Primetime 24 Joint Venture V. Nat'l Broad, Co., Inc

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29Tk604 k. Television and radio. Most Cited Cases United States Court of Appeals, (Formerly 265k12(6)) Second Circuit. Submission by television stations of concerted PRIMETIME 24 JOINT VENTURE, challenges pursuant to Satellite Home Viewer Act Plaintiff–Appellant, (SHVA) to eligibility of satellite operator's sub- v. scribers would not violate Sherman Act, whether NATIONAL BROADCASTING COMPANY, such efforts were orchestrated by networks, broad- INC., ABC, Inc., CBS, Inc., FOX Broadcasting casters' association or trade association, so long as Company, National Association of Broadcasters, challenges were made in good faith; Congress con- NBC Television Affiliates, ABC Television Affili- templated cooperation among stations in achieving ates Association, CBS Television Network Affili- compliance with SHVA. Sherman Act, § 1, as ates Association, KPAX Communications, Inc., and amended, 15 U.S.C.A. § 1; 17 U.S.C.A. § 119(a)(8) Benedek Broadcasting Corporation, Defend- . ants–Appellees. [2] Antitrust and Trade Regulation 29T 604 Docket No. 98–9392 Argued: May 3, 1999 29T Antitrust and Trade Regulation Decided: July 7, 2000 29TVI Antitrust Regulation in General 29TVI(E) Particular Industries or Businesses Satellite operator sued broadcast television net- 29Tk602 Telecommunications works, their affiliates, and television trade organiz- 29Tk604 k. Television and radio. Most ations for engaging in concerted action to restrict Cited Cases availability of network programming to direct- (Formerly 265k12(6)) to-home satellite subscribers. The United States Coordinated challenges by television stations District Court for the Southern District of New under Satellite Home Viewer Act (SHVA) to eli- York, Lawrence M. McKenna, J., 21 F.Supp.2d gibility of satellite operator's subscribers, without 350, dismissed suit on ground of Noerr–Pennington regard to merits and for purpose of imposing unne- immunity, and operator appealed. The Court of Ap- cessary costs upon operator as means of limiting its peals, Winter, Chief Judge, held that: (1) complaint ability to operate and compete, would violate Sher- stated claim under “sham” exception to No- man Act, and such bad faith conduct would also fall err–Pennington; (2) complaint stated concerted re- within “sham” exception to Noerr–Pennington. fusal to deal claim; (3) complaint sufficiently al- Sherman Act, § 1, as amended, 15 U.S.C.A. § 1; 17 leged injury; and (4) operator had standing. U.S.C.A. § 119(a)(8).

Reversed. [3] Antitrust and Trade Regulation 29T 905(3) West Headnotes 29T Antitrust and Trade Regulation [1] Antitrust and Trade Regulation 29T 604 29TXI Antitrust Exemptions and Defenses 29T Antitrust and Trade Regulation 29Tk905 Efforts to Influence Government 29TVI Antitrust Regulation in General Action 29TVI(E) Particular Industries or Businesses 29Tk905(3) k. Litigation; sham litigation. 29Tk602 Telecommunications Most Cited Cases

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(Formerly 265k12(16.5)) series of legal proceedings, test of whether “sham” Litigation, including good faith litigation to exception to Noerr–Pennington applies is whether protect valid copyright, falls within protection of legal filings were made, not out of genuine interest Noerr–Pennington doctrine. in redressing grievances, but as part of pattern or practice of successive filings undertaken essentially [4] Antitrust and Trade Regulation 29T for purposes of harassment; it is immaterial that 905(2) some claims might, as a matter of chance, have merit, rather, relevant issue is whether legal chal- 29T Antitrust and Trade Regulation lenges are brought pursuant to policy of starting 29TXI Antitrust Exemptions and Defenses legal proceedings without regard to merits and for 29Tk905 Efforts to Influence Government purpose of injuring market rival. Sherman Act, § 1, Action as amended, 15 U.S.C.A. § 1. 29Tk905(2) k. Petitioning government. Most Cited Cases [6] Antitrust and Trade Regulation 29T (Formerly 265k12(16.5)) 972(3)

Antitrust and Trade Regulation 29T 905(3) 29T Antitrust and Trade Regulation 29TXVII Antitrust Actions, Proceedings, and 29T Antitrust and Trade Regulation Enforcement 29TXI Antitrust Exemptions and Defenses 29TXVII(B) Actions 29Tk905 Efforts to Influence Government 29Tk972 Pleading Action 29Tk972(2) Complaint 29Tk905(3) k. Litigation; sham litigation. 29Tk972(3) k. In general. Most Most Cited Cases Cited Cases (Formerly 265k12(16.5)) (Formerly 265k28(6.2)) To establish “sham” administrative or judicial Satellite television operator's allegation that proceedings, under exception to Noerr–Pennington television stations submitted simultaneous and vo- doctrine, plaintiff must show that litigation in ques- luminous challenges under Satellite Home Viewer tion is objectively baseless and an attempt to inter- Act (SHVA) to eligibility of satellite operator's sub- fere directly with business relationships of compet- scribers, without regard to merits, and for purpose itor through use of governmental process, as op- of making it difficult and expensive for operator to posed to outcome of that process, as anticompetit- comply with SHVA, stated claim under “sham” ex- ive weapon. Sherman Act, § 1, as amended, 15 ception to Noerr–Pennington. Sherman Act, § 1, as U.S.C.A. § 1. amended, 15 U.S.C.A. § 1; 17 U.S.C.A. § 119(a)(8) [5] Antitrust and Trade Regulation 29T . 905(2) [7] Antitrust and Trade Regulation 29T 586 29T Antitrust and Trade Regulation 29T Antitrust and Trade Regulation 29TXI Antitrust Exemptions and Defenses 29TVI Antitrust Regulation in General 29Tk905 Efforts to Influence Government 29TVI(E) Particular Industries or Businesses Action 29Tk584 Intellectual Property 29Tk905(2) k. Petitioning government. 29Tk586 k. Copyrights. Most Cited Most Cited Cases Cases (Formerly 265k12(16.5)) (Formerly 265k12(6)) Where defendant is accused of bringing whole Concerted refusal of television stations to li-

