FOR PUBLICATION
UNITED STATES COURT OF APPEALS
FOR THE NINTH CIRCUIT
ROB BRANTLEY, DARRYN COOKE,
WILLIAM and BEVERLEY COSTLEY,
PETER G. HARRIS, CHRISTIANA
HILLS, MICHAEL B. KOVAC,
MICHELLE NAVARRETTE, JOY
PSACHIE and JOSEPH VRANICH,
individually and on behalf of all
others similarly situated,
Plaintiffs-Appellants, No. 09-56785
v. D.C. No.
NBC UNIVERSAL, INC., VIACOM CV 07-6101 CAS
INC., THE WALT DISNEY COMPANY, VBK
FOX ENTERTAINMENT GROUP, INC., OPINION
TIME WARNER INC., TIME WARNER
CABLE INC., COMCAST CORPORATION,
COMCAST CABLE COMMUNICATIONS,
LLC, COXCOM, INC., THE DIRECTV
GROUP, INC., ECHOSTAR SATELLITE
L.L.C., and CABLE VISION SYSTEMS
CORPORATION,
Defendants-Appellees.
Appeal from the United States District Court
for the Central District of California
Christina A. Snyder, District Judge, Presiding
Argued and Submitted
March 7, 2011—Pasadena, California
Filed June 3, 2011
Before: Pamela Ann Rymer, Consuelo M. Callahan, and
Sandra S. Ikuta, Circuit Judges.
7425
7426 BRANTLEY v. NBC UNIVERSAL, INC.
Opinion by Judge Ikuta
7428 BRANTLEY v. NBC UNIVERSAL, INC.
COUNSEL
Maxwell M. Blecher, Esq., Bletcher & Collins, PC, Los
Angeles, California, for plaintiffs-appellants Rob Brantley, et
al.
Glenn D. Pomerantz, Esq., Munger Tolles & Olson LLP, Los
Angeles, California, and Arthur J. Burke, Esq., Davis Polk &
Wardwell LLP, Menlo Park, California, for defendants-
appellees NBC Universal, Inc., et al.
OPINION
IKUTA, Circuit Judge:
This case is a consumer protection class action masquerad-
ing as an antitrust suit. Plaintiffs are a putative class of retail
cable and satellite television subscribers. They brought suit
against television programmers (Programmers)1 and distribu-
tors (Distributors)2 alleging that Programmers’ practice of
selling multi-channel cable packages violates Section 1 of the
1
Programmer Defendants include NBC Universal, Inc., Viacom, Inc.,
The Walt Disney Company, Fox Entertainment Group, Inc., and Turner
Broadcasting System, Inc.
2
Distributor Defendants include Time Warner Cable Inc., Comcast Cor-
poration, Comcast Cable Communications, LLC, CoxCom, Inc., The
DIRECTV Group, Inc., EchoStar Satellite L.L.C., and Cablevision Sys-
tems Corporation.
BRANTLEY v. NBC UNIVERSAL, INC. 7429
Sherman Act, 15 U.S.C. § 1. In essence, these consumers seek
to compel programmers and distributors of television pro-
gramming to sell each cable channel separately, thereby per-
mitting consumers to purchase only those channels that they
wish to purchase, rather than paying for multi-channel bun-
dles, as occurs under current market practice. Plaintiffs appeal
the dismissal with prejudice of their complaint for failure to
state a claim for relief under Section 1 of the Sherman Act.
We affirm.
I
The television programming industry can be divided into
upstream and downstream markets. In the upstream market,
programmers NBC Universal and Fox Entertainment Group
own television programs (such as “Law and Order”) and tele-
vision channels (such as NBC’s Bravo, MSNBC, and Fox
Entertainment Group’s Fox News Channel and FX) and sell
them wholesale to distributors. In the downstream retail mar-
ket, distributors such as Time Warner and Echostar sell the
programming channels to consumers.3
The nucleus of plaintiffs’ claims regarding the nature of the
Programmers’ and Distributors’ alleged antitrust violation has
remained constant throughout the various iterations of their
complaint. According to plaintiffs, Programmers have two
categories of programming channels: “must-have,” high-
demand channels with a large number of viewers, and a group
of less desirable, low-demand channels with low viewership.
Plaintiffs allege that Programmers derive market power from
their “must-have” channels because no Distributor can market
and sell a programming package to consumers without those
channels. Distributors contend that Programmers exploit this
market power by bundling or tying the high and low demand
3
Plaintiffs acknowledge three categories of distributors, namely, cable
providers, satellite providers, and telephone companies. Plaintiffs have
filed suit only against the cable and satellite providers.
