Iacopi v. FCC

• Decision Date: 12 November 1971
• Docket Number: No. 71-1865.,71-1865.
• Parties: Marino L. IACOPI et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents, Columbia Broadcasting System, Inc., Viacom International, Inc., Intervenors.
• Court: U.S. Court of Appeals — Ninth Circuit

451 F.2d 1142 (1971)

Marino L. IACOPI et al., Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION and United States of America, Respondents, Columbia Broadcasting System, Inc., Viacom International, Inc., Intervenors.

No. 71-1865.

United States Court of Appeals, Ninth Circuit.

November 12, 1971.

Harold R. Farrow (argued), and Ralph M. Segura (argued), Oakland, Cal., for petitioners.

John H. Conlin (argued), Richard E. Wiley, of F.C.C., Washington, D. C., for respondents.

H. M. Plotkin (argued), and J. Roger Wollenberg (argued), of Wilmer, Cutler & Pickering, Washington, D. C., McCutchen, Doyle, Brown & Enersen, CBS, Chickering & Gregory, San Francisco, Cal., Paul N. Sternbach, Gen. Counsel, New York City, Robert L. Heald, Richard W. McLaren, Asst. Atty. Gen., Arent, Fox, Kintner, Plotkin & Kahn, Washington, D. C., for real parties in interest.

Before WEICK^*, BROWNING and WRIGHT, Circuit Judges.

EUGENE A. WRIGHT, Circuit Judge:

This is a proceeding to review an order of the Federal Communications Commission. The Commission's memorandum opinion and order were adopted on June 3, 1971, and are reported at 30 F.C.C.2d 9 (1971). The Commission approved the Columbia Broadcasting System, Inc., (CBS) spin-off of Viacom International, Inc., (Viacom) as being in compliance with the Commission's rules. The relevant rules require television networks to divest themselves of their CATV (community antenna television, i. e., cable TV) and domestic syndication interests. We affirm the order of the Commission.

A cable television system is a facility which receives broadcast television and FM radio signals by means of high antennas or microwave transmission, amplifies them, and distributes them by coaxial cable, rather than roof top aerial, to subscribers who pay a fee for the service. Cable TV can bring the viewer from twelve to twenty or more channels, all free of interference. It offers the promise of a wide choice of programs for specialized audiences, supported by subscriber fees, to supplement mass audience programs financed by advertising revenues. See United States v. Southwestern Cable Co., 392 U.S. 157, 88 S.Ct. 1994, 20 L.Ed.2d 1001 (1968); Notice of Proposed Rule-Making and Inquiry, 15 F.C.C.2d 417 (1968).

Syndication involves the licensing of television series and movies to local television stations, both network affiliates and non-network stations. The usual practice is to license older programs and movies.

The two rules involved here, both adopted in 1970, are the outgrowth of several years of hearings conducted by the Commission pursuant to its rulemaking authority. The purpose of the rules is to increase competition in network and cable television and to foster independent sources of television programming. See Second Report and Order in Docket No. 18397, 23 F.C.C.2d 816 (1970); Report and Order in Docket No. 12782, 23 F.C.C.2d 382 (1970), reconsideration denied 25 F.C.C.2d 318 (1970), aff'd Mt. Mansfield Television, Inc. v. F. C. C., 442 F.2d 470 (2d Cir. 1971).

The first rule is designed to require the television networks to divest themselves of their CATV systems. It prohibits a CATV system, "including all parties under common control," from carrying the signal of any television broadcast station "if such system directly or indirectly owns, operates, controls, or has an interest in * * * a national television network." 47 C.F.R. 74.1131(a) (1970).

This rule becomes effective on August 10, 1973, as to interests in existence on or before July 1, 1970. It is already in effect as to subsequently acquired interests. Because CBS acquired its CATV interests before July 1, 1970, the rule would not have been effective as to the interests involved here until August 10, 1973. 47 C.F.R. 74.1131, Note 3(d).

The second rule prohibits networks from engaging in the domestic syndication of television programs, restricts their foreign distributions to programs wholly produced by them, and imposes restrictions on future acquisitions of program rights. 47 C.F.R. 73.658(j) (1970). It has recently been affirmed by the Second Circuit in Mt. Mansfield Television, Inc. v. F. C. C., 442 F.2d 470 (2d Cir. 1971). The effective date of this rule was stayed, pending further order of the Commission, to permit judicial review. 35 Fed.Reg. 16371 (1970). Thus it, like the CATV rule, was not effective as to the interests involved here at any time relevant to our review.

In July, 1970, CBS notified the Commission that it proposed to comply with the new rules by divesting itself of its CATV and syndication interests. CBS planned to set up a subsidiary (Viacom) and to transfer to it all CBS CATV and syndication interests. CBS would then "spin-off" its subsidiary by distributing the stock of Viacom to the shareholders of CBS on a pro rata basis. The spin-off was scheduled to take place on December 31, 1970.

