Cable Vision System Corp. v. Federal Communications Commission

United States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

Argued September 22, 2009 Decided March 12, 2010

No. 07-1425

CABLEVISION SYSTEMS CORPORATION,

PETITIONER

v.

FEDERAL COMMUNICATIONS COMMISSION AND UNITED

STATES OF AMERICA,

RESPONDENTS

AT&T INC. AND VERIZON,

INTERVENORS

Consolidated with 07-1487

On Petitions for Review of an Order

of the Federal Communications Commission

Henk Brands argued the cause for petitioners. With him on

the briefs were David P. Murray and Howard J. Symons.

Nandan M. Joshi, Counsel, Federal Communications

Commission, argued the cause for respondents. With him on the

brief were Thomas O. Barnett, Assistant Attorney General, U.S.

Department of Justice, Catherine G. O’Sullivan and Nancy C.

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Garrison, Attorneys, Matthew B. Berry, General Counsel,

Federal Communications Commission, Joseph R. Palmore,

Deputy General Counsel, and Daniel M. Armstrong, Associate

General Counsel. Richard K. Welch, Deputy Associate General

Counsel, entered an appearance.

Helgi C. Walker argued the cause for intervenors Verizon,

et al. With her on the brief were Michael E. Glover, Edward

Shakin, William H. Johnson, Eve Klindera Reed, Christopher M.

Heimann, Gary L. Phillips, Lynn R. Charytan, Jack N.

Goodman, Heather M. Zachary, Dileep S. Srihari, and Pantelis

Michalopoulos.

Harry F. Cole was on the brief for amicus curiae

Broadband Service Providers Association in support of

respondents.

Before:SENTELLE, Chief Judge, GRIFFITH and

KAVANAUGH, Circuit Judges.

Opinion for the Court filed by Chief Judge SENTELLE.

Dissenting opinion filed by Circuit Judge KAVANAUGH.

SENTELLE, Chief Judge: In these consolidated cases,

Cablevision Systems Corporation and Comcast Corporation

petition for review of the Federal Communications

Commission’s decision to extend for five years a statutory

prohibition against exclusive contracts between cable operators

and cable affiliated programming networks. Petitioners assert

that the Commission misinterpreted the plain meaning of the

underlying statute. In addition, they argue the Commission’s

decision was arbitrary and capricious and therefore violates the

Administrative Procedure Act (APA). Lastly, petitioners claim

the decision fails under First Amendment intermediate scrutiny.

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We hold that the Commission’s interpretation of its statutory

mandate was reasonable. Because we also hold that the

Commission’s decision satisfies arbitrary and capricious review,

and that intermediate scrutiny is not applicable, we deny the

petitions for review.

I. Background

Multichannel video programming distributors (MVPDs),

such as cable television operators or direct broadcast satellite

providers, offer customers multiple channels of video

programming, generally by subscription. From the 1940s when

the first cable television systems were built until the 1990s, the

cable industry dominated this market. In most geographic areas,

cable operators were the only MVPDs, often enjoying local

cable monopolies because they were permitted to enter into

exclusive local franchises when they laid cables using public

rights of way and easements. As the market for cable

subscriptions grew, so did the market for cable programming to

supplement television broadcast programming. Cable

programmers began to develop programs for sale or license to

cable operators. These two halves of the cable industry often

had — and still have — overlapping ownership, with cable

operators having ownership interests in cable programmers, and

vice versa. Such companies constitute “vertically integrated”

entities.

In 1990, the Federal Communications Commission reported

to Congress that the cable operators’ monopolies in the MVPD

market persisted partly because competitors were unable to

secure programming owned by vertically integrated cable

companies. Competition, Rate Deregulation and the

Commission’s Policies Relating to the Provision of Cable

Television Service, 5 F.C.C.R. 4962, 5006–08 (1990). In

response to the Commission’s report, Congress enacted the

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Cable Television Consumer Protection and Competition Act of

1992 (Cable Act). Pub. L. No. 102-385, 106 Stat. 1460. Section

628 of the Act, 47 U.S.C. § 548, prohibits various activities that

inhibit competition in video programming. One provision, §

628(c)(2)(D), directs the Commission to promulgate regulations

prohibiting exclusive contracts for cable and broadcast

programming between a cable operator and a cable

programming vendor in which a cable operator has an

attributable interest, unless the Commission determines that the

contract would be in the public interest. This provision (“the

exclusivity prohibition”) applies to programming delivered to

distributors via satellite, the most common method of delivery,

but not to programming delivered by terrestrial lines such as

fiber optic cables. The exclusivity prohibition was subject to a

sunset provision, which provided that the exclusivity prohibition

would lapse ten years after the date of the Cable Act’s

enactment, “unless the Commission finds, in a proceeding

conducted during the last year of such 10-year period, that such

prohibition continues to be necessary to preserve and protect

competition and diversity in the distribution of video

programming.” 47 U.S.C. § 548(c)(5).

At the end of the ten year period, in 2002, the Commission

extended the exclusivity prohibition for five years with a

commitment to evaluate the market again at the end of the five

years. In its analysis, the Commission concluded that the

prohibition was “necessary” “if, in the absence of the

prohibition, competition and diversity would not be preserved

and protected.” Implementation of the Cable Television

Consumer Protection and Competition Act of 1992 and

Development of Competition and Diversity in Video

Programming Distribution: Section 628(c)(5) of the

Communications Act – Sunset of Exclusive Contract Prohibition,

Report and Order, 17 F.C.C.R. 12,124, 12,128-30 (2002).

Though competition in the multichannel video programming

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market had improved significantly since 1992, the Commission

found that conditions had not changed enough to allow the

prohibition to sunset.

Over the next five years, the markets for both multichannel

video programming distribution and programming creation

continued to change dramatically. When the Commission

compiled its report on the state of the MVPD market in 2007, it

recorded many differences between the 2002 and 2007 markets.

Implementation of the Cable Television Consumer Protection

and Competition Act of 1992 and Development of Competition

and Diversity in Video Programming Distribution: Section

628(c)(5) of the Communications Act – Sunset of Exclusive

Contract Prohibition, Report and Order and Notice of Proposed

Rulemaking, 22 F.C.C.R. 17791 (2007) (“2007 Order”). As of

2007, there were 531 national programming networks, up from

294 in 2002 and just 68 in 1992. The percentage of those

networks that were vertically integrated decreased to 22 percent

from 35 percent in 2002 and 57 percent in 1992. However,

many of the most popular networks were still cable affiliated;

seven of the Top 20 satellite-delivered networks as ranked by

prime time ratings, and almost half of all regional sports

networks, were affiliated with the four largest cable operators,

Comcast, Time Warner, Cox, and Cablevision.

The cable delivery market also changed significantly. At

the time of the Order, cable operators controlled 67 percent of

multichannel video programming distribution, down from 78

percent in 2002 and 95 percent in 1992. Direct broadcast

satellite operators such as DirecTV and EchoStar served 30

percent of the market, up from 18 percent in 2002. Since 2002,

telephone companies have begun offering wireline services

based on their telephone infrastructure. While wireline

competitors only represent a small share of the MVPD market,

they represent a potentially powerful force because they can

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offer the same bundled voice, broadband data, and video

services that cable operators provide but that direct broadcast

satellite cannot offer.

To monitor the geographic variations in the television

market, the Commission designates geographic television

markets, called “designated market areas,” based on local

viewing patterns. Each county in the United States is allocated

to a market based on which stations receive a preponderance of

total viewing hours in the county. 2007 Order at 17,828 n.276.

Examining these designated market areas individually, the

Commission noticed that in many areas consumers continue

overwhelmingly to subscribe to cable. Cable operators tend to

cluster regionally, and over the years smaller operators have

consolidated with large operators. Because of this clustering and

consolidation, a single geographic area can be highly susceptible

to near-monopoly control by a cable company. The four largest

cable operators have in fact increased their share of the national

MVPD market from 48 percent in 2002 to between 53 and 60

percent in 2007.