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cense copyrighted programming to satellite operat- [10] Antitrust and Trade Regulation 29T or in order to prevent competition from it would be 972(5) boycott in violation of Sherman Act. Sherman Act, § 1, as amended, 15 U.S.C.A. § 1. 29T Antitrust and Trade Regulation 29TXVII Antitrust Actions, Proceedings, and [8] Antitrust and Trade Regulation 29T 586 Enforcement 29TXVII(B) Actions 29T Antitrust and Trade Regulation 29Tk972 Pleading 29TVI Antitrust Regulation in General 29Tk972(2) Complaint 29TVI(E) Particular Industries or Businesses 29Tk972(5) k. Injury to business or 29Tk584 Intellectual Property property. Most Cited Cases 29Tk586 k. Copyrights. Most Cited (Formerly 265k28(6.7)) Cases Satellite television operator's antitrust com- (Formerly 265k12(5)) plaint pled injury to itself and to competition gener- Although coordinated efforts to enforce copy- ally by alleging that operator had been injured in its rights against common infringer may be permiss- business and property, including by having lost ible, copyright holders may not agree to limit their profits and goodwill, by having to incur substantial individual freedom of action in licensing future and unnecessary expenses, and by being seriously rights to such infringer before, during, or after the weakened, and threatened with elimination and that lawsuit; such an agreement would, absent litigation, conspiracies both reduced networks' national com- violate Sherman Act. Sherman Act, § 1, as petition with alternative programming and reduced amended, 15 U.S.C.A. § 1. local stations' competition with alternative distribution systems. Sherman Act, § 1, as amended, 15 [9] Antitrust and Trade Regulation 29T U.S.C.A. § 1. 972(3) [11] Antitrust and Trade Regulation 29T 29T Antitrust and Trade Regulation 964 29TXVII Antitrust Actions, Proceedings, and Enforcement 29T Antitrust and Trade Regulation 29TXVII(B) Actions 29TXVII Antitrust Actions, Proceedings, and 29Tk972 Pleading Enforcement 29Tk972(2) Complaint 29TXVII(B) Actions 29Tk972(3) k. In general. Most 29Tk959 Right of Action; Persons En- Cited Cases titled to Sue; Standing; Parties (Formerly 265k28(6.3)) 29Tk964 k. Competitors. Most Cited To make out restraint of trade violation of Cases Sherman Act, plaintiff must allege combination or (Formerly 265k28(1.6)) some form of concerted action between at least two Satellite television operator had antitrust stand- legally distinct economic entities that constituted ing to assert claim that broadcast television net- unreasonable restraint of trade either per se or un- works, their affiliates, and television trade organiz- der rule of reason; in addition, plaintiff must inde- ations engaged in concerted action to restrict avail- pendently show “antitrust injury,” in order to en- ability of network programming to direct-to-home sure that plaintiff can recover only if loss stems satellite subscribers; operator competed directly from competition-reducing aspect or effect of de- with networks' owned and affiliated stations in dis- fendant's behavior. Sherman Act, § 1, as amended, tributing network programming and was also cus- 15 U.S.C.A. § 1. tomer of network defendants. Sherman Act, § 1, as

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amended, 15 U.S.C.A. § 1. broadcasts in packages of hundreds of channels sold to consumers. When the complaint was filed, *94 Harry Frischer, Solomon, Zauderer, Ellenhorn, PrimeTime was the leading American provider of Frischer & Sharp (Louis M. Solomon, Jonathan D. network television broadcasts to satellite dish own- Lupkin, of counsel), New York, New York, for ers. It had over two million subscribers and was the Plaintiff–Appellant. “only satellite carrier of network programming ... neither owned nor controlled by network or cable Charles F. Rule, Covington & Burling, Washington, television interests.” D.C. (Neil K. Roman, Jonathan Galst, Covington & Burling; Eric Seiler, Friedman Kaplan & Seiler Appellees are the major television networks, LLP, New York, New York, of counsel), for De- ABC, Inc. (“ABC”), CBS, Inc. (“CBS”), the Na- fendants–Appellees. tional Broadcasting Company (“NBC”), and the Fox Broadcasting Company (“Fox”); their affiliates' Before: WINTER, Chief Judge, JACOBS, Circuit trade associations; the National Association of FN* Judge, and SWEET, District Judge. Broadcasters (“NAB”); and businesses owning and/ or operating stations affiliated with the networks. The network companies both supply the affiliates FN* The Honorable Robert W. Sweet, with programming and distribute it directly to con- United States District Judge for the South- sumers through broadcasts from their owned and ern District of New York, sitting by desig- operated stations. The NAB is a trade association nation. comprising both the networks and the affiliates.