Two groups appealed to the Commission to block the proposed transaction. Petitioners Iacopi, et al., (Iacopi) filed a Petition for Emergency Relief on December 11, 1970. Columbia Pictures, et al., (Columbia Pictures) filed a Motion for Declaratory Order on December 14, 1970. Both Iacopi and Columbia Pictures alleged that the proposed spin-off would not comply with the Commission's rules because it would not create an independent company. They argued that CBS would continue to exercise effective control over Viacom after the spin-off.

On December 31, 1970, the Commission issued an order directing CBS to furnish further details of the proposed transaction. It also stayed the distribution by CBS to its shareholders of the Viacom stock pending further order of the Commission. Columbia Pictures Industries, Inc., 26 F.C.C.2d 901 (1970).

CBS, Columbia Pictures, and Iacopi then made voluminous submissions to the Commission. CBS modified the proposed spin-off. The complainants contended that it still would not comply with the Commission's rules.

After considering the materials submitted, the Commission, on June 3, 1971, adopted the memorandum opinion and order challenged here. The Commission found that the spin-off, as modified by CBS and subject to additional restraints imposed by the Commission, complied with the rules of the Commission. Columbia Pictures Industries, Inc., 30 F.C. C.2d 9 (1971). The Commission dissolved its stay of December 31, 1970, and the spin-off was consummated.

I. STANDING

Petitioners Iacopi, et al., are minority shareholders of Television Signal Corporation (TVS), one of the CATV systems in which CBS held an interest prior to the spin-off. TVS is a California corporation engaged in the CATV business in San Francisco. Iacopi, et al., are residents of San Francisco.

Our jurisdiction is invoked pursuant to 28 U.S.C. §§ 2342, 2344 and 47 U.S.C. § 402(a). Venue is proper under 28 U.S. C. § 2343. CBS and Viacom have been permitted to intervene pursuant to Fed.R. App.P. 15(d).

Prior to the creation of Viacom, CBS owned 81% of TVS; Iacopi owned 19%. Iacopi was thus a minority shareholder of a CBS subsidiary. After the spin-off Viacom owned 81% of TVS, Iacopi owned 19%, and Iacopi was a minority shareholder of a Viacom subsidiary.

It is not clear why this makes Iacopi "aggrieved." Indeed, the Commission's determination that the spin-off was in compliance with the Commission's CATV divestiture and program syndication rules seems to involve Iacopi only very peripherally. Because of the rather tenuous connection between Iacopi and the Commission's order, we examine the question of Iacopi's standing to seek review of the order.

Under the guidelines laid down by the Supreme Court in Association of Data Processing Service Organizations, Inc. v. Camp, 397 U.S. 150, 90 S.Ct. 827, 25 L.Ed.2d 184 (1970), Iacopi must show (1) that he satisfies the "case or controversy" test of Article III of the Constitution by showing that the Commission's order has caused him "injury in fact," and (2) that the interest he seeks to protect is arguably within the zone of interests to be protected or regulated by the Communications Act of 1934, as amended, 47 U.S.C. § 151ff.

Iacopi attempts to argue that he has been injured in fact. His argument is that, if the Commission had disapproved the proposed spin-off, CBS would have had to place its TVS stock on the open market. Iacopi asserts that with CBS selling its shares on the open market, Iacopi would have been able (1) to sell his interest to the purchasers chosen by CBS, or (2) to purchase CBS's interest, or (3) to accept his new "partner."

At best all of Iacopi's hypotheticals are speculation and conjecture. Had the Commission disapproved the spin-off, CBS might have arranged a private placement of its TVS shares or a public sale to a party not interested in purchasing Iacopi's holdings. CBS might have been unwilling to sell to Iacopi, or Iacopi unwilling or unable to purchase on CBS's terms. Had CBS placed its shares on the open market, Iacopi might well have found its new "partner" or "partners" far less attractive than Viacom, which is endowed with experienced management chosen by CBS and possessed of all the former CBS CATV and syndication interests.

Iacopi bewails his minority shareholder position, noting that his prime candidate in seeking a buyer for his interest must always be the holder of the 81% interest. Indeed it appears that Iacopi and CBS-Viacom engaged in negotiations concerning a possible purchase by CBS-Viacom of the Iacopi interest prior to the spin-off, and Iacopi was offered a substantial sum for his shares. This lawsuit apparently results from Iacopi's evaluation that the offer was too low.

We are unable to agree that the Commission's order is responsible for the fact that Iacopi does not enjoy his minority shareholder status. That Iacopi's 19% interest is "locked-in" with whoever holds the 81% interest does not seem to us to be an injury flowing from the Commission's order.

To bolster his claim of injury in fact, Iacopi has attempted throughout this...