DC Court Rules for HITN and Clearwire in DC Spectrum Case
August 29, 2007. The U.S. District Court (DC) issued its opinion [9 pages in PDF] in Nextel Spectrum Acquisition Corporation v. Hispanic Information and Telecommunications Network, a contract dispute concerning spectrum usage rights in unused spectrum in the 2.5 GHz band. The District Court dismissed Nextel's complaint. This is also a victory for Clearwire.
The Hispanic Information and Telecommunications Network (HITN) holds spectrum usage rights in the Washington DC area in the 2.5 GHz band.
Clearwire is a provider of broadband wireless internet access service founded and chaired by Craig McCaw. Clearwire reported in a August 6, 2007, release that it has a total subscriber base to 299,000. However, it does not now provide service in the Washington DC area. It wants to do so, by leasing spectrum from the HITN.
Clearwire and the HITN entered into an agreement on October 4, 2006, for this purpose. And, the Court noted that the HITN has been well compensated in cash and stock.
However, Nextel Spectrum Acquisition Corporation (Nextel SAC) also had a contract with the HITN regarding this spectrum.
Actually, both the HITN and Nextel are successors in interest to the original parties to the contract. The following is a brief history. The Federal Communications Commission (FCC) gave a license to the George Washington University (GWU) to construct and operate an Instructional Television Fixed Service (ITFS) station over the Educational Broadband Service (EBS) in the 2.5 Ghz band. This license permitted the GWU to lease excess capacity to others. On February 21, 1995, the GWU and Eastern Cable Networks Corp. (ECNC or ENET) entered into an agreement under which the GWU leased excess capacity to the ECNC for an initial term of 1995 to 1998, subject to automatic annual renewal for a ten year period. This ten year period expired in February of 2007. This agreement also included a further two year right of first refusal provision that is at issue in this lawsuit. The HITN now is the successor in interest of the GWU. Nextel SAC is now the successor in interest of the ECNC.
Nextel SAC asserts that while the term of the contract has expired, its right of first refusal was still effective, and breached, at the time of the October 2006 agreement between Clearwire and the HITN.
The spectrum at the center of this litigation is not being used. It is fallow. Sprint and Nextel merged in 2005. (See, FCC order [PDF] of August 8, 2005, approving the merger.) Sprint now provides wireless broadband service in the Washington DC area. The District Court wrote that Nextel SAC "has never used any of the contested spectrum for actual broadcasting and it lies fallow even yet", and that its interest has been "to control the asset in an extremely competitive market".
Nextel SAC filed one count complaint in the courts of the District of Columbia against the HITN alleging breach of contract. The HITN removed the action to the U.S. District Court (DC). The HITN then moved to dismiss the complaint.
In short, the District Court held for the HITN, and dismissed the complaint pursuant to Rule 12(b)(6) for failure to state a claim upon which relief can be granted.
The contract between GWU and the ECNC provides that the ECNC (and then Nextel SAC) "shall have the exclusive right to match the material terms and conditions of any bona fide offer to lease excess capacity from the University during any or all of the period from the expiration of the automatic renewal term ... through two years thereafter".
The ten year term of the contract expired on February 21, 2005. The HITN Clearwire contract came within "two years thereafter". But, the Court reasoned, they did not enter into an agreement to lease excess capacity that would commence within the two year period of the right of first refusal. Rather, they agreed that Clearwire has an option to acquire HITN spectrum when it becomes available. The agreement further defined the term available to mean "not encumbered by any ... right of first refusal".
It concluded that the "HITN did not negotiate with a third party to lease excess capacity for any period between February 21, 2005, and February 21, 2007." Therefore, Nextel SAC's right of first refusal "was never triggered."
This case is Nextel Spectrum Acquisition Corporation v. Hispanic Information and
Telecommunications Network, Inc., U.S. District Court for the District of Columbia, D.C.
No. 07-543 (RMC), Judge Rosemary Collyer presiding.