BellSouth Corp. v. F.C.C.

• Citation: 144 F.3d 58
• Decision Date: 20 October 1998
• Docket Number: No. 97-1113,97-1113
• Parties: , 1998-1 Trade Cases P 72,153, 12 Communications Reg. (P&F) 148 BELLSOUTH CORPORATION, Petitioner v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents AT&T Corporation, et al., Intervenors
• Court: United States Courts of Appeals. United States Court of Appeals (District of Columbia)

Page 58

144 F.3d 58

330 U.S.App.D.C. 109, 1998-1 Trade Cases P 72,153,

12 Communications Reg. (P&F) 148

BELLSOUTH CORPORATION, Petitioner v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents AT&T Corporation, et al., Intervenors

No. 97-1113.

United States Court of Appeals District of Columbia Circuit.

Argued Feb. 20, 1998.

Decided May 15, 1998.

Rehearing Denied Oct. 20, 1998. ^*

On Petition for Review of an Order of the Federal Communications Commission.

Laurence H. Tribe argued the cause for petitioner. With him on the briefs were Jonathan S. Massey, Walter H. Alford, William B. Barfield, M. Robert Sutherland, Michael K. Kellogg, Mark L. Evans and Robert B. McKenna.

Jacob M. Lewis, Attorney, U.S. Department of Justice, argued the cause for respondents. With him on the briefs were Frank W. Hunger, Assistant Attorney General, Stephen W. Preston, Deputy Assistant Attorney General, Mark B. Stern, Attorney, Christopher J. Wright, General Counsel, Federal Communications Commission, and John E. Ingle, Deputy Associate General Counsel. Catherine G. O'Sullivan and Nancy C. Garrison, Attorneys, U.S. Department of Justice, and Carl D. Lawson, Counsel, Federal Communications Commission, entered appearances.

Donald B. Verrilli, Jr. argued the cause for intervenors AT&T Corp., and MCI Telecommunications Corp. With him on the brief were David W. Carpenter, Peter D. Keisler, Matthew B. Pachman, Mark C. Rosenblum and Roy E. Hoffinger. Frank W. Krogh entered an appearance.

Before: EDWARDS, Chief Judge, WILLIAMS and SENTELLE, Circuit Judges.

Opinion for the Court filed by Circuit Judge WILLIAMS.

Dissenting opinion filed by Circuit Judge SENTELLE.

STEPHEN F. WILLIAMS, Circuit Judge:

Petitioner BellSouth Corporation challenges the constitutionality of Section 274 of the Telecommunications Act of 1996 (the "Act"), 47 U.S.C. § 274, and of the Federal Communications Commission's order implementing that provision. ¹ Section 274 limits the ability of Bell operating companies ("BOCs") to provide "electronic publishing," a category that includes disseminating news articles, offering literary material, and providing services similar to the Lexis/Nexis and Westlaw databases. BellSouth says § 274 is an unconstitutional bill of attainder, stressing the fact that the subjects of its restrictions, the BOCs, are singled out by name. BellSouth also complains that § 274 impermissibly abridges its First Amendment rights of free expression. We reject both challenges.

* * *

The story behind the Telecommunications Act of 1996 has often been told, although electronic publishing restrictions have usually amounted to little more than a subplot. In 1982 a consent decree was entered in settlement of the government's 1974 antitrust suit against AT&T. That decree, as modified by the district court, became known as the "Modification of Final Judgment," or "MFJ." See United States v. American Tel. & Tel. Co., 552 F.Supp. 131 (D.D.C.1982), aff'd sub nom. Maryland v. United States, 460 U.S. 1001, 103 S.Ct. 1240, 75 L.Ed.2d 472 (1983). The MFJ required AT&T to divest itself of its local exchange monopolies. Under the reorganization plan approved by the district court, the twenty BOCs eventually named in the 1996 Act were spun off from AT&T and grouped into seven regional Bell operating companies, or "RBOCs" (now five thanks to mergers), of which BellSouth is one. ²

The MFJ initially prohibited the BOCs from providing "information services," defined to include electronic publishing. The prohibition rested on two concerns commonly voiced about regulated monopolists operating in fields adjacent to their monopolies. First, to the extent that the monopolist's good or service is an input for the adjacent industry, the monopolist may offer its own enterprise discriminatory advantages, in this case "favorable access to the local network." 552 F.Supp. at 189. Second, the monopolist may use monopoly revenues to subsidize its associated enterprise. Id. In a "triennial review" process established by the decree, the Department of Justice moved to lift the information services restrictions, and no party to the decree opposed the motion. The district court ultimately did lift them. United States v. Western Electric Co., 767 F.Supp. 308 (D.D.C.1991), aff'd, 993 F.2d 1572 (D.C.Cir.1993). We will return later to the analysis supporting that result, which BellSouth says helps its constitutional case against § 274.

