Document ID: A:\NBC2.TXT UNITED STATES OF AMERICA, Plaintiff, v. NATIONAL BROADCASTING COMPANY, INC., Defendant Civil No. 74-3601-RJK UNITED STATES DISTRICT COURT FOR THE CENTRAL DISTRICT OF CALIFORNIA 449 F. Supp. 1127; 3 Media L. Rep. 1753; 1978-1 Trade Cas. (CCH) P61,842 January 26, 1978 JUDGES: Kelleher OPINIONBY: KELLEHER OPINION: [*1128] MEMORANDUM OF DECISION RE CONSENT DECREE I. Introduction The government's complaint against National Broadcasting Company ("NBC"), [*1129] all rious stages of discovery and pretrial motions. On November 17, 1976, presumably upon the all claims between the parties and concludes the litigation. Because this is a civil antitrust lawsuit brought by the United States, the terms and c d consent judgment and receive public comments thereto and that before the Court may appro o aid in its determination of the public interest question. The proposed consent judgment and the competitive impact statement ("CIS") were publish es, California. Thereafter the Court and the government received numerous comments on the ments received, certain changes were made in the proposed judgment, and on May 4, 1977, NB blic comments have been satisfied, the matter is ripe for a judicial determination of whet II. Background and Complaint This litigation was commenced by the government in April of 1972 when it filed separate f with certain orders of Court, the Court, on November 13, 1974, dismissed the original ac the original complaint. These new complaints survived a repeated defense motion to dismi ant motions made on behalf of the defendants: (1) a motion for summary judgment on the She ice or to stay on the ground of primary jurisdiction in the Federal Communications Commiss The complaint alleges violations of @@ 1 and 2 of the Sherman Act, 15 U.S.C. @@ 1 and 2 enges the control exerted by NBC over the production, acquisition and exhibition of televi manner in which NBC procures and exhibits its prime-time television programming. Of approximately 700 television stations in the United States which broadcast commercia their television programs. In [*1130] addition to the affiliated stations, NBC owns with the power derived from its control over the owned and affiliated stations, NBC has mo into combinations and agreements in restraint of trade, particularly as it contracts for Most of the programs shown on the NBC network have been produced either by NBC itself o tom of purchasing from independent program producers various rights in addition to the rig may be distributed to individual television stations for non-network broadcast. It also stations for non-network broadcasting is known as syndication. The government contends t mate profits produced by a television program. The government contends that NBC is able t pursue the same practice, independent program producers must deal on network terms or not The complaint also focuses on the relationship between NBC and advertisers. At one time ppliers for broadcast during such air time. The advertisers thus constituted a substantia ertisers for the exhibition of a television program, but will sell only time for commercia se and sale of television programming and has left the three networks as the primary marke It is charged that in furtherance of this monopoly over the market of television progra (a) excluded television programs in which NBC had no ownership interest from broadcast (b) compelled outside program suppliers to grant to it financial interest in television (c) refused to offer program time to advertisers and other outside program suppliers; (d) controlled the prices paid by NBC for the exhibition rights to motion picture featu (e) as a producer of programs itself, obtained a competitive advantage over other produ It is claimed the effects resulting from these acts are: (a) ownership and control of television programs shown during prime evening hours on th (b) competition in the production, distribution and sale of television programs has bee [*1131] (c) competition in the sale of television programs to NBC by outside program (d) the viewing public has been deprived of the benefits of free and open competition i The complaint prays for the following relief: (1) that NBC be prohibited from obtaining any interest except for the first-run right o (3) that NBC be prohibited from transmitting over its television network any television CBS or ABC networks; and (4) that NBC be prohibited from using its control of access to broadcasting time on the In summary, the complaint focuses on three basic aspects of business within the NBC tel erms of access to the NBC television network; and (c) NBC's production of its own televisi III. Terms of the Consent Judgment Discussion of the terms of the proposed judgment and the relief provided therein follow deration of objections lodged against the judgment. (a) Financial Interests and Syndication Section IV of the proposed judgment prohibits NBC from acquiring syndication and other liers, NBC would be permitted to acquire only the right of first-run exhibition and certai outside source which would earn revenues and profits for NBC beyond the network run of the rmits foreign syndication of NBC-produced programs and certain foreign programs. The relief provided for in this section of the judgment parallels the restrictions plac (b) Internal Production of Programs Section V of the judgment places restrictions on NBC's ability to exhibit on the NBC ne per week in prime-time hours, eight hours per week in daytime hours, and eleven hours per tain the programs from independent program suppliers. This provision does not take effect (c) Terms and Conditions of Program Purchases A substantial portion of the programs