Morrison v. Viacom, Inc.

• Decision Date: 01 September 1998
• Docket Number: No. A081569,A081569
• Citation: 66 Cal.App.4th 534,78 Cal.Rptr.2d 133
• Court: California Court of Appeals Court of Appeals
• Parties: , 1998-2 Trade Cases P 72,270, 98 Cal. Daily Op. Serv. 6906, 98 Daily Journal D.A.R. 9505 Christopher MORRISON et al., Plaintiffs and Appellants, v. VIACOM, INC., Defendant and Respondent.

Page 133

78 Cal.Rptr.2d 133

66 Cal.App.4th 534, 1998-2 Trade Cases P 72,270,

98 Cal. Daily Op. Serv. 6906,

98 Daily Journal D.A.R. 9505

Christopher MORRISON et al., Plaintiffs and Appellants, v. VIACOM, INC., Defendant and Respondent.

No. A081569.

Court of Appeal, First District, Division 2, California.

Sept. 1, 1998.

Review Denied Nov. 18, 1998.

Joseph M. Alioto, John H. Boone, San Francisco, Michael E. Dietrick, San Rafael, Jon P. Rankin, Tiburon, for Plaintiffs and Appellants.

James E. Lyons, Skadden, Arps, Slate, Meagher & Flom, Palo Alto, for Defendant and Respondent.

HAERLE, Associate Justice.

I. INTRODUCTION

This is the second appeal in this antitrust action against Viacom, Inc., a supplier of cable television, by several of Viacom's customers. In the first appeal, we held that the superior court erroneously sustained a demurrer to appellants' complaint because the antitrust claims alleged therein were only partially preempted by federal law regulating the cable industry. (Morrison v. Viacom, Inc. (1997) 52 Cal.App.4th 1514, 61 Cal.Rptr.2d 544 (Morrison I ).)

After our ruling in Morrison I, the superior court sustained Viacom's motion for judgment on the pleadings on the ground appellants' original complaint, filed September 22, 1994, failed to allege a cause of action under the Cartwright Act. Thereafter, the trial court sustained a demurrer to the first amended complaint, filed August 29, 1997, on the same ground. In this appeal, appellants contend they have alleged sufficient facts to support their claim that Viacom's business practices constitute illegal tying, a per se violation of both section 16720 and 16727 of the Cartwright Act. (Bus. & Prof.Code, §§ 16720, 16727.) Alternatively, appellants argue the trial court abused its discretion by denying them leave to amend. We affirm.

II. FACTS AND PROCEDURAL BACKGROUND

The first amended complaint alleges that appellants represent a class consisting of persons living in Marin, San Francisco and several East Bay communities who have purchased cable television from Viacom during the four-year period prior to the filing of the original complaint. Appellants contend Viacom has compelled members of the alleged class to participate in an illegal tying arrangement which has restrained trade "in the market for providing local broadcast television."

The "arrangement" appellants challenge is Viacom's organization of the cable channels it sells to its customers into three categories and its requirement that customers pay for certain categories to obtain access to others. According to appellants, Viacom has divided the channels into the following three categories: (1) broadcast channels, consisting of local television channels concurrently available over the noncable airwaves without charge, such as KGO, KPIX and KRON; (2) satellite cable channels, consisting of geographically remote broadcast television channels and nonbroadcast channels such as CNN and ESPN; and (3) premium channels, consisting of nonbroadcast channels such as HBO and Showtime.

The first amended complaint alleges that Viacom requires that a customer must purchase broadcast channels as a prerequisite for purchasing satellite cable channels and that he or she must purchase both broadcast channels and satellite cable channels in order to purchase premium channels. According to appellants these alleged requirements constitute a per se illegal tying arrangement; they claim Viacom has violated our state antitrust laws by illegally tying the sale of satellite channels to the sale of broadcast channels and the sale of premium channels to the sale of both broadcast and satellite channels. ¹

Appellants allege that they are unwilling co-conspirators "coerced" by Viacom to participate in its illegal conspiracy to "boycott competing sources of television channels and to refuse to do business with entities providing other access to television channels." They claim they have suffered damage from the conspiracy because they were forced to purchase broadcast channels from Viacom even though (1) broadcast channels were "readily available ... without charge over the airwaves," and (2) airwave reception of the broadcast channels interfered with cable reception of the broadcast channels and produced "multiple, 'ghost' images and otherwise impaired the reception of the broadcast channels."

The first amended complaint alleges that, if not for Viacom's tying arrangement, appellants would not have purchased broadcast channels from Viacom or any other cable company and that "[b]ut for the illegal tying arrangement alleged herein, [appellants] would have purchased television reception equipment and secured their television channels from competitors of [Viacom] thereby saving money."

