Could a Maryland town be sued for antitrust violations for switching cable TV franchise operators?

Plain-English summary

The Town of La Plata asked the Attorney General to assess its potential antitrust exposure after it declined to renew a cable television franchise held by CATV General Corporation and granted a new franchise to a different operator, Chasco Cablevision, Ltd. CATV General had missed franchise requirements (no local office, no expansion beyond its original 200 subscribers, substandard installations), so La Plata let its franchise lapse and picked a new operator through competitive bidding, though CATV General refused to remove its cable equipment from utility poles. The opinion concluded that La Plata's actions were protected by the antitrust "state action immunity" doctrine, because a 1982 Maryland law, Chapter 562, specifically and retroactively authorized municipalities to grant exclusive cable television franchises, satisfying the "clearly articulated" state policy the U.S. Supreme Court required in Community Communications Co. v. City of Boulder. The opinion also walked through, as a backstop, why La Plata's conduct would likely survive scrutiny even without immunity: the relevant market for cable competition was probably broader than La Plata alone, Chasco did not appear to hold a dominant market position, and CATV General would have trouble proving it was harmed. Separately, the opinion confirmed that the Attorney General's office was authorized by statute to represent La Plata (and other political subdivisions) in antitrust matters and said it would do so if La Plata were sued.

Currency note

This opinion was issued in 1984. Subsequent statutory amendments, court decisions, or later AG opinions may have changed the analysis. Treat this page as historical context, not current legal advice. Verify current law before relying on any specific rule, deadline, or remedy mentioned here.

An editor's note on the official text records two later developments. First, the U.S. Supreme Court affirmed Town of Hallie v. City of Eau Claire in 1985, holding that active state supervision is not a prerequisite to antitrust immunity where the actor is a municipality rather than a private party, resolving in La Plata's favor a question the opinion had to work through as unsettled. Second, the Attorney General's statutory authority to represent political subdivisions in antitrust matters, discussed in Part V of the opinion, was recodified at §6-107(b) of the State Government Article after Article 32A of the Maryland Code was repealed by Chapter 284, Laws of Maryland 1984. Cable television regulation, franchising law, and antitrust doctrine have all continued to evolve since 1984; readers should not rely on this opinion's market analysis or statutory citations as current law.

Common questions

Was the Town of La Plata at risk of an antitrust lawsuit for switching cable companies?
The opinion concluded that any such claim would likely fail. It found that La Plata's conduct was protected by "state action" immunity under a 1982 Maryland law specifically authorizing municipalities to grant exclusive cable franchises, and that even without immunity, the town's conduct probably would not have violated federal or state antitrust law on the facts as understood.

What is "state action" immunity and why did it matter here?
It is a doctrine that shields state and local government conduct from federal antitrust liability when the government is acting to implement a "clearly articulated and affirmatively expressed" state policy, per Community Communications Co. v. City of Boulder. The opinion found that Maryland's 1982 cable franchising law expressly stated it had "been and shall continue to be the policy of this State" to let local governments grant exclusive cable franchises, which satisfied that test.

Did the town need the State to actively supervise its franchise decision for immunity to apply?
The opinion concluded no active state supervision was required for a municipality itself (as opposed to a private party) to claim state action immunity, reasoning that municipalities are already constrained by the scope of their statutory delegation. It noted this specific question was still unsettled among courts at the time.

Could the Attorney General's office defend La Plata if it were sued?
Yes. The opinion confirmed that Maryland law, Chapter 396, Laws of Maryland 1983, specifically authorized the Attorney General to represent political subdivisions like La Plata in antitrust matters, and the opinion said the office would represent La Plata if asked.

Background and statutory framework

La Plata's original 1972 cable franchise to CATV General was exclusive and ran for 10 years, expiring May 25, 1982. After CATV General fell short on service commitments, La Plata declined to renew and, following competitive bidding, granted a new 15-year, non-exclusive-in-name franchise to Chasco Cablevision effective the same date. A practical dispute over shared utility pole access delayed Chasco's actual entry into the market until January 1983. The opinion's core legal analysis traced the U.S. Supreme Court's antitrust "state action" doctrine from Parker v. Brown through Goldfarb v. Virginia State Bar, Bates v. State Bar of Arizona, City of Lafayette v. Louisiana Power & Light Co., and Community Communications Co. v. City of Boulder, which together established that municipalities need a "clearly articulated and affirmatively expressed" state policy authorizing anticompetitive conduct before they can claim immunity. The opinion found that Maryland's pre-1982 franchise statute, Article 23A, §2(13), was too general to satisfy that test, but that the 1982 amendment (Chapter 562, Laws of Maryland 1982) expressly and retroactively authorized municipalities to grant exclusive cable franchises, satisfying Boulder both prospectively and, with some residual uncertainty, retroactively to La Plata's earlier conduct. As a fallback, the opinion also analyzed La Plata's exposure under Section 1 and Section 2 of the Sherman Act and the Maryland Antitrust Act, working through relevant product and geographic market definition, market foreclosure, and monopolization standards, and concluded the town's conduct was defensible even without immunity.

Citations

Statutes:

• Article 23A, §2(13) of the Maryland Code (municipal franchising authority, before and after the 1982 amendment)
• Chapter 562, Laws of Maryland 1982 (retroactively and prospectively authorized exclusive cable television franchising by counties, municipalities, and Baltimore City)
• Article 25, §3C(b) of the Maryland Code (parallel cable franchising authority for counties, enacted by Chapter 562)
• Article 25A, §5(B) of the Maryland Code (parallel cable franchising authority for charter counties, enacted by Chapter 562)
• Article II, §35A of the Charter of Baltimore City (parallel cable franchising authority for Baltimore City, enacted by Chapter 562)
• Article 25B, §13 of the Maryland Code (related municipal franchising authority)
• Article 41 of the Maryland Declaration of Rights (general prohibition on monopolies)
• Section 1 of the Sherman Act, 15 U.S.C. §1 (prohibits contracts, combinations, or conspiracies in restraint of trade; basis for exclusive-dealing analysis)
• Section 2 of the Sherman Act, 15 U.S.C. §2 (prohibits monopolization, attempted monopolization, and conspiracy to monopolize)
• Section 3 of the Clayton Act, 15 U.S.C. §14 (exclusive dealing arrangements involving goods or commodities; found inapplicable to cable TV services)
• Section 16 of the Clayton Act, 15 U.S.C. §26 (private injunctive relief and attorney's fees for antitrust violations)
• §11-204(a)(6) of the Commercial Law Article (Maryland's analogue to Clayton Act Section 3, covering services as well as goods)
• §11-202(a)(2) of the Commercial Law Article (Maryland courts should be guided by federal antitrust interpretations)
• Maryland Antitrust Act, Title 11, Subtitle 2 of the Commercial Law Article (state antitrust law analyzed alongside federal law)
• CL §11-203(12) (exempts political subdivisions' furnishing of services or commodities from the Maryland Antitrust Act)
• Article 32A, §12V of the Maryland Code (as printed in the 1984 opinion; authorized Attorney General representation of political subdivisions in antitrust matters)
• Chapter 396, Laws of Maryland 1983 (enacted the Attorney General's antitrust representation authority)
• §6-107(b) of the State Government Article (per editor's note, current codification of the Attorney General's antitrust representation authority)
• Chapter 284, Laws of Maryland 1984 (per editor's note, repealed Article 32A of the Maryland Code)

Cases:

