Time Warner Cable v. Doyle

• Citation: 66 F.3d 867
• Decision Date: 22 September 1994
• Docket Number: No. 94-1894,94-1894
• Parties: TIME WARNER CABLE, a division of Time Warner Entertainment Company, L.P., Plaintiff-Appellant, v. James E. DOYLE, in his capacity as Attorney General of the State of Wisconsin, and Alan T. Tracy, in his capacity as Secretary of the Wisconsin Department of Agriculture, Trade and Consumer Protection, Defendants-Appellees.
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)

Page 867

66 F.3d 867

TIME WARNER CABLE, a division of Time Warner Entertainment Company, L.P., Plaintiff-Appellant, v. James E. DOYLE, in his capacity as Attorney General of the State of Wisconsin, and Alan T. Tracy, in his capacity as Secretary of the Wisconsin Department of Agriculture, Trade and Consumer Protection, Defendants-Appellees.

No. 94-1894.

United States Court of Appeals Seventh Circuit.

Argued Sept. 22,1994. ^*

Decided Sept. 25, 1995.

Robert D. Joffe, Stephen S. Madsen, Eric H. Jaso, Stuart W. Gold (argued), Cravath, Swaine & Moore, New York City, Robert H. Friebert, Friebert, Finerty & St. John, Milwaukee, WI, for plaintiff-appellant Time Warner Cable, a division of Time Warner Entertainment Company, L.P.

James D. Jeffries, Assistant Attorney General, Bruce A. Craig (argued), Office of Attorney General, Wisconsin Department of Justice, Madison, WI, for defendant-appellee James E. Doyle, in his capacity as Attorney General of the State of Wisconsin.

Charles D. Hoornstra, Assistant Attorney General, Office of Attorney General, Wisconsin Department of Justice, Madison, WI, for defendant-appellee Alan T. Tracy, in his capacity as Secretary of the Wisconsin Department of Agriculture, Trade and Consumer Protection.

Charles G. Fergus, Office of Attorney General, Chicago, IL, for amicus curiae State of Illinois.

Jack A. Norris, Todd I. Stone, Office of Attorney General, Hollywood, FL, for amicus curiae Multi-State Cable Task Force.

Daniel M. Armstrong, William Kennard, Federal Communications Commission, Washington, DC, for amicus curiae Federal Communications Commission.

Before FERGUSON, ^** RIPPLE and ROVNER, Circuit Judges.

RIPPLE, Circuit Judge.

In this appeal, we are asked to determine whether the State of Wisconsin's prohibition of certain negative option billing practices of Time Warner Cable ("Time Warner") is preempted by the federal regulatory scheme. The district court entered judgment in favor of the State. It held that the applicable state statute, Wis.Stat. Sec. 100.20, was not preempted by the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), 47 U.S.C. Secs. 521-559, and that it would contravene the congressional intent to read FCC regulation 47 C.F.R. Sec. 76.981 as authorizing Time Warner's disputed billing practices. For the reasons that follow, we reverse the judgment of the district court.

I BACKGROUND

A. Facts

Time Warner Cable, a division of Time Warner Entertainment Company, operates cable television systems in several Wisconsin communities. Prior to September 1, 1993, Time Warner offered its Wisconsin subscribers two types of programming packages, or "tiers." Every subscriber received the "basic" tier. This tier included local network affiliates, a public broadcasting channel, and two "superstation" channels: Chicago-based WGN and Atlanta-based WTBS. Most subscribers also purchased the "standard" tier. Programming offered on this tier included MTV, CNN, ESPN, the USA Network, and the Discovery Channel. Various movie channels could be added for additional fees.

Pursuant to section 3 of the 1992 Cable Act, 47 U.S.C. Sec. 543, the Federal Communications Commission ("FCC" or "Commission") promulgated various cable rate regulations that became effective September 1, 1993. In response to these regulations, Time Warner restructured its service tiers. As of September 1, 1993, Time Warner "unbundled," or removed, WTBS and WGN from its basic tier. In Milwaukee, the company also removed the Discovery Channel and E! Entertainment Television from its standard tier. ¹ Time Warner then began offering the deleted channels on an "a la carte," or per-channel basis. Milwaukee subscribers were offered the four removed channels for $0.79 a month each, or as a package for $2.20 per month.

