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Tech Law Journal |
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Duane A. Bosworth, OSB #82507 Of Attorneys for Plaintiffs AT&T Corp.; Tele-Communications, Inc.; IN THE UNITED STATES DISTRICT COURT
Plaintiffs AT&T Corp. ("AT&T"), Tele-Communications, Inc., TCI Cablevision of Oregon, Inc. ("TCI-Oregon") and TCI of Southern Washington ("TCI-Washington"), (collectively "TCI" and collectively with AT&T, "AT&T and TCI"), by their attorneys and for their complaint allege: NATURE OF THIS ACTION 1. This action concerns the proposed merger of AT&T, a global communications company , with TCI, the second largest operator of cable television systems in the United States. TCI indirectly operates the cable television systems serving Defendant City of Portland ("the City" or "Portland") and Multnomah County ("the County") pursuant to separate franchise agreements between the Defendant City and TCI-Oregon, and between Defendant County and TCI-Oregon and TCI-Washington. Under the plan of merger, TCI would become a wholly-owned subsidiary of AT&T, and AT&T would obtain control over TCI-Oregon and TCI-Washington (collectively, "the Franchisees"). AT&T and TCI bring this complaint against the City of Portland ("the City" or "Portland") and Multnomah County ("the County") (collectively "Defendants"). Defendants have denied AT&T’s and TCI’s request for a consent to a change of control of TCI’s cable television franchises and have improperly conditioned their consent by imposing on the Franchisees the mandatory carriage of other competing third-party online services and Internet service providers (ISPs) on their cable systems. Defendants seek to misuse their authority over such changes of control to require AT&T and TCI to sacrifice their statutory, contractual and constitutional rights under federal law. AT&T and TCI therefore seek the following: a declaratory judgment that the condition sought to be imposed by the Defendants, requiring carriage by TCI of unaffiliated providers of online and Internet access services, is unlawful and a violation of AT&T's and TCI's civil rights; an award of damages in an amount to be proved at trial; and costs and attorneys fees. This controversy arises from the proposed $48 billion dollar merger between AT&T and TCI. That merger is being reviewed at the national level by the Federal Communications Commission ("FCC") and other agencies of the federal government (e.g. the Department of Justice and Securities and Exchange Commission). This review, which has included consideration of Internet access to cable, has been underway for four months and is nearly complete. Local authorities such as the Defendants also have a limited role in reviewing changes in control of cable television franchises to ensure that the new parent, AT&T, is legally, technically and financially qualified to perform under the existing franchises. These Defendants, however, have refused to accept that limited role and - contrary to law and their own franchise agreements - have sought to impose their own policy of mandatory access for unaffiliated providers of online and Internet access services as a condition of granting approval. In sum, they have sought to require that AT&T and TCI grant access to ISPs so that all such competing providers would have a mandatory right to use TCI's cable system. This scheme should be declared illegal and unconstitutional by the Court. PARTIES 2. Plaintiff AT&T is a New York corporation with its principal place of business in Basking Ridge, New Jersey. Plaintiff Tele-Communications, Inc. is a Delaware corporation with its principal place of business in Denver, Colorado. Plaintiff TCI-Oregon is an Oregon corporation that has its principal place of business in Oregon. TCI-Oregon provides cable television service over cable television systems in Portland, pursuant to franchise contracts with Portland and the County. Plaintiff TCI-Washington is a Washington partnership that has its principal place of business in Washington. TCI-Washington provides cable service over a cable system in Multnomah County, pursuant to a franchise from the County. 3. Defendant City of Portland is an incorporated city in Multnomah County, Oregon, and is duly organized and existing under the laws of the state of Oregon. Portland is a "franchising authority" as that term is defined in the Federal Communications Act of 1934 ("Communications Act"). 47 U.S.C. § 522(10). Defendant Multnomah County is a home rule county formed under the laws of the state of Oregon. The County is also a "franchising authority" as that term is defined in the Communications Act. JURISDICTION AND VENUE 4. This action arises under the Federal Communications Act of 1934, 47 U.S.C. §§ 151 et seq., as amended by the Cable Communications Policy Act of 1984, Pub. L. No. 98-549, Sec. 2, 98 Stat. 2780; the Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, Sec. 8, 106 Stat. 1484; the Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, 107 Stat. 312, and the Telecommunications Act of 1996, Pub. L. No. 104, 110 Stat. 56 (the "Communications Act" or "Act"). This Court has jurisdiction over this action pursuant to the Constitution of the United States and 28 U.S.C. §§ 1331, 1343, 1367, 2201, and 2202, as an action arising under the laws of the United States; as an action seeking declaratory relief; and as an action seeking relief under state law claims which arise out of the same nucleus of operative fact as the federal question claims. Venue is proper in this District pursuant to 28 U.S.C. § 1391(b) because all Defendants reside in this District, a substantial part of the events giving rise to the claims occurred in this District, and a substantial part of the property that is the subject of this action is situated in this District. 