The FCC’s stated goal for some time has been to conduct the broadcast incentive auction in 2016 – buying the spectrum used by a number of TV stations, repackaging it and selling it to wireless companies for wireless broadband purposes. This will happen in a very complicated process where there will be two simultaneous auctions, one for TV stations bidding to surrender their channels, and a second for wireless companies looking to buy that spectrum. Only if there are sufficient bidders on both sides – enough TV stations willing to give up their spectrum to entice the wireless companies to bid, and enough wireless companies willing to bid enough to cover the costs of buying out the TV stations needed to clear the spectrum and paying the costs of many of the remaining stations to change their channels so as to clear a uniform block of spectrum nationwide – will the process be a success. The FCC adopted the general framework for the auction last year. Last month, the Court of Appeals rejected certain appeals of that Order, and the next week, the FCC denied other petitions for reconsideration of that Order – setting the stage for the auction to go forward. The FCC will, at its meeting next week, consider more detailed procedures setting out how the auction will be conducted – all looking to the auction really taking place on schedule in early 2016, with certain required filings this year (including the one due on July 9, about which we wrote here).

The FCC last month also issued orders on Channel Sharing between TV stations (where two stations can combine operations on the same 6 MHz television channel, retaining their cable carriage rights, but enabling them to sell one channel in the auction) and on setting aside a television channel in each market after the auction for unlicensed wireless uses. We will separately write about those two items – but today let’s look at the rejection of the appellate challenges to the auction framework itself, and the impact that these decisions have on broadcasters’ plans going forward.

As we wrote here, the Court of Appeals challenges to the FCC’s incentive auction framework were filed by the NAB and by Sinclair Broadcast Group. Any time a party challenges the decision of an expert administrative agency, the challenger faces a high hurdle. The courts will not second guess the agency’s findings of fact or legal conclusions based on those facts. Instead, the challenger must show that the decision was somehow procedurally improper (e.g. the agency did not provide adequate notice to parties of the issues that it was considering), or that it was arbitrary and capricious (i.e. the conclusions contained in the decision could not rationally have been arrived at from the facts presented to the agency, or that there were no facts presented to the agency in support of the conclusion that it reached), or that the decision was contrary to law. While issues were raised in the incentive auction appeal on all three grounds, the Court found that none applied, making this a classic case where the court deferred to the decision-making of the presumed expert agency.

Both the NAB and Sinclair had challenged the FCC’s adjustments to OET-69, the technical framework for computing post-auction interference between television stations. OET-69 was specified by the Congressional authorization for the incentive auction as the standard to be used by the FCC to attempt to preserve the coverage contours of TV to the greatest extent possible. The FCC did use the methodology of OET-69, but also adopted something called TVStudy, consisting of new algorithms and inputs that underlie OET-69. Broadcasters contended that these new inputs would allow for more actual interference to TV stations in the newly repacked TV band, thus violating the spirit of the authorizing legislation. The Court rejected those challenges; find that the FCC, as an expert agency, has the ability to make technical changes like those done here, as long as the changes did not offend Congressional direction. The Court found that the Congressional legislation authorizing the auction (see our summary here) had approved the OET-69 methodology but did not mandate that the underlying inputs would be kept the same, so changes in those inputs could be made without violating Congressional intent. The Court also rejected arguments that the FCC had not given adequate notice of the changes caused by the use of the TVStudy inputs.

Sinclair also raised a broader challenge to the auction procedures – arguing that there could be no auction unless there were two stations in the same market bidding against each other for the right to surrender their spectrum. The Court also rejected that interpretation, again giving deference to the FCC as the expert agency in this area to adopt an interpretation that there were mutually exclusive stations in the context of this auction – even if the stations competing to be bought out were not in the same markets. A challenge to the requirement that TV stations repacked into the smaller TV band complete their conversion to their new channels within 39 months or go off the air was also not a decision where the court wanted to challenge the decision of the expert agency.

So the Court upheld the FCC decision on the auction framework. But, unlike in other cases where the decision of the Court of Appeals effectively ends the debate (absent a very unusual appeal to the Supreme Court, or a rehearing by the Court of Appeals itself), this may not be the last time that the Court of Appeals considers this order. Normally, the Court will not hear an appeal like this when there are also pending petitions for reconsideration of the same agency action. It would normally put these appeals on hold while the FCC considered the petitions for reconsideration and, once the reconsideration requests were resolved, the Court would consider all appeals of the order in one case. Here, because the FCC was pushing to get these appeals resolved so that it could meet its 2016 auction target, and as the FCC and Sinclair agreed to an expedited appeal process, these appeals were heard before the reconsideration petitions were considered and disposed of by the FCC. In fact, those petitions for reconsideration were resolved about a week after the Court’s decision (and will be the subject of our article tomorrow). As the parties to the reconsideration petitions have not yet had their day in court, they may appeal the order as well raising other issues about the auction framework, though the FCC does not appear to be prepared to slow the auction while any other appeals are heard.

Since the Court’s order, the FCC has released a number of other orders that we will write about in the future – with more coming all the time as this significant hurdle to the incentive auction is no longer looming before the FCC.