• Community Communications Co. v. City of Boulder, 455 U.S. 40 (1982), municipal antitrust immunity requires a "clearly articulated and affirmatively expressed" state policy
• Parker v. Brown, 317 U.S. 341 (1943), founding case establishing that the Sherman Act does not reach state sovereign action
• Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975), not every act of a state agency is state action entitled to immunity
• City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389 (1978), municipalities are not sovereign and need clear state authorization for antitrust immunity
• Bates v. State Bar of Arizona, 433 U.S. 350 (1977), state-compelled restraint immune from antitrust law though invalidated on First Amendment grounds
• Town of Hallie v. City of Eau Claire, 700 F.2d 376 (7th Cir. 1983), aff'd, 105 S.Ct. 1713 (1985), active state supervision not required for municipal antitrust immunity
• Catalina Cablevision Associates v. City of Tucson, 1984-1 Trade Cas. (CCH) ¶65,789 (D. Ariz. 1983), general conditions/restrictions authority found insufficiently clear articulation for cable franchise immunity
• Golden State Transit Corp. v. City of Los Angeles, 563 F. Supp. 169 (C.D. Cal. 1983), traditional municipal power may need less precise state authorization
• Vickery Manor Service Corp. v. Village of Mundelein, No. 82-C-5392 (N.D. Ill. Dec. 12, 1983), retroactive clear-articulation statute not effective where enacted after the challenged conduct and pending suit
• California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97 (1980), private-party antitrust immunity also requires active state supervision
• Deak-Perera Hawaii, Inc. v. Department of Transportation, State of Hawaii, 553 F. Supp. 976 (D. Hawaii 1983), active supervision test applied in dictum to a political subdivision
• Charley's Taxi Radio Dispatch Corp. v. SIDA of Hawaii, Inc., 562 F. Supp. 712 (D. Hawaii 1983), no immunity for exclusive taxi service lacking active state supervision
• Rice v. Norman Williams Co., 458 U.S. 654 (1982), states cannot authorize conduct preempted by the Sherman Act
• Schwegmann Bros. v. Calvert Distillery Corp., 341 U.S. 384 (1951), cited on the limits of a state's power to authorize private restraints
• Gold Cross Ambulance and Transfer and Standby Service, Inc. v. City of Kansas City, 705 F.2d 1005 (8th Cir. 1983), cert. denied, 105 S.Ct. 1864 (1985), state authorization requirement for local conduct analogous to active supervision of private conduct
• Central Iowa Refuse Systems, Inc. v. Des Moines Metropolitan Solid Waste Agency, 715 F.2d 419 (8th Cir. 1983), following Gold Cross on municipal antitrust immunity
• Standard Oil Co. v. United States, 221 U.S. 1 (1911), established the Rule of Reason for Sherman Act Section 1 claims
• Chicago Board of Trade v. United States, 246 U.S. 231 (1918), classic statement of the Rule of Reason test
• Northern Pacific Railway Co. v. United States, 356 U.S. 1 (1958), certain restraints (price fixing, tying, boycotts) are per se illegal
• Satellite Television & Associated Resources, Inc. v. Continental Cablevision of Virginia, Inc., 714 F.2d 351 (4th Cir. 1983), relevant market definition in a cable television antitrust case
• Times-Picayune Publishing Co. v. United States, 345 U.S. 594 (1953), relevant product market includes identical or available substitute products
• Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320 (1961), reasonable interchangeability and cross-elasticity of demand test for product substitutes
• United States v. Grinnell Corp., 384 U.S. 563 (1966), monopolization requires monopoly power plus intent to exercise it; physical similarity test for interchangeability
• United States v. E. I. Du Pont de Nemours & Co., 351 U.S. 377 (1956), monopoly power defined as the power to control prices or exclude competition
• T. V. Signal Company of Aberdeen v. American Telephone & Telegraph Co., 617 F.2d 1302 (8th Cir. 1980), relevant cable TV market found limited to a single municipality's town limits
• RCM Supply Co. v. Hunter Douglas, Inc., 686 F.2d 1074 (4th Cir. 1982), geographic market includes areas where competitive alternatives are reasonably available
• Standard Oil Co. v. United States, 337 U.S. 293 (1949), "area of effective competition" defines relevant geographic market
• United States v. Columbia Steel Co., 334 U.S. 495 (1948), test for unreasonable foreclosure of competition by exclusive dealing
• Cherokee Laboratories, Inc. v. Rotary Drilling Services, Inc., 383 F.2d 97 (5th Cir. 1967), complete foreclosure of a national market by a dominant dealer
• United States v. Realty Multi-List, Inc., 629 F.2d 1351 (6th Cir. 1980), market power measured against the relevant market
• Mutual Fund Investors, Inc. v. Putnam Management Co., 553 F.2d 620 (9th Cir. 1977), no unreasonable restraint where many other supply sources are available
• Quality Mercury, Inc. v. Ford Motor Co., 542 F.2d 466 (9th Cir. 1976), cert. denied, 433 U.S. 914 (1976), perpetual exclusive franchises are suspect under antitrust law
• Lamb Enterprises, Inc. v. Toledo Blade Co., 461 F.2d 506 (6th Cir. 1972), a single cable operator may be a natural, non-anticompetitive outcome in a small market
• United States v. Griffith, 334 U.S. 100 (1948), monopolization requires only general intent to maintain a monopoly position
• United States v. Aluminum Co. of America, 148 F.2d 416 (2d Cir. 1945), specific intent to monopolize required for attempt and conspiracy claims
• Campbell Distributing Co. v. Jos. Schlitz Brewing Co., 208 F. Supp. 523 (D. Md. 1962), dangerous probability and specific intent elements of attempted monopolization
• White Bag Co. v. International Paper Co., 1974-2 Trade Cas. (CCH) ¶75,188 (4th Cir. 1974), overt acts required to show dangerous probability of monopoly
• Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100 (1969), antitrust damages require proof the violation directly injured the plaintiff's business
• Hawaii v. Standard Oil Company of California, 405 U.S. 251 (1972), injunctive relief requires only a showing of threatened injury
• Montgomery County, Maryland v. Lindsay, 50 Md. App. 675 (1982), specific statutory terms prevail over general language in the same or another state statute
• American Football League v. National Football League, 205 F. Supp. 60 (D. Md. 1962), aff'd, 323 F.2d 124 (4th Cir. 1963), specific intent required for conspiracy to monopolize
• Woolen v. Surtran Taxicabs, Inc., 461 F. Supp. 1025 (N.D. Tex. 1978), unclear whether the "terminal cases" monopoly theory applies to public landowners
• Donovan v. Pennsylvania Co., 199 U.S. 279 (1905), a party controlling a unique essential location may confer an effective monopoly on a single licensee without violating the Sherman Act
• Export Liquor Sales, Inc. v. Ammex Warehouse Co., 426 F.2d 251 (6th Cir. 1970), following the terminal-location monopoly theory
• California State Telegraph Co. v. Alta Telegraph Co., 22 Cal. 398 (1863), overruled, San Francisco v. Spring Valley Water Works, 48 Cal. 493 (1874), older case suggesting "franchise" implies exclusivity, later overruled
• McLain v. Real Estate Board of New Orleans, Inc., 444 U.S. 232 (1980), interstate commerce nexus satisfied even where the challenged conduct itself does not directly affect interstate trade
• Quality Discount Tires, Inc. v. Firestone Tire & Rubber Co., 282 Md. 7 (1978), Maryland courts guided by federal antitrust law interpretations

Source

• Landing page: https://oag.maryland.gov/resources-info/Pages/attorney-general%E2%80%99s-opinions.aspx
• Original PDF: https://oag.maryland.gov/resources-info/Documents/pdfs/Opinions/1984/Volume69_1984.pdf

Original opinion text

Best-effort transcription from a scanned PDF. Minor errors may remain, the linked PDF is authoritative.

ANTITRUST

"State Action" Immunity-Local Government-Cable TV-Exclusive Franchise-"Clearly Articulated" State Policy-"Active State Supervision"-Relevant Product and Geographic Market-Competitive analysis-Attorney General-La Plata Franchise Enjoys State Action Immunity-Attorney General May Represent Local Governments in Antitrust Matters.

February 21, 1984

Mr. Zakary A. Krebeck
Town Manager
Town of La Plata

On behalf of the Town of La Plata, you have requested our assessment of the Town's potential antitrust liability in connection with the termination of a cable television franchise and the grant of a new franchise to a different cable TV operator. You also have asked whether the Attorney General's Office has the authority to represent La Plata in this matter.

Based on our understanding of the relevant facts, we have concluded as follows:

1. Under the "state action" doctrine, La Plata is entitled to assert immunity from any antitrust claim that might arise from the events surrounding the termination and new grant of a cable television franchise. Even if, in litigation, La Plata's assertion of immunity were rejected, the Town nevertheless would likely prevail on the merits, particularly as to any claim for damages.

2. This Office has legal authority to represent La Plata in matters of this nature. And, under the circumstances of this case as we understand them, if an antitrust claim were brought against La Plata, we would be willing to represent the Town if asked to do so.

I

Factual Background

As we understand them, the relevant facts are as follows:

In 1972, the Town of La Plata granted a cable television franchise to CATV General Corporation ("CATV General") of Fairfax, Virginia. The franchise gave CATV General the right to provide La Plata residents with cable service by using public rights of way. The original agreement was an exclusive franchise with a 10-year term; that term expired on May 25, 1982.

In September 1981, La Plata notified CATV General, in accordance with the original franchise, that it would not renew the franchise after the end of the term. La Plata's decision not to renew was apparently based on CATV General's violations of a number of the franchise provisions. We have been advised, for example, that CATV General did not maintain an office in La Plata; it failed to expand its cable system beyond the original 200 subscribers to the whole town; and it made allegedly substandard installations of equipment.

