Time Warner Cable Inc. v. Federal Communications Commission , 729 F.3d 137 ( 2013 )

11-4138(L)
Time Warner Cable Inc. v. FCC
UNITED STATES COURT OF APPEALS
FOR THE SECOND CIRCUIT
August Term, 2012
(Argued: October 4, 2012 Decided: September 4, 2013)
Docket Nos. 11-4138(L), 11-5152(Con)
TIME WARNER CABLE INC., NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION,
Petitioners,
—v.—
FEDERAL COMMUNICATIONS COMMISSION, UNITED STATES OF AMERICA,
Respondents.
Before:
RAGGI, CHIN and CARNEY, Circuit Judges
Petitions for review of a 2011 Order of the Federal Communications Commission
promulgating rules under § 616(a)(3) and (5) of the Communications Act of 1934, as
amended by the Cable Television Consumer Protection and Competition Act of 1992, Pub.
L. No. 102-385, 106 Stat. 1460 (1992) (codified at 47 U.S.C. § 536(a)(3), (5)). Petitioners
contend that the prima facie standard established by the 2011 Order, as well as § 616(a)(3)
and (5) pursuant to which it was promulgated, violate the First Amendment. They further
assert that the 2011 Order’s standstill rule was promulgated in violation of the Administrative
1
Procedure Act’s notice-and-comment requirements. See 5 U.S.C. § 553(b), (c). We reject
the first argument, but are persuaded by the second.
PETITIONS DENIED IN PART AND GRANTED IN PART, AND FCC ORDER VACATED IN
PART.
FLOYD ABRAMS (Marc Lawrence-Apfelbaum, Jeff Zimmerman, Time Warner
Cable Inc., New York, New York; Richard P. Press, Matthew A. Brill,
Amanda E. Potter, Matthew T. Murchison, Latham & Watkins LLP,
Washington, D.C.; Landis C. Best, Ari Melber, Cahill Gordon &
Reindel, New York, New York, on the brief), Cahill Gordon & Reindel,
New York, New York, for Petitioner Time Warner Cable Inc.
MIGUEL A. ESTRADA (Rick Chessen, Neal M. Goldberg, Michael S. Schooler,
Diane B. Burstein, National Cable & Telecommunications Association,
Washington, D.C.; Cynthia E. Richman, Scott P. Martin, Gibson, Dunn
& Crutcher LLP, Washington, D.C.; Howard J. Symons, Tara M.
Corvo, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.,
Washington, D.C., on the brief), Gibson, Dunn & Crutcher LLP,
Washington, D.C., for Petitioner National Cable &
Telecommunications Association.
PETER KARANJIA, Deputy General Counsel (Joseph F. Wayland, Acting
Assistant Attorney General, Catherine G. O’Sullivan, Nancy C.
Garrison, United States Department of Justice, Washington, D.C.; Sean
A. Lev, General Counsel, Jacob M. Lewis, Associate General Counsel,
James M. Carr, Counsel, Federal Communications Commission,
Washington, D.C., on the brief), Federal Communications Commission,
Washington, D.C. for Respondents Federal Communications
Commission and United States of America.
Stephen Díaz Gavin, Andrew M. Friedman, Patton Boggs LLP, Washington,
D.C., for Amicus Curiae Bloomberg L.P.
Erin L. Dozier, Jane E. Mago, Jerianne Timmerman, The National Association
of Broadcasters, Washington, D.C., for Amicus Curiae The National
Association of Broadcasters.
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Harold Feld, Senior Vice President, Sherwin Siy, Vice President, Legal
Affairs, Public Knowledge, Washington, D.C., for Amicus Curiae
Public Knowledge.
C. William Phillips, Covington & Burling LLP, New York, New York;
Stephen A. Weiswasser, Kurt A. Wimmer, Gerard J. Waldron, Neema
D. Trivedi, Covington & Burling LLP, Washington, D.C., for Amici
Curiae The Tennis Channel, Inc. & NFL Enterprises LLC.
REENA RAGGI, Circuit Judge:
Time Warner Cable Inc. (“Time Warner”) and the National Cable &
Telecommunications Association (“NCTA” and, collectively with Time Warner, the “Cable
Companies”) petition for review of an August 1, 2011 order of the Federal Communications
Commission (“FCC” or “Commission”).1 See Revision of the Commission’s Program
Carriage Rules, 26 FCC Rcd. 11494 (2011) (“2011 FCC Order”). The 2011 FCC Order
promulgates rules under § 616(a)(3) and (5) of the Communications Act of 1934
(“Communications Act”), as amended by the Cable Television Consumer Protection and
Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460 (1992) (“Cable Act”)
(codified at 47 U.S.C. § 536(a)(3), (5)). Section 616(a)(3) and (5) and that part of the 2011
FCC Order establishing the standard for demonstrating a prima facie violation of these
statutory provisions (collectively, the “program carriage regime”) are intended to curb
1
Although the NCTA’s membership does not consist solely of cable companies, we
refer to the NCTA and Time Warner collectively as “Cable Companies” throughout the
opinion for ease of reference. Respondents FCC and the United States have submitted a joint
brief to the court. Thus, references throughout this opinion to the FCC’s arguments on
appeal should be understood to incorporate the position of the United States as well.
3
anticompetitive behavior by limiting the circumstances under which a distributor of video
programming can discriminate against unaffiliated networks that provide such programming.
The Cable Companies contend that, on its face, the program carriage regime violates their
First Amendment right to free speech. See U.S. Const. amend. I. They further argue that the
2011 FCC Order’s standstill rule—which requires a distributor to continue carrying an
unaffiliated network under the terms of its preexisting contract until the network’s complaint
against the distributor under the program carriage regime is resolved—was promulgated in
violation of the notice-and-comment requirements of the Administrative Procedure Act
(“APA”). See 5 U.S.C. § 553(b), (c).
For the reasons set forth in this opinion, we reject the Cable Companies’ First
Amendment challenge to the program carriage regime. At the same time, however, we
conclude that the challenged standstill rule was not promulgated in accordance with the APA.
Accordingly, the Cable Companies’ petitions are denied in part and granted in part, and the
2011 FCC Order’s standstill rule is vacated without prejudice to the FCC’s pursuing
promulgation consistent with the APA.
I. Background
A. The Video Programming Industry
To provide context for our discussion of the legal issues raised by the Cable
Companies, we begin with an overview of the video programming industry and its relevant
terminology. As pertinent to this case, the video programming industry includes video
4
programming vendors, multichannel video programming distributors (“MVPDs”), and online
video distributors (“OVDs”). See Annual Assessment of the Status of Competition in the
Market for the Delivery of Video Programming, No. 12-203, 2013 WL 3803465, ¶¶ 2–6,
9–11 (July 22, 2013) (“2013 FCC Report”); Annual Assessment of the Status of Competition
in the Market for the Delivery of Video Programming, 27 FCC Rcd. 8610, ¶¶ 2–6, 9–11, 18,
42 (2012) (“2012 FCC Report”).2
Video programming vendors are primarily programming networks, such as ESPN,
Bravo, and CNN, which create or acquire video programming, such as television shows and
movies, and which contract with MVPDs and OVDs to distribute that programming to
consumers. See 47 C.F.R. § 76.1300(e) (defining “[v]ideo programming vendor”); 2012
FCC Report ¶¶ 18–19, 44, 238, 244–248, Table B-1. MVPDs and OVDs are services that
transmit video programming to subscribers for viewing on televisions, computers, and other
electronic devices. See 47 C.F.R. § 76.1300(d) (defining “[m]ultichannel video
programming distributor”); 2012 FCC Report ¶¶ 2 n.6, 9, 18–19, 21, 237–39. MVPDs and
OVDs generally do not alter the programming that they transmit; rather, once an MVPD or
OVD acquires programming from networks, it functions as a “conduit for the speech of
2
Following the release of the 2011 FCC Order, in July 2012 and July 2013, the FCC
released its most recent reports on the state of competition in the video programming
industry. The 2012 FCC Report reviews industry data from 2007–2010, see 2012 FCC
Report ¶ 1, while the 2013 FCC Report reviews data from 2011–2012, see 2013 FCC Report
¶ 1.
5
others, transmitting it on a continuous and unedited basis to [consumers].” Turner Broad.
Sys., Inc. v. FCC, 512 U.S. 622, 629 (1994) (“Turner I”); see 2012 FCC Report ¶ 238.
MVPDs include (1) cable operators, such as Time Warner and Comcast Corporation
(“Comcast”), which transmit programming over physical cable systems; (2) direct broadcast
satellite (“DBS”) providers, such as DISH Network and DIRECTV, which transmit
programming via direct-to-home satellite; and (3) telephone companies, such as AT&T and
Verizon, which transmit programming via fiber-optic cable. See 2012 FCC Report ¶¶ 18,
30.3 While MVPDs primarily transmit programming to televisions, increasingly, they also
offer access to their programming through the Internet. See id. ¶¶ 6, 21. MVPDs sometimes
acquire ownership interests in the networks from which they obtain video programming, and
vice versa. See id. ¶ 42. Such networks are deemed “affiliated” with MVPDs, whereas
networks without any shared ownership interests are deemed “unaffiliated.” Id. ¶¶ 42–43.
The “geographic footprint[]” of an MVPD varies based on the type and size of the MVPD.
Id. ¶ 24. Cable operators, for instance, operate in “discrete geographic areas defined by the
boundaries of their individual systems,” id., and “[n]o cable operator provides nationwide
coverage or statewide coverage,” 2013 FCC Report ¶ 25. Telephone companies are similarly
limited by their physical systems. See id. ¶ 28. By contrast, DBS providers have “national
3
As of June 2012, the top five MVPDs in terms of total subscribers were, from largest
to smallest: Comcast, DIRECTV, DISH Network, Time Warner, and Cox Communications.
See 2013 FCC Report ¶¶ 25, 27, 70, 97.
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footprints,” id. ¶ 23, offering “service to most of the land area and population of the United
States,” id. ¶ 27.
OVDs, like Hulu and Netflix, are relatively new services that transmit video
programming to consumers via broadband Internet for viewing on television and other
electronic devices.4 See 2012 FCC Report ¶¶ 2 n.6, 9, 237–39, 246, 252–53. OVDs may
offer programming for free, by subscription, on a rental basis, or for sale. See id. ¶¶ 10,
245–46, 252–53. “[A]n OVD’s market generally covers the entire national broadband
footprint.” Id. ¶ 243; see 2013 FCC Report ¶ 220.
Two markets in the video programming industry are relevant to this case. The first,
which we will refer to as the “video programming market,” is the market in which
programming networks and other video programming vendors compete with each other to
have MVPDs and OVDs carry their video programming. See 2012 FCC Report ¶¶ 9, 11;
2011 FCC Order ¶ 4 & nn.10–12. The second market, which we will refer to as the “MVPD
market,” consists of MVPDs and, to a lesser extent, OVDs competing to deliver video
programming to consumers. See 2012 FCC Report ¶¶ 3–6, 9, 11; 2011 FCC Order ¶ 4 &
n.13. See generally Cablevision Sys. Corp. v. FCC, 597 F.3d 1306, 1319 (D.C. Cir. 2010)
(Kavanaugh, J., dissenting) (citing Christopher S. Yoo, Vertical Integration & Media
Regulation in the New Economy, 19 YALE J. ON REG. 171, 220 (2002), and discussing chain
of production in video programming industry).
4
OVDs do not include MVPDs that offer their subscribers access to their
programming through the Internet. 2012 FCC Report ¶ 2 n.6.
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B. The Cable Act
In 1992, after three years of hearings, Congress overrode President George H.W.
Bush’s veto and enacted the Cable Act to regulate the video programming industry. At the
time, cable operators held 95% of the MVPD market in the United States. See
Implementation of Cable Television Consumer Protection & Competition Act of 1992, 17
FCC Rcd. 12124, ¶ 20 (2002) (“2002 FCC Report”). Nascent MVPD systems, such as DBS
and fiber-optic telephone systems, did not then pose a significant competitive threat to cable
operators, see 2012 FCC Report ¶ 27; S. Rep. No. 102-92, at 8 (1991), reprinted in 1992
U.S.C.C.A.N. 1133, 1140–41, and OVDs did not yet exist, see 2012 FCC Report ¶ 239.
