The opinion of the court was delivered by: MYRON H. THOMPSON
Several cable television companies have brought this lawsuit challenging the legality of two municipal ordinances, 9-90 and 48-90, enacted by the City of Montgomery, Alabama. Plaintiffs Storer Cable Communications, ESPN, Inc., Satellite Services, Inc., and Turner Network Television contend that the ordinances contravene a number of federal constitutional provisions and statutes as well as Alabama law. They seek declaratory, injunctive, and monetary relief. Jurisdiction is premised on federal-question jurisdiction, 28 U.S.C.A. §§ 1331, 1343, and the doctrine of pendent jurisdiction. The defendants are the City of Montgomery and its mayor; the State of Alabama; and Montgomery Cablevision and Entertainment, Inc., a local cable television operator.
This cause is now before the court on the parties' various motions for summary judgment. For the reasons which follow, the motions will be granted in part and denied in part.
In October 1976, the city granted its first cable television franchise, to Storer Cable.
Since obtaining its franchise, Storer Cable has established a cable system in the city and provides cable programming to the city's residents. The company provides "basic" cable programming to subscribers for a monthly fee.
Customers may also select to receive additional programming at extra costs. The basic service includes not only the transmission of local and distant television signals but also special cable programs obtained from various cable television "programmers" such as ESPN and Turner Network. Additionally, Storer Cable purchases some programming through intermediates, such as Satellite Services, who have acquired the distribution rights from the various programmers. Storer Cable obtains much of its cable programming through exclusive contracts. For example, the company has exclusive programming contracts with ESPN (for its NFL Football Package), CNBC, SportSouth, and Turner Network. These contracts provide that Storer Cable has the sole rights to transmit designated programming to Montgomery consumers.
For almost 15 years, Storer Cable was the only cable franchisee in Montgomery. In December of 1989, a number of other local citizens incorporated a new cable company, Montgomery Cablevision, to compete with Storer Cable. In early 1990, Montgomery Cablevision applied to the city for a cable franchise. Eventually, in March of 1990, the company was granted a franchise by the city, but during and directly after the consideration process the city passed the two cable regulations, Ordinances 9-90 and 48-90, which are the subject of this litigation. The relevant texts of the ordinances are set out in the margin below.
Ordinance 9-90 on its face adds to the original anti-price discrimination language of Ordinance 50-76 the following sentence: "In no event shall rates be established so low for any class of subscriber or for any geographic location as to prevent, discourage, restrict, or diminish competition in the furnishing of cable services." The disputed parts of Ordinance 48-90 are §§ 3 through 7. Section 3 appears to be an anti-trust provision and generally prohibits cable television exhibitors, distributors and program suppliers from monopolizing or restraining trade in the area of cable television programming or services and from attempting to do so. Section 4 targets specific types of licensing activity by making it unlawful for cable television exhibitors, distributors and program suppliers to conspire to fix or limit the sale or licensing of cable program material or services, or to discriminate against another grantee with respect to such sales or licensing "where the purpose or effect of such . . . combination . . . is or may be to tend to create a monopoly or to injure, destroy, inhibit, prevent or lessen substantially competition with respect to the provision of cable television service within the City." Section 5 allows the city to terminate the franchise of a grantee should the grantee violate the provisions of ordinance, and § 6 gives injured parties a private right of action for legal and equitable relief. Finally, § 7 of the ordinance provides that, in all actions brought under the ordinance, proof of any one proscribed act creates a presumption that the defendant had the purpose or intent to inhibit, diminish, eliminate, or prevent competition.
In May 1990, prior to the passage of Ordinance 48-90, Montgomery Cablevision wrote to both Turner Network and ESPN demanding that the companies provide it with certain programming which they were licensing to Storer Cable on an exclusive basis in the Montgomery area. Turner Network and ESPN both refused. In September 1990, the plaintiffs--Storer Cable, ESPN, Satellite Services, and Turner Network--brought this lawsuit against the City of Montgomery and its mayor, claiming that the new laws--Ordinances 9-90 and 48-90--violate the United States Constitution, federal law, and Alabama law. Montgomery Cablevision and the State of Alabama intervened as defendants, and Montgomery Cablevision filed a counterclaim charging the plaintiffs with violations of the Sherman Act, 15 U.S.C.A. §§ 1, 2 and Ordinance 48-90 §§ 3, 4. All parties have now moved for summary judgment on most of the issues raised.
Rule 56(c) of the Federal Rules of Civil Procedure provides that summary judgment is appropriate where "there is no genuine issue as to any material fact and . . . the moving party is entitled to a judgment as a matter of law." A district court must consider "all the evidence in the light most favorable to the non-moving party . . . and resolve all reasonable doubts in favor of the non-moving party." Earley v. Champion International Corp., 907 F.2d 1077, 1080 (11th Cir. 1990) (citations omitted).
Although the parties essentially agree on the facts underlying this case, important disputed issues have been raised concerning the two ordinances, namely their intended purpose, their proper interpretation, and their impact on the provision of cable services and programming in Montgomery. These issues are discussed in detail below in relation to the arguments advanced by the parties. For the sake of a general understanding of the dispute, however, a few points will be made at this juncture.
First, the parties disagree over what the city's purposes were in enacting the two ordinances and whether those purposes are legitimate. The plaintiffs point to the circumstances surrounding the enactment of the ordinances, including the city counsel's discussions of the ordinances during their deliberations, as support for their position that the ordinances were passed specifically for the benefit of Montgomery Cablevision--to help the local cable company compete against Storer Cable by negating the latter's competitive advantages. Those advantages would include Storer Cable's exclusive programming licensing arrangements and purported ability to undercut Montgomery Cablevision's pricing. The defendants, in contrast, rely on the ordinances' statements of purpose and general language as support for the contention that the enactments are neither intended to target the plaintiffs per se, nor to benefit Montgomery Cablevision. The defendants maintain that the ordinances' overarching purpose is to benefit the public by promoting competition in the local cable industry by prohibiting anti-competitive practices.
As a second and related matter, the parties disagree as to what conduct the ordinances prohibit. The plaintiffs, in some portions of their briefs, contend that both ordinances are unconstitutionally vague and thus give no reasonable notice of the scope of their prohibitions. Alternatively, the plaintiffs read §§ 3, 4, and 7 of Ordinance 48-90 as combining to require programmers to license their programming to all comers and as banning all exclusive licensing agreements between cable exhibitors and suppliers or distributors for the provision of cable programming, or at least as prohibiting the exclusive agreements between the plaintiffs in this case. The defendants, on the other hand, agree that Ordinance 48-90 bans the agreements at issue, but deny that the ordinance is a per se ban on exclusive licensing. Instead, they contend that the law is akin to an antitrust regulation and prohibits only those arrangements tainted by an anti-competitive purpose or effect.
