Amicus Curiae Brief — SNR Wireless LicenseCo, LLC, et al., Petitioners v. Federal Communications Commission, et al.
Supreme Court briefFeb 22, 2018
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No. 17-1058
IN THE
Supreme Court of the United States
________________
SNR WIRELESS LICENSECO, LLC AND
NORTHSTAR WIRELESS, LLC,
Petitioners,
v.
FEDERAL COMMUNICATIONS COMMISSION AND
UNITED STATES OF AMERICA,
Respondents.
________________
ON PETITION FOR A WRIT OF CERTIORARI TO
THE UNITED STATES COURT OF APPEALS
FOR THE DISTRICT OF COLUMBIA CIRCUIT
________________
BRIEF OF PUBLIC INTEREST
ORGANIZATIONS AS AMICI CURIAE
IN SUPPORT OF PETITIONERS
________________
Lawrence J. Spiwak
Counsel of Record
PHOENIX CENTER FOR
ADVANCED LEGAL &
ECONOMIC PUBLIC
POLICY STUDIES
5335 Wisconsin Avenue, NW
Suite 440
Washington, D.C. 20015
(202) 274-0235
lspiwak@phoenix-center.org
Counsel for Amicus Curiae
i
TABLE OF CONTENTS
Page
TABLE OF AUTHORITIES .................................... iii
INTEREST OF AMICI CURIAE .............................. 2
INTRODUCTION AND SUMMARY OF
ARGUMENT ............................................................. 4
ARGUMENT ........................................................... 11
I.
By Any Standard, the Commission’s
Conduct in this Proceeding Indicates that
the Agency Provided No “Fair Notice” of
Its Change In Policy. ........................................ 11
A. The Commission Could Have Rejected
Petitioners as Qualified Bidders Based
on the Short Form Application. .................. 12
B. Auction 97 Data Reveal that the
Commission Knew Within Seven (7)
Days that Bidding Credits Exceeded $3
Billion Yet Did Nothing to Stop the
Auction......................................................... 15
C. Faced with Political Embarrassment,
the Commission Moved the Goal Posts
and Violated Due Process. .......................... 16
D. An Agency Must Live With The
Consequences of Its Choices. ...................... 20
II. The Amorphous “Reasonably Anticipate”
Notice Standard Sets a Troubling
Precedent in Administrative Law. ................... 21
ii
A. The D.C. Circuit’s Notice Standard
Eliminates Bureau-Level Decisions as
Valid Precedent Going Forward. ................ 22
B. A “Reasonably Anticipate” Notice
Standard Injects Significant
Regulatory Uncertainty for Entities
Subject to Federal Regulation,
Potentially Leading to Diminished
Investment in Critical Infrastructure. ....... 24
III. A “Reasonably Anticipate” Fair Notice
Standard does not Constrain the Power of
the Administrative State; Instead, It
Greatly Expands It. .......................................... 26
CONCLUSION ........................................................ 29
iii
TABLE OF AUTHORITIES
CASES:
Auer v. Robbins, .................................................12, 21
519 U.S. 453 (1997).
Bowen v. Georgetown University Hospital, ..............18
488 U.S. 204 (1988).
City of Arlington, Tex. v. FCC, .................................26
569 U.S. 290 (2013).
Fox Television v. FCC, ........................................11, 18
556 U.S. 502 (2009).
Snyder v. Com. of Mass., ...........................................26
291 U.S. 97 (1934).
Utility Air Regulatory Group v.
Environmental Protection Agency, ...........................28
__ U.S. __; 134 S.Ct. 2427 (2014).
Direct Marketing Association v. Brohl, ..............27, 28
814 F.3d 1129 (10th Cir.), cert. denied,
137 S.Ct. 591 (2016).
STATUTES AND REGULATIONS:
Telecommunications Act of 1996,
Pub. L. No. 104-104, § 706, 110 Stat. 56,
153 (codified at 47 U.S.C. § 1302)............................ 25
iv
Page(s)
47 CFR §§ 1.101 et seq. ............................................22
47 C.F.R. § 1.2105 .....................................................12
47 C.F.R. §§ 1.2112 ...................................................12
ADMINISTRATIVE MATERIALS:
2015 DE Rules, ..........................................................18
In the Matter of Updating Part 1
Competitive Bidding Rules Expanding
the Economic and Innovation
Opportunities of Spectrum Through
Incentive Auctions Petition of DIRECTV
Group, Inc. and EchoStar LLC for
Expedited Rulemaking to Amend
Section 1.2105(a)(2)(xi) and 1.2106(a) of
the Commission’s Rules and/or for
Interim Conditional Waiver
Implementation of the Commercial
Spectrum Enhancement Act and
Modernization of the Commission’s
Competitive Bidding Rules and
Procedures, FCC 15-80, 30 FCC Rcd.
