Court Deals Blow to Pai Dereg

Third Circuit said FCC failed to gauge impact on diversity
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The U.S. Court of Appeals for the Third Circuit has thrown out, or at least thrown back to the FCC, some of chairman Ajit Pai's efforts to deregulate broadcast ownership and address a lack of diversity, saying the agency "did not adequately consider the effect its sweeping rule changes will have on ownership of broadcast media by women and racial minorities."

Gavel-Tori Rector_9_1

It was hearing an appeal of the Pai FCC's decision to eliminate the newspaper-broadcast and the radio-TV cross-ownership rules; allow dual station ownership in markets with fewer than eight independent voices after that duopoly created an opportunity for ownership of two of the top four stations in a market on a case-by-case basis (the FCC was not calling it a waiver); and eliminate attribution of joint sales agreements as ownership; and created a diversity incubator program." As well as create some diversity mechanisms to address the court's long-standing concern. 

Related: Third Circuit Again Hears Oral Argument in Broadcast Dereg Challenges

The decision appears to vacate all those attempts, leaving broadcasters again trying to figure out how to heavy up to match the competition. 

Parties were still reading the decision at press time, and an FCC spokesperson was not immediately available for comment, but it was clearly a smack down of the FCC's diversity and dereg efforts that extends the legal limbo for just how the FCC can deregulate broadcasters.

"We asked that the decision be vacated," said one petitioner who added they were still reading the decision. "That means that the Pai opinion is (largely) wiped out."

"At first glance, this is a huge victory for the listening and viewing public," said Andrew Schwartzman, one of the attorneys who argued the case for those challenging the dereg. "The Court of Appeals has found that the FCC has yet again failed to assess how changing its ownership limits affect people of color and women. Diverse ownership benefits everyone, and rejection of the FCC’s deregulation is a small step in restoring a system that promotes such diversity."

"Hallelujah! How many times does the FCC have to hear from this court that it has overstepped its bounds and dis-served the public interest," said former FCC chair Michael Copps, currently a special adviser, media and democracy for Common Cause. "Big media and its captured majority commissioners have had this coming for a long long time," he told B&C. "As someone who has been fighting this fight since 2001, I am overjoyed."

Pai saw the decision as obstruction by the courts of efforts to modernize communications and vowed to appeal.

“For more than twenty years, Congress has instructed the Federal Communications Commission to review its media ownership regulations and revise or repeal those rules that are no longer necessary," said Pai. "But for the last fifteen years, a majority of the same Third Circuit panel has taken that authority for themselves, blocking any attempt to modernize these regulations to match the obvious realities of the modern media marketplace. It’s become quite clear that there is no evidence or reasoning—newspapers going out of business, broadcast radio struggling, broadcast TV facing stiffer competition than ever—that will persuade them to change their minds. We intend to seek further review of today's decision and are optimistic that the views set forth today in Judge Scirica’s well-reasoned opinion ultimately will carry the day.”

The three-judge decision can be appealed to the full court (en banc) or ever directly to the Supreme Court.

Judge Anthony Scirica, in a partial dissent, said he would have let the FCC dereg stand. 

The court found the FCC's ownership dereg arbitrary and capricious because it did not provide the requisite justification for how the FCC gauged those changes' impact on race and gender. For example, it said, "any ostensible conclusion as to female ownership was not based on any record evidence we can discern." 

The FCC has to try again in what has been an almost two-decade-long effort to satisfy the court, but the court did not appoint a "special master" to oversee that effort, as some petitioners had requested.   

That came in a decision handed down Monday (Sept. 23). The court had asked the FCC to better justify its dereg in the face of a lack of diversity, and found that effort wanting. 

It did say that the FCC's decision not to extend procurement rules was not out of bounds "so far," and did not agree with those who challenged the rules as not deregulatory enough. 

"Although it did ostensibly comply with our prior requirement to consider this [diversity] issue on remand, its analysis is so insubstantial that we cannot say it provides a reliable foundation for the Commission’s conclusions," the court said.  

The court said that it could even have accepted some adverse impact from the FCC rule changes if the commission had justified that outcome. "The Commission might well be within its rights to adopt a new deregulatory framework (even if the rule changes would have some adverse effect on ownership diversity) if it gave a meaningful evaluation of that effect and then explained why it believed the trade-off was justified for other policy reasons. But it has not done so." 

The court fund lots to criticize in the FCC's diversity analysis. "[A]lthough we instructed it to consider the effect of any rule changes on female as well as minority ownership, the Commission cited no evidence whatsoever regarding gender diversity," it said. 

The court tried to lay out a road map to success on remand: 

"[W]e vacate the Reconsideration Order and the Incubator Order in their entirety, as well as the “eligible entity” definition from the 2016 Report & Order. On remand the Commission must ascertain on record evidence the likely effect of any rule changes it proposes and whatever “eligible entity” definition it adopts on ownership by women and minorities, whether through new empirical research or an in- depth theoretical analysis. If it finds that a proposed rule change would likely have an adverse effect on ownership diversity but nonetheless believes that rule in the public interest all things considered, it must say so and explain its reasoning. If it finds that its proposed definition for eligible entities will not meaningfully advance ownership diversity, it must explain why it could not adopt an alternate definition that would do so. Once again 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." 

Oral argument in the case had been held back in June before Judges Thomas Ambro, Anthony Scirica and Julio Fuentes, the same three that have heard the case since the FCC's media ownership deregulation was first stayed in 2003 following a challenge by, you guessed it, Prometheus. In fact, it is the fourth legal challenge to FCC media ownership rules by effectively the same parties, something Prometheus has pointed out. 

This is the language in Scirica's partial dissent that Pai is relying on to win the day, an argument the chairman has long been making: 

"The realities of operating a viable broadcasting enterprise today look little like they did when the FCC enacted the current ownership rules. Despite all of this, the FCC’s broadcast ownership rules remained largely static for fifteen years. 

"The FCC’s most recent review of its ownership rules culminated in an order that accounted for these changes," he wrote. "The FCC evaluated the current market dynamics, concluded the existing rules built for a pre-Internet marketplace no longer serve the public interest, and repealed or modified the rules accordingly. The FCC weighed the rules’ effects on competition, localism, and diversity to determine what changes would advance the public interest."

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