exhibited on the NBC network are purchases [*11 independent program suppliers for the purchase of television programming. (d) Subsidiary Rights NBC is prohibited from purchasing or offering to purchase exhibition rights to an indep the program. This prohibition reinforces the restriction on NBC in acquiring syndication (e) NBC Production Facilities For a period of fifteen years, NBC is prohibited from purchasing or offering to purchas by utilizing NBC's production facilities. (f) Facilities, Contracts For a period of fifteen years, NBC is prohibited from contracting with an independent p t the parties at the end of each year may renew the contract for one additional year. Thi will not take effect until similar relief is obtained against CBS and ABC. (g) Reciprocal Dealing To preclude NBC from avoiding the limitation on internal production, this section would ABC on the condition that CBS or ABC purchase similar rights from NBC. This restriction (h) Exclusive Rights This provision of the judgment imposes ceilings on certain exclusive rights that NBC ma (i) Options This provision is designed to restrict NBC's ability to obtain exclusive rights to a pr he production and television exhibition of programs are entered into before the program ha ducer can merely speculate as to the program's popularity and value. This provision prohi ated. If NBC wished to extend its exclusive network exhibition right beyond this initial ights for new agreements with the supplier, the permissible first refusal rights which NBC r better than the supplier's last offer to NBC. This provision takes effect only if simila [*1133] (j) Exclusive Exhibition Rights This provision places limits on the exclusive exhibition rights NBC may acquire from in by which NBC acquired the right to network exhibition. Second, NBC may not obtain more th xhibited on the network. The judgment provides, however, that if NBC has agreed to order bition to be utilized after the above periods of exclusivity. Third, for all other broadc series for the broadcast year for which such series is ordered. (k) Exclusivity in Feature Films This section limits the exclusivity rights NBC may acquire in theatrical feature films. closed circuit television in non-residential hotels, motels, bars, restaurants, and hospi or cassettes. The original proposed judgment filed with the Court in November of 1976 contained a pro r two runs of a feature film and an additional 12 months for each subsequent run. In reco e this provision in its entirety. Thus, the amended judgment contains no provision on excl (1) Options on Pilots This provision places restrictions on NBC's ability to obtain a first-year pick-up opti ost of the pilot development, it is prohibited from acquiring a pick-up option exercisable work's new fall season are generally made in the preceding spring, and for the so-called s exhibition, the judgment requires NBC to release its options to 65 percent of such pilots e sold pilots to NBC subject to an exclusive one-year option to be relieved of that option ar relief is obtained against CBS and ABC. (m) Exclusive Rights to Spinoffs It is not uncommon for one television series to generate other television programs base here the spinoff involves a non-continuing character -- that is, a character who appears i -- NBC is prohibited from obtaining a contractual option in excess of first negotiation a e spinoff with someone else if the terms are equal to or better than the supplier's last o (n) Use of Repeats In addition to the right of exhibition, a television program series also involves repea bition to the same year as that in which the initial episodes of the series are broadcast. as ordered program series episodes for the first year of broadcast, it may purchase rights program series for the first year of broadcast on the NBC network; (3) the limitation on ision would not take effect until similar relief is obtained against CBS and ABC. The remaining sections of the judgment concern miscellaneous matters. Section VIII sets s against either CBS or ABC or decreeing injunctive relief different from that provided in overnment acknowledges that a provision of this type is unusual in an antitrust judgment, all its officers, directors, and appropriate employees and agents, and for ten years to f IV. Objections to the Consent Judgment After the original proposed judgment was published in the Federal Register in November e APPA, a period of at least ninety days was left open for the submission of public commen ce since few interested parties would take the time and amass the resources necessary to f given serious consideration before final approval was given. The interested parties subm embers of the pay cable television industry. A. Objections of Independent Program Suppliers The following independent television producers and suppliers submitted comments in oppo amount Pictures Corporation, Twentieth Century Fox Film Corporation, Warner Brothers, Inc. ommunications Company, Bud Yorkin Productions, MTM Enterprises, MTM Productions, Inc., and The consensual position taken by the independent program producers and suppliers (herei independent suppliers, of course, are the persons and organizations which contract with N any of the rights brought into issue by the judgment, these parties have a substantial and The general position taken by the independent suppliers is that the proposed judgment d parties contend that the proposed judgment provides no meaningful relief from the alleged The following are the specific objections the independent suppliers lodge against the t 1. NBC Internal Production The independent suppliers object to any internal production of television programming b his