7430 BRANTLEY v. NBC UNIVERSAL, INC.
channels together for sale to Distributors, thereby precluding
Distributors from purchasing single “must-have” channels and
(according to plaintiffs) forcing Distributors in turn to sell
only multi-channel packages to consumers. Plaintiffs contend
that in the absence of Programmers’ bundling practices, Dis-
tributors would offer single channels for sale (often referred
to as “a la carte programming”), and consumers could pur-
chase only those channels that they wish to watch. Accord-
ingly, plaintiffs claim, the challenged bundling practice limits
Distributors’ method of doing business and reduces consumer
choice, while raising prices.
Based on these allegations, Plaintiffs claim that the Pro-
grammers and Distributors are in violation of Section 1 of the
Sherman Act. Plaintiffs seek monetary damages under 15
U.S.C. § 15.4 Plaintiffs also seek an injunction to compel Pro-
grammers to make channels available on an individual, non-
bundled basis.
The district court dismissed plaintiffs’ first complaint with-
out prejudice on the ground that plaintiffs failed to show that
their alleged injuries were caused by an injury to competition.
4
Section 15 states in pertinent part:
Except as provided in subsection (b) of this section, any person
who shall be injured in his business or property by reason of any-
thing forbidden in the antitrust laws may sue therefor in any dis-
trict court of the United States in the district in which the
defendant resides or is found or has an agent, without respect to
the amount in controversy, and shall recover threefold the dam-
ages by him sustained, and the cost of suit, including a reasonable
attorney’s fee. The court may award under this section, pursuant
to a motion by such person promptly made, simple interest on
actual damages for the period beginning on the date of service of
such person’s pleading setting forth a claim under the antitrust
laws and ending on the date of judgment, or for any shorter
period therein, if the court finds that the award of such interest
for such period is just in the circumstances.
15 U.S.C. § 15(a).
BRANTLEY v. NBC UNIVERSAL, INC. 7431
In their amended complaint, plaintiffs alleged that Program-
mers’ practice of selling bundled cable channels foreclosed
independent programmers from entering and competing in the
upstream market for programming channels. The district court
subsequently denied defendants’ motion to dismiss, holding
that plaintiffs had adequately pleaded both injury to competi-
tion and antitrust standing.
After preliminary discovery efforts on the question whether
the Programmers’ practices had excluded independent pro-
grammers from the upstream market, the plaintiffs decided to
abandon this approach.5 Pursuant to a stipulation among the
parties, Plaintiffs filed a third amended complaint deleting all
allegations that the Programmers and Distributors’ bundling
practices foreclosed independent programmers from partici-
pating in the upstream market, along with a motion requesting
the court to rule that plaintiffs did not have to allege that
potential competitors were foreclosed from the market in
order to defeat a motion to dismiss. The parties also agreed
that Programmers and Distributors could file a motion to dis-
miss, and that if Programmers and Distributors prevailed, this
third complaint would be dismissed with prejudice. The dis-
trict court entered an order on October 15, 2009 granting Pro-
grammers’ and Distributors’ motion to dismiss the Third
Amended Complaint with prejudice because plaintiffs failed
to allege any cognizable injury to competition. The district
court also denied plaintiffs’ motion to rule on the question
whether allegations of foreclosed competition are required to
state a Section 1 claim. Plaintiffs timely appeal.
II
[1] Section 1 of the Sherman Act prohibits “[e]very con-
5
Programmers and Distributors claim that plaintiffs decided to discon-
tinue discovery after preliminary review showed there was no evidence to
support their claim that the bundling practices foreclosed competitors from
the upstream market.
7432 BRANTLEY v. NBC UNIVERSAL, INC.
tract, combination in the form of trust or otherwise, or con-
spiracy, in restraint of trade or commerce among the several
States.” 15 U.S.C. § 1. While the language of Section 1 could
be interpreted to proscribe all contracts, see, e.g., Bd. of Trade
of City of Chicago v. United States, 246 U.S. 231, 238 (1918),
the Supreme Court has never “taken a literal approach to [its]
language,” Texaco Inc. v. Dagher, 547 U.S. 1, 5 (2006).
Rather, the Court has repeatedly observed that Section 1 “out-
law[s] only unreasonable restraints.” State Oil Co. v. Khan,
522 U.S. 3, 10 (1997).
We generally evaluate whether a practice restrains trade in
violation of Section 1 under the “rule of reason.”6 See Leegin
Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 885
(2007). “In its design and function the rule [of reason] distin-
guishes between restraints with anticompetitive effect that are
harmful to the consumer and restraints stimulating competi-
tion that are in the consumer’s best interest.” Id. at 886. The
parties do not dispute that the rule of reason applies in this
case.