In the 2007 Order, the Commission also assessed the

incentives of vertically integrated cable companies to withhold

programming from competitors. In order to make this

evaluation, the Commission extrapolated from exclusive

contracts that are allowed to and do exist. See 2007 Order,

App’x C, 22 F.C.C.R. at 17,883. Because the exclusivity

prohibition only applies to programming delivered to

distributors via satellite, vertically integrated cable companies

can and do enter into exclusive contracts for programming to be

delivered through terrestrial cables. These programming

networks tend to be regional, such as Comcast SportsNet

Philadelphia or CN8, a Comcast-owned local news and

information channel serving 20 television markets. Comcast

currently withholds its SportsNet Philadelphia network from

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competitors, and the FCC used this example as a case study to

reverse engineer what market conditions make withholding

profitable. The Commission then extrapolated from these data

to predict how many satellite-delivered regional and national

networks would be withheld by vertically integrated cable

companies if the prohibition lapsed. Depending on the values

for certain variables – including whether subscribers who switch

from a competitor sign up for cable service alone or for bundled

services such as phone and internet services – somewhere

between 26 and 59 market areas would be susceptible to

withholding of a regional network owned by Time Warner or

Comcast.

For popular national networks, withholding could be

profitable for Comcast if as few as 1.9 percent of competitors’

subscribers switched to the affiliated cable operator, assuming

ideal conditions for the cable company. However, if the popular

national network were owned by Time Warner and new

subscribers only bought video services, the required amount of

switching might be as high as 63.6 percent of competitors’

customers. Id. at 17,890-91. Given these calculations, the

Commission concluded that, at least in some circumstances,

vertically integrated cable companies would enter into exclusive

contracts for programming if they were allowed to. Though it

acknowledged that exclusive contracts sometimes can be

beneficial for competition and consumers, the Commission

stated that it did not believe “that these purported benefits

[would] outweigh the harm to competition and diversity in the

video distribution marketplace that would result if we were to

lift the exclusive contract prohibition.” Id. at ¶ 63, 22 F.C.C.R.

at 17,835. Given its observations of the market and predictions

about the effect of lifting the prohibition, the Commission

ultimately decided that the prohibition remained necessary under

its 2002 Order definition of that term in the sunset provision.

The Commission therefore extended the prohibition for another

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five years with a possibility for an earlier review if the market

changed rapidly. Id. at ¶ 1, 22 F.C.C.R. at 17,792.

Petitioners Cablevision and Comcast subsequently filed

petitions for this Court to review the 2007 Order.

II. Analysis

A. Standard of Review

The Commission’s interpretation of its statutory mandate

must satisfy the two step test under Chevron USA, Inc. v.

Natural Resources Defense Council, 467 U.S. 837 (1984).

Under step one, if a statute “has directly spoken to the precise

question at issue,” id. at 842, the court and the agency “must

give effect to the unabiguously expressed intent of Congress,”

id. at 843. Under step two, when the statute is silent or

ambiguous, the court asks “whether the agency’s answer is

based on a permissible construction of the statute.” Id.

We review the Commission’s decisionmaking process

under the Administrative Procedure Act. 5 U.S.C. § 706. We

will vacate an agency’s decision as arbitrary and capricious “if

[its] factual determinations lack substantial evidence,” Pan-

Alberta Gas, Ltd. v. F.E.R.C., 251 F.3d 173, 176 (D.C. Cir.

2001), or if the agency “relied on factors which Congress has

not intended it to consider, entirely failed to consider an

important aspect of the problem, offered an explanation for its

decision that runs counter to the evidence before the agency, or

is so implausible that it could not be ascribed to a difference in

view or the product of agency expertise,” Mount Royal Joint

Venture v. Kempthorne, 477 F.3d 745, 753 (D.C. Cir. 2007)

(quoting Motor Vehicle Mfrs Ass’n v. State Farm Mutual Auto

Ins. Co., 463 U.S. 29, 43 (1983)). However, we will not

substitute our judgment for the agency’s, especially when, as

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here, the decision under review requires expert policy judgment

of a technical, complex, and dynamic subject. See Nat’l Cable

& Telecomms. Ass’n v. Brand X Internet Servs., 545 U.S. 967,

1002-03 (2005).

Petitioners argue that we must also evaluate the 2007 Order

under First Amendment intermediate scrutiny because, they

contend, forcing a company to share programming it owns or

creates discourages and impedes free speech. The First

Amendment standard would require the Commission’s decision

to draw “reasonable inferences based on substantial evidence,”

Turner Broad. Sys., Inc. v. F.C.C., 512 U.S. 622, 666 (1994)

(plurality). Under intermediate scrutiny, the Commission’s

findings of fact would not warrant the same degree of deference

as under the APA alone. The government would need to show

that its restriction of speech is narrowly tailored to an important

governmental interest, rather than rely on the deference we

generally afford agencies. See United States v. Doe, 968 F.2d

86, 90 (D.C. Cir. 1992) (“Where constitutionally protected

activity is implicated, we cannot simply defer to the

[agency]. . . .”).

This Court analyzed the exclusivity prohibition under First

Amendment intermediate scrutiny once before. In Time Warner

Entertainment Co., L.P. v. F.C.C., 93 F.3d 957 (D.C. Cir. 1996),

we considered a facial challenge to the constitutionality of

several parts of the Cable Act, including the exclusivity

provision. In deciding what level of scrutiny to apply, we

looked to the Supreme Court’s decision in Turner Broadcasting

System, which held that rules requiring cable systems to carry

certain local commercial television stations and noncommercial

education stations were subject to intermediate scrutiny. 512

U.S. at 643. Applying the Turner Court’s logic to the

exclusivity provision, we held that the rule is “likewise ‘justified

by special characteristics’ of the affected companies: both ‘the

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bottleneck monopoly power exercised by cable operators,’ and

the unique power that vertically integrated companies have in

the cable market.” Time Warner, 93 F.3d at 978 (quoting

Turner, 512 U.S. at 661) (citations omitted). We therefore held

intermediate scrutiny to be the appropriate standard to apply,

noting that the provision is content-neutral on its face because

it “regulat[es] cable programmers and operators on the basis of

the ‘economics of ownership,’ a characteristic unrelated to the

content of speech.” Id. at 977 (quoting Daniels Cablevision,

Inc. v. United States, 835 F.Supp. 1, 7 (D.D.C. 1993)). Under

intermediate scrutiny, a court must uphold a statutory provision

if “it furthers an important or substantial governmental interest;

if the governmental interest is unrelated to the suppression of

free expression; and if the incidental restriction on alleged First

Amendment freedoms is no greater than is essential to the

furtherance of that interest.” Id. (quoting United States v.

O’Brien, 391 U.S. 367, 377 (1968)). Applying that standard, we

held the exclusivity prohibition to be facially constitutional. Id.

at 979.

Because it addressed only a facial challenge to the

provision, Time Warner left open the possibility of a future as-

applied challenge. However, petitioners here do not actually

present that challenge. Instead, they merely invoke the

terminology of First Amendment scrutiny in passing, and hope

that we find the exclusivity prohibition’s burden on MVPDs so

heavy and so unnecessary that an as-applied challenge appears

on its own. We refuse to manufacture an as-applied challenge

for the petitioners, and therefore are left with only a facial

challenge. For that issue, we simply refer to our decision in

Time Warner. We therefore find it unnecessary to evaluate the

2007 Order under the intermediate scrutiny standard.

Our dissenting colleague is able to tease out references to

the First Amendment from petitioners’ arguments. See

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Dissenting Op. at 4–8. Notwithstanding these mentions of the

Amendment, petitioners fail to make a specific, as-applied

challenge that distinguishes their current arguments from the

ones we already rejected in the facial challenge in Time Warner.

In this case, in providing the required Statement of Issues in its

brief, petitioners set forth the following:

I. Whether the FCC misapprehended the standard

governing the circumstances under which it may

prevent the exclusivity rule from sunsetting.

II. Whether, under the correct standard, the FCC was

required to allow the exclusivity rule to sunset.

III. Whether the FCC erred in refusing to narrow the

exclusivity rule.

IV. Whether the order under review should be vacated.

Pet. Br. at 3. Conspicuously, petitioners’ recitation of the issues

before the court makes no mention of constitutionality. “Federal

courts should not decide constitutional questions unless it is

necessary to do so,” Kalka v. Hawk, 215 F.3d 90 (D.C. Cir.

2000) (citing Ashwander v. Tennessee Valley Authority, 297

U.S. 288, 347 (1936) (Brandeis, J., concurring)), nor should they

“decide [a] constitutional question unless it is ‘presented with

the clarity needed for effective adjudication,’” U.S. v. Byers, 740

F.2d 1104, 1128 (D.C. Cir. 1984) (quoting Socialist Labor Party

v. Gilligan, 406 U.S. 583, 587 n.2 (1972)). It is hardly necessary

for us to decide an issue of constitutionality which petitioner

does not even set forth as an issue in the case and to which it

refers only obliquely.

