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DC Circuit Overturns FCC's Tennis Channel Order

May 28, 2013. The U.S. Court of Appeals (DCCir) issued its opinion [51 pages in PDF] in Comcast v. FCC, granting the petition for review of the Federal Communications Commission's (FCC) July 2012 order, in which the FCC found that Comcast discriminated against the Tennis Channel (TC) in tier placement.

All three members of the three judge panel wrote opinions. The line of reasoning in which all three judges joined was the absence of evidence in support of the Tennis Channel's (TC) claim that Comcast discriminated against an unaffiliated vendor in violation of the statute and regulations.

One judge would have also granted the petition on the grounds that the TC filed its complaint with the FCC in an untimely manner. One judge would have also granted the petition as a consequence of his applying principles of antitrust law to the statute.

Comcast is a multichannel video programming distributor (MVPD). It offers channels in tiers. The TC wanted Comcast to place it on a tier with wider distribution. Comcast did not. So, in 2010 the TC filed a complaint with the FCC.

A divided FCC released a Memorandum Opinion and Order (MOO) on July 24, 2012 that affirmed the conclusion of an administrative law judge (ALJ) that Comcast violated the FCC's program carriage rules, and must provide equal carriage to the TC. The FCC concluded that Comcast discriminated against an unaffiliated video programming vendor (that is, the TC), and in favor of the affiliated Golf Channel and Versus, in violation of Section 616 of the Communications Act, and the FCC's rules thereunder.

The FCC's order asserted broad authority to make decisions for cable companies, and other MVPDs, regarding what programming to distribute, and at what tier to distribute them. See, story titled "FCC Asserts Broad MVPD Program Carriage Authority" and in TLJ Daily E-Mail Alert No. 2,412, July 26, 2012.

34 mostly Republican Representatives sent a letter to the FCC last July criticizing that FCC order. See, related story in the same issue titled "Representatives Write FCC Regarding Program Carriage".

The FCC adopted this MOO on July 16, but did not release it to the public until July 24, 2012. This MOO is FCC 12-78 in MB Docket No. 10-204 and File No. CSR-8258-P.

Comcast filed a petition for review with the DC Circuit. The TC intervened. See also, story titled "FCC Denies Comcast's Petition for Stay Pending Judicial Review of Tennis Channel Order" in TLJ Daily E-Mail Alert No. 2,426, August 10, 2012.

Comcast argued (1) that the TC's complaint should have been dismissed as untimely under 47 C.F.R. § 76.1302(h), (2) that the FCC's order misconstrued and misapplied the relevant section of the statute, and (3) that the FCC's order violated the First Amendment because it is an impermissible content based regulation of speech.

Judge Stephen Williams, a senior status judge, wrote the opinion of the Court. He ruled on statutory grounds, and in particular, that there was not evidence in support of a finding of discrimination. He did not decide the questions of whether the administrative complaint was timely filed, or whether the order violated the First Amendment.

Judge Brett Kavanaugh wrote a concurring opinion, joining with Judge Williams on the question of evidence in support of a finding of violation of the statute. He also reasoned that the statute requires application of antitrust principles, which in turn preclude invoking this statute against Comcast.

Judge Harry Edwards, another senior status judge, also wrote a concurring opinion. He concurred in Judge Williams' opinion regarding the statute. He did not address Judge Kavanaugh's opinion. He wrote at length that he would also have granted the petition for review on the untimely filing of the complaint. He did not opine on the First Amendment issue.

In 1992 the Congress enacted the "Cable Television Consumer Protection and Competition Act of 1992", Public Law No. 102-385. It directs the FCC to write program carriage rules. The FCC first enacted program carriage rules in 1993.

47 U.S.C. § 536, which was enacted as part of the 1992 Act, provides, among other things, that the FCC shall write rules that are designed to prevent a multichannel video programming distributor (MVPD), which includes cable companies, from "engaging in conduct the effect of which is to unreasonably restrain the ability of an unaffiliated video programming vendor to compete fairly".

Section 536 is also known as Section 616 of the Communications Act.

This section pertains to regulation of competition and unreasonable restraints. However, the FCC's order did not apply competition analysis.

Narrow Opinion of Judge Williams. Judge Williams granted the petition for review solely on the basis of Section 616. He wrote that "even under the Commission's interpretation of § 616 (the correctness of which we assume for purposes of this decision), the Commission has failed to identify adequate evidence of unlawful discrimination." (Parentheses in original.)

That is, the TC had proposed to Comcast that it be placed on a tier with broader distribution, and that Comcast pay for distribution on a per subscriber basis, but Comcast rejected this proposal. The FCC found discrimination, against an unaffiliated vendor, and in favor of Comcast's affiliated sports channels (Golf Channel and Versus). This TC proposal is not in the MOO or the Court's opinion; it is sealed.

But, Judge Williams reasoned that since there was no evidence that the proposal would have provided any benefit to Comcast, the TC failed to provide evidence that Comcast discriminated against the TC on the basis of affiliation. It was a valid business decision. And for this reason, he granted the petition.

Antitrust Analysis of Judge Kavanaugh. Judge Kavanaugh joined with Judge Williams on the question of lack of evidence. However, he would also have granted the petition on the basis that the statute requires antitrust analysis, and under such analysis, Comcast did not violate the statute.