The 1996 Act rescinded the MFJ, see Pub.L. No. 104-104, § 601, 110 Stat. 143 (1996), and changed the entire telecommunications landscape. Several key provisions of the Act apply to incumbent local exchange carriers generally, such as 47 U.S.C. § 251, requiring them to offer nondiscriminatory access and interconnection to local competitors. Sections 271 through 276 of the Act, however, entitled "Special Provisions Concerning Bell Operating Companies," are applicable to the BOCs and their affiliates alone. ³ For example, § 271 establishes requirements that must be met before the BOCs can break into the long distance, or "interLATA," market, see SBC Communications, Inc. v. FCC, 138 F.3d 410 (D.C.Cir.1998); § 273 bars the BOCs from manufacturing and selling telecommunications equipment until they have received authorization to enter the interLATA market; and § 275 prohibits BOCs (other than Ameritech) from providing alarm monitoring services for five years, see Alarm Industry Communications Committee v. FCC, 131 F.3d 1066, 1067 (D.C.Cir.1997). In general these provisions simply maintained, and in most cases loosened, various restrictions to which the BOCs were already subject under the MFJ. By contrast, the provision at issue here--s 274--reimposed on the BOCs some of the information services restrictions that had been lifted in 1991. BellSouth challenges only that provision and the FCC order of implementation. ⁴

Section 274 provides:

No Bell operating company or any affiliate may engage in the provision of electronic publishing that is disseminated by means of such Bell operating company's or any of its affiliates' basic telephone service, except that nothing in this section shall prohibit a separated affiliate or electronic publishing joint venture operated in accordance with this section from engaging in the provision of electronic publishing.

47 U.S.C. § 274(a). Section 274's restrictions expire on February 8, 2000, four years from the date of the Act's passage. § 274(g)(2).

As is evident from its text, § 274 provides two pathways for BOCs wishing to enter electronic publishing: the "separated affiliate" route and the "joint venture" route. The statute defines a separated affiliate as "a corporation under common ownership or control with a Bell operating company that does not own or control a Bell operating company and is not owned or controlled by a Bell operating company." 47 U.S.C. § 274(i)(9). An "electronic publishing joint venture" is a "joint venture owned by a Bell operating company or affiliate that engages in the provision of electronic publishing which is disseminated by means of such Bell operating company's or any of its affiliates' basic telephone service." 47 U.S.C. § 274(i)(5). Section 274 imposes several structural requirements on both separated affiliates and electronic publishing joint ventures. See generally 47 U.S.C. § 274(b). For example, each such entity must maintain books, records, and accounts separately from the BOC with which it is affiliated, § 274(b)(1), may have "no officers, directors, and employees in common" with a BOC, § 274(b)(5)(A), and may "own no property in common," § 274(b)(5)(B).

The Act defines "electronic publishing" broadly as

the dissemination, provision, publication, or sale to an unaffiliated entity or person, of any one or more of the following: news (including sports); entertainment (other than interactive games); business, financial, legal, consumer, or credit materials; editorials, columns, or features; advertising; photos or images; archival or research material; legal notices or public records; scientific, educational, instructional, technical, professional, trade, or other literary materials; or other like or similar information.

47 U.S.C. § 274(h)(1). It then exempts several types of services, including data processing, voice messaging, and video programming. 47 U.S.C. § 274(h)(2).

BellSouth, of course, is not a BOC but an RBOC. Yet the government rightly refrains from raising a standing defense on that ground. The injury BellSouth suffered as the sole shareholder of two affected corporations (South Central Bell Telephone Company and Southern Bell Telephone and Telegraph Company) is clearly enough to give it Article III standing. See Franchise Tax Board of California v. Alcan Aluminium Ltd., 493 U.S. 331, 336, 110 S.Ct. 661, 663-664, 107 L.Ed.2d 696 (1990). Besides, as an affiliate of two BOCs, § 274(i)(1), BellSouth is itself affected; it can engage in electronic publishing only by maintaining structural separation from its BOCs.

Bill of Attainder Challenge

We turn first to BellSouth's challenge under Article I, section 9, clause 3 of the Constitution, which says that "[n]o Bill of Attainder or ex post facto Law shall be passed" by Congress. For the framers of the Constitution the term "bills of attainder" carried a specific meaning: it referred to parliamentary acts sentencing named persons to death without the benefit of a judicial trial. As early as 1810, however, in Fletcher v. Peck, 10 U.S. (6 Cranch) 87, 3 L.Ed. 162 (1810), Chief Justice Marshall noted in dictum that the prohibition on bills of attainder ought to extend to legislation subjecting specified persons to penalties short of death--what the framers called "bills of pains and penalties." Id. at 138, 3 L.Ed. 162; United States v. Brown, 381 U.S. 437, 447, 85 S.Ct. 1707, 1714, 14 L.Ed.2d 484 (1965). Later in the nineteenth century the Supreme Court confirmed that the legislative punishments...