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B. Merits

Petitioners object to three conclusions made by the

Commission in reaching its decision to prolong the exclusivity

prohibition. First, the Commission decided to continue to use its

2002 interpretation of the proper standard of review dictated by

the statutory sunset clause. Second, the Commission concluded

that cable companies would most likely enter into competition-

hindering exclusive contracts if allowed to do so. The

Commission came to this conclusion using calculations

extrapolated from information about existing exclusive contracts

for non-satellite delivered programming. Finally, the

Commission considered and decided against changing the scope

of the prohibition to allow certain types of currently prohibited

exclusive contracts.

i. Statutory Interpretation

As noted above, the sunset provision of the Cable Act

dictates that the exclusivity prohibition shall cease “unless the

Commission finds . . . that such prohibition continues to be

necessary to preserve and protect competition and diversity in

the distribution of video programming.” 47 U.S.C. § 548(c)(5).

Petitioners first argue that the 2007 Order applied the wrong

definition of “necessary.” The term, however, “is not language

of plain meaning.” Cellco P’ship v. F.C.C., 357 F.3d 88, 97

(D.C. Cir. 2004). Depending on context, the term can mean

anything from “useful” or “convenient” to “indispensable” or

“essential.” The statutory language of the sunset provision gives

little guidance on which definition is most appropriate. Here,

the Commission decided to use the same interpretation it used

in 2002: the prohibition continues to be necessary “if, in the

absence of the prohibition, competition and diversity in the

distribution of video programming would not be preserved and

protected.” 2007 Order at ¶ 13, 22 F.C.C.R. at 17,801. This

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interpretation is well within the Commission’s discretion to

interpret statutory language under Chevron.

Petitioners also argue that the 2007 Order misinterprets the

mandate to preserve and protect competition as a requirement to

protect competitors, analogizing the Commission’s current

analysis to its faulty analysis vacated in AT&T Corporation v.

Iowa Utilities Board, 525 U.S. 366 (1999). In that case, the

statutory language at issue required telephone companies to

share their networks with competitors whenever failure to do so

would “impair” competitors’ ability to provide service. The

Commission interpreted the provision to require sharing

whenever a failure to share would result in any increase in cost,

decrease in quality, or delay to providing services. The Supreme

Court held this interpretation invalid because the statute clearly

envisioned that some sharing would not be required, but the

Commission’s interpretation would result in requiring any and

all sharing that would be at all useful to competitors. However,

the order before us is easily distinguishable from the one

reviewed in Iowa Utilities Board. There, the Commission

explicitly stated a standard that equated impairing competitors

with any lack of sharing. Here, the Commission’s order

discusses harm to consumers and competition that results from

harm to competitors, rather than incorrectly believing one harm

to be equivalent to the other. See, e.g., 2007 Order ¶ 40, 22

F.C.C.R. at 17,819 (explaining that withholding programming

from rivals can significantly impact subscribership, which can

“in turn, predictably harm competition and diversity in the

distribution of video programming, to the detriment of

consumers” (emphasis added)); id. at ¶ 53, 22 F.C.C.R. at

17,829 (“In the long term, a withholding strategy may result in

a reduction in competition . . . , thereby allowing the affiliated

cable operator to raise rates.”). While the Order does often

measure effects on MVPDs rather than directly measuring

consumer effects, the Commission sufficiently linked the two to

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justify its conclusion that market conditions do not yet warrant

letting the exclusivity prohibition lapse. We trust that the

Commission was sincere when it explicitly anticipated that a

market may develop in which exclusive programming could

exist but not be harmful to competition, and “caution[ed]

competitive MVPDs to take any steps they deem appropriate to

prepare for the eventual sunset of the prohibition.” 2007 Order

at ¶ 29, 22 F.C.C.R. at 17,810.

ii. Decisionmaking Process

Petitioners’ second contention is that the Commission did

not rely on substantial evidence when it concluded that

vertically integrated cable companies would enter into

competition-harming exclusive contracts if the exclusivity

prohibition were allowed to lapse. Noting that conclusions

based on FCC’s predictive judgment and technical analysis are

just the type of conclusions that warrant deference from this

Court, we disagree with petitioners’ characterization of the 2007

Order.

It is true that the MVPD market has transformed

substantially since the Cable Act was enacted in 1992.

However, as described above, the transformation presents a

mixed picture. While cable no longer controls 95 percent of the

MVPD market, as it did in 1992, cable still controls two thirds

of the market nationally. In designated market areas in which a

single cable company controls a clustered region, market

penetration of competitive MVPDs is even lower than

nationwide rates. 2007 Order at ¶ 55, 22 F.C.C.R. at 17,830.

The amount and diversity of programming has expanded

rapidly, giving MVPDs more programming options even if one

network were unavailable to them because of an exclusive

contract. However, the four largest cable operators are still

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vertically integrated with six of the top 20 national networks,

some of the most popular premium networks, and almost half of

all regional sports networks. The Commission believes the

ability and incentive for vertically integrated cable companies to

withhold “must-have” programming remains substantial enough

to require the further extension of the exclusivity prohibition.

We must defer to the Commission’s analysis.

It is also true that the Commission’s calculations on the

likelihood of future withholding appear susceptible to questions

about their predictive power. What is true about Comcast

SportsNet Philadelphia may not be equally true for all regional

networks and even less true for national networks, yet the

Commission still used that one station as the basis for much of

its analysis. But predictive calculations are a murky science in

the best of circumstances, and the Commission naturally has no

access to infallible data about the nature of contracts that do not

exist. “[W]e do not sit as a panel of referees on a professional

economic journal, but as a panel of generalist judges obliged to

defer to a reasonable judgment by an agency acting pursuant to

congressionally delegated authority.” City of Los Angeles v.

U.S. Dep’t of Transp., 165 F.3d 972, 977 (D.C. Cir. 1999). The

Commission has recognized and analyzed complicated pictures

of the MVPD market both current and projected. These data

qualify as substantial evidence for arbitrary and capricious

review. The Commission’s decision does not run counter to the

evidence, nor is it implausible or irrational. See Mount Royal

Joint Venture, 477 F.3d at 753; Center for Auto Safety v. Peck,

751 F.2d 1336, 1373 (D.C. Cir. 1985). In short, it is not

arbitrary and capricious.

We anticipate that cable’s dominance in the MVPD market

will have diminished still more by the time the Commission next

reviews the prohibition, and expect that at that time the

Commission will weigh heavily Congress’s intention that the

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exclusive contract prohibition will eventually sunset. Petitioners

are correct in pointing out that the MVPD market has changed

drastically since 1992. We expect that if the market continues

to evolve at such a rapid pace, the Commission will soon be able

to conclude that the exclusivity prohibition is no longer

necessary to preserve and protect competition and diversity in

the distribution of video programming.

Petitioners’ last criticism of the 2007 Order is that the Order

failed to narrow the exclusivity rule to apply only to certain

types of cable companies or certain types of programming.

While the current rule includes a procedure for obtaining an

exemption from the prohibition on a case by case basis,

petitioners claim that this procedure is not sufficient to save the

rule from being invalid because it still prohibits more exclusive

contracts than is absolutely necessary to preserve and protect

competition and diversity in the market. During the notice and

comment period for the 2007 Order, petitioners offered several

suggestions for narrowing the rule, each of which the

Commission rejected. It was not arbitrary and capricious for

the Commission to reject these suggestions and decide instead

to adhere to Congress’s statutory design. Because we hold that

the Commission was reasonable in its conclusion that the

prohibition – in its original form – continues to be necessary, we

also hold that the Commission was reasonable to keep the same

prohibition in that same form.

For the reasons set forth above, the petitions for review are

Denied.

KAVANAUGH, Circuit Judge, dissenting:

I respectfully dissent. Approved by the required two-

thirds of the House and Senate in 1789 and ratified by three-

quarters of the state legislatures by 1791, the text of the First

Amendment to the Constitution is straightforward and

expansive: “Congress shall make no law . . . abridging the

freedom of speech, or of the press.” U.S. CONST. amend. I.

