Opinion ID: 732303
Heading Depth: 2
Heading Rank: 2

Heading: Arbitrary and Capricious Claims

Text: 17 Petitioners each assert that the Commission's decision to reject their pioneer's preference request was arbitrary and capricious in violation of the Administrative Procedure Act. 5 U.S.C. § 706(2)(A). Under the arbitrary and capricious standard of review, we do not substitute [our] judgment for that of the agency. Motor Vehicle Mfrs. Ass'n of the United States, Inc. v. State Farm Mutual Auto. Ins. Co., 463 U.S. 29, 43, 103 S.Ct. 2856, 2866, 77 L.Ed.2d 443 (1983). Rather we look to see whether the decision was based on a consideration of the relevant factors and whether there has been a clear error of judgment. Id. (internal quotations omitted). An agency decision will be considered arbitrary if it runs counter to the evidence before the agency. Id. Further, an agency may not treat like cases differently. Airmark Corp. v. FAA, 758 F.2d 685, 691 (D.C.Cir.1985). We apply these principles of review to each of the petitions before us.
18 Under the Commission's pioneer's preference rules, a preference will be granted only when an applicant demonstrates that it ... has developed an innovative proposal that leads to the establishment of a service not currently provided or a substantial enhancement of an existing service. 47 C.F.R. § 1.402(a). The Commission rejected QUALCOMM's pioneer's preference request for lack of innovativeness, finding that the proposed technology was merely an adaptation of its previously developed 800 MHz system to the 2 GHz PCS band. According to the Commission, adaptation of technology that was not developed specifically for the advancement of a particular service is not innovative. Reconsideration Order, 9 F.C.C.R. at 7810 p 34. QUALCOMM contends that this ruling was arbitrary because the Commission has never required that technology be developed specifically for a particular service in order to obtain a pioneer's preference. 19 The Commission reads its pioneer's preference rule to require that a proposal lead to or substantially enhance a service, the emphasis being on the word a. 47 C.F.R. § 1.402(a) (emphasis added). QUALCOMM, by contrast, argues that the emphasis of the rule was on the word service. In other words, according to QUALCOMM, the rules provide that the Commission will not grant a pioneer's preference simply for the development of technology unrelated to some service. 20 At its core, QUALCOMM's argument constitutes a challenge to the Commission's interpretation of its pioneer's preference rules. We will defer to the FCC's interpretation of its own regulations unless that interpretation is plainly erroneous or inconsistent with the regulation. Jersey Shore Broad. Corp. v. FCC, 37 F.3d 1531, 1536 (D.C.Cir.1994) (citations and quotations omitted). Indeed, we will accord even greater deference to agency interpretations of agency rules than [we] do to agency interpretations of ambiguous statutory terms. Capital Network Sys., Inc. v. FCC, 28 F.3d 201, 206 (D.C.Cir.1994). Our role is not to ensure that [the Commission's] reading is the most natural or most logical, but only that it is reasonable and consistent with the regulations. K N Energy, Inc. v. FERC, 968 F.2d 1295, 1299-1300 (D.C.Cir.1992) (internal quotations omitted). We cannot say that the Commission's interpretation is unreasonable or inconsistent with the regulation. Therefore, we must defer to the Commission's interpretation. 21 Applying its interpretation of the pioneer's preference rule, the Commission concluded that QUALCOMM's proposal was not deserving of a preference. Reconsideration Order, 9 F.C.C.R. at 7810-11 pp 34-35. The Commission recognized that QUALCOMM [322 U.S.App.D.C. 273] ha[d] done work at 2 GHz and that the resulting equipment appear[ed] viable for the provision of PCS. Third R&O, 9 F.C.C.R. at 1370 p 266. But the Commission also found that QUALCOMM's equipment was initially developed for implementation of its 800 MHz digital cellular system and then merely adapted to the 2 GHz PCS band. Id. at 1369 p 266. Under the Commission's reasonable interpretation of the pioneer's preference rules, such adaptations are not eligible for a preference. 22 QUALCOMM argues that the Commission erred in concluding that its proposed technology was already existing given that, [a]t the time QUALCOMM filed its preference request, no CDMA digital cellular service at any frequency had been implemented commercially anywhere in the world. Petitioner's Brief at 31. According to QUALCOMM, the Commission has subsequently held that whether a technology is existing depends on whether it has been implemented in an existing service. Id. at 32 n. 71 (citing Review of the Pioneer's Preference Rules: Memorandum Opinion and Order, 11 F.C.C.R. 2468, 2469 (1996) [hereinafter Review] ). 