In a decision that may affect future Federal Communications Commission rulemakings, the US Court of Appeals for the Second Circuit recently ruled in a case that challenged the constitutionality of the FCC’s program carriage rules. Specifically, the court held that the FCC’s program carriage rules, which address discrimination and related claims by programmers against cable operators, do not violate cable companies’ First Amendment rights. And although the court agreed that the FCC had the authority to regulate program carriage, the court vacated a specific component, the FCC’s “standstill rule,” on procedural grounds.
Congress was concerned with the potential for anticompetitive effects resulting from increased vertical integration between distributors and content providers when it passed the 1992 Cable Act, which authorized the FCC to establish regulations addressing specified anticompetitive practices involving program carriage agreements. The FCC’s program carriage rules were designed to curb alleged anticompetitive conduct by prohibiting cable and other multichannel video programming distributors from discriminating against unaffiliated networks in favor of their own programming on the basis of affiliation and engaging in other specified conduct—such as requiring an interest in a programmer in exchange for carriage or requiring exclusive carriage rights vis-à-vis another distributor.
Cable companies challenged the FCC’s most recent amendments to the program carriage rules, arguing that to the extent the program carriage rules required them to carry unaffiliated networks on the same terms as affiliated networks, the rules imposed a content-based restriction on their editorial determinations of what programming networks they chose to provide to their customers. The cable companies argued such content-based restrictions should be subject to—and would not survive—strict scrutiny.
In rejecting the cable companies’ argument, the Second Circuit held that the program carriage rules are content neutral and only prohibited distributors from discriminating based on affiliation—and not based on content. Consequently, the rules were subject to intermediate scrutiny. Under an intermediate scrutiny standard of review, the FCC’s rule must (1) advance an important governmental interest unrelated to the suppression of speech, and (2) not burden substantially more speech that necessary to further those interests. In applying this standard, the court found that the program carriage rules advanced governmental interests of fair competition and promotion of a diverse information sources in the video programming market. The court also noted that the program carriage rules were narrowly tailored to avoid placing any greater burden on distributors’ editorial discretion than necessary by only prohibiting affiliation-based discrimination that has anticompetitive effects. Indeed, the court was keen to note that distributors could still refuse to carry an unaffiliated network if based on reasonable business practices. In fact, the DC Circuit recently overturned an FCC program decision because it held that Comcast refused to carry an unaffiliated network based on reasonable business decisions—and not based on network affiliation.
While the court rejected the cable companies’ First Amendment challenge, it agreed with the companies in vacating the FCC’s standstill rule. The standstill rule requires a distributor to continue carrying an unaffiliated network under the terms of its preexisting contract until the network’s program carriage complaint against the distributor is resolved. The cable companies argued that the FCC failed to provide adequate notice of and opportunity to comment on the standstill rule under the Administrative Procedure Act (APA) because it was not mentioned in the FCC’s 2007 Notice of Proposed Rulemaking (NPRM), which eventually lead to a 2011 Order adopting the rule.
The FCC argued that the standstill rule was procedural and not subject to notice and comment rulemaking under the APA. The court disagreed, finding that the standstill rule was substantive in nature because it allowed the FCC to “temporarily extend” the terms of an agreement between a distributor and an unaffiliated network while a dispute was pending. The court further noted that no statute specifically conferred such authority in the program carriage context and that the FCC did not indicate that it was considering adopting such a rule in its 2007 NPRM—which, as a result, provided no opportunity for public comment on the matter. And because the court vacated the rule on procedural grounds, it also recognized that the FCC would be free to adopt the exact same rule in the future by providing notice and comment. In terms of its significance, this decision may make the FCC, as well as other federal agencies, more cautious in adopting rules pursuant to the APA’s procedural exception to notice and comment.