FCC Roughed Up in D.C. Circuit

Judges have lots of issues with statute of limitations on carriage complaint and First Amendment implications of remedy
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A three-judge panel of the U.S. Court of Appeals heard the
case of Comcast vs. the FCC on Monday, challenging the FCC's first-ever finding
in favor of a program carriage complaint and its imposition of a carriage
remedy. While the judges usually wield a gavel, in this case is was more like a
hammer, with the FCC mostly on the receiving end.

Between the serious First Amendment issues with the FCC's
carriage remedy expressed by Judge Brett Kavanaugh and the contract issues on
which Judge Harry Edwards focused, the FCC appeared to have an uphill fight to
keep its decision from being remanded back. Following the hearing, sources on
both sides of the case expressed that sentiment following lengthy questioning
that saw FCC and Tennis Channel lawyers.

In a 3-2 party line vote, the FCC in July 2012 upheld an FCC
judge's ruling that Comcast discriminated against Tennis Channel by carrying it
in a sports tier, while carrying its co-owned Golf Channel and Versus (now NBC
Sports Network) on a more widely viewed basic tier. Comcast appealed the
decision to the FCC, then the court. 

The FCC remedy was to provide Tennis Channel with the same
level of distribution, whether that be basic or sports tier or not carrying it
at all -- that it provided its co-owned channels.

Judges Kavanaugh and Edwards were joined by Judge Stephen Williams
on the panel, but the former two asked most of the questions. Since judges
often play devil's advocate, it is hard to predict how the judges will come
down on this case. The FCC is due some deference as the expert administrative
agency, but the D.C. Circuit is the one that threw out the FCC's Comcast
Bittorrent decision, and the panel that heard Monday's argument was
characterized by one attorney familiar with the circuit as both conservative
and tough on the FCC.

With former D.C. Federal Judges looking down from gilt
frames along each wall of the courtroom -- including now Supreme Court Justice
Ruth Bader Ginsburg and the late High Court nominee Robert Bork -- Comcast's
lawyer, former D.C. Circuit nominee Miguel Estrada, argued that the FCC was
dictating distribution in violation of the First Amendment and based on flawed
reading of the statute. He also argued that the complaint should be moot
because it was filed after the one-year statute of limitations. Tennis signed a
contract agreeing to sports tier carriage in 2005, but did not file the
carriage complaint until more than three years later.

That was the issue that drove Judge Edwards to weigh in
early and often. He said it seemed to him clear that the FCC had set a one-year
statute of limitations on changes in contracts. The FCC and Tennis Channel
lawyers countered that discrimination was based on similarly situated networks,
and that Tennis Channel had not been similarly situated in 2005, but only
became so after it got stronger.

Edwards asked what Tennis knew in 2009 that it didn't know
in 2005. The FCC pointed to HD and U.S. Open rights that had strengthened the
channel.

Estrada said he agreed with Edwards and that the complaint
was clearly moot because it was not timely filed. But even if it had been, he
suggested, the FCC was ignoring the market dynamics, including that other MVPDs
gave Tennis no better carriage than Comcast, and that the FCC was instead
making a comparison based on content.

Edwards said that Tennis could or should have anticipated
that it would improve and written into its contract a provision about changing
the tier if that happened. He said the FCC's reading would make a contract
"silly," and suggested FCC's argument that it was ludicrous for the FCC to
suggest that a complaint could be filed anytime somebody wanted to.
 Edwards said the FCC itself had made absolutely clear that after one
year, such a complaint could not be filed.  

Coincidentally, the judges had just been dealing with
government content calls in an earlier case--Comcast was the third oral
argument of the morning -- in which the CIA had refused to pay attorney's fees
for a FOIA request because it had concluded the content of the request was not
sufficiently relevant. In that case, Edwards suggested the government shouldn't
be in the business of deciding what content should be made available.

Comcast's argument was essentially three-pronged: The
complaint was moot because it came after the statute of limitations; the FCC
failed to look at the competitive markets, which justified Tennis' Channel
placement; and the remedy violated Comcast's First Amendment freedom to
choose its own programming.

Comcast argues that it is free to discriminate for the right
reasons, just not the wrong ones. Estrada said that Comcast has a
constitutional right to favor its own speech over others, so long as it does
not do so for anticompetitive reasons. Ignoring the marketplace evidence that
others treated Tennis no better, and some worse, in terms of carriage, Estrada
suggested, the FCC had arrogated for itself the role of a government censorship
board and that the FCC's decision was the most outrageous content call since
the Sedition Acts. He suggested, as Comcast has in its brief, that the FCC's
decision is comparable to telling a newspaper it has to put a freelancer on the
front page.

The FCC argued that cable did not still have to have
bottleneck control of an MVPD market for the anti-discrimination provision of
the Cable Act to still hold sway, but that if the court found that a showing of
bottleneck control was necessary, the court should give it a chance to prove
that.

The commission said it could do so by showing that the
impact on advertising, but Estrada countered that cable operators' business was
based primarily on sub fees, not ad revenues.

At least from the tenor of the court arguments, that last
option -- vacating the decision but remanding it back to the FCC for a showing
of undue market power -- sounds like the most likely scenario.

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