EchoStar's apparent loss of the Ultimate Electronics/SoundTrack retail account to DirecTv has ignited what may become the messiest legal battle in the history of the direct-to-home satellite industry.
The operator of the Dish Network direct-broadcast satellite (DBS) service filed an antitrust lawsuit in a Colorado District Court on February 1. EchoStar claimed DirecTv and its primary manufacturing partners Thomson MultiMedia and Hughes Network Systems conspired to "monopolize" distribution of DBS systems and services through the consumer electronics retail channel.
In the filing, EchoStar said its success to date has caused DirecTv to "exploit its dominant market position in a variety of illegal ways to attempt to exclude competition, force retailers to boycott Dish Network products and services, restrain trade and monopolize the DBS market."
EchoStar said DirecTv pays retailers to keep Dish Network out of their stores and punishes those who do not cooperate. The suit alleges that DirecTv conspires with Thomson and other TV manufacturers to prevent retailers from acquiring certain HDTV products if they sell EchoStar equipment and service.
To date, Hitachi, Thomson and Toshiba are selling or plan to sell HDTV sets with built-in DirecTv IRDs. Manufacturers making Digital TV decoders with integrated DirecTv IRDs include Hitachi, Mitsubishi, Panasonic, Samsung, Sony, Thomson, Toshiba and Zenith.
EchoStar also asked the court to declare illegal certain exclusive deals on pro sports programming packages, such as the NFL Sunday Ticket.
A DirecTv spokesman said the suit was without merit and denied that DirecTv's distribution practices violate any laws.
"We compete against all types of multichannel video services without engaging in these so-called illegal activities," said Bob Marsocci of DirecTv. "We've had longstanding relationships with retailers, manufacturers and programming suppliers, and they are all sound and legal. We see this lawsuit as EchoStar's attempt to litigate its way to market share rather than compete in the marketplace."
EchoStar has asked the court to force DirecTv and partners to discontinue their anti-competitive practices and to open up carriage of certain pro sports packages to Dish Network. EchoStar is seeking compensation for damages but did not set an amount in the complaint.
Executives with EchoStar had informally complained for years that DirecTv was providing dealers with better incentives when they carry only DirecTv DBS equipment and services. However, sources said the company felt it necessary to bring legal action after they were notified that SoundTrack -- one of EchoStar's premiere CE dealerships -- was dropping EchoStar's program because they risked losing access to lines of new HDTV receivers that integrate DirecTv's HD-capable decoders.
In the suit, EchoStar claimed DirecTv had "barred SoundTrack from selling DTV equipment and services or from selling HDTV sets unless it discontinued sales of Dish Network-compatible equipment and Dish Network services."
Representatives from the Ultimate Electronics/SoundTrack chain did not return calls for comment.
According to the filing, "SoundTrack representatives told Dish Network personnel that while SoundTrack would prefer to carry both Dish Network and DirecTv (DTV) equipment and services, it was nevertheless discontinuing its relationship with Dish Network because of DTV's threats. Because of DTV's threats, SoundTrack simply could not risk the loss of sales associated with the major manufacturers' withdrawal of their HDTV products if it continued to carry and sell both the Dish Network system and the DTV system."
EchoStar said other retailers have yielded to DirecTv's similar threats and actions, and discontinued the sale of the Dish Network system in favor of the sale of the DTV system. Best Buy and Circuit City were said to have shut their doors to EchoStar under pressure. Spokesmen for the retailers would not comment.
"This is illegal commercial activity, as it forces retailers to participate with DTV in a campaign of illegal discrimination against Dish Network services and equipment," the suit charges.
EchoStar said, "RCA receives a royalty on every DTV system sold, whether or not the system was built by RCA. This provides motivation for RCA to participate in DTV's schemes to boycott Dish Network."
Representatives for Thomson did not return phone calls for comment by our press time, and an HNS spokesman referred all questions to DirecTv.
EchoStar also cited DirecTv's discontinuation of Sears Roebuck & Co. as an authorized dealer last July after Sears refused to drop its involvement with EchoStar.
Chuck Cebuhar, Sears general manager, said he was not surprised that EchoStar brought the legal action, but "I was a little surprised it took this long. DirecTv said they terminated our relationship because we didn't meet their expectations. I guess that's part of what's going on here, isn't it? I think EchoStar has some issues, if indeed these things are going on.
"I've been raised in the marketplace to believe that you always let the customer make the decision. Put the product on the floor, and whoever offers the best value to the consumer wins the game."
Chuck Hewitt, Satellite Broadcasting & Communications Association president, said the suit should not have any impact on demand for home satellite systems, but he could not comment further on the lawsuit.
For previous TWICE Online coverage of this topic see...
DBS Rivals Square Off At SBCA Event, 26-Jul-1999
DISH Demos Its HDTV At Ultimate, 07-Jun-1999
Sears, Ultimate Part With DirecTv, 07-Jun-1999
Satellite Rivals Appeal To Congress, 25-Oct-1999
Industry Infighting Marks Satellite Show's First Day, 20-Jul-1999
U.S. Satellite Homes Top 10M, 11-Oct-1999
DirecTv Bows HDTV For Thomson Set Owners, 08-Aug-1999