Source: http://www.fcc.gov/print/node/50280
Timestamp: 2014-07-29 04:05:24
Document Index: 67703203

Matched Legal Cases: ['§ 616', '§ 76', '§ 536', '§ 616', '§ 76', '§ 616', '§ 616', '§ 616', '§ 536', '§ 76', '§ 2', '§ 7', '§ 4', '§ 11', '§ 3', '§ 536', '§ 1']

Court Opinion - Comcast Cable v. FCC (D.C. Cir.)
Word Document [1]PDF Document [2]Text Document [3]	Released: May 28, 2013
USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 1 of 51
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. USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 2 of 51
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 USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 3 of 51
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 USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 4 of 51
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 USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 5 of 51
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 USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 6 of 51
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 USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 7 of 51
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. USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 8 of 51
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. USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 9 of 51
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 USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 10 of 51
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). USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 11 of 51
* * * The petition is therefore Granted. USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 12 of 51
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. USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 13 of 51
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 USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 14 of 51
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. USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 15 of 51
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, USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 16 of 51
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 USCA Case #12-1337 Document #1438011 Filed: 05/28/2013 Page 17 of 51
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 an