5. There is an actual controversy as to whether Ordinance No. 172955 which was enacted by the City on December 17, 1998 and Resolution No. 98-208, which was enacted by Multnomah County on December 17, 1998, conflict with and are contrary to the provisions of the Communications Act, the United States Constitution, and the respective Franchise Agreements with Portland and Multnomah County. Plaintiffs seek a declaratory ruling that the Ordinance and Resolution are illegal and invalid. GENERAL ALLEGATIONS 6. TCI has operated cable televisions systems in the Portland, Oregon area and elsewhere for many years and offers its customers a variety of cable services. In other communities, TCI offers an optional premium cable service, TCI@Home, which provides interactive, multimedia content from the world's leading content providers and permits subscribers to obtain high-speed access to the Internet and the World Wide Web. As is the case with Home Box Office and other cable services, TCI purchases the right to distribute the @Home service from At Home Corporation and then sells the service to individual subscribers. The Franchisees have intended to offer this service to cable television subscribers of TCI in the Portland area and to pay franchise fees to Portland and the County and other local government authorities based on revenues received by the Franchisees from that service. 7. On June 23, 1998 AT&T and TCI reached a definitive agreement and announced that they intend to merge in the first quarter of 1999. In accordance with FCC regulations, AT&T and TCI gave notice to the City and the County of a proposed change in control that would result from the merger between Tele-Communications, Inc., the local franchisees’ parent, and AT&T, and requested that the City and County consent to the change in control. In accordance with federal regulations, AT&T and TCI provided the City and the County with dispositive information (contained in an FCC Form (Form 394)) that established the technical, legal and financial qualifications of AT&T, the ultimate prospective parent of the local franchisees. At the same time TCI and AT&T sought review and approval from the FCC, other federal agencies and a multitude of states, counties and municipalities around the country. 8. Through an intergovernmental agreement, the City and the County, along with Fairview, Gresham, Troutdale, and Wood Village, formed the Mt. Hood Cable Regulatory Commission ("Commission") for the purpose of general representation of those local governments in cable regulatory matters and review of cable television ordinances, including ordinances approving changes in control of franchises. At the request of the Commission, AT&T responded to Commission staff letters seeking information regarding the change in control. In an effort to be cooperative, AT&T responded to all requests for information from the Commission, even those which did not relate to any inquiry concerning the technical, legal, or financial qualifications of AT&T to perform according to the terms of the franchises in question. 9. Despite the requirements of the Communications Act, the United States Constitution, and the existing Franchise Agreements, the Commission recommended to the Defendants the imposition of conditions on AT&T and TCI unrelated to the technical, legal or financial qualifications of AT&T to perform according to the terms of the existing franchises. Most importantly for purposes of this Complaint, the Defendants included a condition that AT&T and TCI must give unaffiliated providers of Internet and on-line service access to what Defendants term TCI’s "cable modem platform.". The Commission drafted ordinances for the City and the County which contained this illegal condition. On the recommendation of the Commission, on December 17, the City adopted this condition in Ordinance No. 172955 and the County adopted this condition in Resolution No.98-208. 10. On December 29, 1998 AT&T and TCI filed formal acceptances of the Ordinance passed by the City and the Resolution passed by the County, except that in each instance AT&T and TCI did not accept the unlawful condition which would require Franchisees to permit unaffiliated Internet access providers to use their cable systems. On January 7, 1999, the City and the County each officially informed AT&T and TCI that the request for consent to a change in control was denied. FIRST CLAIM FOR RELIEF Federal Communications Act 11. AT&T and TCI reallege Paragraphs 1 through 10 as if fully set forth herein. 12. Section 624, part of Title VI of the Communications Act, prohibits local franchising authorities, including Defendants, from (1) "establish[ing] requirements for video programming or other information services" (47 U.S.C. § 544(b)(1)); (2) "condition[ing] . . . a cable system’s use of . . . any transmission technology" (47 U.S.C. § 544(e)); or (3) "impos[ing] requirements regarding the provision or content of cable services except as expressly provided in this subchapter [Title VI]" (47 U.S.C. § 544(f)). 