Third Circuit Strikes Down FCC Rule Prohibiting Joint Sales Agreements and Stresses FCC’s Legal Duty to Review All Broadcast Ownership Rules Every Four Years

May 26, 2016

On May 25, 2016, the Third Circuit issued a decision in Prometheus Radio Project et al. v. FCC (Nos. 15-3863, 15-3864, 15-3865, 15-3866), that will have significant implications for the agency’s future broadcast ownership reviews, the ownership rules themselves, and “the future of the nation’s broadcast industry.”  Gibson Dunn lawyers Helgi Walker, Ashley Boizelle, and Lindsay See successfully represented the National Association of Broadcasters (“NAB”), and served as lead counsel for the broadcast industry group, in the appeal.

Section 202(h) of the Telecommunications Act of 1996 states that the Commission “shall” review its rules on broadcast ownership every four years, “shall determine whether any of such rules are necessary in the public interest as the result of competition,” and “shall repeal or modify any regulation it determines to be no longer in the public interest.”  The FCC, however, has not completed a quadrennial review of its broadcast ownership rules since 2006.  Rather than complete those reviews and determine whether its broadcast ownership rules – many of which are several decades old – continue to be necessary in the public interest and then repeal or modify any that are not, the FCC most recently, in a 2014 decision, opted to roll its pending and incomplete 2010 review into a new 2014 review proceeding.  Simultaneously, the FCC adopted a new rule that makes certain joint sales agreements between television broadcasters attributable for purposes of the FCC’s local television ownership rule (the “JSA Rule”), thus making the local television ownership rule even more burdensome for television broadcasters.  A coalition of broadcast companies, as well as NAB, sought judicial review of these actions.

In a 2-1 opinion, with Judge Scirica concurring and dissenting in part, the court ruled in favor of NAB and the other broadcast petitioners, holding that the FCC violated Section 202(h) of the Telecommunications Act and the Administrative Procedure Act by:  (1) failing to complete the statutorily required quadrennial review of its broadcast ownership rules; (2) adopting the JSA Rule without determining, within the last four years, that its local television broadcast ownership rule continues to be necessary in the public interest; and (3) failing to update its definition of “eligible entities” for purposes of promoting female and minority broadcast ownership, a claim brought by public interest group petitioners.

At the outset of its opinion, the court observed that “[a]lthough courts owe deference to agencies, we recognize that, at some point, we must lean forward from the bench to let an agency know, in no uncertain terms, that enough is enough” (internal quotation marks and alterations omitted).

Section 202(h) Review.  As to the FCC’s failure to complete its 2010 quadrennial review, the court observed that Section 202(h) imposes an obligation “‘impervious to … discretion,'” that the FCC last completed a review in 2006, and that the agency was unable to provide any cogent explanation for its delay.  The court found it “troubling . . . that nearly a decade has passed since the Commission last completed a review of its broadcast ownership rules,” as “these rules lay the groundwork for how the broadcast industry operates and have major implications for television, radio, and newspaper organizations.”  The court also noted that the costs of the FCC’s delay for regulated entities are substantial.  In particular, the agency’s inaction keeps five broadcast ownership rules on the books (the local television ownership rule, the local radio ownership rule, the newspaper/broadcast cross-ownership rule, the radio/television cross-ownership rule, and the dual network rule) and thus precludes broadcasters from entering into potentially helpful combinations.  The court remarked that the newspaper/broadcast cross-ownership rule, first adopted in 1975, “remains in effect to this day even though the FCC determined more than a decade ago that it is no longer in the public interest.”

Although the court declined to vacate the FCC’s ownership rules or to impose any specific deadline for agency action (over the dissent of Judge Scirica, who would have imposed a six-month deadline), the majority nonetheless “remind[ed]” the FCC of its obligations to timely complete the review and set the stage for a further request to compel FCC action if the agency does not complete its 2014 review by the end of 2016.  The court warned the FCC that in the event it misses this deadline, “it does so at its own risk,” and “the outcome of [new litigation] may well be different.”

JSA Rule.  With respect to the FCC’s JSA Rule, the court held that the FCC violated Section 202(h) by expanding the reach of the ownership rules without first justifying their preexisting scope in the quadrennial review process.  Agreeing with NAB and the other broadcast petitioners that attribution of television JSAs modifies the Commission’s ownership rules by making them more stringent, the court opined that unless the Commission determines that the preexisting ownership rules continue to serve the public interest, it cannot logically demonstrate that an expansion is in the public interest.  In other words, if the FCC wishes to adopt any new, more restrictive rules related to its ownership rules, it can only do so if it has, within the prior four years, made the determinations required by Section 202(h).   Because the FCC “put the cart before the horse,” the court vacated the JSA Rule and remanded to the agency.

Eligible Entities.  As to the FCC’s “eligible entities” definition, the court observed that, in 2011, it had declared the FCC’s existing definition arbitrary and capricious and directed the FCC to update the definition on remand during the course of the 2010 quadrennial review.  Based on an evaluation of the time that had elapsed since the court ordered the FCC to act, the consequences of the FCC’s delay, and potential justifications for that inaction, the court determined that the FCC’s inaction was not excusable and therefore remanded and ordered the Commission “to act promptly to bring the eligible entity definition to a close.”  The court left it to the parties to agree, in mediation, to an appropriate timeline for action within 60 days.  In the event no agreement is reached, the court will set a schedule.

The Third Circuit’s opinion makes clear that the FCC’s failure to implement Congress’ goal of creating an “ongoing mechanism to ensure that the Commission’s regulatory framework would keep pace with the competitive changes in the marketplace” will not be tolerated, and that the FCC must comply with Section 202(h)’s requirement to complete a full review of all of the broadcast ownership rules every four years, and repeal or modify any rules that are no longer necessary in the public interest.  The Court also made clear that the FCC cannot adopt new restrictions on broadcasters’ ownership rights without timely completing its quadrennial reviews of existing ownership rules, throwing out the new JSA Rule.  The decision is a major victory for television broadcasters.

Gibson, Dunn & Crutcher’s lawyers are available to assist in addressing any questions you may have regarding these developments.  Please contact the Gibson Dunn lawyer with whom you usually work in the firm’s Appellate and Constitutional Law practice group, or the authors in the firm’s Washington, D.C., office:

Helgi C. Walker, 202-887-3599 ([email protected])
Ashley S. Boizelle, 202-887-3635 ([email protected])
Lindsay See, 202-887-3761 ([email protected])


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