# United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 14, 2012 Decided January 15, 2013

No. 04

- 1033

E CHO S TAR S ATELLITE L.L.C.,

P ETITIONER

v.

F EDERAL C OMMUNICATIONS C OMMISSION

AND U NITED S TATES OF A MERICA

, R ESPONDENTS

N ATIONAL C ABLE & T ELECOMMUNICATIONS A SSOCIATION

, I NTERVENOR

Consolidated with 04

- 1109

On Petitions for Review of Orders of

the Federal Communications Commission

Pantelis Michalopoulos argued the cause for petitioner

. With him on the briefs were Stephanie A. Roy and Andrew W.

Guhr

.

James M. Carr , Counsel, Federal Communications Commission, argued the caus e for respondents. With him on

the briefs were Catherine G. O’ Sullivan and James J.

Fredricks , Attorneys, U.S. D epartment of Justice, Austin C.2

Schlick , General Counsel, Federal Communication Commission, Peter Karanjia , Deputy General Counsel, and

Jacob M. Lewis , Associate General Counsel. Richard K.

Welch , Deputy Associate General Counsel, Daniel M. Armstrong III

, Associate General Counsel

, and John A. Rogovin entered appearances.

Paul Glist and Neal M. Goldberg were on the brief for

intervenor National Cable & Telecommunications Association in support of respondent. Loretta P. Polk entered an

appearance.

Before : B ROWN

, Circuit Judge , and E DWARDS and

R ANDOLPH

, Senior Circuit Judges

.

Opinion for the court filed by Circuit Judge Brown.

Concurring opinion filed by Senior Judge Edwards.

B ROWN

, Circuit Judge : In an industry marked by constant innovation and year

- to

- year change, the dispute over the regulations in this case has lasted a full decade. DISH Network L.L.C. (“DISH”)

, 1 is a direct broadcast satellite provider. DISH challenges two orders of the Federal

Communications Commission because they impose “ encodi ng rules ,” which limit the means of encoding that cable and satellite service providers may employ to prevent unauthorized

access to their broadcasts

. We conclude the FCC lacked statutory authority to impose these rules and grant DISH’s petitions for review.

I

1 DISH formerly did business as EchoStar Satellite L.L.C.3

Multichannel video programming distributors (“MVPDs”)

— a category that includes both cable and satellite television service providers

— commonly offer access to their content through navigation devices, such as converter boxes. See 47 C.F.R. § 76.1200(a)

– ( c ). Traditionally, cable television

subscribers lease d their navigation devices directly from their cable providers. See Gen. Instrument Corp. v. FCC , 213 F.3d 724, 7 27 (D.C. Cir. 2000). But Congress, anxiou s to create separate markets for navig ation devices and cable television services, added § 629 to the Communications Act as part of the

Telecommunications Act of 1996. See id. Th at provision

attempts to strike a balance: On the one hand, § 629 directs th e FCC to “adopt regulations to assure the commercial availability” of “equipment us ed by consumers to access
[MVP ] services

. . . from [independent] manufacturers, retailers, and other vendors.” 47 U.S.C. § 549(a). At the same time, the regulations must not “jeopardize security of multichannel video programming . . . or impede the legal rights of a provider of such services to prevent theft of service.” Id. § 549(b). Achieving this dual mandate demands technical standardization among MVPDs so that navig ation devices can be marketed nationally while still proving capable of thwart ing

unauthorized access to service.

In 2002, w ith FCC prompting, cable television service providers negotiated with representatives of the consumer electronics industry to a rrive at uniform standards that would

allow compatibility across all cable systems

. In particular, the FCC sought standards enabling “plug and play,” which would allow consumers to connect digital television receivers directly to their cable systems, thus circumventing the need for an external navigation device. The negotiations resulted in a memorandum of understanding (“ MOU”)

— a set of joint

recommendations to the FCC

— including rules prescribing

what distributors could encode within their programming4

streams

, and banning “ selectable output control

, ” which allows

distributors and content providers to remotely shut off a connector or output on a program

- by

- program basis (e.g., preventing a subscriber fr om recording a certain television program)

. The agreement was contingent on application of the encoding rules to all MVPDs, not just cable television service providers.

