Comcast Cable Communications, LLC v. Federal Communications Commission , 717 F.3d 982 ( 2013 )

United States Court of Appeals
FOR THE DISTRICT OF COLUMBIA CIRCUIT
______
Argued February 25, 2013 Decided May 28, 2013
No. 12-1337
COMCAST CABLE COMMUNICATIONS, LLC,
PETITIONER
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED
STATES OF AMERICA,
RESPONDENTS
THE TENNIS CHANNEL, INC.,
INTERVENOR
______
On Petition for Review of an Order
of the Federal Communications Commission
______
Miguel A. Estrada argued the cause for petitioners. With
him on the briefs were Erik R. Zimmerman and Lynn R.
Charytan.
2
H. Bartow Farr III, Rick Chessen, Neal M. Goldberg,
Michael S. Schooler, and Diane B. Burstein were on the brief
for amicus curiae The National Cable & Telecommunications
Association in support of petitioner.
Peter Karanijia, Deputy General Counsel, Federal
Communications Commission, argued the cause for
respondents. With him on the brief were Catherine G.
O’Sullivan and Robert J. Wiggers, Attorneys, U.S.
Department of Justice, Sean A. Lev, General Counsel, Federal
Communications Commission, Jacob M. Lewis, Associate
General Counsel, and Laurel R. Bergold, Counsel. Richard K.
Welch, Deputy Associate General Counsel, Federal
Communications Commission, and James M. Carr and C.
Grey Pash Jr., Counsel, entered appearances.
Robert A. Long Jr. argued the cause for intervenor. With
him on the brief were Stephen A. Weiswasser and Mark W.
Mosier.
Markham C. Erickson was on the brief for amicus curiae
Bloomberg L.P. in support of respondent.
Before: KAVANAUGH, Circuit Judge, and EDWARDS and
WILLIAMS, Senior Circuit Judges.
Opinion for the Court filed by Senior Circuit Judge
WILLIAMS.
Concurring opinion filed by Circuit Judge KAVANAUGH.
Concurring opinion filed by Senior Circuit Judge
EDWARDS.
WILLIAMS, Senior Circuit Judge: Regulations of the
Federal Communications Commission, adopted under the
mandate of § 616 of the Communications Act of 1934 and
3
virtually duplicating its language, bar a multichannel video
programming distributor (“MVPD”) such as a cable company
from discriminating against unaffiliated programming
networks in decisions about content distribution. More
specifically, the regulations bar such conduct when the effect
of the discrimination is to “unreasonably restrain the ability of
an unaffiliated video programming vendor to compete fairly.”
47 C.F.R. § 76.1301(c); see also 47 U.S.C. § 536(a)(3).
Tennis Channel, a sports programming network and
intervenor in this suit, filed a complaint against petitioner
Comcast Cable, an MVPD, alleging that Comcast violated
§ 616 and the Commission’s regulations by refusing to
broadcast Tennis as widely (i.e., via the same relatively low-
priced “tier”) as it did its own affiliated sports programming
networks, Golf Channel and Versus. (Versus is now known
as NBC Sports Network and was originally called Outdoor
Life Network; for consistency with the order under review, we
refer to it as “Versus.”) An administrative law judge ruled
against Comcast, ordering that it provide Tennis carriage
equal to what it affords Golf and Versus, and the Commission
affirmed. See Tennis Channel, Inc. v. Comcast Cable
Commc’ns, LLC, Memorandum Opinion and Order, 27 FCC
Rcd. 8508, 2012 WL 3039209 (July 24, 2012) (“Order”).
Comcast’s arguments on appeal are, broadly speaking,
threefold. First, it contends that Tennis’s complaint was
untimely filed under 47 C.F.R. § 76.1302(h), given the
meaning that the Commission apparently assigned that section
when it last modified its language. See In re Implementation
of the Cable Television Consumer Protection and Competition
Act of 1992, 9 FCC Rcd. 4415, ¶ 24, 1994 WL 414309 (Aug.
5, 1994). Judge Edwards’s concurring opinion addresses that
issue. The panel need not do so, as the limitations period
doesn’t constitute a jurisdictional barrier. And as Judge
Edwards notes, the Commission has launched a rulemaking
apparently aimed in part at clearing up the confusion he
4
identifies. In re Revision of the Commission’s Program
Carriage Rules, 26 FCC Rcd. 11494, 11522-23, ¶¶ 38-39,
2011 WL 3279328 (Aug. 1, 2011).
Second, Comcast poses a number of issues as to the
meaning of § 616, including an argument that the Commission
reads it so broadly as to violate Comcast’s free speech rights
under the First Amendment. We need not reach those issues,
as Comcast prevails with its third set of arguments—that even
under the Commission’s interpretation of § 616 (the
correctness of which we assume for purposes of this decision),
the Commission has failed to identify adequate evidence of
unlawful discrimination.
Many arguments within this third set involve complex
and at least potentially sophisticated disputes. See, e.g., Order
¶¶ 71-74 (relating to calculation of “penetration rates” for
purposes of determining whether Comcast treated Tennis
more or less favorably than did other MVPDs and of
measuring the degree of harm caused by any such difference).
But Comcast also argued that the Commission could not
lawfully find discrimination because Tennis offered no
evidence that its rejected proposal would have afforded
Comcast any benefit. If this is correct, as we conclude below,
the Commission has nothing to refute Comcast’s contention
that its rejection of Tennis’s proposal was simply “a straight
up financial analysis,” as one of its executives put it. Joint
Appendix (“J.A.”) 300.
* * *
Comcast, the largest MVPD in the United States, offers
cable television programming to its subscribers in several
different distribution “tiers,” or packages of programming
services, at different prices. Since Versus’s and Golf’s
launches in 1995, Comcast—which originally had a minority
5
interest in the two networks, and now has 100% ownership—
has generally carried the networks on its most broadly
distributed tiers, Expanded Basic or the digital counterpart
Digital Starter. Order ¶ 12; J.A. 1223-24.
Tennis Channel, launched in 2003, initially sought
distribution of its content on Comcast’s less broadly
distributed sports tier, a package of 10 to 15 sports networks
that Comcast’s subscribers can access for an extra $5 to $8 per
month. In 2005, Tennis entered a carriage contract that gave
the Comcast the “right to carry” Tennis “on any . . . tier of
service,” subject to exclusions irrelevant here. Comcast in
fact placed Tennis on the sports tier.
In 2009, however, Tennis approached Comcast with
proposals that Comcast reposition Tennis onto a tier with
broader distribution. Order ¶¶ 12, 33. Tennis’s proposed
agreement called for Comcast to pay Tennis for distribution
on a per-subscriber basis. Tennis provided a detailed
analysis—which is sealed in this proceeding—of what
Comcast would likely pay for that broader distribution; even
with the discounts that Tennis offered, the amounts are
substantial. Neither the analysis provided at the time, nor
testimony received in this litigation, made (much less
substantiated) projections of any resulting increase in revenue
for Comcast, let alone revenue sufficient to offset the
increased fees.
Comcast entertained the proposal, checking with
“division and system employees to gauge local and subscriber
interest.” J.A. 402. After those consultations, and based on
previous analyses of interest in Tennis, Comcast rejected the
proposal in June 2009. Tennis then filed its complaint with
the Commission in January 2010, which led to the order now
under review. By way of remedy, the ALJ ordered, and the
Commission affirmed, that Comcast must “carry [Tennis] on
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the same distribution tier, reaching the same number of
subscribers, as it does [Golf] and Versus.” Order ¶ 92.
The parties agree that Comcast distributes the content of
affiliates Golf and Versus more broadly than it does that of
Tennis. The question is whether that difference violates § 616
and the implementing regulations. 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 (obviously excluding
any purpose to illegitimately hobble the competition from
Tennis), there is no violation. The Commission has so
interpreted the statute, Mid-Atlantic Sports Network v. Time
Warner Cable Inc., 25 FCC Rcd. 18099, ¶ 22 (2010), and the
Commission’s attorney conceded as much at oral argument,
see Oral Arg. Tr. at 24-25; see also TCR Sports Broad.
Holding L.L.P. v. FCC, 679 F.3d 269, 274-77 (4th Cir. 2012)
(discussing the legitimate, non-discriminatory reasons for an
MVPD’s differential treatment of a non-affiliated network).
In contrast with the detailed, concrete explanation of
Comcast’s additional costs under the proposed tier change,
Tennis showed no corresponding benefits that would accrue to
Comcast by its accepting the change. Testimony from one of
Comcast’s executives identifies some of the factors it
considers when deciding whether to move a channel to
broader distribution:
In deciding whether to carry a network and at
what cost, Comcast Cable must balance the costs
and benefits associated with a wide range of
factors, including: the amount of the licensing
fees (which is generally the most important
factor); the nature of the programming content
involved; the intensity and size of the fan base for
that content; the level of service sought by the
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network; the network’s carriage on other MVPDs;
the extent of [most favored nation]1 protection
provided; the term of the contract sought; and a
variety of other operational issues.
J.A. 408, ¶ 32. Of course the record is very strong on the
proposed increment in licensing fees, in itself a clear negative.
The question is whether the other factors, and perhaps ones
unmentioned by Comcast, establish reason to expect a net
benefit.
But neither Tennis nor the Commission offers such an
analysis on either a qualitative or a quantitative basis. Instead,
the best the Commission offers, both in the Order and at oral
argument, is that Tennis charges less per “rating point” than
does either Golf or Versus. Order ¶ 78 n.243; Oral Arg. Tr. at
25-29. But those differentials are not affirmative evidence
that acceptance of Tennis’s 2009 proposal could have offered
Comcast any net gain. Even if we were to assume arguendo
that low charges per ratings point are the be-all and the end-all
of assigning a network to a broadly accessible tier (and the
record does not support such an assumption), the cost-per-
ratings-point evidence would at most show that (by this
particular criterion) Tennis’s gross cost is not as high as that
of either Golf or Versus. It does not show any affirmative net
benefit. As to the assumption about cost per ratings point, the
sealed record suggests (consistent with Comcast’s evidence
about the factors guiding its tier placement decisions) that a
very high price per rating point is by no means an absolute
barrier to placement in a broadly available tier. J.A. 51, 1112.
