Court Opinion

ID: 2755353
Source: CourtListenerOpinion
Date Created: 2014-11-26 00:01:17.946469+00
Date Added: 2024-06-11T12:08:06.614071
License: Public Domain

UNITED STATES DISTRICT COURT
                             FOR THE DISTRICT OF COLUMBIA

                                  )
UNITED STATES OF AMERICA, et al., )
                                  )
         Plaintiffs,              )
                                  )
     v.                           )                             Civil Action No. 14 -cv- 01186 (TSC)
                                  )
                                  )
SINCLAIR                          )
BROADCAST GROUP, INC., et al.,    )
                                  )
         Defendants.              )
                                  )

                                      MEMORANDUM OPINION

        The United States of America and the Commonwealth of Pennsylvania (the

“Commonwealth”) bring this case against Sinclair Broadcast Group, Inc. (“Sinclair”) and

Perpetual Corporation (“Perpetual”) for alleged antitrust violations arising out of Sinclair’s

proposed acquisition of Perpetual. The United States and the Commonwealth allege that the

proposed acquisition would likely substantially lessen competition in the sale of broadcast

television spot advertising in the Harrisburg-Lancaster-Lebanon-York, Pennsylvania Designated

Market Area1 (“HLLY DMA”), in violation of Section 7 of the Clayton Act, 15 U.S.C. § 18.

(ECF No. 1, Compl. 1–2; ECF No. 3, Competitive Impact Statement (“CIS”)).

        Pending before the Court is the United States’ Motion and Memorandum for Entry of the

Proposed Final Judgment (ECF No. 14). While the Motion was filed by the United States, the

attached Certificate of Compliance indicates that the Commonwealth, Sinclair, and Perpetual

join in the Motion. For the following reasons, the Court grants the Motion.
1
 A DMA is a geographic unit defined by the A.C. Nielson Company for television ratings and advertising purposes.
(CIS 4; see also Compl. ¶ 19).

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       I.       BACKGROUND

                a. Defendants and the proposed acquisition

            Sinclair, a Maryland corporation headquartered in Hunt Valley, Maryland, owns or

operates over 145 commercial broadcast television stations in 70 markets in the United States,

including two in the HLLY DMA, known as WHP-TV and WLYH-TV. (CIS 2).2 Perpetual, a

Delaware corporation headquartered in Arlington, Virginia, owns and operates American

Broadcasting Company (“ABC”) affiliated full-power broadcast television stations in six DMAs,

including the only ABC affiliate serving the HLLY DMA, known as WHTM-TV. (Id.). On July

28, 2013, Sinclair and Perpetual executed a Purchase Agreement whereby Sinclair would

purchase all of the outstanding voting securities of Perpetual. (Id. at 3).

                b. Alleged harm resulting from the acquisition

            Pursuant to Section 2(b) of the Antitrust Procedures and Penalties Act (“APPA” or

“Tunney Act”), 15 U.S.C. § 16(b)–(h), the United States filed a CIS with the Complaint to

explain the anti-competitive impact of Sinclair’s acquisition of Perpetual.

            The relevant product market for purposes of Section 7 of the Clayton Act is that of

television spot advertising. (Compl. ¶¶ 13–18; CIS 3). Television stations sell advertising time

during broadcasts to those seeking to reach viewers attracted by television programming. (CIS

3). Advertisers purchase broadcast “spot” advertising to target viewers within specific

geographic markets. (Id.). Spot advertising differs from network and syndicated television

advertising, which are sold nationally by major television networks and by producers of

syndicated programs and broadcast in every market where the network or program is broadcast.

(Id.). Due to its unique combination of sight, sound, and motion, and its expansive reach to

particular geographic markets, television spot advertising has no close substitute for a significant
2
    For the sake of simplicity, the Court cites the CIS for information that appears in both the Complaint and CIS.

                                                            2
number of advertisers. (Id.). Through information obtained during individual price negotiations,

stations can readily identify advertisers with strong preferences for using broadcast television

spot advertising and charge different advertisers different prices. (Id. at 4). With no close

product substitute, a small but significant increase in the price of broadcast television spot

advertising is unlikely to cause enough advertising buyers to switch their purchases to other

media to make that price increase unprofitable. (Id.).