Consequently, La Plata solicited competitive bids from several firms for the installation and operation of a cable system. Among the bidders were CATV General and Chasco Cablevision, Ltd. ("Chasco"). In December 1981, La Plata granted a franchise to Chasco, effective May 25, 1982, for the operation of a cable system within the La Plata town limits. Chasco's franchise was similar to CATV General's, except that the new franchise had a 15-year term and was not expressly exclusive.

Even though its franchise expired on May 25, 1982, CATV General did not remove its cable equipment from utility poles or its receiving antenna from the town water tower. La Plata then demanded that CATV General remove the receiving antenna, which it did, but the cable equipment has still not been removed from the utility poles.

Until January 1983, the local electrical utility, Southern Maryland Electric Cooperative ("Southern Maryland"), refused to permit more than one cable company to use its poles for cable equipment. Because of CATV General's refusal to remove its equipment, and because utility poles are the only economically feasible means of routing cable lines, the practical effect of the utility company's position was to continue CATV General's exclusive operation. Consequently, Chasco was unable to exercise its franchise rights until January 1983, when it persuaded Southern Maryland to permit a second set of cable lines on its utility poles, subject to the condition that Chasco pay any additional costs necessary to conform the installation of the second line to utility industry standards.

According to La Plata officials, Chasco's entry into the cable television market has resulted in some degree of competition. While CATV General retains most of its original 200 hookups, Chasco has provided higher quality cable service to the remaining part of the town. Based on the comments of Chasco subscribers, these officials believe that Chasco's higher quality service might eventually prevail over CATV General's service in the La Plata cable television marketplace.

Although this arrival of competition in the market could ultimately result in CATV General being displaced without any outside intervention, La Plata still wishes to enjoin CATV General's operations, in order to end problems associated with that company's services and to establish the Town's power, if it exists, to prevent future unauthorized cable companies from operating in La Plata. The issue of La Plata's antitrust liability would arise if CATV General were to file a counterclaim in an action brought by La Plata.

II

State Action Immunity Doctrine

For a municipal corporation such as La Plata to avail itself of "state action" immunity in the award of cable television franchises, it must have acted "in furtherance or implementation of clearly articulated and affirmatively expressed state policy". Community Communications Co. v. City of Boulder, 455 U.S. 40, 52 (1982).

Proper application of this standard requires consideration of its precedential foundation.

A. Evolution of the State Action Doctrine

1. State Activity

In 1943, the Supreme Court first expressed the view that Congress did not intend to apply the proscriptions of the Sherman Act to state action. Parker v. Brown, 317 U.S. 341 (1943).

The question in Parker was whether an agricultural market allocation scheme, established pursuant to California statute to stabilize the price and production of California raisins and other crops, violated the Sherman Act. The Court held that, because there was "nothing in the language of the Sherman Act or in its history which suggests that its purpose was to restrain a state or its officers or agents from activities directed by its legislature", the federal antitrust laws did not preclude such "state action". 317 U.S. at 350-51. The Court noted that, by enacting the underlying California statute, "[t]he state ..., as sovereign, imposed the restraint as an act of government which the Sherman Act did not undertake to prohibit". 317 U.S. at 352.

This "state action" exemption from the antitrust laws was defined more precisely in a series of recent cases, beginning in 1975 with Goldfarb v. Virginia State Bar, 421 U.S. 773 (1975). In Goldfarb, the Supreme Court concluded that the antitrust laws could prohibit enforcement of a lawyer's minimum fee schedule, established by a county bar association and enforced by the Virginia State Bar. The Court pointed out that the state statute authorizing the State Bar to regulate the legal profession did not refer to lawyers' fees, and the Virginia Supreme Court had taken no action regarding fee schedules. 421 U.S. at 790-91. Thus, the fee schedule could not be said to have been imposed by the state acting as sovereign and, therefore, was not beyond federal antitrust prohibitions. Id. As the Supreme Court commented in a later case, the significance of Goldfarb was that it "made it clear that, for purposes of the Parker doctrine, not every act of a state agency is that of the State as sovereign" and thus entitled to immunity. City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389, 410 (1978).

In 1977, the Supreme Court decided another antitrust challenge to a regulation of the legal profession. Bates v. State Bar of Arizona, 433 U.S. 350 (1977). In Bates, the Court considered the applicability of federal antitrust laws to a ban on attorney advertising, enforced by the state bar association at the direction of the Arizona Supreme Court. Bates, in contrast to Goldfarb, held that the antitrust laws did not apply, because the challenged restraint was "'compelled by the direction of the State acting as a sovereign'" through the state's supreme court. Bates, 433 U.S. at 360 (quoting Goldfarb, 421 U.S. at 791).1

2. Municipal Activity

In 1978, the Supreme Court first considered the Parker doctrine as applied to municipal activity. City of Lafayette v. Louisiana Power & Light Co., 435 U.S. 389 (1978).

The Lafayette case involved a privately-owned electrical utility company's antitrust challenge to several municipalities' operation of a competing public utility. The Court's plurality opinion concluded that, under our federal system of dual government, municipalities, unlike states, are not sovereign entities. Consequently, municipal conduct is not beyond the pale of the federal antitrust laws. 435 U.S. at 413. The plurality reasoned that "serious economic dislocation ... could result if cities were free to place their own parochial interests above the Nation's economic goals reflected in the antitrust laws". 435 U.S. at 412-13.

For municipal conduct to be exempt, the Court explained, it must be undertaken pursuant to clear state direction:

"[I]n the absence of evidence that the State authorized or directed a given municipality to act as it did, the actions of a particular city hardly can be found to be pursuant to 'the state[']s command', or to be restraints that 'the state ... as sovereign' imposed." 435 U.S. at 414.

Thus, in order for municipalities to successfully assert the state action exemption, they must be able to point to a specific, "clearly articulated and affirmatively expressed" state policy permitting the challenged municipal activity. 435 U.S. at 410. The municipalities in Lafayette had no such state authorization and, therefore, were subject to liability under the antitrust laws.

More recently, in Community Communications Co. v. City of Boulder, 455 U.S. 40 (1982), the Supreme Court considered an antitrust challenge to a municipality's regulation of the local cable television industry, a challenge to a municipality's actions as a regulator rather than, as in Lafayette, a challenge to a municipality's actions as a competitor. The regulatory activity at issue in Boulder was a city ordinance that prohibited a cable television franchisee from expanding its existing network. In finding that the antitrust laws could also apply to municipal regulatory activities, a majority of the Court adopted nearly wholecloth the plurality opinion of Lafayette and, in doing so, clarified the Court's position with respect to municipal immunity.2 Accordingly, the Lafayette "clear articulation" test was applied as a prerequisite to Boulder's state action immunity. 455 U.S. at 52.

B. Articulation of State Policy in Maryland

Applying these precedents to the facts here, La Plata's ability to assert state action immunity must be tested, first, against its statutory authority in May 1982, when the Chasco franchise was granted; and, then, against its statutory authority as of July 1, 1982, the effective date of amendments designed to clarify any ambiguity regarding the State's preexisting competition policy.

1. State Law Prior to July 1, 1982

Until July 1, 1982, Article 23A, §2(13) of the Maryland Code delegated to municipal corporations the power "to grant franchises as provided under existing public general or public local law".

This broad delegation fails the Boulder test. To be sure, a handful of cases in other states have suggested that the use of the word "franchise" contemplates the power to grant an exclusive right or a monopoly. See, e.g., California State Telegraph Co. v. Alta Telegraph Co., 22 Cal. 398, 411 (1863), overruled, San Francisco v. Spring Valley Water Works, 48 Cal. 493, 523 (1874). Nevertheless, we consider it unlikely that the General Assembly's enactment of general authority for municipalities to grant "franchises" would be construed as authority to grant exclusive franchises, i.e., franchises that restrict competition. Cf. Article 41 of the Maryland Declaration of Rights ("monopolies ... ought not to be suffered").

Thus, like the Colorado Home Rule Amendment considered in Boulder, former §2(13) fails the "clear articulation" test because it does not show that the State's policy is more than "mere neutrality respecting the municipal actions challenged as anticompetitive". Boulder, 455 U.S. at 55 (emphasis in original). A statute must clearly articulate a grant of power to restrict competition, not just the "general ... power to enact ordinances". 455 U.S. at 56.

Accordingly, if La Plata's acts are to fall within the protective scope of the state action doctrine, they do so on the basis of the 1982 amendments.

2. State Law as of July 1, 1982

In 1982, the General Assembly enacted Chapter 562, Laws of Maryland 1982, for the purpose of "granting specific authority for counties, incorporated municipalities, and Baltimore City to engage in community antenna television and cable television franchising, including exclusive franchising".