Until recently, consumers received television WINTER, Chief Judge: programming principally through over-the-air This appeal arises out of an antitrust action broadcasts from stations owned and operated by, or brought by PrimeTime 24 Joint Venture affiliated with, the network companies. This tech- (“PrimeTime”) against the major television net- nology, however, limited adequate reception to sig- works, their affiliates' trade associations, independ- nals transmitted by relatively nearby stations. New ent television stations, and the National Association technology has both provided improved reception of *95 Broadcasters. The complaint alleged that ap- and multiplied the programming options available pellees violated Section 1 of the Sherman Act, 15 to consumers through the introduction of cable and U.S.C. § 1, through concerted, baseless, signal- satellite television. strength challenges brought under the Satellite Home Viewer Act, 17 U.S.C. § 119 (1995), and Unlike conventional broadcasters that transmit through a concerted refusal to license copyrighted free signals and rely on advertising revenues, satel- television programming to PrimeTime. Judge McK- lite operators such as PrimeTime charge users a fee. enna granted appellees' motion to dismiss under Users can improve reception or access the satellite Fed.R.Civ.P. 12(b)(6) on the ground that their con- system's provision of geographically distant station duct was protected under the Noerr–Pennington broadcasts. Access to distant stations allows con- doctrine. We reverse. sumers to avoid local preemptions of network programming; to watch sports, news, or other broad- BACKGROUND casts from distant stations; or to take advantage of The complaint alleged the following. Prime- variations in programming timing caused, for in- Time retransmits network broadcast signals either stance, by time-zone differences. directly to satellite dish owners or to direct-to-home satellite distributors who include the network Due to its continuing appeal, network program-

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ming is essential to the competitive position of that in a local area where the network affiliates' sig- satellite operators. However, satellite providers nals originate from different points, the satellite op- cannot offer copyrighted network television pro- erator might have statutory rights to licenses for the gramming without permission or a license. In an ef- programming of some but not all networks, e.g., fort to balance the networks' copyright interests ABC and CBS but not NBC. See 17 U.S.C. §§ with consumers' interests in receiving programming 119(a)(2)(B), 119(d)(2)(A). through satellites, Congress passed the Satellite Home Viewers Act of 1988 (“SHVA”), Pub.L. No. Satellite providers initially designate those 100–667, 102 Stat. 3935 (Nov. 8, 1988), codified in households for which they claim a statutory right to 17 U.S.C. § 119 (1995), subsequently amended by serve under the mandatory licensing. Local broad- Satellite Home Viewer Improvement Act of 1999, casters have the right under the SHVA to challenge Pub.L. No. 106–113, 113 Stat. 1501, 1501A–526 to the satellite operators' estimate of the signal- FN1 1501A–545 (Nov. 29, 1999). The SHVA, inter strength received by the designated households. See alia, requires networks to license their signals to id. § 119(a)(8). If the subscriber is “within the pre- satellite broadcasters at a statutorily fixed royalty dicted Grade B Contour of the station,” the satellite fee, for distribution to viewers who cannot receive operator must either cease providing the disputing a sufficiently *96 strong over-the-air broadcast sig- broadcaster's channel to the challenged viewers or nal. See generally id. perform a signal-strength test for that household. Id. § 119(a)(8)(A). If the test shows that the chal- FN1. Although Congress amended the lenged household is adequately served by the chal- SHVA in 1999, the acts alleged in the lenging stations, the satellite provider must cease complaint occurred under the prior statute. providing the programming from that station; if the Thus, the subsequent amendments are not test shows that the challenged household is not ad- relevant to our analysis, and all references equately served, the challenging station must reim- to 17 U.S.C. § 119 in this opinion refer to burse the satellite provider for the cost of conduct- the prior version of the SHVA. ing the test. See id. § 119(a)(8)(B). If the challenged subscriber is outside the particular station's Specifically, the SHVA mandatory license ex- predicted Grade B Contour, a station cannot force tends only to households that “cannot receive, the satellite operator to conduct a signal-strength through the use of a conventional, stationary out- test. See id. § 119(a)(8)(D). However, the station door rooftop receiving antenna, an over-the-air sig- may conduct its own test of service to a particular nal of ... Grade B intensity as defined by the Feder- household, and, if the test shows that the household al Communications Commission,” 17 U.S.C. § is adequately served, the satellite operator must re- 119(d)(10)(A), and have not received cable service imburse the station for the cost of the test and ter- in the preceding 90 days, 17 U.S.C. § minate service of the station's programming to the 119(d)(10)(B). See 17 U.S.C. § 119(a)(2)(B). Thus, household. See id. the SHVA establishes a relatively objective signal- strength rule rather than a subjective rule of recep- The statute limits the rights of stations to force tion quality. See id.; see also ABC, Inc. v. Prime- a satellite provider to conduct signal-strength tests. Time 24, 184 F.3d 348, 352 (4th Cir.1999) (“The In any calendar year, a station may challenge no very terms of the SHVA define eligible households more than five percent of a satellite provider's sub- by means of an objective, measurable standard.”); scriber base that existed at the SHVA's effective CBS Broadcasting, Inc. v. Primetime 24 Joint Ven- date. See id. § 119(a)(8)(C). Above the five-percent ture, 48 F.Supp.2d 1342, 1355 (S.D.Fla.1998). The threshold, a station may challenge service to a signal-strength rule at issue works by station, so household only by conducting its own test, as in the

