Licensing / Media Regulation
Valdelomar and Sibaja v. Costa Rican Superintendence of Telecommunications
Closed Expands Expression
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The Supreme Court of the United States affirmed the decision of the Federal Communications Commission (FCC) in a case concerning media cross-ownership rules set under section 202 (h) of the Telecommunications Act of 1996. In 2002, FCC’s decision to relax erstwhile media ownership rules which prohibited cross-ownership of newspapers with television and radio broadcast stations was challenged by Prometheus Radio Project and other public-spirited groups (Prometheus) before the U. S. Court of Appeals for the Third Circuit. Post subsequent appellate court decisions which blocked FCC’s attempt to relax such rules, its orders modifying and repealing previous ownership rules were vacated again by the Third Circuit in 2019 for failing to consider gender or social disadvantage diversity alongside racial diversity. The Supreme Court reversed the judgment of the Third Circuit which declared FCC’s orders as being arbitrary and capricious under the Administrative Procedure Act (APA). The Court noted that the assessment made by the FCC fell within the zone of reasonableness as permitted under the APA. In light of the sparse record on minority and female ownership and the FCC’s findings with respect to competition, localism, and viewpoint diversity, the Supreme Court held that the decision to repeal or modify the ownership rules was valid under law.
The FCC, in order to serve public interest, has been bestowed with the power to regulate the rules pertaining to the ownership of radio stations, television stations and newspapers. This is to keep a check on the development of monopoly in any given market. This power is sourced from section 202(h) of the Telecommunications Act, 1996 which requires the FCC to evaluate the continuing need for existing ownership rules in light of “public interest” and “competition”.
In 1975, FCC had enacted a rule restricting cross-ownership in the media marketplace. In 2002, its review under section 202(h) revealed a changing media landscape where its originally enacted cross-ownership limitations were no longer necessary to maintain viewpoint diversity and competition given the proliferation of new media sources. Accordingly, FCC determined that wide-ranging regulatory reforms were needed, which included eliminating its ban (adopted in 1975) on common ownership of daily newspapers and broadcast stations in a single market. The blanket ban was, thus, replaced with new market specific limits.
Remarkably, FCC’s 2002 ruling maintained some limited ownership controls which were challenged by numerous parties, primarily Prometheus Radio Project (Prometheus), an advocacy group campaigning against media consolidation. In 2004, the challenge was determined by the Third Circuit Court of Appeals (Prometheus I) which ruled that while FCC’s determination that the blanket ban on newspaper/broadcast cross-ownership was no longer in the public interest was justifiable, its reasoning for imposing the new limits was inadequate. The panel vacated and remanded the 2002 rules on new limits, which led FCC to maintain pre-2002 rules for cross-media ownership. FCC’s section 202(h) review in 2006 was remanded again by the Third Circuit in 2011 (Prometheus II) where it ruled to maintain the stay on the new rules, primarily on similar grounds as it previously raised in Prometheus I. Subsequent 202 (h) reviews due in 2010 and 2014 failed on account of the ongoing suit in Prometheus II, leading to another intervention by Third Circuit in Prometheus III in 2016, where the court ordered the FCC to complete the 2010 and 2014 reviews and issue a new proposed cross-media ownership rule by the end of 2016.
After a series of failed attempts to loosen newspaper/broadcast cross-ownership restrictions, in 2016, the FCC set out to review three ownership rules. The first rule dealt with newspaper/broadcast cross ownership and placed prohibitions on a single entity working in the same media market from owning a radio or television broadcast station together with a daily print newspaper. The second rule dealt with radio/television cross ownership and placed a limitation on combined ownership of radio stations together with television stations in a given market. The third rule pertained to local television ownership and restricted the ownership of a single entity in a given market over the number of local television stations.
In August 2016, the FCC concluded its review by issuing new rules which made only “minor modifications” to the 1975 rule. [p. 5] In 2017, however, upon reconsideration, the FCC deemed fit to repeal two and modify one of the rules upon performing a new public interest analysis. It concluded that with the evolution of technology and rise of new media outlets, the rules were no longer required to promote “public interest goals of competition, localism, and viewpoint diversity” and that a change “was not likely to harm minority and female ownership”. [p.6]
Against the order of FCC, Prometheus petitioned for review before the Third Circuit. The Court of Appeals, only limiting its findings to harm caused to minority and female ownership, vacated the reconsideration order of FCC and further directed it to ascertain the harm which is likely to be caused to the minority and female ownership [p.7] (Prometheus IV). This order by the Third Circuit was petitioned for certiorari by FCC and other industry groups before the Supreme Court.
In its challenge, Prometheus argued that FCC relied on flawed data and altogether ignored the superior data that was available on record to conclude its assessment of the likely impact of the rule changes on minority and female ownership. Prometheus also highlighted, by referring to two data sets measuring the number of minority owned media outlets, that FCC ignored studies that revealed how relaxations in the past had led to a decrease in minority and female ownership. [p. 10] It insisted that the FCC’s analysis of those datasets was overly simplistic and that the data sets were materially incomplete. Consequently, Prometheus claimed that FCC’s decision was arbitrary and capricious under the APA.