7493, REPORT AND ORDER; ORDER ON
RECONSIDERATION OF THE FIRST REPORT
AND ORDER; THIRD ORDER ON
RECONSIDERATION OF THE SECOND
REPORT AND ORDER; THIRD REPORT AND
ORDER (rel. July 21, 2015).
v
Page(s)
July 2014 Public Notice, ................... 12, 13, 15, 20, 22
Auction Of Advanced Wireless Services
(AWS-3) Licenses Scheduled For
November 13, 2014, Notice And Filing
Requirements, Reserve Prices, Minimum
Opening Bids, Upfront Payments, And
Other Procedures For Auction 97,
PUBLIC NOTICE, AU Docket No. 14-78,
DA 14-1018 (July 23, 2014).
October 2014 Public Notice, ......................................13
Auction of Advanced Wireless Service
(AWS-3) Licenses Status of Short-Form
Applications to Participate In Auction
97, PUBLIC NOTICE, 29 FCC Rcd. 13465
(October 30, 2014).
MISCELLANEOUS:
Beard, T.R., Ford, G.S., Spiwak, L.S.,
and Stern, M, ............................................................ 27
Eroding the Rule of Law: Regulation as
Cooperative Bargaining at the FCC, PHOENIX
CENTER POLICY PAPER NO. 49 (October 2015)
(available at: http://www.phoenixcenter.org/pcpp/PCPP49Final.pdf).
vi
Page(s)
Ford, G.S. and Stern, M., ..............................15, 26, 17
PHOENIX CENTER POLICY PERSPECTIVE
NO. 15-04: Ugly is Only Skin Deep: An
Analysis of the DE Program in Auction
97 (July 20, 2015) (available at:
http://www.phoenixcenter.org/perspectives/Perspective1504Final.pdf).
Ford, G.S. and Spiwak, L.J., .....................................24
The Unpredictable FCC: Politicizing
Communications Policy and its Threat
to Broadband Investment, PHOENIX
CENTER POLICY PERSPECTIVE NO. 14-05
(October 14, 2014) (available at:
http://www.phoenixcenter.org/perspectives/Perspective1405Final.pdf).
Knutson, R., .........................................................16, 18
FCC to Tighten Reins on Wireless
Licenses, WALL STREET JOURNAL (March
18, 2015) (available at:
http://www.wsj.com/articles/businesswatch-news-digest-1426727495).
Labaton, S. and Romero, S., .....................................14
FCC Auction Hit with Claim of Unfair
Bids, NEW YORK TIMES (February 12,
2001) (available at:
http://www.nytimes.com/2001/02/12/bus
iness/fcc-auction-hit-with-claim-ofunfair-bids.html?pagewanted=all).
vii
Page(s)
Levy, B. and Spiller, P., ............................................25
The Institutional Foundations of
Regulatory Commitment: A
Comparative Analysis of
Telecommunications Regulation, 10
JOURNAL OF LAW, ECONOMICS, &
ORGANIZATION, 201-246 (1994).
Marx, Leslie ...............................................................17
Presentation of Economic Analysis of
Coordinated Bidding in FCC Auction 97 on
behalf of Verizon, Auction of Advanced
Wireless Services Scheduled for November 13,
2014, Comment Sought on Competitive
Bidding Procedures for Auction 97, AU
Docket No. 14-78; Updating Part I
Competitive Bidding Rules, WT Docket No.
14-170 (April 24, 2015) (“Marx Analysis”)
(available at:
https://ecfsapi.fcc.gov/file/60001044794.pdf).
Pai, Ajit, .....................................................................17
Statement before the Senate
Appropriations Subcommittee on
Financial Services and General
Government (May 12, 2015) (available
at:
https://apps.fcc.gov/edocs_public/attach
match/DOC-333437A1.pdf).
viii
Page(s)
Pai, Ajit, .....................................................................23
Testimony of FCC Commissioner Ajit
Pai before the Senate Committee on
Commerce, Science, and Transportation
(March 18, 2015) (available at:
https://apps.fcc.gov/edocs_public/attach
match/DOC-332637A1.pdf
https://apps.fcc.gov/edocs_public/attach
match/DOC-332637A1.pdf.
Ream, T., ...................................................................14
Dish Network Sweeps H-Block
Spectrum Auction For $1.56 Billion,
FORBES (March 5, 2015) (available at:
http://www.forbes.com/sites/greatspecul
ations/2014/03/05/dish-network-sweepsh-block-spectrum-auction-for-1-56billion).
Solomon, S.D., ...........................................................17
How Loopholes Turned Dish into a
“Very Small Business”, NEW YORK
TIMES (February 24, 2015) (available at:
http://www.nytimes.com/2015/02/25/bus
iness/dealbook/how-loopholestransformed-dish-network-into-a-verysmall-business.html?_r=0).