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case of households outside the predicted Grade B In granting a motion to dismiss, Judge McK- Contour. See id. § 119(a)(8)(c)(ii). enna ruled that appellees' actions were protected by the Noerr–Pennington doctrine. See PrimeTime 24 PrimeTime's complaint alleged that appellees, Joint Venture v. National Broadcasting Co., 21 in concert with themselves and with coordination F.Supp.2d 350, 357, 359 (S.D.N.Y.1998); see gen- by the NAB, intentionally abused the SHVA's sig- erally Eastern R.R. Presidents Conference v. Noerr nal-strength challenge provision by filing baseless Motor Freight, Inc., 365 U.S. 127, 81 S.Ct. 523, 5 challenges for the purpose of raising PrimeTime's L.Ed.2d 464 (1961); United Mine Workers v. Pen- cost structure and thereby reducing competition nington, 381 U.S. 657, 85 S.Ct. 1585, 14 L.Ed.2d from it. PrimeTime alleged in particular that ap- 626 (1965). It noted that litigation to enforce a val- pellees based their challenges on a common NBC id copyright was protected activity under No- subscriber list, despite the fact that PrimeTime had err–Pennington. See id. at 356 (citing Columbia provided different lists to each network. Because Pictures Indus., Inc. v. Redd Horne, Inc., 749 F.2d network affiliates broadcast from different points, 154, 161 (3d Cir.1984) (holding good-faith litiga- the predicted Grade B Contours as described in the tion to enforce a copyright protected under No- lists differ for each network. The purpose of using err–Pennington )). Comparing the use of SHVA- an NBC subscriber list, PrimeTime alleges, was in- authorized signal-strength challenges to pre- tentionally to over-challenge subscribers, i.e., to litigation “threat letters,” the district court held that challenge subscribers outside particular stations' concerted use of the statutory challenges was, by Grade B Contours. extension, protected petitioning activity under No- err–Pennington. Id. at 356–57. The district court *97 The complaint also alleged a concerted re- believed that “the case for immunity is particularly fusal to deal in that appellees agreed among them- strong in this context, considering that the chal- selves not to license content to PrimeTime, not- lenged conduct was engaged in as part of a stat- withstanding the fact that it would be in their in- utory system of monitoring and enforcing defend- terests, acting individually, to do so. Specifically, ants' rights under the Copyright Act.” Id. at 357. the complaint alleged that the NAB, bargaining on The court also held that the allegations of excess- behalf of appellees, offered a per-viewer license at ive, willful misuse of the SHVA signal-strength a price that it believed to be prohibitive. When testing provisions did not fall within the sham ex- PrimeTime immediately agreed to negotiate that ception to Noerr–Pennington. See id. at 359–60. In price, the offer was withdrawn. Subsequently, ac- determining that PrimeTime had not adequately al- cording to the complaint, appellees engaged in a leged facts constituting a “sham” under No- concerted effort not to deal with PrimeTime, and err–Pennington, the court stated that appellant the NAB copied a letter to its members telling them “fail[ed] to allege ... that the use of the NBC list not to deal with PrimeTime. The complaint further was unreasonable under the circumstances or that alleged that the networks discouraged their affili- defendants knew that challenges based on this list ates from dealing with PrimeTime and that none of would be meritless.” Id. at 360. the networks have dealt with PrimeTime. As to the concerted refusal to deal claim, the Finally, the complaint alleged that PrimeTime district court concluded that the complaint's allega- was injured by appellees because it was forced to tions showed only a rejection of a settlement offer drop subscribers due to the number of challenges and was thus also petitioning activity protected un- and the cost of conducting signal-strength tests. The der Noerr–Pennington. See id. at 357–59. In the complaint also alleged an adverse effect on compet- district court's view, appellees “were under no ob- ition. ligation to negotiate with or grant a license to

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[PrimeTime] to enable it to retransmit copyrighted within that station's Grade B Contour cannot violate network programming.” Id. at 358. The court the Sherman Act. That is what the SHVA specific- reasoned that PrimeTime's “offers to ‘negotiate’ ally permits. Nor do we think that it violates the with [appellees] ... were attempts to avoid liability Sherman Act for stations to act in coordination, for infringing [appellees'] copyrights” and thus pe- whether orchestrated by the networks, NAB, or titioning activity protected under No- trade associations, in making good-faith SHVA err–Pennington. Id. challenges.

We note that other courts have determined that We reach that conclusion for two overlapping “PrimeTime ha[s] engaged in a pattern or practice reasons. First, we believe that Congress intended to of infringing [network] copyrights.” ABC, 184 F.3d allow coordinated efforts among parties such as ap- at 350; accord CBS, 48 F.Supp.2d at 1357. The pellees in making good-faith SHVA challenges, and Florida action resulted in a nationwide injunction it would therefore be anomalous to read the Sher- against PrimeTime. See CBS, 48 F.Supp.2d at man Act to forbid such efforts. Second, even if we 1360–63. The district court in the instant matter were in doubt as to Congress's precise intent, we stated that the success of the Florida action, “while believe that good-faith SHVA challenges are pro- not alone determinative of the merit of their pre-suit tected by the Noerr–Pennington doctrine. However, *98 challenges, does help to refute any claim of we also conclude that Congress did not intend to baselessness [in the sham allegation].” PrimeTime, permit coordinated SHVA challenges to be made 21 F.Supp.2d at 360. without regard to the merits and for the purpose of imposing upon a satellite carrier unnecessary costs This appeal followed. as a means of limiting that carrier's ability to operate and compete. Such bad faith conduct also falls DISCUSSION within the “sham” exception to Noerr–Pennington. We review de novo a district court's dismissal of a complaint under Rule 12(b)(6). See, e.g., Mc- [1] Turning first to Congress's intent with re- Clellan v. Cablevision of Conn., Inc., 149 F.3d 161, gard to the SHVA, we note that SHVA challenges 164 (2d Cir.1998). Generally, “[i]n reviewing the are a form of copyright enforcement. The SHVA dismissal of a complaint under Rule 12(b)(6) ... we was designed to “balance[ ] the rights of copyright must accept as true the facts alleged in the com- owners by ensuring payment for the use of their plaint and draw all reasonable inferences in the property rights, with the rights of satellite dish plaintiff's favor.” Northrop v. Hoffman of Simsbury, owners, by assuring availability at reasonable rates Inc., 134 F.3d 41, 43 (2d Cir.1997). of retransmitted television signals.” H.R.Rep. No. 100–887(I), at 14 (1988), reprinted in 1988 PrimeTime makes two straightforward antitrust U.S.C.C.A.N. 5611, 5617. Signal-strength chal- claims: first, that appellees engaged in coordinated lenges are an integral part of the SHVA's design to efforts to make baseless SHVA challenges to im- protect networks' copyright interests and to “respect pose costs upon PrimeTime as a way of stifling [ ] the network/affiliate relationship and promote[ ] competition from it; and, second, that appellees en- localism.” Id.; see generally 17 U.S.C. § 119(a). In gaged in a concerted refusal to negotiate copyright its discussion of Section 119(a), the Report of the licenses with PrimeTime, also as a means of stifling House Judiciary Committee specifically contem- competition. plated cooperation among stations: a) Abuse of SHVA Challenge Provision The [SHVA] contemplates that network stations It is beyond question that a good-faith SHVA will cooperate with one another (and with the challenge by a station to a PrimeTime subscriber network with which they are affiliated) in monit-

