The Third Circuit pushes back on FCC’s unjustified rule on joint sales agreements

Geoffrey Manne & Ben Sperry —  25 May 2016

While we all wait on pins and needles for the DC Circuit to issue its long-expected ruling on the FCC’s Open Internet Order, another federal appeals court has pushed back on Tom Wheeler’s FCC for its unremitting “just trust us” approach to federal rulemaking.

The case, round three of Prometheus, et al. v. FCC, involves the FCC’s long-standing rules restricting common ownership of local broadcast stations and their extension by Tom Wheeler’s FCC to the use of joint sales agreements (JSAs). (For more background see our previous post here). Once again the FCC lost (it’s now only 1 for 3 in this case…), as the Third Circuit Court of Appeals took the Commission to task for failing to establish that its broadcast ownership rules were still in the public interest, as required by law, before it decided to extend those rules.

While much of the opinion deals with the FCC’s unreasonable delay (of more than 7 years) in completing two Quadrennial Reviews in relation to its diversity rules, the court also vacated the FCC’s rule expanding its duopoly rule (or local television ownership rule) to ban joint sales agreements without first undertaking the reviews.

We (the International Center for Law and Economics, along with affiliated scholars of law, economics, and communications) filed an amicus brief arguing for precisely this result, noting that

the 2014 Order [] dramatically expands its scope by amending the FCC’s local ownership attribution rules to make the rule applicable to JSAs, which had never before been subject to it. The Commission thereby suddenly declares unlawful JSAs in scores of local markets, many of which have been operating for a decade or longer without any harm to competition. Even more remarkably, it does so despite the fact that both the DOJ and the FCC itself had previously reviewed many of these JSAs and concluded that they were not likely to lessen competition. In doing so, the FCC also fails to examine the empirical evidence accumulated over the nearly two decades some of these JSAs have been operating. That evidence shows that many of these JSAs have substantially reduced the costs of operating TV stations and improved the quality of their programming without causing any harm to competition, thereby serving the public interest.

The Third Circuit agreed that the FCC utterly failed to justify its continued foray into banning potentially pro-competitive arrangements, finding that

the Commission violated § 202(h) by expanding the reach of the ownership rules without first justifying their preexisting scope through a Quadrennial Review. In Prometheus I we made clear that § 202(h) requires that “no matter what the Commission decides to do to any particular rule—retain, repeal, or modify (whether to make more or less stringent)—it must do so in the public interest and support its decision with a reasoned analysis.” Prometheus I, 373 F.3d at 395. Attribution of television JSAs modifies the Commission’s ownership rules by making them more stringent. And, unless the Commission determines that the preexisting ownership rules are sound, it cannot logically demonstrate that an expansion is in the public interest. Put differently, we cannot decide whether the Commission’s rationale—the need to avoid circumvention of ownership rules—makes sense without knowing whether those rules are in the public interest. If they are not, then the public interest might not be served by closing loopholes to rules that should no longer exist.

Perhaps this decision will be a harbinger of good things to come. The FCC — and especially Tom Wheeler’s FCC — has a history of failing to justify its rules with anything approaching rigorous analysis. The Open Internet Order is a case in point. We will all be better off if courts begin to hold the Commission’s feet to the fire and throw out their rules when the FCC fails to do the work needed to justify them.