As indicated in that Act's "statement of ... legislative policy", these amendments were clearly intended to provide the political subdivisions of this State with retroactive as well as prospective authorization to grant exclusive cable television franchises:

"It has been and shall continue to be the policy of this State to authorize the counties, municipalities, and Baltimore City to supplant competition by granting one or more franchise(s) for cable television system(s) on an exclusive basis, to impose franchise fees, to establish certain rates charged to subscribers and to establish rules and regulations to govern the operation of the franchisee(s)." Chapter 562, Laws of Maryland 1982, Section 1(2) (emphasis added).

The language "has been" indicates that, even when La Plata granted its original franchise, there already existed a state policy permitting municipalities, acting as agents of the State "as sovereign", to supplant competition, even though, at that time, no statute "clearly articulated" this policy.

(a) Prospective Application

Prospectively, at least, the amended statute surely satisfies the Boulder "clear articulation" requirement.

As amended, Article 23A, §2(13) now authorizes municipal corporations in this State:

"To grant franchises as provided under existing public general or public local laws; to grant one or more exclusive or nonexclusive franchises for a community antenna system or other cable television system that utilizes any public right-of-way, ... to impose franchise fees, and to establish rates, rules, and regulations for franchises granted under this section."3

The "clear articulation" test requires that there be statutory language that shows that the state, as sovereign, specifically "contemplated" and authorized the conduct challenged as anticompetitive. Boulder, 455 U.S. at 55; Lafayette, 435 U.S. at 413-15. This test is satisfied when, as here, the delegating statute directly addresses and permits anticompetitive municipal activities. Indeed, courts have found that the test may be satisfied even without language that directly discusses anticompetitive effects. See, e.g., Town of Hallie v. City of Eau Claire, 700 F.2d 376, 380-81 (7th Cir. 1983), [aff'd, 105 S.Ct. 1713 (1985)] (test satisfied by language that specifically authorized the challenged conduct that restrained trade). Cf. Catalina Cablevision Associates v. City of Tucson, 1984-1 Trade Cas. (CCH) ¶65,789 (D. Ariz. 1983) (state statute authorizing city "to impose conditions, restrictions, and limitations... upon the construction, operation, and maintenance of cable television systems" held not sufficiently clear articulation of state anticompetitive policy so as to immunize exclusive franchise; question certified for interlocutory appeal).

Because the statute permits La Plata to franchise a cable television system and, in doing so, to supplant competition, it prospectively satisfies the clear articulation requirement with respect to La Plata's actions here.

(b) Retroactive Application

The amended statute probably also retroactively satisfies the requirement that there be a clearly articulated state policy.

Boulder only requires that there be a clearly articulated state policy; it does not specifically preclude statutory clarification of preexisting state policy. Moreover, the amended statute, by its terms explicit evidence of the State's preexisting policy concerning anticompetitive regulation of cable television, readily enables a court to ascertain that La Plata's actions were, in fact, pursuant to State policy and not a form of unauthorized municipal conduct. Cf. Lafayette, 435 U.S. at 414.

A court's reliance upon a specific, but retroactive, immunity statute, a statute that otherwise conforms to the case law requirement that there be a clear articulation of policy permitting municipalities to supplant competition, would not "wholly eviscerate" the precedents supporting the national policy favoring competition in the same way that reliance upon a general, home rule grant of power does. Cf. Boulder, 455 U.S. at 56. In this regard, a retroactive statute clarifying existing state policy is quite unlike the Colorado Home Rule Amendment found ineffective in Boulder. A court, therefore, is much more likely to rely on it as satisfying the clear articulation test, even as applied to La Plata's pre-July 1, 1982 conduct.4

Nevertheless, because no court has yet specifically addressed this particular issue, there does remain a narrow element of doubt about whether such a statute could confer immunity retroactively.5

C. Active State Supervision

1. Introduction

In addition to the requirement that there be a "clearly articulated and affirmatively expressed state policy", the Supreme Court has imposed a requirement of "active state supervision" as a prerequisite for state action immunity, at least when private anticompetitive conduct is being challenged. California Retail Liquor Dealers Association v. Midcal Aluminum, Inc., 445 U.S. 97, 105 (1980).

In Boulder, the Court expressly reserved the question of whether active state supervision is necessary when anticompetitive conduct of a local government is at issue. 455 U.S. at 52 n. 14.6 At the same time, however, the Court reiterated the view expressed by the plurality in Lafayette that "a [s]tate may frequently choose to effect its policies through the instrumentality of its cities and towns". Boulder, 455 U.S. at 51. (In Lafayette, the Court had explained that the states have "freedom under our dual system of federalism to use their municipalities to administer state regulatory policies free of the inhibitions of the federal antitrust laws". Lafayette, 435 U.S. at 415.)

Resolving these conflicting judicial signals, we conclude that the State of Maryland does not have to supervise La Plata's grant of a franchise in order for La Plata to have state action immunity.7 It is enough, we believe, that La Plata is acting as the State's instrumentality pursuant to a clearly articulated State policy.

2. Analysis

The "active state supervision" requirement articulated in Midcal Aluminum is intended to ensure that private parties who would be protected by the state's immunity are not simply shrouded with a "gauzy cloak of state involvement". Midcal Aluminum, 445 U.S. at 106. Instead, active state supervision requires the displacement of "unfettered [private] business freedom" with "comprehensive regulation". Id. 445 U.S. at 106 n. 9.

There is no need for this type of supervision over municipal regulation. Municipalities implementing clear state policy, unlike the private parties in Midcal Aluminum, are limited by their statutory grant. For this reason, to confer antitrust immunity on municipal regulation would not pose any serious threat to the national policy favoring unrestrained competition.

Two federal appellate courts have also reached this conclusion. Specifically, the Seventh Circuit has ruled that local governments need not be supervised by the state, because they already are strictly subject to "clearly articulated and affirmatively expressed restraints imposed by the state in its [statutory] policies and delegation of authority". Town of Hallie v. City of Eau Claire, 700 F.2d 376, 384 (7th Cir. 1983), [aff'd, 105 S.Ct. 1713 (1985)].

Similarly, in a case challenging municipal regulation of an exclusive ambulance service, the Eighth Circuit concluded that "'[r]equiring state authorization for local conduct is analogous to requiring active supervision of private conduct; it tests whether challenged local activity is truly state action and therefore entitled to immunity'". Gold Cross Ambulance and Transfer and Standby Service, Inc. v. City of Kansas City, 705 F.2d 1005, 1014 (8th Cir. 1983), [cert. denied, 105 S.Ct. 1864 (1985)] (quoting P. Areeda, Antitrust Law ¶212.2a (Supp. 1982)). Accord, Central Iowa Refuse Systems, Inc. v. Des Moines Metropolitan Solid Waste Agency, 715 F.2d 419 (8th Cir. 1983).

3. Summary

In sum, active state supervision is not a prerequisite to La Plata's immunity. Active state supervision is, however, a prerequisite to the private franchisee's own state action immunity; in this case, that requisite is met by La Plata's supervision of its franchisee.

III

La Plata's Potential Liability Absent Immunity

If La Plata were not immune under the state action doctrine, several different antitrust theories conceivably could be applied to La Plata's grant of an exclusive or exclusionary franchise.8 The franchise arrangement with Chasco would be subject to analysis (i) under Section 1 of the Sherman Act, 15 U.S.C. §1, as a form of exclusive dealing arrangement;9 and (ii) under Section 2 of the Sherman Act, 15 U.S.C. §2, as monopolization, attempted monopolization, or conspiracy to monopolize.10

Under any foreseeable antitrust analysis, however, La Plata's conduct is probably not illegal. Consequently, even if a court were to rule that state action immunity is not available to La Plata, perhaps, notwithstanding the analysis in Part II C above, by requiring "active state supervision" by the State of La Plata's conduct, the Town most likely would still not face liability for damages or an injunction. Unfortunately, a judicial decision to this effect would likely not be obtained until after substantial pretrial discovery and expenditure of litigation resources.11

A. Section 1 of the Sherman Act: Exclusive Dealing Arrangement

1. Introduction

Section 1 of the Sherman Act prohibits "[e]very contract, combination ... or conspiracy, in restraint of trade or commerce". 15 U.S.C. §1.

Since 1911, the Supreme Court has imposed a judicial gloss on this statutory language by requiring that a challenged trade restraint be tested by its net effect upon competition. This "Rule of Reason" analysis requires the fact finder to weigh all relevant circumstances pertaining to the trade restraint before deciding whether, on balance, it is more anticompetitive than procompetitive. Standard Oil Co. v. United States, 221 U.S. 1, 8-9 (1911).

