2nd Circuit Vacates FCC Standstill Rule, Rejects First Amendment Arguments Against Program Carriage
The 2nd U.S. Circuit Court of Appeals struck down an FCC program carriage “standstill” rule on procedural grounds, but rejected a First Amendment challenge to the commission’s ability to regulate program carriage, in a unanimous decision in Time Warner Cable, NCTA v. FCC Wednesday. The 2nd Circuit’s opinion on the commission’s program carriage regime “stands as a ringing endorsement of the commission’s judgment as to the importance of the statute and how to apply it,” said Covington Burling cable lawyer Stephen Weiswasser in an interview. He represents the Game Show Network and Tennis Channel in an FCC administrative law case and court case respectively, both involving program carriage disputes.
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The standstill rule, created in a 2011 order, allowed commission staff to authorize continued carriage of a channel involved in a carriage complaint while a decision is pending (CD Oct 4 p3). Time Warner Cable and NCTA had argued that the FCC didn’t apply proper notice and comment procedures before enacting the rule. The cable allies said the 2007 NPRM referenced by the FCC didn’t specifically indicate the commission was considering adopting a standstill rule -- a violation of the Administrative Procedure Act. The court agreed. “The FCC did not promulgate the standstill rule in accordance with the law,” wrote Judge Reena Raggi, who dominated oral argument (CD Oct 9 p5) in the opinion that also was on behalf of judges Denny Chin and Susan Carney. “Before the standstill rule’s establishment, no statute or regulation specifically conferred that authority on the FCC.”
Because the rule was struck down on procedural grounds, the court’s ruling leaves open the possibility for the FCC to reinstate it -- as long as the commission follows the APA, said the opinion. “We order that it be vacated without prejudice to the FCC attempting to re-promulgate it consistent with the APA.” Striking down the standstill rule is “a modest victory” for cable, said Stifel Nicolaus in an email to investors Wednesday. Oral argument in Time Warner Cable, NCTA v. FCC lasted an unusually long two hours, quadruple the amount of time scheduled.
Time Warner Cable and the NCTA had also argued that the First Amendment bars the FCC from requiring a cable operator to carry a channel over the operator’s opposition. The 2nd Circuit ruled that the FCC’s carriage rules satisfy the intermediate scrutiny test for First Amendment complaints, because they're “narrowly tailored” and serve a government interest in promoting competition “in an industry still posing serious competitive risks.” The opinion pointed to the anticompetitive possibilities of vertical integration and media consolidations as justifying the FCC’s need to enforce program carriage rules. But “increasing competition in the video programming industry may undermine that conclusion in the not-too-distant future,” wrote Raggi.
"We consider this possibility more real than speculative,” said the opinion. “Thus, at the same time that we uphold the program carriage regime today, we encourage the FCC to reevaluate the program carriage regime as warranted by increased competition in the video programming industry.” The court’s denial of the free-speech arguments “represents a missed opportunity” for cable companies, because it would have strengthened cable arguments against other program regulations, said Stifel.
FCC must-carry rules would be very vulnerable in court if Time Warner Cable’s First Amendment arguments had succeeded, said Stifel. The ruling “should thus be a relief for small broadcasters dependent on must-carry, and we don’t see any change to broadcaster incentives to participate in the two-sided broadcast/wireless ‘incentive’ auction the FCC is developing.” It’s not clear how the Time Warner Cable ruling will affect the pending Tennis Channel and GSN decisions, but Weiswasser said he believes the decision favors his clients in both cases: “We think this is an important recognition of the broad scope of authority granted to the commission."
Acting FCC Chairwoman Mignon Clyburn, “pleased” the court rejected the First Amendment challenge to program carriage rules, said they “remain necessary to prevent anticompetitive conduct by video programming distributors.” The rules “empower consumers to access a rich and diverse mix of programming,” she said in a written statement (http://fcc.us/19jts7F). “Although the court overturned the standstill rule on procedural grounds, it recognized that the Commission remains free to adopt the same rule in accordance with the requirements of the Administrative Procedure Act."
Time Warner Cable is “gratified” the 2nd Circuit “called into question the future viability of the entire program carriage regime,” said the operator. The court recognized “that the FCC should consider” whether multichannel video programming distributors “possess market power before imposing program carriage obligations in response to individual complaints,” said the company. NCTA praised the court for rejecting “the FCC’s attempted expansion of the program carriage rules” and seconded the court’s statement encouraging the commission to reevaluate the program carriage regime.
The ruling that the commission’s program carriage rules are constitutional is consistent with past court decisions, but furthered a “troubling tendency” of judicial statements that FCC rules for program distributors depend “on shifting marketplace trends, and not on firmer principles of consumer protection,” said Public Knowledge Senior Staff Attorney John Bergmayer in a news release. A concurring opinion in the Tennis Channel case at the U.S. Court of Appeals for the D.C. Circuit also referenced increasing competition in the cable industry (CD May 29 p1). A cable company’s control over programming should be a different question from whether it has power in the market, Bergmayer said. “The FCC should not be required to re-establish its authority to protect the public and repeatedly engage in battles of industry statistics.” Public Knowledge disagrees with the court’s vacating the standstill rule, but “it should be a straightforward matter for the Commission to re-implement its rule following the procedures the court outlined,” Bergmayer said. -- Monty Tayloe (mtayloe@warren-news.com)