Northstar Wireless, LLC v. Fed. Commc'ns Comm'n
| Decision Date | 21 June 2022 |
| Docket Number | 18-1209,C/w 18-1210, 20-1507, 20-1508 |
| Citation | 38 F.4th 190 |
| Parties | NORTHSTAR WIRELESS, LLC and SNR Wireless LicenseCo, LLC, Petitioners v. FEDERAL COMMUNICATIONS COMMISSION, Respondent T-Mobile USA, Inc., Intervenor |
| Court | U.S. Court of Appeals — District of Columbia Circuit |
Catherine E. Stetson argued the cause for petitioners. With her on the briefs were Christopher J. Wright, Timothy J. Simeone, Daniel Tingley, Ari Q. Fitzgerald, and Michael J. West.
Bryan N. Tramont and Jennifer B. Tatel were on the briefs for intervenor DISH Network Corporation in support of petitioners. Joseph W. Lindsay entered an appearance.
Lawrence J. Spiwak was on the brief for amicus curiae Phoenix Center for Advanced Legal and Economic Public Policy Studies in support of petitioners.
Maureen K. Flood, Counsel, Federal Communications Commission, argued the cause for respondent. With her on the brief were Robert B. Nicholson and Robert J. Wiggers, Attorneys, U.S. Department of Justice, and Jacob M. Lewis, Associate General Counsel, Federal Communications Commission. Richard K. Welch, Deputy Associate General Counsel, entered an appearance.
James P. Young, C. Frederick Beckner III, Christopher T. Shenk, Alice A. Wang, Russell H. Fox, Robert G. Kidwell, Bennett L. Ross, and Jeremy J. Broggi were on the brief for intervenors AT&T Services, Inc., et al. in support of respondents. Helgi C. Walker entered an appearance.
Before: Millett and Jackson* , Circuit Judges, and Edwards, Senior Circuit Judge.
In late 2014 and early 2015, petitioners Northstar Wireless, LLC ("Northstar"), and SNR Wireless LicenseCo, LLC ("SNR") placed more than $13 billion in winning bids at a Federal Communications Commission auction to license wireless spectrum. Because both Northstar and SNR were brand new companies with virtually no revenue, they each claimed the 25% discounts on their winning bids that the Commission offered in such auctions to very small businesses. After the auction concluded, though, the Commission determined that neither company was eligible for the very-small-business discount because both were de facto controlled by their biggest investor, the large telecommunications company DISH Network Corporation ("DISH").
Northstar and SNR (collectively, "Companies") petitioned for review of that decision. In 2017, we affirmed the Commission's order in part. See SNR Wireless LicenseCo, LLC v. FCC , 868 F.3d 1021, 1025 (D.C. Cir. 2017). While we held that the Commission's decision to deny the discounts was generally sound, we found that agency precedent required the Commission to give the Companies a chance to cure the problems in their agreements with DISH. Id . This court remanded for the Commission to afford the Companies that opportunity. Id.
Back before the Commission, Northstar and SNR each modified their agreements with DISH in substantially identical fashion. After the Companies were afforded the opportunity to meet with Commission staff and some Commissioners, the Commission found that the Companies remained under DISH's de facto control and denied them the 25% discount on their bid prices. Northstar and SNR have again sought our review, contending that the Commission flouted this court's orders in SNR Wireless by not working closely enough with them to reduce DISH's control, wrongfully found them to be controlled by DISH, and penalized them without fair notice.
We reject the Companies’ challenges to the Commission's orders. The Commission complied with our previous decision by affording the Companies an opportunity to cure. The Commission also reasonably applied its precedent to the Companies and gave them fair notice of the legal standards that it would apply in analyzing their claims to be very small companies.
The Communications Act of 1934 tasks the Commission with regulating "all the channels of radio transmission"—that is, the electromagnetic spectrum used to send and receive wireless data. 47 U.S.C. § 301 ; see also NTCH, Inc. v. FCC , 950 F.3d 871, 874 (D.C. Cir. 2020) (per curiam). Because transmissions can interfere with one another when they are broadcast in the same portions of spectrum, the Commission "awards licenses to operate in specific frequency ranges, or ‘bands.’ " AT&T Servs., Inc. v. FCC , 21 F.4th 841, 843 (D.C. Cir. 2021) (citation omitted). Licensed companies can use spectrum to transmit content such as phone calls and videos.
In 1993, Congress gave the Commission the authority to license spectrum through competitive auctions. See Omnibus Budget Reconciliation Act of 1993, Pub. L. No. 103-66, § 6002, 107 Stat. 312, 387–397 (codified at 47 U.S.C. § 309(j) ). Congress directed the Commission, in designing its auction rules, to "promot[e] economic opportunity and competition * * * by disseminating licenses among a wide variety of applicants, including" small businesses. 47 U.S.C. § 309(j)(3)(B) ; see also id. § 309(j)(4)(D). At the same time, Congress directed the agency to avoid "unjust enrichment" and to allow for the "rapid deployment of new technologies, products, and services for the benefit of the public[.]" Id. § 309(j)(3)(C), (A).
