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Media Alerts - Prometheus Radio Project v. Federal Communications Commission - Third Circuit
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May 27, 2016
  Prometheus Radio Project v. Federal Communications Commission - Third Circuit
Headline: In its Third Go-round with the FCC, the Third Circuit Holds the Agency Has Delayed in its Diversity Initiatives and Obligation to Examine its Broadcast Ownership Rules and Improperly Enacted a Television Joint Sales Agreement Rule

Area of Law: Administrative Law, Communications

Issue(s) Presented: Has the FCC unreasonably delayed in its obligations to consider new definitions for "eligible entities" under its diversity initiatives and to conduct its Quadrennial Review of broadcast ownership rules? Did the FCC improperly enact a television joint sales agreement rule?

Brief Summary: The Third Circuit held that the Federal Communications Commission's (FCC) nearly 10 year delay in meeting its court-ordered duty to redefine "eligible entities" for its preferences intended to promote minority and female broadcast ownership was unreasonable. The Court ordered the FCC to act promptly, specifically to gather adequate data on minority and female broadcast ownership and redefine "eligible entity" in a way that is more likely to promote diversity.

Second, the Third Circuit rejected broadcast owners' petition to wipe all the ownership rules off the books in response to the FCC's failure to make progress on meeting its statutory requirement to conduct Quadrennial Reviews of its common ownership rules, but warned that the FCC must carry out its legislative mandate or else face likely future litigation over the rules.

Last, the Third Circuit vacated a new FCC ownership rule designed to address the perceived problem of companies evading common ownership limits through influence exerted by advertising contracts known as joint sales agreements. Because the FCC enacted this rule without conducting the required analysis of its impact on the public interest, the Third Circuit vacated the rule and remanded the issue to the FCC.

Extended Summary: The FCC has a statutory obligation to promote minority and female broadcast ownership. To do so, the FCC has created license, construction permit, and other financing preferences to certain entities. Historically, FCC chose these entities based on race and gender of the ownership, but after the Supreme Court put significant limits on gender and race classifications, the FCC has enacted facially neutral means to support minorities. Specifically, the FCC defined an "eligible entity" as one that qualifies as a small business under the revenue-based definition used by the Small Business Administration. This measure has been criticized because there is no evidence that small businesses are more likely owned by minorities and females.

The FCC also has a statutory obligation to examine its broadcast ownership rules every four years. The broad purpose of the ownership rules is to limit consolidation in the industry and thus promote competition. From these Quadrennial Reviews, the FCC must determine whether any of its ownership rules are still necessary in the public interest as the result of competition and repeal or modify such rules as needed.

In 2004 and 2011, the Third Circuit heard challenges based on the FCC's delays in its diversity initiatives and Quadrennial Reviews. First, the FCC was held to have delayed meaningful consideration of its "eligible entity" definition. As noted, an eligible entity was a small business as measured by its revenues. In 2004, the Third Circuit instructed the FCC to evaluate definitions of "eligible entity" more likely to produce minority and female broadcast ownership, for example, by giving preferences for socially and economically disadvantaged businesses. However, by 2011, the FCC still had its revenue-based measure in place, citing poor data on existing minority and female ownership as its reason for failure to reevaluate. Thus, in 2011, the Third Circuit again ordered the FCC to consider the proposed alternate definitions.

In the present opinion, the Third Circuit noted that the FCC punted consideration of the new definitions again, similarly citing insufficient data. Although the FCC issued reports confirming the underrepresentation of minorities and women, it tentatively rejected alternate definitions and maintained the revenue-based one. For example, the FCC rejected the definition based on socially and economically disadvantaged businesses because it claimed that classification likely would not pass a strict scrutiny standard - not because of any information about whether it would increase minority or female ownership.

Here, the Third Circuit found that the FCC's failure to comply with the Court's previous orders were unreasonable. First, the agency had a duty to act since the first opinion in 2004. Second, the delay was considered unreasonable in relation to the importance of the particular statutory authority - an obligation to promote minority and women ownership. Third, due to the delay, several potentially workable definitions of "eligible entity" could not take effect. Lastly, the Third Circuit did not consider the FCC's lack of good data an administrative error, inconvenience, or practical difficulty justifying its delay.

Second, in 2011, Third Circuit held that the FCC Quadrennial Reviews were overdue - the last completed review was in 2006 and results released in 2008. As of the current opinion, two review cycles have passed without any action and the FCC has rolled the 2010 review into the 2014 review, which is still ongoing. The FCC did not provide any cogent explanation for why the Review has not been completed, but noted it would be complete by the end of 2016.

The Third Circuit listed costs from this delay, including five broadcast ownership rules in limbo. For example, in 1975, the FCC completely banned the common ownership of a daily newspaper and a television or radio station in the same market. Approximately a decade ago, the FCC determined this complete ban to be unnecessary and against the public interest, but that some restrictions were still necessary. However, due to the delay in the ownership rule review process, successful alternatives have not been found and thus the complete ban remains.