The First Amendment endures, and it applies to modern

means of communication as it did to the publishers,

pamphleteers, and newspapers of the founding era. The

Supreme Court has repeatedly ruled that video programming

distributors (such as Comcast, DIRECTV, DISH, Time

Warner, Cablevision, Verizon, and AT&T) and video

programming networks (TNT, ESPN, Fox News, MSNBC,

and several hundred others) are editors and speakers protected

by the First Amendment’s guarantees of freedom of speech

and of the press. Under Supreme Court precedent, the

Government may adopt a content-neutral regulation

interfering with those entities’ First Amendment rights only if

the regulation furthers an “important” or “substantial”

government interest and the restriction on speech is “no

greater than is essential to the furtherance of that interest.”

Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 662 (1994)

(articulating First Amendment intermediate scrutiny

standard).

Two decades ago, local cable operators maintained

bottleneck monopolies over video programming distribution

and provided the only way most consumers could access and

view video programming networks. To prevent abuses of the

cable operators’ monopoly power, Congress enacted the 1992

Cable Act. The statute imposed forced-carriage requirements

on cable operators (known as must-carry, leased-access, and

channel-occupancy) and placed forced-sharing mandates on

cable programming networks (by banning exclusive contracts

between cable operators and their affiliated video

2

programming networks). The Supreme Court and this Court

upheld various provisions of the Act against First Amendment

facial challenges. See Turner Broad. Sys., Inc. v. FCC, 520

U.S. 180, 224 (1997); Turner, 512 U.S. at 666-68; Time

Warner Entm’t Co. v. FCC, 93 F.3d 957, 979 (D.C. Cir.

1996). In so doing, the courts were careful to explain,

however, that the restrictions on the editorial and speech

rights of cable operators and programmers were permissible

on their face only because of the “bottleneck monopoly power

exercised by cable operators.” Turner, 512 U.S. at 661; Time

Warner, 93 F.3d at 978.

Since the 1992 Cable Act and those mid-1990s cases, the

video programming market has changed dramatically. Cable

operators no longer possess bottleneck monopoly power.

Today, almost every home consumer has the choice of at least

three video programming distributors – DIRECTV, DISH,

and the local cable operator (usually Comcast, Time Warner,

Cox, Charter, or Cablevision). Many consumers can choose a

fourth or sometimes also a fifth video programming

distributor, Verizon FiOS or AT&T U-verse. Moreover, all

video programming distributors – including individual cable

operators – compete against one another in the upstream

market in which the distributors contract with national

programming networks. At the same time, the number of

national video programming networks has also expanded

tremendously, growing from about 70 in 1992 to well over

500 today, with only about 22 percent now affiliated with a

video programming distributor. On top of all that, many

consumers today obtain video programming through a variety

of Internet applications, such as YouTube and Hulu.

The nearly two-decade-old FCC rule at issue in this case

bars exclusive contracts between cable operators and

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affiliated cable programming networks. The rule is

essentially a forced-sharing mandate that compels cable video

programming networks to share their content with all video

programming distributors. The original purpose was to

prevent bottleneck monopoly cable operators from thwarting

the development of competing video programming

distributors; the fear was that cable operators would deny

nascent video programming distributors access to cable-

affiliated programming networks. We upheld this

requirement on its face in Time Warner in 1996. But in

today’s competitive market, the justification we accepted in

Time Warner – counteracting the “bottleneck monopoly

power” of cable operators – has collapsed. Cable operators

no longer possess bottleneck monopoly power in the video

distribution market, a point we made rather emphatically just

a few months ago. See Comcast Corp. v. FCC, 579 F.3d 1, 8

(D.C. Cir. 2009). The FCC’s exclusivity ban thus is no longer

necessary to further competition – and no longer satisfies the

intermediate scrutiny standard set forth by the Supreme Court

for content-neutral restrictions on editorial and speech rights.

I would hold that the FCC’s exclusivity rule violates the First

Amendment, and thus also violates the 1992 Cable Act as

construed to conform to the First Amendment. I respectfully

dissent.

I

The initial question is whether Cablevision has raised any

First Amendment issue in this case. The majority opinion

states that Cablevision has not. See Maj. Op. at 10. It

proceeds to treat this as a purely statutory/administrative law

case, raising only the question whether the FCC’s five-year

extension of the exclusivity ban is still “necessary” for

purposes of the 1992 Cable Act. I respectfully disagree with

4

the majority opinion’s characterization of Cablevision’s

argument.

The statutory standard governing the FCC’s decision

gives the Commission broad discretion to determine whether

the ban is still “necessary.” 47 U.S.C. § 548(c)(5). No doubt

recognizing the difficulty in establishing that the FCC’s

exclusivity rule violates that rather flexible statutory text, cf.

Chevron, U.S.A., Inc. v. Natural Res. Def. Council, 467 U.S.

837, 842-43 (1984), or of showing a violation of the

deferential APA arbitrary and capricious standard,

Cablevision expressly argued in its briefs and at oral

argument that we cannot resolve this case without regard to

the relevant First Amendment limits.

In its opening brief, for example, Cablevision contended

that:

• “[T]he exclusivity rule imposes a heavy burden on

First Amendment rights – a burden that should be

limited to instances where it is essential.” Cablevision

Br. at 23-24.

• “As the FCC acknowledged, the order under review is

also subject to intermediate First Amendment scrutiny.

The exclusivity rule imposes an onerous burden on

cable-affiliated video-programming services: it

requires them to speak when they would prefer to

remain silent. It thereby diminishes the incentive to

engage in speech in the first place, reducing output in

the marketplace of ideas.” Id. at 32 (footnotes

omitted).

5

• “Intermediate First Amendment scrutiny poses a

standard that is similar to, but more exacting than, that

of the APA.” Id.

• “In particular, where intermediate scrutiny applies, the

agency bears the burden in every respect. It must

demonstrate that any predicted harms are real, not

merely conjectural, and that the regulation will in fact

alleviate these harms in a direct and material way.

The FCC must build a record that convincingly shows

a problem to exist. In doing so, the FCC must draw

reasonable inferences based on substantial evidence.

The FCC’s findings of fact are not entitled to

deference. To the extent predictions are susceptible of

empirical proof, they must be so proven. Where there

is no evidence of any urgent need for preventive

action, the agency is not entitled to the benefit of the

doubt.” Id. at 33-34 (internal quotation marks and

footnotes omitted).

• “The First Amendment also colors the reading of the

text of the statute: any statute must be construed, if

fairly possible, so as to avoid not only the conclusion

that it is unconstitutional but also grave doubts upon

that score. It is further well established that, where an

agency’s reading would generate significant

constitutional doubt, that reading is not entitled to

Chevron deference.” Id. at 34 (internal quotation

marks and footnote omitted).

In its opposition brief, even the FCC recognized that

Cablevision had raised a First Amendment argument:

6

• “To the extent the Commission’s decision to extend

the exclusivity prohibition implicates the First

Amendment, it is subject to review under the

intermediate-scrutiny standard. A regulation will be

upheld under intermediate scrutiny if it advances

important governmental interests unrelated to the

suppression of free speech and does not burden

substantially more speech than necessary to further

those interests. In applying intermediate scrutiny to

federal statutes, the courts inquire not whether

Congress, as an objective matter, was correct that the

regulatory provision is necessary to achieve the

government’s objective, but rather whether the

legislative conclusion was reasonable and supported

by substantial evidence in the record before Congress.

As applied to the Commission’s predictive judgment,

the intermediate-scrutiny standard considers whether

the agency has drawn reasonable inferences based on

substantial evidence.” FCC Br. at 23-24 (citations and

internal quotation marks omitted).

• “Petitioners also briefly invoke the First Amendment.

It is true that, under the canon of constitutional

avoidance, a statute must be construed, if fairly

possible, so as to avoid not only the conclusion that it

is unconstitutional but also grave doubts upon that

score. To invoke the canon, however, the petitioner

must show one of those constructions creates a serious

likelihood that the statute will be held

unconstitutional. Petitioners have made no such

showing. Their back-door constitutional attack on the

exclusivity prohibition thus fares no better than the

facial attack on the statute that this Court has already

7

rejected.” Id. at 31-32 (citations and internal quotation

marks omitted).

Responding to the FCC’s treatment of its First

Amendment challenge, Cablevision’s reply brief argued:

• “Finally, the FCC disagrees that the First Amendment

tugs toward the ‘essential’ side of the spectrum.

According to the FCC, constitutional considerations

would affect the interpretation of the statute only if a

‘useful’ interpretation would create a serious

likelihood that the statute would be unconstitutional.

But, under intermediate scrutiny (which the FCC

agrees applies), the agency bears the burden of

demonstrating that the challenged regulation will in

fact alleviate non-conjectural harms in a direct and

material way. That formulation points to a ‘necessary’

standard: a ‘useful’ standard would risk perpetuating

the exclusivity rule even where it does not alleviate

harm to competition in a direct and material way.”