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oring the compliance of satellite carriers with the the sharing of costs or other coordinated activity requirements of [the SHVA]. avoids wasteful duplication of effort and has no dis- cernible effect on lawful competition. H.R.Rep. No. 100–887(I), at 19 (1988), reprinted in 1988 U.S.C.C.A.N. 5611, 5622. Noting “the [2] Of course, the principle that enforcement of expense and burden of monitoring the eligibility of legal rights through coordinated efforts among thousands of individual households scattered across competitors cannot lead to antitrust liability does the nation,” the Committee Report asserted that this not extend to the concerted assertion of baseless cooperation would “help to preserve the exclusive claims with the intent of imposing costs on a com- distribution system” and would “generally be pro- peting firm to prevent or impair competition from competitive.” Id. Although the language quoted was that firm. See California Motor Transp. Co. v. limited to intra-network cooperation, the same pas- Trucking Unlimited, 404 U.S. 508, 516, 92 S.Ct. sage later used more inclusive language: “Absent 609, 30 L.Ed.2d 642 (1972); Robert H. Bork, The any anti-competitive ancillary restraints, coopera- Antitrust Paradox 347–64 (1978). Such conduct is tion among *99 network stations, networks, and predatory, without any redeeming efficiency bene- satellite carriers in achieving compliance with [the fitting consumers. However, because most of the SHVA] will serve the public interest and will pertinent caselaw arose under the No- provide an efficient method to achieve the ends of err–Pennington doctrine, we defer further discus- the copyright law and [the SHVA].” Id. at 20 sion until immediately infra. Moreover, as we also (1988), reprinted in 1988 U.S.C.C.A.N. 5611, discuss infra, while owners of copyrights may indi- 5623. vidually refuse to deal with a party seeking a license, such owners may not collectively refuse to These signs of congressional intent are con- deal to prevent competition. See Broadcast Music, firmed by the Sherman Act itself, which has been Inc. v. Columbia Broadcasting Sys., Inc., 441 U.S. read not to prohibit parties with common legal 1, 19, 99 S.Ct. 1551, 60 L.Ed.2d 1 (1979) (“[T]he rights—for example, creditors, see Sharon Steel copyright laws confer no rights on copyright own- Corp. v. Chase Manhattan Bank, N.A., 691 F.2d ers to fix prices among themselves or otherwise to 1039, 1052–53 (2d Cir.1982) —from engaging in violate the antitrust laws....”). We see no hint in the coordinated efforts to enforce those rights. We note SHVA that Congress intended to relieve appellees that, in particular, the Sherman Act has been read of these antitrust limitations on their conduct. In- not to limit copyright owners from defending their deed, the House Report quoted above specifically individual copyrights against common infringers exempted “anti-competitive ancillary restraints” through concerted litigation, even though the own- from the SHVA's protection of cooperative enforce- ers and infringers may all be competitors. See Redd ment efforts. H.R.Rep. No. 100–887(I), at 20 Horne, 749 F.2d at 161; Edward B. Marks Music (1988), reprinted in 1988 U.S.C.C.A.N. 5611, Corp. v. Colorado Magnetics, Inc., 497 F.2d 285, 5623. 290–91 (10th Cir.1974); Alberto–Culver Co. v. An- drea Dumon, Inc., 466 F.2d 705, 711 (7th Cir.1972) We turn now to the pertinent analysis under the . Although such decisions have usually relied upon Noerr–Pennington doctrine, a body of caselaw con- a Noerr–Pennington rationale, traditional antitrust stituting a limitation upon the scope of the Sherman analysis leads to the same outcome. No one but a Act. The doctrine was first established in the con- copyright violator can gain by denying to copyright text of concerted petitions for anti-competitive le- holders the right to engage in cooperative efforts to gislation. See Noerr, 365 U.S. at 136–38, 81 S.Ct. enforce their copyrights against a common in- 523 (right to petition legislature is protected irre- fringer. Where common legal or fact issues exist, spective of whether ends sought promote competi-

