Yesterday, a panel of judges from the US Court of Appeals for the Third Circuit decided by a 2 to 1 vote to overturn the FCC’s 2017 decision that made significant changes to its ownership rules (see the decision here). The Court sent the case back to the FCC for further consideration. The 2017 decision (see our article here) was the one which ended the ban on the cross ownership of broadcast stations and daily newspapers in the same market and the limits on radio-television cross-ownership. The 2017 decision also allowed television broadcasters to own two TV stations in markets with fewer than 8 independent owners and made other changes to the radio and TV ownership rules. Yesterday’s decision also put on hold the FCC’s incubator program meant to assist new owners to acquire radio stations (see our summary of the incubator program here). All of this was done without any analysis whatsoever as to whether marketplace changes justified the changes to the ownership rules or of the impact that the undoing these rule changes would have on broadcasters and other media companies – including on radio companies hoping for changes in the radio ownership rules in current proceeding to review those rules (see our articles here and here).

What led the Court to overturn the decision if it was not the Court’s disagreement with the FCC’s determination that change in the ownership rules was needed? This Court, in fact these same three judges, has overturned the FCC three times in the last 15 years, stymieing ownership changes because the Court concluded that the FCC had not sufficiently taken into account the impact that rule changes would have on diversity in the ranks of broadcast owners. Here, again, the Court determined that the FCC did not have sufficient information on the impact of the rule changes on ownership diversity to conclude that the rule changes were in the public interest – and thus sent the case back to the FCC to obtain that information before making any ownership rule changes. What led the Court to that conclusion, and what can be done about this decision?

In reviewing the FCC’s decision, which had paid significant attention to minority ownership issues, the Court made several criticisms of the FCC’s methodology, finding that the FCC did not have accurate information about the actual minority ownership of broadcast stations and how it has changed over time. The Court concluded that without that information, the FCC could not make proper assessments about the impact of the rule changes on diversity in ownership. The Court also faulted the FCC for not making determinations as to the ownership of broadcast stations by women. Finally, the Court said that the FCC decision in adopting its incubator program to make small businesses the beneficiaries of the incubation process, rather than making minority or female owners the beneficiaries, did not sufficiently analyze the impact that using the small business definition would have on ownership diversity. The FCC had found that it could not use racial or gender distinctions to determine the beneficiaries of the incubation process as that would be constitutionally suspect – but the Court concluded that, even so, the FCC needed to assess the impact on diversity of the rules it decided to use.

Note that Court did not decide that any of the rule changes made in 2017 were necessarily problematic. In fact, the Court said that, even if the FCC determines the rules that it adopts adversely impact minority ownership, those rule changes may still be permissible if the FCC decides that the public interest requires changes in the rules despite their impact on diversity. So, at the end of the day, the gathering of the required information could lead to the exact same result that the FCC reached in 2017. The potential for that result seems to be reflected in the opinion of the dissenting judge, who notes that the world has changed in terms of media competition, that the 2017 rule changes were justified based on that change, and that the needed changes in the rules should not be held up while the FCC is sent on what may be an impossible task of trying to document in a manner satisfactory to the Court’s majority how its rule changes will affect minority ownership.

What happens next? The Court sent the case back to the FCC for further consideration, where the 2017 decisions would probably be added to those issues already under consideration in the current Quadrennial Review (see our article here on those issues). However, instead of immediately taking up the Court’s remand, an appeal of this decision is possible. In fact, Chairman Pai, in his statement after the decision, seems to suggest that the FCC will appeal the decision. The first step may be to ask the other judges on the Third Circuit to rehear the case to determine if the three-judge panel was correct in its assessment. An appeal to the Supreme Court is also possible, though that is a much lengthier process that could take longer to resolve than if the FCC considers the matter on its own. We should see in the next month or so where the FCC decides to go on this matter – and how it affects pending applications that rely on the 2017 rule changes as well as future changes in the ownership rules.