In Chicago Board of Trade v. United States, 246 U.S. 231 (1918), Mr. Justice Brandeis explained the basic Rule of Reason analysis:

"The true test of legality is whether the restraint imposed is such as merely regulates and perhaps thereby promotes competition or whether it is such as may suppress or even destroy competition. To determine that question the court must ordinarily consider the facts peculiar to the business to which the restraint is applied; its condition before and after the restraint is imposed; the nature of the restraint and its effect, actual or probable." 246 U.S. at 238.

Certain restraints, because of their well-recognized pernicious effect upon competition, are considered unreasonable per se. These practices, price fixing, tying arrangements, horizontal market divisions, group boycotts, are "conclusively presumed to be unreasonable and therefore illegal without elaborate inquiry as to the precise harm they have caused or the business excuse for their use". Northern Pacific Railway Co. v. United States, 356 U.S. 1, 5 (1958).

The restraint imposed by La Plata's grant of an exclusive or exclusionary cable TV franchise does not fall into any of the per se illegal categories. At best, it can be described as a form of exclusive dealing arrangement that must be tested under the Rule of Reason. By granting a franchise, La Plata in effect allocates the market for cable TV services to its franchisee. The cable TV company, in turn, sells to La Plata's residents cable TV services, at rates regulated by La Plata, and pays a franchise fee for the right to obtain access to this market. The principal benefit to the cable TV company is the marketing advantages obtained by being the "officially" sponsored, exclusive operator. The Town, in turn, obtains license fee revenues for its treasury and cable TV services, at controlled rates, for its citizens.12

The first step in assessing the competitive effects of La Plata's franchise arrangement under Section 1 of the Sherman Act involves defining the relevant product and geographic market in order to gauge whether this market has been or may become unreasonably restrained as a result of La Plata's conduct.13

2. Relevant Market

Generally stated, the relevant market is the "'narrowest market which is wide enough so that products from adjacent areas or from other producers in the same area cannot compete on substantial parity with those included in the market'". Satellite Television & Associated Resources, Inc. v. Continental Cablevision of Virginia, Inc., 714 F.2d 351, 356 (4th Cir. 1983) (quoting L. Sullivan, Handbook of the Law of Antitrust §12, at 41 (1977)).

Here, the relevant market may be as narrow as "cable TV within the town limits of La Plata", or it may be much broader, including commercial television, pay TV, and other entertainment sources in Southern Maryland. It must be remembered, however, that a potential plaintiff would bear the burden of proving the proper market definition. Satellite Television, 714 F.2d at 355.

(a) Product market

The analysis of what constitutes the relevant market begins with a determination of what "products" should be included. The relevant product market is defined to include all products that are either identical to, or available substitutes for, the product sold by the party whose conduct is being challenged. Times-Picayune Publishing Co. v. United States, 345 U.S. 594, 613 (1953).

In defining the product market, the question is whether there is an available substitute that is in fact competitive with the subject product. There are two tests for whether a substitute is in fact competitive: (i) whether the products are "reasonably interchangeable", and (ii) whether there is high cross-elasticity of demand for the products by consumers. Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 330-33 (1961); Satellite Television, 714 F.2d at 355-56. There is reasonable interchangeability if the products are "physically similar". United States v. Grinnell Corp., 384 U.S. 563, 574 (1966). There is high cross-elasticity of demand if consumers readily substitute one product for another in response to a change in prices. United States v. E. I. Du Pont de Nemours & Co., 351 U.S. 377, 400 (1956).

Applying these criteria to the product at issue here, cable television, a court would likely identify some alternatives that do have a degree of reasonable interchangeability. These include both conventionally broadcast television and forms of pay TV other than cable, such as "Super-TV" or direct satellite transmission.

For example, the court in Satellite Television, relying in part on stipulations by the parties with respect to the product market, affirmed the trial court's determination that competitive substitutes in the cable television product market covered a broad range, including "'cinema, broadcast television, video disks and cassettes, and other types of leisure and entertainment-related businesses for customers who live in single-family dwellings and apartment houses'". Satellite Television, 714 F.2d at 355 (quoting court below, 1982-2 Trade Cas. (CCH) ¶64,733, at 71,567 (E.D. Va. 1982)). The product market determination in Satellite Television, however, would not be conclusive here. That court's finding was based upon the specific facts of that case and relied on stipulations by the plaintiff that most likely would not be available here.

Without stipulations such as those in Satellite Television, a court weighing the relevant product market could well conclude that conventionally broadcast TV is not reasonably interchangeable with cable TV. Conventionally broadcast TV does not offer the "improved" programming or the better reception normally available with cable TV. To be sure, conventional TV does not impose a service charge, as does cable TV. But, if reception is very bad in La Plata, conventional TV might not even exist as a viable substitute, since it would be available only to the limited extent that consumers chose to purchase the antenna equipment necessary to obtain a satisfactory signal.

Further, conventional TV might not be held to satisfy the cross-elasticity test for competitive substitutes. Cable's boom in popularity did not begin until improved programming was added. This fact might suggest that consumers do not view cable TV and conventional TV as close substitutes, either one of which could satisfy the demand for the other.

Even though a court could thus conceivably conclude that conventionally broadcast TV is not a substitute for cable TV, a court is more likely to determine that noncable forms of pay TV, such as "Super-TV", are competitive substitutes; hence, these alternative forms of pay TV would probably be included in the product market even though they might offer fewer programming choices. Other substitutes that might be considered to be within the relevant product market are home video cassettes and video discs; both offer the consumer the ability to obtain home video entertainment in addition to that offered by conventionally broadcast television, albeit at greater cost.

In sum, the determination of the relevant product market is a complex factual question, the outcome of which is difficult to predict. Every substitute that a court is willing to include in the relevant product market increases the size of that market and proportionately decreases the market power of La Plata's cable franchisee. This, in turn, decreases the likelihood that La Plata's conduct would be held to be an unreasonable restraint.

(b) Geographic market

Like the product market, the relevant geographic market definition is a matter of judgment, not easily determined or predicted. The relevant geographic market is frequently described as the area in which the party alleged to have restrained trade competes or does business. 3 Von Kalinowski, Antitrust Laws and Trade Regulation, §13.03[2][c] (1982).

Consequently, if the challenged conduct is the grant of an exclusive or exclusionary franchise by La Plata, an argument might be made that the geographic market for the product in question lies solely within the town limits of La Plata. One reason is that State and local regulation, that is, Article 23A, §2(13) and the local ordinances under that section, treat municipalities as distinct and separate markets for cable television. Furthermore, cable TV companies usually compete on a town-to-town basis, mainly because the cable rights for each town are usually individually franchised. For reasons such as these, at least one court has concluded that the relevant market for determining the effect of a monopoly over cable TV transmission facilities might be limited to the town limits of the municipality where the cable TV franchise is being operated. T. V. Signal Company of Aberdeen v. American Telephone & Telegraph Co., 617 F.2d 1302 (8th Cir. 1980).

However, it is far more likely that the geographic market would be found to be significantly broader than "the town limits of La Plata", depending in part on what parties are involved in the case. In RCM Supply Co. v. Hunter Douglas, Inc., 686 F.2d 1074 (4th Cir. 1982), the court ruled that the geographic market also included the area in which competitive alternatives were reasonably available to the parties. Thus, for example, if the action were between CATV General and Chasco, the geographic market would include the entire "'area of effective competition'" shared by the two parties, an area perhaps covering several states. Satellite Television, 714 F.2d at 357 (quoting Standard Oil Co. v. United States, 337 U.S. 293 (1949)).

As with the product market, there is a broad range of conceivable geographic markets that might arguably be relevant. Indeed, the definition of the relevant product market will itself affect the size of the relevant geographic market. For example, if "Super-TV" or direct satellite transmission were included within the relevant product market, then a reasonable argument could be made that the relevant geographic market includes all of the area where these alternative services are available, an area covering several states or more.

(c) Summary

In sum, a potential plaintiff would bear a very heavy burden in defining the relevant market narrowly enough to demonstrate substantial competitive foreclosure.

Several "reasonably interchangeable" products are available, even if the product market were limited to home video entertainment; also, there is no indication that consumers would not be willing to switch to alternative suppliers should they be confronted with excessive cable rates or poor quality. Regarding geographic boundaries, a good argument can be made that the relevant market extends beyond the town limits of La Plata and includes, at least, nearby communities in Southern Maryland and the Washington suburbs.

Nevertheless, given the significant number of factual issues to be resolved, a proper market definition does entail some uncertainty.