Commission regulations encourage small businesses to participate in spectrum auctions by offering qualifying businesses "bidding credits[,]" which are discounts applied after an auction to reduce the cost of the acquired licenses. See 47 C.F.R. § 1.2110(a), (f) (2014).1 To qualify for bidding credits, a business must show that its average revenues fall below threshold amounts set by the Commission. Id. § 1.2110(b)(1)(i), (f)(2).
Because acquiring and using wireless spectrum is expensive, small companies often rely on investments from larger, more established companies. SNR Wireless , 868 F.3d at 1044. To ensure that "bidding credits can only be used by genuinely small businesses—not by small sham companies that are managed by or affiliated with big businesses"—the Commission attributes to an applicant the revenues of any entity that de facto or de jure controls it. Id. at 1026 ; see also 47 C.F.R. § 1.2110(b)(1)(i), (c). Nonetheless, to allow small companies to participate in auctions, the Commission's Wireless Telecommunications Bureau ("Wireless Bureau") has granted some small businesses bidding credits even when they were subject to "extensive supervision" by their established investors. SNR Wireless , 868 F.3d at 1044.
Auction participants apply for bidding credits in a two-step process. See United States ex rel. Vermont Nat'l Tel. Co. v. Northstar Wireless, LLC , 34 F.4th 29, 31–32 (D.C. Cir. 2022). Before the auction begins, a business seeking bidding credits must file a short-form application certifying that it qualifies for such credits. See 47 C.F.R. § 1.2105(a) ; id . § 1.2110(b). The Commission does not determine bidding credit eligibility before the auction. So a bidding credit applicant that chooses to bid at auction "assumes a binding obligation to pay its full bid amount upon acceptance of the winning bid at the close of an auction." Id. § 1.2104(g)(2); see also Auction of Advanced Wireless Servs. (Aws-3) Licenses Scheduled for Nov. 13, 2014 , 29 FCC Rcd. 8386, 8417 ¶ 101 n.180 (2014) (" 2014 Auction Notice ").
An applicant that wins a license in the auction and wishes to obtain bidding credits must then submit a more detailed, long-form application that the agency uses to assess whether the applicant is eligible for bidding credits. See 47 C.F.R. § 1.2110(j) ; SNR Wireless , 868 F.3d at 1027. If the Commission finds that a business does not qualify for bidding credits, the company must pay the full winning price on its licenses or face default penalties. See 47 C.F.R. §§ 1.2104(g)(2), 1.2109(c) ; 2014 Auction Notice , 29 FCC Rcd. at 8417 ¶ 101 n.180, 8450–8451 ¶¶ 239–240. While the Commission uses bright-line rules to determine de jure control of the applicant companies, it assesses whether they are subject to de facto control by another entity "on a case-by-case basis." 47 C.F.R. § 1.2110(c)(2)(i). The Commission has established several guidelines to analyze this "highly contextual" question. SNR Wireless , 868 F.3d at 1026.
First, under a test announced in the agency's Intermountain Microwave decision, the Commission considers six factors, such as another entity's control over the small businesses’ daily operations and major policy decisions, to determine whether the applicant is de facto controlled by that other entity. See Intermountain Microwave , 12 F.C.C. 2d 559, 559–560 (1963) ; SNR Wireless , 868 F.3d at 1030–1031.
Second, the Commission has said that an entity may still be considered independent even if a passive investor retains certain veto powers over the business's decisionmaking. See In the Matter of Implementation of Section 309(j) of the Commc'ns Act—Competitive Bidding , 10 FCC Rcd. 403, 447–448 ¶¶ 80–81 (1994) (); see also Baker Creek Communications, L.P. , 13 FCC Rcd. 18709, 18714–18715 ¶ 9 (1998) ; see also In re Stratos Glob. Corp. , 22 FCC Rcd. 21328, 21343 ¶ 36 n.107 (2007) (full Commission adopting Baker Creek ). A passive investor can "generally" play a role in a small business's major corporate decisions, such as the assumption of "significant corporate debt" and the sale of "major corporate assets[,]" without the Commission automatically deeming the investor to be in de facto control. Fifth MO&O , 10 FCC Rcd. at 448 ¶ 81. Still, the Commission has been explicit that "the aggregate effect of multiple" investor protections could be sufficient to find a small business under the de facto control of the investor. Id. at 449 ¶ 82.
Third, the Commission advised, in its Fifth Memorandum Opinion & Order , that it will closely scrutinize applicants’ "put options"—that is, their right to sell themselves to investors. Fifth MO&O , 10 FCC Rcd. at 455–456 ¶¶ 95–96. Although such rights may appear to give small businesses...
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