BRIEF OF AMICI CURIAE
PUBLIC INTEREST ORGANIZATIONS
The Phoenix Center for Advanced Legal & Economic Public Policy Studies (“Phoenix Center”) submits this brief as amicus curiae in support of
certiorari.1 Joining the Phoenix Center are the Computer and Communications Industry Association
(“CCIA”), the International Center for Law & Economics (“ICLE”), Public Knowledge, R Street Institute and TechFreedom (hereinafter “Public Interest
Organizations Amici”). Associate counsel for the Public Interest Organizations Amici are:
John A. Howes, Jr. – Policy Counsel, Computer &
Communications Industry Association;
Geoffrey A. Manne – Executive Director, ILCE;
Professor Justin (Gus) Hurwitz – Director of Law
& Economics Programs, ICLE;
Harold Feld – Senior Vice President, Public
Knowledge;
Tom Struble – Technology Manager and Counsel,
R Street Institute;
1
All parties have consented to the filing of this brief. No
counsel for a party authored this brief in whole or in part, and
no party or counsel for a party made a monetary contribution
intended to fund the preparation or submission of the brief. No
person other than amici curiae or their counsel made a monetary
contribution to the preparation or submission of this brief
2
Berin Szoka – President, TechFreedom.
INTEREST OF AMICI CURIAE
The Phoenix Center is a non-profit 501(c)(3) research organization that studies the law and economics of the digital age. The Phoenix Center has written
extensively about the Federal Communications Commission’s (“FCC”) design and implementation of spectrum auctions, including both the legal and economic
underpinnings of the “Designated Entity” (“DE”) program. The Phoenix Center has also written extensively on the Commission’s practice and procedure,
including the Agency’s mixed track record regarding
protecting procedural due process and adhering to legal precedent. The Phoenix Center, therefore, has an
established interest in the outcome of this proceeding
and we believe that our perspective will assist the
Court in resolving this case.
The Computer & Communications Industry Association (CCIA) is an international nonprofit association representing a broad cross-section of computer,
communications, and Internet industry firms that collectively employ nearly a million workers and generate annual revenues in excess of $540 billion. A list
of
CCIA
members
is
available
at
https://www.ccianet.org/members.
ICLE is a nonprofit, non-partisan global research
and policy center. ICLE works with more than fifty
affiliated scholars and research centers around the
3
world to promote the use of evidence-based methodologies in developing sensible, economically grounded
policies that will promote consumer welfare and enable business and innovation to flourish. ICLE’s advocacy for evidence-based methodologies gives it a
significant interest in helping shape the law governing judicial review of agency decision-making.
Public Knowledge is a non-profit 501(c)(3) that
promotes freedom of expression, an open internet,
and access to affordable communications tools and
creative works by advocating for policies that promote
competition and diversity of ownership. In furtherance of this goal, Public Knowledge has participated
in FCC spectrum proceedings throughout its 15 year
history to advance auction rules that encourage competitive entry and ownership by small businesses,
women-owned businesses, and minority owned businesses. This included participation in the proceedings that set the designated entity rules for Auction
97. Public Knowledge therefore has an established interest in the outcome of this proceeding and a perspective that will assist the Court in resolving this case.
R Street Institute (“R Street”) is a non-profit, nonpartisan public-policy research organization. R
Street’s mission is to engage in policy research and
educational outreach that promotes free markets, as
well as limited yet effective government, including
properly calibrated legal and regulatory frameworks
that support economic growth and individual liberty.
R Street engages regularly with the FCC and other
administrative agencies to help guide their decisionmaking and ensure their actions comport with due
4
process. Thus, R Street has a particular interest in
the outcome of this proceeding.
TechFreedom is a non-profit, non-partisan
501(c)(3) think tank dedicated to educating policymakers, the media, and the public about Internet policy. A central theme TechFreedom's work is on how
administrative agencies wield their power in regulating technological change. Accordingly, TechFreedom
has a particular interest in the outcome of this proceeding.
INTRODUCTION AND
SUMMARY OF ARGUMENT
This Court has long-held that an administrative
agency may change policy direction so long as it provides a reasoned explanation for doing do. Articulating this reasoned explanation is crucial to protect due
process because an agency should not be able to sanction an individual or entity for violating a new standard absent “fair notice.” As Petitioners state in their
brief, there is a split in the circuits over what constitutes sufficient “fair notice.” Several circuits apply a
straight-forward standard, requiring an agency to
clarify and articulate their regulatory interpretations. In contrast, other circuits—including the D.C.
Circuit in this case—shift the burden and hold that
notice is sufficient so long as the public “should reasonably have anticipated” that an agency “might”
change policy direction.