1
A “most favored nation” provision grants the distributor “the
right to be offered any more favorable rates, terms, or conditions
subsequently offered or granted by a network to another
distributor.” J.A. 1376.
8
In the absence of evidence that the lower cost per ratings
point is correlated with changes in revenues to offset the
proposed cost increase for Tennis’s broader distribution, the
discussion of cost per ratings point is mere handwaving.
A rather obvious type of proof would have been expert
evidence to the effect that X number of subscribers would
switch to Comcast if it carried Tennis more broadly, or that Y
number would leave Comcast in the absence of broader
carriage, or a combination of the two, such that Comcast
would recoup the proposed increment in cost. There is no
such evidence. (Conceivably Tennis could have shown that
the incremental losses from carrying Tennis in a broad tier
would be the same as or less than the incremental losses
Comcast was incurring from carrying Golf and Versus in such
tiers. The parties do not even hint at this possibility, nor
analyze its implications.)
Not only does the record lack affirmative evidence along
these lines, there is evidence that no such benefits exist. After
Tennis proposed the broader distribution of its content on
Comcast’s network, Comcast executives surveyed employees
in various geographic divisions to gauge interest in the
proposal. The executive in charge of the northern division
reported that there was “[n]o interest whatsoever” in moving
Tennis to a broader distribution, J.A. 349, because there had
never been “a request or a complaint to move Tennis Channel
to a more available tier,” id. at 350. Perhaps more telling is
the natural experiment conducted in Comcast’s southern
division. There Comcast had in 2007 or 2008 acquired a
distribution network from another MVPD that had distributed
Tennis more broadly than did Comcast. When Comcast
repositioned Tennis to the sports tier (a “negative repo” in
MVPD lingo), thereby making it available to Comcast’s
general subscribers only for an additional fee, not one
customer complained about the change.
9
When we asked at oral argument about the absence of
evidence of benefit to Comcast from the proposed tier change,
Commission counsel pointed not to any such evidence but to
the ALJ’s remedy (affirmed by the Commission), which gave
Comcast the alternative of narrowing the exposure of Golf and
Versus (rather than broadening that of Tennis). Such a change
was the Commission’s alternative remedy for bringing the
three networks to tiering parity. But the discriminatory act
alleged by the Commission was Comcast’s refusal to broaden
its distribution of Tennis, not a refusal to narrow its
distribution of Golf and Versus. The latter may make
complete sense in terms of providing an evenhanded remedy.
But evidence that such a change would have afforded
Comcast a net benefit—for example, by generating
incremental sports tier fees exceeding incremental losses from
the removal of Golf and Versus from lower priced tiers—
would in itself have little bearing on the lawfulness of
Comcast’s rejection of Tennis’s actual proposal to extend
distribution of the latter’s content. It is thus unsurprising that
no one organized data to test the profitability of this
hypothetical tiering change.
This is not to say that the record lacks evidence of
important similarities between Tennis on the one hand and
Golf and Versus on the other. See, e.g., Order ¶¶ 51-55. If
accompanied by evidence that (assuming Golf and Versus had
been on the sports tier at the time of Tennis’s proposal in
2009) a shift of them to broader coverage would have yielded
incremental revenue equivalent to what Tennis demanded in
2009, the comparative data might have done the job. But no
such evidence was offered.
Neither Tennis nor the Commission has invoked the
concept that an otherwise valid business consideration is here
merely pretextual cover for some deeper discriminatory
purpose. Instead, both Tennis and the Commission challenge
10
Comcast’s cost-benefit analysis as insufficiently rigorous.
While Tennis and the Commission both label that analysis
“pretextual,” see Tennis Br. at 18; Resp’ts’ Br. at 31, their
actual claim is that the cost-benefit analysis was too hastily
performed to justify Comcast’s rejection of Tennis’s proposal,
thus supporting an inference that discrimination was the true
motive. In light of the evidence surveyed above, and the lack
of evidence from which one might infer any net benefit,
Comcast’s haste is irrelevant.
We note that the FCC’s Media Bureau found that Tennis
had established a prima facie case and that the Commission
assumed without deciding that in those circumstances Tennis
retained the burden of proof throughout the proceeding.
Order ¶ 38. We will assume arguendo, in favor of the
Commission, that the Media Bureau was correct in its finding
of a prima facie case and that in those circumstances it could
shift the burden to the respondent. But that assumption is of
no use to the Commission where the record simply lacks
material evidence that the Tennis proposal offered Comcast
any commercial benefit.
Without showing any benefit for Comcast from incurring
the additional fees for assigning Tennis a more advantageous
tier, the Commission has not provided evidence that Comcast
discriminated against Tennis on the basis of affiliation. And
while the Commission describes at length the “substantial
evidence” that supports a finding that the discrimination is
based on affiliation, Resp’ts’ Br. at 25-31, none of that
evidence establishes benefits that Comcast would receive if it
distributed Tennis more broadly. On this issue the
Commission has pointed to no evidence, and therefore
obviously not to substantial evidence. See Guardian Moving
& Storage Co., Inc. v. ICC, 952 F.2d 1428, 1433 (D.C. Cir.
1992).
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* * *
The petition is therefore
Granted.
KAVANAUGH, Circuit Judge, concurring: Video
programming distributors such as Comcast deliver video
programming networks to consumers. Under Section 616 of
the Communications Act, a video programming distributor
may not discriminate against an unaffiliated programming
network in a way that “unreasonably restrain[s]” the
unaffiliated network’s ability to compete fairly. Applying
that statute in this case, the FCC found that Comcast
discriminated against the unaffiliated Tennis Channel network
by refusing to carry that network on the same cable tier that
Comcast carries its affiliated Golf Channel and Versus
networks. The FCC also found that the discrimination
unreasonably restrained the Tennis Channel’s ability to
compete fairly. As a remedy, the FCC ordered Comcast to
carry the Tennis Channel on the same tier that it carries the
Golf Channel and Versus.
As the Court’s opinion explains, the FCC erred in
concluding that Comcast discriminated against the Tennis
Channel on the basis of affiliation. I join the Court’s opinion
in full. I write separately to point out that the FCC also erred
in a more fundamental way. Section 616’s use of the phrase
“unreasonably restrain” – an antitrust term of art – establishes
that the statute applies only to discrimination that amounts to
an unreasonable restraint under antitrust law. Vertical
integration and vertical contracts – for example, between a
video programming distributor and a video programming
network – become potentially problematic under antitrust law
only when a company has market power in the relevant
market. It follows that Section 616 applies only when a video
programming distributor possesses market power. But
Comcast does not have market power in the national video
programming distribution market, the relevant market
analyzed by the FCC in this case. Therefore, as I will explain
in Part I of this opinion, Section 616 does not apply here.
2
Applying Section 616 to a video programming distributor
that lacks market power not only contravenes the terms of the
statute, but also violates the First Amendment as it has been
interpreted by the Supreme Court. As I will explain in Part II
of this opinion, the canon of constitutional avoidance thus
strongly reinforces the conclusion that Section 616 applies
only when a video programming distributor possesses market
power.
I
Section 616 of the Communications Act requires the FCC
to:
prevent a multichannel video programming distributor
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.
47 U.S.C. § 536(a)(3) (emphasis added); see 47 C.F.R.
§ 76.1301(c). The statutory text establishes that a Section 616
violation has two elements. First, the video programming
distributor must have discriminated against an unaffiliated
video programming network on the basis of affiliation.
Second, the video programming distributor’s discrimination
must have “unreasonably restrain[ed]” the unaffiliated
network’s ability “to compete fairly.”
Congress enacted Section 616 (over the veto of President
George H.W. Bush) as part of the Cable Television Consumer
Protection and Competition Act of 1992, known as the Cable
3
Act. The Cable Act included numerous provisions designed
to curb abuses of cable operators’ bottleneck monopoly power
and to promote competition in the cable television industry.
When the Act was passed, however, the video programming
market looked quite different than it looks today. At the time,
most households subscribed to cable in order to view
television programming. And as Congress noted, “most cable
television subscribers [had] no opportunity to select between
competing cable systems.” Cable Television Consumer
Protection and Competition Act of 1992, Pub. L. No. 102-
385, § 2(a)(2), 106 Stat. 1460, 1460 (1992). Congress
decided to proactively counteract the bottleneck monopoly
power that cable operators possessed in many local markets.
The Cable Act employs a variety of tools to advance
competition. Some provisions directly prohibit practices that
Congress viewed as anticompetitive in the market at the time.
For example, the Act prohibits local franchising authorities
from granting exclusive franchises to cable operators. See id.
§ 7(a), 106 Stat. at 1483. Similarly, the Act’s “must-carry”
provisions require cable operators to carry a specified number
of local broadcast stations. See id. § 4, 106 Stat. at 1471.
In other parts of the Act, Congress borrowed from
antitrust law, authorizing the FCC to regulate cable operators’
conduct in accordance with antitrust principles. For example,
the Act requires the FCC, when prescribing limits on the
number of cable subscribers or affiliated channels, to take
account of “the nature and market power of the local
franchise.” See id. § 11(c), 106 Stat. at 1488. Similarly, the
Act allows rate regulation only of those cable systems that are
not subject to effective competition. See id. § 3, 106 Stat. at
1464.
4
The provision at issue in this case, Section 616,
incorporates traditional antitrust principles. Section 616 does
not categorically forbid a video programming distributor from
extending preferential treatment to affiliated video
programming networks or lesser treatment to unaffiliated
video programming networks. Rather, to violate Section 616,
a video programming distributor must discriminate among
video programming networks on the basis of affiliation, and
the discrimination must “unreasonably restrain” an
unaffiliated network’s ability to compete fairly. 47 U.S.C.
§ 536(a)(3).