With regard to Ordinance 9-90, the parties' positions are more in line. The plaintiffs' position is that the ordinance prohibits grantees from decreasing their subscriber rates in the parts of the city where competition is present, thereby mandating that they charge uniform rates throughout the city. More specifically, Storer Cable contends that the two sentences of § 14(3) of the ordinance combine to prevent them from competing on a price basis with Montgomery Cablevision in those areas of the city which both companies serve. The defendants assign to Ordinance 9-90 two operative effects. They maintain that the first sentence of § 14(3) is akin to an "anti-redlining" provision in that it prevents price discrimination among subscribers based on impermissible factors. The second sentence of § 14(3) is, according to the defendants, an antitrust regulation that prohibits predatory pricing, that is, pricing that is temporarily set so low so as to drive a competitor out of business or to discourage a potential competitor to enter the market. The defendants admit that the second sentence of § 14(3) would prohibit not only predatory pricing targeted at a specific geographic area within the city, but also pricing schemes which apply uniformly throughout Montgomery.
Third and finally, the parties sharply disagree as to the effects these ordinances will have on the local cable industry. The plaintiffs take the position that these ordinances will drive Storer Cable from the Montgomery market by systematically crippling its competitive advantages and will discourage programmers from offering their exclusive programs to any exhibitors in Montgomery, lest they be forced under Ordinance 48-90 to supply them to all. According to the defendants, the ordinances will open up the Montgomery cable market to free and vigorous competition by curtailing what they consider to be anti-competitive abuses employed by cable providers who can leverage their market power. The defendants contend that it is these practices--exclusive programming licensing agreements, discriminatory pricing, and predatory pricing--not the ordinances, which will drive enterprising cable providers from the Montgomery market or discourage them from entering the market in the first place.
II. JURISDICTION AND RELATED MATTERS
A. Federal-Question Jurisdiction
Before considering the merits of the claims and defenses presented, the court must determine whether it has subject-matter jurisdiction to hear this action. Although none of the parties has raised the jurisdictional issue, the court must still address it; subject-matter jurisdiction may not be conferred upon a court by consent. Insurance Corp. of Ireland, Ltd. v. Compagnie des Bauxites de Guinee, 456 U.S. 694, 702, 102 S. Ct. 2099, 2104, 72 L. Ed. 2d 492 (1982). Whenever there is an indication that jurisdiction may be lacking, the court must satisfy itself that jurisdiction is proper. Id.
In this case, the plaintiffs contend that various provisions of Ordinances 9-90 and 48-90 contravene the United States Constitution in that they violate the first amendment, the due process and equal protection clauses of the fourteenth amendment, the impairment of the contracts clause, and the commerce clause. The plaintiffs also claim that sections of the ordinances are preempted by the Copyright Act, 17 U.S.C.A. §§ 101, et seq., the Cable Communications Policy Act of 1984, 47 U.S.C. A. §§ 521, et seq., and the Trademark Act, more popularly known as the "Lanham Act," 15 U.S.C.A. §§ 1051, et seq., and that, under Alabama law, the ordinances breach the plaintiffs' franchise agreements with the city, violate state-law prohibitions against the impairment of contracts, and are beyond the scope the city's regulatory authority.
The plaintiffs bring their federal constitutional claims under 42 U.S.C.A. § 1983 and directly under the Constitution and, accordingly, invoke this court's federal-question jurisdiction under 28 U.S.C.A. §§ 1331, 1343. It is well settled that § 1983 provides a cause of action against municipalities for alleged violations of the first amendment, the contracts clause, and both the equal protection and due process clauses. Collins v. City of Harker Heights, U.S. , , 117 L. Ed. 2d 261, 112 S. Ct. 1061, 1065-66 (1992); E & E Hauling, Inc. v. Forest Preserve Dist. of Du Page County, 613 F.2d 675, 678 (7th Cir. 1980). Additionally, the Supreme Court recently held that suits for violations of the commerce clause may also be brought under § 1983, resolving a division of authority on that question. Dennis v. Higgins, 498 U.S. 439, 111 S. Ct. 865, 112 L. Ed. 2d 969 (1991). Therefore, because the plaintiffs' constitutional claims are cognisable under § 1983, jurisdiction under §§ 1331 and 1343 is proper for these claims.
Federal-question jurisdiction over the plaintiffs' preemption claims is also proper, but the route to this conclusion is slightly more circuitous. Ordinarily, federal preemption is a federal defense to a state-law suit, and, as such, it does not create federal-question jurisdiction. Metropolitan Life Ins. Co. v. Taylor, 481 U.S. 58, 63, 107 S. Ct. 1542, 1546, 95 L. Ed. 2d 55 (1987). The plaintiffs seem to be bringing their preemption claims directly under the federal statutes upon whose preemptive force they rely, the Copyright Act, the Cable Act, and the Lanham Act. However, they have not made the argument that these statutes provide private causes of action in federal court--either under the statutes themselves or under § 1983--to enjoin state or local laws claimed to be inconsistent with their provisions. Comfort also cannot be found in the supremacy clause itself, the constitutional provision which underlies all federal preemption controversies, because the supremacy clause does not confer any "right" within the meaning of § 1983. Dennis, U.S. at , 111 S. Ct. at 872; Chapman v. Houston Welfare Rights Org., 441 U.S. 600, 99 S. Ct. 1905, 60 L. Ed. 2d 508 (1979).
However, the Supreme Court has held that federal courts have jurisdiction to entertain suits to enjoin state officials from interfering with federal statutory rights. The Court has written:
"It is beyond dispute that federal courts have jurisdiction over suits to enjoin state officials from interfering with federal rights. Ex parte Young, 209 U.S. 123, 160-62, 28 S. Ct. 441, 454-55, 52 L. Ed. 714 (1908). A plaintiff who seeks injunctive relief from state regulation, on the ground that such regulation is pre-empted by a federal statute which, by virtue of the Supremacy Clause of the Constitution, must prevail, thus presents a federal question which the federal courts have jurisdiction under 28 U.S.C. § 1331 to resolve. . . . This Court, of course, frequently has resolved preemption disputes in a similar jurisdictional posture."
Shaw v. Delta Air Lines, Inc., 463 U.S. 85, 96 n. 14, 103 S. Ct. 2890, 2899, 77 L. Ed. 2d 490 n. 14 (1983) (citations omitted). See also 1 Moore's Federal Practice P 0.65 [2-1] p. 700.93 to 700.94 (1992) ("[Ex Parte Young] can be read, therefore, as standing for the proposition that an action to enjoin an officer from violating the constitution by his official acts states a claim arising under the constitution for the purposes of § 1331"). The Court has also held that, once jurisdiction is properly established over the action for injunctive relief, the separate remedy available through a declaratory judgment may also be asserted before the federal court. Franchise Tax Bd. v. Const. Laborers Vac. Trust, 463 U.S. 1, 20 n. 20, 103 S. Ct. 2841, 2850-51, 77 L. Ed. 2d 420 n. 20 (1983); see also Gay Student Services v. Texas A & M Univ., 612 F.2d 160, 166 (5th Cir.), cert. denied, 449 U.S. 1034, 101 S. Ct. 608, 66 L. Ed. 2d 495 . Interestingly, the Supreme Court in these cases seemed to be operating on the assumption that the plaintiff has a valid federal cause of action, an issue analytically distinct from the issue of jurisdiction, although the Court has never identified the precise source of the plaintiff's claim in these kinds of preemption disputes. Most commentators have concluded that such causes of action arise directly under the Constitution, see, e.g., A. Althouse, When to Believe a Legal Fiction: Federal Interests and the Eleventh Amendment, 40 Hastings L.J. 1123 (1989); 13B C. Wright, Federal Practice & Procedure § 3566 p. 102 (1984) ("The best explanation of Ex Parte Young and its progeny is that the Supremacy Clause creates an implied right of action for injunctive relief against state officers who are threatening to violate the federal constitution or laws"), and at least one court has found that such claims are cognisable under § 1983, Playboy Enterprises v. Public Service Com'n, 906 F.2d 25, 31-33 (1st Cir.), cert. denied, U.S. , 112 L. Ed. 2d 399, 111 S. Ct. 388 (1990). In any event, the Supreme Court has not questioned the propriety of these types of claims even when the federal statute whose preemptive power is at issue cannot be the source of the plaintiff's cause of action. See id.
