Archives For abuse of process

The Wall Street Journal dropped an FCC bombshell last week, although I’m not sure anyone noticed. In an article ostensibly about the possible role that MFNs might play in the Comcast/Time-Warner Cable merger, the Journal noted that

The FCC is encouraging big media companies to offer feedback confidentially on Comcast’s $45-billion offer for Time Warner Cable.

Not only is the FCC holding secret meetings, but it is encouraging Comcast’s and TWC’s commercial rivals to hold confidential meetings and to submit information under seal. This is not a normal part of ex parte proceedings at the FCC.

In the typical proceeding of this sort – known as a “permit-but-disclose proceeding” – ex parte communications are subject to a host of disclosure requirements delineated in 47 CFR 1.1206. But section 1.1200(a) of the Commission’s rules permits the FCC, in its discretion, to modify the applicable procedures if the public interest so requires.

If you dig deeply into the Public Notice seeking comments on the merger, you find a single sentence stating that

Requests for exemptions from the disclosure requirements pursuant to section 1.1204(a)(9) may be made to Jonathan Sallet [the FCC’s General Counsel] or Hillary Burchuk [who heads the transaction review team].

Similar language appears in the AT&T/DirecTV transaction Public Notice.

This leads to the cited rule exempting certain ex parte presentations from the usual disclosure requirements in such proceedings, including the referenced one that exempts ex partes from disclosure when

The presentation is made pursuant to an express or implied promise of confidentiality to protect an individual from the possibility of reprisal, or there is a reasonable expectation that disclosure would endanger the life or physical safety of an individual

So the FCC is inviting “media companies” to offer confidential feedback and to hold secret meetings that the FCC will hold confidential because of “the possibility of reprisal” based on language intended to protect individuals.

Such deviations from the standard permit-but-disclose procedures are extremely rare. As in non-existent. I guess there might be other examples, but I was unable to find a single one in a quick search. And I’m willing to bet that the language inviting confidential communications in the PN hasn’t appeared before – and certainly not in a transaction review.

It is worth pointing out that the language in 1.1204(a)(9) is remarkably similar to language that appears in the Freedom of Information Act. As the DOJ notes regarding that exemption:

Exemption 7(D) provides protection for “records or information compiled for law enforcement purposes [which] could reasonably be expected to disclose the identity of a confidential source… to ensure that “confidential sources are not lost through retaliation against the sources for past disclosure or because of the sources’ fear of future disclosure.”

Surely the fear-of-reprisal rationale for confidentiality makes sense in that context – but here? And invoked to elicit secret meetings and to keep confidential information from corporations instead of individuals, it makes even less sense (and doesn’t even obviously comply with the rule itself). It is not as though – as far as I know – someone approached the Commission with stated fears and requested it implement a procedure for confidentiality in these particular reviews.

Rather, this is the Commission inviting non-transparent process in the midst of a heated, politicized and heavily-scrutinized transaction review.

The optics are astoundingly bad.

Unfortunately, this kind of behavior seems to be par for the course for the current FCC. As Commissioner Pai has noted on more than one occasion, the minority commissioners have been routinely kept in the dark with respect to important matters at the Commission – not coincidentally, in other highly-politicized proceedings.

What’s particularly troubling is that, for all its faults, the FCC’s process is typically extremely open and transparent. Public comments, endless ex parte meetings, regular Open Commission Meetings are all the norm. And this is as it should be. Particularly when it comes to transactions and other regulated conduct for which the regulated entity bears the burden of proving that its behavior does not offend the public interest, it is obviously necessary to have all of the information – to know what might concern the Commission and to make a case respecting those matters.

The kind of arrogance on display of late, and the seeming abuse of process that goes along with it, hearkens back to the heady days of Kevin Martin’s tenure as FCC Chairman – a tenure described as “dysfunctional” and noted for its abuse of process.

All of which should stand as a warning to the vocal, pro-regulatory minority pushing for the FCC to proclaim enormous power to regulate net neutrality – and broadband generally – under Title II. Just as Chairman Martin tried to manipulate diversity rules to accomplish his pet project of cable channel unbundling, some future Chairman will undoubtedly claim authority under Title II to accomplish some other unintended, but politically expedient, objective — and it may not be one the self-proclaimed consumer advocates like, when it happens.

Bad as that risk may be, it is only made more likely by regulatory reviews undertaken in secret. Whatever impelled the Chairman to invite unprecedented secrecy into these transaction reviews, it seems to be of a piece with a deepening politicization and abuse of process at the Commission. It’s both shameful – and deeply worrying.

The day before yesterday I posted on the fascinating and important TiVo v. EchoStar case.  Today I wanted to follow up with some, let’s say, color commentary on EchoStar’s litigation tactics.  This isn’t dispositive, of course, but it does seem to add some insight into the notion that EchoStar is taking advantage of questionable litigation tactics rather than respecting property rights in its dealings with TiVo.

You’ll recall that, in the case, EchoStar lost at trial, ignored the judge’s order to stop infringing, was held in contempt, and continues infringing today.  This has resulted in numerous legal proceedings, all managing to keep TiVo bogged down in litigation as EchoStar continues to misappropriate TiVo’s intellectual property.  Although EchoStar has accrued substantial legal expenses—and damage awards from both a jury and the judge—they are dwarfed by its DVR revenues.