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tion); Pennington, 381 U.S. at 669–71, 85 S.Ct. than are prelitigation threat letters. Nevertheless, 1585. Having noted in Noerr the “important consti- SHVA challenges are a form of action authorized tutional questions” implicated by the right to peti- by statute and a preliminary step to resort to litigation the legislature, 365 U.S. at 138, 81 S.Ct. 523, tion if necessary. Moreover, the immediate harm the Supreme Court later made explicit its reliance has been counterbalanced by a statutory right of re- on First Amendment principles—albeit as an inter- imbursement if the challenge is unsuccessful—a lit- pretation of the Sherman Act itself—in extending igation skirmish in miniature. Accordingly, we see Noerr to apply to concerted actions before courts no reason to exclude SHVA challenges from the and administrative agencies. See California Motor protection afforded by Noerr–Pennington generally Transp., 404 U.S. at 508, 510–11, 92 S.Ct. 609 to administrative and court proceedings or to steps (“[I]t would be destructive of rights of association preliminary to such proceedings. and of *100 petition to hold that groups with common interests may not, without violating the anti- However, that is not the end of the matter. The trust laws, use the channels and procedures of state Noerr–Pennington doctrine does not extend to and federal agencies and courts....”). “every concerted effort that is genuinely intended to influence governmental action,” because “[i]f all [3] Courts have extended Noerr–Pennington to such conduct were immunized then, for example, encompass concerted efforts incident to litigation, competitors would be free to enter into horizontal such as prelitigation “threat letters,” see McGuire price agreements as long as they wished to propose Oil Co. v. Mapco, Inc., 958 F.2d 1552, 1560 (11th that price as an appropriate level for governmental Cir.1992) (holding that concerted threats of litiga- ratemaking or price supports.” Allied Tube & Con- tion are protected under Noerr–Pennington ); duit Corp. v. Indian Head, Inc., 486 U.S. 492, 503, Coastal States Mktg., Inc. v. Hunt, 694 F.2d 1358, 108 S.Ct. 1931, 100 L.Ed.2d 497 (1988) (holding 1367–68 (5th Cir.1983) (same); Barq's Inc. v. Noerr–Pennington inapplicable to concerted effort Barq's Beverages, Inc., 677 F.Supp. 449, 452–53 to influence private organization's product stand- (E.D.La.1987) (applying prelitigation rights to en- ards routinely adopted by state and local govern- forcement of trademark litigation), and settlement ments); see also FTC v. Superior Court Trial Law- offers, see Columbia Pictures Indus., Inc. v. Profes- yers Ass'n, 493 U.S. 411, 424–25, 110 S.Ct. 768, sional Real Estate Investors, Inc., 944 F.2d 1525, 107 L.Ed.2d 851 (1990) (holding No- 1528–29 (9th Cir.1991), aff'd, 508 U.S. 49, 113 err–Pennington inapplicable to lawyers' boycott S.Ct. 1920, 123 L.Ed.2d 611 (1993). Litigation, in- aimed at increasing statutory compensation). cluding good faith litigation to protect a valid copyright, therefore falls within the protection of the In particular, as noted in Noerr itself, “[t]here Noerr–Pennington doctrine. See Redd Horne, 749 may be situations in which [petitioning activity], F.2d at 161; Colorado Magnetics, 497 F.2d at 290; ostensibly directed toward influencing government- Alberto–Culver, 466 F.2d at 711. al action, is a mere sham to cover what is actually nothing more than an attempt to interfere directly PrimeTime is of course correct in arguing that with the business relationships of a competitor and SHVA challenges are not literally petitions to the the application of the Sherman Act would be justi- government. Moreover, SHVA signal-strength chal- fied.” 365 U.S. at 144, 81 S.Ct. 523. Elaboration of lenges differ significantly from prelitigation threat the “sham exception” occurred in California Motor letters because SHVA challenges require the satel- Transport, where the Court noted that “a pattern of lite carrier either to pay for a signal-strength test or baseless, repetitive claims may ... lead[ ] the fact- to terminate service. SHVA challenges are, there- finder to conclude that the administrative and judi- fore, more immediately harmful to a competitor cial processes have been abused.” 404 U.S. at 513,

