As the FCC prepares to set final opening bid prices and start accepting broadcaster applications for participating in the incentive auction, it has released its guidance on prohibited communications during the auction process. That will include a prohibition on communicating how a licensee will participate in the auction—bids and bidding strategies—but not include communicating "whether" a licensee has or hasn't applied to participate.
That and other advice came in an 18-page public notice issued late Tuesday by the commission.
The FCC is nixing certain communications between and among participants in both the reverse (broadcaster) auction and forward (wireless) auction. It also clarified some of the rules and provided guidance on antitrust laws and administration of the auction. But it said this week in releasing the guidance that it also recognized that companies need to keep conducting their businesses.
The prohibitions do not include necessary communication of bidding or strategy information to third parties including legal counsel, lenders or consultants, so long as the licensee takes steps to insure that third party does not share it with other auction participants.
But violators of the rules will be prosecuted, the FCC signaled. Penalties could include "forfeiture of reverse auction winning bid incentive payments" and license revocation.
The FCC will not prohibit a law firm or even individual attorney from representing more than one licensee, but cautions that a single attorney handling more than one could be problematic. "We note that while a law firm taking appropriate precautions, as described above, may represent more than one covered licensee that has bids or bidding strategies, in the case of an individual the objective precautionary measure of a firewall is not available," the FCC said. "Thus, an individual possessing information regarding the bids and bidding strategies of more than one covered party could provide advice to another covered party that is influenced by the information he or she possesses, perhaps unintentionally, thereby resulting in a violation of the rule."
While the Federal Communications Bar Association contends that the legal canon of ethics should give the FCC sufficient comfort that its anti-collusion rule would not be violated, the commission was not comforted. "We disagree with the MMPC’s suggestion that the fact that an individual or law firm is subject to a canon of ethics should be sufficient, without more, to demonstrate that no violation has occurred."
The FCC warned that individuals are particularly at risk. "We caution that an individual practitioner that holds bids or bidding information of more than one covered party presents a greater risk of engaging in such a [prohibited] communication."
The FCC's rules state that, aside for some specific exceptions, between the time the last application by a TV station for participation, likely the end of the year, through the auction and up until the results are finalized in a public notice—likely several weeks after the March 29 launch date—"all full power and Class A broadcast television licensees are prohibited from communicating directly or indirectly any incentive auction applicant’s bids or bidding strategies to any other full power or Class A broadcast television licensee or to any forward auction applicant.”
Prohibited communications include public disclosures as well as private communications. Exceptions are: 1) among stations with a controlling interest, director, officer or governing board member as of the application deadline; 2) among a broadcast licensee and a forward auction applicant if a broadcast licenses controlling interest, director, officer or governing board member has at least a 10% in the forward auction applicant at the deadline for participation in the reverse auction; and 3) parties to a channel-sharing agreement at the application deadline and so long as the sharing agreement was disclosed. But there are exceptions to that channel-sharing exception that broadcasters will need to bone up on (check out paragraph 19 under "Communicating Pursuant to Exceptions to the Prohibition."
As to communicating whether a licensee has applied to participate, the FCC says that will not be prohibited because applying does not mean the applicant will necessarily put its spectrum up for bid and does not reveal specific bids or strategies. That allows a group owner to explain why it may be seeking a short-term retrans agreement, for example, or alternately assure the other side that it is not participating if it is seeking a long-term agreement.
The FCC concedes that another station may try to infer bids or strategies "based solely" on whether a licensee is participating, but says that so long as bids and bidding strategies are not communicated, that inference is not a prohibited communication.
Broadcasters will need to read the prohibition guidance carefully when it comes to communicating that it is not participating given the FCC's own cautionary advice. "Although communications regarding whether or not a broadcaster has applied to participate in the auction are permissible under the rule for the reasons explained above, licensees should take care when communicating about their applicant or non-applicant status that their communications do not convey or appear to convey information about specific bids or bidding strategies. For example, a communication that a broadcaster 'is not bidding' in the auction, in contrast to 'is not an applicant,' could constitute an apparent violation of the rule..."
Clearly conveying that one is not an applicant also conveys one is not bidding, but it would appear to be the safer course to avoid phrases including the word "bidding" altogether.
Some public broadcasters have pointed out that sunshine laws may require them to publicly disclose their decisionmaking, including bidding strategies. But the FCC said that given the short "quiet" period and customary sunshine exceptions for sensitive business information, that may be a nonissue. But if it is, it advises noncoms to check with FCC staffers before making such a disclosure.
If a station's news department uncovers and reports on that station's bidding strategy, the FCC will not automatically impute that dissemination to the licensee, but will review the facts and circumstances. But it advises licensees to limit their potential risk by educating their employees in advance of the auction, particularly ones with access to bid and strategy information, and "establish internal safeguards to limit the availability of this information to those with a need to know."
The FCC also said it was waiving on its own initiative—rather than in response to a petition or request—the prohibition in the rules of transfer of control of an applicant in the reverse auction. That means so long as the transfer application was accepted for filing by the deadline for applying to participate in the auction, such stations can be sold so long as the new owners agrees to abide by the auction results for that spectrum. The FCC said preventing such sales could discourage broadcaster participation in the auction, which is contrary to the FCC's underlying goal.
The FCC also warned that compliance with the prohibitions is not a shield from antitrust laws, a violation of which could also occur before the quiet period prohibitions.