On December 1, 1997, the superior court sustained Viacom's demurrer to the first amended complaint and denied appellants leave to amend. The basis for the lower court's order is readily discernible from the detailed tentative rulings it issued in this case. The court reasoned that appellants failed to state a claim under section 16727 of the Cartwright Act (Bus. & Prof.Code, § 16727 (hereafter § 16727)) because that provision does not apply when the alleged "tying" item is a service. Nor did appellants allege sufficient facts to constitute a violation of section 16720 of the Cartwright Act (Bus. & Prof.Code, § 16720 (hereafter § 16720)) because they failed to allege an adverse impact on competition in the tied product market or injury resulting from a restraint on competition in that market.

Judgment was entered on January 2, 1998, and, on January 30, 1998, appellants filed this timely appeal.

III. DISCUSSION

Appellants contend they have adequately alleged facts to show that Viacom's tiering practice is a tying arrangement which constitutes a per se violation of sections 16720 and 16727. "When reviewing a judgment based on an order sustaining a demurrer without leave to amend, we accept as accurate the factual allegations of appellants' complaint. [Citation.] If the complaint states a cause of action, the judgment must be reversed. [Citation.]" (Morrison I, supra, 52 Cal.App.4th at p. 1519, 61 Cal.Rptr.2d 544.)

A. Tying May Constitute a Per Se Violation of the Cartwright Act

The Cartwright Act prohibits combinations in restraint of trade. (Bert G. Gianelli Distributing Co. v. Beck & Co. (1985) 172 Cal.App.3d 1020, 1042, 219 Cal.Rptr. 203; Suburban Mobile Homes, Inc. v. AMFAC Communities, Inc. (1980) 101 Cal.App.3d 532, 541, 161 Cal.Rptr. 811 (Suburban Mobile Homes.)) Although the statutory language is all-encompassing, the courts have limited the Cartwright Act's reach to unreasonable restraints. Certain restraints which lack redeeming virtue are conclusively presumed to be unreasonable and illegal. Under certain conditions, which appellants have attempted to allege, tying constitutes such a per se illegal practice. (Corwin v. Los Angeles Newspaper Service Bureau, Inc. (1971) 4 Cal.3d 842, 853, 94 Cal.Rptr. 785, 484 P.2d 953; Suburban Mobile Homes, supra, 101 Cal.App.3d at pp. 541-542, 161 Cal.Rptr. 811.)

A tying arrangement is "a requirement that a buyer purchase one product or service as a condition of the purchase of another. [Citation.] Traditionally the product which is the inducement for the arrangement is called the 'tying product' and the product or service that the buyer is required to purchase is the 'tied product.' " (Classen v. Weller (1983) 145 Cal.App.3d 27, 36, 192 Cal.Rptr. 914.) A tying arrangement may be condemned under either or both section 16720 and section 16727.

Section 16720 defines a trust as "a combination of capital, skill or acts by two or more persons" for the purpose of restraining trade. Except as expressly provided in the Cartwright Act, "every trust is unlawful, against public policy and void." (Bus. & Prof.Code, § 16726.) Federal law interpreting Sherman Antitrust Act section 1 (15 U.S.C. § 1) is useful when addressing issues arising under section 16720. (State of California ex rel. Van de Kamp v. Texaco, Inc. (1988) 46 Cal.3d 1147, 1164, 252 Cal.Rptr. 221, 762 P.2d 385, superseded by statute on other grounds as stated in Stop Youth Addiction, Inc. v. Lucky Stores, Inc. (1998) 17 Cal.4th 553, 570, 71 Cal.Rptr.2d 731, 950 P.2d 1086; Biljac Associates v. First Interstate Bank (1990) 218 Cal.App.3d 1410, 1420-1421, 267 Cal.Rptr. 819.). ²

Section 16727 provides that it is unlawful for any person to sell or contract "for the sale of goods, merchandise, machinery, supplies, commodities ... on the condition, agreement or understanding that the ... purchaser thereof shall not use or deal in the goods, merchandise, machinery, supplies, commodities, or services of a competitor or competitors of the ... seller, where the effect ... may be to substantially lessen competition or tend to create a monopoly in any line of trade or commerce in any section of the State." Section 16727, added to the Cartwright Act in 1961, was patterned after section 3 of the federal Clayton Act, and cases interpreting Clayton Act section 3 are applicable when construing section 16727. (Corwin v. Los Angeles Newspaper Service Bureau, Inc., supra, 4 Cal.3d at pp. 852-853, 94 Cal.Rptr. 785, 484 P.2d 953; Chicago Title Ins. Co. v. Great Western Financial Corp. (1968) 69 Cal.2d 305, 315, 70 Cal.Rptr. 849, 444 P.2d 481; Bert G. Gianelli Distributing Co. v. Beck & Co., supra, 172 Cal.App.3d at p. 1050, 219 Cal.Rptr. 203.)

The elements of a per se tying arrangement violative of section 16720 are: "(1) a tying agreement, arrangement or condition existed whereby the sale of the tying product was linked to the sale of the tied product or service; (2) the party had sufficient economic power in the tying market to coerce the purchase of the tied product; (3) a substantial amount of sale was affected in the tied product; and (4) the complaining party sustained pecuniary loss as a consequence of the unlawful act. [Citations.]"...