The phrase “unreasonably restrain” is of course a
longstanding term of art in antitrust law. See, e.g., Leegin
Creative Leather Products, Inc. v. PSKS, Inc., 551 U.S. 877,
885 (2007) (“[T]he Court has repeated time and again that § 1
outlaws only unreasonable restraints.”) (internal quotation
marks and alteration omitted); State Oil Co. v. Khan, 522 U.S.
3, 10 (1997) (“Although the Sherman Act, by its terms,
prohibits every agreement ‘in restraint of trade,’ this Court
has long recognized that Congress intended to outlaw only
unreasonable restraints.”); Business Electronics Corp. v.
Sharp Electronics Corp., 485 U.S. 717, 723 (1988) (“Since
the earliest decisions of this Court interpreting [Section 1 of
the Sherman Act], we have recognized that it was intended to
prohibit only unreasonable restraints of trade.”).
When a statute uses a term of art from a specific field of
law, we presume that Congress adopted “the cluster of ideas
that were attached to each borrowed word in the body of
learning from which it was taken.” FAA v. Cooper, 132 S. Ct.
1441, 1449 (2012) (internal quotation mark omitted); see also
Buckhannon Board & Care Home, Inc. v. West Virginia
Department of Health and Human Resources, 532 U.S. 598,
5
615 (2001) (Scalia, J., concurring) (“Words that have
acquired a specialized meaning in the legal context must be
accorded their legal meaning.”); McDermott International,
Inc. v. Wilander, 498 U.S. 337, 342 (1991) (“In the absence of
contrary indication, we assume that when a statute uses such a
term [of art], Congress intended it to have its established
meaning.”); Morissette v. United States, 342 U.S. 246, 263
(1952) (“[A]bsence of contrary direction may be taken as
satisfaction with widely accepted definitions, not as a
departure from them.”); ANTONIN SCALIA & BRYAN A.
GARNER, READING LAW: THE INTERPRETATION OF LEGAL
TEXTS 73 (2012) (where “a word is obviously transplanted
from another legal source, . . . it brings the old soil with it”)
(internal quotation mark omitted); cf. FTC v. Phoebe Putney
Health System, Inc., 133 S. Ct. 1003, 1015 (2013) (reading
statute “in light of our national policy favoring competition”).
From the “term of art” canon and Section 616’s use of the
antitrust term of art “unreasonably restrain,” it follows that
Section 616 incorporates antitrust principles governing
unreasonable restraints.
So what does antitrust law tell us? In antitrust law,
certain activities are considered per se anticompetitive.
Otherwise, however, conduct generally can be considered
unreasonable only if a firm, or multiple firms acting in
concert, have market power. See Leegin Creative Leather
Products, 551 U.S. at 885-86; Copperweld Corp. v.
Independence Tube Corp., 467 U.S. 752, 775 (1984); see also
Standard Oil Co. v. United States, 283 U.S. 163, 179 (1931).
This case involves vertical integration and vertical
contracts. Beginning in the 1970s (well before the 1992
Cable Act), the Supreme Court has recognized the legitimacy
6
of vertical integration and vertical contracts by firms without
market power. See, e.g., Leegin Creative Leather Products,
551 U.S. 877; State Oil Co., 522 U.S. 3; Business Electronics,
485 U.S. 717; Continental T. V., Inc. v. GTE Sylvania Inc.,
433 U.S. 36 (1977). Vertical integration and vertical
contracts become potentially problematic only when a firm
has market power in the relevant market. That’s because,
absent market power, vertical integration and vertical
contracts are procompetitive. 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. See Douglas H. Ginsburg, Vertical Restraints:
De Facto Legality Under the Rule of Reason, 60 ANTITRUST
L.J. 67, 76 (1991) (“Antitrust law is a bar to the use of vertical
restraints only in markets in which there is no apparent
interbrand competition to protect consumers from a
potentially welfare-decreasing restraint on intrabrand
competition.”); Dennis L. Weisman & Robert B. Kulick,
Price Discrimination, Two-Sided Markets, and Net Neutrality
Regulation, 13 TUL. J. TECH. & INTELL. PROP. 81, 99 (2010)
(“[M]onopoly power in one market is a necessary condition
for anticompetitive effects in almost all models of
anticompetitive vertical integration.”); see also 3B PHILLIP E.
AREEDA & HERBERT HOVENKAMP, ANTITRUST LAW ¶ 756a, at
9 (3d ed. 2008) (vertical integration “is either competitively
neutral or affirmatively desirable because it promotes
efficiency”); ROBERT H. BORK, THE ANTITRUST PARADOX
226 (1978) (“vertical integration is indispensable to the
realization of productive efficiencies”).
Not surprisingly given its procompetitive characteristics,
vertical integration and vertical contracts are common and
accepted practices in the American economy: Apple’s
7
iPhones contain integrated hardware and software, Dunkin’
Donuts sells Dunkin’ Donuts coffee, Ford produces radiators
for its cars, McDonalds sells Big Macs, Nike stores are
stocked with Nike shoes, Netflix owns “House of Cards,” and
so on. As Professors Areeda and Hovenkamp have explained,
vertical integration “is ubiquitous in our economy and
virtually never poses a threat to competition when undertaken
unilaterally and in competitive markets.” 3B AREEDA &
HOVENKAMP, ANTITRUST LAW ¶ 755c, at 6.
Following the lead of the Supreme Court and influential
academic literature on which the Supreme Court has relied in
the antitrust field, this Court’s case law has stated that vertical
integration and vertical contracts are procompetitive, at least
absent market power. See Cablevision Systems Corp. v. FCC,
649 F.3d 695, 721 (D.C. Cir. 2011) (vertical integration is
“not always pernicious and, depending on market conditions,
may actually be procompetitive”); National Fuel Gas Supply
Corp. v. FERC, 468 F.3d 831, 840 (D.C. Cir. 2006) (“We
began by emphasizing that vertical integration creates
efficiencies for consumers.”); Tenneco Gas v. FERC, 969
F.2d 1187, 1201 (D.C. Cir. 1992) (“[A]dvantages a pipeline
gives its affiliate are improper only to the extent that they
flow from the pipeline’s anti-competitive market power.
Otherwise vertical integration produces permissible
efficiencies that cannot by themselves be considered uses of
monopoly power.”) (internal quotation marks omitted); see
also Cablevision Systems Corp. v. FCC, 597 F.3d 1306, 1325
(D.C. Cir. 2010) (Kavanaugh, J., dissenting) (“At least unless
a company possesses market power in the relevant market,
vertical integration and exclusive vertical contracts are not
anti-competitive; on the contrary, such arrangements are
‘presumptively procompetitive.’”) (quoting 11 HERBERT
HOVENKAMP, ANTITRUST LAW ¶ 1803, at 100 (2d ed. 2005)).
8
Now back to Section 616: Because Section 616
incorporates antitrust principles and because antitrust law
holds that vertical integration and vertical contracts are
potentially problematic only when a firm has market power in
the relevant market, it follows that Section 616 applies only
when a video programming distributor has market power in
the relevant market. 1 Section 616 thus does not bar vertical
integration or vertical contracts that favor affiliated video
programming networks, absent a showing that the video
programming distributor at least has market power in the
relevant market. To conclude otherwise would require us to
depart from the established meaning of the term of art
“unreasonably restrain” that Section 616 uses. Moreover, to
conclude otherwise would require us to believe that Congress
intended to thwart procompetitive practices. It would of
course make little sense to attribute that motivation to
Congress.
How, then, did the FCC reach the opposite conclusion in
this case? The short answer is that the FCC badly misread the
statute. Contrary to the plain language of Section 616, the
FCC stated that the term “unreasonably” modified
“discriminating” not “restrain” – even though Section 616
1
Section 616 and the Cable Act provisions that incorporate
antitrust principles are not merely redundant of antitrust law. To be
sure, the Federal Trade Commission and the U.S. Department of
Justice Antitrust Division enforce federal antitrust laws, and private
citizens may bring civil antitrust suits as well. But in the Cable
Act, Congress authorized a separate enforcement agency, the FCC,
to regulate certain practices of cable operators. For that reason,
even Cable Act provisions such as Section 616 that mirror existing
antitrust proscriptions serve an important regulatory purpose, akin
to adding new police officers to enforce an existing law.
9
says it applies only to discriminatory conduct that
“unreasonably restrain[s]” the ability of a competitor to
compete fairly. See Order ¶¶ 43, 85-86. Because the FCC did
not read Section 616 as written, it did not recognize the
antitrust term of art “unreasonably restrain” that is apparent
on the face of the statute. That erroneous reading of the text,
in turn, led the FCC to mistakenly focus on the effects of
Comcast’s conduct on a competitor (the Tennis Channel)
rather than on overall competition. See id. ¶¶ 83-85. 2 That
was a mistake because the goal of antitrust law (and thus of
Section 616) is to promote consumer welfare by protecting
competition, not by protecting individual competitors. See,
e.g., NYNEX Corp. v. Discon, Inc., 525 U.S. 128, 135 (1998)
(Sherman Act plaintiff “must allege and prove harm, not just
to a single competitor, but to the competitive process, i.e., to
competition itself”); Spectrum Sports, Inc. v. McQuillan, 506
U.S. 447, 458 (1993) (“The purpose of the [Sherman] Act is
not to protect businesses from the working of the market; it is
to protect the public from the failure of the market.”);
Brunswick Corp. v. Pueblo Bowl-O-Mat, Inc., 429 U.S. 477,
488 (1977) (“The antitrust laws . . . were enacted for the
protection of competition, not competitors.”) (internal
quotation marks omitted); see also AREEDA & HOVENKAMP,
ANTITRUST LAW ¶ 755c, at 6 (“[E]ven competitively harmless
vertical integration can injure rivals or vertically related firms,
but such injuries are not the concern of the antitrust laws.”).
It is true that Section 616 references discrimination
against competitors. But again, the statute does not ban such
2
Because the FCC’s Order never actually interpreted the
phrase “unreasonably restrain,” we would have to remand even if
we thought Section 616 reasonably could be applied to video
programming distributors without market power. See SEC v.
