Thompson Everett, Inc. v. National Cable Advertising, L.P.

• Decision Date: 27 June 1995
• Docket Number: No. 94-1656,94-1656
• Citation: 57 F.3d 1317
• Parties: 1995-1 Trade Cases P 71,052, 23 Media L. Rep. 2132 THOMPSON EVERETT, INC., Plaintiff-Appellant, v. NATIONAL CABLE ADVERTISING, L.P.; Cable Networks, Inc.; Cable Media Corporation, Defendants-Appellees.
• Court: U.S. Court of Appeals — Fourth Circuit

Page 1317

57 F.3d 1317

1995-1 Trade Cases P 71,052, 23 Media L. Rep. 2132

THOMPSON EVERETT, INC., Plaintiff-Appellant, v. NATIONAL CABLE ADVERTISING, L.P.; Cable Networks, Inc.;

Cable Media Corporation, Defendants-Appellees.

No. 94-1656.

United States Court of Appeals, Fourth Circuit.

Argued Jan. 31, 1995.

Decided June 27, 1995.

ARGUED: Stephen Earl Baril, Williams, Mullen, Christian & Dobbins, P.C., Richmond, VA, Theodore Voorhees, Jr., Covington & Burling, Washington, DC, for appellant. Yvonne Susan Quinn, Sullivan & Cromwell, New York City, for appellees. ON BRIEF: John J. Walker, III, Williams, Mullen, Christian & Dobbins, P.C., Richmond, VA, for appellant. Richard C. Pepperman, II, Sullivan & Cromwell, New York City, Stephen A. Northup, Robert D. Seabolt, Mays & Valentine, Richmond, VA, for appellee Cable Networks; Charles M. Allen, Jr., Wright, Robinson, McCammon, Osthimer & Tatum, Richmond, VA, Daniel G. Swanson, Julia A. Dahlberg, Gibson, Dunn & Crutcher, Washington, DC, for appellee National Cable Advertising; Thomas E. Spahn, McGuire, Woods, Battle & Boothe, Richmond, VA, Gerald J. Fields, Raymond J. Soffientini, Stewart Klein, Battle Fowler, New York City, for appellee Cable Media.

Before NIEMEYER and MICHAEL, Circuit Judges, and PHILLIPS, Senior Circuit Judge.

Affirmed by published opinion. Judge NIEMEYER wrote the opinion, in which Judge MICHAEL and Senior Judge PHILLIPS joined.

OPINION

NIEMEYER, Circuit Judge:

Thompson Everett, Inc., a self-styled "independent cable television representative firm" engaged in placing "spot" advertising on cable television, contends that it is being illegally denied access to cable television companies and the "opportunity to earn rep commissions" in connection with the sale of cable air time for spot advertising. Thompson Everett has sued the traditional cable representatives (referred to as "traditional cable reps") who have exclusive representation contracts with cable television companies, alleging that the traditional cable reps are interpreting and enforcing their exclusive contracts in a concerted effort to exclude Thompson Everett from the "cable rep" business and the commissions flowing from that business. Thompson Everett contends that the traditional cable reps' conduct violates sections 1 and 2 of the Sherman Act (declaring restraints of trade and monopolization illegal), Virginia's antitrust laws, and related common law.

The district court granted the defendants' motion for summary judgment on the antitrust claims, concluding that Thompson Everett failed to present evidence sufficient to show that it suffered an "antitrust injury" and to establish a horizontal conspiracy among defendants to use their exclusive representative agreements to injure Thompson Everett. The district court also concluded that the exclusive agreements did not have a substantial anti-competitive effect. It dismissed the remaining claims on the ground that the defendants acted properly and in good faith in protecting their contractual rights under the exclusive cable company representation contracts.

Because we conclude that Thompson Everett, if injured at all, has not been injured by anything forbidden by the antitrust laws, we affirm.

I

Defendants National Cable Advertising, L.P., Cable Networks, Inc., and Cable Media Corporation are "traditional cable reps" retained by cable television companies to serve as their sales agents to sell cable air time to advertisers for spot advertising. ¹ The traditional cable reps' sole function is to represent cable companies to obtain for them the greatest possible advertising revenues. The traditional cable reps compete with each other for the right to represent cable companies and for the contracts by which the cable companies grant the exclusive right to represent them. These contracts are of short duration, often about one year, and when they expire, the traditional cable reps then compete for new contracts. As a result of this competition, cable companies are represented by various cable reps and the commissions for representation have declined. Recent years' commission rates have dropped from about 28% of spot time billings to a general range of 20% to 22%, and new contracts are being signed for as low as 15% of billings. Both the cable companies and the traditional cable reps claim that these exclusive contracts have a legitimate business purpose. The cable companies contend that they need a loyal, skilled sales staff, dedicated to furthering the cable companies' interests in developing advertising revenue from the sale of air time.