Cable operators also generally did not compete against one another in any given locality,
see 2012 FCC Report ¶¶ 27, 39, due in part to “local franchising requirements and the
extraordinary expense of constructing more than one cable television system to serve a
particular geographic area,” Cable Act § 2(a)(2). Thus, the country was effectively divided
into numerous local cable monopolies, with few consumers having a choice of MVPDs. See
id.; S. Rep. No. 102-92, at 8, reprinted in 1992 U.S.C.C.A.N. at 1141 (“A cable system
serving a local community, with rare exceptions, enjoys a monopoly.”).
In conjunction with their local monopolies, cable operators exercised “bottleneck”
control, a power that allowed them to prevent certain programming networks from reaching
consumers in particular geographic areas. Turner I, 512 U.S. at 656–57. It is the “physical
connection between the [subscriber’s] television set and the cable network” that affords cable
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operators this power to “silence the voice” of a particular network “with a mere flick of the
switch.” Id. at 656 (observing that “simply by virtue of its ownership of the essential
pathway for cable speech, a cable operator [could] prevent its subscribers from obtaining
access to programming it [chose] to exclude”); see generally 3B P. Areeda & H. Hovenkamp,
Antitrust Law ¶¶ 771a, 772a (3d ed. 2008) (discussing bottleneck control and essential
facilities doctrine in antitrust context).
Concerns about cable operators’ anticompetitive market power informed Congress’s
enactment of the Cable Act. See Turner I, 512 U.S. at 633–34; Cable Act § 2(a) (listing
congressional findings about video programming industry). Among other goals, the Act
sought to promote the availability to the public of diverse views through cable television, to
protect consumer interests where cable operators were not subject to effective competition,
and to ensure that cable operators did not have undue market power vis-à-vis programming
networks and consumers. See Cable Act § 2(b). Toward these ends, the Cable Act imposed
various restrictions on cable operators and other MVPDs and directed the FCC to establish
further regulations. See Turner I, 512 U.S. at 630. The focus of this appeal is certain
statutory restrictions on MVPDs dealings with programming networks and the FCC
regulations promulgated thereunder, namely, the program carriage regime and the standstill
rule.
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C. The Program Carriage Regime and the Standstill Rule
1. Section 616(a)(3) and (5)
As amended by the Cable Act, § 616(a) of the Communications Act directs the FCC
to “establish regulations governing program carriage agreements and related practices
between cable operators or other [MVPDs] and video programming vendors.” 47 U.S.C.
§ 536(a). Section 616(a)(3) specifies that such regulations shall
contain provisions designed to prevent [an MVPD] from engaging in conduct
the effect of which is to unreasonably restrain the ability of an unaffiliated
video programming vendor to compete fairly by discriminating in video
programming distribution on the basis of affiliation or nonaffiliation of
vendors in the selection, terms, or conditions for carriage of video
programming provided by such vendors.
Id. § 536(a)(3). Section 616(a)(5) further instructs that such regulations shall “provide for
appropriate penalties and remedies for violations of this subsection, including carriage.” Id.
§ 536(a)(5).
Congress enacted these provisions to prevent cable operators from using their market
power to take unfair advantage of unaffiliated programming networks. See 2012 FCC Report
¶ 42. As the Senate and House Reports indicate, Congress was concerned that cable
operators were leveraging “their market power derived from their de facto exclusive
franchises and lack of local competition” to require networks to give them “an exclusive right
to carry the programming, a financial interest, or some other added consideration as a
condition of carriage on the cable system.” S. Rep. No. 102-92, at 24, reprinted in 1992
U.S.C.C.A.N. at 1156–57; see H.R. Rep. No. 102-628, at 42–44 (1992); 2012 FCC Report
10
¶ 42. The Senate Report notes that such tactics were “not surprising” in light of the lack of
competition in the MVPD market: unaffiliated networks either had to “deal with operators
of such systems on their terms or face the threat of not being carried in that market.” S. Rep.
No. 102-92, at 24, reprinted in 1992 U.S.C.C.A.N. at 1157. The report acknowledged
aspects of the MVPD and video programming markets that could sometimes offset or reduce
these anticompetitive concerns. See id. For example, the extent of cable operators’ market
power varied from locality to locality. See id. Moreover, certain major networks, like CNN
and ESPN, could “fend for themselves,” as cable operators were unlikely not to carry such
popular networks given the operators’ incentive to carry programming that “increase[d]
subscribership and decrease[d] churn.” Id. Nevertheless, Congress remained concerned that
“in certain instances” a cable operator would be able to “abuse its locally-derived market
power to the detriment of programmers.” Id.; see H.R. Rep. No. 102-628, at 43–44.
This concern was exacerbated by pervasive vertical integration in the video
programming industry. “Vertical integration occurs when a firm provides for itself some
input that it might otherwise purchase on the market.” Areeda & Hovenkamp ¶ 755a. “A
vertically integrated cable company is a company that owns both the programming and the
distribution system.” S. Rep. No. 102-92, at 24–25, reprinted in 1992 U.S.C.C.A.N. at
1157–58. In 1992, when the Cable Act was enacted, 39 of the 68 national programming
networks, or approximately 57%, were vertically integrated with cable operators. See H.R.
Rep. No. 102-628, at 41; see also 2012 FCC Report ¶ 42. This vertical integration provided
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cable operators with the incentive and ability to favor their affiliated networks, for example,
by giving an affiliated network a more desirable channel position than an unaffiliated
network or by refusing to carry an unaffiliated network altogether. See S. Rep. No. 102-92,
at 25, reprinted in 1992 U.S.C.C.A.N. at 1158; H.R. Rep. No. 102-628, at 41. Indeed, the
Senate Report noted hearing testimony that stated as much:
Because of the trend toward vertical integration, cable operators now have a
clear vested interest in the competitive success of some of the programming
services seeking access through their conduit. You don’t need a Ph.D. in
Economics to figure out that the guy who controls a monopoly conduit is in a
unique position to control the flow of programming traffic to the advantage of
the program services in which he has an equity investment and/or in which he
is selling advertising availabilities, and to the disadvantage of those
services . . . in which he does not have an equity position.
S. Rep. No. 102-92, at 25–26, reprinted in 1992 U.S.C.C.A.N. at 1158–59 (internal quotation
marks omitted); see also Areeda & Hovenkamp ¶ 756b (stating that vertically-integrated
monopolist “at one stage of the production-distribution process may carry with it the power
to affect competition in earlier and later stages”).
On the other hand, Congress recognized that vertical integration could sometimes
promote competition. See S. Rep. No. 102-92, at 26–27, reprinted in 1992 U.S.C.C.A.N. at
1159–60; H.R. Rep. No. 102-628, at 41. The Senate Report cited hearing testimony
recounting how vertical integration had allowed cable operators to “stimulate[] the
development of programming that was necessary to flesh out the promise of cable . . . when
nobody else was really willing to step up and put up the money.” S. Rep. No. 102-92, at 27,
reprinted in 1992 U.S.C.C.A.N. at 1160; see also Areeda & Hovenkamp ¶ 756b (“[V]ertical
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integration by a monopolist may or may not have desirable or adverse consequences on
economic performance.”).
Given these mixed views on the competitive impact of vertical integration in the video
programming industry, Congress rejected proposals to ban vertical integration and instead
enacted “legislation bar[ring] cable operators from discriminating against unaffiliated
programmers” to ensure “competitive dealings between programmers and cable operators.”
S. Rep. No. 102-92, at 27, reprinted in 1992 U.S.C.C.A.N. at 1160; see also H.R. Rep. No.
102-628, at 173 (“While vertical integration of cable systems has led to a diversity of
program offerings which had previously been unknown, we cannot countenance
discriminatory practices by cable systems in favor of program suppliers in which the cable
company has an interest.”).
2. The 1993 FCC Order
Pursuant to the Cable Act’s mandate, on October 22, 1993, the FCC released an order
establishing a procedural framework for addressing § 616(a)(3) discrimination complaints
by unaffiliated networks against MVPDs. See Implementation of Sections 12 & 19 of the
Cable Television Consumer Protection & Competition Act of 1992, 9 FCC Rcd. 2642 (1993)
(“1993 FCC Order”). In so doing, the FCC sought to establish regulations that balanced the
need to proscribe “behavior prohibited by the specific language of the statute” with the need
to preserve “the ability of affected parties to engage in legitimate, aggressive negotiations.”
Id. ¶ 14. It thus determined that resolution of § 616(a)(3) complaints would be case specific,
13
focusing “on the specific facts pertaining to each negotiation” to determine if a violation of
the program carriage rules had occurred. Id.
Under the 1993 FCC Order’s complaint process, an unaffiliated network, as a first step
to obtaining relief against an MVPD, had to make a prima facie “showing that [the MVPD]
. . . engaged in behavior that is prohibited by” § 616(a)(3). Id. ¶ 29. To carry its prima facie
burden, the unaffiliated network had to, among other things, “identify the relevant
Commission regulation allegedly violated,” “describe with specificity the behavior
constituting the alleged violation,” and provide documentary evidence of the alleged
violation or an affidavit setting forth the basis for its allegations. Id. Defendant MVPDs
were permitted to file an answer supported by documentary evidence or a refuting affidavit,
to which the complainant could then reply. See id. ¶ 30. If, upon FCC review of these
submissions, the agency determined that the complainant had not shown a prima facie
violation, the complaint would be dismissed. See id. ¶ 31. But if a prima facie violation
were shown, the FCC could order discovery, refer the case to an administrative law judge
(“ALJ”) for a hearing, or, if appropriate, grant relief on the basis of the existing record. See
id.
Pursuant to § 616(a)(5), the 1993 FCC Order also established penalties for violations
of § 616(a)(3), which included forfeitures, mandatory carriage, or carriage on terms revised
or specified by the FCC. See id. ¶ 26. The FCC emphasized that appropriate relief would
be decided on a “case-by-case basis.” Id.
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3. The 2007 FCC Notice of Proposed Rule Making
On June 15, 2007, the FCC issued a notice of proposed rule making that solicited
comments on potential changes to the procedures established in the 1993 FCC Order. See
Leased Commercial Access; Development of Competition & Diversity in Video
Programming Distribution & Carriage, 22 FCC Rcd. 11222 (2007) (“2007 NPRM”). Among
other things, the FCC sought comment on the need to clarify the elements of a prima facie
§ 616(a)(3) violation, see id. ¶ 14, and to “adopt rules to address the complaint process
itself,” id. ¶ 16. As to the latter point, the FCC requested comments both on whether it
“should adopt additional rules to protect [programming networks] from potential retaliation
if they file a complaint” and whether “the existing penalties for frivolous program carriage
complaints are appropriate or should be modified.” Id. The FCC also solicited comment “on
any other issues that would properly inform [its] program carriage inquiry.” Id. ¶ 18.
4. The 2011 FCC Order
Some four years later, on August 1, 2011, the FCC released the 2011 FCC Order here
at issue. In so doing, the FCC noted the small number of § 616(a)(3) complaints filed against
MVPDs pursuant to the 1993 Order. See 2011 FCC Order ¶ 6 n.27 (noting total of 11
program carriage complaints in approximately two decades since 1992 enactment of § 616).
MVPDs submitted that the small number “demonstrate[d] that the current procedures [were]
working and that rule changes [were] not necessary.” Id. ¶ 8. By contrast, programming
networks complained that “inadequate” agency procedures, “not a lack of program carriage
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claims,” id., “hindered the filing of legitimate complaints,” id. ¶ 2. Networks specifically
cited “uncertainty concerning the evidence a complainant must provide to establish a prima
facie case, unpredictable delays in the Commission’s resolution of complaints, and fear of
retaliation as impeding the filing of legitimate program carriage complaints.” Id. ¶ 8
(footnotes omitted).
The FCC concluded that the record developed in response to the 2007 NPRM showed
that its “current program carriage procedures [were] ineffective and in need of reform.” Id.
¶ 8. Accordingly, in the 2011 FCC Order, the agency stated that it was taking “initial steps
to improve [its] procedures for addressing program carriage complaints.” Id. ¶ 2. Among
these steps were two rule changes relevant to the petitions for this court’s review:
(a) pronouncement of a new prima facie standard, and (b) creation of a standstill rule.
a. Prima Facie Standard
The 2011 FCC Order rejected comments calling for elimination of a prima facie
standard, concluding that such a required showing “is important to dispose promptly of
frivolous complaints and to ensure that only legitimate complaints proceed to further
evidentiary proceedings.” Id. ¶ 10. At the same time, however, the Order strove to “clarify[]
what is required to establish a prima facie case and [to] codify[] these requirements in [the
FCC’s] rules.” Id.
