On May 28, 2013, in Comcast Cable Communications, LLC v. FCC, the District of Columbia Circuit Court of Appeals decided in favor of Comcast in their “program carriage” dispute with the Federal Communications Commission (FCC) over Comcast’s decision to keep the Tennis Channel on a sports tier, rather than more broadly distributed tiers. The Court found that the program carriage provisions of Section 616 of the Communications Act and the FCC’s implementing rules only prohibit discrimination based on the affiliation of the programmer and does not prohibit discrimination based on reasonable business decisions. As neither the FCC nor the Tennis Channel showed any benefit to Comcast in broader carriage of the Tennis Channel, there is no evidence that this was anything other than a legitimate business decision. In a widely commented-on concurring opinion, Judge Kavanaugh suggested that, in light of changes in the competitive landscape that have occurred since 1993 the program carriage rules are constitutionally suspect.
Background. In 2005, the Tennis Channel entered into a carriage contract with Comcast, which gave Comcast the right to carry the Tennis Channel on any distribution tier. Pursuant to that agreement, Comcast elected to carry Tennis on a “Sports Tier”. In 2009, the Tennis Channel asked Comcast to move the channel to a more broadly distributed tier. In making this request, the Tennis Channel proposed an agreement in which Comcast would pay for distribution on a per-subscriber basis, which meant that broader distribution would substantially increase costs to Comcast.
In June 2009, after analyzing local and subscriber interest, Comcast rejected Tennis Channel’s proposal. The Tennis Channel filed a complaint with the FCC in January 2010 that Comcast was engaging in illegal discrimination in violation of the program carriage rules because Comcast was carrying its affiliated sports programming channels, Golf Channel and Versus (now NBC Sports Network), on its most broadly distributed tiers. An administrative law judge found in favor of the Tennis Channel and the FCC affirmed that decision in July 2012. Comcast then appealed the FCC’s decision to the D.C. Circuit.
Discussion. Comcast’s appeal challenged the Commission’s decision on several grounds, including that the FCC reading of the program carriage provision violated Comcast’s First Amendment rights and that the FCC had failed to provide adequate evidence of unlawful discrimination. In its unanimous opinion, the Court did not address the First Amendment arguments (although, as noted above, Judge Kavanaugh did so in his concurring opinion). Instead, the Court held that the FCC erred in finding that Comcast had engaged in any unlawful discrimination.
The Court noted that the parties agreed that Comcast distributes its affiliated stations more broadly than the Tennis Channel. However, the Court explained that Section 616 only prohibits discrimination when it is done on the basis of affiliation. In this case, Comcast argued that it had rejected the Tennis Channel’s proposed distribution agreement on the basis of the additional costs it would incur by distributing the Tennis Channel more broadly and provided the FCC and the Court with “detailed, concrete” evidence of those additional costs. Comcast also argued that neither the FCC nor the Tennis Channel provided any evidence of any benefit to Comcast to offset those costs. The Court agreed with Comcast. In doing so, the Court rejected several arguments made by the FCC in defense of its decision. First, the court rejected the FCC’s argument that Comcast could have narrowed the distribution of its affiliated networks rather than broadening the distribution of the Tennis Channel. The Court reasoned that while this is a possible remedy should Comcast be found to have engaged in unlawful discrimination, it does not provide any support for the Commission’s conclusion that Comcast did so. Citing the lack of any evidence from the FCC or the Tennis Channel of a benefit to Comcast, the Court likewise rejected the FCC’s contention that Comcast’s cost-benefit analysis was insufficiently rigorous and a pretext for a discriminatory purpose.
As noted, Judge Kavanaugh wrote a separate concurring opinion in which he addressed two additional issues: (1) the Commission’s misreading of the program carriage rules in light of antitrust law and (2) the First Amendment issues raised by the FCC application of the program access rules. Kavanaugh explained that a violation of Section 616 must have two elements: (1) discrimination must be on the basis of affiliation and (2) such discrimination must have “unreasonably restrained” the unaffiliated networks ability “to compete fairly.” According to Kavanaugh, “unreasonably restrain” is a term of art in antitrust law and its meaning and use in Section 616 should comport with that body of law. In antitrust law, vertical integration is generally considered procompetitive and only unreasonably restrains competition when the entity has market power in the relevant market. Therefore, Section 616’s prohibition should only apply when a multichannel video programming distributor has such market power.
In this case, the FCC improperly shifted the analysis to the discrimination’s effect on a competitor rather than the effect on overall competition. And without market power, there cannot be an “unreasonable restraint.” According to Judge Kavanaugh, Comcast’s 24% share of the national multichannel video programming distribution (MVPD) market does not provide it with the market power in the relevant market that is necessary to sustain a finding of illegal conduct.
Judge Kavanaugh also noted that a massive transformation of the MVPD market has occurred and, as a result, cable operators “no longer have the bottleneck power over programming” needed to sustain the program carriage rules under the First Amendment. As Kavanaugh wrote, “The FCC cannot continue to implement a regulatory model premised on a 1990s snapshot of the cable market.”
Finally, the third member of the appellate panel, Judge Edwards, authored his own separate concurring opinion in which he argued that the FCC had erred in finding that Tennis Channel’s complaint against Comcast was timely filed. According to Edwards, the applicable “statute of limitations” required the Tennis Channel to file its complaint within one year of the original agreement with Comcast, not within one year of the date on which its proposal to be carried on a widely-distributed tier was rejected by Comcast.