He reasoned that "Section 616's use of the phrase ``unreasonably restrain´´ -- an antitrust term of art -- establishes that the statute applies only to discrimination that amounts to an unreasonable restraint under antitrust law. Vertical integration and vertical contracts -- for example, between a video programming distributor and a video programming network -- become potentially problematic under antitrust law only when a company has market power in the relevant market."

He continued that "It follows that Section 616 applies only when a video programming distributor possesses market power. But Comcast does not have market power in the national video programming distribution market, the relevant market analyzed by the FCC in this case. Therefore, ... Section 616 does not apply here."

Free Speech Analysis of Judge Kavanaugh. In addition, Judge Kavanaugh wrote about speech. He wrote that "the Supreme Court has squarely held that a video programming distributor such as Comcast both engages in and transmits speech, and is therefore protected by the First Amendment."

Also, "under the Supreme Court’s precedents, Section 616’s impact on a cable operator’s editorial control is content-neutral and thus triggers only intermediate scrutiny rather than strict scrutiny."

He acknowledged that "In 1996, when this Court upheld the Cable Act’s exclusive-contract provisions against a First Amendment challenge", but added that "in the 16 years since the last of those cases was decided, the video programming distribution market has changed dramatically, especially with the rapid growth of satellite and Internet providers."

"In today’s highly competitive market, neither Comcast nor any other video programming distributor possesses market power in the national video programming distribution market."

"Therefore, under these circumstances, the FCC cannot tell Comcast how to exercise its editorial discretion about what networks to carry any more than the Government can tell Amazon or Politics and Prose or Barnes & Noble what books to sell; or tell the Wall Street Journal or Politico or the Drudge Report what columns to carry; or tell the MLB Network or ESPN or CBS what games to show; or tell SCOTUSblog or How Appealing or The Volokh Conspiracy what legal briefs to feature."

Thus, wrote Judge Kavanaugh, "In light of the Supreme Court’s precedents interpreting the First Amendment and the massive changes to the video programming distribution market over the last two decades, the FCC’s interference with Comcast’s editorial discretion cannot stand. In restricting the editorial discretion of video programming distributors, the FCC cannot continue to implement a regulatory model premised on a 1990s snapshot of the cable market."

He suggested that "the FCC's interpretation of Section 616 violates the First Amendment". But, he did not urge granting the petition for review based upon a holding of a violation of the First Amendment. Rather, "Under the constitutional avoidance canon, those serious constitutional questions require that we construe Section 616 to apply only when a video programming distributor possesses market power."

He concluded that "The FCC erred in concluding that Section 616 may apply to a video programming distributor without market power."

Analysis. Judge Williams' opinion, in which all three judges joined, goes to the evidence in support of the finding of discrimination in violation of the statute and regulations. In the present case, they found it lacking. This is a limited and narrow holding.

Hypothetically, in a future tier placement adjudicatory proceeding, if the FCC were to continue to take an interventionist approach, an FCC order might withstand judicial review under the holding of this case if the FCC were to gather more evidence. And, Judge Williams' opinion offers suggestions as to how the FCC might accomplish this.

Judge Kavanaugh's antitrust analysis, and First Amendment analysis, in contrast, would not leave the FCC any opportunity to regulate tier placement (or any other alleged discrimination against unaffiliated video programming vendors) under Section 616 under current market conditions.

But, Judges Williams and Edwards did not join in Judge Kavanaugh's opinion. It is not the law of the circuit. On the other hand, they did not reject or criticize it either.

Reaction. Rep. Fred Upton (R-MI) and Rep. Greg Walden (R-OR) stated in a joint release that "The D.C. Circuit's decision to overturn the FCC's meddling in program carriage negotiations is welcome news".

They added that "American viewers have unprecedented choice in the content they watch, the services that deliver it, and the devices that display it. In a dynamic market characterized by increased competition, rapidly developing technologies, and evolving business models, government intervention typically increases costs for consumers and reduces innovation. Our hope is that Acting Chairwoman Clyburn and her eventual successor will take note of this decision and begin reducing the agency's intervention in the television marketplace."

FCC Commissioner Ajit Pai, who dissented from the FCC's MOO, stated in a release that he is "pleased" with the Court's opinion.

He wrote that "This ruling is a big win for consumers. As former Commissioner McDowell and I explained in our joint dissent, the Commission’s ruling would have resulted in cable operators paying to carry channels that they didn't want, and these higher programming costs would have come out of the pockets of American consumers."

He singled out Judge Kavanaugh's opinion for praise, and especially its discussion of the First Amendment.

The National Cable & Telecommunications Association (NCTA) stated in a release that this "case provides important guidance for the Commission concerning the need to construe and apply the statute narrowly, as Congress intended. This is particularly true in light of today's highly competitive video marketplace and the First Amendment interests at stake."

This case is Comcast Cable Communications LLC v. FCC and USA, U.S. Court of Appeals for the District of Columbia, App. Ct. No. 12-1337, a petition for review of a final order of the FCC. Judge Williams wrote the opinion of the Court of Appeals. Judges Kavanaugh and Edwards both wrote concurring opinions.

Miguel Estrada (Gibson Dunn & Crutcher) argued the case for Comcast. Former President Bush nominated Estrada for a seat on the DC Circuit, and but for a long running Democratic filibuster in the Senate, he likely would be a Judge of the DC Circuit today.

(Published in TLJ Daily E-Mail Alert No. 2,567, May 30, 2013.)