Chenery Corp., 318 U.S. 80 (1943).
10
discrimination outright. It bans discrimination that
unreasonably restrains a competitor from competing fairly.
By using the phrase “unreasonably restrain,” the statute
incorporates an antitrust term of art, and that term of art
requires that the discrimination in question hinder overall
competition, not just competitors.
In sum, Section 616 targets instances of preferential
program carriage that are anticompetitive under the antitrust
laws. Section 616 thus may apply only when a video
programming distributor possesses market power in the
relevant market. Comcast has only about a 24% market share
in the national video programming distribution market; it does
not possess market power in the market considered by the
FCC in this case. See Order ¶ 87. 3 Therefore, the FCC erred
in finding that Comcast violated Section 616.
II
To the extent there is uncertainty about whether the
phrase “unreasonably restrain” in Section 616 means that the
statute applies only in cases of market power or instead may
have a broader reach, we must construe the statute to avoid
“serious constitutional concerns.” Edward J. DeBartolo
Corp. v. Florida Gulf Coast Building & Construction Trades
Council, 485 U.S. 568, 577 (1988); see also Solid Waste
Agency of Northern Cook County v. Army Corps of
Engineers, 531 U.S. 159, 172 (2001). 4 That canon strongly
3
In some local geographic markets around the country, a video
programming distributor may have market power. This case does
not call upon us to consider how Section 616 would apply to
discrimination against unaffiliated networks in such local markets.
4
There is some debate about how serious the statute’s
constitutional questions must be, and indeed whether the statute
11
supports limiting Section 616 to cases of market power.
Applying Section 616 to a video programming distributor that
lacks market power would raise serious First Amendment
questions under the Supreme Court’s case law. Indeed,
applying Section 616 to a video programming distributor that
lacks market power would violate the First Amendment as it
has been interpreted by the Supreme Court.
To begin with, the Supreme Court has squarely held that
a video programming distributor such as Comcast both
engages in and transmits speech, and is therefore protected by
the First Amendment. See Turner Broadcasting System, Inc.
v. FCC, 512 U.S. 622, 636 (1994). Just as a newspaper
exercises editorial discretion over which articles to run, a
video programming distributor exercises editorial discretion
over which video programming networks to carry and at what
level of carriage.
It is true that, under the Supreme Court’s precedents,
Section 616’s impact on a cable operator’s editorial control is
content-neutral and thus triggers only intermediate scrutiny
rather than strict scrutiny. See id. at 642-43. But the Supreme
Court’s case law applying intermediate scrutiny in this
context provides that the Government may interfere with a
video programming distributor’s editorial discretion only
when the video programming distributor possesses market
power in the relevant market.
otherwise must be unconstitutional, for the avoidance doctrine to
apply. See generally Richard A. Posner, Statutory Interpretation –
in the Classroom and in the Courtroom, 50 U. CHI. L. REV. 800,
816 (1983) (criticizing the avoidance doctrine as a “judge-made
constitutional ‘penumbra’”). That debate is irrelevant to my
analysis here because I have concluded that it would indeed be
unconstitutional to apply Section 616 absent market power.
12
In its 1994 decision in Turner Broadcasting, the Supreme
Court ruled that the Cable Act’s must-carry provisions might
satisfy intermediate First Amendment scrutiny, but the Court
rested that conclusion on “special characteristics of the cable
medium: the bottleneck monopoly power exercised by cable
operators and the dangers this power poses to the viability of
broadcast television.” Id. at 661. When a cable operator has
bottleneck power, the Court explained, it can “silence the
voice of competing speakers with a mere flick of the switch.”
Id. at 656. In subsequently upholding the must-carry
provisions, the Court reiterated that cable’s bottleneck
monopoly power was critical to the First Amendment
calculus. See Turner Broadcasting System, Inc. v. FCC, 520
U.S. 180, 197-207 (1997) (controlling opinion of Kennedy,
J.). 5 The Court stated that “cable operators possess[ed] a
local monopoly over cable households,” with only one
percent of communities being served by more than one cable
operator. Id. at 197.
In 1996, when this Court upheld the Cable Act’s
exclusive-contract provisions against a First Amendment
challenge, we likewise pointed to the “special characteristics”
of the cable industry. See Time Warner Entertainment Co. v.
FCC, 93 F.3d 957 (D.C. Cir. 1996). Essential to our decision
were “both the bottleneck monopoly power exercised by cable
operators and the unique power that vertically integrated
5
In the 1997 Turner Broadcasting case, Justice Kennedy’s
opinion represented the “position taken by those Members who
concurred in the judgment[] on the narrowest grounds.” See Marks
v. United States, 430 U.S. 188, 193 (1977) (internal quotation mark
omitted). That opinion’s evaluation of anticompetitive behavior
and the significance of bottleneck power analytically lay between
that of Justice Breyer’s concurring opinion on the one hand and the
dissent on the other.
13
companies have in the cable market.” Id. at 978 (internal
quotation marks and citation omitted).
But in the 16 years since the last of those cases was
decided, the video programming distribution market has
changed dramatically, especially with the rapid growth of
satellite and Internet providers. This Court has previously
described the massive transformation, explaining that cable
operators “no longer have the bottleneck power over
programming that concerned the Congress in 1992.” Comcast
Corp. v. FCC, 579 F.3d 1, 8 (D.C. Cir. 2009); see also
Cablevision Systems Corp. v. FCC, 597 F.3d 1306, 1324
(D.C. Cir. 2010) (Kavanaugh, J., dissenting) (“This radically
changed and highly competitive marketplace – where no cable
operator exercises market power in the downstream or
upstream markets and no national video programming
network is so powerful as to dominate the programming
market – completely eviscerates the justification we relied on
in Time Warner for the ban on exclusive contracts.”);
Christopher S. Yoo, Vertical Integration and Media
Regulation in the New Economy, 19 YALE J. ON REG. 171, 229
(2002) (“It thus appears that the national market for MVPDs
is already too unconcentrated to support the conclusion that
vertical integration could have any anti-competitive effects.”).
In today’s highly competitive market, neither Comcast
nor any other video programming distributor possesses
market power in the national video programming distribution
market. To be sure, beyond an interest in policing
anticompetitive behavior, the FCC may think it preferable
simply as a communications policy matter to equalize or
enhance the voices of various entertainment and sports
networks such as the Tennis Channel. But as the Supreme
Court stated in one of the most important sentences in First
14
Amendment history, “the concept that government may
restrict the speech of some elements of our society in order to
enhance the relative voice of others is wholly foreign to the
First Amendment.” Buckley v. Valeo, 424 U.S. 1, 48-49
(1976).
Therefore, under these circumstances, the FCC cannot
tell Comcast how to exercise its editorial discretion about
what networks to carry any more than the Government can
tell Amazon or Politics and Prose or Barnes & Noble what
books to sell; or tell the Wall Street Journal or Politico or the
Drudge Report what columns to carry; or tell the MLB
Network or ESPN or CBS what games to show; or tell
SCOTUSblog or How Appealing or The Volokh Conspiracy
what legal briefs to feature.
In light of the Supreme Court’s precedents interpreting
the First Amendment and the massive changes to the video
programming distribution market over the last two decades,
the FCC’s interference with Comcast’s editorial discretion
cannot stand. In restricting the editorial discretion of video
programming distributors, the FCC cannot continue to
implement a regulatory model premised on a 1990s snapshot
of the cable market.
The Supreme Court’s precedents amply demonstrate that
the FCC’s interpretation of Section 616 violates the First
Amendment. At a minimum, the Supreme Court’s precedents
raise serious First Amendment questions about the FCC’s
interpretation of Section 616. Under the constitutional
avoidance canon, those serious constitutional questions
require that we construe Section 616 to apply only when a
video programming distributor possesses market power.
15
***
The FCC erred in concluding that Section 616 may apply
to a video programming distributor without market power.
For that reason, in addition to the reasons given by the Court,
the FCC’s Order cannot stand.
EDWARDS, Senior Circuit Judge, concurring: I concur in
Judge Williams’ cogent opinion for the court. It is clear from
the record that, even accepting the FCC’s interpretation of
Section 616, there is no substantial evidence of unlawful
discrimination to support the Commission’s decision in this
case. I write separately because I believe that Tennis
Channel’s complaint was untimely filed under the applicable
statute of limitations encoded in 47 C.F.R. § 76.1302(f)
(2010). I would rest on this ground alone if the statute of
limitations requirements were jurisdictional, but they are not.
Nonetheless, the issues raised by the statute of limitations
issue are, in my view, very important because they highlight
the agency’s failure to give fair notice to regulated parties of
the rules governing the filing of complaints under Section
616. And, as explained below, the FCC’s current
interpretation of subsection 76.1302(f)(3) is not only
incomprehensible but it fails to credit the sanctity of the
parties’ contractual commitments. Hopefully, these matters
will be addressed in the FCC’s pending rulemaking. See In re
Revision of the Commission’s Program Carriage Rules,
Notice of Proposed Rulemaking, 26 FCC Rcd. 11494, 11522-
23, ¶¶ 38-39, 2011 WL 3279328 (Aug. 1, 2011).
________________________
As explained in the opinion for the court, this case
involves a complaint filed in 2010 by Tennis Channel, a
sports programming network, with the Federal
Communications Commission (“FCC” or “Commission”)
against Comcast Cable Communications, LLC (“Comcast”), a
multichannel video programming distributor (“MVPD”). The
complaint alleged that Comcast had discriminated against
Tennis Channel, in violation of Section 616 of the
Communications Act of 1934, 47 U.S.C. § 536(a)(3), when it
declined to distribute Tennis Channel as broadly as Golf
Channel and Versus, sports networks owned by Comcast.
