Time Warner Entertainment Co v. Fed. Commun. Comm'n, 94-1035

• Decision Date: 02 March 2001
• Docket Number: No. 94-1035,94-1035
• Parties: (D.C. Cir. 2001) Time Warner Entertainment Co., L.P. Petitioner v. Federal Communications Commission and United States of America, Respondents BellSouth Corporation, et al., Intervenors Consolidated with 95-1337, 99-1503, 99-1504, 99-1522, 99-1541, 99-1542, 00-1086
• Court: U.S. Court of Appeals — District of Columbia Circuit

Page 1126

240 F.3d 1126 (D.C. Cir. 2001)

Time Warner Entertainment Co., L.P. Petitioner v. Federal Communications Commission and United States of America, Respondents BellSouth Corporation, et al., Intervenors

No. 94-1035 Consolidated with 95-1337, 99-1503, 99-1504, 99-1522, 99-1541, 99-1542, 00-1086

United States Court of Appeals FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued October 17, 2000

Decided March 2, 2001

On Petitions for Review of Orders of the Federal Communications Commission

David W. Carpenter argued the cause for petitioners AT&T Corporation and Time Warner Entertainment Co., L.P. With him on the briefs were Peter Keisler, David L. Lawson, C. Frederick Beckner III, Henk Brands and Robert D. Joffe. Charles S. Walsh, Richard B Beckner, Stuart W. Gold and Marc C. Rosenblum entered appearances.

Robert D. Joffe and Henk Brands were on the briefs for petitioner Time Warner Entertainment Co., L.P. Charles S. Walsh, Richard B. Beckner and Stuart W. Gold entered appearances.

Andrew Jay Schwartzman, Cheryl A. Leanza and Harold Feld were on the briefs for petitioner Consumers Union.

James M. Carr, Counsel, Federal Communications Commission, argued the cause for respondents. With him on the brief were Christopher J. Wright, General Counsel, Daniel M. Armstrong, Associate General Counsel, Joel Marcus and James M. Carr, Counsel, David W. Ogden, Acting Assistant Attorney General, U.S. Department of Justice, Mark B. Stern and Jacob M. Lewis, Attorneys, and Wilma A. Lewis, U.S. Attorney. William E. Kennard, General Counsel, Federal Communications Commission, John E. Ingle, Deputy Associate General Counsel, and Catherine G. O'Sullivan, Robert B. Nicholson and Robert J. Wiggers, Attorneys, U.S. Department of Justice, entered appearances.

Henk J. Brands, Robert D. Joffe, Peter D. Keisler, David L. Lawson and C. Frederick Beckner III were on the brief for intervenor Time Warner Entertainment Co., L.P. in No. 99-1522. Mark C. Rosenblum entered an appearance.

Before: Williams, Randolph and Tatel, Circuit Judges.

Opinion for the Court filed by Circuit Judge Williams.

STEPHEN F. WILLIAMS, Circuit Judge:

Section 11(c) of the Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460 ("1992 Cable Act"), amends 47 U.S.C. § 533 to direct the Federal Communications Commission to set two types of limits on cable operators. The first type is horizontal, addressing operators' scale: "limits on the number of cable subscribers a person is authorized to reach through cable systems owned by such person, or in which such person has an attributable interest." 47 U.S.C. § 533(f)(a)(1)(A). The second type is vertical, addressing operators' integration with "programmers" (suppliers of programs to be carried over cable systems): "limits on the number of channels on a cable system that can be occupied by a video programmer in which a cable operator has an attributable interest." 47 U.S.C. § 533(f)(a)(1)(B). The FCC has duly promulgated regulations. See 47 C.F.R. § 76.503-04. Petitioners Time Warner and AT&T challenge the horizontal limit as in excess of statutory authority, as unconstitutional infringements of their freedom of speech, and as products of arbitrary and capricious decisionmaking which violate the Administrative Procedure Act. Time Warner similarly challenges the vertical limit. Together with AT&T, Time Warner also challenges as arbitrary and capricious the rules for determining what counts as an "attributable interest." Concluding that the FCC has not met its burden under the First Amendment and, in part, lacks statutory authority for its actions, we remand for further consideration of both limits. In addition we vacate specific portions of the attribution rules as lacking rational justification.