By employing exclusive contracts, the cable companies contend, they establish an ongoing relationship with the traditional cable reps so that the reps may work against sales quotas and focus their attention on securing the best available rates for the cable companies and on chasing limited advertising dollars in competition with other media. The traditional cable reps similarly maintain that exclusive contracts are necessary to protect their considerable investments in market and demographic research and technological innovation. They contend also that exclusive contracts provide financial stability, enabling them to invest in training a larger and more skilled sales staff.

Under these exclusive representation contracts, the traditional cable reps are compensated only through commissions on sales of spot air time to advertisers or advertising agencies. Absent an exclusive agreement, they argue, their effort would be undermined by "free riders" who could take advantage of the traditional cable reps' efforts in generating sales without making any of the necessary investment.

Thompson Everett is a Virginia corporation formed in 1984 for the purpose of "conducting both a general advertising agency business and representing agencies in their placement of advertising in various media." It claims that it is "independent" in that neither advertising interests nor cable companies own its stock. Its goal, similar to that of media buyers hired by advertisers to place their advertisements in the media, is to negotiate the cheapest price for the most air time or media exposure. On behalf of its clients, advertisers or advertising agencies, Thompson Everett aims to place advertising not only on cable television, but also in other media such as network and local broadcast television, network cable television, radio, or printed media, whichever is most consistent with its clients' needs and desires.

When dealing with cable companies, Thompson Everett typically attempts to bypass the traditional cable reps and deal directly with the cable companies, using the leverage of its collective representation of numerous advertisers and advertising agencies in its negotiations. When successful, Thompson Everett demands receipt of the commissions that otherwise would be paid to the traditional cable reps. If the cable company declines to pay Thompson Everett a commission or pays a commission which Thompson Everett considers to be inadequate, Thompson Everett "creates" a commission for itself through a practice referred to as "popping the advertiser." Under this practice, Thompson Everett negotiates a rate with the cable company that is below the amount budgeted by the advertiser for the spot time, but it informs the advertiser that the cable company would only agree to sell at the budgeted amount and retains the difference as its commission.

Thus, even though Thompson Everett has dealt directly with cable companies and has received commissions from them for selling their air time, its efforts and loyalties are always tied to the advertisers and advertising agencies. Unlike the traditional cable reps, who seek to maximize the cable company's revenue from the sale of spot air time, Thompson Everett seeks to minimize that amount in its representation of advertising interests. For that reason, Thompson Everett readily acknowledges, it cannot sign exclusive cable rep contracts with the cable companies. ²

Neither Thompson Everett nor the traditional cable reps buy cable air time on their own account and then resell it. Rather, they act as agents, performing the service of negotiating a price for cable air time on behalf of their clients. The traditional cable reps represent only the interests of cable companies, seeking to sell cable company air time in competition with other media. Much like a real estate broker representing the seller in a real estate transaction, these traditional cable reps negotiate the best rate obtainable for acceptance by the cable company. Thompson Everett, on the other hand, serves in the transaction in a position analogous to the buyer's real estate broker, representing the potential buyer of cable air time. While the buyer's agent may consider cable air time for its clients' advertising, it may also consider other media. Thompson Everett maintains that even from its position as the buyer's agent in the transaction, it can provide the same service provided by the traditional cable reps to the cable companies without the cable companies' need to engage a traditional cable rep as an intermediary.

Troubled by Thompson Everett's disregard for their exclusive cable rep contracts, the traditional cable reps began to insist on their contractual rights of exclusive representation, advising cable companies that only the cable reps were contractually entitled to represent the cable companies and to receive commissions. In response, Thompson Everett filed this action.

In its complaint, Thompson Everett claims that the traditional cable reps are acting in concert in using their exclusive contracts to exclude Thompson Everett from the cable rep market and to drive Thompson Everett out of business. Thompson Everett alleges that the traditional cable reps entered into a horizontal conspiracy with each other and a vertical conspiracy with the cable companies to use their exclusive contracts for the...