5
As argued below, a notice standard which places
the onus upon the public to “reasonably anticipate”
what an agency “might” do raises serious issues of due
process—particularly given the unique facts of this
case. Those facts are straightforward:
First, the FCC established the rules for Auction
97 through public notice and comment. In this public
notice, the Commission specifically instructed firms
seeking a determination to be a “Designated Entity”
(and thus be eligible for bidding credits) to “review
carefully” the well-developed Commission precedent
on this matter. It appears that Petitioners carefully
followed precedent in order to satisfy the FCC’s rules,
borrowing heavily from agreements previously approved by the Commission. While the Agency leaves
a formal examination of these agreements until after
the auction concludes, the Short Form process nonetheless provides the Commission (and other potential
bidders) with ample information about business arrangements and joint-bidding agreements among
DEs and their financial backers. Given full and public knowledge of the agreements and DISH’s aggressive spectrum acquisition history, if the FCC had
concerns about the relationship between the Petitioners and DISH, then the FCC could have easily rejected the Petitioners’ respective Short Forms. (While
the FCC’s Short Form process may be perfunctory, it
is not pro forma.) It did not. Apparently unconcerned
about Petitioners’ relationship with DISH, the FCC
certified Petitioners as “Qualified Bidders” and allowed them to participate in the auction as “Designated Entities.”
6
Second, the FCC was likewise unconcerned with
the impact of the Petitioners’ relationships with DISH
during the auction. Auction 97 data reveal that the
bidding credits had exceeded $3 billion within one
week of the eleven-week auction (Round 23 of 341).
Bidding credits would reach nearly $4 billion, almost
all of which was attributable to the Petitioners, by the
12th day of bidding. Under the terms of its own auction rules, if the Commission believed that Petitioners
were “too successful” in the auction, then the Agency
could have intervened at that point. Again, it did not.
Finally, after Auction 97 concluded and the size of
the bidding credits were publicly revealed, allegations
that Petitioners violated the Commission’s rules
spread like wildfire around Washington. Only then
did the FCC perceive a problem, and that problem
was mainly the Commission’s embarrassment from
media coverage suggesting that the Petitioners had
somehow bamboozled the Agency about their relationship with DISH. In response, both Democrat and
Republican FCC Commissioners felt the pressure to
act. For example, FCC Commissioner (and now
Chairman) Ajit Pai, testifying before the Senate Appropriations Committee, remarked that “[a]llowing
DISH to obtain over $3 billion in taxpayer-funded discounts makes a mockery of the small business program.” Not to be outdone, then-FCC Chairman Tom
Wheeler testified before Congress that he intended to
“fix this” because he was “against slick lawyers coming in and taking advantage of a program that was
designed for a specific audience and a specific purpose” and opposed having “designated entities be
beards” for large companies.
7
A clean “fix” would prove elusive. Within months
after Auction 97 concluded, the Agency amended its
DE Rules to cap significantly the amount of bidding
credits a DE may receive and to ban joint-bidding
agreements for future auctions, effectively conceding
that the undesired outcome of Auction 97 was a logical outgrowth of the rules in place for that auction.
Admitting that it cannot apply its rule changes retroactively, however, the Commission was forced to engage in some legal gymnastics to revoke the
Petitioners’ bidding credits.
Although the Commission conceded that “the entire record indicates” that Petitioners complied with
the Agency’s rules and adhered to precedent, the
Commission attempted to get around these inconvenient truths by declaring that Petitioners “simply proceeded under an incorrect view about how the
Commission’s affiliation rules apply to these structures” and under the “totality of the circumstances”
the Petitioners did not warrant DE classification. But
what about the past Commission precedent upon
which Petitioners relied? The Commission—in a footnote—simply swept this precedent under the rug, noting—without any explanation—that “[t]o the extent
any prior actions of Commission staff could be read to
be inconsistent with our interpretation of the Commission’s rules in this order, those actions are not
binding on the Commission—and we hereby expressly
disavow them….”
By any standard, the FCC provided no “fair notice” of its change in policy. Instead, as this Court observed in Auer v. Robbins, this is a classic case of a
“‘post hoc rationalizatio[n]’ advanced by an agency
8
seeking to defend past agency action against attack.”
The Commission may not escape responsibility for its
choices about running Auction 97 by claiming post hoc
that Petitioners had an “incorrect view” about FCC
precedent but then disavow this same precedent without explanation when the Commission both knew
prior to the auction how the Petitioners interpreted the
FCC’s rules and precedent yet nonetheless allowed
them to bid aggressively and did nothing to stop the
auction after the data revealed significant DE bidding
credits for the Petitioners. Allowing an agency to move
the goal posts without providing fair notice of a policy
change raises serious issues of procedural due process.