The FCC issued a notice of proposed rulemaking in January 2003 soliciting comment on the MOU ’s proposed

rules

. During the comment period, v arious satel lite carriers criticized the proposed application of th e encoding rules to all

MVPDs. They both complained that satellite carriers were excluded from the negotiations that gave rise to the MOU and

also characteriz ed imposition of the encoding rules on all

MVPDs as a quid pro quo for cable service providers ’ acquiescence to plug

- and

- play standards. The FCC nevertheless adopted the proposed rules with only minor changes in Implementation of Section 304 of the Telecommunications Act of 1996, Second Report and Order

, 18 FCC Rcd. 20885 (2003) ( “ Order”). As the MOU recommended, the Order ’s encoding rules barred selectable output control. The adopted encoding rules a lso a ddress ed

two related issues: prohibiting down

- resolution of broadcast programming

— which involves streaming content at a n intentionally degraded resolution quality

— and limit ing the level of copy protection encoding applicable to certain categories of programming. In the FC C’s view, applying the encoding rules only to the cable industry “would create a permanent competitive imbalance,” whereas “[u]niform application of the proposed encoding caps serves the dual function of providing a competitive baseline for MVPDs while

ens uring that consumers have equal access to content regardless of their service provider.” Order ¶ 71, 18 FCC Rcd.

at 20916. Reaffirming its “stated goal . . . to strike a measured5

balance between the rights of content owners and the home viewing expectatio ns of consumers, while ensuring competitive parity among MVPDs,” t he FCC later revised the encoding rules to clarify their application to encrypted and unencrypted broadcast programming. See Implementation of Section 304 of the Telecommunications Act of 1 996, Order on

Reconsideration , 18 FCC Rcd. 27059, 27059

– 60 (2003) (“Reconsideration Order”).

DISH now petitions for review of the Order and the

Reconsideration Order.

II

DISH argues the FCC’s decision to apply the encoding

rules to all MVPDs exceeded the agency’s statutory authority

. Because we agree the FCC lacked the power to impose the encoding rules on all MVPDs, we need not reach DISH’s

alternate contention that the decision was arbitrary and capricious. But first we must satisfy ourselves of ou r jurisdiction to review DISH’s challenge.

A

As a threshold matter, t he FCC insists § 405 of the

Communications Act bars review of DISH’s claim that the agency was without authority to apply encoding rules to all

MVPDs. Section 405 bars judicial review of questions upon which the Commission, or its designated authority

, has been afforded no opportunity to pass unless a party first files a petition for r econsideration. 47 U.S.C. § 405(a). The question, then, is whether the FCC had an opportunity to

cons ider DISH’s challenge to its authority to promulgate the encoding rules.6

Because § 405 is phrased in the passive voice, whe ther the

FCC “has been afforded [ an ] opportunity to pass” on an argument does not depend on whether DISH raised it. See

Time Warner Entm’t Co., L.P. v. FCC , 144 F.3d 75, 79 (D.C. Cir. 1998). Absolute precision is unnecessary; judicial review is p ermitted s o long as “ the issue is necessarily implicated by the argument made to the Commission.” Id. at 80.

T he Order’s discussion of t he FCC’s authority satisfies us that § 405 ’s requirements have been met

. See Order ¶¶ 45

– 4 7

, 55

– 57 , 18 FCC Rcd. at 20905

– 10. In justifying the encoding rules, the FCC invoked both explicit and ancillary authority under § 629 of the Communications Act, as well as ancillary authority under § 624A of the Act

, which covers “ [ c ] onsumer electronics equipment compatibility.” 47 U.S.C. § 544a. This was no cursory reference; the FCC devoted several pages of the Order to discussing the statutory basis of its auth ority to promulgate encoding rules regulating all MVPDs. Even if no other party brought the matter to the agency’s attention, the FCC’s independent contemplation of the issue satisfies § 405 ’s

mandate. See DIRECTV, Inc. v. FCC , 110 F.3d 816, 825 (D.C. Cir. 1997)

. W e thus proceed to the merits of DISH’s

claim.