Cablevision Reply Br. at 9 (citations, internal

quotation marks, and footnote omitted).1

At oral argument, Cablevision further elaborated on its

constitutional claim:

1

In its 2007 order extending the ban, the FCC similarly

acknowledged the First Amendment issues raised by the exclusivity

ban: “We are mindful that our decision to extend the exclusive

contract prohibition must withstand an intermediate scrutiny test

pursuant to First Amendment jurisprudence.” Implementation of

the Cable Television Consumer Protection and Competition Act of

1992, 22 F.C.C.R. 17,791, 17,837 (2007).

8

• “It’s conceded, the FCC agrees that intermediate

scrutiny applies.” Oral Arg. Tr. at 18.

• “I think all the roads lead to Rome here, so to speak.

Arbitrary and capricious in its analysis, the First

Amendment intermediate scrutiny analysis, and the

statute all require the same thing.” Id.

• “Page 32 of our opening brief, the exclusivity rule, the

FCC has acknowledged the order under review is also

subject to intermediate scrutiny. The exclusivity

ruling poses an onerous burden. We go on and on and

on talking about the First Amendment there.” Id. at

43.

• “The First Amendment challenge is simply this, under

intermediate scrutiny the Court cannot affirm unless it

finds that the FCC has shown, has borne its burden to

show by substantial evidence that there is a non-

conjectural problem that requires being solved. This

is a standard that is slightly more exacting than the

arbitrary and capricious standard, although that

standard gets the Court in the same place.” Id. at 44.

As these many excerpts demonstrate, Cablevision has

emphatically argued that we cannot uphold the FCC’s

exclusivity rule if it violates the First Amendment.

Cablevision has relatedly contended that the rule violates the

statute’s “necessary” standard as construed to conform to the

First Amendment. In that regard, Cablevision has invoked the

constitutional avoidance canon, which requires courts to

refrain from interpreting an ambiguous statute in a way that

raises serious constitutional questions. Cf. Public Citizen v.

U.S. Dep’t of Justice, 491 U.S. 440, 466 (1989); Ashwander v.

9

Tenn. Valley Auth., 297 U.S. 288, 348 (1936) (Brandeis, J.,

concurring). We therefore cannot reject Cablevision’s

challenge to the exclusivity rule without analyzing the

contours of the First Amendment. Cf. Anthony Vitarelli,

Constitutional Avoidance Step Zero, 119 YALE L.J. 837

(2010). Notwithstanding Cablevision’s arguments, however,

the majority opinion proceeds to decide the case in complete

isolation from the Constitution’s constraints. The majority

opinion’s statement that it can deny Cablevision’s challenge

to the exclusivity ban without in any way analyzing the First

Amendment’s limits is mistaken, in my respectful judgment.

I will turn now to analysis of those First Amendment

boundaries.

II

A

The First Amendment inquiry in this case starts with a

description of the video programming industry. Although the

industry’s structure appears complicated at first glance, it in

fact resembles the “three-stage chain of production comprised

of manufacturers, wholesalers, and retailers that typifies the

distribution of many, if not most, physical goods in the U.S.

economy.” Christopher S. Yoo, Vertical Integration and

Media Regulation in the New Economy, 19 YALE J. ON REG.

171, 220 (2002).

The first stage – manufacturing – consists of entities that

create video programming, the program producers. That

portion of the market is principally populated by those “who

create original television programming, as well as syndicators

and others who hold the rights to programming that has

already been produced.” Id. at 221.

10

The second stage of the chain – wholesale – is composed

of networks like ESPN, TNT, Disney, and USA, “which

acquire the right to air programs and aggregate them into

program packages.” Id. I will refer to these entities as “the

video programming networks.” It is not uncommon for these

firms to engage in both the manufacturing and wholesale

aspects of video programming, as networks sometimes

produce programs in-house. Id. For example, CNN primarily

airs news programs of its own making, and ESPN internally

produces SportsCenter.

The third stage – retail – consists of businesses

competing in the multichannel video programming distributor

(or MVPD) market to deliver packages of video programming

networks to the homes of consumers. These distributors

contract with video programming networks and sell the

package of networks as a single service to home consumers.

This aspect of the industry was once dominated by cable

operators, but today there is widespread competition among

firms delivering programming via cable (such as Comcast,

Time Warner, Cox, Charter, and Cablevision), satellite (such

as DIRECTV and DISH), and fiber-optics (such as Verizon

FiOS and AT&T U-verse). I will call these entities “the video

programming distributors.”

B

In the 1980s, it was common for one monopoly video

programming distributor – the local cable operator – to serve

an entire geographic area. A few large cable operators had

essentially carved up the country into different parts with one

cable operator typically exercising monopoly power in each

city or area. Because of the exorbitant costs of building a

11

duplicative cable system (referred to as “overbuilding”), there

was little competition among cable operators in the home

consumer (i.e. retail) market. And obtaining video from

satellite or telephone-line programming distributors was not

yet a reality for most consumers. This meant that most home

consumers had one and only one choice in a multichannel

video programming distributor. The local cable operator

ordinarily maintained what was known as a bottleneck

monopoly; it possessed not only a huge market share but also

the exclusive physical connection for home consumers to

obtain multichannel video programming services.

Congress eventually grew concerned about the power

possessed by Big Cable – the bottleneck, monopolistic cable

operators. And Congress ultimately passed (over the veto of

President George H.W. Bush) the Cable Television Consumer

Protection and Competition Act of 1992. Pub. L. No. 102-

385, 106 Stat. 1460. The new law sought to “ensure that

cable television operators” could not exercise “undue market

power vis-a-vis video programmers and consumers,” and

thereby harm competition in the video programming

distribution and video programming markets. Id. § 2(b)(5),

106 Stat. at 1463. The Cable Act, and the FCC regulations

adopted pursuant to it, put forth a variety of measures to

constrain the market-dominant cable operators. Some

provisions, for example, imposed forced-carriage mandates

that in effect required cable operators to carry certain kinds of

networks or stations; these were known as must-carry, leased-

access, and channel-occupancy requirements.

As relevant here, the 1992 Cable Act also directed the

Federal Communications Commission to promulgate rules

prohibiting “exclusive contracts” for programming between a

cable operator and an affiliated cable programming network.

12

47 U.S.C. § 548(c)(2)(D). This provision imposed a forced-

sharing requirement (also known as a “program access”

requirement). It mandated that cable-affiliated programming

networks be made available to competitors of cable operators

on the same terms they are made available to the affiliated

cable operators.2 As a result, cable programming networks

generally cannot refuse to deal with distributors that compete

with cable operators in the video programming distribution

market.

For example, Comcast partially owns several

programming networks, including the MLB Network, E!,

Versus, and the Golf Channel. Because Comcast is a cable

operator and possesses an attributable interest in those

programming networks, the networks must be made available

to Comcast’s competitors – like DIRECTV, DISH, and

Verizon – on the same terms on which they are provided to

Comcast.

The exclusivity ban arose out of a simple congressional

concern. Cable programming networks that were vertically

integrated with bottleneck monopoly cable operators might

“simply refuse to sell to potential competitors” in the video

programming distribution market, such as emerging “cable

operators, satellite dish owners, and wireless cable operators.”

S. REP. NO. 102-92, at 26 (1991). Instead, cable programming

2

This availability was further ensured by a provision of the

1992 Cable Act that prohibited “discrimination” by a cable-

affiliated programming network with respect to “prices, terms, and

conditions of sale or delivery” when dealing with unaffiliated

programming distributors. 47 U.S.C. § 548(c)(2)(B). When I refer

to the operation of the exclusivity ban throughout this opinion, I am

referring to it in conjunction with this nondiscrimination

requirement.

13

networks might choose to deal only with their affiliated cable

operators. By depriving newly developing programming

distributors of key cable programming networks, the cable

companies could suppress the emergence of new video

programming distributors (like satellite) that might threaten

the monopoly of the cable operators. See STUART MINOR

BENJAMIN ET AL., TELECOMMUNICATIONS LAW AND POLICY

599 application note 1 (2d ed. 2006); Christopher S. Yoo,

Vertical Integration, 19 YALE J. ON REG. at 185.

The exclusivity ban constituted one part of Congress’s

effort to counteract the bottleneck monopoly power of cable

operators. At the same time, in passing the 1992 Act

Congress recognized that the market was not static and that

competitive video programming distributors were sprouting.