On the basis of this authority, this court holds that it has subject-matter jurisdiction over all of the plaintiffs' federal claims. Additionally, because the plaintiffs' state-law claims turn on the same set of facts as do the federal claims, the court's pendent jurisdiction has been properly invoked. United Mineworkers v. Gibbs, 383 U.S. 715, 725, 86 S. Ct. 1130, 1138, 16 L. Ed. 2d 218 (1966).
The defendants raise the eleventh amendment as a jurisdictional bar to the plaintiffs' state law grounds for relief. As the defendants correctly note, the eleventh amendment forbids federal courts from entertaining claims predicated on state law when they are brought against the state itself. Pennhurst State School & Hospital v. Halderman, 465 U.S. 89, 104 S. Ct. 900, 79 L. Ed. 2d 67 (1984). However, eleventh-amendment immunity does not apply to municipalities or their officials, such as the City of Montgomery and the city's mayor. Robinson v. Georgia Dept. of Transportation, 966 F.2d 637, 638 (11th Cir. 1992); Schopler v. Bliss, 903 F.2d 1373, 1378 (11th Cir. 1990). Although the State of Alabama has been granted defendant-intervenor status, there is no dispute that the requested relief would run solely against municipal officials and would have no impact on the state itself. See Pennhurst, 465 U.S. at 123-24, 104 S. Ct. at 920-21. For these reasons, the eleventh amendment is no barrier to the plaintiffs' claims.
III. FEDERAL PREEMPTION ISSUES
The general framework for determining whether a federal statutory scheme preempts a state or local law is by now familiar.
"The Supremacy Clause, U.S. Const., Art VI, cl. 2, invalidates state laws that 'interfere with, or are contrary to,' federal law." Hillsborough County, Fla. v. Auto. Med. Labs., 471 U.S. 707, 712-13, 105 S. Ct. 2371, 2375, 85 L. Ed. 2d 714 (1985) (quoting Gibbons v. Ogden, 22 U.S. (9 Wheat.) 1, 211, 6 L. Ed. 23 (1824)). In determining the preemptive scope of a federal law, the court's underlying task is to discern and effectuate Congress's intent. Cipollone v. Liggett Group, Inc., U.S. , 120 L. Ed. 2d 407, 112 S. Ct. 2608, 2617 (1992) ("'the purpose of congress is the ultimate touchstone' of preemption analysis") (quoting Malone v. White Motor Corp., 435 U.S. 497, 504, 98 S. Ct. 1185, 1189, 55 L. Ed. 2d 443 (1978)). The Supreme Court has cautioned, however, that the striking down of state laws on preemption grounds is generally disfavored. "Consideration of issues arising under the Supremacy
Clause 'starts with the assumption that the historic police powers of the States [are] not to be superseded by . . . Federal Act unless that [is] the clear and manifest purpose of Congress.'" Cipollone, U.S. at , 112 S. Ct. at 2617 (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S. Ct. 1146, 1152, 91 L. Ed. 1447 (1947)) (alterations in original). Therefore, courts should proceed on "the conviction that the proper approach is to reconcile the operation of both statutory schemes with one another rather than holding one completely ousted." Merrill Lynch, Pierce Fenner & Smith, Inc. v. Ware, 414 U.S. 117, 127, 94 S. Ct. 383, 389-90, 38 L. Ed. 2d 348 (1973).
The Supreme Court has recognized three circumstances under which a state law will be regarded as having been preempted by federal law. The first is when Congress itself has spoken by providing "express" preemption language. Hillsborough County, 471 U.S. at 713, 105 S. Ct. at 2375. Second, when a statute contains no express preemptive language but the relevant scheme of federal regulation is "so comprehensive as to make reasonable the inference that Congress left no room for the States to supplement it," the court should deem that Congress intended to preempt the whole field of state law by "implication." Rice v. Santa Fe Elevator Corp., 331 U.S. at 230, 67 S. Ct. at 1152; Hillsborough County, 471 U.S. at 713, 105 S. Ct. at 2375. Third and finally, "conflict" preemption occurs when either compliance with both a federal and state regulation is impossible or the state law in question "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." Id. (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 404, 85 L. Ed. 581 (1941)). In such circumstances, the supremacy clause demands that it is the state law which must give way.
A. Copyright Act Preemption
The plaintiffs contend that Ordinance 48-90 deprives them of rights protected by the Copyright Act, 17 U.S.C.A. §§ 101, et seq. They contend that the ordinance is preempted under all three theories of preemption: express, implied, and conflict. The court holds that only § 7 of the ordinance, to the extent the section raises a presumption that exclusive licensing contracts are illegal, is preempted, both expressly by the act's preemption clause and because it irreconcilably conflicts with the federal copyright scheme.
The copyright clause of the United States Constitution,
although giving Congress the power to establish a national copyright scheme and even to occupy the entire copyright field, does not, of its own force, displace state law.
Goldstein v. California, 412 U.S. 546, 559-60, 93 S. Ct. 2303, 2311-12, 37 L. Ed. 2d 163 (1973). Therefore, until the 1976 amendments to the Copyright Act, state-law copyright schemes were permitted. See Id. The 1976 amendments eliminated dual copyright systems and provided for the express preemption of state copyright laws or their equivalents. The current § 301 of the act provides:
17 U.S.C.A. § 301(a).
Section 301 establishes a two-step test for preemption: a state law will be subject to preemption if (1) it creates or grants rights that are "equivalent" to any of the exclusive rights within the general scope of copyright rights granted by § 106 of the Copyright Act, and (2) those rights may be claimed in works which are the subject matter of copyright as set forth in §§ 102 and 103. Crow v. Wainwright, 720 F.2d 1224, 1225 (11th Cir. 1983), cert. denied, 469 U.S. 819, 105 S. Ct. 89, 83 L. Ed. 2d 35 (1984); Allied Artists Pictures Corp. v. Rhodes, 496 F. Supp. 408, 443 (S.D. Ohio 1980), aff'd in part, rem'd in part, 679 F.2d 656 (6th Cir. 1982); 1 Nimmer on Copyright § 1.01[B] at 1-10 (1990). The rights provided to a copyright owner by § 106 are the exclusive rights to do and to authorize (1) the reproduction of the copyrighted work, (2) the preparation of derivative works based on the copyrighted work, (3) the distribution of copies of the copyrighted work to the public by sale or other transfer of ownership or by rental, lease or loan, and (4) the public performance of the copyrighted work, in the case of audiovisual work. Donald Frederick Evans & Assoc., Inc. v. Continental Homes, 785 F.2d 897, 914 (11th Cir. 1986); see also 17 U.S.C.A. § 106. Therefore, a state-law right is equivalent to one of the exclusive copyright rights if it is infringed by the mere act of reproduction, performance, distribution, or display of a work, or preparation of a derivative work, which is within the subject matter of copyright. If other meaningful elements are required to establish a violation of the state-law right, however, then the law is not preempted. Donald Frederick Evans, 785 F.2d at 914.