Under the revised standard for a prima facie § 616(a)(3) violation, a complaining
unaffiliated network must show, first, that an MVPD discriminated against it “on the basis
16
of affiliation or non-affiliation” in the “selection, terms, or conditions for carriage” of the
MVPD’s video programming. Id. ¶ 14 (internal quotation marks omitted). The network can
make this showing by reference to either direct or circumstantial evidence. See id. ¶¶ 13–14;
47 C.F.R. § 76.1302(d)(3)(iii)(B). In the latter case, circumstances must establish that (1) the
complaining unaffiliated network “provides video programming that is similarly situated to
video programming provided by” a network affiliated with the defendant MVPD, “based on
a combination of factors, such as genre, ratings, license fee, target audience, target
advertisers, target programming, and other factors,” 2011 FCC Order ¶ 14 (footnotes
omitted); see 47 C.F.R. § 76.1302(d)(3)(iii)(B)(2)(i); and (2) the complained-of MVPD
treated the unaffiliated network differently than the similarly-situated, affiliated network
“with respect to the selection, terms, or conditions for carriage,” 2011 FCC Order ¶ 14;
see 47 C.F.R.§ 76.1302(d)(3)(iii)(B)(2)(ii). This similarly-situated analysis at the prima facie
stage is conducted on a “case-by-case” basis with no single factor being dispositive. 2011
FCC Order ¶ 14 n.57. Rather, “the more factors that are found to be similar, the more likely
the programming in question will be considered similarly situated to the affiliated
programming.” Id. ¶ 14.
To demonstrate a prima facie violation, a complainant must further show that the
discrimination had the effect of “unreasonably restraining” its ability “to compete fairly.”
Id. ¶ 15 (internal quotation marks omitted); see 47 C.F.R. § 76.1302(d)(3)(iii)(A). This
analysis is also case specific, and the 2011 FCC Order noted that, in previous cases, the FCC
17
Media Bureau had made this assessment based on the impact of the charged adverse action
“on the programming vendor’s subscribership, licensee fee revenues, advertising revenues,
ability to compete for advertisers and programming, and ability to realize economies of
scale.” 2011 FCC Order ¶ 15 n.60.
The 2011 FCC Order clarified that the Media Bureau would review only an
unaffiliated network’s complaint in making a prima facie violation determination, see id.
¶ 17, and that the prima facie burden did not require the complainant to prove a § 616(a)(3)
violation or any elements thereof, but that it did require the complainant to “provide[]
sufficient evidence in its complaint, without the Media Bureau having considered any
evidence to the contrary, to proceed.” Id. ¶ 16. If the complainant carries this prima facie
burden, the Media Bureau will then review the MVPD’s answer and complainant’s reply
thereto to determine whether the merits of the complaint can be resolved on the pleadings,
or whether further proceedings, such as discovery or an adjudicatory hearing before an ALJ,
are warranted. See id. ¶ 17.
b. Standstill Rule
In addition to revising the prima facie standard, the 2011 FCC Order created a
standstill rule, which allows the FCC to consider requests for a “temporary standstill of the
price, terms, and other conditions of an existing programming contract by a program carriage
complainant seeking renewal of such a contract.” Id. ¶ 25; see 47 C.F.R. § 76.1302(k). In
adopting this provision, the FCC concluded that, “absent a standstill, an MVPD will have the
18
ability to retaliate against a programming vendor that files a legitimate complaint by ceasing
carriage of the programming vendor’s video programming, thereby harming the
programming vendor as well as viewers who have come to expect to be able to view that
video programming.” 2011 FCC Order ¶ 25. Furthermore, it found that, without a standstill,
“programming vendors may feel compelled to agree to the carriage demands of MVPDs,
even if these demands violate the program carriage rules, in order to maintain carriage of
video programming in which they have made substantial investments.” Id.To secure a standstill order, a complainant must satisfy the traditional criteria for a
preliminary injunction, demonstrating (1) likely success on the merits of the complaint;
(2) that it will face irreparable harm absent a standstill; (3) no substantial harm to other
interested parties; and (4) the standstill’s furtherance of the public interest. See id. ¶ 27; 47
C.F.R. § 76.1302(k)(1).
In pronouncing the standstill rule, the FCC rejected a general complaint by cable
operators following the 2007 NPRM, i.e., that the agency had failed to provide adequate
notice under the APA of the rule changes that it was considering. See 2011 FCC Order ¶ 36
& n.146. The FCC concluded that the APA’s notice-and-comment requirements did not
apply to the standstill rule because it is a rule of agency procedure, rather than of substance.
See id. ¶ 36 n.149 (stating that standstill rule does “not alter the existence or scope of any
substantive rights, but simply codif[ies] a pre-existing procedure for obtaining equitable
relief to vindicate those rights”). In any event, the FCC concluded that the 2007 NPRM
19
complied with APA requirements because the standstill rule is the “logical outgrowth” of the
2007 NPRM’s solicitation for comments on whether the FCC should “‘adopt additional rules
to protect programmers from potential retaliation if they file a complaint.’” Id. ¶ 36 (quoting
2007 NPRM ¶ 16 and noting that “standstill procedure will help to prevent retaliation while
a program carriage complaint is pending”).
Nevertheless, the 2011 FCC Order sought additional comment on “whether there are
any circumstances in the program carriage context in which the Commission’s authority to
issue temporary standstill orders is statutorily or otherwise limited.” Id. ¶ 60. In particular,
it requested comment on whether § 624(f)(1) of the Communications Act, see 47 U.S.C.
§ 544(f)(1) (stating that FCC “may not impose requirements regarding the provision or
content of cable services, except as expressly provided in this subchapter”), would “bar
granting temporary injunctive relief in the program carriage context in some circumstances,”
2011 FCC Order ¶ 26 n.107 (emphasis in original).
Dissenting in part from the 2011 FCC Order, Commissioner Robert McDowell
concluded that the APA’s notice-and-comment requirements did apply to the standstill rule
because that rule “confer[s] substantive rights” and is “outside the scope of Commission
procedure” insofar as it “extends a contractual arrangement and determines the amount of
compensation parties will receive after the program carriage dispute is resolved.” Id. at
11610 (Commissioner McDowell, approving in part and dissenting in part). He further
rejected the majority view that the standstill rule codifies the FCC’s past practice in the
20
program carriage context. See id. Indeed, he questioned FCC authority to issue a standstill
order before finding an MVPD in violation of program carriage rules. See id. In support,
he cited § 616(a)(5) of the Cable Act, see 47 U.S.C. § 536(a)(5), which permits the FCC to
impose penalties and remedies, such as ordering program carriage, only upon a violation, and
§ 624(f)(1) of the same Act, see id. § 544(f)(1), which, as just described supra, prohibits the
FCC from imposing requirements regarding the provision or content of cable services beyond
those provided by statute. See 2011 FCC Order at 11610 & n.15. To reinforce his
conclusion, Commissioner McDowell noted that the FCC had expressly solicited comments
on the adoption of a standstill rule when promulgating rules under the program access
provision of the Cable Act, see 47 U.S.C. § 548. See 2011 FCC Order at 11611.
He further dissented from the majority conclusion that the 2007 NPRM satisfied the
APA’s notice-and-comment requirements, explaining that because the “standstill
arrangements were not discussed in the 2007 notice, . . . interested parties were not aware
that comments should [have been] filed on the subject during the notice-and-comment
period.” Id. at 11609. “In fact, the idea of a standstill provision was not raised by any parties
submitting initial comments. Instead, the matter was advanced after the close of the
comment period.” Id.; see id. at 11609 n.9. Moreover, Commissioner McDowell found the
relationship between retaliation and the standstill rule to be “tenuous at best” and, thus, that
the rule could not be deemed a logical outgrowth of the FCC’s notice regarding
anti-retaliation rules. Id. Finally, he stated that the 2011 FCC Order’s adoption of the
21
standstill rule was curious in light of the fact that it simultaneously sought comment on
several key aspects of the rule’s implementation, notably possible statutory limits on the
FCC’s authority to issue a standstill order in the program carriage context. See id. at 11611
& n.19. Commissioner McDowell therefore predicted that the standstill rule was “vulnerable
to a court remand.” Id. at 11609.
5. Time Warner’s First Amendment Challenge
In releasing the 2011 FCC Order, the agency rejected Time Warner’s claim, made in
response to the 2007 NPRM, that the program carriage regime violated the First Amendment.
See id. ¶¶ 31–34. Time Warner had argued that, insofar as the program carriage regime
required MVPDs to carry certain unaffiliated networks on the same terms as affiliated
networks, it constituted a content-based infringement on MVPDs’ editorial determinations
of which programming networks to provide to their subscribers. As such, it was subject to
strict scrutiny, which Time Warner maintained it could not withstand because increased
competition in the MVPD market had deprived cable operators of any bottleneck power that
might have justified the regime’s initial creation in 1992. See id. ¶¶ 31, 33; Comments of
Time Warner Cable Inc., MB Docket No. 07-42, at 10–13 (Sept. 11, 2007).
Construing the program carriage regime as content neutral, the FCC applied
intermediate, rather than strict, scrutiny to Time Warner’s First Amendment challenge, and
concluded that, even with the increased competition in the MVPD market, the program
carriage regime continued to serve important government interests in promoting competition
22
and diverse viewpoints. See 2011 FCC Order ¶¶ 32–33. In so concluding, the FCC relied
on the program carriage discrimination provision of the Cable Act that “directed the
Commission to assess on a case-by-case basis the impact of anticompetitive conduct on an
unaffiliated programming vendor’s ability to compete.” Id. ¶ 33. It further noted that the
overall number of affiliated networks had increased significantly following the 2011 merger
of Comcast—the nation’s largest cable operator and MVPD—and NBC Universal, the
nation’s fourth largest owner of national programming networks. See id.; Applications of
Comcast Corp., General Electric Co. & NBC Universal, Inc. For Consent to Assign Licenses
& Transfer Control of Licensees, 26 FCC Rcd. 4238, ¶ 116 (2011) (“2011 Comcast/NBCU
Order”). Although the FCC had approved this merger, see 2011 Comcast/NBCU Order, the
agency maintained that it “highlight[ed] the continued need for an effective program carriage
complaint regime,” 2011 FCC Order ¶ 33.5
5
As a result of its merger with NBC Universal, and following its sale of 17 networks
to non-MVPDs, as of June 2012, Comcast had an ownership interest in 50 national networks,
as well as numerous regional news and sports networks. See 2013 FCC Report ¶ 39, Table
B-1, Table C-1; 2012 FCC Report ¶ 45.
In approving the merger, the FCC expressed concern that Comcast’s incentive and
ability to harm unaffiliated networks would thereby increase:
Comcast’s large subscriber base potentially allows it to limit access to
customers for any network it wishes to disadvantage by either denying carriage
or, with a similar but lesser competitive effect, placing the network in a less
penetrated tier or on a less advantageous channel number (making it more
difficult for subscribers to find the programming). In doing so, Comcast can
reduce viewership of competing video programming networks, which in turn
could render these networks less attractive to advertisers, thus reducing their
23
The FCC further concluded that case-by-case analysis of unaffiliated networks’
complaints under the program carriage regime was narrowly tailored to promote diversity and
competition in the video programming industry because it restricted an MVPD’s speech only
upon proof that the MVPD had discriminated on the basis of network affiliation and that such
discrimination unreasonably restrained a network’s ability to compete fairly. See id. ¶ 34.
D. The Current State of the Video Programming Industry
As the 2011 FCC Order acknowledges, the video programming industry has changed
significantly since enactment of the Cable Act in 1992. While cable operators still control
a majority of the United States MVPD market, their share of that market has dropped from
95% in 1992, see 2002 FCC Report ¶ 20, to 55.7% as of June 2012, see 2013 FCC Report
¶ 3. This decline is attributable to the concomitant rise of DBS providers, which now
command 33.6% of the MVPD market, and telephone companies, which now control an
estimated 9.1% of that market. See id. ¶ 3 & n.6. Indeed, at the end of June 2012, two DBS
providers, DIRECTV and DISH Network, were the second and third largest MVPDs in the
United States, respectively, in terms of total subscribers. See id. ¶ 27. Given the national
revenues and profits. As a result, these unaffiliated networks may compete
less aggressively with NBCU networks, allowing the latter to obtain
or . . . maintain market power with respect to advertisers seeking access to
their viewers.