The D.C. Circuit, however, was unmoved. According to the D.C. Circuit, before placing their first bid,
Petitioners “should reasonably have anticipated” that
the Commission “might” change its “effective control”
standard post-auction, even though Petitioners—as
instructed by the Agency—followed precedent and
made the Commission aware of its bidding plans and
financial arrangements with DISH. Given that the
federal bureaucracy “wields vast power and touches
almost every aspect of American life,” such an amorphous notice standard makes no sense and establishes a troubling precedent for administrative law.
First, as lawyers are not particularly good soothsayers, if they are charged with having to “reasonably
anticipate” how an administrative agency “might” act,
then the ability to rely on precedent—no matter how
sparse—takes on added significance. In the case at
bar, however, the D.C. Circuit has effectively held
9
that any bureau-level decision made on delegated authority at a federal administrative agency no longer
has any precedential value, thus removing a potent
source of guidance going forward. While bureau-level
decisions, by definition, do not have the full force of
agency-level decisions, very often bureau-level decisions are the only guidance available. By eliminating
this common and well-accepted source of precedent,
the D.C. Circuit’s ruling actually makes it harder—
not easier—for the public to “reasonably anticipate”
what an agency “might” do.
Worse, under the D.C. Circuit’s logic, in the absence of a definitive agency-level order, any good-faith
reliance on a bureau-level decision can now nonetheless expose regulated entities to significant financial
penalties. Such an amorphous “reasonably anticipate” notice standard therefore injects significant regulatory uncertainty for entities subject to federal
regulation, potentially leading to diminished investment in critical infrastructure. The effect on investment from heightened regulatory uncertainty will be
particularly acute in the telecommunications arena,
because the FCC is charged with ensuring that broadband is reasonably deployed to all Americans as directed by Section 706 of the Telecommunications Act
of 1996.
Finally, a “reasonably anticipate” fair notice
standard does not constrain the power of the administrative state; instead, it greatly expands it. Even at
an administrative agency, as then-Judge Gorsuch
once observed in Direct Marketing Association v.
Brohl, decision-makers must respect past decisions
“out of fidelity to our system of precedent whether or
10
not [they] profess confidence in the decision itself.”
Yet, despite this basic maxim, scholarly research
demonstrates that the role of precedent increasingly
has little value in administrative agency decisionmaking. If the Court follows the D.C. Circuit’s logic,
then the irrelevance of precedent in administrative
decision-making will accelerate down the slippery
slope. To hold administrative agencies to account,
this Court must, in the words of Justice Gorsuch in
Brohl, force agencies to “attach power to precedent”
so that due process does not “surrender[] similarly situated persons to widely different fates at the hands of
unrestrained” bureaucrats.
While it is perfectly acceptable for an agency to
change policy direction going forward, an agency
must not be able to “disavow” precedent cavalierly
when it proves inconvenient. Indeed, a “reasonably
anticipate” standard creates a “plausible deniability”
that an agency’s political appointees may invoke without warning in response to purely political pressures.
Such a notice standard effectively end-runs the entire
purpose of due process—to ensure that agencies operate under a predictable rule of law rather than in response to political expediency.
A “reasonably anticipate” standard therefore will
embolden administrative agencies to act without constraint. The central dispute this case is not over the
bounds of agency discretion to interpret their enabling statutes, but over the bounds of acceptable conduct when an agency interacts with the public. So
long as some circuits place the onus on the public to
“reasonably anticipate” what an agency “might” do,
11
then the government will continue to exploit this gaping legal loophole to avoid responsibility and act with
impunity. Any standard which essentially requires
the public to read the tea leaves and hope they guess
correctly (or otherwise suffer severe penalties) can
hardly be considered adequate to protect due process.
ARGUMENT
I.
By Any Standard, the Commission’s
Conduct in this Proceeding Indicates that
the Agency Provided No “Fair Notice” of Its
Change In Policy.
This Court has long-held that an administrative
agency may change policy direction so long as it provides a reasoned explanation for doing do. Fox Television v. FCC, 556 U.S. 502 (2009). Articulating this
reasoned explanation is crucial to protect due process,
because an agency cannot sanction an individual for
violating the new standard unless they had “fair notice” of this rule. In this case, no such notice was ever
given.
As detailed below, after the Commission issued its
auction rules, (a) the Commission was informed prior
to the auction about the Petitioners’ interpretation of
FCC precedent yet nonetheless the FCC certified the
Petitioners as “Qualified Bidders” and allowed them
to participate in the auction as “Designated Entities”;
(b) the Commission was aware one week into the auction that bidding credits exceeded $3 billion yet did
nothing to stop the auction as permitted by the
Agency’s rules; but (c) after the auction concluded and
faced with political embarrassment, the Commission
12
decided to move the goal posts despite finding that Petitioners had complied with the Agency’s rules and
properly disclosed their ownership structure and related agreements as required. By any standard, the
Commission’s conduct in this proceeding indicates
they provided no “fair notice” of their change in policy.