13. Section 612 of the Communications Act governs commercial leasing of channels on a cable system. Section 612(a) states that "the purpose of [commercial leased access] is to promote competition in the delivery of diverse sources of video programming . . .." 47 U.S.C. § 532(a)(emphasis added). "Video programming," in turn, is defined in the Act as broadcast television or comparable programming, 47 U.S.C. § 522(20), and does not include Internet service. Finally, Section 612 specifically precludes the imposition of leased access requirements by "[a]ny Federal agency, State, or franchising authority" that exceed the requirements of Section 612 as a condition of obtaining or renewing a cable franchise, 47 U.S.C. § 532(b)(2)-(3), and explicitly places all responsibility for resolving leased access issues at the FCC and in the courts. See 47 U.S.C. § 532(c), (d), (e) & (f). 14. Section 621(b)(3)(D) of the Act prohibits any franchising authority, including Defendants from "requir[ing] a cable operator to provide any telecommunications service or facilities, other than institutional networks, as a condition of the initial grant of a franchise, a franchise renewal, or a transfer of a franchise" (47 U.S.C. § 541(b)(3)(D)) (emphasis added). 15. Section 621(c) of the Act (47 U.S.C. § 541(c)) provides that "[a]ny cable system shall not be subject to regulation as a common carrier or utility by reason of providing any cable service." 16. The Act, as implemented by the Federal Communications Commission pursuant to Section 617 (47 U.S.C. § 537), permits local franchising authorities to review the legal, technical, and financial qualifications of the proposed transferee of a franchise, and does not permit the imposition of additional requirements or conditions unrelated to these qualifications as a condition of approving a transfer or change of control of a franchise. 17. Section 636(c) of the Cable Act (47 U.S.C. § 556(c)) provides that "any provision of law of any . . . franchising authority . . . which is inconsistent with this Act shall be deemed to be preempted and superseded." 18. TCI’s optional cable service, TCI @Home, is a cable service under the Cable Act subject to all the limitations on the powers of local franchising authorities set forth in paragraphs 11 through 17 above. The Defendants’ actions in attempting to impose mandatory access to TCI’s cable modem platform on behalf of competing third-party online services and ISPs violate Sections 624(b)(1), (e), and (f) of the Cable Act by attempting to establish requirements for video programming or other information services, to condition TCI’s use of transmission technology, and to impose requirements regarding the provision or content of cable services that are not permitted by the Cable Act. 19. The Defendants' actions in attempting to impose mandatory access to the Franchisee's cable modem platform violate Section 612 of the Communications Act because they attempt to impose requirements for the carriage of non-video programming, and because Section 612 provides for enforcement of requirements for commercial leasing of channels on a cable system at the FCC or in the courts. 20. The Defendants’ actions in attempting to impose mandatory access to TCI’s cable modem platform on behalf of competing third-party online services and ISPs violate Section 621(b)(3)(D) of the Cable Act by attempting to require TCI to provide a common carrier telecommunications service as a condition of a transfer of control of a franchise. 21. The Defendants’ actions in attempting to impose mandatory access to TCI’s cable modem platform on behalf of competing third-party online services and ISPs violate Section 621(c) of the Cable Act by attempting to subject TCI to regulation as a common carrier or utility by reason of providing a cable service. 22. The Defendants’ actions in attempting to impose mandatory access to TCI’s cable modem platform on behalf of competing third-party online services and ISPs violate Sections 617 and 624(f) of the Cable Act by attempting to impose restrictions and conditions on the transfer of control of a franchise that are not related to the legal, technical, and financial qualifications of the proposed transferee and are not expressly provided for under the Cable Act. 23. AT&T and TCI are not incumbent local exchange carriers of telecommunications services as defined in Title II of the Communications Act. 47 U.S.C. § 251(h). Only incumbent local exchange carriers such as U S WEST are required to unbundle their networks in the fashion mandated by the Defendants. In any event, Franchisees are not offering a telecommunications service over their Portland area cable systems and are not subject to Title II of the Act. Even if they were offering a telecommunications service, Defendants have no authority to regulate such a service or enforce Title II of the Act. 24. The Defendants’ attempts to impose mandatory access to TCI’s cable modem platform on behalf of competing third-party online services and ISPs are expressly preempted and superseded under Section 636(c) and Section 251 of the Communications Act and are generally preempted by federal law. SECOND CLAIM FOR RELIEF Breaches of the Franchise Agreements and Impairment of Contract 25. AT&T and TCI reallege Paragraphs 1 through 24 as if fully set forth herein. 26. The merger of AT&T and TCI will result in a change of control of the ultimate parent of the City’s and the County’s franchisees. 