respect pursuant to the terms of the judgment NBC will be entitled to more hours of pr ne hour of time per week. Under the judgment, NBC will be permitted to expand its interna der to obtain more favorable terms in the purchase of programs from the independent suppli excluding independent program suppliers; the result, in the government's mind, is increas The major film studios also argue that within the limitation of two and a half hours of by the major studios. The major studios argue that unless NBC's ability to make feature f These parties, therefore, urge a total ban on NBC internal production. The position of the independent suppliers is fairly clear -- if NBC is removed entirely verage on the part of NBC to extract favorable terms. The Court has considered whether the presence of NBC as a producer of prime-time televi independent program suppliers' [*1136] contention that NBC should be excluded altogethe 2. Options The terms of the judgment concerning the permissible options NBC may acquire to a progr of telecast, plus options to order episodes for succeeding years. These options may be pu ity or worth. The judgment limits NBC's acquisition of options to four years, with the ri The independent suppliers complain that this provision does not go far enough in curtai on VI(E)(i)] is "substantial," as maintained by the government, or merely cosmetic, as mai ompromise and accept a longer period. One factual dispute arising from these conflicting consequently characterizes a limitation of four years as "substantial" relief. The indep ur years is not at all substantial. The suppliers also complain that NBC's right to reneg The judgment's limitation on options applies only to prime-time programming, prompting however, that the government's inquiry into network practices originally focused only on 3. Exclusivity The independent suppliers complain that the various provisions of the judgment relating inst other prime-time use of a program series for the duration of the agreement between NB in the early evening hours. Secondly, the judgment permits NBC to acquire at least four ye ears of episodes of a program before stripping is possible, for all practical purposes, NB t uses not in excess of three years; the suppliers argue that in the absence of any proof ram supplier for three years from making whatever use he can during non-prime-time for old e judgment if it has agreed to purchase episodes of a program for the first year of broadc The limitations on the acquisition of exclusive rights imposed by the judgment is an at relief and will have a pro-competitive effect within the television programming market. ct NBC has given up virtually nothing in agreeing to the proposed judgment. 4. Parallelism Section VII of the judgment provides that certain key provisions will not take effect u ble to offer suppliers of television programs virtually identical terms and conditions. T ntage with respect to the other television networks by virtue of its agreement to this pro The gist of the independent suppliers' opposition in this regard is that there is no pr as enormous market power not subject to meaningful competition from the other networks or readily apparent from the face of the complaint and the terms of the consent judgment tha objectives. Apparently the government by the three pending lawsuits chose not to challen ise of that individual power and create a situation in which independent program suppliers 5. Exclusive Use of Talent The government has discovered that a new and growing trend among the networks is to acq off" the talent or the property on an independent producer. To "lay off" a talent or pro d, the talent or property reverts back to the network. In this way the network avoids lab cel a program series that has been on the air, the independent producer is precluded from t also correctly notes that when a single network has an exclusive hold on talent or on a ll its scarce air time first with talent and properties to which it holds exclusive contra The independent suppliers oppose entry of the consent judgment on the ground, inter ali such an objection is as follows: "The government considered various ways of limiting NBC's use of these exclusive contracts of this problem was to agree with NBC that further relief under the judgment or by a new a By express stipulation, therefore, the parties have left open the question of future relie B. Objections of CBS and ABC Both CBS and ABC have lodged multi-front attacks on the proposed judgment and strenuous 1. The Proposed Decree is Anticompetitive CBS and ABC contend that rather than fostering competition in the television production shielding them from the rigors of competition, but which makes the market in which such pr (a) Limitation on NBC Production ABC and CBS argue that Section V of the judgment, which limits the amount of television ore, will be to drive up the price of television programming. Moreover, the networks argue t of internal production presently engaged in by NBC, ABC and CBS characterize their fello at a production limitation is particularly inappropriate in light of the shortage of theat es charged by the major film studios for feature films. (b) Restrictions on Terms of Trade ABC and CBS complain that those provisions of the judgment which restrict the rights NB orted by affidavits of an economist and a professor of law, is that restrictions on the ri rks refer to the restriction on the renewal options which NBC can purchase, arguing that t rrent value of those options. CBS and ABC further argue that by shifting the risk of failu uickly the full exploitation value of the program series. CBS and ABC correctly recognize that the judgment is not intended to enhance competitio and independent program suppliers [*1139] designed to afford the suppliers a fair pri by the Court. The government's response is that contrary to the assertions of the other te the terms and conditions upon which it acquires rights in television programs. 