Instead, as this Court observed in Auer v. Robbins,
this is a classic case of a “’post hoc rationalizatio[n]’
advanced by an agency seeking to defend past agency
action against attack.” 519 U.S. 453, 462 (1997).
A. The Commission Could Have Rejected
Petitioners as Qualified Bidders Based
on the Short Form Application.
Prior to Auction 97, the Commission required interested bidders to file a “Short Form” application and
disclose the identity and relationships of those persons or entities that directly own or control the applicant. See 47 C.F.R. §§ 1.2105, 1.2112. At that point,
the Commission—as well as all other potential bidders—were fully aware of the identity of the firms involved and the nature of their financial relationships.
Based on that information, the Agency had the authority to grant or deny both DE status and “Qualified
Bidder” status.
In the case at bar, the Commission specifically instructed potential bidders seeking DE status to “… review carefully the Commission’s decisions regarding
the designated entity provisions.” July 2014 Public
Notice at ¶ 79. The Petitioners did so, and both fully
disclosed their relationship as well as provided detailed summaries of their agreements with DISH in
their Short Form application (Petitioners’ Brief at 16),
13
basing their agreements directly upon agreements
the Commission previously found to be acceptable.
Id., passim. As the Commission conceded in its Order,
“the entire record indicates” that Petitioners complied
with the Agency’s rules and properly disclosed their
ownership structure and related Agreements as required. Pet. App. at 180-181a. Accordingly, the Commission found no objection with these investments
and both certified Petitioners as “Qualified Bidders”
and allowed Petitioners to participate in the auction
as “Designated Entities.” October 2014 Public Notice.
If the FCC had a problem with the relationship between the Petitioners and DISH, then the FCC could
have rejected the Petitioners’ Short Form. Alternatively, the Agency could have notified Petitioners that
their applications raised “red flags” that might trigger
rejection later in the process. The FCC did neither.
While the FCC’s Short Form process may be perfunctory, it is not pro forma.2 After all, it strains credulity to think that the Agency would allow an entity
who publicly discloses detailed financial relationships
with two other bidders—including the use of joint-bidding agreements—to participate in a federal spectrum auction based on a mere “rubber stamp.” As
explained in the Public Notice, the entire purpose of
2
See July 2014 Public Notice at D-15 (“After the deadline
for filing short-form applications, the Commission will process
all timely-submitted applications to determine which are complete, and subsequently will issue a public notice identifying (1)
those that are complete, (2) those that are rejected, and (3) those
that are incomplete or deficient because of minor defects that
may be corrected. Once that public notice is released, any interested parties may be able to view the short-form applications by
searching for them in the Commission’s database.”)
14
the Short Form review is to determine whether the
applications are “incomplete or deficient.” Given the
enormous amounts of money at stake, basic fairness
should require the Agency to at least warn an applicant that a financial relationship permissible in previous auctions could be considered unacceptable for
DE credit.
Along a similar vein, in light of the open disclosures in the Petitioners’ Short Form application, one
has to wonder exactly what the Commission was
thinking about the Petitioners and DISH. Anyone
with even a passing knowledge of the mobile wireless
industry was aware that DISH was on a spectrum
buying spree. In 2014, DISH acquired at auction the
10 MHz H Block for $1.56 billion. T. Ream, Dish Network Sweeps H-Block Spectrum Auction for $1.56 Billion, FORBES (March 5, 2015). In 2013, DISH made a
run to acquire Sprint. (Id.) In 2011, DISH purchased
40 MHz of MSS spectrum in the 2 GHz band (“AWS4 band”) for $3 billion. DISH was obviously intending
to be a player in Auction 97. In light of the pre-auction disclosures, the Agency’s long and tortured experience with the DE Program (see S. Labaton and S.
Romero, FCC Auction Hit with Claim of Unfair Bids,
NEW YORK TIMES (February 12, 2001)), and DISH’s
reputation as a spectrum buyer, the Commission—as
the purported “expert” agency—cannot credibly claim
that it was ignorant of the facts before the auction began.
15
B. Auction 97 Data Reveal that the
Commission Knew Within Seven (7) Days
that Bidding Credits Exceeded $3 Billion
Yet Did Nothing to Stop the Auction.
The Commission also cannot claim ignorance of
potential problems once Auction 97 got under way.
The Auction 97 data make clear that bidding credits
crossed the $3 billion threshold in round 23 (of 341),
which occurred only 7 days into the 76-day auction.