2
After launching in 2003, Tennis Channel sought carriage
on Comcast’s “Sports Tier,” a package of sports networks that
are accessible to Comcast subscribers for an added fee. Tennis
Channel and Comcast executed a carriage contract in 2005
pursuant to which Comcast retained unfettered authority to
distribute Tennis Channel on any tier. Comcast elected to
carry Tennis Channel on its Sports Tier. At the time when
Tennis Channel entered into its contract with Comcast, Golf
Channel and Versus were affiliated with Comcast and both
networks were carried on more broadly distributed tiers. In
2006 and 2007, Tennis Channel offered Comcast and other
MVPDs equity in exchange for broader carriage. Comcast and
several other MVPDs declined. In 2009, Tennis Channel
again asked Comcast to move it to a tier with broader
distribution than the Sports Tier. The two parties discussed
the possibility. After unproductive discussions, Tennis
Channel broke off negotiations. In the end, Comcast (and
other MVPDs as well) rejected Tennis Channel’s requests for
broader carriage. In 2010, all major MVPDs – including
Tennis Channel’s partial owners, DirecTV and Dish Network
– distributed Tennis Channel less broadly than Golf Channel
and Versus.
After Comcast elected to stand on its contract rights and
declined to distribute Tennis Channel more broadly, Tennis
Channel filed a carriage complaint against Comcast under
Section 616. The complaint alleged that Comcast
discriminated against Tennis Channel on the basis of
affiliation by distributing it more narrowly than Golf Channel
and Versus. The Commission’s Media Bureau rejected
Comcast’s statute-of-limitations defense on the pleadings and
set the matter for a hearing before an Administrative Law
Judge (“ALJ”). The ALJ issued an Initial Decision finding
that Comcast had violated Section 616. In a 3-2 split decision,
the FCC upheld the Media Bureau’s denial of Comcast’s
statute of limitations defense and affirmed the ALJ’s
3
judgment on the merits against Comcast. See Tennis Channel,
Inc. v. Comcast Cable Commc’ns, LLC (“Order”),
Memorandum Opinion and Order, 27 FCC Rcd. 8508, 2012
WL 3039209 (July 24, 2012).
In its petition for review, Comcast raises three principal
claims. First, Comcast contends that Tennis Channel’s
complaint should have been dismissed as untimely. Second,
Comcast argues that the Commission’s Order misconstrues
and misapplies Section 616. Finally, Comcast contends that
the FCC’s Order violates the First Amendment because it
impermissibly regulates Comcast’s speech based on its
content. I will focus solely on the first contention, i.e., that
Tennis Channel’s complaint was filed out of time.
FCC regulations state that “[a]ny complaint . . . must be
filed within one year of the date on which . . . (1) The
multichannel video programming distributor enters into a
contract with a video programming distributor that a party
alleges to violate one or more of the rules contained in this
section.” 47 C.F.R. § 76.1302(f)(1) (2010). Tennis Channel
entered into its contract with Comcast in 2005; however, it did
not file a complaint until 2010 – long after the one-year
limitations period had expired. As Comcast notes, “[t]he
parties’ contract allows Comcast to carry Tennis Channel on
any tier that Comcast chooses. By seeking an order that
compels Comcast to carry it more broadly, Tennis Channel is
attempting to rewrite the terms of the contract. Permitting
Tennis Channel to reopen the limitations period for that
contract-based claim at any time – simply by making a
pretextual demand for broader carriage – would . . . directly
contradict the entire purpose of the statute of limitations.” Br.
for Pet’r at 58-59. I agree.
The FCC’s Order says that the applicable limitations
period is governed by 47 C.F.R. § 76.1302(f)(3), which states
that “[a]ny complaint . . . must be filed within one year of the
4
date on which . . . (3) A party has notified a multichannel video
programming distributor that it intends to file a complaint with
the Commission based on violations of one or more of the rules
contained in this section.” According to the FCC, Tennis
Channel’s complaint was timely under (f)(3) because Tennis
Channel filed it “within one year of notifying Comcast of its
intent to do so.” Order, 27 FCC Rcd. at 8520 ¶ 30. I can find
no merit in this position. As Comcast properly observes, the
FCC’s “approach not only rewrites the statute of limitations,
but also nullifies it by allowing a party to a carriage contract to
bring suit at any time.” Br. for Pet’r at 58.
Tennis Channel’s complaint seeks to modify the terms of
the parties’ contract by demanding that Comcast move it to a
tier with broader distribution. Tennis Channel has no right
under the contract to pursue this demand and Comcast has no
obligation to accede to it. Tennis Channel’s complaint thus
raises a claim that the contract provisions giving Comcast
unfettered authority to determine whether to carry Tennis
Channel on its Sports Tier or some other tier violate Section
616. Therefore, under subsection (f)(1), Tennis Channel had
one year from the date of contract formation to file its
complaint. Because Tennis Channel’s 2010 complaint was
filed well beyond a year after contract formation, the
complaint was time-barred. The FCC’s purported application
of subsection (f)(3), in lieu of subsection (f)(1), flies in the
face of the Commission’s longstanding interpretation of 47
C.F.R. § 76.1302(f). The FCC has repeatedly explained that
subsection (f)(3) applies only in cases where an MVPD denies
or refuses to acknowledge a request to negotiate for carriage,
which is not what happened in this case. The FCC was not
free to simply abandon its longstanding construction of
subsection (f)(3) without notice-and-comment rulemaking.
Alaska Prof’l Hunters Ass’n, Inc. v. FAA, 177 F.3d 1030,
1033-36 (D.C. Cir. 1999); see also Christopher v. SmithKline
Beecham Corp., 132 S. Ct. 2156, 2167 (2012) (holding that
5
agencies must provide “fair warning of the conduct a
regulation prohibits or requires”).
I. Background
A. The Statutory and Regulatory Framework
The Cable Television Consumer Protection and
Competition Act of 1992, PUB. L. NO. 102-385, § 12, 106
Stat. 1460, 1488 (1992), added Section 616 to the
Communications Act of 1934. Section 616 requires the FCC
to issue regulations “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.”
47 U.S.C. § 536(a)(3). The Commission’s regulations define
“affiliated” as an MVPD “ha[ving] an attributable interest” in
the network. 47 C.F.R. § 76.1300(a)-(b). As noted above, the
regulations also establish a statute of limitations for Section
616 complaints. The applicable regulations state:
(f) Time limit on filing of complaints. Any
complaint filed pursuant to this subsection must be filed
within one year of the date on which one of the following
events occurs:
(1) The multichannel video programming
distributor enters into a contract with a video
programming distributor that a party alleges to violate
one or more of the rules contained in this section; or
(2) The multichannel video programming
distributor offers to carry the video programming
vendor’s programming pursuant to terms that a party
alleges to violate one or more of the rules contained in
this section, and such offer to carry programming is
6
unrelated to any existing contract between the
complainant and the multichannel video programming
distributor; or
(3) A party has notified a multichannel video
programming distributor that it intends to file a complaint
with the Commission based on violations of one or more
of the rules contained in this section.
47 C.F.R. § 76.1302(f). The FCC recodified subsection
76.1302(f) as subsection 76.1302(h) in 2012 without any
substantive change. For the sake of consistency with the
parties’ briefing and the FCC’s Order, I will refer to
subsection 76.1302(f).
B. Facts and Procedural History
Comcast is the largest MVPD in the United States. It
offers cable television programming to its subscribers in
several different distribution “tiers” – i.e., packages of
programming services – at different prices. Core
programming is contained in Comcast’s “Expanded Basic
Tier,” or its digital counterpart, the “Digital Starter Tier,”
which are its mostly widely distributed tiers. The more
expensive “Digital Preferred Tier” provides customers with
access to additional networks and is Comcast’s second most
widely-distributed tier. Comcast’s Sports and Entertainment
Package (“Sports Tier”) consists of a package of sports-
related networks and is available to Comcast subscribers for
an additional fee. The Sports Tier is not as widely distributed
as the Expanded Basic, Digital Starter, and Digital Preferred
tiers.
Golf Channel and Versus are cable sports networks that
were launched in 1995. Versus was known as the Outdoor
Life Network when it launched and is now known as NBC
Sports Network. (For the sake of consistency with the parties’
7
briefing and the FCC’s Order, I will refer to the network as
Versus.) Golf Channel provides coverage of golf tournaments
and other golf-related programming. Versus provides
coverage of numerous sports, including hockey, college
football and basketball, lacrosse, hunting, and fishing. Both
networks paid substantial sums beginning in 1995 to induce
MVPDs, including Comcast, to distribute them broadly. Both
networks are generally carried on Comcast’s Digital Starter or
Expanded Basic tiers. Comcast owned a minority interest in
Golf Channel and Versus when they launched in 1995 and
subsequently became the controlling owner of both networks.
Tennis Channel, a network that provides tennis-related
programming, launched in 2003. The evidence in the record
indicates that, by that time, “it was more difficult for new
networks to obtain broad distribution than in 1995 because the
associated costs for cable operators had increased and because
competition from satellite and telephone providers had
reduced cable operators’ ability to absorb those costs.” Br. for
Pet’r at 7 (citing Joint Appendix 422-25, 519-22). In 2005,
Tennis Channel and Comcast entered into a carriage contract
reserving to Comcast the right to choose on which tier to
carry the network. Comcast chose to carry, and still carries,
Tennis Channel on its Sports Tier. Tennis Channel negotiated
agreements with other MVPDs that granted similar rights with
respect to the network’s level of carriage.
In 2006 and 2007, Tennis Channel offered Comcast and
other MVPDs equity in exchange for broader carriage. Two
satellite companies – DirecTV and Dish Network – accepted
that offer, became partial owners of Tennis Channel, and
increased their distribution of the network. But Comcast and
at least one other MVPD declined the offer. In 2009, Tennis
Channel presented Comcast with two proposals for broader
distribution on Comcast’s Digital Starter or Digital Preferred
tiers. Comcast argues that it saw no economic benefit in
8
Tennis Channel’s proposals, and Tennis Channel broke off
negotiations in June 2009. Tennis Channel’s tier placement
position vis-à-vis Golf Channel and Versus was the same in
2010 as it had been in 2005 when Comcast and Tennis
Channel executed their carriage contract. Indeed, as noted
above, in 2010, all major MVPDs – including DirecTV and
Dish Network – distributed Golf Channel and Versus more
broadly than Tennis Channel.