Time Warner continued to provide the a la carte package to its existing customers. Thus, subscribers received the same number of channels that they had received previously. Time Warner also began charging its existing customers the additional monthly fee for the a la carte package. However, subscribers who had been purchasing both the basic and standard tiers noticed no increase in their monthly bills. Time Warner maintained the pre-September 1, 1993 cost of service by altering the price of its basic and standard tier packages. In Milwaukee, for example, Time Warner raised the price of the basic tier from $10.45 to $11.65 per month and reduced the price of the standard tier from $13.65 to $10.25 per month. Existing subscribers therefore paid $24.10 per month for the basic, standard, and a la carte services ($11.65 + $10.25 + $2.20), just as they previously had paid $24.10 per month ($10.45 + $13.65) for the basic and standard tier services. Thus, following Time Warner's programming restructuring, customers who had been subscribing to both the basic and standard tier packages found themselves paying the same amount per month for the same number of channels. Only the format of the services for which they were paying had changed.

Time Warner notified its existing customers that it had altered the basic and standard tier packages and had created the new a la carte channels. Subscribers were informed that they could cancel the a la carte package at any time. However, Time Warner continued to provide the a la carte package to its existing customers, and continued charging them for this now-separate package, unless they called to cancel. New subscribers did not receive the a la carte channels unless they specifically ordered them.

The State of Wisconsin became concerned about Time Warner's a la carte billing policy. The State believed that, as it related to existing customers, the policy constituted "negative option billing," a practice whereby a company places a charge for an unordered service on customers' bills and requires those who do not want the service affirmatively to reject the charge. Acting through its attorney general, the State brought an enforcement action against Time Warner before the Wisconsin Department of Agriculture, Trade & Consumer Protection. The State contended that Time Warner's method of charging existing customers for the a la carte channels constituted an unfair trade practice in violation of Wis.Stat. Sec. 100.20. ² The State sought an injunction prohibiting Time Warner from charging for an a la carte channel unless the customer specifically requested it. It also sought an order requiring Time Warner to disgorge the income it had earned through the alleged unfair trade practice. Time Warner responded by filing suit in the district court. It sought to enjoin the state administrative proceeding. The parties agreed to stay the state administrative proceeding pending resolution of Time Warner's suit.

B. District Court Proceedings

The district court denied Time Warner's motion for summary judgment and entered judgment in favor of the State. Time Warner Cable v. Doyle, 847 F.Supp. 635 (W.D.Wis.1994). In sum, the district court concluded that, to the extent that the FCC regulation could be read as permitting Time Warner's billing practices, the regulation was in conflict with the statutory language of the 1992 Cable Act. The court further concluded that Wisconsin's regulation of negative option billing did not constitute cable rate regulation. In the following paragraphs, we shall describe the district court's reasoning in more detail.

At the outset, the district court turned to the language of the 1992 Cable Act and observed that it prohibits negative option billing. The pertinent section provides:

(f) Negative Option Billing Prohibited.--A cable operator shall not charge a subscriber for any service or equipment that the subscriber has not affirmatively requested by name. For purposes of this subsection, a subscriber's failure to refuse a cable operator's proposal to provide such service or equipment shall not be deemed to be an affirmative request for such service or equipment.

47 U.S.C. Sec. 543(f). It also noted that the Commission had promulgated a negative option billing regulation, 47 C.F.R. Sec. 76.981, that generally proscribed negative option billing, but carved out an exception in cases involving "the addition or deletion of specific channels from an existing tier of service." At the time of the district court's decision, the regulation stated:

A cable operator shall not charge a subscriber for any service or equipment that the subscriber has not affirmatively requested by name. This provision, however, shall not preclude the addition or deletion of a specific program from a service offering, the addition or deletion of specific channels from an existing tier of service, or the restructuring or division of existing tiers of service that do not result in a fundamental change in the nature of an existing service or tier of service provided that such change is otherwise consistent with applicable regulations. A subscriber's failure to refuse a cable operator's proposal to provide such service or equipment is not an affirmative request for service or equipment. A subscriber's affirmative request for service or equipment may be made orally or in writing.

47 C.F.R. Sec. 76.981 (1993). ³

Time Warner argued that its billing activity fell within the regulatory exception and that, consequently, the FCC's regulation preempted Wisconsin's regulation of the same activity under its unfair trade practices statute. In Time Warner's view, the federal regulation permitted the billing practice as a permissible option and therefore state law that forbade the practice was preempted because it conflicted with the federal scheme. The State's response was two-pronged. It submitted that the federal regulation did not authorize Time Warner's billing practice. In the alternative, it contended that, if the federal regulation did authorize the billing practice, the regulation could not be squared with the language of the federal statute and therefore was...