TV Broadcasters Fail To Compel Production From Ad Agencies And Other Plaintiffs Regarding Antitrust Standing And Market Definition
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  • TV Broadcasters Fail To Compel Production From Ad Agencies And Other Plaintiffs Regarding Antitrust Standing And Market Definition

    On February 9, 2023, Judge Virginia Kendall of the United States District Court for the Northern District of Illinois denied a motion to compel discovery in a long-running dispute between major broadcasters and ad buyers who allege that the broadcasters conspired to fix the prices of local TV ads.  In re Local TV Advertising Antitrust Litigation, No. 18-6785 (N.D. Ill. Feb. 9, 2023).  In their discovery motion, defendant broadcasters had sought to compel production of material that the broadcasters claimed was necessary to challenge both the antitrust standing of two advertising agency plaintiffs and plaintiffs’ proposed definition of the relevant antitrust market.  Denying the motion to compel, the Court ruled that the information sought by the broadcasters was not sufficiently relevant to either issue.

    With respect to discovery regarding antitrust standing, the broadcasters claimed that they needed detailed information about the ad agencies’ operations and client relationships to show that the ad agencies were agents of their clients and passed on any alleged price increases.  The broadcasters based their argument on the so-called “control” exception to the bar on “pass-on defenses” created by the Supreme Court in Illinois Brick Co. v. Illinois, 431 U.S. 720 (1977).  In that case, the Supreme Court described in a footnote a possible exception to its rule that defendants could not claim that direct purchasers were not harmed by alleged anticompetitive conduct because the direct purchasers passed on any price increases to indirect purchasers.  The Supreme Court said a direct purchaser may lack standing to sue independently of its customer “where the direct purchaser is owned or controlled by its customer.”  The broadcasters argued they were entitled to discovery on this issue because they had identified two 10-K annual reports of other ad agencies describing a “principal-agent relationship” with their customers.  The broadcasters claimed that, if a similar relationship existed between plaintiff ad agencies and their customers here, the ad agencies would lack independent standing to sue under Illinois Brick.  The Court, however, disagreed and held that the “control” exception is “nearly synonymous with ‘ownership’—it is not simply a principal-agent relationship.”  The Court further noted that even if a principal-agent relationship could meet the “control” exception in some circumstances, those circumstances did not apply here.  The information already disclosed by the ad agencies indicated “a very low probability that diving into the minutia of their business operations will yield evidence … that [the ad agencies] acted only to channel their clients’ dictated orders to purchase designated ad spots from broadcasters” with “no value-add to their services.”  The Court, therefore, concluded that discovery on the issue of antitrust standing was unwarranted.

    With respect to discovery regarding the antitrust market definition, the broadcasters sought production of material concerning plaintiffs’ purchases of and budget allocations for advertising “other than Broadcast Television Advertising.”  The broadcasters argued that other forms of advertising, such as cable, digital, and radio advertising, may be adequate substitutes for TV ads, that the relevant antitrust market may therefore encompass these forms of advertising, and that the broadcasters were entitled to discovery on the issue.  Again, however, the Court disagreed.  First, the Court noted that the broadcasters’ request would “significantly expand the scope of discovery in the final months of a years’ long process.”  Second, the Court doubted the broadcasters’ allegations regarding market definition because that definition conflicted with administrative guidance from the FCC and a prior DOJ enforcement action, both of which treated local broadcast television as a relevant antitrust market.  Lastly, the Court emphasized that the broadcasters did not need material from plaintiffs to attack the proposed market definition in other ways, including through expert witnesses, statistical market analyses, and the broadcasters’ own sales data.  On this basis, the Court concluded that the identification of additional document custodians and the production of additional material “would be disproportionate to the needs of the case.”

    This decision serves as useful guidance on two points.  First, it provides a clear example of how courts will likely apply the Illinois Brick “control” exception to the bar on “pass-on” defenses.  The Court made clear that the control at issue must be more than a principal-agent relationship.  Second, this decision demonstrates the reluctance of courts to expand the scope of production at the end of discovery.

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