In December 2009, Tennis Channel notified Comcast of
its intent to file a Section 616 complaint. In January 2010,
Tennis Channel filed its complaint asserting that it was
necessitated by Comcast’s discriminatory refusal to
provide Tennis Channel with the broader carriage that it
provides to the similarly situated sports networks it owns
(such as the Golf Channel and Versus) and that is
otherwise appropriate in light of Tennis Channel’s
quality and performance.
Compl. at i. The FCC’s Media Bureau rejected Comcast’s
argument that the complaint was time-barred and referred to
the matter to an ALJ. The Tennis Channel, Inc. v. Comcast
Cable Commc’ns LLC, Hearing Designation Order, 25 FCC
Rcd. 14149, 2010 WL 3907080 (Oct. 5, 2010). After a six-
day hearing, the ALJ found that Comcast had violated Section
616 and ordered Comcast to carry Tennis Channel “at the
same level of distribution” as Golf Channel and Versus.
Tennis Channel, Inc. v. Comcast Cable Commc’ns, LLC,
Initial Decision, 26 FCC Rcd. 17160, 2011 WL 6416431
(Dec. 20, 2011). Comcast appealed to the full Commission,
which ruled 3-2 to reject Comcast’s statute-of-limitations
defense and uphold most of the ALJ’s decision. Tennis
Channel, Inc. v. Comcast Cable Commc’ns, LLC, (“Order”),
Memorandum Opinion and Order, 27 FCC Rcd. 8508, 2012
WL 3039209 (July 24, 2012). After Comcast filed a petition
9
for review with this court, we granted its motion to stay the
Order pending our final decision in this case.
II. Analysis
The parties agree that Tennis Channel’s complaint must
be dismissed if it was untimely. Comcast contends that the
complaint should have been dismissed pursuant to 47 C.F.R.
§ 76.1302(f)(1). The FCC, however, concluded that the
applicable statute of limitations was governed by 47 C.F.R.
§ 76.1302(f)(3). Order, 27 FCC Rcd. at 8519-22 ¶¶ 28-34.
The agency found that Tennis Channel’s complaint was
timely because it was filed in January 2010, one month after
Tennis Channel notified Comcast of its intent to file and
seven months after Comcast declined Tennis Channel’s
demand to relocate to a different distribution tier. Id. at 8519-
20 ¶ 30 & n.105.
Comcast is right that the FCC’s application of the statute
of limitations in this case cannot be reconciled with the
agency’s original and consistent view that subsection (f)(3)
only applies where a “defendant unreasonably refuses to
negotiate [for carriage] with [a] complainant.” 1998 Biennial
Regulatory Review – Part 76 – Cable Television Service
Pleading and Complaint Rules (“1999 Order on
Reconsideration”), Order on Reconsideration, 14 FCC Rcd.
16433, 16435 ¶ 5, 1999 WL 766253 (Sept. 29, 1999). The
FCC concedes that Tennis Channel’s complaint is time-barred
under this interpretation of the rule. See Br. for Resp’ts at 64
(“[T]he rule as originally promulgated was limited to denials
or to refusals to negotiate for carriage . . . .”). The
Commission has never properly amended the statute of
limitations regulations to embrace the interpretation that it
now advances. It is therefore clear that Tennis Channel filed
its complaint out of time.
10
A. Standard of Review
The governing law makes it plain that this court owes no
deference to the Commission’s current interpretation of 47
C.F.R. § 76.1302(f)(3). A court “must defer to [an agency’s]
interpretation [of a regulation] unless an alternative reading is
compelled by . . . indications of the [agency’s] intent at the
time of the regulation’s promulgation.” Thomas Jefferson
Univ. v. Shalala, 512 U.S. 504, 512 (1994). An agency’s
interpretation of its own regulation is entitled to no deference
if it has, “under the guise of interpreting a regulation,
[created] de facto a new regulation,” Christensen v. Harris
Cnty., 529 U.S. 576, 588 (2000), or subjected a party to
“unfair surprise,” Christopher, 132 S. Ct. at 2166-70. See also
Akzo Nobel Salt, Inc. v. Fed. Mine Safety & Health Review
Comm’n, 212 F.3d 1301, 1304-05 (D.C. Cir. 2000) (holding
that deference is inappropriate when the agency “flip-flops,”
offering a litigation position that differs from interpretations
previously adopted by the agency, or when the agency offers
contradictory interpretations on appeal). If an agency’s
present interpretation of a regulation would essentially amend
the contested regulation, then the modification can only be
made in accordance with the notice and comment
requirements of the APA. Alaska Prof’l Hunters, 177 F.3d at
1033-36.
B. The Applicable Statute of Limitations
1. Regulatory History of the Statute of Limitations
The FCC promulgated the statute of limitations for
Section 616 complaints in 1993, pursuant to notice-and-
comment rulemaking, as part of its original implementation of
Section 616. See Implementation of Sections 12 and 19 of the
Cable Television Consumer Protection and Competition Act
of 1992 – Development of Competition and Diversity in Video
Programming Distribution and Carriage, Second Report and
11
Order, 9 FCC Rcd. 2642, 2652-53 ¶ 25, 1993 WL 433631
(Oct. 22, 1993). Subsection (f)(3), as originally promulgated,
read as follows:
Any complaint filed pursuant to this subsection must be
filed within one year of the date on which one of the
following events occurs . . . (3) the complainant has
notified a multichannel video programming distributor
that it intends to file a complaint with the Commission
based on a request for carriage or to negotiate for
carriage of its programming on defendant’s distribution
system that has been denied or unacknowledged,
allegedly in violation of one or more of the rules
contained in this subpart.
Id. at 2676. Thus, as promulgated, subsection (f)(3) plainly
applied only when an MVPD denied or refused to
acknowledge a request to negotiate for carriage. The FCC
does not dispute that the complaint in this case is untimely
under the regulation as written in 1993. Br. for Resp’ts at 64.
Therefore, if the Commission has never acted to modify the
substance of the regulation since its promulgation in 1993 it
follows a fortiori that Tennis Channel’s complaint is
untimely. A review of this regulation’s history shows that the
substance of subsection (f)(3) never has been amended by the
Commission to give it the meaning that the agency now seeks
to ascribe to it.
1994 Amendment: In 1994, the FCC issued an order in
response to an industry group petition for partial
reconsideration of the Section 616 regulations. See
Implementation of the Cable Television Consumer Protection
and Competition Act of 1992 Development of Competition
and Diversity in Video Programming Distribution and
Carriage (“1994 Amendment”), Memorandum Opinion and
Order, 9 FCC Rcd. 4415, 1994 WL 414309 (Aug. 5, 1994).
The petitioners in that action “contend[ed] that Section
12
76.1302 . . . [was] too narrowly drafted because it [did] not
specifically afford standing to file a complaint to any MVPD
aggrieved by a violation of Section 616. Petitioners urge[d]
the Commission to amend the scope of Section 76.1302 to
affirmatively afford standing to file a complaint to any third
party MVPD aggrieved by carriage agreements between other
MVPDs and programming vendors that violate Section 616.”
Id. at 4416 ¶ 8. The FCC accepted the suggestion and
amended several regulatory provisions to achieve the end
sought. Subsection (f)(3) was edited in the following ways:
Any complaint filed pursuant to this subsection
paragraph must be filed within one year of the date on
which one of the following events occurs . . . (3) the
complainant A party has notified a multichannel video
programming distributor that it intends to file a complaint
with the Commission based on a request for carriage or
to negotiate for carriage of its programming on
defendant’s distribution system that has been denied or
unacknowledged, allegedly in violations of one or more
of the rules contained in this subpart section.
Cable TV Act of 1992 – Development of Competition and
Diversity in Video Programming; Distribution and Carriage,
59 Fed. Reg. 43,776-01, 43,777-78 (Aug. 25, 1994)
(strikethrough and emphasis added).
The language deleted from subsection (f)(3) was excised
solely to avoid any suggestion that (f)(3) was meant to
reference only complaints by video programmers. There is
nothing in the Commission’s 1994 action to suggest that the
agency meant to make any substantive change to subsection
(f)(3) beyond allowing for broader standing for MVPDs.
Quite the contrary. The Memorandum Opinion and Order
expressly states that the sole purpose of the regulatory edits
was to afford standing to file a Section 616 complaint to any
13
third party MVPD aggrieved by carriage agreements between
other MVPDs and programming vendors:
The Commission has determined that it is in the public
interest to grant [the] petition and to amend our
implementing rules to specifically afford standing to
MVPDs to file complaints under Section 616 of the 1992
Cable Act.
1994 Amendment, 9 FCC Rcd. 4418-19 ¶ 24. The FCC also
stated that the same procedural rules would apply to
complaints filed by MVPDs. Id. at 4419 ¶ 24 n.47 (“As noted
in the [original implementation], a one-year statute of
limitations will be applied to program carriage complaints.”).
1999 Order on Reconsideration: Any questions about
the meaning of subsection (f)(3) following the 1994 edits
were answered in 1999. As part of its 1998 biennial
regulatory review process, the Commission issued a Report
and Order after notice and comment to “reorganize and
simplify the Commission’s Part 76 Cable Television Service
pleading and complaint process rules.” 1998 Biennial
Regulatory Review – Part 76 – Cable Television Service
Pleading and Complaint Rules, Report and Order, 14 FCC
Rcd. 418, 418 ¶ 1, 1999 WL 377764 (Jan. 8, 1999). The
Commission subsequently issued an order denying a petition
for reconsideration of these changes filed by EchoStar
Communications Corporation. 1999 Order on
Reconsideration, 14 FCC Rcd. 16433. The order is relevant
here because it carefully explains the statute of limitations for
Section 616 complaints.
