Legal battle with RCN is not over for Comcast

Comcast has fought the case since 2003.
Comcast has fought the case since 2003. (MATT ROURKE / Associated Press, File)
Posted: April 08, 2013

More than a decade ago, the telecommunications company RCN Corp. viewed itself as a potential competitor to Comcast Corp. One national magazine wrote about it as "The Little Phone Company That Can?"

Then, according to a long-running antitrust lawsuit in Philadelphia federal court, Comcast thwarted RCN's expansion into cable-TV business in Philadelphia by lobbying against RCN with government officials, offering customers discounts in areas where RCN would expand, and restricting RCN's access to contractors who would build out its network.

RCN did not get traction and ran into financial headwinds as Comcast consolidated its market position through nine swaps and acquisitions of cable-TV subscribers, eventually coming to control more than 60 percent of the region's cable-TV homes.

The suit detailing these and other business dealings, Behrend v. Comcast Corp., has now become a giant legal test of wills between plaintiffs' lawyers and the cable company, and a Supreme Court decision on it is reverberating nationwide.

Plaintiffs' lawyers claim to represent two million Philadelphia-area Comcast cable-TV customers who they say have been harmed by Comcast's hold on the market. They say damages to Comcast's Philadelphia-area consumers amount to $875 million.

Comcast has fought the case since 2003 and it won a big victory March 28 when the Supreme Court, in a 5-4 vote, threw out the plaintiffs' class certification status, saying the damages claim was not appropriate.

"The court itself views this as a game-changer," Joseph L. Olson, partner at the Milwaukee firm Michael Best & Friedrich, said of the Comcast decision.

Comcast says that it is pleased with the Supreme Court decision and that it no longer must pay out a settlement negotiated last summer with the plaintiffs' attorneys.

Terms of that settlement, which would have included financial benefits to Comcast's Philadelphia-area customers, were sealed.

The biggest question is whether the plaintiffs' lawyers, led by Barry Barnett of Dallas, now will try to recertify the class of Philadelphia-area cable-TV consumers for the third time to conform with the new legal standards for class-action lawsuits.

Barnett did not respond to e-mails last week. But he said on the day of the Supreme Court decision that he would return to court. U.S. District Judge John R. Padova of Philadelphia is presiding in the case.

Central to the plaintiffs' lawsuit is the contention that Comcast clustered its cable-TV systems in the Philadelphia area between 1998 and 2007 to gain market power and increase prices.

Comcast's acquisitions during this time included Marcus Cable, Greater Philadelphia Cablevision Inc., Lenfest Communications Inc., and Patriot Media.

On two occasions Comcast swapped cable-TV subscribers with AT&T to acquire more customers in the area. Comcast also traded with Time Warner and Adelphia, gaining about 500,000 cable-TV customers in the region.

Mark Cooper, director of research at the Consumer Federation of America, said the Justice Department or the Federal Communications Commission could have stopped Comcast's consolidation of cable-TV subscribers. But during the years of President George W. Bush's administration, Cooper said, "there was no chance that the government was going to resist corporate power."

Comcast chief executive Brian L. Roberts testified, according to court documents, that clustering was efficient and had other business benefits.

"We'd be able to open call centers within those markets that would be open 24 hours a day, instead of kicking over to an answering service at night," he said. "We were able to recruit better executives because it's closer to the caliber of being a TV station general manager."

Plaintiffs put forward three theories of harm resulting from Comcast's alleged anticompetitive behavior, in addition to thwarting RCN. One theory was that Comcast suppressed the market penetration of DirecTV and Dish by withholding the Comcast SportsNet channel. If consumers wanted to watch the Phillies, 76ers or Flyers, they could not do it on satellite.

Padova tossed out the regional sports network theory and two others, but he kept the one related to RCN. The company - called an "overbuilder" in the industry - could have built a network running alongside Comcast's cable lines and competed for customers on price and service. Padova wrote in a 2010 opinion that "Comcast engaged in conduct designed to deter the entry of overbuilders in the Philadelphia [designated market area], including denying RCN access to the services of cable installation contractors."

The issue for the Supreme Court was whether the $875 million damages claim was proper. The claim represented damages from all four anticompetitive theories, while only one - thwarting RCN - remained to be litigated.

Justice Antonin Scalia wrote in the majority opinion: "If they prevail, respondents would be entitled only to damages resulting from overbuilding competition." The court's majority decision resulted in the decertification of the class - the Philadelphia-area customers. To recertify, the damages would likely have to be much more narrowly calculated, and based on just one of the theories of anticompetitive behavior.

The Supreme Court was sharply divided along ideological lines, with Justices Ruth Bader Ginsburg and Stephen G. Breyer writing the dissent. They said the court should not have considered the case. The plaintiffs' economic model, they said, "provides evidence that Comcast's anticompetitive conduct, which led to a 60 percent market share, caused the class to suffer injuriously higher prices."

Behrend v. Comcast

On March 28, the U.S. Supreme Court voted, 5-4, in favor of Comcast Corp. in an antitrust class-action lawsuit being followed nationally. A timeline of the case:

December 2003: The lawsuit is filed in U.S. District Court in Philadelphia claiming Comcast Corp. engaged in monopolistic and anticompetitive behavior in the Philadelphia-area TV market.

May 2007: Judge John R. Padova certifies Philadelphia-area Comcast cable-TV customers as a potentially harmed class.

February 2009: Comcast asks Padova to reconsider the class certification because of new legal standards. Padova agrees.

April 2009: Plaintiffs file to recertify the class in Padova's court.

January 2010: Padova recertifies the class.

June 2010: Comcast appeals Padova's decision to the U.S. Court of Appeals for the Third Circuit. The court affirms Padova's decision.

June 12, 2012: Comcast tentatively settles the case. Financial terms sealed. Plaintiffs say in court documents that damages could be $875 million.

June 25, 2012: Supreme Court agrees to hear Comcast's appeal of the Third Circuit decision. Comcast says the settlement is not final and should not be enforced. Padova agrees.

November 2012: Comcast

and plaintiffs argue at the Supreme Court.

March 28, 2013: Supreme Court overturns the class certification, saying the damages must be more narrowly defined.

SOURCE: Court documents

Contact Bob Fernandez

at 215-854-5897 or or follow on Twitter @bobfernandez1.

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