Court Opinion

ID: 815347
Source: CourtListenerOpinion
Date Created: 2013-01-15 15:57:50+00
Date Added: 2024-06-11T15:25:49.499755
License: Public Domain

United States Court of Appeals
         FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 14, 2012         Decided January 15, 2013

                       No. 04-1033

               ECHOSTAR SATELLITE L.L.C.,
                      PETITIONER

                            v.

         FEDERAL COMMUNICATIONS COMMISSION
            AND UNITED STATES OF AMERICA,
                    RESPONDENTS

 NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION,
                    INTERVENOR

                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 cause for respondents. With him on
the briefs were Catherine G. O’Sullivan and James J.
Fredricks, Attorneys, U.S. Department 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: BROWN, Circuit Judge, and EDWARDS and
RANDOLPH, Senior Circuit Judges.

    Opinion for the court filed by Circuit Judge Brown.

    Concurring opinion filed by Senior Judge Edwards.

     BROWN, 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 “encoding
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 leased their navigation devices directly from their
cable providers. See Gen. Instrument Corp. v. FCC, 213 F.3d
724, 727 (D.C. Cir. 2000). But Congress, anxious to create
separate markets for navigation devices and cable television
services, added § 629 to the Communications Act as part of the
Telecommunications Act of 1996. See id. That provision
attempts to strike a balance: On the one hand, § 629 directs the
FCC to “adopt regulations to assure the commercial
availability” of “equipment used 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 navigation devices can
be marketed nationally while still proving capable of thwarting
unauthorized access to service.

     In 2002, with FCC prompting, cable television service
providers negotiated with representatives of the consumer
electronics industry to arrive 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 programming
                               4
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 from 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, various satellite carriers
criticized the proposed application of the encoding rules to all
MVPDs. They both complained that satellite carriers were
excluded from the negotiations that gave rise to the MOU and
also characterized 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 also addressed
two related issues: prohibiting down-resolution of broadcast
programming — which involves streaming content at an
intentionally degraded resolution quality — and limiting the
level of copy protection encoding applicable to certain
categories of programming. In the FCC’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
ensuring 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 measured
                             5
balance between the rights of content owners and the home
viewing expectations of consumers, while ensuring
competitive parity among MVPDs,” the 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 1996, 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 our
jurisdiction to review DISH’s challenge.

                             A

     As a threshold matter, the 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 reconsideration. 47 U.S.C. § 405(a). The
question, then, is whether the FCC had an opportunity to
consider DISH’s challenge to its authority to promulgate the
encoding rules.
                                6
     Because § 405 is phrased in the passive voice, whether 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 permitted so long as “the issue is necessarily implicated by
the argument made to the Commission.” Id. at 80.

     The Order’s discussion of the FCC’s authority satisfies us
that § 405’s requirements have been met. See Order ¶¶ 45–47,
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 authority 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). We 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 equipment, 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 video
                                 7
cassette 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 of § 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 the FCC points out the encoding rules fulfill
“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 of
down-resolution); id. ¶ 68, 18 FCC Rcd. at 20915 (doing the
same with respect to copy protection limits). Consumer
satisfaction enhances consumer demand, ensuring a viable
commercial market. However, as the FCC acknowledges, the
encoding rules are not necessary to sustain a commercial
market for direct broadcast satellite devices. In fact, the FCC
    2
       Whether application of Chevron in this context is sensible is
an entirely different matter. See AKM LLC dba Volks Constructors
v. Sec’y of Labor, 675 F.3d 752, 766 (D.C. Cir. 2012) (Brown, J.,
concurring). The Supreme Court recently granted certiorari to
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 enough to tether the encoding rules to § 629.
The FCC cannot 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 read § 629 in this way
would leave the FCC’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
the 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 output 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
jurisdiction under both § 629 and § 624A, which, under certain
circumstances, extends the agency’s regulatory powers beyond
express statutory mandates.            Under § 4(i) of the
Communications Act of 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. Sw. Cable 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
Commission’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 all 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 encoding 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 “inability 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 providers’ content offerings? Could they have
demanded the FCC limit the number of channels satellite
providers might broadcast in high definition? Under the
FCC’s view, its ancillary jurisdiction is effectively plenary.
The FCC is not authorized under § 629 to take any action that
lessens the competitive pressures posed by satellite providers
in order to induce cable operators to ratify an MOU the agency
favors. Guided 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 creativity in linking
its regulatory actions to the goal of commercial availability of
navigation devices. See also Ry. Labor Execs. Ass’n v. Nat’l
Mediation 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 likely 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 47 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).     By invoking its ancillary authority in
conjunction with § 624A’s compatibility mandate, the FCC
seeks to square this circle.

     The FCC is powerless to wield its ancillary 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 delegation of
authority to regulate cable systems, as opposed to all MVPDs,
is precisely such an indication. True, 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 Protection and Competition Act of 1992

     4
       We set aside for now whether § 624A’s reference to “video
cassette recorders,” now a largely antiquated technology, 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.”
BLACK’S LAW DICTIONARY 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 “direct 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 programming 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 contrast to cable television technology in
Southwestern Cable, satellite television was not 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 authority in
furtherance of express congressional directives. But 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”), acting 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 make
navigation devices commercially available. Instead, the
NCTA suggests that § 629 sweeps all MVPDs, not just cable
providers, under the ambit of § 624A: “If Section 629 means
anything, it means that the Commission now has authority to
apply to all MVPDs 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 interplay between the two
statutes is novel — perhaps because it ignores § 629(f), which
                               13
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). The
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. The FCC’s application of
encoding rules to all MVPDs was therefore ultra vires.

                               III

    Because the FCC denies that the challenged orders could
operate 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 severable 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 petitions for review, we therefore vacate the
Order and Reconsideration Order in their entirety.

                               IV

    For the foregoing reasons, the petitions for review are

                                                       Granted.
     EDWARDS, 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 they 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 programming systems, from
manufacturers, retailers, and other vendors not affiliated with
any multichannel video programming 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 is
                                2

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 decision 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 explanation 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 trump an agency’s, the court must
                                3

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 adoption of these encoding rules,
    the cable and consumer electronics industries have
    indicated that the compromise agreement reached in the
    [Memorandum of Understanding 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 statutory 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 own
                                 4

    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 encoding rules on satellite carriers
fails for lack of reasoned decisionmaking.