       The relevant geographic market for purposes of Section 7 of the Clayton Act is the

HLLY DMA, which is the 43rd largest in the United States and contains over 740,000

households. (Id.). Advertisers, whether located within or outside the HLLY DMA, use stations

within that DMA to reach the most viewers residing there. (Id.). Advertising on stations outside

the HLLY DMA is not a substitute for advertising on stations within the HLLY DMA, because

signals from stations outside that DMA reach relatively few viewers residing within it. (Id.).

       Sinclair owns and operates CBS-affiliated WHP-TV and, through an existing agreement

with a non-party, operates CW-affiliated WLYH-TV, and therefore controls the advertising

revenue of two of six broadcast stations within the HLLY DMA. (Id.). Post-acquisition, Sinclair

would control the advertising revenue of three of six broadcast television stations within that

DMA: WHP-TV (CBS), WLYH-TV (CW), and WHTM-TV (ABC). (Id.). The proposed

acquisition would increase Sinclair’s share of broadcast television spot advertising revenue from

21 to 30 percent and would substantially increase the already high market concentration in the

HLLY DMA. (Id.).

       The United States found that the proposed acquisition would likely substantially lessen

competition in the sale of broadcast television spot advertising in the HLLY DMA. (Id. at 3).

Competition between WHTM-TV, WHP-TV, and WLYH-TV for the sale of broadcast television

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spot advertising in the HLLY DMA would be eliminated entirely, and therefore the prices for

broadcast television spot advertising within the HLLY DMA would likely increase. (Id. at 5).

The United States also found that the proposed acquisition would both increase market

concentration and result in a highly concentrated market under the Horizontal Merger Guidelines

issued by the Department of Justice and the Federal Trade Commission. (Id.; see also Compl.

App. A).

        In addition to increasing market concentration, the United States concluded that the

proposed acquisition combines stations in the HLLY DMA that are “close substitutes and

vigorous competitors in a market with limited alternatives.” (CIS 6). For example, WHP-TV

and WHTM-TV and their affiliations with CBS and ABC, respectively, along with their local

news coverage, offer a variety of competing programming options that are often substitutes for

many advertisers. (Id.). The stations also share strong viewership in the northern counties of the

geographically diverse HLLY DMA and appeal to similar demographic groups. (Id.).

        The only local ABC affiliate, WHTM-TV, vigorously competes with Sinclair’s CBS and

CW affiliates (WHP-TV and WLYH-TV, respectively) “for the business of local, regional, and

national firms seeking spot advertising in the HLLY DMA.” (Id.). Direct competition for spot

advertising between WHTM-TV and the Sinclair’s existing two stations benefits advertisers

seeking to target similar demographics since those advertisers can pit the stations against each

other. (Id.). The United States concluded that Sinclair’s acquisition of WHTM-TV and resulting

control over three of the six broadcast television stations in the HLLY DMA would eliminate

this competition and thereby likely enable Sinclair to raise prices unilaterally for spot advertising

on its stations. (Id.).

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           The United States also concluded that absent divestiture, any entry or expansion in the

HLLY DMA broadcast television spot advertising market would not be timely, likely, or

sufficient to prevent anticompetitive harm. (Id. 6). A new station, should it first overcome the

hurdle of obtaining an FCC license, would likely not achieve commercial success for at least a

period of years. (Id. at 7). Alternatively, existing stations in the HLLY DMA could not readily

increase their advertising capacity or alter their programming enough to offset a price increase by

Sinclair given their existing programming schedules and contractual commitments with their

affiliated networks. (Id.).

                c. Procedural history

           On July 15, 2014, the United States and the Commonwealth filed their Complaint,

alleging that Sinclair’s proposed acquisition of Perpetual violates Section 7 of the Clayton Act.

Plaintiffs also filed a proposed Hold Separate Stipulation and Order (ECF No. 2-1) intended to

maintain competition during the pendency of the ordered divestitures, and a Proposed Final

Judgment (ECF No. 2-2) to ultimately ensure Defendants’ prompt divestiture of specific

“Divestiture Assets” and preserve competition for broadcast spot advertising within the HLLY

DMA. On July 21, 2014, the Court issued the Hold Separate Stipulation and Order.

