CommLawBlog : Broadcast & Communications Lawyers & Attorneys : Fletcher Heald & Hildreth Law Firm : Telecommunications, FCC Regulation, Communications Act

The replacement facilities specified in the 2004 permit had in fact been built within the construction period (this according to the station’s licensee, and we have no reason to doubt it), but the license application was inadvertently overlooked. Four years later, in 2011, the licensee tried to file the covering license application, but the Audio Division refused to accept it because the underlying permit had died in 2007. Instead, the Division made the licensee file for a new CP, which was promptly granted. (The licensee followed up with a very prompt license application.)

In addition to sending the licensee back to Square One, application-wise, the Division also proposed to fine the station for failing to timely file its license application for the 2004 permit, and also for operating without authorization during the time between (a) the expiration of the 2004 permit in 2007 and (b) grant of special temporary authority in 2011.

Hold on there, said the licensee. Despite the seeming clarity of Section 73.3598(e), the Division had historically been willing to waive the automatic expiration provision. According to the licensee, the Division should have done the same here. 

The licensee was correct on its facts: in at least a couple of instances the staff had indeed waived the rule without fanfare. The licensee argued that it would therefore be inappropriate (if not unlawful) for the Division to impose a forfeiture on conduct that the licensee had every reason to believe was lawful.

(Disclosure: In one of the earlier cases cited by the licensee, the waiver had an adverse impact on one of our clients. We took the FCC to court, complaining that the waiver should not have been granted. After an oral argument in which the FCC seemed – to us, at least – to get roughed up pretty badly, the parties were able to resolve the contretemps to everyone’s satisfaction through an amicable settlement before the court issued a decision.)

Faced with this convincing argument, the Division did the Right Thing and canceled the forfeiture. In so doing, though, it took the time to announce a new policy going forward, to wit:

we will only waive the automatic expiration provision of Section 73.3598(e) and accept a late-filed covering license application where: (1) the permittee demonstrates conclusively that construction in accordance with the construction permit was complete and the station was “ready for operation” by the permit expiration date; and (2) the covering license application is filed within 30 days of the expiration date. [Footnote omitted]

In a footnote, the Division made clear that timely completion of construction is an absolutely critical requirement. That is, don’t get cute and try to keep the permit alive simply by filing a license application if any underlying construction remains to be done. That dog won’t hunt.

The Division also emphasized that, “subject to this 30-day grace period”, it will still be issuing fines to folks who operate facilities specified in construction permits which have expired.

The Division’s order provides a welcome measure of certainty in an area that, up until now, had been very loosey-goosey. But in so doing, the order also throws a large burden back onto permittees. They will now have to keep careful track of their permits’ expiration dates and, more importantly, they will have to be extra-careful to get (a) construction completed by the expiration date and (b) the covering license application filed no later than 30 days after that expiration date.

It is particularly important that the permittee keep track of these chores because the FCC won’t. In the Division’s view (and, indeed, in the very language of Section 73.3598), a permit’s expiration occurs automatically, without any further action or notice by the Commission. The 30 extra days the Division has now tacked onto the rule (with respect to the filing of the license application) is a gift that’s not likely to be expanded.  So if you wake up on Day Thirty-One following your CP’s expiration and it suddenly occurs to you that you haven’t filed your license application, don’t expect the Division to cut you any slack.

You have been warned.

(Further cautionary note: The decision described above was issued by the Audio Division, not by the Media Bureau. It thus might be read to announce only that Division’s policy. But bear in mind that Section 73.3598 applies to all broadcast construction permits, including TVs. While one might ordinarily expect – and the law ordinarily requires – similar cases to be treated similarly, it’s not clear that the folks in the Video Division will take the approach the Audio Division has staked out. And it’s also not clear whether, if Video were to adopt a different take on Section 73.3598, that alternative take would ultimately be upheld, either by the Bureau, the Commission or the courts.)

One such unaddressed detail: the order did not specify when the application for assignment to the “eligible entity” has to be filed relative to the expiration of the permit. While the Commission assumed that the proposed acquisition of the permit would be consummated before the permit expired, the precise mechanics underlying the application were not spelled out in any detail. In fact, they weren’t spelled out at all.

The Bureau has now addressed at least that aspect. In its public notice, the Bureau has clarified that applications for CP sales filed pursuant to the “eligible entity” provision (i.e., Section 73.3598(a) of the rules) “should generally be on file at least 90 days prior to permit expiration.” So if you have a permit with a short remaining shelf life that you’re thinking about selling to an “eligible entity”, you should have the agreement tied down and the assignment application filed at least 90 days before the CP’s expiration date. (The idea is that that should ordinarily provide enough time for (a) the staff to process the assignment application through to a grant and (b) the parties then to consummate the deal.)

Since this “at-least-90-days-before-expiration” filing deadline had not previously been announced, the Bureau has established a grace period of sorts. Specifically, between now and May 31, 2009, the Bureau will accept CP assignment applications as long as the underlying permit has not expired prior to the filing of the application.  (The grant of any such assignment will be subject to a condition that the deal be closed within 30 days of the grant.)

But starting June 1, the Bureau will require that the sale to the eligible entity be consummated prior to the expiration of the underlying permit – hence the Bureau’s admonition that applications for such assignments be on file at least 90 days prior to the expiration.

The Bureau’s “guidance” here leaves unresolved a number of other practical questions concerning the implementation of Section 73.3598(a). We’ll just have to wait for further clarification(s). In the meantime, at least you know when your applications must be filed.

[Sidenote:  What, you may ask, is an “eligible entity”? Here’s how the Commission has defined that term for purposes of the Section 73.3598(a) provision, among others:

any entity that would qualify as a small business consistent with Small Business Administration (“SBA”) standards for its industry grouping, based on revenue. At present, the SBA defines as a small business a television broadcasting station that has no more than $13 million in annual receipts and a radio broadcasting entity that has no more than $6.5 million in annual receipts. To determine qualifications as a small business, the SBA considers the revenues of the parent corporation and affiliates of the parent corporation, not just the revenues of individual broadcast stations. In addition, in order to ensure that ultimate control rests in an eligible entity that satisfies the revenue criteria, the entity must satisfy one of several control tests. The eligible entity must hold: (1) 30 percent or more of the stock/partnership shares and more than 50 percent voting power of the corporation or partnership that will hold the broadcast license; or (2) 15 percent or more of the stock/partnership shares and more than 50 percent voting power of the corporation or partnership that will hold the broadcast licenses, provided that no other person or entity owns or controls more than 25 percent of the outstanding stock or partnership interests; or (3) more than 50 percent of the voting power of the corporation if the corporation that holds the broadcast licenses is a publicly traded company.

Promoting Diversification of Ownershipin the Broadcasting Services, FCC 07-217, pp. 4-5. The Commission is still considering possible changes to that definition – for example, abandoning the gender- and race-neutral approach and, instead, specifically including ownership by minorities and women as a definitional component of the term. In view of the thorny constitutional issues that such a change would give rise to, though, the Commission is not likely to embrace that particular change, at least in the near-term.]