2. The Proposed Judgment Establishes a Regulatory Regime that Conflicts with the Regula The FCC has promulgated rules and regulations bearing upon certain matters that are the ory scheme. It is no surprise that ABC and CBS now, again, argue that the relief provided First, ABC and CBS argue that this Court will be placed in the position of overseeing a njunctive relief, to oversee effectuation thereof. This is an unavoidable duty for courts re it is otherwise indicated. In January of 1977 the FCC issued a notice of inquiry into the television industry, ini by the judgment may conflict with the results of that inquiry. Since the FCC inquiry has this judgment and any rules that may materialize from the FCC's investigation. The overl es attending the Court's consideration of the consent decree. Therefore, the exact scope All parties agree that the FCC's recently initiated inquiry into television programming ulations, there indeed is a substantial likelihood that the Commission will engage in furt ed against the networks does not lie within the exclusive or primary jurisdiction of the F with the FCC's regulatory scheme, assuming this judgment is implemented prior to the conc is cognizant of the FCC investigation, and may even wish to take advantage of the experti 3. The Proposed Judgment Undermines NBC's First Amendment Rights ABC and CBS assert, presumably on behalf of NBC, the position that the judgment undermi assert constitutional rights of NBC, it may be observed that the judgment restricts NBC's st Amendment does not shield NBC nor any other television network from the proscriptions o C. Opposition of Pay Cable Television Industry The original proposed judgment submitted to the Court in November, 1976 contained a pro ion of numerous comments from interested parties, the vast majority of which were in oppos elevision. Thus, the judgment does not address the issue of exclusivity as against pay ca The original pay cable provision provided that NBC may acquire exclusive rights to the h showing in addition to the two original showings. The public comment on this provision, a blatantly anticompetitive practice. While the government's original intention in propos he actual effect of the provision would be to establish a controlling standard in the tele Notwithstanding the deletion of the provision, the pay cable parties maintain that the e television stations. The pay cable parties thus urge the government to pursue affirmati y responded to this position. After amending the judgment so as to delete the objectionab is contended by some parties that a new competitive impact statement is required under the equire the submission of multiple competitive impact statements, and the contention of the by the APPA, arguably it is in keeping in spirit with the ACT to require the government to pect to exclusivity and pay cable television. A well-recognized principle of law bearing on the issue raised by the position of the p e industry, it appears that, upon determining that it could not arrive upon a stipulated a pay cable parties. The issue for the Court's determination is whether, in the absence of o satisfy the public interest. D. Objections of Public Interest Groups The only so-called public interest group to file comments with respect to the judgment ) submitted by the government in support of the judgment is insufficient as a matter of la f the CIS are in actuality objections to the form and content of the terms of the judgment e substance of CBS's objection is that in its view the judgment is anti- rather than pro-c The Institute for Public Interest Representation cites various perceived shortcomings i itute's comments and is prepared to defend the CIS as legally sufficient. All of the foregoing issues and conflicting conditions relating thereto have been consi special interest of the respective proponents thereof. None of the proponents strikes the offered a solution that meets "the public interest." The government in its role as protect The government, having expressed its proper prosecutorial prerogative by the filing of e adversary process; and now the adversary parties (NBC and the government) have arrived a That the law looks with favor upon compromise settlements generally is indisputable; th nd contest has occurred at arm's length is, if anything, even more obvious. Embodying thi shing Co. v. U.S., 366 U.S. 683, 81 S. Ct. 1309, 6 L. Ed. 2d 604 (1961). There, in denying [Sound] policy would strongly lead us to decline appellants' invitation to assess the wisd the Government in so acting. Id. at 689, 81 S. Ct. at 1313. See U.S. v. Armour & Co., 402 U.S. 673, 681-82, 91 S. Ct. 1 This standard continues to apply with equal force even after enactment of the Antitrust 394 F. Supp. 29, 41 (W.D.Mo. 1975), aff'd, 534 F.2d 113, 117 (8th Cir. 1976). The [*1142 give substantial consideration to the views of third parties, the secrecy of the negotiati sent Decree Procedures," 73 Col.L.Rev. 594, 597 (1973), observed: Courts, of course, cannot do anything about "the secrecy of the negotiation process its iny, is a decidedly limited power. See United States v. Ward Baking Co., 376 U.S. 327, 84 ecrees are actually negotiated is vested in the executive and legislative branches, not th t be authorized by legislation which is considerably broader in scope than that vested by Courts have long had power, however, . . . to devise and direct appropriate