Three’s the charm, as the Third Circuit sends the FCC’s Quadriennial Review proceeding back to the Commission for a third time

We once described the FCC’s quadrennial ownership review process as Sisyphean in nature. Keeping with that analogy, we can report that the rock has now rolled back down the hill … again. But this time the judicial gods appear ready to step in to make sure the job finally gets done. In the meantime, the media ownership limits that have been on the books for years remain in place except for the Commission’s 2014 decision making certain joint sales agreements (JSAs) between TV stations “attributable” interests for purposes of the ownership rules. That decision has now been vacated, although perhaps not for long.

The quadrennial review process, mandated by Congress back in 1996, requires the Commission to review all of its media ownership rules every four years to determine if they remain “necessary in the public interest as a result of competition”. The FCC’s 2002 review, completed by the FCC in 2003, ended up in the U.S. Court of Appeals for the Third Circuit, which sent the decision back to the FCC in 2004 because, in the Court’s view, the Commission had not adequately explained its decision. While the FCC was still working on that remand, 2006 rolled around, and another biennial review began. That one also went up to the Third Circuit which, in 2011, again sent it back to the FCC for a number of reasons. But before then, the 2010 review had begun, so the remanded issues from the 2006 review got folded into the 2010 review. But that proceeding had not been completed as of 2014, so it got folded into the 2014 review. At the same time the 2014 review got started, the Commission decided to expand the definition of “attributable interests” for TV licensees to include certain LMAs.

A number of broadcast folks appealed that last decision. At the same time, a number of groups that had been pressing for resolution of ownership issues still lingering from 2006 asked the Third Circuit to require the FCC to bring its multiple pending ownership reviews to a conclusion. And now the Third Circuit has issued its third case entitled Prometheus Radio Project v. FCC.

The decision is not a good one for the FCC.

With respect to the broadcasters’ appeal of the JSA decision, the Court has concluded that the Commission could not permissibly expand its ownership limitations (by making JSAs attributable) before it had first determined that the underlying ownership rules are in the public interest. Since the Commission has yet to make such a determination, the FCC’s JSA ruling has been tossed, at least for the time being.

The FCC had attempted to justify its expansion of “attributable interests” to include JSAs by arguing that changes to its attribution rules were separate and distinct from the ownership limits themselves, which could not be expanded without a finding that they remain “necessary in the public interest”. The Court disagreed. It held that the attribution rules, which determine who is subject to the ownership rules, could not be expanded without the Commission first finding that the underlying rules themselves remained justified. Since the FCC had not resolved a quadrennial review within the prior four years (which it clearly hadn’t – and still hasn’t), the Commission was (and remains) precluded from expanding its attribution policies. As a result, television JSAs are once more non-attributable.

In the separate appeal brought by non-broadcasters (dubbed “Citizen Petitioners” by the Court), the petitioners were complaining about the FCC’s overall delay, but a primary focus was the FCC’s failure to come up with a suitable definition of the term “eligible entity”.

The Court had perhaps the harshest words for the Commission’s failure to act on revising its eligible entity definition. The FCC has long struggled with that definition, which it has attempted to use to satisfy its statutory obligation to promote minority and female broadcast ownership. Because governmental programs awarding preferences based on race and ethnicity have difficulty passing constitutional muster, the Commission since 2003 has instead attempted to award preferences to “eligible entities” as something of a proxy for race and gender. In 2003, the Commission defined “eligible entities” based solely on their revenue, assuming that businesses with lower revenue were more likely to be female- and/or minority-owned. This definition has drawn significant criticism as being unsupported, which is not surprising in view of the fact that the Commission has never demonstrated that this preference actually helps minority- or female-owned businesses.

In its 2011 Prometheus decision, the Court agreed that the revenue-based definition was inadequate, and it told the FCC to come up with a better one. But the Commission has yet to do so, repeatedly claiming instead that it doesn’t have enough evidence to defend a race/ethnicity/gender-based definition against a constitutional attack. Now, five years down the line, the Court has decided that enough is enough. It is requiring the FCC and the Citizen Petitioners to enter into mediation to establish a timetable for the Commission to come up with a final agency action on the definition of “eligible entity”. If no such timetable is adopted within 60 days, however, the Court stated that it would impose one on the Commission.

While the failure to adopt an eligible entity definition seemed to irk the Court the most, the Court also took the Commission to task for its failure to complete the overall media ownership rule review called for by the Communications Act. According to the Court, the Commission has provided no “cogent” justification for its delay. Going forward, the Court ruled, the FCC must act expeditiously to resolve the pending quadrennial reviews.

To illustrate the problems that arise when the FCC repeatedly folds one unfinished quadrennial review into the next without ever resolving them, the Court cited the newspaper/broadcast cross-ownership rule. As long ago as 2003, the FCC and the Court had both agreed that this rule, in place since 1975, no longer served the public interest. But because the Commission had not justified the replacement rule it adopted in 2004, however, the 1975 version, now more than 40 years old, remains on the books.

While the Court was clearly exasperated with the Commission, the Court stopped short of granting the broadcaster parties the pie-in-the-sky relief they asked for. The broadcast parties had argued that, since the Commission has not concluded that its media ownership rules are in the public interest, all those rules should be thrown out. But the Court determined that dropping a nuclear bomb on the rules in that fashion would unleash “chaos” in the broadcast industry. Moreover, while the Commission had failed to justify its current ownership rules, the Court is not convinced that the Commission would be unable to justify at least some restrictions on media ownership.

Because total elimination of the rules was the only relief (as to the quadrennial reviews) that the broadcaster parties had requested, the Court found itself unable to grant lesser relief (such as an order requiring the Commission to complete its reviews by a certain time). The Court did, however, make clear that it expects the FCC to act quickly, and will hold the Commission to its estimate at oral argument that a final order should be issued by the end of 2016. If the Commission misses that deadline, the Court strongly suggested that it would take more concrete action in resolving any further proceedings before it.

While the Court’s decision is clearly a victory for the broadcaster parties, the relief may be short-lived. The Commission is now essentially obligated to complete its quadrennial review(s) by the end of this year. In doing so, the Commission may very well re-adopt some limit on television JSAs and, indeed, the Court explicitly stated that its decision would not prevent such a re-adoption, provided the Commission could justify the underlying ownership rules, whether the existing rules or a replacement. At a press conference after the Commission’s monthly public meeting (which coincidentally occurred hours after the Court’s decision was released), Chairman Wheeler suggested that he may very well include such re-regulation in the draft ownership order he promised to circulate by June.

All of this leaves us with the question of what comes next. The first concrete deadline is for mediation regarding the “eligible entity” definition, which should result in at least a timeline for resolution (if not actual resolution) of that issue within 60 days. While not a concrete deadline, the Commission has essentially promised to circulate (internally) a draft order wrapping up the 2010 and 2014 quadrennial reviews even sooner, by the end of June. That order will almost certainly be controversial, and is likely to require significant effort to gain a majority vote, whatever its contents. With such a tight timeline, we can perhaps expect the Commission to simply issue a report and order wrapping up the quadrennial review kicked off with its 2014 quadrennial review further notice of proposed rulemaking, rather than attempting to initiate an entirely new comment cycle. While probably necessary to satisfy the timing requirements, that approach may add some complication in that it will be relying on a record that is in many respects almost two years old.

Of course, with the tortured history of the quadrennial reviews, a two-year delay might seem relatively insignificant.