23 At the time the FCC denied QUALCOMM's preference request, the Commission defined an existing technology as one that has been developed for implementation of [a service]. See Reconsideration Order, 9 F.C.C.R. at 7810 p 32 (emphasis added). Undoubtedly, it was reasonable to define an existing technology as one that has been developed. We agree that there appears to be some tension between this definition and the one set forth in the Commission's subsequent Review. See 11 F.C.C.R. at 2469 p 10 (stating that a technology should be eligible for a pioneer's preference .... provided that the technology has not previously been implemented in an existing service.). But [w]e have held that the FCC is not bound retroactively by its subsequent decisions and need not explain alleged inconsistencies in the resolution of subsequent cases. See CHM Broad. Ltd. Partnership v. FCC, 24 F.3d 1453, 1459 (D.C.Cir.1994). Any inconsistency between the two definitions should have been pursued in the subsequent proceeding, not this one. Amor Family Broad. Group v. FCC, 918 F.2d 960, 962 (D.C.Cir.1990). 24 QUALCOMM also makes much of the fact that the Commission, in its Tentative Decision, erroneously concluded that QUALCOMM had not developed and tested 2 GHz equipment. Tentative Decision, 7 F.C.C.R. at 7807 p 32. The Commission concedes that this conclusion was erroneous. This error, however, was not repeated in either the Third R&O or the Reconsideration Order. The erroneous conclusion in the Tentative Decision is irrelevant so long as it has since been corrected. Indeed, the very purpose of issuing tentative decisions is to afford the Commission an opportunity to correct any errors. See Public Citizen Health Research Group v. Commissioner, FDA, 740 F.2d 21, 31 (D.C.Cir.1984). 25 Still further, QUALCOMM argues that the Commission's conclusion that its proposal was not innovative is indefensible in light of the fact that the United States Patent Office granted a patent for QUALCOMM's technology. This argument too is unconvincing. When the FCC promulgated its pioneer's preference rules, it explicitly acknowledged that the standard for obtaining a patent differed from the standard for obtaining a pioneer's preference. Pioneer's Preference Order, 6 F.C.C.R. at 3492 p 37. New technology standing alone is eligible for a patent, 35 U.S.C. § 101, while pioneer's preferences are granted only when new technology is associated with a licensable service, Pioneer's Preference Order, 6 F.C.C.R. at 3492 p 37. 26 Finally, QUALCOMM argues that the Commission's interpretation of the rule was not applied equally to all preference applicants. According to QUALCOMM, Omnipoint received a preference for technology that was adapted from the 900 MHz to 2 GHz. In its request for a pioneer's preference, Omnipoint admitted that it began designing the technology in 1987, several years before the pioneer's preference program was introduced. Moreover, Omnipoint stated several times in its preference request that its technology had been tested at 900 [322 U.S.App.D.C. 274] MHz. Despite these statements, Omnipoint received a pioneer's preference. By contrast, QUALCOMM was denied a preference because the Commission found that QUALCOMM's proposed technology was a non-innovative adaptation in that QUALCOMM ha[d] been developing its ... technology since 1985 and had validated [it] for 800 MHz. Reconsideration Order, 9 F.C.C.R. at 7811. 27 Numerous parties to the FCC proceedings pointed out this disparate treatment to the Commission. See Third R&O, 9 F.C.C.R. at 1346. The Commission responded to these comments not by applying the developed specifically for a particular service test that the Commission had applied to QUALCOMM, but by reverting to its associated with test, finding that Omnipoint's technology was associated with a licensable service. Id. The Commission's explanation ended with the statement that Omnipoint has demonstrated that it performed significant new work related to 2 GHz PCS after adoption of the pioneer's preference rules. Id. But the same could be said of QUALCOMM. QUALCOMM's adaptation was also significant new work related to 2 GHz PCS. 28 In its brief to this court, the Commission responds that even if QUALCOMM and Omnipoint were disparately treated, QUALCOMM cannot complain that Omnipoint was granted a preference to which it was not entitled, relying on Adams Telcom, Inc. v. FCC, 38 F.3d 576, 581-82 (D.C.Cir.1994). But this case is easily distinguishable from Adams. In Adams, the pioneer's preference applications of similarly situated parties were subject to dissimilar procedural treatment. However, the applications of all the parties ultimately received equal treatment on the merits. See id. at 579-81. We therefore declined to remand the case on the ground that the Commission's interpretation of its pioneer's preference rules as applied to every applicant would require rejection of petitioners' applications. Id. at 581-82. In this case, by contrast, the Commission applied a newly developed (and questionable) interpretation of its pioneer's preference rules only to the merits of QUALCOMM's preference application. Were this case remanded, it is not at all clear whether the Commission would continue to adhere to this interpretation of the pioneer's preference rules. 29 In sum, we find reasonable the Commission's interpretation of the pioneer's preference rules such that adaptations of technology are not innovative and thus not deserving of a preference. However, we conclude that the Commission failed to apply this interpretation consistently to the detriment of QUALCOMM's application for a preference. We therefore vacate that portion of the Commission's decision denying QUALCOMM's preference request. We remand for further proceedings to remedy this inconsistency.