B

The FCC cites three sources for its authority : § 629’s mandate that the FCC “adopt regulations to assure the commercial availability . . . of converter boxes, interactive communications equipm ent, and other equipment used by consumers to access multichannel video programming,” 47 U.S.C. § 549(a); authority ancillary to § 629 ; and authority ancillary to § 624A, which permits the FCC “to restrict cable systems in the manner in which they encrypt or scramble signals” to assure “ compatibility between televisions and video7

casse tte recorders and cable systems,” 47 U.S.C. § 544a(b). None is availing.

Section 629 provides no direct authority for the encoding

rules , but deference to the FCC’s view o f § 629’s meaning is appropriate so long as “Congress has not directly addressed the precise question at issue” and the FCC’s interpretation is

“reasonable.” Chevron U.S.A., Inc. v. NRDC , 467 U.S. 837

, 843

– 44 (1984)

. 2 Here, the FCC’s reading founders on

Chevron ’s second step: though § 629’s directive to “ adopt regulations to assure the commercial availability” of navigation devices may afford the FCC some wiggle room in crafting its regulatory regime, the statute’s language is not as capacious as the agency suggests

.

Certainly, § 629 provides no explicit textual basis for the encoding rules, instead authorizing “regulations to assure the commercial availability” of navigation devices . 47 U.S.C. § 549(a). But t he FCC points out the encoding rules f ulfill “consumers’ expectations that their digital televisions and other equipment will work to their full capabilities .” Order ¶ 60, 18 FCC Rcd. at 20911 ; see also id. ¶ 64, 18 FCC Rcd. at 20913 (invoking the same argument to support restriction o f

down

- resolution); id. ¶ 68, 18 FCC Rcd. at 20915 (doing the same with respect to copy protection limits)

. Consumer

satisfaction enhance s consumer demand, ensuring a viable

commercial market. However, as the FCC acknowledge s, the encoding rules are not necessa ry to sustain a commercial

market for direct broadc ast satellite devices. In fact , the FCC

2 Whether application of Chevron in this context is sensible is an entirely different matter. See AKM LL C dba Volks Constructors

v. Sec’ y of Labor , 675 F.3d 752, 766 (D.C. Cir . 2012) (Brow n, J., concurring). The Supreme Court recently granted certiorari t o address this issue. See City of Arlington, Tex. v. FCC , 133 S. Ct. 524 (Oct. 5, 2012) (mem.).8

concluded “differences in the marketplace for [direct broadcast satellite] equipment, where devices are available at retail and offer consumers a choice, as compared to equipment for other MVPD services, particularly cable operators, [justified] not applying ” other § 629 rules to satellite service providers. Implementation of Section 304 of the Telecommunications Act of 1996, Report and Order , 13 FCC Rcd. 14775, 14800 (1998). And, as the Order itself recognizes

, satellite equipment is “already available at retail” and “portable nationwide.” Order ¶ 46, 18 FCC Rcd. at 20905. Applying the encoding rules to cable providers may meet consumer expectations with respect to the market for cable devices, but that is no reason to impose

these rules on all MVPDs.

As an alternative justification , the FCC also reasoned that

the encoding rules “are an essential component of the MOU,” and that the MOU “will assure the commercial availability of navigation devices.” Id. ¶ 47, 18 FCC Rcd. at 20906. But

this cannot be e nough to tether the encoding rules to § 629.

