Case preview: Clash over media ownership rules arrives at the court

On Tuesday the Supreme Court will hear oral argument in the latest chapter of a long-running battle between the Federal Communications Commission and the U.S. Court of Appeals for the 3rd Circuit over the FCC’s efforts to deregulate media ownership. Although the case is a technical one, the court’s eventual ruling could affect who owns local newspapers and radio and television stations – which could in turn influence how Americans get their news from those outlets.

Background

In an effort to promote competition, a range of viewpoints and a focus on local news, FCC rules have long regulated how many local television stations one entity can own in the same local market, applying the same rule to local radio stations. For similar reasons, the FCC limits “cross-ownership”: it bars the same entity from owning both a daily newspaper and either a radio or a television station within the same market, while also limiting ownership of both radio and television stations in the same market.

In response to changes in technology, Congress enacted the Telecommunications Act of 1996, which directs the FCC to review its media ownership rules every four years, “determine whether any of such rules are necessary in the public interest as the result of competition,” and “repeal or modify any regulation” that it determines is “no longer in the public interest.” As part of the reviews mandated by the act, the FCC in 2002 and 2006 sought to repeal or relax various media ownership rules, but the 3rd Circuit vacated the FCC’s orders.

The case now before the court arose after the FCC issued an order that repealed the cross-ownership rules and modified the limits on ownership of local television stations in 2017. The FCC cited a variety of developments to justify the changes, including the weakening of the newspaper industry; the extent to which the radio industry was less likely to feature a diversity of viewpoints; and the expansion of other media outlets outside the mainstream, such as online news outlets and cable and satellite television programming. The FCC also created a new program – dubbed an “incubator program” – intended to encourage new owners, including women and minorities, to buy and successfully run broadcast stations.

A divided 3rd Circuit once again vacated the order. The majority ruled that the FCC had failed to sufficiently consider the effect that repealing the ownership rules would have on media ownership by women and minorities. The FCC and a group that includes the National Association of Broadcasters, Fox Corporation and Sinclair Corporation asked the Supreme Court to weigh in, and the justices agreed to do so in a pair of consolidated cases: FCC v. Prometheus Radio Project and National Association of Broadcasters v. Prometheus Radio Project.

The FCC’s arguments

In its briefs, the FCC stresses that the media ownership rules date back to a different era, before the dawn of the Internet, in which “the media marketplace was dominated by a small number of print and broadcast sources of information.” The FCC now seeks to make changes to these rules, it continues, “in light of dramatic changes to the media landscape.”

As a general matter, the FCC explains, the federal law governing administrative agencies requires courts to defer to an agency’s actions as long as the agency has made a reasonable policy judgment, justified with a sufficient explanation. The principles requiring deference are especially strong here, the FCC adds, when Congress has given the FCC broad power to “regulate in the public interest.”

The FCC’s 2017 orders should be upheld, the agency continues, because they were precisely the kind of reasonable judgment to which courts should defer. The FCC repealed the ownership rules after it compiled “extensive evidence regarding the changed media landscape.” It concluded that deregulation would create “substantial benefits” for competition and local news – for example, eliminating the newspaper/broadcast station cross-ownership rule would provide potential new sources of investment and management expertise, which would improve both the quality and quantity of local news, while the radio/television cross-ownership rule is no longer necessary because radio stations (unlike other media outlets) do little to contribute to diversity of opinions in radio. Moreover, the FCC reasoned, there was nothing in the record to suggest that repealing or relaxing the rules would harm minority or female ownership.

The 3rd Circuit, the FCC emphasizes, did not contest the findings on which the FCC relied to justify its decision to revise the ownership rules. Instead, its decision to vacate the orders rested on the court’s determination that the FCC had not sufficiently considered the effect that the changes would have on ownership diversity. But that focus on minority and female ownership levels is contrary to the text of the statute, the FCC insists, which directs the FCC to look at whether the ownership rules “are necessary in the public interest as the result of competition” and says nothing about female or minority ownership. The 3rd Circuit’s decision, the FCC asserts, would impose a requirement that does not exist in the statute – and with which the FCC could not comply because “no such information exists.”

The 3rd Circuit’s requirement that the FCC have a “high degree of empirical certainty” about the effect of any changes to the ownership rules before implementing those changes would also prevent the law from operating effectively, the FCC warns. Specifically, the FCC suggests, if the agency must be confident about the effect that its changes will have on minority and female ownership, “a factor that is extremely difficult to measure and forecast,” it will be harder for the FCC to make changes going forward to keep up with “undisputed changes to the competitive landscape.” And in particular, the FCC cautions, it could keep it from compiling data for future quadrennial reviews about the effect that the rules would have on minority and female ownership.

Like the FCC, the National Association of Broadcasters – the main trade group for TV and radio broadcasters – dismisses the ownership rules as “relics from a time when Americans had access to a very limited number of sources of information.” The rules, the NAB writes, “were designed to manage the perceived scarcity of radio spectrum by preventing undue economic concentration and promoting viewpoint diversity.” But times have changed, and the last 15 years have seen hundreds of local newspaper closures, the NAB adds, many of which might have been avoided if the FCC had been able to revise rules to more accurately reflect the marketplace.