Consumers Union also files a petition for review, which need not detain us long. It objects to the Commission's action to the extent that it continued a stay on enforcement of the horizontal limit. See Implementation of Section 11(c) of the Cable Television Consumer Protection and Competition Act of 1992, 14 F.C.C.R. 19098, 19127-28 p p 71-73 (1999) ("Third Report"). The Commission issued the stay after a district court found the statute underlying that limit unconstitutional, see Daniels Cablevision, Inc. v. United States, 835 F. Supp. 1 (D.D.C. 1993), and provided that in the event of Daniels's reversal the stay would end. See Implementation of Sections 11 and 13 of the Cable Television Consumer Protection and Competition Act of 1992, 8 F.C.C.R. 8565, 8609 p 109 (1993) ("Second Report"). We did reverse Daniels in Time Warner Entertainment Co. v. United States, 211 F.3d 1313 (D.C. Cir. 2000) ("Time Warner I"), so the stay ended automatically.¹ Thus the stay issue is moot unless the issue posed is capable of repetition yet evading review. Even if we assume that the issue evades review, its recurrence is not probable enough to qualify it as "capable of repetition." See Spencer v. Kemna, 523 U.S. 1, 17 (1998) (requiring "a reasonable expectation that the same complaining party [will] be subject to the same action again") (internal citations omitted). Although we find here that the regulations fail constitutional scrutiny, the specific condition that led to the stay--a pending challenge to the statute's constitutionality-is highly unlikely to recur. We therefore find Consumers Union's claim moot and dismiss the petition.

* * * The horizontal rule imposes a 30% limit on the number of subscribers that may be served by a multiple cable system operator ("MSO"). See 47 C.F.R. § 76.503; Third Report 14 F.C.C.R. at 19119 p 55. Both the numerator and denominator of this fraction include only current subscribers to multichannel video program distributor ("MVPD") services. See id. at 19107-10 p p 20-25. Subscribers include not only users of traditional cable services but also subscribers to non-cable MVPD services such as Direct Broadcast Satellite ("DBS"),² a rapidly growing segment of the MVPD market. See id. at 19110-12 p p 26-35. The Commission pointed out that under this provision the nominal 30% limit would allow a cable operator to serve 36.7% of the nation's cable subscribers if it served none by DBS. See id. at 19113 p 37 & n.82.³ In an express effort to encourage competition through new provision of cable, the Commission excluded from any MSO's numerator all new subscribers signed up by virtue of "overbuilding," the industry's term for cable laid in competition with a pre-existing cable operator. See id. at 19112-13 p p 34, 37. Further, subscribers to a service franchised after the rule's adoption (October 20, 1999) do not go into an MSO's numerator, even if not the result of an overbuild. See id. at 19112 p 33. As a result, the rule's main bite is on firms obtaining subscribers through merger or acquisition.

The vertical limit is currently set at 40% of channel capacity, reserving 60% for programming by non-affiliated firms. See 47 C.F.R. § 76.504; Second Report, 8 F.C.C.R. at 859394 p 68; Implementation of Section 11(c) of the Cable Television Consumer Protection and Competition Act of 1992, 10 F.C.C.R. 7364, 7368 p 14 (1995) ("Reconsideration Order"). Channels assigned to broadcast stations, leased access, and for public, educational, or governmental uses are included in the calculation of channel capacity. See id. at 7371-73 p p 2027. Capacity over 75 channels is not subject to the limit, so a cable operator is never required to reserve more than 45 channels for others (.60 x 75 = 45). See id. at 7374-76 p p 31-35.

As cable operators, Time Warner and AT&T "exercise[ ] editorial discretion in selecting the programming [they] will make available to [their] subscribers," Time Warner I, 211 F.3d at 1316, and are "entitled to the protection of the speech and press provisions of the First Amendment," Turner Broadcasting System, Inc. v. Federal Communications Commission, 512 U.S. 622, 636 (1994) ("Turner I") (quoting Leathers v. Medlock, 499 U.S. 439, 444 (1991)). The horizontal limit interferes with petitioners' speech rights by restricting the number of viewers to whom they can speak. The vertical limit restricts their ability to exercise their editorial control over a portion of the content they transmit.

In Time Warner I we upheld the statutory provisions against a facial attack, after finding them subject to intermediate rather than, as the cable firms argued, strict scrutiny. Time Warner I, 211 F.3d at 1316-22. The regulations here present a related but independent set of questions. Constitutional authority to impose some limit is not authority to impose any limit imaginable.

In briefs written before the issuance of Time Warner I, petitioners argued here for strict scrutiny. At oral argument they withdrew from this position and said, euphemistically, that they were "happy to stand on intermediate scrutiny." Because of that concession and, in any event, not seeing any distinction between the statute and the regulations for levelof-scrutiny purposes, we apply intermediate scrutiny. Under the formula set forth in United States v. O'Brien, 391 U.S. 367, 377 (1968), and reaffirmed by Turner Broadcasting System, Inc. v. Federal Communications Commission, 520 U.S. 180, 189 (1997) ("Turner II"), a governmental regulation subject to intermediate scrutiny will be upheld if it "advances important governmental interests unrelated to the suppression of free speech and does not burden substantially more speech than necessary to further those interests." Id. (quoting O'Brien, 391 U.S. at 377).

The interests asserted in support of the horizontal and vertical limits are the same interrelated interests that we found sufficient to support the statutory scheme in Time Warner I: "the promotion of diversity in ideas and speech" and "the preservation of competition." Time Warner I, 211 F.2d at 1319; see also Turner I, 512 U.S. at 662-64 (concluding that both qualify as important...