2011 Comcast/NBCU Order ¶ 116. These concerns led the FCC to condition the merger on
Comcast’s agreement to certain restrictions aimed at reducing affiliation-based
discrimination, in addition to those imposed by the program carriage regime. See id.
¶¶ 121–24.
24
footprint of DBS providers, in most geographic areas served by a cable operator, consumers
now have a choice among three competing MVPDs, specifically, the local cable operator and
two DBS providers. Meanwhile, a significant number of geographic areas have access to
at least four MVPDs: the local cable operator, two DBS providers, and a telephone
company. See id. ¶ 36 (stating that, in 2011, of 132.5 million homes in the United States,
approximately 130.7 million had access to at least three MVPDs and approximately 46.8
million had access to at least four).
Consumers also increasingly have been watching video programming through OVDs.
See 2012 FCC Report ¶ 140; 2011 Comcast/NBCU Order ¶¶ 63–66, 79. In June 2012,
approximately 180 million Internet users in the United States watched online video content,
see 2013 FCC Report ¶ 293, and “[s]ome reports indicate that OVD users are beginning to
‘cut the cord’ and drop their MVPD service in favor of OVD or a combination of OVD and
over-the-air television,” 2012 FCC Report ¶ 341. Nevertheless, because “[t]raditional
television is the dominant device for video consumption,” id. ¶ 338, OVDs are not currently
“considered a fundamental threat to the MVPD business model,” 2013 FCC Report ¶ 132.
While the entry of DBS providers, telephone companies, and OVDs into the MVPD
market has significantly increased competition, see 2012 FCC Report ¶ 138 (“[C]ompetition
continues to reduce cable’s share of the U.S. video market and . . . cable MVPDs are
expected to continue losing basic video subscribers to competing MVPDs.”), cable operators
continue to maintain significant MVPD market shares in many localities. For example, as
25
of mid-2010, Comcast maintained at least a 40% share in 13 of the 20 largest MVPD markets
in the United States, ranging from as low as 43% in Houston to as high as 62% in Chicago
and 67% in Philadelphia. See 2011 Comcast/NBCU Order ¶ 116 & n.275. Moreover, cable
operators’ market strength continues to be consolidated in particular geographic areas.
Comcast’s subscribers, for instance, are “clustered in the mid-Atlantic, Chicago, Denver, and
Northern California,” while Time Warner’s subscribers are “clustered in New York State
(including New York City), the Carolinas, Ohio, Southern California (including Los
Angeles), and Texas.” 2013 FCC Report ¶¶ 96–97.
Since 1992, there also has been a decline in vertical integration among cable operators
and programming networks in the video programming industry. Compare H.R. Rep. No.
102-628, at 41 (stating that 57% of national networks were affiliated with cable operators in
1992), with 2012 FCC Report ¶¶ 43–44 & n.96 (indicating that, as of early 2012, 127 of
estimated 800 national networks, or approximately 16%, were affiliated with top five cable
operators), and 2013 FCC Report ¶ 39 (stating that number of national networks affiliated
with top five cable operators fell to 99 in early 2013); see id. Table B-1 (listing national
programming networks affiliated with top five cable operators). At the same time, however,
Time Warner maintains an ownership interest in four national networks, including MLB
Network; Cox Communications has an interest in six national networks, including MLB
Network and the Travel Channel; Cablevision has an ownership in ten, including AMC and
IFC; and Bright House Networks has an interest in 29, including Animal Planet and
26
Discovery Channel. See id. ¶ 39, Table B-1. And, as we have already discussed, Comcast’s
merger with NBC Universal, see supra at [24] n.5, resulted in Comcast’s having ownership
interests in 50 national networks, including Bravo, E! Entertainment TV, CNBC, MSNBC,
USA Network, and The Weather Channel, see 2013 FCC Report ¶ 39, Table B-1. Aside
from national networks, each of these cable operators also has an ownership interest in
numerous regional news or sports networks. See id. Table C-1.
Like Congress in 1992, the FCC continues to view the effects of vertical integration
on the video programming industry as mixed. While potential benefits include “efficiencies
in the production, distribution, and marketing of video programming, as well as the incentive
to expand channel capacity and create new programming by lowering the risks associated
with program production ventures,” id. ¶ 38 n.87, possible harms include “unfair methods
of competition, discriminatory conduct, and exclusive contracts that are the result of coercive
activity,” id. ¶ 38 n.88.
E. The Instant Appeal
Upon issuance of the 2011 FCC Order, the Cable Companies timely filed petitions for
judicial review.6 See 28 U.S.C. § 2344. They argue that the program carriage regime
violates the First Amendment in light of the current state of the MVPD market. They also
6
On November 7, 2011, the NCTA filed a petition for review of the 2011 FCC Order
in the D.C. Circuit. On November 22, 2011, the D.C. Circuit transferred that petition to this
court pursuant to 28 U.S.C. § 2112(a)(5), where it was consolidated with the petition for
review of the 2011 FCC Order filed by Time Warner on October 11, 2011.
27
claim that the FCC failed to provide adequate notice of and opportunity to comment on the
standstill rule under the APA. We address each of these arguments in turn.
II. Discussion
A. First Amendment Challenge
The First Amendment states that “Congress shall make no law . . . abridging the
freedom of speech.” U.S. Const. amend. I. There is no question that cable operators and
other MVPDs “engage in and transmit speech” protected by the First Amendment. Turner I,
512 U.S. at 636. “[B]y exercising editorial discretion over which stations or programs to
include in [their] repertoire,” MVPDs “communicate messages on a wide variety of topics
and in a wide variety of formats.” Id. (internal quotation marks omitted). Nor is there any
dispute that the program carriage regime regulates MVPDs’ protected speech by restraining
their editorial discretion over which programming networks to carry and on what terms. See
Turner Broad. Sys., Inc. v. FCC, 520 U.S. 180, 214 (1997) (“Turner II”); Turner I, 512 U.S.
at 637; accord Cablevision Sys. Corp. v. FCC, 570 F.3d 83, 96–97 (2d Cir. 2009). The
question here, then, is whether such regulation is justified by a countervailing government
interest under the appropriate level of First Amendment scrutiny.
In their petitions for review, the Cable Companies contend that the FCC erred when,
in issuing the 2011 FCC Order, it subjected the program carriage regime to intermediate
scrutiny. The Cable Companies submit that the regime’s restrictions are content and speaker
28
based, thus requiring strict scrutiny. In any event, the Cable Companies argue that the
program carriage regime cannot survive either strict or intermediate scrutiny.
On de novo review of this constitutional challenge to the 2011 FCC Order, see
Cablevision Sys. Corp. v. FCC, 570 F.3d at 91, we conclude that intermediate scrutiny is the
appropriate level of review and that the FCC program carriage regime satisfies that standard.
While rapidly increasing competition in the video programming industry may undermine that
conclusion in the not-too-distant future, that time has not yet come. We thus deny the Cable
Companies’ petitions insofar as they challenge the program carriage regime under the First
Amendment.
1. The Appropriate Level of Scrutiny
“At the heart of the First Amendment lies the principle that each person should decide
for himself or herself the ideas and beliefs deserving of expression, consideration, and
adherence.” Turner I, 512 U.S. at 641. The First Amendment thus stands against
government “attempts to disfavor certain subjects or viewpoints.” Citizens United v. FEC,
558 U.S. 310, 340 (2010); see Turner I, 512 U.S. at 641 (“Government action that stifles
speech on account of its message, or that requires the utterance of a particular message
favored by the Government, contravenes this essential right.”). “Prohibited, too, are
restrictions distinguishing among different speakers, allowing speech by some but not
others.” Citizens United v. FEC, 558 U.S. at 340; see First Nat’l Bank of Boston v. Bellotti,
435 U.S. 765, 784–85 (1978). A content- or speaker-based restriction on protected speech
29
is subject to strict scrutiny and will be tolerated only upon a showing that it is narrowly
tailored to a compelling government interest. See Turner I, 512 U.S. at 642, 653, 658. On
the other hand, a regulation of protected speech that is content neutral and that does not
disfavor certain speakers is reviewed under the less-stringent intermediate level of scrutiny.
See id. at 642, 645, 661–62. Courts have consistently reviewed challenges to the Cable Act
and regulations promulgated pursuant thereto under intermediate scrutiny. See, e.g.,
Turner II, 520 U.S. at 213; Turner I, 512 U.S. at 661–62; Cablevision Sys. Corp. v. FCC, 649
F.3d 695, 711 (D.C. Cir. 2011); Cablevision Sys. Corp v. FCC, 570 F.3d at 97; Time Warner
Entm’t Co. v. FCC, 240 F.3d 1126, 1130 (D.C. Cir. 2001); Time Warner Entm’t Co. v.
United States, 211 F.3d 1313, 1318 (D.C. Cir. 2000); Time Warner Entm’t Co. v. FCC, 93
F.3d 957, 969 (D.C. Cir. 1996). Because the program carriage regime is content and speaker
neutral, it warrants no different treatment.
a. Content Neutrality
“Deciding whether a particular regulation is content based or content neutral is not
always a simple task.” Turner I, 512 U.S. at 642. “The principal inquiry . . . is whether the
government has adopted a regulation of speech because of agreement or disagreement with
the message it conveys.” Id. (alterations and internal quotation marks omitted). In making
this determination, “we look to the purpose behind the regulation.” Bartnicki v. Vopper, 532
U.S. 514, 526 (2001). “[T]ypically, government regulation of expressive activity is content
neutral so long as it is justified without reference to the content of the regulated speech.” Id.
30
(emphasis in original; alteration and internal quotation marks omitted). While “[t]he purpose,
or justification, of a regulation will often be evident on its face,” Turner I, 512 U.S. at 642,
“even a regulation neutral on its face may be content based if its manifest purpose is to
regulate speech because of the message it conveys,” id. at 645; see Ward v. Rock Against
Racism, 491 U.S. 781, 791 (1989) (stating that government’s purpose, not regulation’s text,
is “controlling consideration” in determining content neutrality).
Applying these principles here, we conclude that § 616(a)(3) and (5) of the Cable Act,
by its terms, neither favors nor disfavors any particular message or view and, indeed, makes
no reference to content. See 47 U.S.C. § 536(a)(3), (5). To invoke the protections of that
statute, an unaffiliated network must establish that a cable operator or other MVPD
(1) discriminated against it on the basis of affiliation, or more precisely its lack of affiliation
with the MVPD, and (2) thereby unreasonably restrained its ability to compete fairly. See
id. § 536(a)(3). The statute thus prohibits only discrimination on the basis of affiliation. It
confers no protections based on the content of an unaffiliated network’s programming.
Indeed, as the FCC acknowledged during oral argument, an MVPD may decline to carry an
unaffiliated network, whatever the content of its programming, because it opposes the views
expressed by the network or for a legitimate business purpose. See Comcast Cable
Commc’ns, LLC v. FCC, 717 F.3d 982, 985 (D.C. Cir. 2013) (“There is also no dispute that
the statute prohibits only discrimination based on affiliation. Thus, if the MVPD treats
vendors differently based on a reasonable business purpose . . . , there is no violation.”
31
(emphasis in original)); TCR Sports Broad. Holding, LLP v. FCC, 679 F.3d 269, 272, 278
(4th Cir. 2012) (affirming FCC order concluding that Time Warner did not violate program
carriage rules by denying unaffiliated network carriage on same tier as affiliated network
based on legitimate business reasons); 2011 FCC Order ¶ 17 (stating that MVPD may make
adverse carriage decision for “legitimate and non-discriminatory business reasons”). Of
course, an adverse carriage decision based on the views expressed by an unaffiliated network
or a legitimate business reason is permissible only insofar as it is not a pretext for
affiliation-based discrimination. See Comcast Cable Commc’ns, LLC v. FCC, 717 F.3d at
985. But absent pretext, the statute affords no protection to any specific content and, thus,
is content neutral on its face. See Time Warner Entm’t Co. v. FCC, 93 F.3d at 969(concluding that leased access provisions of Cable Act are content neutral because networks’
ability to invoke those provisions “depends not on the content of their speech, but on their
lack of affiliation with the operator, a distinguishing characteristic stemming from
considerations relating to the structure of cable television”).7
Moreover, the Cable Companies do not—and, in light of the statute’s legislative
history, cannot—claim that the purpose of § 616(a)(3) and (5) is to suppress any particular
7
The Cable Companies’ reliance on Miami Herald Publishing Co. v. Tornillo, 418
U.S. 241 (1974), is misplaced. Unlike the right-of-reply rules struck down in that case, the
program carriage regime is “not activated by any particular message spoken by [MVPDs] and
thus exact[s] no content-based penalty,” Turner I, 512 U.S. at 655, and it does not mandate
that MVPDs support views that they oppose, see Miami Herald Publ’g Co. v. Tornillo, 418
U.S. at 256–57.