And it acknowledged the bedrock competition principle that

exclusive contracts are ubiquitous and beneficial in a

competitive market – for example, a market with legitimate

competitors to cable operators. The Senate Report pointed

out that “exclusivity can be a legitimate business strategy

where there is effective competition.” S. REP. NO. 102-92, at

28. Therefore, the statute required that the exclusivity ban

sunset after 10 years unless the FCC found that it “continue[d]

to be necessary to preserve and protect competition and

diversity in the distribution of video programming.” 47

U.S.C. § 548(c)(5).

In 2002, at the end of the sunset period, the FCC found a

continued need for the prohibition and extended it for five

years. Implementation of the Cable Television Consumer

Protection and Competition Act of 1992, 17 F.C.C.R. 12,124,

12,124 (2002) (“2002 Order”). At that time, however,

Commissioner Martin termed it a “very close call,” and

Commissioner Abernathy dissented, stating that “in light of

14

the significant competitive changes in the marketplace –

including the dramatic increase in both competition and

availability of programming – and the existence of other

provisions that protect competing MVPDs from

discriminatory treatment, including [bans on] ‘unreasonable

refusals to sell,’ I cannot find that this provision continues to

be necessary to preserve and protect competition and diversity

in the delivery of video programming.” Id. at 12,181,

12,178.

In 2007, the FCC extended the ban for another five years.

Implementation of the Cable Television Consumer Protection

and Competition Act of 1992, 22 F.C.C.R. 17,791, 17,792

(2007) (“2007 Order”). The 2007 Order prompted this case.

III

The fundamental question here is whether the FCC’s

continued ban on exclusive contracts between one category of

video programming distributors – cable operators – and their

affiliated video programming networks violates the First

Amendment and the 1992 Cable Act, as construed to conform

to the First Amendment.

A

The Supreme Court has stated that video programming

distributors and video programming networks “engage in and

transmit speech, and they are entitled to the protection of the

speech and press provisions of the First Amendment.” Turner

Broad. Sys., Inc. v. FCC, 512 U.S. 622, 636 (1994); see City

of L.A. v. Preferred Communications, Inc., 476 U.S. 488, 494

(1986); FCC v. Midwest Video Corp., 440 U.S. 689, 707

(1979).

15

A video programming distributor (such as Cablevision,

DIRECTV, DISH, or Verizon) is constitutionally entitled to

exercise “editorial discretion over which stations or programs

to include in its repertoire.” Turner, 512 U.S. at 636 (quoting

City of L.A., 476 U.S. at 494). As a result, the Government

cannot compel video programming distributors to operate like

“dumb pipes” or “common carriers” that exercise no editorial

control. The video programming distributors are similar to

publishing houses, bookstores, playhouses, movie theaters, or

newsstands in the sense that they exercise editorial control in

picking the content they will provide to consumers.

Programming networks, such as ESPN, TNT, and CNN,

also have a First Amendment right to speak – that is, to

develop or purchase original programming and have it

distributed as they see fit. Id. Programming networks

resemble magazines and newspapers. They create and

aggregate content to entertain and inform a wide audience.

And they choose when and where to sell that content.

The 1992 Cable Act’s exclusivity ban implicates the First

Amendment rights of both cable operators and cable

programming networks.

As to the cable operators, the exclusivity ban dampens

their incentives to invest in new or existing programming

networks. They might not take the risk and spend the money

if they cannot fully reap the fruits of their investment.

Similarly, competitors of cable operators may feel less need to

invest in new programming networks because they can piggy-

back on the cable-affiliated networks. As a result, there may

be fewer new video programming networks than there

otherwise would be. As this Court has explained, the

16

resulting reduction in speech (compared to what otherwise

would occur) implicates First Amendment interests. See Time

Warner Entm’t Co. v. FCC, 93 F.3d 957, 979 (D.C. Cir. 1996)

(“To be sure, because the ability to enter into exclusive

contracts could create economic incentives to invest in the

development of new programming, prohibiting such contracts

might result in reduced programming – that is, less speech.”);

cf. Verizon Communications Inc. v. Law Offices of Curtis V.

Trinko, LLP, 540 U.S. 398, 407-08 (2004) (“Compelling . . .

firms to share the source of their advantage . . . may lessen the

incentive for the monopolist, the rival, or both to invest in

those economically beneficial facilities.”); AT&T Corp. v.

Iowa Utils. Bd., 525 U.S. 366, 428-29 (1999) (Breyer, J.,

concurring in part and dissenting in part) (“a sharing

requirement may diminish the original owner’s incentive to

keep up or to improve the property by depriving the owner of

the fruits of value-creating investment, research, or labor”);

U.S. Telecom Ass’n v. FCC, 290 F.3d 415, 429 (D.C. Cir.

2002) (“mandatory unbundling comes at a cost, including

disincentives to research and development”).

As to cable programming networks, the exclusivity

prohibition forces them to sell to video programming

distributors when they might otherwise choose not to do so.

This forced-sharing mandate poses a First Amendment issue

because the right of a First Amendment-protected editor or

speaker not to speak and associate “serves the same ultimate

end as freedom of speech in its affirmative aspect” and is

entitled to similar constitutional protection. Pacific Gas &

Elec. Co. v. Pub. Utils. Comm’n of Cal., 475 U.S. 1, 11

(1986) (quoting Harper & Row Publishers, Inc. v. Nation

Enters., 471 U.S. 539, 559 (1985)); see also Riley v. Nat’l

Fed’n of the Blind of N.C., Inc., 487 U.S. 781, 790-91 (1988)

(“The First Amendment mandates that we presume that

17

speakers, not the government, know best both what they want

to say and how to say it.”); Wooley v. Maynard, 430 U.S. 705,

713 (1977). “For corporations as for individuals, the choice

to speak includes within it the choice of what not to say.”

Pacific Gas, 475 U.S. at 16 (citing Miami Herald Publ’g Co.

v. Tornillo, 418 U.S. 241, 258 (1974)).

To be sure, the exclusivity ban’s interference with the

First Amendment interests of cable operators and

programming networks is considered content-neutral,

meaning that it is subject to intermediate rather than strict

scrutiny. Turner, 512 U.S. at 662. But intermediate scrutiny

is still tough scrutiny, not a judicial rubber stamp. To pass

muster, the ban must further “an important or substantial

governmental interest” and the restriction must be “no greater

than is essential to the furtherance of that interest.” Id.

(quoting United States v. O’Brien, 391 U.S. 367, 377 (1968)).

The Government “must demonstrate that the recited harms are

real, not merely conjectural, and that the regulation will in

fact alleviate these harms in a direct and material way.” Id. at

664 (plurality opinion). In applying this standard, the usual

deference afforded legislative or agency findings “does not

foreclose our independent judgment of the facts bearing on an

issue of constitutional law.” Id. at 666 (quoting Sable

Communications of Cal., Inc. v. FCC, 492 U.S. 115, 129

(1989)) (internal quotation marks omitted).

B

After enactment of the 1992 Cable Act, cable companies

brought facial First Amendment challenges to many of its

provisions, including the exclusivity ban. In 1996, this Court

held that the ban on exclusive contracting by vertically

integrated cable operators and programmers did not on its

18

face violate the First Amendment. Time Warner, 93 F.3d at

979. Upholding this restriction on speech as necessary to

further the Government’s interest in fair competition, we

specifically relied on the “special characteristics” of the cable

industry at the time, including “the bottleneck monopoly

power exercised by cable operators, and the unique power that

vertically integrated companies have in the cable market.” Id.

at 978 (quoting Turner, 512 U.S. at 661) (internal quotation

marks omitted). But as I will explain, the relevant facts that

we relied on in Time Warner no longer exist, and Time

Warner’s facial ruling therefore does not control this as-

applied challenge. See Cutter v. Wilkinson, 544 U.S. 709, 726

(2005).

The major change since our 1996 Time Warner decision

is that cable operators no longer possess bottleneck monopoly

power in the video programming distribution market in any

geographic area in the continental United States. As we

recently explained in Comcast Corp. v. FCC, 579 F.3d 1, 6

(D.C. Cir. 2009), home consumers can obtain service from the

local cable operator, DIRECTV, DISH, and in many places

Verizon FiOS and AT&T as well. Providers of programming

on the Internet – like Hulu, YouTube, iTunes, and Apple TV

– also increase competition in the market. Indeed, it seems

plausible that traditional video programming viewed on

television and video programming viewed over the Internet

will soon merge in many households. Based on a careful

assessment of the market in our recent Comcast decision, we

definitively concluded that cable operators “no longer have

the bottleneck power over programming that concerned the

Congress in 1992.” Id. at 8. For that reason, we vacated the

FCC’s longstanding 30 percent cap on how many video

programming subscribers an individual cable operator could

serve nationwide.