In order to state a Section 1 claim under the rule of reason,
plaintiffs must plead facts which, if true, will prove “(1) a
contract, combination or conspiracy among two or more per-
sons or distinct business entities; (2) by which the persons or
entities intended to harm or restrain trade or commerce among
the several States, or with foreign nations; (3) which actually
injures competition.” Kendall v. Visa U.S.A., Inc., 518 F.3d
1042, 1047 (9th Cir. 2008); see also Oltz v. St. Peter’s Cmty.
Hosp., 861 F.2d 1440, 1445 (9th Cir. 1988) (same). In order
6
The Supreme Court has identified a small number of restraints of trade
“that would always or almost always tend to restrict competition and
decrease output,” see Bus. Elec. Corp v. Sharp Elec. Corp., 485 U.S. 717,
723 (1988) (internal quotation omitted), such as horizontal agreements
among competitors to fix prices, see Texaco, 547 U.S. at 5, or to divide
markets, see Palmer v. BRG of Ga., Inc., 498 U.S. 46, 49-50 (1990) (per
curiam). The Court deems these restraints to be per se unlawful. See Bus.
Elec., 485 U.S. at 723. These practices are not at issue here.
BRANTLEY v. NBC UNIVERSAL, INC. 7433
to establish the third element, plaintiffs must plead an injury
to competition beyond the impact on the plaintiffs themselves.
McGlinchy v. Shell Chem. Co., 845 F.2d 802, 811 (9th Cir.
1988).
In addition to pleading these three elements, an antitrust
plaintiff must also plead facts that if taken as true would allow
plaintiffs to recover for an antitrust injury, which is to say “in-
jury of the type the antitrust laws were intended to prevent
and that flows from that which makes defendants’ acts unlaw-
ful.” Big Bear Lodging Ass’n v. Snow Summit, Inc., 182 F.3d
1096, 1102 (9th Cir. 1999) (internal quotation omitted); see
also Atl. Richfield Co. v. USA Petroleum Co., 495 U.S. 328,
344 (1990) (observing that antitrust injury is distinct from
injury to competition and that “proof of a[n antitrust] viola-
tion and of antitrust injury are distinct matters that must be
shown independently”) (quoting Phillip E. Areeda & Herbert
Hovenkamp, Fundamentals of Antitrust Law ¶ 334.2c, at 330
(1st ed. Supp. 1989)).
Courts have identified two scenarios constituting an injury
to competition for purposes of the third element of a Section
1 claim. First, agreements between competitors to harm or
exclude other competitors (referred to as “horizontal collu-
sion”) are deemed to injure competition because they insulate
the colluding parties from horizontal competition. See F.T.C.
v. Ind. Fed’n of Dentists, 476 U.S. 447 (1986); see also Real-
comp II, Ltd. v. FTC, 635 F.3d 815 (6th Cir. 2011) (holding
that a horizontal agreement among “seven associations of
competing real-estate brokers” relating to a web advertising
policy “unreasonably restrained competition in the market for
the provision of residential real-estate brokerage services.”).
Horizontal collusion is not at issue here.
[2] Second, agreements that foreclose competitors from
entering the market are likewise deemed to injure competi-
tion. See, e.g., Allied Orthopedic Appliances Inc. v. Tyco
Health Care Grp. LP, 592 F.3d 991, 996 n.1 (9th Cir. 2010);
7434 BRANTLEY v. NBC UNIVERSAL, INC.
Oltz, 861 F.2d at 1447. Vertical restraints on trade, i.e., when
a supplier imposes restrictions or limitations on a distributor
(such as vertical price-fixing, territorial restrictions, tying the
sale of two or more goods, and bundling), may constitute this
sort of injury to competition under certain circumstances. A
vertical restraint without more, however, does not constitute
an injury to competition. Austin v. McNamara, 979 F.2d 728,
738 (9th Cir. 1992). A plaintiff alleging that a vertical
restraint results in increased prices or reduced consumer
choice is still required to identify a specific injury to competi-
tion. See Hirsh v. Martindale-Hubbell, Inc., 674 F.2d 1343,
1349 n.19 (9th Cir. 1982) (“[I]ntru[sion] upon consumers’
freedom of choice by compelling the purchase of unwanted
products . . . has been implicitly rejected by the Supreme
Court as a sufficient independent basis for antitrust liabili-
ty.”).
[3] Two types of vertical restraints are potentially at issue
here, tying and bundling. Tying is defined as an arrangement
where a supplier agrees to sell a customer a product, but “only
on the condition that the buyer also purchases a different (or
tied) product, or at least agrees that he will not purchase that
product from any other supplier.” Northern Pac. Ry. Co. v.