3. Market Effects

(a) Introduction

After the relevant geographic and product market has been identified, the finder of fact uses that market definition to determine whether the exclusive dealing arrangement constitutes an "unreasonable restraint of trade". Section 1 of the Sherman Act prohibits only actual restraints of trade.14 Hence, the analysis of the arrangement is necessarily limited to the actual effects of the challenged restraint and need not involve an evaluation of the potential competitive effects of the arrangement.

In evaluating the legality of an exclusive dealing arrangement under Section 1 of the Sherman Act, the general test is whether the arrangement has unreasonably foreclosed competition in the relevant market. United States v. Columbia Steel Co., 334 U.S. 495, 508 (1948). Where an exclusive dealing arrangement involves a party occupying a dominant position in the relevant market, the arrangement will be found to be unreasonable, without much additional inquiry, if a significant portion of the relevant market has been restrained. Compare Columbia Steel, 334 U.S. at 530 (11% market foreclosure not unreasonable where defendant did not hold dominant market position) with Cherokee Laboratories, Inc. v. Rotary Drilling Services, Inc., 383 F.2d 97 (5th Cir. 1967) (complete foreclosure of national market).15

On the other hand, where neither party occupies a dominant position, the reasonableness of the restraint will be evaluated by reference to all competitive factors, only one of which is the extent to which competition is foreclosed in the relevant market. Columbia Steel, 334 U.S. at 524-25.16 Other factors that may be relevant to the granting of an exclusive franchise include the market share of the franchisee, the period of foreclosure resulting from the term of the franchise agreement, the number of competing firms, the ease of entry into the relevant market, and the competitive structure of that market.

In applying these various factors to La Plata's termination of CATV General's franchise and the subsequent grant of a franchise to Chasco, it is clear that Chasco's market share in the relevant market is critical. If Chasco were found to occupy a dominant position, the inquiry would be limited to a determination of the portion of the market foreclosed by the franchise agreement. Cf. Cherokee Laboratories, Inc. v. Rotary Drilling Services, Inc., 383 F.2d 97 (5th Cir. 1967) (remand for further factual inquiry largely because of dominant position of dealer in relevant market).17

However, we know of no facts that would suggest that Chasco is a dominant firm in the highly competitive cable TV market or that the households located in La Plata represent a disproportionately large share of the relevant market. Assuming that Chasco does not enjoy such a dominant market position and that the La Plata market is not competitively crucial, as our information suggests, the other competitive factors must be evaluated in assessing the franchise agreement.

(b) Degree of Foreclosure of Competition

In any analysis, a critical factor will be the degree of market power that La Plata could exercise in granting an exclusive franchise and thereby foreclosing competition. As noted above, market power is measured in relation to the relevant market. United States v. Realty Multi-List, Inc., 629 F.2d 1351, 1372-73 (6th Cir. 1980).

Because, in this case, the relevant market might ultimately be narrowly defined, the Town could be held to exercise great market power by virtue of its statutory power to franchise cable TV operators. On the other hand, if the relevant market is broadly defined as being, for example, "home video entertainment in Southern Maryland", La Plata simply does not have statutory power to unreasonably restrain competition in that market. See Mutual Fund Investors, Inc. v. Putnam Management Co., 553 F.2d 620, 627 (9th Cir. 1977) (no unreasonable restraint where many other supply sources available).

(c) Duration of Franchise

Another important factor is the length of the restraint. See, e.g., Quality Mercury, Inc. v. Ford Motor Co., 542 F.2d 466, 471 (9th Cir. 1976), cert. denied, 433 U.S. 914 (1976) ("perpetual exclusive franchise is suspect").

Although CATV General certainly has other towns to turn to as sites for its cable TV business, the 15-year term of the Chasco franchise raises concerns. The Chasco franchise is "non-exclusive"; nevertheless, as a practical matter, it effectively forecloses the La Plata market for a substantial period of time.18 To the extent that a long-term franchise is necessary to garner an adequately capitalized cable operator capable of serving an entire town, it can be justified on a competitive basis and would pass antitrust scrutiny. In this regard, however, we have some reservations about whether a 15-year term is the minimum period necessary to draw satisfactory operators to the La Plata market.

Nevertheless, despite these cautionary concerns, a thorough competitive analysis of the La Plata situation leads us to the conclusion that the franchise arrangement in this case is reasonable.

(d) Competitive Analysis

We believe that La Plata's regulation of cable, with the possible exception of the length of the franchise period, could ultimately serve to promote competition in the relevant market.

Absent regulation, cable TV delivery in a small town might result in the town being saddled with an undercapitalized entrant that would fail to provide adequate service, precisely as La Plata found to be the problem with CATV General. Such an undercapitalized operator could obtain a foothold position that, though tenuous, would either be sufficient to deter viable operators from entering the market or would result in several entrants, none of which would be able to compete effectively with other forms of pay TV. See Lamb Enterprises, Inc. v. Toledo Blade Co., 461 F.2d 506, 513 (6th Cir. 1972) (court noting that only one cable company can serve Toledo market because operators cannot compete on a house-to-house basis).

Thus, La Plata can argue that, given the limited market potential it offers, it is reasonable, indeed, necessary, for cable TV to be regulated by franchise in order to ensure the adequate delivery of cable services to its citizens. Furthermore, if the Lamb Enterprises conclusion, that house-to-house competition among cable operators in the Toledo market would inevitably result in a natural monopoly, could be shown to apply in the La Plata market, then La Plata's regulation would not be an unreasonable restraint at all. There would be an exclusive operatorship, whether La Plata exercised its regulatory power or not.

Also relevant is the fact that competition is flourishing in this market. The introduction of technological advances, such as direct broadcast satellite television systems, continues to increase the level of competitiveness in this market.

In sum, the grant of an exclusive cable television franchise seems a prime example of reasonable regulation that might well promote, rather than suppress, competition by ensuring reputable and adequately capitalized operators who will effectively compete to serve the entire market. See Report of the Governor's Task Force on Local Government Antitrust Liability (1982), at 15.19

B. Section 2 of the Sherman Act: Monopolization

A competing cable TV vendor, such as CATV General, might also challenge La Plata's franchise grant to Chasco under Section 2 of the Sherman Act, 15 U.S.C. §2, which prohibits monopolization, attempted monopolization, and conspiracy to monopolize. In our view, however, it is unlikely that such a challenge would succeed in proving a violation under any of these theories.

1. Monopolization

Monopolization requires a showing of (i) monopoly power, and (ii) intent to exercise that power. United States v. Grinnell Corp., 384 U.S. 563, 570-71 (1966). "Monopoly power", in turn, is defined as "the power to control prices or exclude competition" in the relevant market. United States v. E. I. Du Pont de Nemours & Co., 351 U.S. 377, 391 (1956).

Whether La Plata has sufficient control over prices and competition thus depends on the definition of the relevant market. Under Section 2 of the Sherman Act, the procedure for defining the relevant market is the same as that described in Part III A 2 above for purposes of defining the relevant market under Section 1 of the Sherman Act.

If a judicial determination were made that the relevant market is as narrow as "cable TV within the town limits of La Plata", then La Plata's exercise of its statutory authority would demonstrate that it has the power to control prices and exclude competition. If, on the other hand, as we believe is likely, the market is defined more broadly to include entertainment products other than cable TV, and geographic areas other than La Plata, then La Plata probably does not possess monopoly power.

La Plata's statutory authority gives it the power to control prices and exclude competition over cable TV only in La Plata. Although La Plata might have some general, home rule authority to regulate or exclude noncable TV forms of home video entertainment within its jurisdiction, we have no indication that it has or will attempt to exercise this power.20 At the same time, because La Plata lacks any statutory or regulatory authority over competition outside of La Plata, it is unlikely that La Plata exercises monopoly power in any broadly defined relevant market.

A plaintiff alleging monopolization must, in addition to showing monopoly power, also show the "intent to exercise that power". United States v. Griffith, 334 U.S. 100, 107 (1948). This, however, requires only a showing of a "general" intent to engage in practices that maintain a monopoly position. A showing of a "specific" intent to monopolize is not required. United States v. Aluminum Co. of America, 148 F.2d 416, 432 (2d Cir. 1945). Consequently, it would not be difficult for a potential plaintiff to satisfy this requirement if La Plata were held to have exercised monopoly power in a narrowly defined relevant market.

In sum, in the event that immunity is not available to La Plata, a claim that La Plata has engaged in actual monopolization would rest solely upon the unlikely showing that the relevant market is limited to "cable TV within the town limits of La Plata".

