In a brief filed late last week with the D.C. Circuit Court, Northstar Wireless and SNR Wireless accused the FCC of acting in an arbitrary and capricious manner in rejecting the companies’ status as small business designated entities (DEs) and their eligibility for the $3.3 billion in DE bid credits that they accrued collectively during the Advanced Wireless Service (AWS)-3 auction.

Together, Northstar and SNR were surpassed only by AT&T as the top bidders during the AWS-3 auction, which took place between November 2014 and January 2015 and garnered gross winning bids of nearly $44.5 billion on 1,611 licenses. Northstar and SNR are backed by DISH Network, which has been described by both companies in FCC documents as a non-controlling, 85% economic stakeholder. Spurred by complaints about Northstar and SNR’s relationship with DISH—an AWS-3 auction competitor that did not win any licenses—and the bidding activities of all three entities during the auction, the FCC decided last August to deny the companies’ status as DEs and require them to pay the full amount of their collective gross winning bids of $13.3 billion. Concluding that Northstar and SNR Wireless “have a financial dependency” on DISH of unprecedented size and scope,” the FCC rejected the companies’ claim that the economic interest held by DISH constitutes a non-controlling stake.

Emphasizing, however, that most of the provisions in their agreements with DISH were “derived from (and were nearly identical to) provisions in earlier [DE] agreements where very small businesses had been approved to obtain bidding credits,” Northstar and SNR told the court there was nothing unusual or illegal about their arrangement with DISH that warranted FCC denial of their eligibility as DEs. Despite the fact that they had structured their relationship with DISH “by doing exactly what the Commission instructed: closely examining past relevant precedents,” Northstar and SNR complained that the FCC later “disavowed that guidance” in the August order so that the FCC could conclude that DISH had impermissibly controlled the bidding activities of both companies during the AWS-3 auction. Northstar and SNR further charged that the FCC had intentions of applying later-adopted DE control standards retroactively to Northstar and SNR as evidenced by FCC Chairman Tom Wheeler’s July 23 testimony to Congress that the FCC would use a standard “that had never been applied before . . . in reviewing Petitioners’ applications for bidding credits.” Asserting that, “parties must be given fair notice of the rules,” Northstar and SNR wrote that, even if the FCC adopts a new standard, “it may not penalize Petitioners for failing to anticipate that change.” FCC  officials offered no comment, and the agency is expected to reply in a brief that is due on February 26.