United States, 356 U.S. 1, 5-6 (1958). The “tied” product is
typically from a different but interdependent market (i.e.
printer and printer cartridges). Such tying agreements can
constitute an injury to competition when “the seller has mar-
ket power over the tying product,” and the seller “can lever-
age this market power through tying arrangements to exclude
other sellers of the tied product.” Cascade Health Solutions v.
PeaceHealth, 515 F.3d 883, 912 (9th Cir. 2008).7 “Bundling”
7
A tying arrangement may constitute a per se violation of the Sherman
Act if the plaintiff proves “(1) that the defendant tied together the sale of
two distinct products or services; (2) that the defendant possesses enough
economic power in the tying product market to coerce its customers into
purchasing the tied product; and (3) that the tying arrangement affects a
not insubstantial volume of commerce in the tied product market.” Cas-
cade Health Solutions, 515 F.3d at 913 (internal quotation omitted). The
parties do not allege that the bundling practice in this case is a per se anti-
trust violation.
BRANTLEY v. NBC UNIVERSAL, INC. 7435
is defined as “the practice of offering, for a single price, two
or more goods or services that could be sold separately.” Id.
at 884. Bundling can constitute an injury to competition when
a bundler is able to use discounting, for example, to “exclude
rivals who do not sell as great a number of product lines.” Id.
at 897; see id. at 910 (holding, in effect, that to prove that a
bundled discount constituted an antitrust violation, the plain-
tiff must establish that the defendant sold the product below
cost).
III
We consider plaintiffs’ complaint in light of these princi-
ples. We review de novo a district court’s dismissal under
Federal Rule of Civil Procedure 12(b)(6) for failure to state a
claim. Kendall, 518 F.3d at 1046. “In order successfully to
allege injury to competition, a section one claimant may not
merely recite the bare legal conclusion that competition has
been restrained unreasonably.” Lee Shockley Racing, Inc. v.
Nat’l Hot Rod Ass’n, 884 F.2d 504, 507-08 (9th Cir. 1989).
Rather, a claimant must, at a minimum, sketch the outline of
the antitrust violation with allegations of supporting factual
detail. See Rutman Wine Co. v. E. & J. Gallo Winery, 829
F.2d 729, 736 (9th Cir. 1987).
Although plaintiffs’ complaint alleges a type of vertical
restraint imposed by upstream Programmers on downstream
Distributors, plaintiffs disavow any intent to allege that the
practices engaged in by Programmers and Distributors fore-
closed rivals from competing. Nor can we construe the
description of the vertical restraints at issue as alleging this
sort of injury to competition. If the restraint at issue here were
characterized as a tying arrangement, the tying product would
be the “must-have” channels, and the tied product would be
the channels that consumers would not otherwise purchase.
See United States v. Loew’s, Inc., 371 U.S. 38 (1962) (dis-
cussing the block-booking and tying of bad movies to good
movies), abrogated in part by Ill. Tool Works Inc. v. Indep.
7436 BRANTLEY v. NBC UNIVERSAL, INC.
Ink, Inc., 547 U.S. 28 (2006). However, the complaint does
not allege that Programmers’ practice of selling tied “must-
have” and low-demand channels excludes other sellers of
low-demand channels from the market.8 Nor does the com-
plaint allege that the Programmers’ bundling arrangement
prevented any competitors from participating in either the
upstream or downstream market.
Plaintiffs instead present an alternative theory as to how
their complaint adequately alleges injury to competition. Spe-
cifically, they argue that the sale of multi-channel packages
harms consumers by (1) limiting the manner in which Distrib-
utors compete with one another because Distributors are
unable to offer a la carte programming, (2) reducing consumer
choice, and (3) increasing prices. These allegations do not
state a Section 1 claim.
[4] First, limitations on the manner in which Distributors
compete with one another do not, without more, constitute a
cognizable injury to competition. See Bd. of Trade, 246 U.S.
at 238 (“Every agreement concerning trade, every regulation
of trade, restrains. To bind, to restrain, is of their very
essence.”). In Leegin, the Supreme Court made clear that even
in the face of clear limitations on distributors’ ability to com-
pete, proof of competitive harm is required to state a cogniza-
ble antitrust claim. 551 U.S. at 898; see also Loew’s, 371 U.S.
at 44-45 (holding that tying agreements “are an object of anti-
trust concern for two reasons—they may force buyers into
giving up the purchase of substitutes for the tied product, and
they may destroy the free access of competing suppliers of the
tied product to the consuming market”) (citations omitted).
Plaintiffs do not identify such harm here.
