3rd Circuit Vacates, Remands Broadcast Ownership Rules in Prometheus IV Ruling

The 3rd U.S. Circuit Court of Appeals' 2-1 Prometheus IV opinion released Monday vacates and remands the entire media ownership reconsideration order, reinstating attribution rules for joint sales agreements, the ban on newspaper/broadcast cross-ownership, and the eight-voices test. It also vacates and remands the broadcast incubator order and aspects of the 2016 quadrennial review order. FCC Chairman Ajit Pai said the agency will seek further review of the order. It has “become quite clear that there is no evidence or reasoning” that will persuade the 3rd Circuit panel, Pai said in a release.

By restoring a host of knocked-down broadcast ownership regulations, the court’s decision creates questions about pending and completed deals, said numerous broadcast attorneys. Though Nexstar closed on its purchase of Tribune last week, the court’s decision could provide ammunition for recon petitions against the FCC order approving the deal, several attorneys said. Deals that are pending -- such as Apollo Global Management's buy of Cox's broadcast stations -- could be on even shakier ground, and in need of waivers or restructuring. Broadcasters know a majority of the FCC supports the relaxed rules, and could look favorably on waiver requests, said Fletcher Heald broadcast attorney Dan Kirkpatrick. Since the court order doesn’t take effect for more than a month, it’s also possible that broadcasters with deals pending could pressure the FCC to OK them before that happens, broadcast attorneys said. A rushed deal approval would likely be more vulnerable to future challenges, the lawyers said.

The ruling also creates uncertainty about the direction of the 2018 quadrennial review (QR), which has been commented out but widely seen as on hold awaiting a 3rd Circuit decision. Radio broadcasters hope the eventual order will relax radio local ownership limits, but multiple broadcast attorneys said such deregulation would now have to be accompanied by some sort of statistical justification. “They would have to build a record,” Kirkpatrick said.

The FCC could seek to reverse the court’s vacating of ownership changes with the 2018 QR order, but it would need to include justification, attorneys said. The 3rd Circuit didn’t take issue with the substance of the rule changes, but with the FCC’s evidence, said Tom Struble, R Street manager-technology and innovation. “It was a procedural loss,” he said. The FCC could quickly go back to the drawing board and gather the data requested by the court, he said. If the court opinion slows the release of the agency’s 2018 QR order, it could come up against the 2020 presidential election, a broadcast attorney said. Federal agencies are traditionally loathe to take controversial actions as a presidential election gets closer, the attorney said.

The 3rd Circuit’s majority opinion -- authored by Judge Thomas Ambro -- takes strong issue with the FCC’s lack of evidence on how relaxing ownership rules would affect racial and gender diversity. “The FCC’s analysis is so insubstantial that it would receive a failing grade in any introductory statistics class,” the majority said. The data the FCC used on racial minority ownership was questionable, and the agency’s conclusions on female ownership were based on no data, the opinion said: “The only ‘consideration’ the FCC gave to the question of how its rules would affect female ownership was the conclusion there would be no effect.” Ambro raised similar concerns about the agency’s data during oral argument. The court’s ruling is extremely similar to how it ruled in the previous Prometheus cases, said University of Minnesota School of Journalism assistant professor-media law Christopher Terry.

Judge Anthony Scirica dissented from the majority opinion on the evidence. “Such data weaknesses are not fatal to the FCC’s regulations,” he said. “Data gaps are inherent to predictive regulation,” he said. “It is not certain the data demanded would alter the FCC’s analysis.” The agency has the discretion to proceed on the basis of imperfect information, he said. In his statement vowing to appeal, Pai said he hopes Scirica’s views will “carry the day.” Judge Julio Fuentes was the panel's third judge.

On remand, the FCC must gather a record of evidence on the likely effect on minority and female ownership of rule changes, “whether through new empirical research or an in-depth theoretical analysis,” the opinion said. The court also vacated the 2016 order’s definition of an eligible entity, and the FCC must gather evidence supporting a new definition, the order said. “We do not prejudge the outcome of any of this, but the Commission must provide a substantial basis and justification for its actions whatever it ultimately decides,” the majority opinion said.

The court also ruled against the broadcasters and diversity groups involved in the case, saying the FCC has discretion to set up the top four waiver process and decide the definition of a comparable market in the incubator order. The majority also rejected a request from anticonsolidation groups to appoint a special master to oversee the remand, the opinion said.

FCC Commissioners Jessica Rosenworcel and Geoffrey Starks praised the court’s decision. “The FCC shouldn't be in the business of cutting corners when it comes to honoring our long-held values when updating media ownership policies,” Rosenworcel said. “Today’s decision will require us to go back to the drawing board on our underway 2018 Quadrennial Review, which relies upon much of the same analysis as the orders vacated by the Court today,” said Starks. Both Republican commissioners signaled support for Pai’s appeal. “The benefits of a modern approach to media regulation are worth fighting for, and I look forward to additional court review or FCC action,” said Commissioner Brendan Carr in a release. “It is clear that no argument, formula, or well-reasoned reform can satisfy the majority’s wrong-headed demands,” said Commissioner Mike O’Rielly. “I implore the Chairman and the Administration to take this decision to the U.S. Supreme Court.”

NAB also backed an appeal. “It’s shocking that the same panel of judges has supplanted Congress’s and an expert federal agency’s views with its own for more than 15 years,” NAB said. “We strongly encourage the FCC to appeal this misguided decision so that broadcasters can compete on an even playing field with tech giants and pay TV conglomerates.”

Anticonsolidation groups said the agency should listen to the court. The FCC “must now do the job it’s long refused to do: properly weigh all of the evidence showing the impact of media consolidation on local communities,” said Free Press Senior Counsel Jessica Gonzalez. “The smartest thing for the commission to do is to comply,” said Benton Institute for Broadband and Society Senior Counselor Andrew Schwartzman, who represented public interest groups in the case.

It’s not clear how the FCC’s planned appeal will fare, attorneys said. Several broadcast attorneys said an en banc appeal is likely to fail because other 3rd Circuit judges are unlikely to overturn a decision in a long-running case that has been before the same panel for so long. Other broadcast attorneys noted the 3rd Circuit is now majority Republican, with four judges appointed under the current administration. “The FCC’s been told the same thing by the same court four times, now they appeal it?” asked attorney Cheryl Leanza, who represented anticonsolidation groups in the case. The Prometheus case’s repeated iterations and the panel’s similar rulings are a reason the appeal could work, said broadcast attorney Jack Goodman, who represented broadcasters in the case. “I’m unaware of any other case where one panel [of a U.S. Court of Appeals] has held onto a case for more than 16 years.”

The other option for an appeal is the U.S. Supreme Court, but attorneys said the U.S. solicitor general has a limited number of cases for which to seek certiorari. Prometheus IV is very technical and is an unlikely candidate to be granted cert, several attorneys said. If the appeal isn’t granted, the 3rd Circuit has retained jurisdiction over the case, Monday’s opinion said: “Further litigation is, at this point, sadly foreseeable.”