The most common application of this rule arises when a party is subject to state-created liability simply for making an unsanctioned duplication of another's work product (when that work product, whether copyrighted or not, is within the subject matter of copyright). G.S. Rasmussen & Associates, Inc. v. Kalitta Flying Serv., Inc., 958 F.2d 896, 904 (9th Cir. 1992). For example, in Crow, a defendant was charged under a state criminal statute which prohibited dealing in stolen property. The "stolen" property had not been physically taken from the owner. The defendant was, instead, selling unauthorized copies of copyrighted music, that is, "bootleg" tapes. The Eleventh Circuit Court of Appeals held that § 301 preempted the state's prosecution because, even though a showing of scienter was required under the state criminal statute, "the elements essential to establish a violation of the Florida statute in this case correspond almost exactly to those of the tort of copyright infringement." 720 F.2d at 1226.
In this vein, courts have held that state-law unfair competition or deceptive trade practice causes of action arising out of unauthorized appropriations of work product will survive preemption only if the plaintiff is required to establish an extra element, such as likelihood of customer confusion, misrepresentation, or deception, see, e.g., Valente-Kritzer Video v. Pinckney, 881 F.2d 772, 776 (9th Cir. 1989) (fraud), cert. denied, 493 U.S. 1062, 110 S. Ct. 879, 107 L. Ed. 2d 962 (1990); Donald Frederick Evans, 785 F.2d at 914 (unfair competition claim); Ehat v. Tanner, 780 F.2d 876 (10th Cir. 1985) (misappropriation), cert. denied, 479 U.S. 820, 107 S. Ct. 86, 93 L. Ed. 2d 39 (1986), and actions for reputation injury will also be preempted if the actions are based merely on a defendant's publication of another's work product. Ehat, 780 F.2d at 879; 1 Nimmer on Copyright § 1.01[B] at 1-16.2 to 1-19 (1990).
The plaintiffs' argument that Ordinance 48-90 is preempted by § 301 proceeds as follows. Much of the programming transmitted by the plaintiff programmers is copyrighted, and Storer Cable, by virtue of exclusive licensing contracts with the copyright holders, has the exclusive right to provide this programming to the viewers of Montgomery. Ordinance 48-90, according to the plaintiffs, amounts to a per se ban of exclusive licensing agreements for the provision of cable programming and applies to all programming, copyrighted or not. Proceeding from these premises, the plaintiffs conclude that the two-step test for copyright preemption enunciated in Crow is satisfied because (1) a right is created by Ordinance 48-90 which is equivalent to one of the exclusive rights protected by the Copyright Act and (2) the right affects materials which are within the subject matter of the act.
The plaintiffs' second contention, that "the subject matter of copyright" is implicated by Ordinance 48-90 is not controverted and is admitted by the defendants. Both sides agree that the programming at issue is copyrighted, and both sides agree that, by obtaining a copyright in an audiovisual work, the owner acquires the right to grant an exclusive or restrictive license to another to exhibit it as well as the companion right to prohibit others from doing the same, Interstate Circuit v. United States, 306 U.S. 208, 227, 59 S. Ct. 467, 475, 83 L. Ed. 610 (1939) ("Under § 1 of the Copyright Act . . . the owners of the copyright of a motion picture film acquire the right to exhibit the picture and to grant an exclusive or restrictive license to others to exhibit it"); Maclean Assoc., Inc. v. Wm. M. Mercer-Meidinger-Hansen, Inc., 952 F.2d 769, 778 (3rd Cir. 1991) ("the owner of a copyright can transfer ownership of the copyright by selling it or by exclusively licensing it"); see also Donald Frederick Evans, 785 F.2d at 914; Allied Artists, 496 F. Supp. at 443, a right which may be restricted if Ordinance 48-90 is applied to copyrighted programming.
It is in applying the first element of the test, the "equivalency factor, that things become complicated. The confusion arises because the plaintiffs are not contending that Ordinance 48-90 establishes some form of state-law exclusive right in a work which would give an owner a cause of action against copying made without consent. This contention would fit easily into the § 301 analysis discussed above. Instead, the plaintiffs argue that the ordinance destroys one of the rights granted to them by federal copyright laws, namely the right to engage in the exclusive licensing of copyrighted materials. This is essentially a classic "conflict" preemption argument, that Ordinance 48-90 "stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress," Hillsborough County, 471 U.S. at 713, 105 S. Ct. at 2375 (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S. Ct. 399, 404, 85 L. Ed. 581 (1941)), by prohibiting activity which is protected and even encouraged by the federal copyright laws. Such claims have been analyzed as "conflict" cases prior to the addition of $ 301. See e.g., United States v. Paramount Pictures, Inc., 334 U.S. 131, 68 S. Ct. 915, 92 L. Ed. 1260 (1948); Watson v. Buck, 313 U.S. 387, 61 S. Ct. 962, 85 L. Ed. 1416, (1941); Interstate Circuit, supra; Fox Film Corp. v. Doyal, 286 U.S. 123, 52 S. Ct. 546, 76 L. Ed. 1010 (1932).
However, the addition of the express preemption clause to the Copyright Act has changed the rules somewhat. There is authority that suggests that conflict preemption analysis is not appropriate when legislation, such as the Copyright Act, contains an express preemption clause.
Were this court writing on a clean state without the act, then it would most likely undertake a conflict preemption analysis rather than attempting to apply § 301 to this case. As the parties' briefs have made apparent, this type of claim does not easily fit into the § 301 analytical mold. Section 301, as discussed above, is concerned with eliminating supplemental state-law causes of action which "look" like copyright infringement actions. There is little indication that § 301 was intended to apply to state police-power regulations that have the effect of limiting a copyright holder's ability to exhibit or profit from its protected work.