2. Attempted Monopolization

Even absent proof of actual monopolization, a potential plaintiff might attack the franchise grant as an "attempt" by La Plata to monopolize. Attempted monopolization requires (i) a "dangerous probability" that the defendant will obtain a monopoly, and (ii) a specific intent to monopolize. Satellite Television, 714 F.2d at 358; Campbell Distributing Co. v. Jos. Schlitz Brewing Co., 208 F. Supp. 523, 529 (D. Md. 1962).

In order to satisfy the "dangerous probability" requirement, a plaintiff must demonstrate, first, that the defendant has sufficient market power to create a significant likelihood of achieving a monopoly in the relevant market and, second, that the defendant has performed "overt acts" in furtherance of that effort. See White Bag Co. v. International Paper Co., 1974-2 Trade Cas. (CCH) ¶75,188, at 97,357 (4th Cir. 1974). In order to satisfy the "specific intent" requirement, the plaintiff must show both that the defendant intended to do the acts it committed and that the defendant intended those acts to result in a monopoly. See United States v. Aluminum Co. of America, 148 F.2d 416, 431-32 (2d Cir. 1945).

In this case, it would be difficult with the evidence at hand to show that La Plata intended to monopolize any broadly defined relevant market. The Town, pursuant to legislative delegation, simply exercised its franchising powers to replace an unsatisfactory franchisee with a more suitable one. Without additional evidence of specific intent, we believe that any claim of attempted monopolization by La Plata must fail.21

3. Conspiracy to Monopolize

As with attempted monopolization, specific intent to monopolize is a primary requirement for proving a conspiracy to monopolize. American Football League v. National Football League, 205 F. Supp. 60, 65 (D. Md. 1962), aff'd, 323 F.2d 124 (4th Cir. 1963). For the reasons discussed above, the facts of this case as we understand them do not support a finding of specific intent to monopolize.

C. Potential Relief

Even if a court were to disagree with our conclusion that the arrangement with Chasco was not violative of the Sherman Act, we doubt that the court would award damages to CATV General or issue an injunction against the arrangement.

1. Damages

In order to recover damages, a plaintiff who has successfully shown a violation must also show, by a preponderance of the evidence, that the violation caused a direct injury to its business. Zenith Radio Corp. v. Hazeltine Research, Inc., 395 U.S. 100, 124-25 (1969).

For the pre-January 1983 period, when cable service in La Plata was still effectively exclusive as a result of Southern Maryland's "one-line" policy, the potential plaintiff, CATV General, retained full control of the lines. Consequently, it certainly cannot assert any loss of business during this time.

It is almost as difficult to imagine any cognizable injury that CATV General could assert for the period after January 1983.22 For over ten years, CATV General has refused to expand beyond its 200-user system. Consequently, foreclosure of new subscribers to CATV General is not causally related to the grant to Chasco but, rather, to CATV General's own decision not to expand its market.23

2. Injunction

The possibility of an injunctive remedy against La Plata is unlikely, but perhaps not quite as remote as a damage award. The strict causation required to recover antitrust damages is not required for injunctive relief. Instead, the requirement is a demonstration of "threatened injury". Hawaii v. Standard Oil Company of California, 405 U.S. 251, 261 (1972).

For the reasons discussed above, CATV General would have but a remote chance of obtaining an injunction on the theory that the Chasco franchise violates federal antitrust law. Even this remote possibility, however, is of some concern, because Section 16 of the Clayton Act permits private parties who "substantially prevail" in an action for injunctive relief to recover reasonable attorney's fees and costs of suit. 15 U.S.C. §26.

IV

State Antitrust Liability

The preceding analysis applies equally to the federal antitrust laws and the Maryland Antitrust Act, Title 11, Subtitle 2 of the Commercial Law Article ("CL" Article).24 However, for two additional reasons, not discussed above, the Maryland Antitrust Act does not prohibit La Plata's franchising activities.

First, the Act specifically exempts activities of this State's political subdivisions "in furnishing services or commodities". CL §11-203(12). An argument, albeit somewhat tenuous, can be made that La Plata, in granting a cable TV franchise, was furnishing a service or commodity to its citizens and, therefore, would not be liable for doing so.

More compellingly, the 1982 amendment that specifically authorized anticompetitive cable TV franchising conduct should be interpreted to exempt that conduct from the State's antitrust laws. See, e.g., Montgomery County, Maryland v. Lindsay, 50 Md. App. 675, 678-79 (1982) ("It is well settled that specific terms [in a State statute] covering a general subject matter prevail over general language of the same or another [State] statute which might otherwise prove controlling.").

For these two reasons, in addition to those that otherwise apply to federal and Maryland law alike, La Plata is not subject to liability under the Maryland Antitrust Act.

V

Attorney General Representation

Last year, the General Assembly specifically authorized the Attorney General to represent municipalities and other political subdivisions of the State in antitrust matters. Chapter 396, Laws of Maryland 1983. This authorization, codified at Article 32A, §12V of the Maryland Code, reads as follows:

"The Attorney General may represent and render advice to any political subdivision of this State, its employees, officers, or agents in State and federal antitrust law matters, including defending them in any such action or administrative proceeding. In any case where the Attorney General actually defends a political subdivision in court or in any administrative proceeding, the Attorney General may require the political subdivision to reimburse the General Fund of the State for the actual costs of the defense. Nothing in this section shall be construed to deprive any political subdivision or its employees, officers, or agents of the right to select counsel of their own choice at their own expense."

Under the circumstances of this case, if an antitrust claim were asserted against La Plata over its cable television franchise activities, we would be willing to represent the Town of La Plata if requested to do so.

VI

Conclusion

In summary, it is our opinion that:

1. The Attorney General's Office is authorized to represent the Town of La Plata, and other political subdivisions, in matters of this sort. And, based on the relevant facts of this case as we understand them, if an antitrust claim were brought against the Town of La Plata, we would be willing to represent it if asked to do so.

2. Based on our understanding of the relevant facts, La Plata is entitled, under the "state action" doctrine, to assert immunity from any antitrust claim that might arise from its termination of CATV General's cable television franchise and its grant of a franchise to Chasco. Even if, in litigation, La Plata's assertion of immunity were rejected, the Town nevertheless would likely prevail on the merits, particularly as to any claim for damages.

Nevertheless, until the scope of the immunity afforded by Chapter 562, Laws of Maryland 1982, is fully settled by the courts, we strongly recommend that political subdivisions exercise caution in the area of cable television franchising, more because of the severity of potential penalties than because of their likelihood. We recommend particular caution in setting the term of a franchise agreement, so as to avoid any longer term than is reasonably necessary to obtain a sufficiently capitalized cable TV operator.

As to a political subdivision's power to oppose the operations of unauthorized cable television operators, such as CATV General, it may do so with assurance that it has immunity, so long as its acts are within the specific delegation of power from the State, Chapter 562, Laws of Maryland 1982.

Stephen H. Sachs, Attorney General

Charles O. Monk, II
Assistant Attorney General
Chief, Antitrust Division

Linda H. Jones
Assistant Attorney General

Avery Aisenstark
Chief Counsel
Opinions and Advice

Editor's Note: Since the issuance of this opinion, the United States Supreme Court held, in Town of Hallie v. City of Eau Claire, 105 S.Ct. 1713 (1985), that "active state supervision is not a prerequisite to exemption from the antitrust laws where the actor is a municipality rather than a private party." 105 S.Ct. at 1721.

In addition, the authorization for Attorney General representation discussed in Part V of this opinion is now codified in §6-107(b) of the State Government Article. Article 32A of the Maryland Code has been repealed. See Chapter 284, Laws of Maryland 1984.

1 The challenged restraint nevertheless was invalidated in Bates, although not on antitrust grounds. Rather, the Supreme Court held that the advertising ban in question violated the Free Speech Clause of the First Amendment.

2 The majority thus apparently laid to rest the governmental-versus-proprietary test proposed in Chief Justice Burger's concurring opinion in Lafayette.

3 Chapter 562 also enacted identical authority for the counties and Baltimore City. See Article 25, §3C(b) of the Maryland Code; Article 25A, §5(B) of the Maryland Code; Article II, §35A of the Charter of Baltimore City. See also Article 25B, §13 of the Maryland Code.

4 Some courts have reasoned that when, as here, the challenged conduct is a "traditional" subject of municipal power, the state authorization need not be as precise as otherwise would be required to satisfy the clear articulation test. See, e.g., Golden State Transit Corp. v. City of Los Angeles, 563 F. Supp. 169, 172 (C.D. Cal. 1983). However, in light of the reasoning in Boulder, there is a serious question of whether this distinction is entitled to any weight. See note 2 above.

