You would be forgiven if you thought the status of exclusive agreements for exclusive broadband cable service to “multiple dwelling units” such as condominiums and planned communities (MDUs) was settled. In 2007, the Federal Communications Commission (“FCC”) issued a ruling broadly declaring that such exclusivity agreements are “null and void,” and adopted a rule that prohibits the enforcement or execution of “any provision in a contract that grants to it the exclusive right to provide any video programming service (alone or in combination with other services) to a MDU.” We detailed the FCC’s exclusivity orders in previous posts here and here, and the court’s decision upholding the FCC on appeal here.
Despite the seemingly straight-forward application of this rule to ban exclusive MDU service, conflicts over broadband service to MDUs persist. The issue continues to surface both in negotiation of expiring agreements (where MDU management tends to demand compensation in exchange for exclusivity or simply tells the existing provider to leave and enters into a “non-exclusive” agreement with another provider) and in court disputes. At a recent FCC workshop promoting so-called gigabit networks, investors and service providers told the FCC that access to MDUs continues to be an obstacle to broadband deployment and investment.
Most recently, on April 5, 2013, in Lansdowne on the Potomac Homeowner’s Association v. OpenBand at Lansdowne, the United States Court of Appeals for the Fourth Circuit affirmed an order of the district court striking down an arrangement that gave a broadband service provider the exclusive right to provide video, voice, and Internet service to a large planned development. Exclusivity was assured through a convoluted series of entities and agreements designed to insulate the exclusive service rights from potential challenges under the FCC’s rule, which had been a proposal but not a rule when the agreements were structured.
The court concluded that the provider had “engaged in what amounts to an elaborate game of regulatory subterfuge featuring an array of procedural defenses, the use of various corporate entities to escape the definition of an OVS operator, and an artifice to evade the FCC order by structuring its exclusive arrangement using a web of sub-agreements.” The court declared the exclusivity provisions null and void as required by the FCC’s rule, and issued an injunction prohibiting their enforcement against the homeowners’ association and the homeowners themselves.
The Lansdowne case may discourage some developers and service providers from entering agreements designed to circumvent the FCC’s prohibition on exclusive service agreements. But because exclusive service is extremely profitable for the provider and affiliated developers, disputes are unlikely to disappear altogether.