30 The Commission denied AMT/DSST's preference request for lack of technical feasibility and incompatibility with the spectrum scheme adopted by the Commission. AMT/DSST argue that the Commission's decision was arbitrary and capricious for several reasons. First, AMT/DSST argue that the Commission deviated from its own announced criteria in rejecting their proposal. According to AMT/DSST, the Commission tentatively denied their proposal on the ground that the proposed technology had not been field tested, contrary to the Commission's stated position that field testing is not a prerequisite to obtaining a pioneer's preference. Pioneer's Preference Order, 6 F.C.C.R. at 3493 p 39. Then, in the Third R&O, the Commission shifted its rationale and denied AMT/DSST's preference request on the ground that the proposal's technical feasibility had not been demonstrated. This shift, AMT/DSST argue, denied them an effective opportunity ... to address the ostensible basis for the denial of their pioneer's preference application. 31 We reject AMT/DSST's argument. As an initial matter, we do not accept the proposition that there was a shift in the Commission's rationale for rejecting AMT/DSST's preference request between the Tentative Decision and the Third R&O. In the Tentative Decision, the Commission tentatively rejected AMT/DSST's proposal because, [w]hile many aspects of [their] proposal appear[ed] to be innovative, the experimental [322 U.S.App.D.C. 275] reports indicate[d] that AMT had just begun initiating preliminary tests ... and that DSST had performed computer simulations and spectrum studies. Neither party appears to have developed 2 GHz PCS technology to the point of field testing. 7 F.C.C.R. at 7807 p 30. While this explanation contains no explicit mention of technical feasibility, the clear implication of the passage is that AMT/DSST's proposal was tentatively rejected because it was still in its early developmental stages, or stated another way, because its technical feasibility had not been demonstrated. Any ambiguity in the Tentative Decision was remedied in the Third R&O when the Commission stated that AMT and DSST ... failed to demonstrate the [proposed] equipment's technical feasibility. 9 F.C.C.R. at 1359 p 166 (emphasis added). 32 Even were we to conclude that there was a shift in the Commission's rationale between the Tentative Decision and the Third R&O, AMT/DSST cannot seriously claim that they were prejudiced by such shift. The Third R&O explicitly placed AMT/DSST on notice that the Commission found that AMT/DSST had not established that their proposal was technically feasible. AMT/DSST had a full and fair opportunity to raise any objections to this conclusion in their petition for reconsideration of the Third R&O. The Commission fully addressed these concerns on reconsideration. Reconsideration Order, 9 F.C.C.R. at 7807 p 13. 33 AMT/DSST further argue that the denial of their preference request was founded on factual errors and was thus arbitrary. Specifically, the Commission concluded that AMT/DSST's proposal was not feasible despite extensive record evidence to the contrary. Apparently, the evidence to which AMT/DSST refers is the technical analysis brought to the Commission's attention in AMT/DSST's petition for reconsideration. That analysis discussed the development of commercial spread spectrum equipment by Cylink, DSST's parent company, for use in the 900 MHz, 2.4 GHz, and 5.7 GHz Industrial, Scientific, and Medical bands (ISM bands). 34 The Commission did not disregard this evidence. Rather, it found the evidence inconsistent with [AMT/DSST's] previous assertions that they were developing new broadband PCS equipment. Reconsideration Order, 9 F.C.C.R. at 7808 p 14. As the Commission explained, if AMT/DSST's proposed system is based on Cylink's equipment, it does not qualify as an innovation worthy of a broadband PCS pioneer's preference. Id. In other words, the Commission concluded that even if the evidence established the feasibility of AMT/DSST's proposal, the proposal would be rejected because the evidence also demonstrated that AMT/DSST's proposed technology was adapted from technology that Cylink had developed for use in other bands. 