Unexpectedly Long TWC v. FCC Oral Argument Covers Major Issues in Appeal

The hour and 45-minute oral argument was dominated by Regina Raggi, with seniority among the three jurists (http://xrl.us/bnsrpz), onlookers told us Friday. They said Raggi and her colleagues asked many questions of lawyers for the commission, Time Warner Cable and NCTA, which backed TWC in the case. Like other such hearings, Time Warner Cable wasn’t webcast and no transcript was posted by the 2nd Circuit in the docket, 11-4138. The commission and its backers in the case including Bloomberg, NFL, Public Knowledge and Tennis Channel had said the rules are meant to dampen the market power of cable operators that also own programming. Time Warner Cable and NCTA contend the FCC didn’t justify the agency’s claim that the rules aren’t unconstitutional regulation of operators’ speech. Cable briefs said its industry’s market power has dwindled amid pay-TV competition.

First Amendment issues subject to judges’ questions for lawyers who included free-speech expert Floyd Abrams of Cahill Gordon, representing Time Warner Cable, covered the Supreme Court’s Turner rulings, said lawyers who attended the public hearing. They said questions were asked by Raggi and Judge Denny Chin about whether standstill carriage during the time the FCC considers the merits of an indie’s complaint that a cable operator favored its own channels over the non-affiliated network is a content-based regulation. A temporary standstill order “is issued only in extraordinary circumstances and only upon proof of, inter alia, likelihood of success on the merits and irreparable harm to the complainant,” the government’s final brief said.

Judges were said to have asked if the free-speech merits of a standstill requirement that last year’s commission order added to program access rules are best left to an actual application of the rules, or whether their constitutionality should be dealt with now, before the agency requires standstill carriage. Such a question could be key for the judges in deciding whether to weigh in on the First Amendment issues of the current rulemaking order or wait until an enforcement case arises, observers said. They said judges and lawyers at the hearing acknowledged the case was technically ripe from a free-speech standpoint, though the rule hasn’t been applied. The “fundamental constitutional deficiencies” aren’t “alleviated by the case-by-case nature of the FCC’s adjudicatory regime,” Time Warner Cable’s final brief said: “The complaint process, grounded in constitutionally deficient interests, entails substantial burdens that severely chill” pay-TV providers’ “speech even absent a finding of liability."

In the well-attended hearing, judges spent time on a procedural issue that one onlooker said may end up being remanded to the commission for a reworking. Jurists including Susan Carney -- like Chin appointed to the 2nd Circuit by President Barack Obama -- asked about whether the agency followed the Administrative Procedure Act in adopting a standstill requirement without specifically seeking comment, attorneys aligned with both sides in Time Warner Cable said. The Act was followed because the “standstill rule was a ‘logical outgrowth’ of the Commission’s proposal to consider measures to prevent retaliation,” the government’s brief said. The FCC’s notion that the standstill rule is a procedural change, and so comment didn’t need to be sought beforehand, “is profoundly misguided,” the NCTA said Aug. 21. “The FCC’s claim that it did apprise the public that it was considering this severe new sanction, even though it said nothing of the sort in the notice of proposed rulemaking, boils down to an assertion that commenters should have read the FCC’s mind."

Chin wanted to know where a standstill requirement could be found for program carriage complaints in FCC rules that existed before the 2011 order, an onlooker said. Raggi, appointed by then-President George W. Bush, opened the hearing by saying that lawyers could take their time, said those in attendance. They noted that about a dozen clerks, including those working for other judges, sat in, unusual because clerks don’t usually watch cases they're not involved in. Executives from cable operators, NCTA, Time Warner Cable and indies that filed briefs backing the commission also were said to have attended the public hearing.

Section 616 of the Communications Act also came up, onlookers said. An issue that was said to have gotten considerable attention was whether the FCC needs to determine that a cable operator that also owns channels had market power over an indie it didn’t carry as widely as its own networks. Such questions go to what an indie needs to show to win a program carriage decision requiring its carriage by a vertically integrated operator. The order “makes no findings as to the existence of local bottleneck” power operators have in geographic regions, such as in getting franchises to serve an area as noted by the 1992 Cable Act, Time Warner Cable said Aug. 17. “It does not purport to justify the continued operation of the program carriage regime by relying on notions of local monopoly power."

The extent to which program carriage may be an antitrust issue also came up in questions at oral argument, observers said. “Congress’s concerns in enacting the 1992 Cable Act were not limited to addressing” only so-called bottleneck monopolies that operators had with exclusive franchise agreements to serve an area, the government said. “Rather, Congress was also concerned that vertically integrated MVPDs [multichannel video programming distributors] have the ‘incentive and ability’ to favor affiliated over unaffiliated networks.” Carney was said to have questioned whether vertically integrated operators must face program carriage rules, since Congress doesn’t bar them from owning both content and distribution. Raggi was reported to have asked many questions of lawyers for both sides on whether a finding of market power is necessary for the commission to issue a program carriage decision.