19

Given the difficulty in justifying the exclusivity ban in

light of the aggressive competition in today’s video

programming distribution market, the FCC also points to

alleged impediments to competition among video

programming networks, claiming that some networks are

“must-have.” This is an odd argument because no video

programming network comes close to possessing market

power. In 1992, there were 68 national programming

networks, and 57 percent of them were vertically integrated

with cable operators. By 2007, there were well over 500

national programming networks, and only 22 percent of them

were vertically integrated with a cable operator. In a market

with well over 500 national programming networks, it is

nearly impossible (and would make a mockery of textbook

antitrust and free speech principles) to say that any one

national network is the equivalent of an essential facility – a

must-have network that the Government can thereby compel

the cable company to share with all other video programming

distributors.3 Moreover, the flaw in the theory runs even

3

In this regard, it is also important to appreciate that the

market for video programming networks generally “is national in

scope” and nationally competitive. Christopher S. Yoo, Vertical

Integration and Media Regulation in the New Economy, 19 YALE J.

ON REG. 171, 227 (2002). Therefore, even though large cable

operators like Time Warner, Comcast, Cox, Charter, and

Cablevision often do not compete with each other in the

downstream market for in-home consumers, they do compete with

each other in the upstream market to purchase rights to carry

national video programming networks. And in both the upstream

and downstream markets, they compete against other video

programming distributors like DIRECTV, DISH, Verizon, and

AT&T. So if Comcast wanted to enter into an exclusive contract

with ESPN, Comcast presumably would have to compete against

20

deeper because any supposed must-have consumer

preferences typically relate to programs not networks. And

other than certain live sports events, see infra n.6, the

popularity of these programs often shifts rapidly, transforming

today’s must-have into tomorrow’s has-been.

This radically changed and highly competitive

marketplace – where no cable operator exercises market

power in the downstream or upstream markets and no national

video programming network is so powerful as to dominate the

programming market – completely eviscerates the

justification we relied on in Time Warner for the ban on

exclusive contracts. One of the leading scholars on

communications law concluded eight years ago “that the

restrictions on vertical integration in the cable industry

all the members of the video programming distributor market – all

the other cable operators such as Time Warner, Cox, Charter, and

Cablevision, as well as DIRECTV, DISH, Verizon, and AT&T. In

other words, in the upstream national market for purchase of

nationally available video programming networks, it does not make

much sense to talk about the power of cable versus satellite; it

instead makes more sense to talk about the relative power of

individual firms – Comcast, DIRECTV, DISH, Time Warner, Cox,

Charter, Cablevision, Verizon, AT&T, and others. The largest of

those firms – Comcast – serves only about 25 percent of the

consumers who obtain service through a multichannel video

programming distributor. In such a market, the video programming

networks usually have little incentive to limit their networks to only

one distributor. And programming producers in turn often have

little incentive to limit their shows to a network that will not sell

nationally to a distributor that reaches all home consumers. For that

reason, this case may be a tempest in a teapot: It seems unlikely

that the market would yield that many high-profile exclusive

arrangements because they likely would not be profitable for the

relevant parties.

21

enacted by the 1992 Cable Act are not economically

justified.” Christopher S. Yoo, Vertical Integration, 19 YALE

J. ON REG. at 226; see also Christopher S. Yoo, Network

Neutrality, Consumers, and Innovation, 2008 U. CHI. LEGAL

F. 179, 183 (“coordination of content and conduit through

vertical integration or contractual exclusivity generally

benefits consumers”). That conclusion is even more correct

in the year 2010. The Government can no longer show that

the ban on exclusive contracts furthers the interest in fair

competition.

C

To be sure, some might contend that exclusive vertical

contracts are a problem even in a competitive market – that is,

even in this market with several vibrant video programming

distributors and hundreds of national programming networks.

But such an argument flouts well-settled American antitrust

principles. See 3B PHILLIP E. AREEDA & HERBERT

HOVENKAMP, ANTITRUST LAW ¶ 755a, at 6 (3d ed. 2008) (“To

be sure, even competitively harmless vertical integration can

injure rivals or vertically related firms, but such injuries are

not the concern of the antitrust laws.”); cf. Leegin Creative

Leather Prods., Inc. v. PSKS, Inc., 551 U.S. 877, 882 (2007)

(recognizing the pro-competitive effects of vertical

relationships); Continental T.V., Inc. v. GTE Sylvania, Inc.,

433 U.S. 36, 54-55 (1977) (identifying the market benefits of

vertical combinations such as the promotion of interbrand

competition).

Exclusivity agreements are ubiquitous in all sectors of the

economy. For example, Apple and AT&T maintain an

exclusive agreement with respect to service for the iPhone,

Walt Disney and Wal-Mart have an exclusive agreement for

22

the sale of Hannah Montana-themed clothing, and DIRECTV

and the National Football League have an exclusive

agreement for distribution of the full slate of NFL games. See

Andria Chang, Retailers Seek More Exclusives, WALL ST. J.,

July 2, 2008, at B5A.

At least unless a company possesses market power in the

relevant market, vertical integration and exclusive vertical

contracts are not anti-competitive; on the contrary, such

arrangements are “presumptively procompetitive.” 11

HERBERT HOVENKAMP, ANTITRUST LAW ¶ 1803, at 100 (2d

ed. 2005).4 Exclusive agreements can benefit consumers by

strengthening a business’s incentives to innovate and invest,

to create new products, and to differentiate its products from

its competitor’s products. If parties who have not shared the

risks are able to come in as equal partners on a successful

investment, and avoid payments for losses, the incentive to

invest declines. Indeed, the FCC itself has recognized this

fundamental economic principle, as has Congress.5 In

4

See 3B AREEDA & HOVENKAMP, ANTITRUST LAW ¶ 755a, at

9 (“Without substantial market power at any relevant production or

distribution stage, vertical integration . . . . is either competitively

neutral or affirmatively desirable.”); ROBERT H. BORK, THE

ANTITRUST PARADOX 309 (1978) (“The truth appears to be that

there has never been a case in which exclusive dealing or

requirements contracts were shown to injure competition.”).

5

The Seventh Circuit has recognized the competitive benefits

of exclusivity arrangements in the newspaper industry in terms that

are instructive: “A market in which every newspaper carried the

same stories, columns, and cartoons would be a less vigorous

market than the existing one. And a market in which the creators of

intellectual property (such as the New York Times) could not decide

how best to market it for maximum profit would be a market with

less (or less interesting) intellectual property created in the first

23

renewing the exclusivity ban in 2007, the FCC recounted “the

benefits of exclusive contracts and vertical integration . . .

such as encouraging innovation and investment in

programming and allowing for ‘product differentiation’

among distributors.” 2007 Order at 17,835. And when

enacting the 1992 Cable Act, the Senate recognized that

“exclusivity can be a legitimate business strategy where there

is effective competition.” S. REP. NO. 102-92, at 28 (1991).

Because both the video programming distributor market

and video programming network market are competitive, a

ban on exclusive vertical contracts does not serve the

Government’s interest in competition; if anything, it thwarts

that interest. The FCC’s exclusivity ban therefore fails the

intermediate scrutiny test, and its infringement on the editorial

and speech rights of cable operators and cable programmers

cannot be squared with the First Amendment.6

place. No one can take the supply of well researched and written

news as a given; legal rulings that diminish the incentive to find and

explicate the news (by reducing the return from that business) have

little to commend them.” Paddock Publ’ns, Inc. v. Chicago

Tribune Co., 103 F.3d 42, 45 (7th Cir. 1996). The same can be said

of the video programming distribution market – forbidding

exclusive agreements may result in more homogeneous, less

diverse, and less competitive video programming.

