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From Antitrust Law Daily, March 24, 2017

DirecTV resolves U.S. information-exchange allegations over Dodgers Channel negotiations

By Jeffrey May, J.D.

DirecTV and its parent corporation, AT&T, have agreed to settle Department of Justice Antitrust Division allegations that DirecTV engaged in unlawful information exchanges with competitors while negotiating to carry the SportsNet LA "Dodgers Channel." A proposed final judgment was filed in the federal district court in Los Angeles yesterday, that, if approved by the court, would resolve a November 2016 complaint. The proposed final judgment would prohibit DirecTV and AT&T from illegally sharing confidential, forward-looking information with competitors, according to the Justice Department (U.S. v. DirecTV Group Holdings, LLC, Dkt. No. 2:16-cv-08150).

The government alleged that satellite pay television provider DirecTV was "the ringleader of information sharing agreements with three different rivals that corrupted the Dodgers Channel carriage negotiations and the competitive process that the Sherman Act protects." DirecTV’s chief content officer purportedly exchanged information with counterparts at cable company rivals Cox Communications Inc. and Charter Communications Inc. and at AT&T, before it acquired DirecTV in 2015 in a transaction valued at approximately $49 billion.

The result of the alleged exchanges was that each company was less likely to reach a deal to purchase a license to telecast the Dodgers Channel to their customers in the Los Angeles area because they had reason to believe that they would not lose subscribers to other programming distributors if they opted not to telecast Dodgers games. Consequently, a significant number of Dodgers fans did not have an opportunity to watch their team play on television. The Justice Department also contended that the bilateral agreements to share forward-looking strategic information concerning carriage of the Dodgers Channel lacked any countervailing procompetitive benefits and were not reasonably necessary to further any legitimate business purpose.

DirecTV’s motion to dismiss. DirecTV had moved to dismiss the suit earlier this year, contending that the company and its competitors declined to carry the Dodger Channel in the Los Angeles area not due to collusion but because the holder of licensing rights, Time Warner Cable, asked for unrealistically high sub-licensing fees. DirecTV had taken issue with the government’s decision to pursue generalized allegations of "information sharing," rather than traditional antitrust theories involving coordination or agreements. No evidence plausibly supported the existence of a reciprocal agreement to exchange sensitive competitive price information, it was suggested. A hearing on the motion to dismiss had been scheduled for earlier this month and then was continued to March 27 in light of "productive settlement negotiations."

Settlement terms. The proposed final judgment would prohibit the defendants from sharing strategic competitive information with direct competitors and thus protects the competitive process for negotiating video programming. However, the settlement is not intended to compel the programming providers to reach an agreement to carry any particular video programming, including the Dodgers Channel, the government explained. In addition, the defendants would be subject to antitrust compliance obligations for the five-year term of the proposed final judgment. They would be required designate an antitrust compliance officer responsible for implementing training and antitrust compliance programs and achieving full compliance with the settlement.

Attorneys: Frederick S. Young for U.S. Department of Justice. Robert C. Walters, M. Sean Royall, Marcellus McRae, and Katherine V.A. Smith (Gibson, Dunn & Crutcher LLP) for DirecTV Group Holdings, LLC.

Companies: DirecTV Group Holdings, LLC; AT&T, Inc.; Cox Communications Inc.; Charter Communications Inc.

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