[5] Nor do allegations regarding harm to consumers, either
in the form of reduced choice or increased prices, state a Sec-
8
Thus, there is effectively “zero foreclosure” of competitors. Blough v.
Holland Realty, Inc., 574 F.3d 1084, 1090-91 (9th Cir. 2009).
BRANTLEY v. NBC UNIVERSAL, INC. 7437
tion 1 claim. The Supreme Court has noted that both are
“fully consistent with a free, competitive market,” Ill. Tool,
547 U.S. at 44-45, and are therefore insufficient to establish
an injury to competition. Thus even vertical agreements that
prohibit retail price reductions and result in higher consumer
prices, commonly referred to as resale price maintenance, are
not unlawful absent a further showing of anticompetitive con-
duct. See Leegin, 551 U.S. at 897. We have drawn the same
conclusion. See Forsyth v. Humana, Inc., 114 F.3d 1467,
1477-78 (9th Cir. 1997) (holding that a kick-back scheme that
raised prices in violation of ERISA did not violate the anti-
trust laws because it did not restrain competition).
[6] Here, the complaint’s allegations of reduced choice and
increased prices address only the element of antitrust injury
(whether the consumers have standing because they suffered
the sort of injury that flows from an antitrust violation), not
whether the plaintiffs have satisfied the pleading standard for
an actual violation.9 Although plaintiffs may be required to
purchase bundles that include unwanted channels in lieu of
purchasing individual cable channels, antitrust law recognizes
the ability of businesses to choose the manner in which they
do business absent an injury to competition. Pac. Bell Tel. Co.
v. Linkline Commc’ns, Inc., 129 S. Ct. 1109, 1118 (2009).
Plaintiffs’ reliance on Loew’s, 371 U.S. 38, to support their
argument that conduct that reduces consumer choice is suffi-
cient to state an antitrust claim is unavailing. In Loew’s, the
United States brought antitrust actions against six major film
9
Plaintiffs claim that Theme Promotions, Inc. v. News America Market-
ing FSI, 546 F.3d 991, 1004 (9th Cir. 2008), supports their argument that
reduced consumer choice and increased prices is sufficient to establish an
injury to competition. Plaintiffs are mistaken: Theme Promotions held
only that such injuries established an antitrust violation, not that they con-
stituted an injury to competition. Rather, the defendants’ right of first
refusal agreements, which had “foreclosed competition in a substantial
share of the market,” caused the injury to competition in that case. Id. at
1001-03. Theme Promotions is therefore inapposite.
7438 BRANTLEY v. NBC UNIVERSAL, INC.
distributors, alleging that the defendants had conditioned the
license or sale of one or more feature films upon the accep-
tance by television stations of a package or block containing
one or more unwanted or inferior films. Id. at 40. The Court
observed that the restraint was an antitrust violation where the
movie studios’s block booking forced the television stations
to forego purchases of movies from other distributors. Id. at
49. Thus, the injury in Loew’s was to competition, not to the
ultimate consumers.10
[7] Finally, we address plaintiffs’ contention that because
most or all Programmers and Distributors engage in this bun-
dling practice, we should hold that in the aggregate, the prac-
tice constitutes an injury to competition. Certainly
circumstances might arise in which competition was injured
or reduced due to a widely applied practice that harms con-
sumers. See Leegin, 551 U.S. at 897 (indicating that vertical
restraints, such as resale price maintenance, “should be sub-
ject to more careful scrutiny” if the practice is adopted by
many competitors). But the plaintiffs here have not explained
how competition (rather than consumers) was injured by the
widespread bundling practice. The complaint included no
allegations that Programmers’ sale of cable channels in bun-
dles has any effect on other programmers’ efforts to produce
competitive programming channels or on distributors’ compe-
tition on cost and quality of service. In the absence of any
allegation of injury to competition, as opposed to injuries to
consumers, we conclude that plaintiffs have failed to state a
claim for an antitrust violation. See also Abcor Corp. v. AM
Int’l, Inc., 916 F.2d 924, 930-31 (4th Cir. 1990) (finding that
aggregating a defendant’s acts, none of which was anticompe-
titive individually, did not demonstrate an antitrust violation).
10
Plaintiffs also cite Ross v. Bank of America, N.A. (USA), 524 F.3d 217
(2d Cir. 2008), for the proposition that reduced choice and increased
prices are adequate to state a Section 1 claim, but that case is inapposite
because it involved allegations of horizontal collusion, a fact not alleged
by the Plaintiffs in this case, and pertained to standing. See id. at 223, 225.
BRANTLEY v. NBC UNIVERSAL, INC. 7439
AFFIRMED.