Nat'l Cable & Telecomm. Assoc. v. Fed. Commc'ns Comm'n: D.C. Circuit Upholds FCC Ban on Exclusive Contracts in Multi-Dwelling Units

Nat'l Cable & Telecomm. Association v. Fed. Commc'ns Comm'n, May 26, 2009, No. 08-1016 Slip opinion

On May 26, 2009, the Court of Appeals for the District of Columbia Circuit upheld the Federal Communications Commission’s (“FCC”) ban on future and existing exclusivity agreements between cable companies and the owners of apartment buildings and multi-unit developments (“MUDs”). Writing for a unanimous court, Judge Tatel held that the ban was both “well within the bounds” of the FCC’s statutory authority and in full accordance with the requirements of the Administrative Procedure Act (“APA”). The National Cable & Telecommunications Association (“NCTA”), a cable industry group, opposed the regulation.

Matthew Lasar summarizes the case while pointing out that this decision is “a victory for telcos like AT&T and Verizon.” However, he notes that many “MDU-like dwellings,” such as time share units and school dorms, are not subject to the ban. The Blog of Legal Times and Blawgletter also provide summaries of the case.

The FCC argued that the ban fell under section 628(b) of the Communications Act, which prohibits cable operators from “engag[ing] in ... unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent any multichannel video programming distributor [MPVD] from providing satellite cable programming or satellite broadcast programming to subscribers or consumers.”

The court agreed, using the two-step Chevron test to guide its analysis. First, it found that the statute does not “unambiguously foreclose[] the Commission’s interpretation.” Most importantly, the court reasoned, the ban falls within a literal reading of the statute: Exclusivity contracts prevent competing cable operators, which are considered MPVDs, from providing service, and thus programming, to consumers. The court rejected the NCTA’s argument that since the provision’s original purpose was merely to prevent cable companies from halting the flow of programming to competitors, indirect regulation on programming through broad regulation of service is unlawful. The court concluded that “while the statute’s text, structure, and history do support the proposition that Congress was, in fact, principally concerned with program hoarding,” it does not limit the FCC to regulating programming delivery in ways tailored to that problem alone. Proceeding to Chevron’s second step, the court found that whatever ambiguity section 628 did possess was reasonably resolved by the FCC’s interpretation.

In addition to upholding the regulation’s statutory authority, the court also rejected the argument that the FCC’s reversal of its 2003 decision allowing exclusivity contracts was arbitrary and capricious. The court pointed out that the FCC is allowed to change its position as long as it provides “a reasoned analysis,” and in this case their reasoning was “more than equal to our forgiving standard of review.” In particular, the court noted that the earlier decision to allow exclusivity contracts was explicitly based on the lack of a fully developed record regarding the effect that these contracts have on competition. However, the FCC’s extensive analysis since that decision is sufficient enough to support a reversal of their original position.

Finally, the court upheld the ban’s effect on existing exclusivity contracts. Petitioners had argued that the FCC’s actions violated “the APA’s requirements that ‘legislative rules … be given future effect only,’ or, alternatively, to agency action with harmful, secondarily retroactive effects that the Commission failed to consider.” The court responded that the FCC’s ban only affects the current situation, and does not act retroactively. Additionally, “the Commission did expressly consider the relative benefits and burdens of applying its rule to existing contracts and, after extensive analysis, concluded that banning enforcement of existing contracts was essential.”

Though Senior Circuit Judge Silberman “fully agree[d]” with Judge Tatel’s opinion, he wrote separately to highlight NCTA’s implicit reliance on Holy Trinity Church v. United States, 143 U.S. 457 (1892), the seminal case endorsing purpose-based, rather than plain-language, statutory interpretation.

The FCC hopes that as a result of the ban, “triple play” service—whereby video, telephone, and internet service are sold as a bundled package—will be more readily available in apartment buildings and other multi-unit dwellings. They found that triple play competition between telephone and cable companies will “spur[] deployment of advanced technology, and facilitate[] efficiency and simplicity in the market.”