5 In Vickery Manor Service Corp. v. Village of Mundelein, No. 82-C-5392 (N.D. Ill. December 12, 1983) (amending prior opinion reported at 1984-1 Trade Cas. (CCH) ¶65,790), the court ruled that a recent Illinois statute purporting to "clearly articulate and affirmatively express" state policy regarding the anticompetitive effects of all local government action did not immunize the town's conduct, because the statute was not in effect at the time of the challenged activities. Slip Op. at 20-21. Consequently, the court did not have to reach the issue of the validity of the statute; nor did the court expressly discuss the issue of whether the Illinois legislature intended to immunize conduct that occurred before the enactment of the statute. Unlike the Maryland statute at issue here, which is expressly retroactive, the Illinois legislation did not attempt to give retroactive effect to any clear articulation of state anticompetitive policy. The Vickery Manor case is distinguishable from La Plata's situation on another ground as well. In Vickery Manor, the Illinois lawsuit had been filed before the statute was enacted. Indeed, the court's decision on the immunity issue had been rendered before the town even asserted the argument that its conduct was authorized by the new statute. La Plata, on the other hand, was not in litigation nor threatened with litigation when the 1982 Maryland legislation was enacted. Consequently, retroactive application would not interfere with the outcome of any pending lawsuit.

6 There is some disagreement among the lower courts that have passed on this question. Compare Town of Hallie v. City of Eau Claire, 700 F.2d 376, 383-84 (7th Cir. 1983) (active state supervision requirement held not to apply to municipal conduct) with Deak-Perera Hawaii, Inc. v. Department of Transportation, State of Hawaii, 553 F. Supp. 976, 985 (D. Hawaii 1983) (in dictum, court applied active state supervision test while assuming that the governmental body in question was a "political subdivision", but concluded that the test was, in any event, satisfied). It is clear, however, that both prongs of the Midcal Aluminum test must be satisfied for a private actor to be immune. See, e.g., Charley's Taxi Radio Dispatch Corp. v. SIDA of Hawaii, Inc., 562 F. Supp. 712 (D. Hawaii 1983) (no immunity for exclusive airport taxicab service not actively supervised).

7 To conclude otherwise would require a finding that local government regulation is the equivalent of purely private conduct, private conduct that, in this case at least, even the State could not authorize due to preemption by the Sherman Act. See Rice v. Norman Williams Co., 458 U.S. 654, 661-62 (1982); Schwegmann Bros. v. Calvert Distillery Corp., 341 U.S. 384 (1951).

8 Although the present franchise to Chasco is not expressly "exclusive", it nevertheless is exclusive, as a practical matter, until and unless La Plata chooses to grant an additional franchise.

9 See note 8 above. Because exclusivity is the gravamen of the trade restraint at issue, La Plata could, of course, avoid potential liability under Section 1 simply by granting additional franchises on nondiscriminatory terms to competitors. But see note 10 below, regarding Section 3 of the Clayton Act, 15 U.S.C. §14, which makes exclusive dealing arrangements illegal even before they become full-blown restraints that would violate Section 1 of the Sherman Act.

10 At the outset, we reject the possibility that the exclusive dealing arrangement at issue here could be challenged under Section 3 of the Clayton Act, 15 U.S.C. §14. We do so because the arrangement here does not involve the sale of "goods" or "other commodities", a prerequisite to Section 3 application. The Maryland analogue to Section 3 of the Clayton Act, §11-204(a)(6) of the Commercial Law Article, does apply to "services" as well; but, as discussed in Part IV below, there are separate reasons for concluding that La Plata, as a political subdivision, has no liability under this State law.

11 In this Part III, we do not discuss the State's antitrust law separately, because the basic analysis is the same. See §11-202(a)(2) of the Commercial Law Article (courts interpreting the State law should "be guided by" interpretations of federal antitrust laws), applied in Quality Discount Tires, Inc. v. Firestone Tire & Rubber Co., 282 Md. 7, 10 (1978). In addition, it is clear that, as a matter of State statutory construction independent of federal law, La Plata's conduct at issue is not prohibited. See Part IV below. We express no opinion, however, as to what liability, if any, State law might impose upon La Plata's cable TV franchisee.

12 La Plata's regulation of the rates that its cable franchisee charged subscribers is clearly authorized by Maryland law. In Chapter 562, Laws of Maryland 1982, Section 1(2), the General Assembly expressly authorized local governments to "establish rates and regulations to govern the operation of the franchisee(s)". The rate-setting function is thus clearly immunized under the state action doctrine. Consequently, we do not need to decide whether, absent such immunity, the regulation of rates might present antitrust issues.

13 The Sherman Act requires that the challenged conduct be in or affecting interstate commerce. 15 U.S.C. §§1 and 2. See McLain v. Real Estate Board of New Orleans, Inc., 444 U.S. 232, 242-43 (1980) (activities of real estate brokerages operating in New Orleans held to "affect" interstate commerce; test satisfied even though challenged conduct itself did not affect interstate trade). Clearly, the sale of cable TV programming in La Plata affects interstate commerce: for example, programming for delivery in La Plata comes from outside Maryland. This alone is sufficient to establish the requisite interstate nexus.

14 This is in contrast to Section 3 of the Clayton Act, 15 U.S.C. §14, which prohibits exclusive dealing arrangements that "may ... substantially lessen competition or tend to create a monopoly". Section 3 was designed to stop trade restraints in their incipiency. See also notes 9 and 10 above.

15 Exclusive dealing arrangements have most often been challenged under Section 3 of the Clayton Act, 15 U.S.C. §14. In analyzing the Section 3 cases that have involved parties with dominant market positions, some commentators have referred to the test applied by the courts as the "quantitative test". See, e.g., 2 Von Kalinowski, Antitrust Laws and Trade Regulation, §6G.04 (1982). This test is akin to the per se test in its strict application. In contrast, the Section 3 "qualitative substantiality" test, which is applied when the defendant does not occupy a dominant market position, requires assessment of all competitive factors.

16 This test is akin to the "qualitative substantiality" test applied under Section 3 of the Clayton Act. See Tampa Electric Co. v. Nashville Coal Co., 365 U.S. 320, 327-28 (1961).

17 It is difficult to reduce this test to numbers, because courts have not established clear-cut guidelines for permissible market shares. For example, in cases reviewing the market share of alleged monopolists under Section 2 of the Sherman Act, 15 U.S.C. §2, market shares of 18% and 50% have been held not to constitute dominance. United States v. E. I. Du Pont de Nemours & Co., 351 U.S. 377, 404 (1956); United States v. United Shoe Machinery Corp., 110 F. Supp. 295, 346 (D. Mass. 1953), aff'd per curiam, 347 U.S. 521 (1954).

18 See discussion in Part I above regarding the physical placement of cable equipment. See also note 8 above.

19 An alternative theory also warrants consideration. A line of cases, known as the "Terminal Cases", have held that, as a matter of law, a party with control over a unique location essential to the conduct of a certain kind of business can lease, or open, a part of that location to a single entity, such as a cab company or a shopkeeper, and thereby confer an effective monopoly without violating the Sherman Act. Donovan v. Pennsylvania Co., 199 U.S. 279 (1905). See also Export Liquor Sales, Inc. v. Ammex Warehouse Co., 426 F.2d 251 (6th Cir. 1970). And, even though these cases seem to contemplate that the exclusive outlet is in the form of a shop or taxicab service physically located on the defendant's railroad terminal, tunnel, or other transportation facility, it is difficult to differentiate a terminal operator's power to elect a taxi service monopoly from a town's ability to choose one cable company to serve its population. Nevertheless, it is not at all clear that this theory applies to public, as opposed to private, landowners. See Woolen v. Surtran Taxicabs, Inc., 461 F. Supp. 1025 (N.D. Tex. 1978).

20 Cable TV franchisors should exercise great caution in imposing restraints on noncable TV video vendors. Given La Plata's obvious interest in ensuring the financial success of its franchised cable operator, such restraints could be construed as a conspiracy between La Plata and its franchised cable TV operator to foreclose competition. Thus, for example, a zoning ban on satellite dish antennas would be highly suspect and might not be covered by state action immunity.

21 Cf. note 20 above.

22 In addition to the "no-damage" argument, La Plata could also argue that its conduct at the time did not unreasonably restrain competition, because Chasco was then a nonexclusive franchisee along with CATV General.

23 Hence, damages would be inappropriate even if this case involved private parties only. There is some authority to suggest that damages, especially punitive treble damages, should not be awarded against a municipal defendant under any circumstances. P. Areeda, Antitrust Law ¶212.2 (Supp. 1982). No court, however, has yet accepted this view, and the Supreme Court in Boulder expressly reserved the question of appropriate remedies in actions against municipal officials. Boulder, 455 U.S. at 57 n. 20.

24 See note 11 above.