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92 S.Ct. 609. did not even receive ABC, CBS, or Fox programming.” Id. Furthermore, PrimeTime alleged that ap- [4] To establish “sham” administrative or judi- pellees submitted numerous challenges to sub- cial proceedings, a plaintiff must show that the lit- scribers outside the predicted Grade B Contour. See igation in question is: (i) “objectively baseless,” id. ¶ 45. Although the challenging stations, not and (ii) “an attempt to interfere directly with the PrimeTime, would have the statutory obligation to business relationships of a competitor through the pay for a signal-strength test outside the Grade B use of the governmental process—as opposed *101 Contour, see 17 U.S.C. § 119(a)(8)(D), PrimeTime to the outcome of that process—as an anticompetit- alleged that appellees coordinated their efforts to ive weapon.” Professional Real Estate Investors, submit huge volumes of challenges simultaneously, Inc. v. Columbia Pictures Indus., 508 U.S. 49, 60, see Compl. ¶ 46, and failed to give PrimeTime 113 S.Ct. 1920, 123 L.Ed.2d 611 (1993) (citations, “information sufficient to determine which of the internal quotation marks, and alterations omitted). challenged subscribers resided within the station's predicted Grade B Contour,” id. ¶ 47. Moreover, [5] This two-step inquiry, however, applies to PrimeTime alleges that the appellees' coordinated determining “whether a single action constitutes scheme “was done in order to overwhelm Prime- sham petitioning.” USS–POSCO Indus. v. Contra Time 24 and make it difficult and expensive for Costa County Bldg. & Constr. Trades Council, PrimeTime 24 to comply with [the] SHVA.” Id. ¶ AFL–CIO, 31 F.3d 800, 811 (9th Cir.1994) 41. (interpreting Professional Real Estate ). In cases in which “the defendant is accused of bringing a PrimeTime's complaint therefore adequately al- whole series of legal proceedings,” the test is not leges that the SHVA challenges were “brought pur- “retrospective” but “prospective”: “Were the legal suant to a policy of starting legal proceedings filings made, not out of a genuine interest in re- without regard to the merits and for the purpose of dressing grievances, but as part of a pattern or prac- injuring a market rival.” USS–POSCO, 31 F.3d at tice of successive filings undertaken essentially for 811. PrimeTime essentially alleges “the filing of purposes of harassment?” Id. As the Ninth Circuit frivolous objections ... simply in order to impose has noted, it is immaterial that some of the claims expense and delay,” the “classic example” of a might, “as a matter of chance,” have merit. The rel- sham. City of Columbia v. Omni, 499 U.S. 365, evant issue is whether the legal challenges “are 380, 111 S.Ct. 1344, 113 L.Ed.2d 382 (1991); see brought pursuant to a policy of starting legal pro- also California Motor Transp., 404 U.S. at 512, 92 ceedings without regard to the merits and for the S.Ct. 609 (“It is alleged that petitioners instituted purpose of injuring a market rival.” Id. the proceedings and actions with or without prob- able cause, and regardless of the merits of the [6] Under this standard, PrimeTime's complaint cases.” (internal punctuation marks omitted)). In- stated a valid sham claim. PrimeTime alleged that deed, PrimeTime alleges conduct virtually identical appellees submitted “simultaneous and voluminous to that deemed by the Ninth Circuit in USS–POSCO challenges ... without regard to whether the chal- to be “automatic petitioning ... without regard to lenges had merit,” Compl. ¶ 41; see also id. ¶ 44 and regardless of the merits of said petitions,” 31 (calling challenges “objectively baseless”). Prime- F.3d at 810, that “if proven, would be sufficient to Time alleged in particular that appellees submitted overcome the [defendants'] Noerr–Pennington de- violations based solely on NBC station lists. See id. fense.” Id. at 811. PrimeTime's SHVA signal- ¶ 44. Because network affiliates in a particular area strength challenges claim should not, therefore, generally transmit from different locations, Prime- have been dismissed on the pleadings. Time plausibly alleged that “ABC, CBS, and Fox affiliates challenged thousands of subscribers who

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Appellees also argue that PrimeTime's sham al- competitors,” a classic per se violation of the Sher- legation should be dismissed because of the success man Act. NYNEX Corp. v. Discon, Inc., 525 U.S. broadcasters have had *102 in other litigation 128, 135–36, 119 S.Ct. 493, 142 L.Ed.2d 510 against PrimeTime. See ABC, 184 F.3d 348; CBS, (1998); see also Klor's, Inc. v. Broadway–Hale 48 F.Supp.2d 1342. For example, in resolving ap- Stores, Inc., 359 U.S. 207, 212, 79 S.Ct. 705, 3 pellees' prior nationwide copyright action against L.Ed.2d 741 (1959) (“Group boycotts, or concerted PrimeTime, the District Court for the Southern Dis- refusals ... to deal ..., have long been held to be [per trict of Florida rejected PrimeTime's “unclean se antitrust violations].”). hands” defense, which included many of the allegations PrimeTime proffers in support of its sham Appellees assert, and the district court held, claim. See CBS, 48 F.Supp.2d at 1359. However, all that their conduct “amounted to the rejection of set- that was determined in the Florida action was that tlement offer, which constitutes protected petition- PrimeTime engaged in a pattern and practice of vi- ing activity” under Noerr–Pennington, see Prime- olating the networks' copyrights, see id. at 1357, Time, 21 F.Supp.2d at 358. In so holding, the court and should therefore be enjoined. The rejection of relied largely on the Ninth Circuit's opinion in the “unclean hands” defense involved an equitable Columbia Pictures, 944 F.2d 1525. In that case, weighing of PrimeTime's conduct against that of plaintiff had alleged that defendants, after they had some appellees. The court concluded only that the instituted a copyright infringement action, con- balance was not such as to preclude an injunction spired to frustrate plaintiff's attempts to obtain li- against PrimeTime for copyright violation. This censes. See id. at 1527. The court granted summary balancing hardly compels us to conclude that a judgment in favor of the defendants on plaintiffs' properly alleged abuse of SHVA challenges cannot concerted refusal to deal claim. See id. at 1528–33. constitute an antitrust violation. Appellees may Significantly, the Ninth Circuit ruled that “[o]n the well have engaged in a “pattern of baseless, repetit- facts of this case, [plaintiff]'s request for licensing ive” signal-strength challenges to harm PrimeTime, amounted to an offer to settle the lawsuit.” Id. California Motor Transp., 404 U.S. at 513, 92 S.Ct. [8] However, it is hardly clear from the com- 609, even though PrimeTime itself was engaged in plaint here, including supporting letters and docu- a pattern or practice of copyright violations. These mentation, that PrimeTime's attempts to deal indi- arguments appear to go more to the damages vidually with the networks and stations were only suffered by the respective parties than to liability. “an offer to settle the lawsuit[s].” Although ap- b) Concerted Refusal to Deal Claim pellees had made the disputed SHVA signal- [7] PrimeTime's concerted refusal to deal claim strength challenges when PrimeTime sought to deal alleged that it attempted to deal individually with with the networks and stations individually, Prime- each of the affiliated stations, see Compl. ¶ 51, but Time's initial offer predated the copyright infringe- that “[t]he NAB and other [appellees] organized a ment lawsuits. See PrimeTime, 21 F.Supp.2d at campaign to ensure that no affiliate would break 358–59. Moreover, by proposing to offer each sta- ranks and enter into discussions with PrimeTime,” tion a fee for each local subscriber, PrimeTime may id. ¶ 52. PrimeTime further alleged that none of the have been seeking to obtain licenses prospectively, network-affiliated stations has “engaged in any real allowing ongoing legal actions to survive. Although negotiation” with PrimeTime, that many have sent coordinated efforts to enforce copyrights *103 identical rejection letters, and that NBC and ABC against a common infringer may be permissible, have specifically discouraged their affiliated sta- copyright holders may not agree to limit their indi- tions from dealing with PrimeTime. Id. ¶ 53. Prime- vidual freedom of action in licensing future rights Time alleged “a horizontal agreement among direct to such an infringer before, during, or after the law-