32
message or idea. See supra at [8–13]. Congress’s concern in enacting the statute “was not
with what a cable operator might say,” but with the possibility that, as a result of its
bottleneck power and vertical integration with affiliated networks, “it might not let others say
anything at all in the principal medium for reaching much of the public.” Time Warner
Entm’t Co. v. United States, 211 F.3d at 1317–18. Congress enacted § 616(a)(3) and (5) to
minimize this threat, not to suppress any particular message or viewpoint. Such a purpose
is not content based. See Comcast Cable Commc’ns, LLC v. FCC, 717 F.3d at 993
(Kavanaugh, J., concurring) (“[U]nder the Supreme Court’s precedents, Section 616’s impact
on a cable operator’s editorial control is content-neutral . . . .”).
We reach the same conclusion with respect to the 2011 FCC Order’s prima facie
standard. Under that standard, an unaffiliated network may show affiliation-based
discrimination through (1) direct evidence or (2) circumstantial evidence that an MVPD
treated it differently than a “similarly situated” affiliated network. 47 C.F.R.
§ 76.1302(d)(3)(iii)(B). In determining whether two networks are similarly situated, the FCC
acknowledges that it examines the content of the networks’ programming. See id. (stating
that FCC considers, among other factors, “genre” and “target programming”). In light of this
examination, the prima facie standard “‘might in a formal sense be described as
content-based,’” but not as that term has been employed by the Supreme Court. Cablevision
Sys. Corp. v. FCC, 649 F.3d at 717 (quoting BellSouth Corp. v. FCC, 144 F.3d 58, 69 (D.C.
Cir. 1998)). Not only is there “absolutely no evidence” that “the Commission issued its
33
[prima facie standard] to disfavor certain messages or ideas,” but also the Cable Companies
point to no specific content that the standard disfavors. Id.That conspicuous omission from their argument is explained by a simple fact: the
prima facie standard, like § 616(a)(3) under which it was promulgated, treats all content
equally. Depending on the circumstances of a given case, any content may weigh in favor
of or against a finding that an unaffiliated network is similarly situated to an affiliated
network. But the standard does not itself favor or disfavor particular content. To illustrate,
assume that an unaffiliated network devoted to sports files a § 616(a)(3) complaint against
a cable operator. If the cable operator is affiliated with a sports network, the unaffiliated
network’s sports content will weigh in favor of a finding that it is similarly situated.
Meanwhile, if the cable operator is not affiliated with a sports network, the unaffiliated
network is less likely to be found similarly situated. In either instance, though, it is the cable
operator’s own content choice, not the government’s, that determines whether the unaffiliated
network’s sports content is favored.
Thus, the prima facie standard may favor certain content in one case while disfavoring
the same content in another case. But neither in its adoption nor in its operation does the
standard reflect government “agreement or disagreement” with any particular ideas or
viewpoints. Turner I, 512 U.S. at 642 (alteration and internal quotation marks omitted); cf.
Burson v. Freeman, 504 U.S. 191, 197–98 (1992) (holding statute content based where it
prohibited political speech near polling places); Boos v. Barry, 485 U.S. 312, 318–19 (1988)
34
(plurality opinion) (holding ordinance content based because it prohibited picketing critical
of foreign government in front of country’s embassy). Rather, the standard simply employs
a hallmark of discrimination law, the comparison of similarly-situated parties, cf. Ruiz v.
County of Rockland, 609 F.3d 486, 493–94 (2d Cir. 2010), as a vehicle for determining
whether an MVPD is discriminating against unaffiliated networks in a way that impedes fair
competition. Precisely because it is the MVPD’s own affiliations that in each case provide
the benchmark for the similarity comparison, we conclude that the prima facie standard, like
the statutory provisions that inform it, is justified without reference to content. Its purpose
is to prevent an MVPD who is affiliated with programming networks from discriminating
against unaffiliated networks. In short, its purpose is competition based, not content based.
In urging otherwise, the Cable Companies submit that the FCC’s mere examination
of content renders the prima facie standard content based. Our case law is to the contrary.
We have held that a regulation requiring governmental examination of content is content
neutral as long as the regulation’s purpose is not to disfavor any particular messages or ideas.
See Cablevision Sys. Corp. v. FCC, 570 F.3d at 97 (holding FCC’s market-modification
order content neutral, despite its consideration of “amount of local programming,” where
Cablevision had “not alleged, much less proven” order “was based on some illicit
content-based motive”); Hobbs v. County of Westchester, 397 F.3d 133, 152–53 (2d Cir.
2005) (concluding permit regulation content neutral, although “content of the applicant’s
proposed presentation [was] examined,” because specific content was irrelevant to
35
governmental goal of protecting children); see also Cablevision Sys. Corp. v. FCC, 649 F.3d
at 717–18 (holding regulations content neutral, even though “triggered by whether the
programming at issue involve[d] sports,” because no evidence FCC sought to disfavor any
particular message); BellSouth Corp. v. FCC, 144 F.3d at 69 (holding statute “expressly
formulated in terms of content” to be content neutral because “underlying purpose” was not
to “favor or disfavor particular viewpoints”).
The cases relied on by the Cable Companies do not demonstrate otherwise. They
recognize laws or regulations as content based when content is examined as part of a
governmental effort to suppress a certain message. See FCC v. League of Women Voters,
468 U.S. 364, 383 (1984) (holding statute requiring examination of content to be content
based in that it disfavored editorial speech); Carey v. Brown, 447 U.S. 455, 462 (1980)
(concluding that statute prohibiting non-labor picketing and requiring examination of content
was content based); see also Fox Television Stations, Inc. v. FCC, 613 F.3d 317, 333 (2d Cir.
2010) (expressing concern that vague standard would permit FCC to engage in “subjective,
content-based decision-making”), vacated and remanded on other grounds by 132 S. Ct. 2307(2012).
Where, as here, the government examines content to determine whether a regulation
applies, with no indication that the regulation favors or disfavors any particular content, the
concerns that compel strict scrutiny of content-based laws are not present. Content-based
regulations are highly suspect because the government can use such regulations to drive
36
disfavored ideas or views from the marketplace. See Hobbs v. County of Westchester, 397
F.3d at148 (citing Simon & Schuster, Inc. v. Members of N.Y. State Crime Victims Bd., 502
U.S. 105, 116 (1991)). “Laws of this sort pose the inherent risk that the Government seeks
not to advance a legitimate regulatory goal, but to suppress unpopular ideas or information
or manipulate the public debate through coercion rather than persuasion.” Turner I, 512 U.S.
at 641. By contrast, a regulation that assesses content without expressing a content
preference poses “a less substantial risk of excising certain ideas or viewpoints from the
public dialogue.” Id. at 642. The program carriage regime expresses no government content
preference for particular ideas or viewpoints. It simply prohibits MVPDs from
discriminating against unaffiliated networks similarly situated to the MVPDs’ affiliated
networks. As such, the regime is properly considered content neutral.
b. Speaker Neutrality
“[S]peaker-based laws demand strict scrutiny when they reflect the Government’s
preference for the substance of what the favored speakers have to say (or aversion to what
the disfavored speakers have to say).” Turner I, 512 U.S. at 658. But “[s]o long as they are
not a subtle means of exercising a content preference, speaker distinctions . . . are not
presumed invalid under the First Amendment.” Id. at 645.
Here, the program carriage regime reflected in § 616(a)(3) and (5) of the Cable Act
and the FCC’s prima facie standard does distinguish among speakers. Unaffiliated networks
are favored because the regime affords protections to them that are not afforded to affiliated
37
networks, i.e., it prohibits affiliation-based discrimination that unreasonably restrains
unaffiliated networks’ ability to compete fairly. Meanwhile, cable operators and other
MVPDs are burdened insofar as the regime requires them to carry unaffiliated networks that
they might not otherwise carry or on terms that they might not otherwise offer. Their
affiliates, too, are burdened by the resulting increased competition. To the extent the
program carriage regime might thus be understood to favor certain speakers over others, the
pertinent question for determining the appropriate level of scrutiny is whether that preference
is “based on the content of programming each group offers.” Id. at 658–59. The answer, as
we have just explained, see supra at [31–38], is no.
In asserting that strict scrutiny is warranted here, the Cable Companies contend that
all speaker-based regulations, regardless of whether they are grounded in a content
preference, are presumptively invalid. The Supreme Court rejected this argument in
Turner I. See 512 U.S. at 657 (“To the extent appellants’ argument rests on the view that all
regulations distinguishing between speakers warrant strict scrutiny, it is mistaken.” (citation
omitted)). Indeed, in that case, the Court subjected a speaker-based regulation under the
Cable Act to intermediate scrutiny precisely because it did not reflect a content preference.
See id. at 658–59, 662.
The Cable Companies submit that, subsequent to Turner I, the Supreme Court
reviewed a speaker-based law under strict scrutiny in Citizens United, after stating that,
“[q]uite apart from the purpose or effect of regulating content,” the government “may commit
38
a constitutional wrong when by law it identifies certain preferred speakers.” Citizens United
v. FEC, 558 U.S. at 340. Citizens United, however, reached that conclusion in the particular
context of political speech. See id. at 341 (“We find no basis for the proposition that, in the
context of political speech, the Government may impose restrictions on certain disfavored
speakers.” (emphasis added)). In that area, the Court observed that the “First Amendment
has its fullest and most urgent application.” Id. at 339 (internal quotation marks omitted);
see also Arizona Free Enter. Club’s Freedom Club PAC v. Bennett, 131 S. Ct. 2806, 2821,
2824 (2011) (subjecting speaker-based law that regulated political speech to strict scrutiny).
In the absence of clearer direction from the Supreme Court, we will not ourselves assume
that Citizens United implicitly reversed Turner I to compel strict scrutiny of all speaker-based
preferences, even outside the political-speech context. See United States v. Gomez, 580 F.3d
94, 104 (2d Cir. 2009) (“‘If a precedent of th[e] [Supreme] Court has direct application in a
case, yet appears to rest on reasons rejected in some other line of decisions, the Court of
Appeals should follow the case which directly controls, leaving to th[e] Court the prerogative
of overruling its own decisions.’” (quoting Agostini v. Felton, 521 U.S. 203, 237 (1997))).
Accordingly, because the program carriage regime is neither content based nor
impermissibly speaker based, we subject it to intermediate scrutiny.
39
2. Intermediate Scrutiny
“[T]he intermediate level of scrutiny [is] applicable to content-neutral restrictions that
impose an incidental burden on speech.” Turner I, 512 U.S. at 662. Such a restriction will
be sustained under this standard if it (1) “advances important governmental interests
unrelated to the suppression of free speech” and (2) “does not burden substantially more
speech than necessary to further those interests.” Turner II, 520 U.S. at 189 (citing United
States v. O’Brien, 391 U.S. 367, 377 (1968)); accord Cablevision Sys. Corp. v. FCC, 570
F.3d at 97. The program carriage regime satisfies these two requirements.
a. Important Government Interests
The FCC submits that the program carriage regime serves two important government
interests by promoting (1) fair competition and (2) a diversity of information sources in the
video programming market. The Supreme Court has already recognized that such interests,
“viewed in the abstract,” are important and distinct from the suppression of free expression
or the content of any speaker’s message. Turner I, 520 U.S. at 662–63. The government’s
“interest in eliminating restraints on fair competition is always substantial, even when the
individuals or entities subject to particular regulations are engaged in expressive activity
protected by the First Amendment.” Id. at 664. “Likewise, assuring that the public has
access to a multiplicity of information sources is a governmental purpose of the highest
order, for it promotes values central to the First Amendment.” Id. at 663 (observing that “it
has long been a basic tenet of national communications policy that the widest possible
40
dissemination of information from diverse and antagonistic sources is essential to the welfare
of the public” (internal quotation marks omitted)).