Section 202(h) of the Telecommunications Act, the NAB argues, requires the FCC to consider only one factor – competition – in deciding whether changes to the ownership rules are necessary. The statute does not say anything about a need to consider the effect of its rules on minority and female ownership, much less direct the FCC to consider those effects above all others. Even to the extent that Section 202(h) refers to the “public interest” more broadly, the NAB continues, that does not require the FCC to consider minority and female ownership. For purposes of ownership rules, the court and the FCC have traditionally interpreted this term to refer to competition, a diversity of viewpoints and the need for local media to serve the interests and needs of their communities, rather than minority and female ownership. Interpreting the phrase to require the FCC to consider minority and female ownership, the FCC observes, could also conflict with the limits that the Constitution places on making decisions based on race and gender.

The challenger’s arguments

Prometheus Radio Project, a nonprofit group that advocates for community radio stations, is challenging the FCC’s rollback of the ownership rules. It argues that, even before Congress enacted Section 202(h), the FCC had long considered ownership diversity as part of the public interest promoted by ownership rules. Congress, Prometheus notes, is presumed to be aware of that stance when it enacted Section 202(h), without narrowing the scope of the FCC’s mandate to serve the public interest. A 2004 change to Section 202(h) also left the “public interest” language unchanged.

The text of 202(h) no doubt requires FCC to consider the effect of competition in determining whether to retain the ownership limits. But the focus of the inquiry prescribed by Section 202(h) is whether the limits are necessary to serve the public interest, including the goal of minority and female ownership; it does not direct the FCC to make competition the only public-interest goal, Prometheus argues.

Prometheus acknowledges that the FCC can depart from its focus on ownership diversity, but Prometheus stresses that it can only do so “with transparency and reasoned analysis.” By contrast, Prometheus contends, the FCC’s decision to do so here was “deeply flawed.” In 2016, the FCC had decided not to make any changes to the ownership rules, on the ground that leaving the existing ownership limits in place would promote minority and female ownership. Just over a year later, the FCC, with new members, reached the opposite conclusion. And although commenters did submit empirical evidence on which the FCC could have relied to conduct its analysis of the effect that changes would have on ownership diversity, the FCC simply failed to do so. If the FCC wants to repeal the ownership rules because it concludes that the benefits are worth it despite the effects on ownership diversity, Prometheus contends, it needs to “reach that conclusion openly and rationally.”

The data that the FCC does cite to justify its changes to the ownership rules is faulty, Prometheus claims. For example, FCC contended that minority ownership of television stations has increased since a local television ownership rule was relaxed in 1999. But that doesn’t mean that revising other ownership rules now will not harm ownership diversity, Prometheus says, because the FCC did not consider how many television stations might be minority-owned if the rule had remained in place. Moreover, the group observes, the FCC didn’t analyze the effect of its rule changes on female ownership at all, instead extrapolating from its analysis of data for minority ownership.

The FCC and the NAB are also wrong, Prometheus continues, when they contend that blocking the FCC from making changes to the ownership limits will block it from ever doing so. The review process required by Section 202(h) is retrospective, rather than forward-looking, “and thus surely does not permit the Commission to change first and assess public-interest necessity later.” Nor can the FCC and the NAB point to the periodic review process as protection against harm from any errors in the FCC’s actions. “Eggs cannot be unscrambled,” Prometheus writes, particularly if they involve, for example, mergers, and the harm cannot be “meaningfully” remedied even if the FCC subsequently changes its position several years later.

Responding to an assertion by the FCC and the NAB that the 3rd Circuit’s decision to vacate all of the FCC orders, rather than just the ones dealing with media ownership, was too sweeping, Prometheus counters that such a remedy is “standard” whenever an agency’s actions are improper. But in any event, Prometheus adds, the 3rd Circuit correctly vacated the FCC orders because of the “seriousness of the defects in the Commission’s analysis and the disruption that would have” otherwise occurred if the orders were allowed to remain in place. Moreover, if the FCC were to make changes on remand to its position on the ownership rules, those changes could have ripple effects to programs at the heart of the other orders that the 3rd Circuit also vacated.

As a statistical matter, the Supreme Court is more likely to grant review to reverse the lower court’s decision. That fact, plus the absence of any reference in the text of Section 202(h) to ownership diversity, suggests that the court’s conservative majority is more likely to be sympathetic to the FCC and the NAB. But even if there is a majority on the court to overrule the 3rd Circuit and reinstate the 2017 changes to the media ownership rules, that may still not be the end of the story: As some media law experts have noted, with the inauguration of President-elect Joe Biden, the FCC is expected to soon be under Democratic control, and the 2018 periodic review under Section 202(h) is underway – which will likely lead to more litigation.

This article was originally published at Howe on the Court.