Fortunately, the court need not resolve this difficult issue. In this case, the result under both § 301 and "conflict" analyses turns on an identical factor and, as a result, the court reaches the same conclusion under either route. It is agreed that, under § 301's equivalency analysis, the plaintiffs must identify a right created by Ordinance 48-90 and must demonstrate how this right is equivalent to those protected by copyright. The plaintiffs point out that the ordinance creates a "right" vesting not in a potential copyright holder but in the city or a competing franchiser. This right is a cause of action under the ordinance, and, as asserted against the plaintiffs in this case, it is a right not to be damaged by an exclusive programming license whose purpose or effect is or may tend to lessen competition in the city's cable services. According to the authorities discussed above, the right created by Ordinance 48-90 is "equivalent" to copyright if it is infringed by the plaintiffs' mere act of exclusive distribution of copyrightable material and would survive scrutiny if it could only be violated upon proof of an "extra" element, an element which would render the conduct prohibited by the ordinance meaningfully different from core copyright-protected activity. The defendants contend that this extra element is the ordinance's additional requirement that the challenged conduct restrain trade in violation of legitimate antitrust laws. Under the seemingly unrelated conflict preemption analysis, the critical issue is whether the challenged law destroys or unduly burdens rights protected by the Copyright Act. See Sperry v. Florida ex rel. Florida Bar Ass'n., 373 U.S. 379, 385, 83 S. Ct. 1322, 1326, 10 L. Ed. 2d 428 (1963) ("No State law can hinder or obstruct the free use of a license granted under an act of Congress") (quoting Pennsylvania v. Wheeling & Belmont Bridge Co., 54 U.S. 518, 13 How. 518, 566, 14 L. Ed. 249 (1851)). As a result, in cases where copyright holders have sought immunity from economic regulation, the Supreme Court has rested its decisions upon whether the activity which is the target of the challenged law is privileged under the Copyright Act. The Court has consistently concluded that, although copyrights are government sanctioned monopolies which may be exclusively licensed, they cannot be used by their owners to restrain trade in violation of legitimate antitrust laws.
Two cases illustrate the point that the result under both § 301 and "conflict" analyses turns on the same factor. The first, United States v. Paramount Pictures, 334 U.S. 131, 68 S. Ct. 915, 92 L. Ed. 1260 (1948), involved a price-fixing suit brought by the United States against several of the major motion picture studios. The federal government charged that the defendants, in the exhibition licenses they granted to theaters, dictated the minimum ticket prices the theaters could charge to the public. The defendants argued that, because the films in question were copyrighted and because the Copyright Act grants the owner exclusive rights to their films, the owner may license those rights at any terms it chooses. Id. at 143, 68 S. Ct. at 922. The Supreme Court disagreed and held that, although a copyright grant is itself a protected monopoly, the copyright holder may not use its copyright monopoly as leverage to restrain trade beyond the extent of its exclusive rights. The Court wrote:
"'The rewards which flow to the patentee and his licensees from the suppression of competition through the regulation of an industry are not reasonably and normally adapted to secure pecuniary reward for the patentee's monopoly.' The same is true of the rewards of the copyright owners and their licensees in the present case. For here too the licenses are but a part of the general plan to suppress competition. . . . For a copyright may no more be used than a patent to deter competition between rivals in the exploitation of their licenses."
Id. at 144, 68 S. Ct. at 923. In Cardinal Films v. Republic Pictures Corp., 148 F. Supp. 156 (S.D. N.Y. 1957), the copyright Act provided a successful defense against an antitrust suit. The defendant in that case was absolved from antitrust liability because its "anti-competitive" conduct amounted to no more than simple exploitation of its copyright monopoly. The defendant film production company had granted an exclusive license to distribute a number of its films to one of its distributors. Included in the agreement was a provision that the distributor must order directly from the producer all print copies required for the distribution of the films. The distributor later brought suit, claiming that the agreement amounted to a tie-in provision, violative of the Sherman and Clayton Acts. 15 U.S.C.A. §§ 1, 2, 14, 17. The court held that, because the producer had done no more than exploit its privileged monopoly and had not tried to expand its monopoly further than that allowed by the copyright laws, it could not be charged with antitrust liability. The court explained that:
"since the defendant's exercise of its copyright monopoly does not go beyond the legitimate exploitation of its exclusive privilege, there is no violation of the Sherman Act. . . . There is no suppression of competition here beyond that permitted by the copyright law. The only competition precluded by the agreement and the only monopolization or restraint of trade involved is in connection with the processing of defendant's films, an activity over which defendant has been granted exclusive domain by copyright. There is no attempt to enlarge that domain by the leverage of the copyright . . . "
Id. at 158-59. In short, these cases stand for the proposition that, although "an agreement illegal because it suppresses competition is not any less so because the competitive article is copyrighted," Interstate Circuit, 306 U.S. at 230, 59 S. Ct. at 476, it is also true that "an agreement which goes no further than to preserve the legitimate monopoly of a copyright is not initiated by the antitrust laws," Cardinal Films, 148 F. Supp. at 159.
"We find nothing in the copyright laws which purports to grant to copyright owners the privilege of combining in violation of otherwise valid state or federal laws. We have, in fact, determined to the contrary with relation to other copyright privileges. . . . We are pointed to nothing either in the language of the copyright laws or in the history of their enactment to indicate any congressional purpose to deprive the states, either in whole or in part, of their long-recognized power to regulate combinations in restraint of trade."
Id. at 404, 61 S. Ct. at 968. Conversely, local authorities, under the guise of trade regulation, cannot enact laws which go beyond the restriction of anti-competitive practices and target and extinguish one or more of the exclusive rights granted under § 106. See Associated Film Distribution Corp. v. Thornburgh, 683 F.2d 808, 816 (3rd Cir. 1982). If this were not so, states could effectively extinguish copyright rights with their police power, a result which would surely frustrate the copyright scheme. The teaching of these cases is that state anti-competition laws which may have an incidental effect on the unfettered exercise of one of the exclusive rights embodied in the copyright grant are valid if their target is anti-competitive conduct beyond the scope of copyright protection. A copyright holder cannot be subject to a state-law created liability simply because it engaged in protected copyright activity.
In this case, then, it is apparent that the two preemption inquires, conflict preemption and § 301 express preemption, lead to the same essential question: If Ordinance 48-90 creates liability for a copyright holder and a licensee simply because the copyright holder granted an exclusive license to exhibit her work, then the ordinance cannot stand under the copyright laws. Exclusive licensing is one of the rights in the copyright monopoly and is in and of itself not anti-competitive behavior, and thus local governments may not ban the practice per se.
On the other hand, if liability is predicated only on proof of an additional element, such as anti-competitive purpose or effect, then Ordinance 48-90 will survive preemption, both statutory and conflict.
Therefore, the key and still unanswered question is exactly what Ordinance 48-90 regulates. The defendants assert throughout their briefs that the ordinance has a narrow scope and bans not all exclusive licenses but only those rare agreements which restrain trade. The plaintiffs, on the other hand, state that the ordinance amounts to a per se ban on exclusive license agreements. However, the parties have offered little guidance, by way of argument or authority, to assist the court in its task of statutory construction.
The language and structure of the ordinance appears to the court to be modeled on federal antitrust laws. Sections 1 and 2 of the Sherman Act, respectively, make it illegal to contract or combine in "restraint of trade" or to "monopolize, or attempt to monopolize, or combine or conspire with any other persons, to monopolize" any part of interstate trade or commerce. 15 U.S.C.A. §§ 1, 2.
The Clayton Act, as amended by the Robinson-Patman Act, prohibits price discrimination where "the effect of such discrimination may be substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition." 15 U.S.C.A. § 13 (a).