The FCC can not simply impose any regulation stipulated in an MOU as a means of promoting the commercial availability of navigation devices , no matter how tenuous its actual connection to § 629’s mandate

. To re ad § 629 in this way

would leave the F CC’s regulatory power unbridled

— so long

as the agency claimed to be working to make navigation devices commercially available. Nor does the FCC adhere to

th e view that rigid imposition of the encoding rules is essential to making navigation devices commercially available

. Otherwise, it would not have permitted partial waiver

, at the

behest of the Motion Picture Association of America

, of the ban on selectable outp ut control. See Motion Picture Association of America, Petition for Expedited Special Relief; Petition for Waiver of the Commission’s Prohibition on the Use of Selectable Output Control (47 C.F.R. § 76.1903), Memorandum Opinion and Order , 25 FCC Rcd. 4799 (2010).9

We next turn to the FCC’s assertion of its ancillary jurisdictio n under both § 629 and § 624A, which, u nder certain circumstances, extend s the agency’s regulatory powers beyond

express statutory mandates. Under § 4(i) of the

Communications Act o f 1934, the FCC is authorized to “perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions

, ” 47 U.S.C. § 154(i) ; see United States v. S w. Ca ble Co. , 392 U.S. 157, 178 (1968); United States v. Midwest Video Corp. (“ Midwest Video

I

”), 406 U.S. 649 , 669

– 70 (1972) (plurality opinion) ; FCC v. Midwest Video Corp. (“ Midwest Video II ”), 440 U.S. 689

, 708

– 09 (1979). We have summarized the doctrine in a

two

- part test: the FCC may invoke its ancillary jurisdiction only when “(1) the Commission’s general jurisdictional grant under Title I [of the Communications Act] covers the regulated subject and (2) the regulations are reasonably ancillary to the

Commi ssion’s effective performance of its statutorily mandated responsibilities.” Am. Library Ass’n v. FCC , 406 F.3d 689, 691

– 92 (D.C. Cir. 2005). Neither side disputes that the encoding rules, through their application to cable and satellite broadcasts, qualify as regulations of “radio and wire

communication service” under Title I. At issue instead is whether the encoding rules were reasonably ancillary to the FCC’s effective execution of its duties under either § 629 or § 624A. 3

3 We note that the FCC’s interpretation of the reach of its ancillary jurisdiction is owed no deference, since Chevron only applies in instances in which Congress has delegated an agency authority to regulate the area at issue. See United States v. Mead Corp. , 533 U.S. 218, 226

– 27 (2001). Since we conclude Congress did not empower the FCC to apply the encoding rules to a ll MVPDs, deferring to the FCC’s own assertion of its authority on this point would beg the question. See Am. Library Ass’n , 406 F.3d at 699.10

The FCC contends the en coding rules are reasonably ancillary to its mission of assuring the commercial availability of navigation devices because they removed one of the “stumbling blocks” to the consumer electronics industry’s production of such equipment for retail: the “inabi lity of industry to agree on a comprehensive set of technical copy protection measures and corresponding encoding rules” that would “ensure the availability of high value content to consumers in a protected digital environment.” Order ¶ 55, 18

FCC Rcd. at 20909. Yet by this standard, there is little the FCC could not regulate in the name of fulfilling § 629’s mandate. Could cable providers have stipulated that their adoption of the MOU was premised on FCC restrictions on satellite pro viders’ content offe rings? C ould they have

demanded the FCC limit the number of channels satellite providers might broadcast in high definition? Under t he

FCC’s view, its ancillary jurisdiction is effectively plenary.

T he FCC is not authorized under § 629 to take any actio n that lessens the competitive pressures posed by satellite providers in order to induce cable operators to ratify an MOU the agency

favors

. G uided by the principle that ancillary jurisdiction is not “unrestrained authority,” Midwest Video II , 440 U.S. at 706, we refuse to interpret ancillary authority as a proxy for omnibus powers limited only by the FCC’s creativ ity in linking its regulatory actions to the goal of commercial availability of navigation devices. See also Ry. Labor Exec s

. Ass’n v. Nat’l

Me diation Bd. , 29 F.3d 655, 671 (D.C. Cir. 1994) (en banc) (“Were courts to presume a delegation of power absent an

express withholding of such power, agencies would enjoy virtually limitless hegemony, a result plainly out of keeping

with Chevron and quite l ikely with the Constitution as well.”)