procedures be the best of disinfectants," L. Brandeis, Other People's Money, 92 (1914 ed.), have exer may result from the granting of a formal motion to intervene as a party. Id. at 42-43. [Emphasis supplied.] Adverting specifically to the impact of APPA on the pr We agree, of course, with the statement in the Note [73 Col.L.Rev. 594] that "Most of t stigation [now incorporated in the Antitrust Procedures and Penalties Act], all discretion Id. at 42 n.11 [Emphasis supplied.] On Appeal the Eighth Circuit, addressing its remarks t It is axiomatic that the Attorney General must retain considerable discretion in contro : "[Bad] faith or malfeasance on the part of the Government" in negotiating and accepting 534 F.2d at 117. One of the most thoughtful and thorough treatments to thus far emerge in the post-APPA Co., 406 F. Supp. 713 (D.Mass. 1975): Taken literally, the burden [that APPA places upon a court reviewing a proposed consent rs on the surface. Nor can one overlook the circumstances under which the act was passed, Cong. Rec. S 20862 [*1143] (daily ed. Dec. 9, 1974); BNA Antitrust & Trade Reg. Report N unced expectancy of both congressional committees, the court is adjured to adopt "the leas . Code Cong. & Admin. News 6539. In this situation the court cannot provide the best of a This seems neither improper nor unwise. Fear has been expressed that the act's "elabor trust laws." Handler, Antitrust -- Myth & Reality in an Inflationary Era, 50 N.Y.U.L.Rev. gree that in terms of the important role of the consent decree in antitrust procedure, too Nor do I think Congress had, in fact, any contrary intention. The Senate Judiciary Com nd integral part of antitrust enforcement." S.Rep., ante, at 3, 5. "Obviously, the consen e consent judgment as a substantial antitrust enforcement tool." S.Rep. at 7. "The court hrough the consent decree process." 119 Cong.Rec. 24598 (1973). Id. at 715. [Emphasis supplied.] Turning to the precise standard by which a court is to determine whether or not a parti y of clarificatory case law, Judge Aldrich concluded: It is not the court's duty to determine whether this is the best possible settlement th ieved is within the reaches of public interest. Basically I must look at the overall pict Id. at 716. [Emphasis supplied.] Having adhered to Judge Aldrich's sound advice, and having found that the proposed cons interpreting APPA. First, as in AMPI, all interested persons have been afforded every right and opportunit s Court has denied motions to intervene. Second, as in AMPI, this Court is "satisfied tha ment respecting Congress' intent that courts adopt "the least complicated and least time-c he circumstances." 394 F. Supp. at 35. The legislative history clearly and expressly estab l in H.Rep.No. 93-1463 (1974 U.S. Code Cong. & Admin. News at 6538-39), quoted in 394 F. S ould do, and then abruptly 'knuckled under' . . .", 534 F.2d at 118. In AMPI, as in NBC, " hly significant factor is the degree to which the proposed decree advances and is consiste w York v. U.S., 397 U.S. 248, 90 S. Ct. 1105, 25 L. Ed. 2d 280 (1970). Finally, the Court derives additional confidence from the fact that this is not a case dependent program producers and suppliers) have objected generally on the grounds that the etworks) have urged upon the Court the position that the proposed decree, far from amelior train otherwise healthy competition, see supra at 23-26. In this regard, this Court thus e court need not "require that defendant do everything that opposers may wish. [Defendant From the outset of this action, as in the predecessor actions, this defendant and the o sions, the Court was fairly inundated by defendants with briefs, memoranda, and other lega it the advisory benefits of another body's determination. In each instance the Court was ed, and oriented in the field of communications, particularly with respect to "prime-time" ase and others would have been dismissed or deferred temporarily or indefinitely. The entities objecting to the consent judgment on a jurisdictional basis, primary or ot ntitrust laws even though the ills they attack are, or likely are, remediable by the admin he later case of United States v. National Association of Securities Dealers, Inc., 422 U. ative body having regulatory power over the alleged Sherman Act violations. But that late lers, the Supreme Court found the express authorization under the Investment Company [*1 ntitrust laws and hence expressly authorized acts were deemed immune from antitrust attack for correction of evils condemned under the Communications Act and the antitrust laws. R n regard to the challenged conduct. In our case the FCC has not acted; it has asserted merely its intention to act. But th ed the FCC to action rather than institute the current antitrust actions against the netwo ne if the course adopted by the government is permissible in law. It is; see U.S. v. Amer in district court vacated (Per curiam order in No. 77-1009, D.C.Cir., May 26, 1977), cert The relief provided by the judgment is consistent with the government's general theory tic control of the television industry or for the purpose of fostering competition among t ng used to place independent program producers and suppliers, those who sell television pr d enhance competition in the buying and selling of television programming by imposing on t he enormous market power possessed by NBC, it has been able to deal with the independent s fits and financial rewards that otherwise would flow from an exercise of this power. Acco The Clerk will send, by United States mail, to counsel for the parties a copy of this M DATED: January , 1978. ROBERT J. KELLEHER United States District Judge