Cablevision Sys. Corp.. v. Fed. Communications Comm'n

• Decision Date: 10 June 2011
• Docket Number: Nos. 10–1062,10–1088.,s. 10–1062
• Parties: CABLEVISION SYSTEMS CORPORATION, Petitionerv.FEDERAL COMMUNICATIONS COMMISSION and United States of America, RespondentsNational Cable & Telecommunications Association, et al., Intervenors.
• Court: U.S. Court of Appeals — District of Columbia Circuit

649 F.3d 695

396 U.S.App.D.C. 314

53 Communications Reg. (P&F) 310

CABLEVISION SYSTEMS CORPORATION, Petitioner

v.FEDERAL COMMUNICATIONS COMMISSION and United States of America, RespondentsNational Cable & Telecommunications Association, et al., Intervenors.

Nos. 10–1062

10–1088.

United States Court of Appeals, District of Columbia Circuit.

Argued Feb. 14, 2011.Decided June 10, 2011.

On Petitions for Review of an Order of the Federal Communications Commission.Henk J. Brands argued the cause for petitioners. With him on the briefs were Howard J. Symons and Jeffrey A. Lamken.Neal M. Goldberg, Michael S. Schooler, Diane B. Burstein, Samuel L. Feder, and Matthew E. Price were on the brief for intervenor National Cable & Telecommunications Association in support of petitioner. Robert G. Kidwell entered an appearance.C. Grey Pash Jr., Counsel, Federal Communications Commission, argued the cause for respondents. With him on the brief were Catherine G. O'Sullivan and Nancy C. Garrison, Attorneys, U.S. Department of Justice, Austin C. Schlick, General Counsel, Federal Communications Commission, Peter Karanjia, Deputy General Counsel, and Daniel M. Armstrong III, Associate General Counsel. Richard K. Welch, Deputy Associate General Counsel, and Nandan M. Joshi, Counsel, entered appearances.Jonathan E. Nuechterlein argued the cause for intervenors AT & T, Inc., et al. in support of respondents. With him on the brief were Heather M. Zachary, Christopher M. Heimann, Gary L. Phillips, Scott H. Angstreich, Jeffrey M. Harris, Michael E. Glover, Edward Shakin, William H. Johnson, and Christopher J. Wright.Before: ROGERS, TATEL, and GRIFFITH, Circuit Judges.Opinion for the Court filed by Circuit Judge TATEL.TATEL, Circuit Judge:

Under section 628 of the Communications Act, the Federal Communications Commission has long imposed program access requirements on vertically integrated cable companies in order to limit their ability to withhold satellite programming from competitors in the video distribution market. Recognizing that existing regulations governing satellite video distribution allowed vertically integrated cable companies to withhold terrestrially delivered programming, a small but competitively significant niche whose importance has increased with improved technology, the Commission issued an order adopting rules to close the so-called terrestrial loophole. Challenging that order, petitioners contend (among other things) that the Commission lacks statutory authority to regulate the withholding of terrestrial programming. But given section 628's broad language and purpose—promoting competition by restricting vertically integrated cable companies from denying their competitors access to popular programming networks—we see nothing in the statute that unambiguously precludes the Commission from extending its program access rules to terrestrially delivered programming. Nor do we see any merit in petitioners' contention that the Commission's rules violate the First Amendment or in their various Administrative Procedure Act challenges, save one: that the Commission acted arbitrarily and capriciously by deciding to treat certain conduct involving terrestrial programming withholding as categorically “unfair” for purposes of section 628.

I.

To provide context for the challenged order, we begin with a brief overview of the video programming industry and the relevant terminology. The industry includes two essential players: video programmers and video programming distributors. Distributors, who provide video programming directly to consumers, are called “multichannel video programming distributors” (MVPDs). See 47 U.S.C. § 522(13). This general category includes “cable operators” like Cablevision, Comcast, and TimeWarner who deliver video programming by cable, id. § 522(5)-(7), direct broadcast satellite (DBS) companies like DirecTV and Dish Network who transmit programming via direct-to-home satellites, and wireline companies like AT & T and Verizon who transmit programming through fiber optics. See In re Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming: Thirteenth Annual Report, 24 FCC Rcd. 542, 544–48 ¶¶ 4–13 (2009) (providing an overview of the MVPD market). Video programmers, also referred to as video programming vendors, are television networks like ESPN, TNT, and CNN who sell or license programming to MVPDs. Particularly relevant to this case, video programming, and by extension the programmers who sell it, is classified based on the technology used to transmit it to MVPDs, not on the technology MVPDs then use to retransmit it to customers. Satellite programming refers to programming transmitted to MVPDs via satellite for retransmission to customers. See 47 U.S.C. § 548(i)(1), (3) (providing definitions for both “satellite cable programming” and “satellite broadcast programming”). By contrast, terrestrial programming refers to programming delivered to MVPDs over land-based networks, such as fiber optics. See 47 C.F.R. § 76.1000( l ).