27. Paragraph 15.2 (attached as Exhibit 1) of the City’s Franchise Agreement with TCI-Oregon and paragraph 14.2 (attached as Exhibit 2) of the County’s Franchise Agreement with TCI-Oregon, govern the City’s and County’s permissible actions when there is a change in control. Neither of these franchise provisions authorizes the imposition of any condition upon the franchisees in connection with the approval of a change in control. Similarly, paragraph 3.5 (attached as Exhibit 3) of the Hayden Island franchise does not authorize the imposition of any condition upon the franchise in connection with consent to a transfer of control. The imposition by the City of the condition contained in Ordinance No. 172955 is a violation of the Franchise Agreements with TCI-Oregon. The imposition by the County of the condition contained in Resolution No. 98-208 is a violation of the Franchise Agreements with TCI-Oregon and TCI-Washington. 28. Even if the merger of AT&T and TCI and the change in control of the ultimate parent of the franchisees were treated by the City and the County as a transfer of the cable systems in question - which it is not -, instead of a change in control of the ultimate parent of the franchisees, the City and County Ordinances violate the Franchise Agreements. 29. Paragraph 15.1 (Exhibit 1) of the City’s Franchise Agreement with TCI-Oregon, and paragraph 14.1 (Exhibit 2) of the County’s Franchise Agreement with TCI-Oregon, (paragraph 3.6 (Exhibit 3) of the County’s Hayden Island franchise with TCI-Washington contains similar language with regard to consent to a change in control) each state in pertinent part that:
This is the sole language in any of the Franchise Agreements authorizing conditions in connection with consent to a transfer. The condition imposed by the City and County Ordinances, the requirement that plaintiffs provide access to their "cable modem platform" for others, is not a condition related to the technical, legal or financial qualifications of any party to perform according to the terms of the existing franchise and is therefore not authorized. The City’s and County’s imposition of such a condition is in violation of the respective Franchise Agreements. THIRD CLAIM FOR RELIEF Constitutional Claims 30. AT&T and TCI reallege Paragraphs 1 through 29 as if fully set for herein. 31. The United States Constitution, Art. I, § 10, provides that "No State shall . . . pass any . . . Law impairing the Obligation of Contracts." The condition in the Ordinance violates the Contract Clause of the United States Constitution, Article I, § 10 because it would abrogate TCI's contractual rights limiting the conditions under which the Defendants would consent to transfer of the franchises. Rather than abiding by the limits set forth in the franchise contracts, the Defendants would require TCI to sacrifice control over its cable television facilities to unaffiliated ISPs in order to gain approval of the change in control of the ultimate parent of the franchisees. 32. The First Amendment to the United States Constitution provides that Congress shall make no law abridging freedom of speech or the press. The First Amendment has been applied to the states, and to local governments such as the City and County, pursuant to the Fourteenth Amendment to the United States Constitution. Cable television companies such as TCI are speakers for purposes of the First Amendment. The illegal condition in the Ordinance violates the First Amendment of the United States Constitution because it is a governmental mandate requiring that AT&T and TCI distribute speech of another provider contrary to their freedom of expression. Even if compliance with the City’s and County’s mandate were technologically feasible, it would require AT&T and TCI to choose among competing speakers and favor some speakers over others. 33. The Ordinance and Resolution are unconstitutional because, in violation of the Commerce Clause of the United States Constitution, Art. I, § 8, cl. 3, they impose unnecessary and impermissible burdens on interstate commerce. FOURTH CLAIM FOR RELIEF 34. AT&T and TCI reallege Paragraphs 1 through 33 as fully set forth herein. 35. By unconstitutionally impairing Plaintiffs' existing contractual rights, impermissibly burdening interstate commerce, and compelling Plaintiffs to distribute the speech of others, Defendants acted under color of state law to deprive Plaintiffs of rights secured to them by the federal Constitution, in violation of 42 U.S.C. § 1983. Plaintiffs have suffered damages in an amount to be proven at trial. Plaintiffs are entitled to their reasonable attorney fees, pursuant to 42 U.S.C. § 1988. PRAYER FOR RELIEF WHEREFORE, AT&T and TCI request that the Court enter judgment in their favor against the Defendants as follows: 1. Under the First Claim, declaring that the Defendants have violated the Communications Act by imposing an illegal condition on the transfer of cable television franchises; 2. Under the Second Claim, declaring that the illegal condition is contrary to the franchise agreements; 3. Under the Third Claim, declaring that the illegal condition violates the Contract Clause, the First Amendment, and the Commerce Clause of the United States Constitution; 4. Under the Third and Fourth Claims, awarding AT&T and TCI damages in an amount to be proven at trial, along with their costs and attorneys' fees in prosecuting this action, pursuant to 42 U.S.C. § 1988 and Fed. R. Civ. P. 54(d); 5. Awarding AT&T and TCI such other relief as the Court deems proper. DATED this 19th day of January, 1999.
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