35 However, the Commission's adaptation rationale is unsatisfying because, as discussed above, it was not applied consistently to all pioneer's preference applicants. Therefore, we are compelled to conclude that the Commission has failed to respond to record evidence concerning the technical feasibility of AMT/DSST's proposal. We would be troubled by this failure to address record evidence were lack of technical feasibility the sole basis for the Commission's decision to reject AMT/DSST's pioneer's preference application. The Commission, however, also denied AMT/DSST's preference request on the alternative ground that it was incompatible with the spectrum scheme adopted by the Commission. Id. 36 AMT/DSST attack this incompatibility rationale as well, arguing that the Commission granted pioneer's preferences to applicants with equally incompatible proposals. According to AMT/DSST, their preference request was denied because they requested only 5 MHz of spectrum space rather than the full 30 MHz the Commission proposed. By contrast, other parties to these proceedings requested more or less than 30 MHz, yet they received preferences. AMT/DSST's argument is without merit. The Commission awarded preferences to other applicants who proposed spread spectrum systems at varying band widths. AMT/DSST, however, proposed a different type of system altogether--an open architecture spectrum plan. [322 U.S.App.D.C. 276] Id. at 7807 p 8. Given that AMT/DSST proposed a different type of system than other preference applicants, AMT/DSST cannot complain of the disparate treatment they received.
37 In its Third R&O, the Commission rejected Viacom's proposal on the ground that it was not innovative, but rather was a compilation[ ] of existing technologies. 9 F.C.C.R. at 1373 p 301. According to Viacom, this explanation is inadequate in that it does not explain why compilations are not innovative or state what existing technologies Viacom's proposal combined. Viacom further argues that the Commission acted arbitrarily by treating Viacom's proposal differently than APC's despite the fact that the proposals were similar. 38 As a general rule, [t]he filing of a petition for reconsideration [is] not ... a condition precedent to judicial review of any [Commission] order unless one plans to raise on appeal questions of fact or law upon which the Commission ... has been afforded no opportunity to pass. 47 U.S.C. § 405(a)(2). Interpreting this provision, we have held that in order to question on appeal the adequacy of the FCC's explanation of its decision, a party must first present its concerns to the Commission so that the agency is afforded an opportunity to cure any defect. See United States v. FCC, 707 F.2d 610, 617, 619 (D.C.Cir.1983). 39 In response to the Commission's Tentative Decision, Viacom filed comments asserting that it and APC were equally deserving of pioneer's preferences. See Viacom Comments in Response to the Commission's Tentative Decision at 16. However, Viacom did not demonstrate the similarity of its proposal to that of APC by comparing the two. Viacom's comments also contained a passing reference to the Commission's failure to explain its decision. This statement, however, was far too vague to afford the Commission an opportunity to cure any defect in its order. When the Commission issued its Third R&O rejecting Viacom's preference request on the same grounds advanced in the Tentative Decision, Viacom did not petition for reconsideration. As a result, Viacom failed to raise its claims before the Commission clearly. Therefore, we will not consider them on appeal.