Kavanaugh, J. authored the opinion for the Supreme Court of the United States with Thomas J. filing a concurring opinion. The Court was called upon to primarily decide whether the Court of Appeals erred in vacating as arbitrary and capricious the FCC orders under review, which, among other things, relaxed FCC’s cross-ownership restrictions to accommodate changed market conditions. Additionally, it also considered whether the decision of FCC to conclude three of its ownership rules as requiring repealing or modification under section 202 (h) of the Telecommunications Act of 1996 was valid as per law.
Section 202(h) of the Telecommunications Act of 1996 provides that the FCC shall review its ownership rules every four years and determine whether any of such rules are necessary in the public interest as the result of competition. FCC, accordingly, is required to repeal or modify any regulation it determines to be no longer in the public interest. Notably, under the APA’s arbitrary and capricious standard, an agency’s action is required to be “reasonable” and “reasonably explained” (FCC v. Fox Television Stations, Inc.). [p. 9].
The Court first highlighted how the FCC has historically discouraged monopolization of the market by maintaining strict ownership rules (FCC v. National Citizens Comm. for Broadcasting). This process eventually required regular assessment as the FCC had to keep pace with the development in the industry (In re 2002 Biennial Regulatory Review— Notice of Proposed Rulemaking).
Addressing the arguments on arbitrariness and caprice under the APA, the Court initially sought to explain the width of this standard. While it required the FCC to act in a reasonable manner and explain its decision, the scope of judicial review under the standard was restricted as it placed a limitation on the Court not to substitute its view in place of the FCC [p.7].
On Prometheus’ claim that FCC relied on flawed data in assessing the likely impact of changing the rules on minority and female ownership, the Court underscored how the two data sets placed on record by Prometheus showcased that change in the three rules would, after showing a decline in the initial years, result in an eventual increase in the number of minority owned outlets (although not an increase in the ownership levels). To that end, FCC explained that it had sought public comments on the question pertaining to minority and female ownership and had, in fact, received comments that suggested that their decision of eliminating the rules “potentially could increase minority ownership of newspapers and broadcast stations” [p.9]. Importantly, the FCC had concluded, and the Court agreed, that the data sets failed to represent how changes in the aforementioned three rules could adversely impact minority and female ownership.
Prometheus had also claimed that the FCC’s numerical comparison was “overly simplistic” and “materially incomplete”. However, the Court declared that Prometheus had failed to place on record any material that would display the gaps in the data, despite the insistence of the FCC for such data. This inevitably resulted in the FCC relying on available data to predict that changing the rules was not likely to harm minority and female ownership. [p. 12]
On Prometheus’ contention that FCC ignored the study by Free Press which purported to show that past relaxations of the ownership rules and increases in media market concentration had led to decreases in minority and female ownership levels, the Court stated that the FCC did not ignore them – it merely arrived at a different conclusion. FCC had argued that the Free Press study, much akin to the datasets, showed a long-term increase in minority ownership after the relaxation of ownership rules. The Court, thus, concluded that Free Press studies were backward looking and presented “no statistical analysis of the likely future effects of the FCC’s proposed rule changes on minority and female ownership” [p. 13].
Relying on the above reasoning, the Court declared that FCC’s analysis was within the zone of reasonableness as required under the APA’s deferential arbitrary-and-capricious standard. FCC’s conclusion that the ownership rules no longer served public interest and its reasoning that historical justifications for those ruled did not apply in today’s media marketplace were adequate to meet the standard. Accordingly, it reversed the decision of the Third Circuit.
It is important to note that in its ruling, the Supreme Court emphasized that APA did not impose an obligation on FCC to conduct its own empirical/statistical studies prior to a 202(h) review. A reasonable predictive judgment based on the evidence it had was a usual modus operandi in day-to-day agency decision-making within the Executive Branch.
In his concurring opinion, Thomas, J. outlined a procedural reason to register a separate opinion. According to him, “the Third Circuit improperly imposed non statutory procedural requirements on the FCC by forcing it to consider ownership diversity in the first place” [p.1]. He reasoned that there was neither a requirement under section 202 (h) to consider minority or female ownership, nor could the Third Circuit force FCC to consider such “judge made procedures” (Perez v. Mortgage).
Thomas J. clarified that the ownership rules, as differentiated from the non-ownership rules, were not tailored to promote ownership diversity as FCC’s prime focus had always been consumers and not owners. (FCC v. Pottsville Broadcasting Co.) Thus, the policy goal was focused more towards viewpoint diversity. [p.2] The historical context that led to such conclusion was remiss by the Third Circuit, especially the instance when in 2003 the Court had reminded the FCC that its rules were designed to foster viewpoint diversity.
Thus, he concluded that the FCC was not restricted from changing its rules if it had determined so. More importantly, he noted that since the Third Circuit had no authority to ask the FCC to consider minority and female ownership, the FCC in the future was under no obligation to consider the same.
Decision Direction indicates whether the decision expands or contracts expression based on an analysis of the case.
The decision expands expression. FCC is primarily tasked to remove outdated ownership rules and regulations as a way and means to create a space for diverse voices and viewpoints, facilitating the “marketplace of ideas”. This helps in promotion of the first amendment right of its viewers.
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