           The term “Divestiture Assets,” as used in the parties’ filings and herein, includes all

assets used primarily in the operation of WHTM-TV and are the same assets that Sinclair would

have acquired from Perpetual under the Purchase Agreement. (CIS 7). 3 These assets include

real property, equipment, FCC licenses, contracts, intellectual property rights, programming

materials, and customer lists maintained by Sinclair or Perpetual in connection with WHTM-TV.

(Id.) They do not include assets that are not primarily used in the operation of WHTM-TV but

3
    See the Final Judgment, issued this same day, for a complete and operative definition of the Divestiture Assets.

                                                            5
are instead maintained at the corporate level and used to support multiple stations, such as back-

office systems and other corporate-level assets. (Id. 7–8).

         Subject to the Court’s Hold Separate Stipulation and Order, Defendants were permitted to

consummate the proposed acquisition subject to ongoing requirements that Defendants continued

operating WHTM-TV as a competitively independent, economically viable business

uninfluenced by Sinclair, with the effect of maintaining competition in the relevant marked until

divestiture occurred. On August 1, 2014, pursuant to Section VIII of the proposed Final

Judgment, Sinclair notified the United States that it had executed a definitive agreement with

non-party Media General Operations, Inc. (“Media General”) for Media General to acquire the

Divestiture Assets. (Mot. 2). Twelve days later, the FCC approved the assignment of the

WHTM-TV station license to Medial General, and the transaction closed on September 2, 2014.

(Id.).

         Defendants filed their Joint Tunney Act Notice of Written or Oral Communications, in

compliance with 15 U.S.C. § 16(g), on July 21, 2014. Pursuant to the Act, the United States

filed the Proposed Final Judgment and CIS with the Court simultaneously with the Complaint,

and published the Proposed Final Judgment and CIS in the Federal Register on July 23, 2014, see

79 Fed. Reg. 42,817 (July 23, 2014). (ECF No. 14-1, Cert. of Compliance 1). Further, the

United States published summaries of the terms of the Proposed Final Judgment and CIS,

together with directions for submitting written comments, in The Washington Post for seven days

between July 22 and 28, 2014. (Id.). The sixty-day period for public comments ended on

September 26, 2014. (Id.). The United States received no responsive written comments. (Id. 2).

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         Since divestiture has occurred, the Divestiture Assets are now owned by Media General,

and all requirements of the Tunney Act have been met, the parties move the Court to enter their

Proposed Final Judgment.

   II.      ANALYSIS

            a. Standard of review

         The Tunney Act states:

         (1) Before entering any consent judgment proposed by the United States under
         this section, the court shall determine that the entry of such judgment is in the
         public interest. For the purpose of such determination, the court shall consider--

                (A) the competitive impact of such judgment, including termination of
                alleged violations, provisions for enforcement and modification, duration
                of relief sought, anticipated effects of alternative remedies actually
                considered, whether its terms are ambiguous, and any other competitive
                considerations bearing upon the adequacy of such judgment that the court
                deems necessary to a determination of whether the consent judgment is in
                the public interest; and

                (B) the impact of entry of such judgment upon competition in the relevant
                market or markets, upon the public generally and individuals alleging
                specific injury from the violations set forth in the complaint including
                consideration of the public benefit, if any, to be derived from a
                determination of the issues at trial.

         (2) Nothing in this section shall be construed to require the court to conduct an
         evidentiary hearing or to require the court to permit anyone to intervene.

15 U.S.C. § 16(e).

         In making its determination, the Court may not simply “rubberstamp” the government’s

proposal; instead, it must engage in an “‘independent’ determination of whether a proposed

settlement is in the public interest.” United States v. SBC Commc’ns, Inc., 489 F. Supp. 2d 1, 15

(D.D.C. 2007) (quoting United States v. Microsoft Corp., 56 F.3d 1448, 1458 (D.C. Cir. 1995)).

