While the FCC and cable companies battle over what kind of standard will replace the cable box rental model, some related news broke on Friday: The 2nd Circuit Court of Appeals affirmeda lower court's ruling throwing out an antitrust case against Time Warner Cable (or TWC, now part of Charter) over its set top box rental procedures.The original complaint, filed in 2008 in federal court in Kansas, argued that TWC violated the Sherman Act by "requiring purchasers who bought a package of television channels to lease from Time Warner cable boxes necessary to transmit that programming." The plaintiffs had to plausibly show that the sale of the cable service is conditioned on the box rental, that TWC "uses actual coercion to force buyers to" rent the boxes, that TWC "has sufficient economic power" in the cable market to coerce customers into renting the boxers, that "the tie‐in has anticompetitive effects in the tied market," and that "a not insubstantial amount of interstate commerce is involved in the tied market. "
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In a two to one decision, the judges writing the majority opinion, Ralph Winter and Denny Chen, noted that, for example, "Notably lacking is any allegation that there has ever been separate sales of cable boxes and cable services in the United States, even in markets where cable providers are in competition with each other or with fiber optic cable services that employ different technology." Even if the plaintiffs did not allege this, for-sale boxes have existed in the United States, even if you have to go back a long time.During the analog era, you could go into an electronics store and buy a cable box, but the intended use was to hook them up to a non "cable ready" TV to get basic cable channels. That said, these boxes could be reprogrammed to descramble premium channels and pay-per-view content, which made many of these modified units the backbone of the "black box" market that enabled service theft. Non-cable ready TVs dying off led to the end of the third party box market.The argument that the ability to buy cable modems and avoid rental fees for them was comparable to the set top box issue was also shot down. The majority opinion stated that "a cable box useful to consumers must be provider‐specific, allowing consumers to subscribe to particular packages of programming, while modems, like radios, transmit all available content." As strange as it sounds, the majority were able to rule that based on existing case law, TWC successfully argued that there is no demand for purchases of boxes, which were determined to just be a part of your overall subscription.In his dissent, Judge Christopher Droney cited precedent stating that dismissals of antitrust claims based solely on the complaint itself, which was what happened here, "should be granted very sparingly." Being that TWC does not make the boxes themselves and that plenty of companies could theoretically manufacturer them, "Plaintiffs allege facts plausibly showing that Premium Cable Services and set‐top cable boxes constitute separate products "distinguishable in the eyes of buyers." The existence of CableCARD and devices like Tivo that support it was cited as proof of demand, as was the lack of a rental model in other countries and the sale of cable modems.Of course, this could all be moot soon if a standard for some kind of app-based open delivery system is agreed upon. According to The Hollywood Reporter, "insiders" are expecting to FCC to send out its newest proposal on the cable box issue next week, possibly with a vote to follow at an open meeting on September 29th.