Moreover, credits nearly reached $4 billion by the
12th day of bidding, with almost all of those credits
going to the Petitioners. The FCC unquestionably
knew early in the auction that the Petitioners had run
up billions in bidding credits. G.S. Ford and M. Stern,
PHOENIX CENTER POLICY PERSPECTIVE NO. 15-04:
Ugly is Only Skin Deep: An Analysis of the DE Program in Auction 97 (July 20, 2015). Under the plain
terms of the rules for Auction 97, the Agency by “public notice or by announcement during the auction
[can] delay, suspend, or cancel the auction in the
event of natural disaster, technical obstacle, administrative or weather necessity, evidence of an auction
security breach or unlawful bidding activity, or for
any other reason that affects the fair and efficient conduct of competitive bidding.” July 2014 Public Notice
at ¶ 180 (emphasis supplied). If the FCC had a problem with Petitioners’ relationship with DISH and the
size of the bidding credits accrued, then it was at this
point the Commission should have acted rather than
delay action until the omelet was scrambled.
Yet, despite direct knowledge of both the size of
the bidding credits (within the first week) and,
16
equally as important, the parties eligible for such bidding credits, the FCC again opted to do nothing. Instead, the Commission let Auction 97 proceed without
intervention for a total of 341 rounds. It was only after the winners of the auction and the size of the bidding credits were publicly announced—and the
subsequent media attention—did the FCC feel politically pressured to act. See WALL STREET JOURNAL,
FCC to Tighten Reins.
C. Faced with Political Embarrassment,
the Commission Moved the Goal Posts
and Violated Due Process.
A primary objective of due process is to insulate
the administration of justice from political pressures.
Given the FCC’s apparent unconcern until the headlines created public outrage and Congressional inquiries, it is hard to escape the conclusion that the
FCC had no intention of disavowing its past precedent
when it first set the auction rules and then impermissibly changed course without warning. Yet while the
size of the bidding credits should make no difference
to this Court in evaluating the legal questions before
it, size matters in politics.3 Indeed, notwithstanding
While $3.6 billion is a large number, the large value of
the bidding credits is not particularly surprising for a $45 billion
auction. Across the FCC’s spectrum auctions held prior to Auction 97, the average difference between gross and net bids is
14.5% and the median difference is 13%. The range is 0% to 36%.
For a $45 billion auction, therefore, the expected bidding credit
is around $6 billion, which is nearly twice the total credit from
Auction 97. While $3.6 billion is certainly a lot of money, it is a
big number in the company of even bigger numbers. By historical standards, the taxpayer got off relatively cheaply in Auction
97. The bidding credits summed to only 8% in that auction, well
3
17
the economic reality of the results of Auction 97, the
sheer size of the bidding credits became a cause célèbre on Capitol Hill and shortly after Auction 97 concluded allegations began to swirl that that the
Petitioners had somehow bamboozled the Agency
about their relationship with DISH. See, e.g., S. Solomon, How Loopholes Turned DISH into a “Very
Small Business”, NEW YORK TIMES (February 24,
2015) (“Through sleight of hand and aggressive use of
partners and loopholes, DISH turned itself into that
very small business, distorting reality and creating an
unfair advantage.”)
In response, both Democrat and Republican FCC
Commissioners felt the pressure to act.4 On the Republican side, FCC Commissioner (and now Chairman) Ajit Pai, testifying before the Senate
Appropriations Committee, remarked that “[a]llowing DISH to obtain over $3 billion in taxpayer-funded
discounts makes a mockery of the small business program.” Statement of Ajit Pai, Commissioner, Federal
below the average 14% share. Ford and Stern, Ugly is Only Skin
Deep.
4
Some of this pressure came from other bidders who
claimed that Petitioners’ participation skewed Auction 97’s results. See, e.g., Marx Analysis. However, assuming arguendo
that such allegations are true, then the fault lies with the FCC—
not with Petitioners. By certifying Petitioners as “Qualified Bidders” and allowing them to participate in Auction 97 as “Designated Entities,” the Petitioners’ bidding behavior (i.e., bidding
on the assumption of a 25% discount) affected the prices of all
licenses in Auction 97, not just those licenses that the Petitioners
won. Petitioners’ involvement in Auction 97 was pervasive, infecting prices for licenses they won, they lost, and even those
they did not bid on. Ford and Stern, Ugly is Only Skin Deep.
18
Communications Commission, Hearing before the
Senate Appropriations Subcommittee on Financial
Services and General Government (May 12, 2015).
Not to be outdone, then-FCC Chairman Tom Wheeler
testified before Congress that he intended to “fix this”
because he was “against slick lawyers coming in and
taking advantage of a program that was designed for
a specific audience and a specific purpose” and opposed having “designated entities be beards” for large
companies. WALL STREET JOURNAL, FCC to Tighten
Reins. But how?
As noted above, under established Supreme Court
precedent, an administrative agency is free to change
policy direction so long as it provides a reasoned explanation. Fox Television v. FCC, 556 U.S. 502 (2009).