Tellingly, as can be seen in the block-quoted passage
below, the Commission’s 1999 Order on Reconsideration is
directly contrary to the Commission’s interpretation of 47
C.F.R. § 76.1302(f)(3) in this case:
14
The dispute resolution processes in Part 76 for program
access, program carriage and open video system
complaints follow similar procedural rules that were
designed to achieve an expedient resolution of
complaints. The rules contain three like provisions which
set forth a one year limitations period for bringing
complaints. The rules list three events that trigger the
running of the limitations period: (1) complainant and
defendant enter into a contract alleged to violate the
rules; (2) unrelated to an existing contract, defendant
makes an offer to complainant that allegedly violates the
rules; or (3) defendant unreasonably refuses to negotiate
with complainant. In the Part 76 Order, the Commission
clarified the appropriate interaction between the
limitations period for alleging an existing contract
violates the rules and the limitations period for alleging
that an offer to the complainant violates the rules. . . .
The rules adopted in the Part 76 Order explain that
complaints based on allegedly discriminatory contracts
must be brought within one year of entering into the
contract and that an allegedly discriminatory offer to
amend such contract made more than one year after the
execution thereof does not reopen such contract to
program access liability. For example, in the program
access context, this amendment explains that an offer to
amend an existing contract that has been in effect for
more than one year does not reopen the existing contract
to complaints that the provisions thereof are
discriminatory.
Id. at 16435-36 ¶ 5 (underlining added).
The 1999 Order on Reconsideration thus confirms that
subsection (f)(3) applies only to refusals to negotiate for
carriage and that proposals to amend a carriage contract do
not reset the statute of limitations. This interpretation is
15
perfectly consistent with the regulations as promulgated by
the Commission in 1993. It confirms that the 1994 edits to the
statute of limitations were not intended to alter the substance
of the third trigger, only the scope of who could pursue
Section 616 complaints. And the parties have not directed us
to any further embellishments or clarifications by the
Commission of 47 C.F.R. § 76.1302(f). Indeed, before the
decision in this case, the Commission seems never to have
called into question the regulatory interpretation of subsection
(f)(3) offered in 1993, 1994, and 1999.
2008 Media Bureau Decisions: As noted above, the
Media Bureau rejected Comcast’s statute-of-limitations
defense on the pleadings and set the matter for a hearing on
the merits before an ALJ. The Tennis Channel, Inc. v.
Comcast Cable Commc’ns LLC, Hearing Designation Order,
25 FCC Rcd. 14149, 2010 WL 3907080 (Oct. 5, 2010). In so
doing, the Media Bureau relied on two of its own decisions
from 2008. In these earlier cases, the Media Bureau held that
“Bureau precedent establishes that a complainant may have a
timely program carriage claim in the middle of a contract term
if the basis for the claim is an allegedly discriminatory
decision made by the MVPD, such as tier placement, that the
contract left to the MVPD’s discretion.” Id. at 14158 ¶ 15
(citing NFL Enterprises LLC v. Comcast Cable Commc’ns,
LLC, Hearing Designation Order, 23 FCC Rcd. 14,787, 14820
¶ 70 (Oct. 10, 2008); MASN v. Comcast Corp., Hearing
Designation Order, 23 FCC Rcd. 14,787, 14,834-35 ¶ 105
(Oct. 10, 2008)). Both cases settled before they were heard by
an ALJ and without any appeal to or decision by the
Commission. See id. at 14,156 ¶ 13 n.63.
These Media Bureau decisions are not controlling here
because their reasoning was never affirmed by the
Commission. And, most significantly, the two cited Media
Bureau decisions are directly contrary the Commission’s
16
interpretation of subsection (f)(3) that “an offer to amend an
existing contract that has been in effect for more than one
year does not reopen the existing contract to complaints that
the provisions thereof are discriminatory.” 1999 Order on
Reconsideration, 14 FCC Rcd. at 16436 ¶ 5.
As we explained in Comcast Corp. v. FCC, 526 F.3d 763,
769 (D.C. Cir. 2008), this court follows the “well-established
view that an agency is not bound by the actions of its staff if
the agency has not endorsed those actions.” It is true that “in
the absence of Commission action to the contrary, the Media
Bureau decisions have the force of law. 47 U.S.C.
§ 155(c)(3). But this simply means that those rulings are
binding on the parties to the proceeding. . . . [U]nchallenged
staff decisions are not Commission precedent . . . .” Id. at 770.
Therefore, pursuant to the law of the circuit, it is quite clear
that the 2008 Media Bureau decisions did not in any way
disturb the FCC’s settled treatment of 47 C.F.R. § 76.1302(f).
2. The Commission’s Changed Interpretation of 47
C.F.R. § 76.1302(f)
This regulatory history shows that the FCC had never,
until the Order on review, ascribed to the statute of limitations
the meaning it now claims. And the Commission concedes
that under its longstanding interpretation of 47 C.F.R.
§ 76.1302(f), which it has repeatedly articulated, Tennis
Channel’s complaint in this action is untimely.
Thus, there is much force to Comcast’s assertion that it
had no notice that the Commission would abruptly change its
view of subsection (f)(3) in this case. The problem is
compounded because the Commission’s decision wholly fails
to account for the 1999 Order on Reconsideration. The
decision gives only a cursory response to Comcast’s argument
that the (f)(3) trigger concerns only refusals to deal or similar
conduct, merely stating that
17
we find no support for that view in the text. Comcast
relies upon the fact that the rule was originally
promulgated with this limitation. However, the
Commission removed the limiting language in 1994, and
there is no support for reading it back in notwithstanding
its willful deletion.
Order, 27 FCC Rcd. at 8521 ¶ 32. This response is rather
astonishing in light of the Commission’s explanation of the
1994 edits to the regulation and the 1999 Order on
Reconsideration. As noted above, the Commission made it
clear that the 1994 edits were intended solely to avoid any
suggestion that subsection (f)(3) was meant to reference only
complaints by video programming vendors. And in 1999, the
Commission confirmed that the (f)(3) trigger relates to
situations in which a “defendant unreasonably refuses to
negotiate with [a] complainant,” nothing more. 1999 Order on
Reconsideration, 14 FCC Rcd. at 16435 ¶ 5.
The FCC simply ignores this regulatory history,
obviously because it cannot be squared with the
Commission’s current interpretation of the applicable
regulation. A court need not defer to an agency’s
interpretation of a disputed regulation when an alternative
reading is compelled by “indications of the [agency’s] intent
at the time of the regulation’s promulgation.” Thomas
Jefferson Univ, 512 U.S. at 512. This principle controls the
disposition of this case, for it is undisputed that the
Commission’s current interpretation of the regulation flies in
the face of the agency’s intent at the time of promulgation of
47 C.F.R. § 76.1302(f).
3. Subsection (f)(1) Prescribes the Applicable Statute
of Limitations in This Case
Under subsection (f)(1), the one-year statute of
limitations begins running when an MVPD “enters into a
18
contract with a video programming distributor that a party
alleges to violate [Section 616 and its implementing
regulations].” 47 C.F.R. § 76.1302(f)(1). The Commission
held that subsection (f)(1) was inapplicable here because
“Tennis Channel was not trying to demand a unilateral change
in the existing terms of its contract with Comcast; it was
asking that the existing contract be performed – that Comcast
exercise its contractual discretion – consistent with its
obligations under Section 616.” Order, 27 FCC Rcd. at 8521
¶ 33. This is a perplexing statement, bordering on
oxymoronic.
Under the terms of the carriage contract, Comcast retains
the unfettered right to carry Tennis Channel on a distribution
tier of Comcast’s own choosing. Neither Tennis Channel nor
the Commission argues that Tennis Channel retained an
affirmative right under the contract to demand that Comcast
reconsider its distribution tier. Instead, they argue that
Comcast’s right to assign Tennis Channel to a tier of its
choosing is somehow tantamount to Tennis Channel’s right to
demand that Comcast revisit its initial exercise of that choice.
The FCC’s Order elides this distinction, reasoning that
because Comcast could have reassigned Tennis Channel it
was under an obligation to consider Tennis Channel’s
proposal. But nothing in the parties’ contract supports this
view. Therefore, in demanding “that Comcast exercise its
contractual discretion” to reassign Tennis Channel to a
different tier, Tennis Channel was simply insisting on a
material change in the contract’s terms. Subsection (f)(1) thus
clearly applies, meaning that Tennis Channel’s claim became
time-barred in 2006.
The FCC argues that if it is required to adhere to its
original and longstanding interpretation of 47 C.F.R.
§ 76.1302(f)(3) “a programming network effectively would be
barred from complaining about any carriage-related
19
discrimination occurring more than one year after the
execution of its contract.” Br. for Resp’ts at 67. One need
only consider the record in this case to see that this is a
shallow argument. Tennis Channel was in the same position
relative to the affiliated Golf Channel and Versus networks in
2010 as it was in 2005. That is, Tennis Channel was on a
lower tier than the other two networks in 2005 when it
negotiated the contract affording Comcast unfettered authority
as to its placement and remained so in 2010. Tennis Channel
argues that circumstances had changed by 2010 because its
“quality and performance” had improved since entering into
the contract. Compl. at i. This argument is a classic non
sequitur, however, because the parties’ contract does not
require Comcast to take into account “quality and
performance” in deciding whether to distribute Tennis
Channel more broadly.
Most importantly, the parties’ agreement does not in any
way suggest, as the Commission held, that Comcast is obliged
to “exercise its contractual discretion” in considering whether
to reassign Tennis Channel to a different tier. Indeed, the
word “discretion” does not even appear in the contract
provision that Tennis Channel and the FCC cite. Tennis
Channel introduced this term in its briefing and the
Commission attempts to read it into the carriage agreement to
abrogate Comcast’s lawful contract rights. The truth is that
the parties’ contract simply confirms that Comcast has the
sole and unfettered authority to determine the tier placement
of Tennis Channel. By demanding that Comcast revisit its
concededly lawful initial decision and consider placing it on
the same tier as Golf Channel and Versus, Tennis Channel
sought to reopen the contract. And, because this demand was
nothing more than “an offer to amend an existing contract that
has been in effect for more than one year,” 1999 Order on
Reconsideration, 14 FCC Rcd. at 16436 ¶ 5, it “does not
20
reopen the existing contract to complaints that the provisions
thereof are discriminatory,” id.