The act further provides that, "Upon proof being made . . . that there has been discrimination in price or services or facilities furnished, the burden of rebutting the prima-facie case thus made by showing justification shall be upon the person charged with a violation of this section." 15 U.S.C.A. § 13(b). The Clayton Act further prohibits leases, sales or contracts made on the condition that the lessee or purchaser shall not use or deal in the goods of a competitor of the lessor or seller "where the effect of such lease, sale, or contract for sale or such condition, agreement, or understanding may be to substantially lessen competition or tend to create a monopoly in any line of commerce." 15 U.S.C.A. § 14
Section 3 of Ordinance 48-90 borrows the "restraint of trade" and "monopolize" language of §§ 1 and 2 of the Sherman Act to ban unilateral activity which restrains trade or monopolizes in the area of cable television service. Section 4 of the ordinance appears to track the Clayton and Robinson-Patman Acts except that, rather than banning price discrimination or contracts conditioned on the buyer's refusal to deal with competitors of the seller, it bans discrimination or limitation in the lease, license, sale or exchange of program material where "the purpose or effect of such contract, combination, or discrimination is or may be to tend to create a monopoly or to injure, destroy, inhibit, prevent or lessen substantially competition." Section 7 of the ordinance is a burden shifting clause, presumably modeled on 15 U.S.C.A. § 13(b). It provides that proof of one of the proscribed acts creates a presumption that a defendant bore an impermissible purpose.
The federal antitrust laws have been interpreted by the courts for years, and volumes of case law have been developed fleshing out their compact language. The Sherman Act has been deemed to be concerned with actual restraints on trade, whatever form they may take, while the Clayton Act has been held to address specific arrangements, prohibiting those which tend either to lessen competition or create monopolies. Twin City Sportserv., Inc. v. Charles O. Finley & Co., 512 F.2d 1264, 1275 (9th Cir. 1975). Section 1 of the Sherman Act addresses concerted action. Certain agreements subject to § 1 have been held to be per se illegal, meaning that no demonstration of actual harm is required, while all other agreements are subject to a "rule of reason." Copperweld Corp. v. Independence Tube Corp., 467 U.S. 752, 768, 104 S. Ct. 2731, 2740, 81 L. Ed. 2d 628 (1984).
"Exclusive dealing" agreements are subject to the later analysis under the Sherman Act and proof of competitive injury is required to show a restraint of trade or monopolization.
Section 2 of the act is concerned with independent action and requires a "dangerous probability" of monopolization. Indiana Grocery, Inc. v. Super Valu Stores, Inc., 864 F.2d 1409, 1413 (7th Cir. 1989). Likewise, courts have held that the "substantially to lessen competition or tend to create a monopoly in any line of commerce, or to injure, destroy, or prevent competition" language of the Clayton Act simply means that the plaintiff must establish a "reasonable probability" of injury to competition. Alan's of Atlanta, Inc. v. Minolta Corp., 903 F.2d 1414, 1417 (11th Cir. 1990).
The court assumes that the city, by borrowing language and phrases from the Sherman, Clayton, and Robinson-Patman Acts, meant also to import the accumulated case law interpreting that language, and there is no reason to doubt the Alabama courts will avail themselves of this jurisprudence. See Avery Freight Lines, Inc. v. Alabama Public Serv. Comm'n, 267 Ala. 646, 104 So. 2d 705, 709 (Ala. 1958) ("In construing the terms and provisions of Alabama statutes derived from federal statutes, such terms and provisions will usually be considered as having the meaning given by the federal courts"); Rice v. Alabama Surface Mining Com'n, 555 So. 2d 1079, 1081 (Ala. Civ App. 1989) ("federal case law construing federal statutes upon which Alabama statutes were patterned will be given great weight as persuasive authority in determining construction of a state statute").
That being so, a licensing arrangement between a cable programmer and a cable exhibitor whereby the exhibitor is granted the exclusive right to show the programmer's programming within a geographic area would not, without more, run afoul of Ordinance 48-90 § 3's prohibition on restraints of trade and monopolization. As noted above, exclusive agreements are only proscribed if "unreasonable," and proof of competitive injury is required to show a restraint of trade or monopolization. In order to prevail on a claim under § 3, therefore, a party must prove an additional, meaningful element other than that the other party exercised engaged in conduct protected by the Copyright Act. Consequently, this court finds that § 3 of the ordinance is not preempted by the Copyright Act.
The combined operations of §§ 4 and 7 of Ordinance 48-90, on the other hand, present serious concerns and cannot be reconciled in their entirety with the Copyright Act. It is true that little difficultly is encountered construing the "purpose or effect" clause of § 4 because the phraseology-- "is or may be to tend to create a monopoly or to injure, destroy, inhibit prevent or lessen substantially competition "--has been interpreted by Clayton and Robinson-Patman Act case law to mean conduct which poses a "reasonable probability" of injury to competition. See Alan's of Atlanta, Inc. v. Minolta Corp., 903 F.2d 1414, 1417 (11th Cir. 1990). However, the court is troubled by another aspect of these sections which represents a significant departure from the Clayton and Robinson-Patman Acts. Under 15 U.S.C.A. § 13(a), the proscribed conduct is "price discrimination," meaning the charging of different prices to different customers for the same goods, Ashkanazy v. I. Rokeach & Sons, Inc., 757 F. Supp. 1527, 1546 (N.D.Ill. 1991), and the agreements which are prohibited under 15 U.S.C.A. § 14 are those predicated on a promise exacted from the buyer, not the seller, to refuse to deal with the competitors of the other, Dillon Materials Handling, Inc. v. Albion Industries, 567 F.2d 1299, 1306 (5th Cir.), cert. denied, 439 U.S. 832, 99 S. Ct. 111, 58 L. Ed. 2d 127 (1978). In contrast, § 4 of Ordinance 48-90 proscribes conduct that is both privileged under the Copyright Act and not violative of the Clayton and Robinson-Patman Acts. Standing alone, this causes concern but does not present an insurmountable problem because § 4, as construed by the court, does not allow a party to simply rely on the occurrence of proscribed conduct to establish a prima facie case. The plaintiff must also establish a "purpose or effect "--that is, a "reasonable possibility"--of competitive harm, as under the Clayton and Robinson-Patman Acts. See Falls City Indus., Inc. v. Vanco Beverage, Inc., 460 U.S. 428, 434-35, 103 S. Ct. 1282, 1288, 75 L. Ed. 2d 174 (1983).
However, § 4 of the ordinance does not stand alone but is supplemented by § 7. This burden shifting clause relieves a plaintiff from demonstrating a "purpose or effect," and thus a "reasonable possibility," of competitive harm. Upon the establishment of a proscribed act--in this case, the existence of an exclusive license--the plaintiff has made out a prima facie case: § 7 at that point shifts the burden to the defendant to prove a justifiable purpose. As a result, § 7 allows the plaintiff to bypass the "purpose or effect" element of § 4, and a defendant who fails to meet the affirmative burden of establishing a permissible purpose will be held liable under the ordinance without the plaintiff ever having demonstrated an "extra element" other than that the defendant legitimately exploited its copyright monopoly.
