Disney Must Face Antitrust Class Suit by TV Streaming Consumers

Walt Disney Co. failed to convince a federal judge Tuesday to dismiss an entire proposed class action complaint alleging the entertainment and media company’s agreements with other streaming live television providers unreasonably restrained trade and led to price hikes.

Judge Edward J. Davila, of the US District Court for the Northern District of California, partly denied Disney’s motion to dismiss the lawsuit brought by 25 subscribers to YouTube TV and DirecTV Stream alleging Disney engaged in anticompetitive practices in the streaming live pay TV market.

The subscribers sufficiently alleged Disney entered into agreements with rival live television streamers that allowed them to air Disney-owned ESPN content but barred the streamers from offering a bundle to subscribers at a lower price than a bundle including ESPN, Davila said.

"[T]he Court finds that Plaintiffs have plausibly alleged that Disney’s conduct restrains trade and injures competition in the relevant SLPTV market,” the judge said.

Davilla on Sept. 30 partially dismissed the subscribers’ initial complaint with leave to amend. The plaintiffs on Oct. 18 filed an amended complaint alleging Disney violated the federal Sherman Act, as well as state antitrust statutes, and Disney moved again to dismiss all claims.

To assert a Sherman Act violation under the US Supreme Court’s “rule of reason” standard, the plaintiffs must plausibly plead a contract among business entities that intentionally harms commerce for the plaintiffs, Davilla said.

Here, the subscribers alleged that Disney negotiated anticompetitive agreements with live TV streamers who wanted to provide ESPN, which led to raised subscription prices, Davila said. Disney did so partly so the rivals couldn’t undercut Disney-owned Hulu, the plaintiffs plausibly alleged, Davila said.

“Plaintiffs allege that Disney uses the carriage agreements and its control of Hulu to decrease competition in the relevant downstream SLPTV market to sell subscription packages to consumers,” Davila wrote. “The harm to competition caused by Disney’s conduct with the carriage agreements and its control of Hulu is thus alleged as taking place in the correct relevant market, i.e., the SLPTV provider market to sell subscriptions to consumers.”

However, the court granted Disney’s motion to toss the subscribers’ claims for damages under the Sherman Act, limiting the subscribers’ potential relief to an injunction.

Under Supreme Court precedent, a plaintiff can’t sue for damages by alleging an antitrust conspiracy increased costs for a direct purchaser who then passed on the price
increase to the plaintiffs, Davila said. Here, because the subscribers only plausibly allege they were harmed by “a victim of Disney’s anticompetitive conduct"—the rival streamers allegedly forced to raise their prices through agreements with Disney—they can’t sue for damages under a “pass on” theory, Davila said.

The subscribers’ lawsuit also brings claims under state antitrust statutes in Arizona, California, Illinois, Iowa, Michigan, Nevada, New York, North Carolina, and Tennessee.

The court denied Disney’s moves to dismiss the claims in all but Tennessee and Illinois, saying the other states interpret their antitrust statutes consistently with the Sherman Act.

Davila dismissed the claims under the Illinois Antitrust Act because that state statute bars class actions by purchasers a step removed from the alleged anticompetitive agreement, such as the plaintiff subscribers. In addition, Davila dismissed the claims under the Tennessee Trade Practices Act because that statute “applies only to tangible goods, not intangible services.”

The decision comes as the Justice Department earlier this year said it plans to review the new streaming service proposed by Disney, Fox Corp. and Warner Bros. Discovery Inc. over concerns it could harm consumers, media rivals and sports leagues.

Bathaee Dunne LLP and Korein Tillery PC represent the subscribers. Cravath, Swaine & Moore LLP and Farella Braun & Martel LLP represent Disney.

The case is Biddle et al v. Walt Disney Co., N.D. Cal., No. 5:22-cv-07317, 6/25/24.