As we recently explained, “[f]rom the 1940s when the first cable television systems were built until the 1990s, the cable industry dominated [the MVPD retail] market,” with cable operators often enjoying local monopolies. Cablevision Sys. Corp. v. FCC, 597 F.3d 1306, 1308 (D.C.Cir.2010). While the market for cable operators flourished, the demand for new cable programming to supplement traditional broadcast programming also increased. “These two halves of the cable industry often had—and still have—overlapping ownership, with cable operators having ownership interests in cable programmers, and vice versa.” Id. Recognizing that the combination of horizontal concentration and vertical integration in the video market created the “potential for certain anticompetitive conduct” because “[v]ertically integrated cable operators” could “deny alternative [MVPDs] access to cable programming services” they needed to compete for customers, the Commission presented a report to Congress in 1990 recommending (among other things) that it restrict vertically integrated cable programmers from refusing to share their programming with other MVPDs. See In re Competition, Rate Deregulation & the Comm'n's Policies Relating to the Provision of Cable Television Serv., 5 FCC Rcd. 4962, 4971–77 ¶¶ 13–14 (1990).

Two years later, Congress enacted the Cable Television Consumer Protection and Competition Act of 1992 (“Cable Act”), Pub.L. No. 102–385, 106 Stat. 1460, which amended the Communications Act of 1934. Finding that “[t]he cable industry had become vertically integrated” and that cable-affiliated programmers had “the incentive and ability to favor their affiliated cable operators over nonaffiliated cable operators and programming distributors using other technologies,” id. § 2(a)(5), Congress adopted section 628 to “increas[e] competition and diversity in the multichannel video programming market,” 47 U.S.C. § 548(a). Section 628(b) makes it

unlawful for a cable operator, a satellite cable programming vendor in which a cable operator has an attributable interest, or a satellite broadcast programming vendor to engage in unfair methods of competition or unfair or deceptive acts or practices, the purpose or effect of which is to hinder significantly or to prevent any multichannel video programming distributor from providing satellite cable programming or satellite broadcast programming to subscribers or consumers.

Id. § 548(b). To implement that prohibition, section 628(c)(1) directs the Commission to issue regulations specifying particular unlawful conduct, id. § 548(c)(1), and subsection (c)(2) establishes “[m]inimum contents” for those regulations. Specifically, subsection (c)(2) directs the Commission to prohibit three different kinds of practices. First, it must prevent cable operators from “improperly influencing” actions by affiliated satellite cable programming vendors and satellite broadcasting vendors concerning the sale of satellite programming to unaffiliated MVPDs. Id. § 548(c)(2)(A). Second, the Commission must prohibit vertically integrated satellite cable programming vendors and satellite broadcasting vendors from discriminating between MVPDs in the sale of their satellite programming (subject to limited exceptions). Id. § 548(c)(2)(B). Third, the Commission must bar exclusive contracts for satellite programming between cable operators and vertically integrated satellite programmers. Id. § 548(c)(2)(C)-(D). With respect to areas unserved by cable at the time the Act was passed in October 1992, that prohibition is absolute. Id. § 548(c)(2)(C). But in areas served by cable prior to that date, the statute allows the Commission to exempt exclusive contracts that it determines, based on statutory criteria, are “in the public interest.” Id. § 548(c)(2)(D), (c)(4). The prohibition on exclusive contracts in these areas was to sunset after ten years unless the Commission determined that the prohibition remained necessary to protect competition and diversity in video programming distribution. Id. § 548(c)(5).

In order to implement section 628(c)(2)'s program access provisions, the Commission issued regulations containing (among other things) a complaint procedure to address alleged violations. See In re Implementation of Sections 12 & 19 of the Cable Television Consumer Prot. & Competition Act of 1992, 8 FCC Rcd. 3359 (1993). In doing so, the Commission declined to identify additional specific “unfair” acts or practices beyond those listed in subsection (c)(2) that could violate subsection (b). It recognized, however, that subsection (b) remained “a clear repository of Commission jurisdiction to adopt additional rules or take additional actions” to “address[ ] those types of conduct, primarily associated with horizontal and vertical concentration within the cable and satellite cable programming field, that inhibit the development of...