It turns out that courtroom shenanigans are no stranger to EchoStar.

Just last week, a state trial judge in Manhattan found that EchoStar exhibited grossly negligent behavior in a case involving Cablevision’s VOOM subsidiary.  The language in VOOM v. EchoStar characterized EchoStar’s misconduct  (allowing critical e-mail evidence to be destroyed) in an exceedingly harsh manner, holding that EchoStar “systematically destroyed evidence in direct violation of the law and in the face of a ruling by a federal court that criticized EchoStar for the same bad-faith conduct . . . .” The judge went on to characterize EchoStar as engaging in “procedural gamesmanship” and noted “EchoStar’s pattern of questionable — and, at times, blatantly improper — litigation tactics.”

The court further described EchoStar’s conduct as “precisely the type of offensive conduct that cannot be tolerated by the courts.” It rebuked “EchoStar’s last-minute finagling with expert reports, believing that it can play fast and loose with the rules of procedure in order to enhance its litigation posture . . . throughout this litigation, EchoStar has been hoist by its own petard.”

Arguably EchoStar has made this type of legal strategy part of its business model.

In the TiVo case, like many others, EchoStar’s gamesmanship and its propensity to abuse the law has become a central issue. In an amicus brief submitted by agricultural organizations in the TiVo case, the groups argue: “EchoStar’s conduct in this case . . . and in other cases, displays a propensity to flout court orders,” and goes on to cite several examples of this behavior, including:

  • breaking promises to the court (CBS Broad. Inc. v. EchoStarCommc’ns Corp., 276 F. Supp. 2d 1237, 1246 (S.D. Fl. 2003));
  • patently unmeritorious claims of error (CBS Broadcasting Inc. v. EchoStar Commc’ns Corp., 450 F.3d 505, 523, 526 (11th Cir. 2006));
  • misleading and coercive communication (Air Commun. & Satellite Inc. v. Echostar Satellite Corp., 38 P.3d 1246, 1254 (Colo. 2002));
  • and even frivolous actions (Dominion Video Satellite, Inc. v. EchoStar Satellite L.L.C., 430 F.3d 1269, 1278 (10th Cir. 2005)).
  • Further, in a 2004 case, one federal judge claimed that “EchoStar’s action rises to the level of conscious wrongdoing” (EchoStar Satellite Corp. v. Brockbank Ins. Servs., No. 00-MK-1513, 2004 U.S. Dist. LEXIS 31130 (D. Colo. Feb. 4, 2004)),
  • another chided EchoStar for failing “in its duty of candor . . . .We admonish EchoStar for this abuse of process” (EchoStar Satellite Corp. v. Young Broad. Inc., 16 F.C.C.R. 15070, 15076 (Aug. 2, 2001)).

Of course any good lawyer advocating for his client may push the envelope, and some of these procedural matters are governed by standards that are less than clear.  But this is a worrisome list of excesses, and should certainly raise eyebrows in the TiVo case.

Of a piece with this, in addition to the problem of EchoStar’s overall strategy of delay, avoidance and misappropriation in the TiVo case, is also EchoStar’s fantastic claim that upholding the lower court’s contempt proceeding would inflict serious hardship on the firm, causing it to lose a substantial fraction of its present and future customer base (to the tune of $90 million per month).  Unfortunately, this customer base was built, indisputably (that is, undisputed even by EchoStar which does not challenge the underlying infringement finding), on the back of TiVo’s misappropriated technology.  It is like the child who murders her parents and then throws herself on the mercy of the court as an orphan. It seems absurd to listen to EchoStar claim hardship from the prospect of losing business it never earned in the first place.

As Richard Epstein noted in his amicus brief in the case:

In effect EchoStar’s argument is that once it has built up a large business on the back of someone else’s patents, it should be allowed to reap those profits for the indefinite future.  The size of its own illicit gains becomes the tool it deftly uses to extend its illicit activity indefinitely.  This approach creates the perverse outcome that the longer the defendant is able to wiggle away from legal sanctions, the stronger is its case to continue on its unlawful path.  EchoStar’s claims of large future losses prove only one thing: that its large monthly losses make the damages awarded for TiVo in 2006 look puny relative to the continuing harm from EchoStar’s misbehavior.

The VOOM holding is just the latest in a serial pattern of courtroom distractions and legal delays. It seems EchoStar has made a practice out of disobeying court orders and pushing the legal system to the limits. Like the TiVo case, VOOM and others demonstrate that a determined party can drag out the legal process and prevent the other side from obtaining a remedy for harm it has suffered. As I noted the other day, this is particularly true for software devices and other complex products, where trivial changes can be exaggerated in an effort to run out the clock on a patent.

In the TiVo case the stakes are enormous. EchoStar is working to undermine the role of the courts in enforcing the intellectual property rights that facilitate innovation.  And more, a victory for EchoStar would send a message to large and small companies, innovators and capitalists that abusing the court’s rules of procedure is not only fair game, but also a legitimate business tactic.