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FCC Roughed Up in D.C. Circuit on Comcast-Tennis Case

A three-judge panel of the U.S. Court of Appeals heard the case of Comcast vs. the FCC on Monday, challenging the FCC's first-ever finding in favor of a program carriage complaint and its imposition of a carriage remedy. While the judges usually wield a gavel, in this case is was more like a hammer, with the FCC mostly on the receiving end.

Between the serious First Amendment issues with the FCC's carriage remedy expressed by Judge Brett Kavanaugh and the contract issues on which Judge Harry Edwards focused, the FCC appeared to have an uphill fight to keep its decision from being remanded back. Following the hearing, sources on both sides of the case expressed that sentiment following lengthy questioning that saw FCC and Tennis Channel lawyers.

In a 3-2 party line vote, the FCC in July 2012 upheld an FCC judge's ruling that Comcast discriminated against Tennis Channel by carrying it in a sports tier, while carrying its co-owned Golf Channel and Versus (now NBC Sports Network) on a more widely viewed basic tier. Comcast appealed the decision to the FCC, then the court. 

The FCC remedy was to provide Tennis Channel with the same level of distribution, whether that be basic or sports tier or not carrying it at all -- that it provided its co-owned channels.

Judges Kavanaugh and Edwards were joined by Judge Stephen Williams on the panel, but the former two asked most of the questions. Since judges often play devil's advocate, it is hard to predict how the judges will come down on this case. The FCC is due some deference as the expert administrative agency, but the D.C. Circuit is the one that threw out the FCC's Comcast Bittorrent decision, and the panel that heard Monday's argument was characterized by one attorney familiar with the circuit as both conservative and tough on the FCC.

With former D.C. Federal Judges looking down from gilt frames along each wall of the courtroom -- including now Supreme Court Justice Ruth Bader Ginsburg and the late High Court nominee Robert Bork -- Comcast's lawyer, former D.C. Circuit nominee Miguel Estrada, argued that the FCC was dictating distribution in violation of the First Amendment and based on flawed reading of the statute. He also argued that the complaint should be moot because it was filed after the one-year statute of limitations. Tennis signed a contract agreeing to sports tier carriage in 2005, but did not file the carriage complaint until more than three years later.

That was the issue that drove Judge Edwards to weigh in early and often. He said it seemed to him clear that the FCC had set a one-year statute of limitations on changes in contracts. The FCC and Tennis Channel lawyers countered that discrimination was based on similarly situated networks, and that Tennis Channel had not been similarly situated in 2005, but only became so after it got stronger.

Edwards asked what Tennis knew in 2009 that it didn't know in 2005. The FCC pointed to high-definition and U.S. Open rights that had strengthened the channel.

Estrada said he agreed with Edwards and that the complaint was clearly moot because it was not timely filed. But even if it had been, he suggested, the FCC was ignoring the market dynamics, including that other MVPDs gave Tennis no better carriage than Comcast, and that the FCC was instead making a comparison based on content.

Edwards said that Tennis could or should have anticipated that it would improve and written into its contract a provision about changing the tier if that happened. He said the FCC's reading would make a contract "silly," and suggested FCC's argument that it was ludicrous for the FCC to suggest that a complaint could be filed anytime somebody wanted to.  Edwards said the FCC itself had made absolutely clear that after one year, such a complaint could not be filed.  

Coincidentally, the judges had just been dealing with government content calls in an earlier case--Comcast was the third oral argument of the morning -- in which the CIA had refused to pay attorney's fees for a FOIA request because it had concluded the content of the request was not sufficiently relevant. In that case, Edwards suggested the government shouldn't be in the business of deciding what content should be made available.

Comcast's argument was essentially three-pronged: The complaint was moot because it came after the statute of limitations; the FCC failed to look at the competitive markets, which justified Tennis' Channel placement; and the remedy violated Comcast's First Amendment freedom to choose its own programming.

Comcast argues that it is free to discriminate for the right reasons, just not the wrong ones. Estrada said that Comcast has a constitutional right to favor its own speech over others, so long as it does not do so for anticompetitive reasons. Ignoring the marketplace evidence that others treated Tennis no better, and some worse, in terms of carriage, Estrada suggested, the FCC had arrogated for itself the role of a government censorship board and that the FCC's decision was the most outrageous content call since the Sedition Acts. He suggested, as Comcast has in its brief, that the FCC's decision is comparable to telling a newspaper it has to put a freelancer on the front page.

The FCC argued that cable did not still have to have bottleneck control of an MVPD market for the anti-discrimination provision of the Cable Act to still hold sway, but that if the court found that a showing of bottleneck control was necessary, the court should give it a chance to prove that.

The commission said it could do so by showing that the impact on advertising, but Estrada countered that cable operators' business was based primarily on sub fees, not ad revenues.

At least from the tenor of the court arguments, that last option -- vacating the decision but remanding it back to the FCC for a showing of undue market power -- sounds like the most likely scenario.