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suit. See Broadcast Music, 441 U.S. at 19, 99 S.Ct. tion or some form of concerted action between at 1551. Such an agreement would, absent litigation, least two legally distinct economic entities” that violate the Sherman Act, see id.; NYNEX, 525 U.S. “constituted an unreasonable restraint of trade at 136, 119 S.Ct. 493 (noting that horizontal agree- either per se or under the rule of reason.” Capital ments among competitors are per se antitrust viola- Imaging Assocs. v. Mohawk Valley Med. Assocs., tions (citing Klor's, 359 U.S. at 212–13, 79 S.Ct. 996 F.2d 537, 542 (2d Cir.1993). In addition, a 705)), and cannot be immunized by the existence of plaintiff must independently show “antitrust in- a common lawsuit. jury,” Atlantic Richfield Co. v. USA Petroleum Co., 495 U.S. 328, 334, 110 S.Ct. 1884, 109 L.Ed.2d Nothing in the SHVA itself, or its legislative 333 (1990), in order to ensure that “a plaintiff can history, suggests a congressional intent to limit the recoveronlyifthelossstemsfromacompetition-redu- Sherman Act's applicability to such conduct. As cing aspect or effect of the defendant's behavior.” noted, although the House Judiciary Committee Re- Id. at 344, 110 S.Ct. 1884. port did contemplate cooperation among copyright holders to monitor satellite carriers' compliance Appellees argue first that “the SHVA, not with the SHVA, see H.R.Rep. No. 100–887(I), at [appellees'] conduct, ... prevents [PrimeTime] from 19 (1988), reprinted in 1988 U.S.C.C.A.N. 5611, competing with [appellees'].” We disagree. The 5622, it specifically stated that the SHVA did not SHVA does not prevent networks and stations from countenance “anti-competitive ancillary restraints,” individually licensing their product to satellite car- id. at 20, reprinted in 1988 U.S.C.C.A.N. at 5623 riers; it merely does not force them to do so. Nor (“Although the Committee expects and approves of does the SHVA force networks and stations to ... cooperation in achieving compliance with the make signal-strength challenges; it merely author- [SHVA], any restraints ancillary to such activities izes them to do so. would be governed by existing law.”). [10] In addition, PrimeTime has clearly alleged Although the networks and their affiliates com- injury both to itself and to competition generally. pete with each other through common technology, Specifically, PrimeTime alleges that it “has been PrimeTime offers similar services through a differ- injured in its business and property, including by ent technology that is a common competitive threat having lost profits and goodwill, by having to incur to the networks and affiliates. A concerted refusal substantial and unnecessary expenses, and by being to license copyrighted programming to PrimeTime seriously weakened, and threatened with elimina- in order to prevent competition from it is a boycott tion....” Compl. ¶ 55. Moreover, PrimeTime plaus- that, if proven, violates the Sherman Act. See ibly alleges a harm to competition: according to the Klor's, 359 U.S. at 212, 79 S.Ct. 705; see also complaint, appellees' conspiracies both reduced net- Broadcast Music, 441 U.S. at 19, 99 S.Ct. 1551. works' national competition with alternative programming and reduced local stations' competition c) Other Antitrust Elements with alternative distribution systems. See *104 id. ¶ Because we review the district court's decision 56. As a result, appellant alleges, “[a]ctual and po- to dismiss under Rule 12(b)(6) de novo, we are free tential price competition has been eliminated, out- to affirm the decision below on dispositive but dif- put has been restricted, ... and millions of con- ferent grounds. Appellees assert that PrimeTime sumers have lost or risk losing the opportunity to has failed to allege other essential elements of an receive higher quality television reception and addi- antitrust violation. Their arguments are meritless. tional programming options.” Id.

[9] To make out a Section 1 violation of the [11] Finally, appellees' argument that appellant Sherman Act, a plaintiff must allege “a combina- lacks antitrust standing because it is not a competit-

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or or customer is unavailing. PrimeTime competes directly with the networks' owned and affiliated stations in distributing network programming and is also clearly a customer of the network defendants. d) State Law Claims Finally, having dismissed the Sherman Act claims, the district court declined to exercise juris- diction over appellant's pendent State law claims. Because we reinstate the Sherman Act claim, the district court's dismissal of the state law claims must be reversed. See Field v. Trump, 850 F.2d 938, 950 (2d Cir.1988).

CONCLUSION We therefore reverse.

C.A.2 (N.Y.),2000. Primetime 24 Joint Venture v. National Broadcast- ing, Co., Inc. 219 F.3d 92, 2000-2 Trade Cases P 72,968, 55 U.S.P.Q.2d 1385, 28 Media L. Rep. 1993, 21 Com- munications Reg. (P&F) 647

END OF DOCUMENT