. The FCC’s ancillary jurisdiction may be broad, but it is not

unbounded

.11

The encoding rules fare no better under § 624A. Unlike § 629, § 624A actually discusses encoding of the sort addressed by the Order

. See 4 7 U.S.C. § 544a(a)(1). But

whereas § 629 applies to all MVPDs

, § 624A’s reach is limited by its plain language to cable systems , directing the FCC to adopt regulations “as are necessary to assure . . . compatibility” between cable systems on the one hand and televisions and

video cassette recorders on the other. 4 47 U.S.C. § 544a(b)(1). B y invok ing its ancillary authority in conjunction with § 624A ’s compatibility mandate , the FCC seeks to square this circle

.

The FCC is powerless to wield its ancillar y jurisdiction, however, where “there are strong indications that agency flexibility was to be sharply delimited.” Midwest Video II

, 440 U.S. at 708. Section 624A ’s textual delegat ion of

autho rity to regulate cable systems , as opposed to all MVPDs, is pr ecisely such an indication. T rue , application of the expressio unius est exclusio alterius canon 5 is not robotic. But its use is appropriate when “one can be confident that a normal draftsman when he expressed ‘the one thing’ would have likely considered the alternatives that are arguably precluded.” Shook v. D.C. Fin. Responsibility & Mgmt.

Assistance Auth. , 132 F.3d 775, 782 (D.C. Cir. 1998). Here, there is every reason to believe § 624A was directed at cable systems alone. The provision was enacted as part of the Cable

Television Consumer Protect ion and Competi tion Act of 1992

4 We set aside for now whether § 624A’s reference to “video cassette recorders,” now a largely antiquated techno logy, is adequate to sustain the FCC’s purported interest in the ability of consumers to retain “the full benefits of . . . the functionality” of their recording devices. Order ¶ 56, 18 FCC Rcd. at 20910.

5 “A canon of construction holding that to express or include one thing implies the exclusion of the other, or of the alternative.”

B LACK ’ S L AW D ICTIONARY 661 (9th ed. 2009).12

(“Cable Act”), which also amended the Communications Act to include the term “multichannel video programming

distributor

, ” defining it to include “dir ect broadcast satellite

service.” Pub. L. No. 102

- 385, sec. 2(c)(6) , § 602(c)(12), 106

Stat. 1460, 1463 (codified as amended at 47 U.S.C. § 522(c)(13) )

. In fact, one of the Cable Act’s stated goals was

“ to increase the availability of satellite cable pro gramming and satellite broadcast programming.” Cable Act , sec. 19, § 628,

106 Stat. at 1494 (codified at 47 U.S.C. § 547 )

. Clearly, Congress was adept at using the terms “satellite” and “multichannel video programming distributor” when it so

chose. In c ontrast to cable television technology in

Southwestern Cable

, satellite television was no t some new phenomenon Congress had no opportunity to contemplate when enacting § 624A. See 392 U.S. at 172

– 73. It is one thing for the FCC to invoke its ancillary au thority in furtherance of express congressional directives

. B ut it is quite

another when the FCC invokes its ancillary jurisdiction to override Congress’s clearly expressed will.

Nor is the position espoused by the National Cable and

Telecommunications Association (“NCTA”), a cting as

intervenor

, persuasive

. The NCTA adopts a more circumspect view of the FCC’s authority, acknowledging the

obvious implausibility of interpreting § 629 as empowering the FCC to take any action it deems useful in its quest to mak e navigation devices commercial ly availab l e. Instead

, the NCTA suggests that § 629 sweep s all MVPDs, not just cable providers, under the ambit of § 624A: “ I f Section 629 means anything, it means that the Commission now has authority to apply to all MV PDs the same encoding rules that both DISH and the Commission agree the Commission could independently impose on cable operators under Section

624A

. ” The NCTA’s theory of the int erplay between the two

statutes is novel

— perhaps because it ignores § 629(f ), which13

cautions, “ Nothing in this section shall be construed as expanding or limiting any authority that the Commission may

have under law in effect before ” enactment of the Telecommunications Act of 1996. 47 U.S.C. § 549(f). T he NCTA interprets § 629 to mean the exact opposite

.