“Of course, just because the government’s ‘asserted interests are important in the
abstract does not mean’” that a challenged program “‘will in fact advance those interests.’”
Cablevision Sys. Corp. v. FCC, 649 F.3d at 711 (quoting Turner I, 512 U.S. at 664(plurality)). When, as here, “‘the government defends a regulation on speech as a means to
redress past harms or prevent anticipated harms, it must demonstrate that the recited harms
are real, not merely conjectural, and that the regulation will in fact alleviate these harms in
a direct and material way.’” Id. (alterations omitted) (quoting Turner I, 512 U.S. at 664(plurality)). Thus, the FCC’s determination that the program carriage regime protects against
unfair competition and promotes diverse video programming sources must be based on
“‘reasonable inferences’” drawn from “‘substantial evidence.’” Cablevision Sys. Corp. v.
FCC, 597 F.3d at 1311 (quoting Turner I, 512 U.S. at 666 (plurality)); see Time Warner
Entm’t Co. v. FCC, 240 F.3d at 1133. This does not demand “‘[c]omplete factual support
in the record for the FCC’s judgment or prediction.’” Turner II, 520 U.S. at 196 (alteration
omitted) (quoting FCC v. Nat’l Citizens Comm. for Broad., 436 U.S. 775, 814 (1978)). “‘[A]
forecast of the direction in which future public interest lies necessarily involves deductions
based on the expert knowledge of the agency.’” Id. (quoting FCC v. Nat’l Citizens Comm.
for Broad., 436 U.S. at 814) (internal quotation marks omitted); see Time Warner Entm’t Co.
v. FCC, 240 F.3d at 1133 (“Substantial evidence does not require a complete factual
41
record—we must give appropriate deference to predictive judgments that necessarily involve
the expertise and experience of the agency.”).
Applying these principles here, we begin by noting that the program carriage regime
calls for a “case-by-case” assessment of the anticompetitive effect of an MVPD’s purported
discrimination against an unaffiliated network. 2011 FCC Order ¶ 33. To justify such a
regime, the FCC “has no obligation to establish that vertically integrated cable companies
retain a stranglehold on competition nationally.” Cablevision Sys. Corp. v. FCC, 649 F.3d
at 712. Rather, it must show a reasonable basis for concluding that some markets exist in
which MVPDs have the incentive and ability to harm unaffiliated networks and that
application of the program carriage regime will alleviate that harm. See Turner II, 520 U.S.
at 195; Turner I, 512 U.S. at 664–65 (plurality); Cablevision Sys. Corp. v. FCC, 649 F.3d at
712. The FCC has met this burden.
In reaching this conclusion, we are mindful that a law “impos[ing] current
burdens . . . must be justified by current needs.” Shelby County v. Holder, 133 S. Ct. 2612,
2622 (2013) (internal quotation marks omitted). We also recognize that the video
programming industry has changed significantly over the last two decades: cable operators’
share of the MVPD market has declined due to increased competition from DBS providers
and telephone companies, OVDs are an increasingly available alternative to MVPDs, and
vertical integration between cable operators and programming networks has decreased. See
supra at [25–28]. These circumstances strongly suggest an industry trending toward more
42
rather than less competition. If the trend continues, a day may well come when the
anticompetitive concerns animating Congress’s enactment of § 616(a)(3) and (5) will so
effectively be eliminated or reduced as to preclude government intrusion on MVPDs’
carriage decisions. See generally Time Warner Entm’t Co. v. FCC , 240 F.3d at 1135 (noting
that, “at some point,” marginal value of increment in diversity “would not qualify as an
‘important’ governmental interest”). We here conclude only that such a day has not yet
arrived.
The industry’s current competitive posture presents “a ‘mixed picture’ when
considered as a whole.” Cablevision Sys. Corp. v. FCC, 649 F.3d at 712 (quoting
Cablevision Sys. Corp. v. FCC, 597 F.3d at 1314). Cable operators may not be as dominant
as they were in 1992 when Congress enacted the Cable Act. Nevertheless, cable operators
continue to hold more than 55% of the national MVPD market and to enjoy still higher
shares in a number of local MVPD markets. See 2013 FCC Report ¶¶ 3, 96–97; 2011
Comcast/NBCU Order ¶ 116 & n.275; see also Comcast Cable Commc’ns, LLC v. FCC, 717
F.3d at 992 n.3 (Kavanaugh, J., concurring) (“In some local geographic markets around the
country, [an MVPD] may have market power.”); Cablevision Sys. Corp. v. FCC, 649 F.3d
at 712 (“[C]lustering and consolidation in the industry bolsters the market power of cable
operators because a single geographic area can be highly susceptible to near-monopoly
control by a cable company.” (internal quotation marks omitted)); Cablevision Sys. Corp. v.
FCC, 597 F.3d at 1314 (“In designated market areas in which a single cable company
43
controls a clustered region, market penetration of competitive MVPDs is even lower than
nationwide rates.”).8 Similarly, although vertical integration has generally declined, a
significant number of national and regional programming networks remain affiliated with
cable operators. See 2013 FCC Report ¶ 39, Table B-1, Table C-1; 2012 FCC Report
¶¶ 43–44; 2011 Comcast/NBCU Order ¶ 116; see also Cablevision Sys. Corp. v. FCC, 649
F.3d at 712 (“[D]espite major gains in the amount and diversity of programming, as of
2007[,] the four largest cable operators were still vertically integrated with six of the top 20
national networks, some of the most popular premium networks, and almost half of all
regional sports networks.” (alterations and internal quotation marks omitted)).
Indeed, despite the Cable Companies’ assertions to the contrary, the 2011 FCC Order
cited substantial record evidence that cable operators maintain significant shares in various
local markets and that vertical integration remains pervasive in the video programming
industry. In particular, the 2011 FCC Order relied on the 2011 Comcast/NBCU Order, which
points out that, as of mid-2010, Comcast held a more-than-60% share in certain major MVPD
markets. See 2011 Comcast/NBCU Order ¶ 116 (cited by 2011 FCC Order ¶ 33 nn.135–36).
Additionally, the 2011 Comcast/NBCU Order explained that the vertical integration of
8
The Cable Companies rely on Comcast Corp. v. FCC, 579 F.3d 1 (D.C. Cir. 2009),
to argue that cable operators “no longer have the bottleneck power over programming that
concerned the Congress in 1992,” id. at 8. The relevant market in that case, however, was
the national MVPD market, not local MVPD markets. See id. As the D.C. Circuit has
pointed out in the subsequent cases cited in text, cable operators retain market power in
certain local MVPD markets.
44
Comcast, the nation’s largest cable operator and MVPD, with NBCU, the nation’s fourth
largest owner of programming networks, provides Comcast with an increased incentive and
ability to harm unaffiliated networks. See id. ¶¶ 110, 116 (cited by 2011 FCC Order ¶ 33
n.136).9
From this record evidence, the FCC could reasonably conclude that cable operators
continue to “have the incentive and ability to favor their affiliated programming vendors in
individual cases, with the potential to unreasonably restrain the ability of an unaffiliated
programming vendor to compete fairly.” 2011 FCC Order ¶ 33. As the 2011 FCC Order
explained, see id. ¶ 4, in enacting the Cable Act, Congress sought to combat the threat that
vertically integrated cable operators with market power pose to unaffiliated networks. A
vertically integrated cable operator has an interest in the success of its affiliated networks and
a corollary interest in harming, through adverse carriage decisions, unaffiliated networks that
compete with its affiliates. If a vertically integrated cable operator possesses market power
in a local MVPD market, by virtue of its bottleneck control, it has the ability to prevent an
unaffiliated network from reaching a substantial portion of consumers in that market. It
thereby may significantly inhibit the unaffiliated network’s ability to compete fairly in that
area’s video programming market, potentially driving it from that market altogether. Based
9
We reject the Cable Companies’ argument that data regarding Comcast cannot be
used to justify the program carriage regime’s regulation of other MVPDs’ speech. The Cable
Companies have brought a facial, not an as-applied, challenge to the program carriage regime
and, thus, we properly consider whether the video programming industry, in whole or in part,
justifies the challenged regime. See Cablevision Sys. Corp. v. FCC, 649 F.3d at 712.
45
on this competitive threat documented in the legislative history of the Cable Act, it was
reasonable for the FCC to infer that, in some cases, a vertically integrated cable operator with
a significant share of an MVPD market will have the incentive and ability to prevent
unaffiliated networks from competing fairly in a video programming market.
We recognize that a significant market share does not always translate into market
power. “[N]ormally a company’s ability to exercise market power depends not only on its
share of the market, but also on elasticities of supply and demand, which in turn are
determined by the availability of competition.” Time Warner Entm’t Co. v. FCC, 240 F.3d
at 1134 (emphasis omitted); accord Comcast Corp. v. FCC, 579 F.3d 1, 6 (D.C. Cir. 2009);
see Tops Mkts., Inc. v. Quality Mkts., Inc., 142 F.3d 90, 98 (2d Cir. 1998) (“A court will
draw an inference of monopoly power only after full consideration of the relationship
between market share and other relevant market characteristics.”). Thus, as the Cable
Companies suggest, in certain markets, despite an adverse carriage decision by a cable
operator with a dominant market share, an unaffiliated network may still be able to reach
many consumers through competing MVPDs, like DBS and telephone companies, and
OVDs. Under such circumstances, a cable operator’s refusal to carry an unaffiliated network
may lead consumers to switch to an alternative MVPD or to drop MVDP service in favor of
OVDs in order to obtain access to that network. See Comcast Corp. v. FCC, 579 F.3d at 7;
Time Warner Entm’t Co. v. FCC, 240 F.3d at 1134. This possibility of losing subscribers
46
due to an adverse carriage decision would undercut a cable operator’s ability to wield market
power to discriminate against unaffiliated networks.
At the same time, however, we cannot overlook record evidence that cable operators
maintain a more than 60% market share in certain MVPD markets, see 2011 Comcast/NBCU
Order ¶ 116; that OVDs, which are still in their infancy as a medium, do not currently pose
a significant competitive threat to MVPDs, see id. ¶¶ 63–66, 79; and that the video
programming industry has a long history of economic dysfunction, see supra at [8–13].
Given these facts, even if cable operators with dominant MVPD market shares may not
exercise market power in all cases, the FCC had a substantial evidentiary basis to conclude
that some cable operators maintain the capacity to inhibit unaffiliated networks from
competing fairly, supporting a program carriage regime for identifying anticompetitive
conduct on a case-by-case basis. See Tops Mkts., Inc. v. Quality Mkts., Inc., 142 F.3d at 99(“‘Sometimes, but not inevitably, it will be useful to suggest that a market share below 50%
is rarely evidence of monopoly power, a share between 50% and 70% can occasionally show
monopoly power, and a share above 70% is usually strong evidence of monopoly power.’”
(quoting Broadway Delivery Corp. v. United Parcel Serv. of America, Inc., 651 F.2d 122,
129 (2d Cir. 1981))). We defer to that reasonable judgment. See Cablevision Sys. Corp v.
FCC, 597 F.3d at 1314 (“We do not sit as a panel of referees on a professional economic
journal, but as a panel of generalist judges obliged to defer to a reasonable judgment by an
47
agency acting pursuant to congressionally delegated authority.” (alteration and internal
quotation marks omitted)).
The record also permitted the FCC reasonably to conclude that the program carriage
regime would ameliorate the anticompetitive harm that vertically integrated cable operators
pose to unaffiliated networks. Under that regime, when anticompetitive conduct is proved
in a particular case, the FCC has the authority to order remedies appropriate to that case. The
regime thus directly targets the threatened harm and provides the FCC with the means to
redress it. In so doing, it promotes important government interests in fair competition and
diversity of information sources in the video programming market.
b. Narrow Tailoring
To show that a regulation is narrowly tailored under intermediate scrutiny, the
government need not demonstrate that the regulation is “the least speech-restrictive means
of advancing the Government’s interests.” Turner I, 512 U.S. at 662. It must, however,
show that the “regulation promotes a substantial government interest that would be achieved
less effectively absent the regulation.” Id. (internal quotation marks omitted). “Narrow
tailoring in this context requires, in other words, that the means chosen do not burden
substantially more speech than is necessary to further the government’s legitimate interests.”
