice President that, on its face, confirms Sky Angel's earlier "agree[ment] to take C-SPAN and C-SPAN2 off [FAVE-TV] pending [C-SPAN's] review of [Sky Angel's] distribution technology and a precise legal framework." Id. Mr. Kiley's email also expresses C-SPAN's belief that the "IPTV [A]greement does not allow for the type of delivery" implemented by Sky Angel. Id. Sky Angel alleges that, following this review, C-SPAN never provided a "valid explanation" for its termination of the IPTV Agreement. See id. ¶ 35. C-SPAN, in its filings, has asserted that Sky Angel's distribution technology includes use of public internet and thus breaches the IPTV Agreement, see Def.'s Mot. Dismiss & Mem. Supp. (Dkt. No. 5) at 29, but Sky Angel claims that it was not informed of the basis for C-SPAN's breach of contract theory until C-SPAN made the assertion before the Court, see Pl.'s Mem. P. & A. Opp'n Mot. Dismiss (Dkt. No. 7) at 34. To date, C-SPAN's networks have not been reintroduced into FAVE-TV's lineup.

C. Procedural Background

Before bringing suit in this Court, Sky Angel filed a complaint with the Federal Communications Commission ("FCC") against Discovery Communications, LLC ("Discovery") arising out of a separate, but similar, contract dispute. As it did with C-SPAN, Sky Angel had entered into an affiliate agreement with Discovery (the "Discovery Agreement") allowing Sky Angel to distribute Discovery's programming networks-including Discovery Channel and Animal Planet-on FAVE-TV. See Compl. (Dkt. No. 1) ¶ 58. After deciding that Sky Angel's distribution method was "not satisfactory, " Discovery notified Sky Angel of its intention to terminate the Discovery Agreement. See Sky Angel U.S., LLC, 25 FCC Rcd. 3879, 3880 (Apr. 21, 2010). In March 2010, before the termination took effect, Sky Angel filed a program access complaint against Discovery with the FCC pursuant to Section 628(b) of the Communications Act, 47 U.S.C. § 548(b), and its implementing regulations. See id. Sky Angel's complaint alleged that, like C-SPAN, Discovery was motivated by an intent to stifle competition and never explained why it determined that Sky Angel's distribution method was unsatisfactory. See id.

Shortly after filing its petition, Sky Angel also moved the agency for a temporary standstill to keep the Discovery Agreement in effect while the administrative proceeding was pending. See id. at 3879-80. Applying a four-factor test similar to that used by the courts in a preliminary injunction analysis, the FCC denied Sky Angel's emergency petition for a temporary standstill and found that Sky Angel "has not carried its burden of demonstrating that it is likely to succeed in showing on the merits that it is an MVPD entitled to seek relief under the program access rules." Id. at 3882. Specifically, the agency found that the term "channel" might not apply to Sky Angel, whose distribution method relies on the subscriber's internet service provider rather than its own transmission path. See id. at 3883. The FCC noted, however, that this finding was not an ultimate conclusion as to the merits of Sky Angel's complaint, but was instead made solely to determine whether Sky Angel was entitled to the "extraordinary relief of a standstill...." Id. at 3884. In March 2012, the FCC issued a notice seeking public comment on the proper interpretation of "channel" and "MVPD" under the Communications Act, noting that "[t]he interpretation of these terms has legal and policy implications that extend beyond the parties to this complaint." Public Notice: Media Bureau Seeks Comment on Interpretation of the Terms "Multichannel Video Programming Distributor" and "Channel" as Raised in Pending Program Access Complaint Proceeding, 27 FCC Rcd. 3079, 3079 (Mar. 30, 2012). Sky Angel maintains that it "competes directly in the MVPD market" but alleges that the FCC has "withdrawn from or declined to occupy the field on which Sky Angel must compete...." Compl. (Dkt. No. 1) ¶¶ 24, 59.

In November 2012, Sky Angel filed a complaint against C-SPAN in this Court asserting two claims under the Sherman Antitrust Act of 1890 (the "Sherman Act"). See id. ¶¶ 60-67. Count I of the complaint alleges that C-SPAN's termination of the IPTV Agreement constitutes an agreement among C-SPAN's cable MVPD board members unreasonably restraining trade with Sky Angel-a group boycott and per se violation of Section 1 of the Sherman Act. See id. ¶ 44. Under Count II, Sky Angel alleges that C-SPAN's cable MVPD board members possess monopoly power in the market for real-time multichannel video distribution services, and that C-SPAN's termination of the IPTV Agreement was an unlawful maintenance of that monopoly in violation of Section 2 of the Sherman Act. See id. ¶¶ 64-67. Among other relief, Sky Angel seeks an order requiring that C-SPAN license its programming to Sky Angel under the terms of the IPTV Agreement "as if it had been perpetually renewed through the date of the order and thereafter for a period of no less than ten (10) years...." See id. ¶ VIII.B.

III. ANALYSIS

C-SPAN moves to dismiss Sky Angel's entire complaint for lack of subject matter jurisdiction and failure to state a claim pursuant to Federal Rules of Civil Procedure 12(b)(1) and 12(b)(6). See Def.'s Mot. Dismiss & Mem. Supp. (Dkt. No. 5). With respect to subject matter jurisdiction, it is C-SPAN's position that Section 628 of the Communications Act, 47 U.S.C. § 548, grants the FCC exclusive jurisdiction over this case.[1] C-SPAN also argues that Sky Angel does not state a claim because it has not sufficiently pleaded "concerted activity" as required for its Section 1 claim, the "relevant market" nor market power for its Section 2 claim, nor the antitrust injury required for both claims. The Court will address each of these arguments in turn.

A. Subject Matter Jurisdiction

1. Legal Standard

Federal courts are courts of limited jurisdiction, and the law presumes that "a cause lies outside this limited jurisdiction...." Kokkonen v. Guardian Life Ins. Co. of Am., 511 U.S. 375, 377 (1994); see also Gen. Motors Corp. v. Envtl. Prot. Agency, 363 F.3d 442, 448 (D.C. Cir. 2004) ("As a court of limited jurisdiction, we begin, and end, with an examination of our jurisdiction."). It is the plaintiff's burden to establish by a preponderance of the ...


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