6

In so concluding, it bears emphasis that First Amendment

editors and speakers remain subject to generally applicable laws,

including the antitrust laws that prohibit certain anti-competitive

behavior. Moreover, I would leave open the possibility that the

Government might still impose a prospective ban on some

exclusive agreements between video programming distributors and

affiliated regional video programming networks, particularly

regional sports networks. That is because the upstream market in

which video programming distributors contract with regional

networks is less competitive than the national market: There may be

24

IV

The FCC’s exclusivity ban fails because it no longer

serves an important government interest and it burdens more

speech than essential to achieve its aims. But even if the

Government were justified in maintaining a ban on exclusive

contracts, it would have to do so even-handedly to satisfy the

First Amendment. The FCC’s exclusivity rule also fails that

bedrock equal-treatment requirement.

The exclusivity prohibition, by its text, applies only to

cable operators that have an attributable interest in a

programming network. 47 U.S.C. § 548(c)(2)(D). Because

the ban governs only cable operators and not DIRECTV,

DISH, Verizon, or AT&T, the rule discriminates among

similarly situated video programming distributors and video

programming networks. Programming networks that are

affiliated with cable operators must share their content with

other operators, whereas those that are affiliated with satellite

companies (such as DIRECTV or DISH) or with Verizon or

AT&T may refrain from doing so.

only a few video programming distributors in the market to

purchase regional programming networks, and market share and

other relevant factors in certain areas may dictate tolerance of a

narrow exclusivity ban. Situations where a highly desirable “must

have” regional sports network is controlled by one video

programming distributor might justify a targeted restraint on such

regional exclusivity arrangements. I need not definitively address

such a possibility in this case. In any event, regional concerns of

this sort cannot serve as the justification for the FCC’s draconian

and vastly overbroad national ban. It is telling, in that regard, that

the FCC has pointed to regional sports networks as the primary

justification for this national ban.

25

Indeed, DIRECTV and DISH, which are the second- and

third-largest video programming distributors nationally and

together serve over 30 percent of in-home video programming

consumers, are not subject to the FCC’s exclusivity ban. But

Cablevision, which now is the seventh-largest national video

programming distributor, is subject to the ban. What

justification is there for such discrimination against a less

powerful entity? None – or at least none that the FCC has

provided. It bears mention, moreover, that this discrimination

against certain video programming distributors was not a

considered legislative decision; it is simply an unintended

relic of the far different video programming distributor market

that existed in 1992 when Congress passed the Cable Act.

This discrimination raises significant First Amendment

issues. As the Supreme Court has said, “[r]egulations that

discriminate among media, or among different speakers

within a single medium, often present serious First

Amendment concerns.” Turner Broad. Sys., Inc. v. FCC, 512

U.S. 622, 659 (1994); see Leathers v. Medlock, 499 U.S. 439,

448 (1991) (regulations that discriminate among speakers

threaten to “distort the market for ideas”); Minneapolis Star &

Tribune Co. v. Minn. Comm’r of Revenue, 460 U.S. 575, 585

(1983) (laws discriminating among speakers must be

“justified by some special characteristic” of the speaker). In

fact, “restrictions distinguishing among different speakers,

allowing speech by some but not others” are frequently found

constitutionally invalid. Citizens United v. FEC, No. 08-205,

slip op. at 24 (U.S. Jan. 21, 2010).

The question, therefore, is whether a substantial

government interest supports the discriminatory treatment.

See Quincy Cable TV, Inc. v. FCC, 768 F.2d 1434, 1450-51

(D.C. Cir. 1985). In my judgment, the answer is no. The

26

competitive conditions of the market can no longer justify

imposing this restriction on the speech of cable operators and

cable programmers, but not on video programming

distributors and video programming networks that provide the

same services through the use of other technologies.

“[D]ifferential treatment” of this sort “cannot be squared with

the First Amendment.” Citizens United, No. 08-205, slip op.

at 37.

If the Government is to impose an exclusivity ban, it

must apply it in an even-handed manner to similarly situated

video programming distributors, or it must articulate a

substantial government interest for any discriminatory

treatment. The Government has not done so here. For that

alternative reason as well, the FCC’s exclusivity ban violates

the First Amendment.

V

In conclusion, I briefly offer a few additional

observations.

First, the lag time for Congress and a regulatory agency

to catch up to the realities of a changing market ordinarily

would not be cause for much judicial concern. Congress has

the constitutional authority to enact and update competition

laws, and executive and independent agencies may adopt and

change competition rules as they reasonably see fit within the

bounds specified by Congress. Neither Lochner-style

substantive due process analysis nor its statutory first cousin –

overly aggressive APA arbitrary and capricious review of

agency rules – is an appropriate tool for courts to employ in

ordinary economic regulation cases. See American Radio

Relay League, Inc. v. FCC, 524 F.3d 227, 247-48 (D.C. Cir.

27

2008) (Kavanaugh, J., concurring in part and dissenting in

part).

But this is not just another economic regulation dispute; it

is a First Amendment case. The First Amendment

contemplates a more “laissez-faire regime.” Columbia Broad.

Sys., Inc. v. Democratic Nat’l Comm., 412 U.S. 94, 161

(Douglas, J., concurring in the judgment). It greatly limits the

Government’s ability to interfere with speech in

communication markets – as compared to the Government’s

power to regulate, for example, energy, labor relations, the

environment, or securities transactions.

Second, some claim that the exclusivity ban has been

effective in achieving competition, so why not continue it?

Even accepting arguendo the premise, the argument reflects a

misunderstanding of the interaction of competition principles

and the First Amendment. When a speech market is not

competitive, content-neutral government intervention may

sometimes be permissible. See Turner Broad. Sys., Inc. v.

FCC, 512 U.S. 622, 647 (1994). But when a market is

competitive, direct interference with First Amendment free

speech rights in the name of competition is typically

unnecessary and constitutionally inappropriate. That is

particularly true in this case because antitrust law tells us that

vertical integration and exclusive vertical contracts may

actually further competition and consumer welfare when, as

here, the market has become competitive.

Third, some contend that the greatest threat to free speech

today comes from private entities not from the Government.

Whatever the merits of that argument as a philosophical

matter, the First Amendment is a restriction on governmental

power. Columbia Broad. Sys., Inc., 412 U.S. at 114 (plurality

28

opinion). The First Amendment is not an authorization for

the Government to restrict the speech of some so as to

enhance or equalize the influence of others. Indeed, the

Supreme Court has described such a theory as “wholly

foreign to the First Amendment.” Buckley v. Valeo, 424 U.S.

1, 49 (1976).

Fourth, it is entirely understandable that the FCC wants

to ensure that consumers can view certain programming

networks no matter whether they choose cable, DIRECTV,

DISH, Verizon, AT&T, or some other distributor. But a

governmental desire that every programming distributor carry

the same networks can no more justify interference with

Cablevision’s First Amendment rights than it could justify the

Government telling Barnes & Noble what publisher’s books it

had to sell, or telling a bookstore-affiliated publishing

company that it had to make certain books available to all

bookstores, or telling a movie production company what

theaters it had to contract with in selling its movie, or telling

the Washington Post that its best political columnist or

reporter had to be shared with other competing newspapers. I

readily concede that the First Amendment rights of a

Cablevision or ESPN do not tug at the free speech heartstrings

in the same way as the iconic political protester who lies at

the core of the First Amendment. But if video programming

distributors are like bookstores and movie theaters and

newsstands – and the Supreme Court has repeatedly and

emphatically said they are – we cannot brush aside the vital

First Amendment interests at stake here.

Fifth, I respect the FCC’s well-intentioned efforts to

navigate this difficult issue. The FCC is often between a rock

and a hard place in deciding the right time to loosen

restrictions adopted as a result of the 1992 Cable Act, and in

29

exercising its other critical responsibilities. I have no

question about the FCC’s good faith in seeking to discharge

its duties and to achieve legitimate policy objectives.

That said, courts occupy a different place in the

constitutional architecture. If by our best lights we conclude

that a law or regulation violates the First Amendment as the

Amendment has been interpreted by the Supreme Court, then

it is our duty to so rule, notwithstanding the good intentions of

the political branches or the legitimacy of the policy goal. See

United States v. Eichman, 496 U.S. 310, 316-19 (1990); Texas

v. Johnson, 491 U.S. 397, 420-21 (1989) (Kennedy, J.,

concurring). When asked to uphold First Amendment free

speech rights, the courts must exercise their independent

constitutional judgment, not abdicate that responsibility to the

political branches. See Marbury v. Madison, 5 U.S. (1

Cranch) 137, 155-62 (1803); THE FEDERALIST NO. 78.

***

I would hold that the FCC’s exclusivity rule violates the

First Amendment and therefore also violates the 1992 Cable

Act as construed to conform to the First Amendment. I

respectfully dissent.