The broadcast company owners seeking deregulation argued that because of the FCC's failure to review, all five broadcast ownership rules in limbo should be vacated - in other words, the Court should "wipe the slate clean." The Third Circuit refused to vacate, noting that despite FCC's delay, it can probably justify some restrictions on broadcast ownerships and eliminating these rules would create a free-for-all in the industry. Moreover, the deregulation petitioners failed to first seek more appropriate relief, such as an Administrative Procedure Act order, and therefore waived those less-drastic options. In sum, the Third Circuit refused to vacate and warned that the FCC must meet its 2016 Review deadline or else face likely additional litigation regarding the potentially outdated ownership rules.

Lastly, in the present opinion, the Third Circuit discussed a challenge to FCC restrictions on common ownership of broadcast TV stations in the same market. To prevent companies from circumventing its ownership limits through clever contracting, the FCC has enacted "attribution" rules. For example, a joint sale agreement (JSA) allows one station to sell advertising spots but not programming to a second station. Under a JSA attribution rule, the sale of more than fifteen percent of the station's weekly advertising is attributed, or counted, towards its ownership cap.

In 2004, the Third Circuit upheld the FCC's same-market radio JSA attribution rule to be in the public interest in that it prevented common ownership rules from being undermined. The rule was not considered arbitrary nor capricious, but rather one that more accurately reflected the conditions of local markets. However, in 2014, the FCC extended this rationale to same-market television JSAs, meaning that sales of television advertising spots over the fifteen-percent threshold counted as common ownership subject to the FCC's limits. The FCC reasoned that holders of advertising interests confer a sufficient degree of control and ability to affect the programming decisions of the station. In other words, JSAs over the fifteen-percent threshold "look enough like ownership to count as such."

The Third Circuit vacated this expansion of attribution rules to television JSAs. As noted above, the FCC has obligations to conduct Quadrennial Reviews of its ownership rules and retain, repeal, or modify its rules based on a reasoned analysis. The Third Circuit agreed with the deregulation petitioners that the FCC did not fulfill this prerequisite obligation to review and determine whether the expansion of attribution rules to same-market television JSAs is in the public interest. The Third Circuit invited the FCC to replace the rule with a new one or evaluate whether the expansion is indeed in the public interest on remand.

In sum, the Third Circuit held that the FCC has delayed too long on the eligibility entity definition, as well as on its Quadrennial Review responsibilities. For the former, the Court ordered mediation to set appropriate deadlines. The Third Circuit also vacated the FCC's television JSA rule and remanded the matter to the FCC.

The full opinion can be found at http://www2.ca3.uscourts.gov/opinarch/153863p.pdf.

Panel: Ambro, Fuentes, and Scirica, Circuit Judges

Argument Date: April 19, 2016

Date of Issued Opinion: May 25, 2016

Docket Number: Nos. 15-3863, 15-3864, 15-3865 & 15-3866

Decided: Vacated and remanded

Case Alert Author: Elizabeth C. Dolce

Counsel: Colby M. May, Esquire, Counsel for Petitioner, Howard Stirk Holdings, LLC;

Kim M. Keenan, Esquire and David Honig, Esquire, Counsel for Intervenor Petitioner Multicultural Media, Telecom and Internet Council;

Eve Klindera Reed, Esquire and Brett A. Shumate, Esquire, Counsel for Intervenor Petitioner Mission Broadcasting Inc.;

Jonathan B. Sallet, General Counsel, David M. Gossett, Deputy General Counsel, Jacob M. Lewis, Associate General Counsel, Clifford G. Pash, Jr., Esquire, James M. Carr, Esquire and Richard K. Welch, Esquire, Counsel for Respondent Federal Communications Commission;

William J. Baer, Assistant Attorney General, Kristen C. Limarzi, Esquire and Robert J. Wiggers, Esquire, Counsel for Respondent United States of America;

Helgi C. Walker, Esquire, Ashley S. Boizelle, Esquire, Lindsay S. See, Esquire, Rick Kaplan, Esquire and Jerianne Timmerman, Esquire, Counsel for Petitioner/Intervenor Respondent National Association of Broadcasters;

Patrick F. Philbin, Esquire, Counsel for Petitioner/Intervenor Respondent Nexstar Broadcasting, Inc.;

Angela J. Campbell, Esquire, Eric G. Null, Esquire, Andrew J. Schwartzman, Esquire and Drew T. Simshaw, Esquire, Counsel for Petitioner/Intervenor Respondent Prometheus Radio Project, Other Intervenor Respondents Benton Foundation, Common Cause, Media Alliance, Media Council Hawaii, National Organization for Women Foundation, Office of Communication, Inc. of the United Church of Christ, National Association of Broadcast Employees and Technicians - Communications Workers of America;

David E. Mills, Esquire, Jason E. Rademacher, Esquire and Barry J. Ohlson, Esquire, Counsel for Amicus Petitioner Cox Media Group, Inc.;

William J. Kolasky, Jr., Esquire, Kathleen M. Fones, Esquire, Katherine L. Steele, Esquire, Morgan J. Feder, Esquire, Justin Ben-Asher, Esquire, Sigrid Jernudd, Esquire, Geoffrey A. Manne, Esquire and R. Benjamin Sperry, Esquire, Counsel for Amicus Petitioner International Center for Law and Economics

Author of Opinion: Circuit Judge Ambro

Circuit: Third Circuit

Case Alert Circuit Supervisor: Prof. Susan L. DeJarnatt

    Posted By: Susan DeJarnatt @ 05/27/2016 02:11 PM     3rd Circuit  

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