This combination of $ 4's designation of exclusive licensing as proscribed conduct with § 7's shifting of the burdens of proof places too high a burden on the copyright privilege. A party who holds a copyright for cable programming and who does no more than grant another an exclusive distribution or exhibition license is thus in automatic jeopardy of liability as a result of these sections, as is the licensee. The fact that these parties may ultimately prevail after a hard fought defense is little consolation.
The court believes that the least disruptive solution is to strike down § 7 to the extent it raises a presumption that exclusive licensing contracts are illegal, while allowing § 4 to stand, rather than voiding both provisions. Section 4, if it is carefully applied with reference to the federal antitrust laws it emulates and with due regard to the values of the copyright law, does not in and of itself necessarily conflict with the Copyright Act. See Jones v. Rath Packing Co, 430 U.S. 519, 526, 97 S. Ct. 1305, 1310, 51 L. Ed. 2d 604 (1977) ("[preemption] inquiry requires us to consider the relationship between state and federal laws as they are interpreted and applied, not merely as they are written"). Section 7 to the extent it raises a presumption that exclusive licensing contracts are illegal is, however, not amenable to any saving construction. Although state laws should be construed to avoid conflict with the federal constitution and laws, the court cannot attribute to the city a law it should have, but has not, written to avoid a constitutional problem. K-S Pharmacies, Inc. v. American Home Products Corp., 962 F.2d 728, 730 (7th Cir. 1992). However, because, pursuant to § 8, the ordinance is fully severable, the partial invalidation of § 7 has no bearing on the validity of § 4.
The plaintiffs' implied preemption argument can be disposed of quickly. Although some doubt exists as to whether conflict preemption analysis is proper when the federal statute at issue contains an express preemption clause, implied preemption analysis would be illogical under such circumstances. See Cipollone, U.S. at , 112 S. Ct. at 2617; Wisconsin Public Intervenor v. Mortier, U.S. , , 115 L. Ed. 2d 532, 111 S. Ct. 2476, 2481 (1991); Hillsborough County, 471 U.S. at 713, 105 S. Ct. at 2375.
The plaintiffs also argue that Ordinance 48-90 is preempted by the Lanham Act, 15 U.S.C.A. § 1051, et seq, which regulates federal trademark law. The logic of their contentions proceeds along the same lines as their copyright arguments. According to the Plaintiffs, ESPN not only copyrights its programming, it also identifies and distinguishes its programming by using a federally registered trademark name and logotype. By forcing ESPN to license its exclusive programming, which presumably also carries ESPN's trademarks, Ordinance 48-90 violates the Lanham Act's purported guarantee that a trademark owner may grant the use of its trademark on the terms and conditions of its choosing. Unlike their copyright claims, however, the plaintiffs' claims of preemption under the Lanham Act must be rejected in their entirety.
The Lanham Act's preemptive scope is not the same as that of the Copyright Act. Although § 301 of the Copyright Act expressly preempts parallel state-law copyright protections, the Lanham Act's preemption clause is much narrower and does not preempt state trademark protections.
Keebler Co. v. Rovira Biscuit Corp., 624 F.2d 366, 372 n.3 (1st Cir. 1980); Mariniello v. Shell Oil Co., 511 F.2d 853, 857-58 (3rd Cir. 1975). Instead, the Lanham Act sets a protective floor only and does not interfere with state laws which provide additional trademark protection. The act preempts only those state laws which directly conflict with its provisions or purposes by permitting an erosion of trademark rights. Mariniello, 511 F.2d at 858.
Trademark rights are not analogous to copyright or patent protection; state laws that conflict with the Copyright Act will not necessarily implicate the Lanham Act. Unlike copyright grants, trademark law does not give the right holder any exclusive rights in a product. Instead, the Lanham Act grants an exclusive right to a mark used to identify products, their origin, or their sponsor, Dallas Cowboys Cheerleaders v. Pussycat Cinema, Ltd., 604 F.2d 200, 204 (2nd Cir. 1979); IS U.S.C.A. § 1127. The act allows merchants to identify goods as their own with a distinctive mark or name and prevents others from imitating the protected mark on their own goods in such a manner that purchasers are deceived into believing that the products originated with or were approved by the mark's owner. The purpose underlying the Lanham Act is, therefore, two-fold: "One is to protect the public so it may be confident that . . . it will get the product which it asks for and wants to get," and the other is that, "where the owner of a trade-mark has spent energy, time, and money in presenting to the public the product, he is protected in his investment from its misappropriation by pirates and cheats." Mariniello, 511 F.2d at 858 (quoting the Senate report accompanying the Lanham Act, S. Rep. No. 1333, 79th Cong., 2d Sess., reprinted in 1946 U.S. Code Cong. Serv. 1274) (alterations in original); See also Keebler, 624 F.2d at 372 n. 3; Dallas Cowboys, 604 F.2d at 204-05.
A mark holder has a cause of action only if a defendant uses its mark without consent in a manner likely to cause customer confusion, that is, if the infringer places the protected mark on its own products so that the public will believe that the products are produced by the trademark owner. 15 U.S.C.A. § 1114; United States Jaycees v. Philadelphia Jaycees, 639 F.2d 134, 137 (3rd Cir. 1981). Therefore, a state law is preempted only if it would "permit confusing or deceptive trademarks to operate, infringing on the guarantee of exclusive use to federal trademark holders." Golden Door, Inc. v. Odisho, 646 F.2d 347, 352 (9th Cir. 1980).
Applying these principles to the circumstances of this case, it is apparent that ESPN's trademark rights would not be contravened by the enforcement of even the most expansive interpretation of Ordinance 48-90. The plaintiffs offer no authority for their proposition that a state law which acts to force a party to license its product against its will conflicts with trademark rights. The case law indicates that state laws are not preempted even if they operate to compel a mark owner to license its mark, so long as the mark continues to be associated with the owner's product or endorsement. The Mariniello case is instructive on this point. In Mariniello, the Shell Oil Company argued that New Jersey's "good cause" restrictions on franchise terminations were preempted by the Lanham Act. The company's theory was that the state law effectively granted to franchisees the right to continued use of Shell trademarks in those circumstances when Shell wished to terminate a franchise agreement "at will." The court rejected this argument, holding that no deception of the public would result in the use of Shell's trademarks by what would be, under state law, a true Shell franchisee. 511 F.2d at 857-859.
The plaintiffs contend that both Ordinances 9-90 and 48-90 are preempted by the Cable Communications Policy Act of 1984, 47 U.S.C.A. §§ 521, et seq. The court concludes that the plaintiffs have established that the Cable Act preempts a portion of Ordinance 9-90, but have failed to demonstrate that the act preempts Ordinance 48-90.
In the Cable Act, Congress established a national policy concerning cable communications and, in so doing, defined the relative domains of federal, state and local regulation of cable systems. 47 U.S.C.A. § 521. In some areas the act furthers the regulatory authority of states and localities at the expense of what had been the exclusive domain of the Federal Communications Commission (FCC) prior to its passage, in others the act preempts local regulatory power, and in some instances the act divests both the states and the FCC of regulatory authority. See Cable Television Ass'n v. Finneran, 954 F.2d 91, 97 (2nd Cir. 1992).