In the end, we are left with two provisions , neither of which authorizes the encoding rules at issue. Section 629’s text provides no direct authority for the encoding rules, and the FCC’s arguments in favor of such an interpretation are unconvincing . Section 624A addresses encoding, but only in the context of cable systems. T he FCC ’s application of encoding rules to all MVPDs was therefore ultra vires

.

III

Because the FCC denies that the challenged orders could

o per ate absent the encoding rules

— indeed, its argument is premised on this very notion

— the encoding rules are not

severable

. See MD/DC/DE Broadcasters Ass’n v. FCC , 236 F.3d 13, 22 (D.C. Cir. 2001) ( “ Whether the offending portion of a regulation is severa ble depends upon the intent of the

agency and upon whether the remainder of the regulation could function sensibly without the stricken provision. ” ). In granting DISH’s petition s for review, we therefore vacate the

Order and Reconsideration Order in their entirety.

I V

For the foregoing reasons, the petition s for review are

Granted.E DWARDS

, Senior Circuit Judge , concurring: I agree with the majority that the Federal Communications Commission (“FCC” or “Commission”) has neither direct nor ancillary authority under Section 624A of the Communications Act, 47 U.S.C. § 544a, nor ancillary authority under Section 629(a) of the Act, 47 U.S.C. § 549(a), to impose the disputed “encoding rules” on satellite carriers. The Commission’s positions on these points cannot survive scrutiny under Chevron Step One or Step

Two. See Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc. , 467 U.S. 837, 842-45 (1984). As the majority opinion makes clear, the claims advanced by the FCC are

entitled to no deference because th ey are “manifestly contrary to

the statute.” Id. at 844.

I do not read the majority opinion to say that the FCC has

no authority under Section 629 to impose encoding rules on satellite carriers, however. This court certainly cannot say that Congress’ direction to the FCC to ensure the commercial availability of navigation devices may never be reasonably interpreted to support the application of encoding rules on satellite carriers. We simply do not know this. Congress obviously afforded the FCC considerable discretion in directing the agency to promulgate standards “to assure the commercial availability . . . of converter boxes, interactive communications equipment, and other equipment used by consumers to access multichannel video programming and other services offered over multichannel video pr ogramming systems, from manufacturers, retailers, and other vendors not affiliated with any multichannel video programmi ng distributor.” 47 U.S.C. §549(a). The statute does not by its terms prohibit the requirement of encoding rules. Rather, any challenge to the agency’s exercise of its discretion under Section 629 must take into account the circumstances presented and the Commission’s explanation for the action in question.

Petitioner readily concedes that “the plug-and-play standards” adopted by the FCC “may be deemed within the scope of Section 629.” Pet’r Br. at 20. Petitioner’s concern is2

that “the nature of the encoding rules as a quid pro quo to get a private party to agree to these standards is not a sufficient nexus

to Section 629.” Id. Nexus , however, is not necessarily a matter of authority; rather, it concerns a connection, bond, or link between different things. I agree that, in this case , the FCC has failed to show the necessary link between the imposition of encoding rules on satellite carriers and the mandate of Section 629. Therefore, the agency’s deci sion fails for want of reasoned decisionmaking, not for lack of authority. See Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State Farm Mut. Auto. Ins. Co.

, 463 U.S. 29, 43 (1983) (holding that, to survive arbitrary and capricious review, “the agency must examine the relevant data and articulate a satisfactory expl anation for its action including

a rational connection between the facts found and the choice made”); see also Judulang v. Holder , 132 S. Ct. 476, 483-85 & n.7 (2011) (holding that an irrational application of a statute is arbitrary and capricious).