Furthermore, Tennis Channel’s rights would not be so
harmed by this outcome as the FCC suggests. Because most
businesses hope to become more successful over time, Tennis
Channel could have anticipated in 2005 that, at some point in
the future, it might prefer placement on a more widely
distributed tier. Therefore, when the carriage contract was
formed, Tennis Channel could have bargained for a provision
to increase its distribution contingent upon improvements to
its “quality and performance.” If Comcast had declined such
terms on the basis of its nonaffiliation with Tennis Channel,
that might have given rise to a Section 616 complaint under
the existing regulations.
Instead, it is Comcast’s contract rights that were
completely disregarded by the Commission’s actions in this
case. Section 616 simply does not sanction what the
Commission proposes to do here. The Commission may now
be of the view that the controlling construction of subsection
(f)(3) that it embraced in 1993, 1994, and 1999 is
unsatisfactory because it may not account for some situations
in which a party commits a violation of Section 616 that is
unrelated to its lawful contractual commitments. But if that is
so, then the FCC may amend subsection (f)(3) pursuant to
notice-and-comment rulemaking, not by fiat in an
adjudicatory action in which a party had no prior notice of the
rule that the Commission seeks to enforce.
It is unnecessary to consider this possibility, however,
because it is not properly before us. The bottom line here is
that, under the Commission’s established construction of 47
C.F.R. § 76.1302(f), the statute of limitations began to run
under subsection (f)(1) in 2005, not under subsection (f)(3) in
2009. As a result, Tennis Channel’s complaint was out of time
and should have been dismissed.
21
4. The Commission’s Laches Argument
The Commission seemingly understood that its position
made little sense, especially in light of the precedent
established by its 1993, 1994, and 1999 orders. To
compensate for the obvious weaknesses in its decision, the
Commission layered a new rule of “laches” onto the
requirements of subsection (f)(3). Pursuant to this further
amendment of the statute of limitations, the Commission
stated:
[W]e read subsection 76.1302(f)(3) consistent with the
doctrine of laches to impliedly require notification of an
intent to file a complaint within a reasonable time period
of discovery of the allegedly unlawful conduct. Because
the allegedly unlawful conduct at issue here occurred
within one year of the filing of the complaint, we need
not determine precisely what period of time would be
“reasonable” here.
Order, 27 FCC Rcd. at 8520 ¶ 30 n.105. Comcast justly
objects to this unexpected and largely incomprehensible new
rule of laches:
[T]his further rewriting of the limitations regulation, to
add a malleable [laches] exception whose scope is known
only to the FCC, only compounds the uncertainty that its
interpretation produces.
The Order also does not attempt to explain how
Tennis Channel satisfied its new laches requirement here.
Nor could it, given that Tennis Channel has known since
2005 that Comcast carried Golf Channel and Versus
broadly, but did not file its complaint until 2010. . . .
Under any reasonable application of laches, this
deliberate, unexcused delay should have resulted in the
dismissal of the complaint. The Order avoids that result
22
only by characterizing the evidence of Tennis Channel’s
strategic conduct as irrelevant to the timeliness of its
complaint. But it is arbitrary for the Order both to assert
that its interpretation of the statute of limitations is
backstopped by a “reasonable time” requirement, and to
ignore the evidence that Tennis Channel, without basis,
sat on its claim for years before bringing suit.
Br. for Pet’r at 60-61.
The Commission’s invocation of “laches” is also patently
at odds with its claim that the terms of subsection (f)(3)
plainly require the result reached in this case. The
Commission suggests that the (f)(3) trigger applies
straightforwardly within one year after a complaining party
gives notice that it intends to file a complaint. But if this were
so clear, there would be no need for a rule of laches. The
Commission instead acknowledges that subsection (f)(3) is
confusing under its present view of the regulation because
“[t]he third trigger does not specify precisely what
impermissible conduct starts the clock.” Order, 27 FCC Rcd.
at 8520 ¶ 30. The Commission’s Order relies in part on a
2011 Notice of Proposed Rulemaking, in which the agency
acknowledged that the terms of subsection 76.1302(f) are
ambiguous and announced its intention to amend it for clarity.
Id. at 8520 ¶ 30 n.105 (citing In re Revision of the
Commission’s Program Carriage Rules, Notice of Proposed
Rulemaking, 26 FCC Rcd. 11494, 11522-23, ¶¶ 38-39, 2011
WL 3279328 (Aug. 1, 2011)). The Commission’s position
here is thus amusing, to say the least: in the Order under
review, the Commission suggests that (f)(3) is clear if
overlaid with a new rule of laches; and yet, in the very same
footnote, the Commission cites to a Rulemaking initiated for
the purpose of resolving that subsection’s ambiguity. Id. The
truth of the matter is that the Commission’s current position
on the meaning of subsection (f)(3) is hopelessly confused
23
and far removed from the regulatory interpretations that it
espoused in 1993, 1994, and 1999.
C. The Commission’s Action in This Case Defies the
APA and Requirements of Fair Notice
What is obvious here is that the FCC is essentially trying
to rewrite its regulations without following the applicable
notice-and-comment procedures required by the APA. The
Commission may now be of the view that the controlling
construction of subsection (f)(3) that it embraced in 1993,
1994, and 1999 is unsatisfactory because it may not account
for some situations in which a party commits a violation of
Section 616 that is unrelated to its lawful contractual
commitments. But if that is so, then the FCC must amend
subsection (f)(3) pursuant to notice-and-comment rulemaking,
not by fiat in an adjudicatory action in which a party had no
prior notice of the rule that the Commission seeks to enforce.
See generally HARRY T. EDWARDS, LINDA A. ELLIOTT &
MARIN K. LEVY, FEDERAL STANDARDS OF REVIEW § XIII.E
(2d ed. 2013) (discussing the requirements of “fair notice”).
The court carefully explained this principle in Alaska
Professional Hunters Association:
Our analysis . . . draws on Paralyzed Veterans of
America v. D.C. Arena, 117 F.3d 579, 586 (D.C. Cir.
1997), in which we said: “Once an agency gives its
regulation an interpretation, it can only change that
interpretation as it would formally modify the regulation
itself: through the process of notice and comment
rulemaking.” We there explained why an agency has less
leeway in its choice of the method of changing its
interpretation of its regulations than in altering its
construction of a statute. “Rule making,” as defined in
the APA, includes not only the agency’s process of
formulating a rule, but also the agency’s process of
24
modifying a rule. 5 U.S.C. § 551(5). See Paralyzed
Veterans, 117 F.3d at 586. When an agency has given its
regulation a definitive interpretation, and later
significantly revises that interpretation, the agency has in
effect amended its rule, something it may not accomplish
without notice and comment. Syncor Int’l Corp. v.
Shalala, 127 F.3d 90, 94-95 (D.C. Cir. 1997), is to the
same effect: a modification of an interpretive rule
construing an agency’s substantive regulation will, we
said, “likely require a notice and comment procedure.”
177 F.3d at 1033-34; see also SBC Inc. v. FCC, 414 F.3d 486,
498 (3d Cir. 2005) (“[I]f an agency’s present interpretation of
a regulation is a fundamental modification of a previous
interpretation, the modification can only be made in
accordance with the notice and comment requirements of the
APA.”); Shell Offshore Inc. v. Babbitt, 238 F.3d 622, 629 (5th
Cir. 2001) (“[T]he APA requires an agency to provide an
opportunity for notice and comment before substantially
altering a well established regulatory interpretation.”).
The Supreme Court recently reinforced this point in
Christopher v. SmithKline Beecham Corp., 132 S. Ct. 2156,
2167 (2012), there holding that an agency is obliged to
“provide regulated parties fair warning of the conduct [a
regulation] prohibits or requires.” It follows, therefore, that an
agency cannot change its interpretation of a regulation so as to
cause “unfair surprise” to regulated parties. Id.; see also FCC
v. Fox Television Stations, Inc., 132 S. Ct. 2307, 2317 (2012)
(“A conviction or punishment fails to comply with due
process if the statute or regulation under which it is obtained
fails to provide a person of ordinary intelligence fair notice of
what is prohibited, or is so standardless that it authorizes or
encourages seriously discriminatory enforcement.”). Yet, in
failing to provide any notice to MVPDs about how and when
they may be subject to Section 616 claims, the FCC’s actions
25
against Comcast in this case constitute exactly that kind of
“unfair surprise.”
In sum, the limitations period under 47 C.F.R.
§ 76.1302(f)(3) does not apply here because the Commission
has consistently held that the (f)(3) trigger is applicable only
in situations when an MVPD denies or refuses to
acknowledge a request to negotiate for carriage. Tennis
Channel’s complaint does not include any such claim. Indeed,
Tennis Channel, not Comcast, terminated discussions between
the parties in 2009. Neither Comcast’s refusal to reassign
Tennis Channel to a more broadly distributed tier nor Tennis
Channel’s notice of its intention to file a Section 616
complaint triggered a new statute of limitations period under
47 C.F.R. § 76.1302(f)(3). Under the FCC’s governing
regulations, “an offer to amend an existing contract that has
been in effect for more than one year does not reopen the
existing contract to complaints that the provisions thereof are
discriminatory.” 1999 Order on Reconsideration, 14 FCC
Rcd. at 16436 ¶ 5. The reason for the FCC’s rule is clear: to
allow a video programming vendor to restart an expired
limitations period simply by asking to negotiate a better deal
under an existing agreement would render meaningless the
limitations period in subsection (f)(1).
It is undisputed that the complaint was filed more than
one year after Comcast and Tennis Channel entered into their
carriage contract. The contract was executed in 2005 and the
limitations period under 47 C.F.R. § 76.1302(f)(1) expired
one year later. Tennis Channel’s complaint simply alleges that
Comcast’s continued carriage pursuant to the terms of the
2005 agreement is discriminatory. Therefore, the complaint is
almost four years late and should be dismissed as time-barred.