With respect to Ordinance 9-90, both parties agree that, if the ordinance is preempted by the Cable Act, its preemption is governed by 47 U.S.C.A. § 543, entitled "Regulation of Rates." Section 543 expressly preempts federal, state, and local regulation of the rates charged by cable companies. Subsection (a) provides that:
"Any Federal Agency or State may not regulate the rates for the provision of cable service except to the extent provided under this section. Any franchising authority may regulate the rates for the provision of cable service, or any other communications service provided over a cable system to cable subscribers, but only to the extent provided under this section."
47 U.S.C.A. § 543(a). Section 543 provides for a few exceptions to the general preclusion of rate regulation. For example, where the FCC has determined that effective competition does not exist, it may authorize franchising authorities to impose rate regulations on the provision of basic service. § 543(b). Additionally, the FCC, states, and franchising authorities are free to prohibit "discrimination among customers of basic cable service." § 543(f)(1). The defendants do not contend that Ordinance 9-90 was enacted pursuant to an FCC determination that the Montgomery cable market lacked effective competition. Instead, the defendants justify the ordinance two grounds.
First, they contend that Ordinance 9-90 does not "regulate the rates" for the provision of cable services and is therefore not governed by § 543 at all. Their argument is that, because the ordinance does not establish a specific pricing schedule or "freeze" rates at a set level but only prohibits "anti-competitive" rate setting, it is not a regulation of cable rates but rather a general exercise of the city's police power, which is not preempted by the act. See 47 U.S.C.A. § 566(a) (act does not preempt local police powers when exercised "to the extent consistent with the express provisions of this subchapter"); 47 U.S.C.A. § 552(a)(1) (franchise agreement may include customer service requirements).
Although some ordinances may inhabit the borderline between a rate regulation and a permissible regulation of the franchisee's business relationship with its customers, Ordinance 9-90 does not.
The words "rate" and "regulation" have well-accepted meanings in ordinary usage. "A fundamental canon of statutory construction is that, unless otherwise defined, words will be interpreted as taking their ordinary, contemporary, common meaning." Perrin v. United States, 444 U.S. 37, 42, 100 S. Ct. 311, 314, 62 L. Ed. 2d 199 (1979). The defendants have not pointed to any language in or policy of the Cable Act which would indicate that the words "regulation" or "rates" were used by Congress in other than their plain meaning. The common-sense meaning of "regulate" is "to govern or direct according to rule or to bring under control of constituted authority, to limit and prohibit, to arrange in proper order, and to control that which already exists." Black's Law Dictionary at 1156 (5th ed. 1979). See also Nashoba Com. Ltd. Part. No. 7 v. Town of Danvers, 703 F. Supp. 161, 165 (D. Mass. 1988), rev'd on other grounds, 893 F.2d 435 (1st Cir. 1990). A "rate" in this context is the amount of money charged to subscribers to receive cable service. See Comcast Cablevision v. City of Sterling Heights, 178 Mich. App. 117, 443 N.W.2d 440, 442 (Mich. App. 1989). The contested portion of the ordinance is entitled "Rates Charged to Subscribers." Its language does no more or less than prohibit certain rates which afford undue preference among customers and rates which are so low as to diminish competition. Clearly, Ordinance 9-90 is a rate regulation.
Alternatively, the defendants argue that the ordinance, insofar as it regulates basic cable service, falls within the "anti-discrimination" exception of § 543(f). Although neither the language nor the legislative history of § 543(f) provide guidance as to what is meant by that section's allowance of local regulations which prohibit "discrimination" among customers of "basic cable service," the court readily agrees that the following sentence falls within this exception to the extent it applies to basic cable service:
"No rate established shall afford any undue preference or advantage among subscribers, but separate rates may be established for separate classes of subscribers and rates may reflect the increased cost of providing service to isolated or sparsely populated areas."
The defendants read § 543(f) as a being akin to an anti-redlining provision, a prohibition on disparate pricing based on the income of residents of particular neighborhoods or other non-neutral, unreasonable factors. Section 543(f) does appear to be a complement to § 541(a)(3), which requires franchising authorities to ensure that franchisees do not deny cable service to neighborhoods based on the income of their residents. American Civil Liberties Union v. FCC, 262 U.S. App. D.C. 244, 823 F.2d 1554, 1579 (D.C. Cir. 1987), cert. denied, 485 U.S. 959, 99 L. Ed. 2d 421, 108 S. Ct. 1220 (1988). Section 543(f) also appears to be a shorthand expression of 47 U.S.C.A. § 202(a), which prohibits common carriers from "making any unjust or unreasonable discrimination" in charges or services, or "making or giving any undue or unreasonable preference or advantage to any particular person, class of persons, or locality."
Courts have interpreted § 202(a) as prohibiting carriers from charging different customers different prices for the same services when the price variations lack a neutral, rational justification. National Ass'n of Reg. Util. Com'rs v. FCC, 737 F.2d 1095, 1133 (D.C. Cir. 1984), cert. denied, 469 U.S. 1227, 105 S. Ct. 1224, 84 L. Ed. 2d 364 (1985).
The court has not been presented with any reason why § 543(f)'s use of the phrase "discrimination among customers of basic cable service" should not be given the same scope. An examination of Ordinance 9-90's prohibition on cable rates that afford "any undue preference or advantage among customers" reveals that it is almost identical to the prohibitory Language of § 202(a). Its terms do no more than apply § 202 (a)'s language to cable franchisers and, so far as they are applied in this manner, these terms fit neatly within the safe harbor of § 543(f).
On the other hand, the following provision barring anti-competitive rate cutting is not protected by § 543(f):
"In no event shall rates be established so low for any class of subscriber or for any geographic location as to prevent, discourage, restrict, or diminish competition in the furnishing of cable services."
The city admits that this language "extends beyond rate discrimination among customers or geographic areas within the franchise area to prohibit predatory pricing that is city-wide." In other words, this part of the ordinance has nothing to do with discrimination but with predatory pricing, an entirely different practice. Predatory pricing, as recognized by the antitrust laws, entails the deliberate sacrifice of current revenues through lower prices for the purpose of driving rivals out of the market. Ashkanazy v. I. Rokeach & Sons, Inc., 757 F. Supp. 1527, 1537-38 (N.D. Ill. 1991). If Storer Cable were to lower its rates uniformly within the city of Montgomery in such a way that every customer were effected equally or to lower its rates in one part of the city not for discriminatory purposes but in order to drive Montgomery Cablevision out of the market, the company would be in jeopardy of running afoul of this provision even though it would not have been engaging in price discrimination. As a result, the above language from Ordinance 9-90 does not fall within the exception to § 543(a)'s ban on rate regulation and is preempted.
With respect to Ordinance 48-90, the parties agree that the ordinance's fate is determined by 47 U.S.C.A. § 544, entitled "Regulation of services, facilities, and equipment." The section contains two provisions which address preemption, § 544(a) and (f). Subsection (a) provides that:
"Any franchising authority may not regulate the services, facilities, and equipment provided by a cable operator except to the extent ...