Id. (internal quotation marks omitted).
The program carriage regime is carefully tailored to avoid placing any greater burden
on MVPDs’ editorial discretion than is warranted to promote competition and diverse
48
programming sources. The regime prohibits only affiliation-based discrimination by MVPDs
and only when such discrimination is shown to have an anticompetitive effect. It does not
prohibit an MVPD from declining to carry an unaffiliated network because it opposes the
views expressed by that network. See supra at [32–33]. It does not prohibit MVPDs from
declining to carry an unaffiliated network for legitimate business reasons. See Comcast
Cable Commc’ns, LLC v. FCC, 717 F.3d at 985; TCR Sports Broad. Holding, LLP v. FCC,
679 F.3d at 272, 278; 2011 FCC Order ¶ 17.10 Nor does it necessarily prohibit
affiliation-based discrimination in competitive markets, where there is a showing that such
discrimination has beneficial effects that are not anticompetitive. See Comcast Cable
Commc’ns, LLC v. FCC, 717 F.3d at 990 (Kavanaugh, J., concurring) (“Vertical integration
and vertical contracts in a competitive market encourage product innovation, lower costs for
businesses, and create efficiencies—and thus reduce prices and lead to better goods and
services for consumers.”). Moreover, the regime requires the FCC to evaluate individual
unaffiliated networks’ complaints on a case-by-case basis, and it demands proof of
impermissible affiliation-based discrimination and anticompetitive effect before any
restrictions are placed on the MVPD’s carriage decision.11
10
As stated supra at [32], an adverse carriage decision based on the views expressed
by an unaffiliated network or a legitimate business reason is permissible only insofar as it is
not a pretext for affiliation-based discrimination.
11
As discussed in section II.B. infra, we are today vacating the standstill rule because
the FCC promulgated it in violation of the APA’s notice-and-comment requirements, and
thus we consider the program carriage regime’s constitutionality without regard thereto.
49
The Cable Companies nevertheless argue that the program carriage regime is not
sufficiently tailored because neither § 616(a)(3) nor the prima facie standard established by
the 2011 FCC Order explicitly requires an unaffiliated network to demonstrate that a
purportedly discriminating MVPD possesses market power. The FCC responds that proof
of market power is not necessarily a prerequisite to relief under the regime. We need not
here decide whether a § 616(a)(3) violation can ever be shown in the absence of market
power. The program carriage regime requires an unaffiliated-network complainant to make
a case-specific showing that an MVPD “unreasonably restrain[ed]” its ability to “compete
fairly,” 47 U.S.C. § 536(a)(3), and market power is generally a “significant consideration”
under such a requirement, Leegin Creative Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877,
885–86 (2007) (identifying market power as “significant consideration” in determining
whether conduct is unreasonable restraint under § 1 of Sherman Act); see Comcast Cable
Commc’ns, LLC v. FCC, 717 F.3d at 990 (Kavanaugh, J., concurring) (stating that, in
antitrust law, “conduct generally can be considered unreasonable only if a firm, or multiple
firms acting in concert, have market power”). In light of this fact, even if the regime does
not explicitly require proof of market power, we expect that the FCC will consider market
power in evaluating the vast majority of future § 616(a)(3) complaints. Thus, on this facial
challenge to the overall program carriage regime, we conclude that the regime’s
“unreasonable restraint” requirement renders it narrowly tailored so as not to burden more
speech than necessary to advance the government’s interests. See generally Velazquez v.
50
Legal Servs. Corp., 164 F.3d 757, 767 (2d Cir. 1999) (rejecting facial First Amendment
challenge, but stating that “[a]ny grantee capable of demonstrating that . . . restrictions in fact
unduly burden its capacity to engage in protected First Amendment activity remains free to
bring an as-applied challenge”).
In urging otherwise, the Cable Companies contend that the prima facie standard in fact
precludes the FCC from considering market power and deems any adverse carriage decision
by an MVPD with respect to an unaffiliated network an unreasonable restraint. In support,
they point out that the 2011 FCC Order references several factors—not including market
power—that the FCC has considered in past identifications of anticompetitive discrimination,
such as, the impact of an MVPD’s adverse carriage decision on an unaffiliated network’s
“subscribership, licensee fee revenues, advertising revenues, ability to compete for
advertisers and programming, and ability to realize economies of scale.” 2011 FCC Order
¶ 15 n.60. The Cable Companies argue that analysis of such factors “is a truism, not a test,
as a [programming network] can always show that its revenues would be greater if an MVPD
had agreed to carriage (or carriage on a more widely distributed tier).” Time Warner Br. 49.
We are not persuaded by these circumstances that the FCC is precluded from
considering market power in making either a prima facie or final determination on a
§ 616(a)(3) complaint. As an initial matter, we decline to speculate that, in future cases
applying the newly established prima facie standard, the FCC will rely exclusively on the
51
factors it has previously used to identify a prima facie violation.12 Indeed, as we have already
explained, we expect that the FCC will consider market power when evaluating the vast
majority of future § 616(a)(3) complaints. Regardless, even if the FCC relied exclusively on
those factors, it would not necessarily be precluded from considering market power because,
at least in some circumstances, proof that an adverse carriage decision had the cited
detrimental effects on an unaffiliated network may serve as a proxy for an inquiry into an
MVPD’s market power. See generally FTC v. Ind. Fed’n of Dentists, 476 U.S. 447, 460–61
(1986) (“[P]roof of actual detrimental effects, such as a reduction of output, can obviate the
need for an inquiry into market power, which is but a surrogate for detrimental effects.”
(internal quotation marks omitted)); accord Geneva Pharm. Tech. Corp. v. Barr Labs. Inc.,
386 F.3d 485, 509 (2d Cir. 2004). Moreover, we do not assume that the FCC will effectively
nullify the unreasonable restraint requirement of § 616(a)(3) by recognizing any detrimental
effect on an unaffiliated network as sufficient to prove a prima facie violation, rather than
demanding proof of the significant or material detrimental effect implicit in the term
12
For this reason, the pre-2011 cases cited by the Cable Companies, in which the FCC
allegedly failed to require a showing of market power, are inapposite. In any event, it is not
clear that the FCC failed to consider cable operators’ dominant market position in those
cases. See Tennis Channel, Inc. v. Comcast Cable Commc’ns, LLC, 25 FCC Rcd. 14149,
¶ 20 (Med. Bur. 2010) (stating that Comcast’s “refusal to expand The Tennis Channel’s
distribution” was “particularly detrimental to the network” because “Comcast is the dominant
cable operator in seven of the ten largest television markets”); Herring Broad., Inc. v. Time
Warner Cable, Inc., 23 FCC Rcd. 14787, ¶ 19 (Med. Bur. 2008) (stating that Time Warner
has “quasi monopolies in key markets, such as New York and Los Angeles, that are essential
to WealthTV’s long-term viability” (internal quotation marks omitted)).
52
“unreasonable restraint.” See Capital Imaging Assocs., P.C. v. Mohawk Valley Med.
Assocs., Inc., 996 F.2d 537, 546 (2d Cir. 1993) (stating that, under § 1 of Sherman Act, to
prove unreasonable restraint, plaintiff must show that defendant’s conduct “had a
substantially harmful effect on competition”).
Nor are we persuaded by the Cable Companies’ arguments that narrow tailoring
requires the FCC (1) to limit the program carriage regime to “particular geographic markets
where the FCC could find, based on substantial evidence, that a particular MVPD
exercised . . . bottleneck monopoly power,” Time Warner Br. 44; (2) to promote its “diversity
interest without resorting to compelled speech,” by, for example, subsidizing or directly
funding unaffiliated networks, id.; or (3) to create a regime that triggers less litigation and
chills less speech. Challenged government conduct will not necessarily fail the
narrow-tailoring requirement whenever “there is some imaginable alternative that might be
less burdensome on speech.” Turner II, 520 U.S. at 217. In any event, the Cable Companies
have not demonstrated that their proposed alternatives are superior to the program carriage
regime.
First, it hardly makes sense to require the FCC to conduct an ex ante analysis of every
MVPD market in the United States given the rapid changes occurring in the video
programming industry. In such dynamic circumstances, it is a more efficient use of limited
FCC resources, and a fairer treatment of the parties, for the agency to analyze an MVPD
market when an unaffiliated network lodges an actual complaint of anticompetitive
53
discrimination. Second, while subsidization or direct funding might enable unaffiliated
networks to maintain financial viability despite affiliation-based discrimination, it would not
necessarily provide such networks with access to consumers in markets where dominant
MVPDs favored their affiliated networks. It is such access to consumers that enhances
competition and diversity in the video programming market, and that is the relief the program
carriage regime affords upon proof of affiliation-based discrimination. Finally, the prima
facie standard established by the 2011 FCC Order, which requires evidence of
affiliation-based discrimination and anticompetitive effect, allows the FCC to screen out
frivolous complaints against MVPDs and thereby minimize the litigation burden and any
possible chilling effect.13 Thus, because the “burden imposed” by the regime is “congruent
to the benefits it affords,” we conclude that it is narrowly tailored. Turner II, 520 U.S. at
215.
In light of the real and significant competitive concerns that animated Congress’s
1992 enactment of the Cable Act, the FCC reasonably proceeds with caution when
confronting claims that changed market conditions no longer permit the law to intrude on
MVPDs’ carriage decisions consistent with the First Amendment. At the same time, there
is no denying that the video programming industry is dynamic and that the level of
competition has rapidly increased in the last two decades. In light of these changes, some
13
The Cable Companies have pointed to no evidence that the program carriage regime
has, in fact, chilled speech by deterring MVPDs from developing or investing in affiliated
networks.
54
of the Cable Act’s broad prophylactic rules may no longer be justified. See Comcast Corp.
v. FCC, 579 F.3d at 8 (striking down under APA FCC rule that capped number of subscribers
that cable operator could serve at 30% of all subscribers in national market). Nonetheless,
“nothing prevents the Commission from addressing any remaining barriers to effective
competition with appropriately tailored remedies.” Cablevision Sys. Corp. v. FCC, 649 F.3d
at 712. We are satisfied that the program carriage regime currently serves this task.
At oral argument, however, the FCC acknowledged the possibility that, at some future
time, this conclusion will no longer obtain in light of increased competition in the video
programming industry. From the record adduced by the parties, as well as the 2012 and 2013
FCC Reports, we consider this possibility more real than speculative. Thus, at the same time
that we uphold the program carriage regime today, we encourage the FCC to reevaluate the
program carriage regime as warranted by increased competition in the video programming
industry.14
14
For the same reasons that the program carriage regime survives intermediate
scrutiny, we conclude that the prima facie standard is not arbitrary and capricious under the
APA. See Cablevision Sys. Corp. v. FCC, 649 F.3d at 713 (“First Amendment intermediate
scrutiny is, of course, substantially more demanding than arbitrary and capricious review of
agency action.”)
Further, because we conclude that the program carriage regime is constitutional, we
need not address the FCC’s assertion that the Cable Companies waived their First
Amendment and APA challenges to the prima facie standard.
55
B. APA Challenge
Section 553 of the APA requires agencies to provide notice and an opportunity for
public comment before a rule is promulgated. See 5 U.S.C. § 553(b), (c). The Cable
Companies contend that the FCC did not adhere to the APA’s notice-and-comment
requirements in establishing the standstill rule in the 2011 FCC Order. In response, the FCC
claims that no notice or comment opportunity was required for the standstill rule because it
addresses procedure rather than substance. In any event, the FCC submits that the 2007
NPRM provided adequate notice of and opportunity to comment on the standstill rule.
“In general, we will overturn an agency decision only if it was arbitrary, capricious,
an abuse of discretion, or otherwise not in accordance with the law.” Cablevision Sys. Corp.
v. FCC, 570 F.3d at 91 (internal quotation marks omitted). We agree with the Cable
Companies that the FCC did not promulgate the standstill rule in accordance with the law
because the agency failed to adhere to APA notice-and-comment requirements. We thus
grant the Cable Companies’ petitions insofar as they challenge the standstill rule, and we
vacate that rule without prejudice to the FCC’s re-promulgating in compliance with the APA.
