Opinion ID: 399258
Heading Depth: 2
Heading Rank: 1

Heading: Reciprocal Trade Practices

Text: 20 There are several reasons to doubt that reciprocal trade practices during the early 1960s can justify outright disqualification of RKO as a broadcast licensee in 1980. First and foremost, the conduct of RKO at issue has been found to be clearly improper only in retrospect. Although it has been understood since the 1930s that coercive reciprocity was anticompetitive, 22 it was not until the late 1960s that a series of judicial decisions began to cast increasing doubt on the legality and propriety of unleveraged mutual patronage agreements. 23 Even then, however, questions remained. 24 As late as 1979, the FCC itself recognized that a per se rule was probably inappropriate because it is still somewhat uncertain whether a non-coercive unleveraged reciprocal agreement ... necessarily and in every case is anticompetitive and a Sherman § 1 violation. Domestic Public Message Services, 73 F.C.C.2d 151, 161 (1979). As a result, although we are not in absolute agreement with RKO that the challenged conduct was undertaken in good faith, 25 the FCC's conclusion rests not on a fair reading of the contemporaneous law but upon a greater appreciation now for the adverse impact of reciprocal trade practices on the broadcast industry and thus on the public interest. Decision P 86 n.156. The FCC unquestionably has the authority and even the duty to change its mind as to the degree of anticompetitive practices that are not in the public interest. Greater Boston Television Corp. v. FCC, 444 F.2d 841, 852 (D.C.Cir.), cert. denied, 403 U.S. 923, 91 S.Ct. 2229, 29 L.Ed.2d 701 (1971). Such a finding may not be applied retroactively, however, to conduct that ceased almost fifteen years ago. Securities Exchange Commission v. Chenery Corp., 332 U.S. 194, 203, 67 S.Ct. 1575, 1580, 91 L.Ed. 1995 (1947). 26 21 We are particularly concerned that in retroactively applying its greater appreciation for the adverse effects of reciprocal trading, the FCC has abruptly reversed its decision to the contrary in RKO General, Inc. (KHJ-TV ), 44 F.C.C.2d 149 (1969), aff'd sub nom. Fidelity Television, Inc. v. FCC, 515 F.2d 684. That case held that essentially the same conduct was neither disqualifying nor ground even for a comparative demerit. 27 Failure to explain the reversal of directly controlling precedent is unlawful. See, e.g., Columbia Broadcasting System, Inc. v. FCC, 454 F.2d 1018, 1026 (D.C.Cir.1971); Melody Music, Inc. v. FCC, 345 F.2d 730, 732 (D.C.Cir.1965). Although an administrative agency is not bound to rigid adherence to its precedents, it is equally essential that when it decides to reverse its course, it must give notice that the standard is being changed ... and apply the changed standard only to those actions taken by parties after the new standard has been proclaimed as in effect. Boston Edison Co. v. FPC, 557 F.2d 845, 849 (D.C.Cir.), cert. denied sub nom. Towns of Norwood, Concord and Wellesley, Mass. v. Boston Edison Co., 434 U.S. 956, 98 S.Ct. 482, 54 L.Ed.2d 314 (1977). Although the FCC conditioned its first decision on RKO's reciprocal dealings on the possibility that significant new evidence might be introduced in the subsequent WNAC proceeding, such evidence never appeared. Additional evidence of reciprocal trading was heard in that second proceeding, but the bulk related to nonbroadcast activities by General Tire rather than RKO, and the remainder was merely cumulative of evidence in the first proceeding. 28 22 Finally, we doubt the Commission's claim that it can predict RKO's future character and performance from evidence concerning conduct that took place between 1961 and 1964. 29 Only the unusual nature of these proceedings allows the FCC to argue that such evidence is at all relevant. FCC precedents consider a licensee's behavior during the preceding license term relevant to renewal requests for the following term. Central Florida Enterprises, Inc. v. FCC, 598 F.2d 37, 43 (D.C.Cir.1978), cert. dismissed, 441 U.S. 957, 99 S.Ct. 2189, 60 L.Ed.2d 1062 (1979); Citizens Communications Center v. FCC, 447 F.2d 1201, 1208 (D.C.Cir.1971). RKO sought renewal of WNAC for the 1969-1972 term, and the FCC has failed to allege acts of reciprocity during the earlier term from 1966 to 1969. But RKO's renewal application for KHJ concerned the 1965-1968 term, thereby giving the FCC an excuse for claiming that conduct from 1962 to 1965 is precisely the conduct at issue. Brief for Appellee FCC (FCC Brief) at 36 n.59. Even so, the FCC acknowledges that the recency of misconduct is an important factor for purposes of character evaluation. Decision P 55(c); see Miami Valley Broadcasting Corp., 78 F.C.C.2d 684, 738-39 (1980). The Commission has not paid sufficient heed to that principle here. 23 Nothing in our opinion diminishes the force of the FCC's now clear statement that reciprocity by broadcast licensees is a prohibited practice. The Commission has laid down the rule that those who induce others to advertise on their stations for reasons unrelated to the station's programming or audience will do so at their peril. We agree that the purposes of the Communications Act are best served by leaving stations to obtain advertising and customers on the basis of their rates and audience, and that even unleveraged reciprocal trading distorts the normal free market process in the broadcast industry by which the demand for advertising time helps ensure that radio and television programming is responsive to public desires. See Decision PP 66-74. Competition in the broadcast industry means that a broadcaster should survive or succumb according to his ability to make his programs attractive to the public, FCC v. Sanders Bros., 309 U.S. 470, 475, 60 S.Ct. 693, 697, 84 L.Ed. 869 (1940), and reciprocity injects an extrinsic factor that breaks the link between program quality and revenues. This rule has now been articulated forcefully, and future violations should be treated with the firmness expressed by the FCC in this case. Nevertheless, this ground cannot justify disqualification of RKO for nonleveraged, mutual patronage agreements during the early 1960s.