40 In its Tentative Decision, the Commission recommended that Freeman's preference request be denied for lack of technical feasibility. 7 F.C.C.R. at 7805 p 25. In response, Freeman filed four progress reports with the Commission detailing Freeman's experimentation on its proposed technology. Despite these progress reports, the Commission denied Freeman's preference request in the Third R&O, citing only the fourth progress report in support of the conclusion that Freeman had not finished testing its proposed technology and thus had not demonstrated its technical feasibility.9 F.C.C.R. at 1365 p 221 & n.249. 41 Freeman argues that the Commission failed to consider the third progress report in rejecting its proposal, and, by failing to consider it, erroneously concluded that the proposal was not feasible. Freeman concedes that it did not bring this alleged error to the attention of the Commission. Nonetheless, Freeman argues that the claim was preserved for appeal simply by filing the third progress report. 42 If a party to an FCC proceeding believes that the Commission has failed to address certain record evidence, § 405 requires that the party bring the matter to the attention of the agency before proceeding to court. Action for Children's Television v. FCC, 906 F.2d 752, 754-55 (D.C.Cir.1990). By failing to raise its failure to comment claim in a petition for reconsideration, Freeman denied the Commission the opportunity to consider the claim in the first instance and correct any error. Rogers Radio Communication Servs., Inc. v. FCC, 593 F.2d 1225, 1229 (D.C.Cir.1978). Its claim is therefore waived. 43 Freeman also argues that the Commission acted arbitrarily in that it treated Freeman differently than other similarly situated pioneer's preference applicants. It points particularly to the successful applications [322 U.S.App.D.C. 277] of Cox and Omnipoint. Freeman again concedes that it failed to raise this claim in a petition for reconsideration. It argues, however, that a petition was unnecessary because it would have been futile, as demonstrated by the fact that the Commission, on appeal, takes a position on the merits contrary to that of Freeman. 44 We have held that section 405 ... contains the traditionally recognized exceptions to the exhaustion doctrine. Omnipoint Corp. v. FCC, 78 F.3d 620, 635 (D.C.Cir.1996) (internal quotations omitted). Therefore, a reviewing court may consider arguments where issues by their nature could not have been raised, or would have been futile, to raise before the agency. Id. Freeman, however, has failed to establish that it would have been futile to present its disparate treatment claim to the agency. If futility could be established by the mere fact that the Commission opposes a petitioner's position on appeal, then futility could always be demonstrated and the requirements of § 405 would be eviscerated. Because Freeman failed to raise its disparate treatment claim before the Commission and because Freeman has not demonstrated that it would have been futile to do so, the claim is waived.
45 ACT argues that the Commission erroneously considered its preference request in the narrowband, rather than broadband proceeding. The Commission responds that ACT failed to raise this miscategorization claim in a timely petition for reconsideration of the First R&O in which the Commission denied ACT a narrowband preference. Accordingly, the Commission argues, ACT's claim is waived. 46 As discussed above, Section 405 requires that a petition for reconsideration be filed if one plans to raise on appeal issues the Commission has not had an opportunity to address. The time period for filing a petition for reconsideration is thirty days from the date upon which public notice is given of the order ... complained of. 47 U.S.C. § 405(a). ACT filed its petition for reconsideration of the narrowband proceeding 103 days after the Commission issued the First R&O rejecting ACT's preference request. This petition was plainly untimely. 47 ACT claims that the Commission's notice of proposed rulemaking, Amendment of the Commission's Rules to Establish New Personal Communications Services: Notice of Proposed Rulemaking and Tentative Decision, 7 F.C.C.R. 5676 (1992) [hereinafter Notice], misled it into believing that its proposal would be considered in the broadband proceeding. Interestingly, ACT fails to cite to the portion of the Notice that was allegedly misleading. In fact, the Notice explicitly stated that it considered CT-2--which formed the basis for ACT's preference request--to be a narrowband service[ ]. Id. at 5733 p 142. If ACT was truly misled by the Notice, it has not explained why. 48 While we have held that even late filed petitions should be considered by an agency where the late filing is in some sense attributable to a procedural violation by the Commission, Gardner v. FCC, 530 F.2d 1086, 1091 (D.C.Cir.1976), the FCC bears no blame for ACT's tardiness in this case. From the outset of these proceedings, the Commission stated that CT-2 service would be considered in the narrowband proceeding. In the Tentative Decision, the Commission stated explicitly that ACT's proposed CT-2 service was a candidate for a narrowband PCS preference. 7 F.C.C.R. at 7806 p 27. Several months later, when the Commission issued its First R&O addressed to narrowband pioneer's preference requests, ACT's CT-2 preference proposal was denied. 8 F.C.C.R. at 7176 p 82. 49 In the end, ACT virtually concedes that the real reason for its tardiness was not the Commission's Notice, but rather the fact that ACT was in between communications counsel at the time the petition was due. Petitioner's Brief at 36. But difficulties with lawyers do not absolve one of responsibility for complying with the statutory filing deadline. See Virgin Islands Tele. Corp. v. FCC, 989 F.2d 1231, 1237 (D.C.Cir.1993). ACT alone was responsible for its failure to file a timely petition for reconsideration. Because a timely petition was not filed, the Commission was denied the opportunity to consider [322 U.S.App.D.C. 278] ACT's miscategorization claim. Therefore, we are precluded from considering that claim.