1. Procedural Rule Exception
The APA’s notice-and-comment requirements apply only to “‘substantive,’” or what
are sometimes termed “‘legislative,’” rules, not to, inter alia, “‘rules of agency organization,
procedure, or practice.’” Lincoln v. Vigil, 508 U.S. 182, 196 (1993) (quoting 5 U.S.C.
§ 553(b)); see Electronic Privacy Info. Ctr. v. U.S. Dep’t of Homeland Sec., 653 F.3d 1, 5
56
(D.C. Cir. 2011). In determining whether an agency has promulgated a substantive or a
procedural rule, “the label that the particular agency puts upon its given exercise of
administrative power is not, for our purposes, conclusive; rather it is what the agency does
in fact.” Lewis-Mota v. Sec’y of Labor, 469 F.2d 478, 481–82 (2d Cir. 1972). Substantive
rules “create new law, rights, or duties, in what amounts to a legislative act.” Sweet v.
Sheahan, 235 F.3d 80, 91 (2d Cir. 2000) (internal quotation marks omitted); see Donovan v.
Red Star Marine Servs., Inc., 739 F.2d 774, 783 (2d Cir. 1984) (stating that substantive rules
“change existing rights and obligations” (internal quotation marks omitted)). A procedural
rule, by contrast, “does not itself alter the rights or interests of parties, although it may alter
the manner in which the parties present themselves or their viewpoints to the agency.”
Electronic Privacy Info. Ctr. v. U.S. Dep’t of Homeland Sec., 653 F.3d at 5 (internal
quotation marks omitted). Put another way, a procedural rule “does not impose new
substantive burdens.” Id. (internal quotation marks omitted).
Because all procedural rules affect substantive rights to some extent, see Lamoille
Valley R.R. Co. v. ICC, 711 F.2d 295, 328 (D.C. Cir. 1983), the distinction between
substantive and procedural rules might well be characterized as “one of degree depending
upon whether the substantive effect is sufficiently grave so that notice and comment are
needed to safeguard the policies underlying the APA,” Electronic Privacy Info. Ctr. v. U.S.
Dep’t of Homeland Sec., 653 F.3d at 5–6 (internal quotation marks omitted). Those policies
are “to serve the need for public participation in agency decisionmaking and to ensure the
57
agency has all pertinent information before it when making a decision.” Id. at 6 (citations
and internal quotation marks omitted). “In order to further these policies, the exception for
procedural rules must be narrowly construed.” Id. (internal quotation marks omitted).
We conclude that the standstill rule does not fall within the procedural rule exception
to the APA’s notice-and-comment requirements. The standstill rule confers authority on the
FCC temporarily to extend the term of a contractual agreement between an MVPD and an
unaffiliated network while the network’s program carriage complaint is pending. It thus
significantly affects substantive rights. Indeed, the FCC does not dispute this fact. Instead,
it contends that the standstill rule does not impose a new substantive burden. According to
the FCC, because it “has granted interim injunctive relief in a variety of contexts,”
Respondents Br. 61, the standstill rule “merely codifies an existing procedure,” and thus “it
does not affect substantive rights any more than the pre-existing standstill procedure did,”
id. at 63. We are not persuaded.
Even if the FCC has issued standstill orders in other contexts, it is not clear that it has
the authority to issue such an order under the program carriage regime. Before the standstill
rule’s establishment, no statute or regulation specifically conferred that authority on the FCC,
and the FCC concedes that it has never imposed a standstill order in the program carriage
context.15 Moreover, as the 2011 FCC Order itself acknowledges, there are serious questions
15
Because the FCC has never issued a standstill order in the program carriage context,
it cannot rely on cases in which courts have held an agency rule procedural because it
modified procedures, but not substantive standards, for an established agency practice. See
58
as to whether §§ 616 and 624 of the Communications Act prohibit the FCC, at least in certain
circumstances, from issuing a standstill order in the program carriage context. See 2011 FCC
Order ¶ 26 n.107 (seeking comment on whether the standstill rule violates § 624 “in some
circumstances” (emphasis in original)); id. ¶ 60 (“We seek comment on whether there are any
circumstances in the program carriage context in which the Commission’s authority to issue
temporary standstill orders is statutorily or otherwise limited.”); see also id. at 11610 & n.15
(Commissioner McDowell, approving in part and dissenting in part) (stating that standstill
rule has not been “reviewed by the Commission or a court for consistency with” §§ 616 and
624 of Communications Act).16
Given the substantive burden imposed by the standstill rule, the absence of an
established FCC practice of issuing standstill orders in the program carriage context, and the
uncertainty about the FCC’s authority to do so, “regardless whether this is a new substantive
burden,” the standstill rule “substantively affects the public to a degree sufficient to implicate
the policy interests animating notice-and-comment rulemaking.” Electronic Privacy Info.
Ctr. v. U.S. Dep’t of Homeland Sec., 653 F.3d at 5 (emphasis added; internal quotation
JEM Broad. Co. v. FCC, 22 F.3d 320, 327 (D.C. Cir. 1994) (holding agency rule procedural
because it employed same substantive standards as its predecessors); Notaro v. Luther, 800
F.2d 290, 291 (2d Cir. 1986) (holding agency rule procedural because “approach set out in
the training aid accords with the Commission’s regulations and past practices”).
16
We express no opinion as to whether the standstill rule is consistent with §§ 616 and
624 of the Communications Act.
59
marks omitted). The rule thus is substantive and subject to the APA’s notice-and-comment
requirements.
2. Adequacy of Notice
The APA “requires an agency conducting notice-and-comment rulemaking to publish
in its notice of proposed rulemaking ‘either the terms or substance of the proposed rule or a
description of the subjects and issues involved.’” Long Island Care at Home, Ltd. v. Coke,
551 U.S. 158, 174 (2007) (quoting 5 U.S.C. § 553(b)(3)). We “have generally interpreted
this to mean that the final rule the agency adopts must be ‘a logical outgrowth of the rule
proposed.’” Id. (quoting National Black Media Coal. v. FCC, 791 F.2d 1016, 1022 (2d Cir.
1986) (internal quotation marks omitted)). “Clearly, if the final rule deviates too sharply
from the proposal, affected parties will be deprived of notice and an opportunity to respond
to the proposal.” National Black Media Coal. v. FCC, 791 F.2d at 1022 (internal quotation
marks omitted); accord Council Tree Commc’ns, Inc. v. FCC, 619 F.3d 235, 249 (3d Cir.
2010). “The object, in short, is one of fair notice.” Long Island Care at Home, Ltd. v. Coke,
551 U.S. at 174.
“[G]eneral notice that a new standard will be adopted affords the parties scant
opportunity for comment.” Horsehead Res. Dev. Co. v. Browner, 16 F.3d 1246, 1268 (D.C.
Cir. 1994). Thus, an agency’s APA “obligation is more demanding.” Id. It must “describe
the range of alternatives being considered with reasonable specificity.” Prometheus Radio
Project v. FCC, 652 F.3d 431, 450 (3d Cir. 2011) (internal quotation marks omitted).
60
“Otherwise, interested parties will not know what to comment on, and notice will not lead
to better-informed agency decision-making.” Id. (internal quotation marks omitted). Indeed,
“unfairness results unless persons are sufficiently alerted to likely alternatives so that they
know whether their interests are at stake.” National Black Media Coal. v. FCC, 791 F.2d at
1023 (alteration and internal quotation marks omitted).
Here, the 2007 NPRM did not specifically indicate that the FCC was considering
adopting a standstill rule. Nor can that rule be considered the logical outgrowth of the issues
described in the 2007 NPRM. While the 2007 NPRM did seek comment on whether the FCC
should “adopt rules to address the complaint process itself” and, specifically, whether it
“should adopt additional rules to protect [programming networks] from potential retaliation
if they file a complaint,” 2007 NPRM ¶ 16, those solicitations are too general to provide
adequate notice that a standstill rule was under consideration as a means to provide such
protection. Thus, interested parties had no reason to comment on such a measure. See
Prometheus Radio Project v. FCC, 652 F.3d at 450 (holding notice inadequate where it asked
“two general questions” that failed to solicit comment on “overall framework under
consideration”); Horsehead Res. Dev. Co. v. Browner, 16 F.3d at 1268 (concluding notice
inadequate where it failed to indicate form that “ultimate standard” might take). Even if it
was the FCC’s intent to solicit comment on a standstill rule, “an unexpressed intention cannot
convert a final rule into a logical outgrowth that the public should have anticipated.” Council
Tree Commc’ns, Inc. v. FCC, 619 F.3d at 254 (internal quotation marks omitted).
61
Indeed, the record shows that the public did not, in fact, anticipate that the FCC would
adopt a standstill rule based on the 2007 NPRM. None of the commenters addressed such
a rule during the official comment period—a fact that strongly suggests that the 2007 NPRM
provided insufficient notice. See Prometheus Radio Project v. FCC, 652 F.3d at 452 (stating
that lack of comments during official comment period showed that “interested parties were
prejudiced” by inadequacy of notice); see also National Exch. Carrier Ass’n, Inc. v. FCC,
253 F.3d 1, 4 (D.C. Cir. 2001) (“[T]he logical outgrowth test normally is applied to consider
whether a new round of notice and comment would provide the first opportunity for
interested parties to offer comments that could persuade the agency to modify its rule.”
(internal quotation marks omitted); cf. Horsehead Res. Dev. Co. v. Browner, 16 F.3d at 1268(“[I]nsightful comments may be reflective of notice and may be adduced as evidence of its
adequacy.”).
That conclusion is reinforced by the fact that, in a similar context, under the program
access provision of the Cable Act, see 47 U.S.C. § 548, the FCC expressly sought comment
on whether it should adopt a standstill rule.17 See Council Tree Commc’ns, Inc. v. FCC, 619
F.3d at 254 (deeming it “instructive that the FCC had previously solicited broader
comment . . . , and in much more specific terms than it did here”). That the FCC, with
17
See Implementation of the Cable Television Consumer Protection & Competition
Act of 1992, 22 FCC Rcd. 17791, ¶¶ 135–37 (2007) (discussing proposal to adopt standstill
requirement and seeking comment on issuance of temporary stay orders); see also 47 C.F.R.
§ 76.1003(l) (setting forth standstill requirements for program access complaints).
62
release of the 2011 FCC Order, solicited comment on several key aspects of the standstill
rule’s implementation, including whether its authority to issue standstill orders in the
program carriage context is statutorily or otherwise limited, further indicates that the agency
did not adequately solicit comments on the standstill rule in the first instance. See
Prometheus Radio Project v. FCC, 652 F.3d at 451–52 (stating that later specific notice
requesting comment indicated that earlier less-specific notice was insufficient).
Accordingly, we hold that the standstill rule was promulgated in violation of the
APA’s notice-and-comment requirements and, therefore, we order that it be vacated without
prejudice to the FCC attempting to re-promulgate it consistent with the APA.18
III. Conclusion
To summarize, we conclude as follows:
1. Section 616(a)(3) and (5) of the Communications Act of 1934, as amended by the
Cable Television Consumer Protection and Competition Act of 1992, and the prima facie
standard established thereunder by the 2011 FCC Order, are content and speaker neutral and,
thus, petitioners’ First Amendment challenge warrants intermediate, rather than strict,
scrutiny. The challenged program carriage regime satisfies intermediate scrutiny because its
case-specific standards for identifying affiliation-based discrimination (a) serve important
18
In light of our decision to vacate, we do not reach the Cable Companies’ substantive
challenges to the standstill rule under the First Amendment, APA, and Communications Act,
as these concerns may be obviated if the FCC does not re-promulgate the rule or if it
proposes—or after comment adopts—a modified rule not presenting the problems raised in
these challenges.
63
government interests in promoting competition and diversity in an industry still posing
serious competitive risks, and (b) are narrowly tailored not to burden substantially more
speech than necessary to further those interests.
2. The standstill rule promulgated by the 2011 FCC Order is substantive and, thus,
subject to the notice-and-comment requirements of the APA. The FCC failed to comply with
those requirements.
Accordingly, the petitions for review are DENIED IN PART, insofar as they raise a First
Amendment challenge to the program carriage regime, and GRANTED IN PART, insofar as they
raise an APA challenge to the standstill rule. The FCC’s standstill rule is VACATED without
prejudice to the agency’s re-promulgating it consistent with the APA.
64