In some circumstances, there is an overlap in the analysis required pursuant to Chevron Step Two, 467 U.S. at 843-45, and that required under the arbitrary and capricious standard

enunciated in State Farm , 463 U.S. at 42-44. See, e.g. , Arent v.

Shalala , 70 F.3d 610, 616 n.6 (D.C. Cir. 1995); see also id . at 620 (Wald, J., concurring in the judgment) (“Because both standards require the reviewing court to ask whether the agency has considered all of the factors made relevant by the statute,

this court has often found the State Farm line of cases relevant

to a Chevron step two analysis.”). Nonetheless, absent plain meaning in the authorizing statute, a court should be loathe to preemptively declare that an agency has no authority to apply a certain operating standard when it is impossible to know whether the disputed standard might be permissible under

different circumstances. See Nat’l Cable & Telecomms. Ass’n v.

Brand X Internet Servs. , 545 U.S. 967, 985 (2005) (holding that, “[b]efore a judicial construction of a statute, whether contained in a precedent or not, may trum p an agency’s, the court must3

hold that the statute unambiguously requires the court’s construction”). On this record, the court cannot possibly know whether or to what extent the FCC might permissibly impose encoding rules on satellite carriers pursuant to Section 629.

Petitioner has pressed the point that, in the circumstances at

hand , the Commission’s application of the encoding rules to all Multichannel Video Programming Distributors (“MVPD”) is arbitrary and capricious. See Pet’r Br. at 40-48. Indeed, Petitioner convincingly shows that the FCC adopted the disputed encoding rules here to serve the interests of the cable industry

and consumer electronics manufacturers in almost total disregard of the interests of satellite carriers.

The FCC acknowledged the fait accompli nature of the [disputed] rules: “[a]bsent a doption of these encoding rules,

the cable and consumer electronics industries have indicated that the compromise agreement reached in the [Memorandum of Understa nding Among Cable MSOs and Consumer Electronics Manufacturers (“MOU”)] will be upset and their efforts to produce unidirectional digital cable products will falter.” Plug and Play Order , 18 FCC Rcd. at 20906 ¶ 47. The very speed with which the FCC placed the MOU and its rules on public notice (22 days) foreshadowed the FCC’s acquiescence. The FCC appears to have taken little time to independently review and consider the proposal based on statutor y objectives. The FCC did not propose any independent revisions to the proposed rules, and instead simply issued the MOU-proposed rules as its own proposal. The Plug and Play Order went on to adopt the encoding rules in their entirety, and apply them to all MVPD providers for one principal reason – lest the MOU fall apart and leave the FCC with unfulfilled directives

under Sections 624A and 629.

This reasoning is of suspect validity at best. First, the FCC did not have its hands tied; it could promulgate its own4

set of rules – a better set of rules that considers the positions of all MVPD providers. Second, the threat of defection from a private agreement should not carry weight in an agency’s deliberation. The FCC acts pursuant to statutory authority and objectives, and the FCC’s reasoning that its

directive would be frustrated were the MOU to falter is reasoning that is far too attenuated.

Pet’r Br. at 42-43.

Much of what Petitioner says is on the mark and unrefuted by the FCC. However, I reject Petitioner’s suggestion that FCC rulemaking may never take into account the threat of defection from a private agreement. This argument overreaches. The telling point in this case is that the FCC relied on a threat of defection that was tied to a condition – requiring satellite carriers to adopt encoding rules – that was patently unreasonable. Apart from the threat of defection, the FCC failed to explain how requiring satellite carriers to adopt encoding rules was necessary to assure the commercial availability of converter boxes and other equipment pursuant to Section 629.

In sum, it is clear that the action taken by the FCC pursuant to its asserted authority under Section 629 was the antithesis of reasoned decisionmaking and, thus , arbitrary and capacious. In my view, there is no Chevron issue to be decided by this court.

See Judulang , 132 S. Ct. at 483 n.7. On this record, the imposition of the disputed enc oding rules on satellite carriers fails for lack of reasoned decisionmaking.