“[A] district court is not permitted to reject the proposed remedies merely because the court

believes other remedies are preferable,” Id. at 15 (citation omitted), and “should be deferential to

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the government’s prediction of the proposed remedies.” Id.; see also United States v. Am. Tel. &

Tel. Co., 552 F. Supp. 131, 151 (D.D.C. 1982) (“[A] proposed consent decree must be approved

even if it falls short of the remedy the court would impose on its own, as long as it falls within

the range of acceptability or is within the reaches of the public interest.”) (internal quotations and

citations omitted). In sum, “the relevant inquiry is whether there is a factual foundation for the

government’s decisions such that its conclusions regarding the proposed settlement are

reasonable.” SBC Commc’ns, 489 F. Supp. 2d at 15–16; 17.

       The court may not, however, “make a de novo determination of facts and issues” in

conducting its public interest inquiry. United States v. Western Elec. Co., 993 F.2d 1572, 1577

(D.C. Cir. 1993), cert. denied, 510 U.S. 984 (1993) (internal quotation and citation omitted).

Rather, “[t]he balancing of competing social and political interests affected by a proposed

antitrust decree must be left, in the first instance, to the discretion of the Attorney General.” Id.

(internal quotation and citation omitted). The court should therefore reject the proposed final

judgment only if “it has exceptional confidence that adverse antitrust consequences will result—

perhaps akin to the confidence that would justify a court in overturning the predictive judgments

of an administrative agency.” Microsoft, 56 F.3d at 1460 (internal quotations and citation

omitted); see also SBC Commc’ns, Inc., 489 F. Supp. 2d at 15–16 (concluding that the 2004

amendments to the Tunney Act did not address or undermine the deferential standard of review

articulated in Microsoft).

       The United States received no public comments in response to the CIS and Proposed

Final Judgment and therefore the parties now jointly seek entry of the Proposed Final Judgment

without further hearings. (Cert. of Compliance 2). For these reasons and pursuant to its

                                                  8
authority under 15 U.S.C. § 16(e)(2), the Court finds no compelling reason to conduct a hearing

to aid its public interest determination.

           b. Public interest determination

       In this case, whether the settlement is in the public interest depends on the adequacy of

the divestiture of the WHTM-TV assets. If there is a factual basis for concluding that the

divestiture is a reasonably adequate remedy for the harm alleged in the Complaint, then the

settlement should be approved; if not, it should be rejected. The United States indicates that it

considered no determinative materials or documents within the meaning of the APPA in

formulating the Proposed Final Judgment. (CIS 15). Therefore, the Court focuses solely on the

CIS.

       The impact of the Proposed Final Judgment is to eliminate the anticompetitive effect

Plaintiffs allege in their Complaint. That is, the sale of the WHTM-TV Divestiture Assets to

Media General precludes any increase in broadcast television spot advertising in the HLLY

DMA that would result directly from Sinclair’s ownership of three of the six broadcast television

stations in that market. The Court finds that the Proposed Final Judgment includes adequate

provisions in Section X enabling the Department of Justice to ensure compliance and

enforcement, and detailed provisions in Section XI precluding reacquisition and other

detrimental activities short of reacquisition. By its terms, the Proposed Final Judgment will

expire in ten years and the Court shall retain jurisdiction over it for purposes of enforcement,

modification, and violation. Lastly, the Court considers that the parties agreed to the terms of the

Proposed Final Judgment as well as its entry.

       Perhaps because divestiture and the Proposed Final Judgment were designed to eliminate

the anticompetitive harm it alleged, the United States has not proposed any alternative remedies

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short of a full trial on the merits. Given the parties’ full compliance with the Tunney Act and the

absence of any public comments, the Court discerns no public benefit to a trial instead of

accepting the parties’ proposed resolution of this matter.

   III.       CONCLUSION

          The Court is satisfied with the parties’ compliance with the Tunney Act and the

consummated sale of the Divestiture Assets. Further, the Court finds on the record before it a

factual foundation for the government’s decisions such that the government’s conclusions

regarding the Proposed Final Judgment are reasonable, and ultimately that entry of the Proposed

Final Judgment is in the public interest.

          Accordingly, Plaintiff the United States’ Motion and Memorandum for Entry of the

Proposed Final Judgment (ECF No. 14) is GRANTED. The Final Judgment shall issue

separately.

Date: November 25, 2014

                                               Tanya S. Chutkan
                                               TANYA S. CHUTKAN
                                               United States District Judge

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