To this end, given its dissatisfaction with the results
of Auction 97, less than six months after Auction 97
closed the Commission did exactly that by modifying
its DE rules to cap bidding credits and eliminate jointbidding agreements for future auctions. See 2015 DE
Rules. However, by its own admission, the Commission could not apply these rule changes retroactively
to the Petitioners, who were governed by the rules in
place for Auction 97. Pet. App. 55a at n. 5 (“Because
Auction 97 took place under our prior rules, our consideration and analysis herein is undertaken under
the rules that were in place at the time that the Applicants submitted their respective Form 175 ShortForm Applications (“Form 175 Short-Form Applications”) and Form 601 “long-form” Applications…”);
c.f., Bowen v. Georgetown University Hospital, 488
U.S. 204, 208 (1988) (statutory grants of rulemaking
authority will not be understood to encompass the
power to promulgate retroactive rules unless that
19
power is conveyed by Congress in express terms). To
escape from this legal pickle, the Commission engaged in some legal gymnastics by both moving the
goal posts and then blaming the Petitioners for not
understanding the rules of the game.
In particular, the Commission conceded in its Order that “the entire record indicates” that Petitioners
complied with the Agency’s rules and properly disclosed their ownership structure and related Agreements as required. Pet. App. 180-182a. (In fact, the
Commission also conceded that “had the Applicants
disclosed more detail about what they intended to accomplish through joint-bidding with DISH, such disclosure might have communicated bidding strategies
to other applicants in violation of the prohibited communications rule….” Pet. App. 183a at n. 384.) To
get around this inconvenient truth, the Commission
pivots and claimed that Petitioners simply “proceeded
under an incorrect view about how the Commission’s
affiliation rules apply to these structures” (Pet. App
180-181a) and, under the “totality of the circumstances” (Pet. App 102-103a), the Petitioners did not
warrant DE classification.
But what about the past Commission precedent
upon which Petitioners relied? The Commission in a
footnote simply swept this precedent under the rug,
noting without any explanation that “[t]o the extent
any prior actions of Commission staff could be read to
be inconsistent with our interpretation of the Commission’s rules in this order, those actions are not
binding on the Commission—and we hereby expressly
disavow them….” The Petitioners had every right to
rely on Commission precedent—particularly when
20
the Commission specifically instructed them to do so
and postponed careful review of the applications until
after the auction was completed. July 2014 Public
Notice at ¶ 79 (“… applicants should review carefully
the Commission’s decisions regarding the designated
entity provisions.”). Accordingly, rather than take responsibility for its choices in running Auction 97, the
Commission instead opted to blame Petitioners post
hoc for having an “incorrect view” about nearly
twenty years of prior Commission behavior.
D. An Agency Must Live With
Consequences of Its Choices.
The
The Commission may not escape responsibility for
its choices about running Auction 97 by claiming post
hoc that Petitioners had an “incorrect view” about
FCC precedent but then disavow this same precedent
without explanation when the Commission both knew
prior to the auction how the Petitioners interpreted the
FCC’s rules and precedent yet nonetheless allowed
them to participate and did nothing to stop the auction
after the data revealed significant DE bidding credits
for the Petitioners.
The Commission could certainly have conducted a
more searching review prior to the auction. Alternatively, the Commission could have made clear that the
short form review was entirely pro forma and that it
would not regard prior bureau-level decisions as binding precedent. Instead, the FCC structured the review process so as to provide the illusion of a
substantive pre-screening based on bureau-level as
well as Commission-level precedent. By any stand-
21
ard, the Commission’s conduct in this proceeding indicates they provided no “fair notice” of their change
in policy. Instead, as this Court observed in Auer v.
Robbins, this is a classic case of a “’post hoc rationalizatio[n]’ advanced by an agency seeking to defend
past agency action against attack.” 519 U.S. 453, 462
(1997). Allowing an agency to move the goal posts
without providing fair notice of the policy change, particularly given the Agency’s conduct in this case,
raises serious issues of procedural due process.
II. The Amorphous “Reasonably Anticipate”
Notice Standard Sets a Troubling Precedent
in Administrative Law.
As noted in the preceding section, the way the
FCC moved the goal posts after Auction 97 concluded
raises serious issues of procedural due process. The
D.C. Circuit, however, was unmoved.
According to the D.C. Circuit, the Commission
was well-within its rights to move the goal posts. In
the court’s view, the Petitioners “should reasonably
have anticipated” that the Commission “might” have
adopted its new regulatory standard on how it defines
“effective control” before participating in the auction,
even though the Petitioners—as instructed by the
Agency—followed precedent and made the Commission aware of its bidding plans and financial arrangements with DISH prior to the auction.5 Given that
Significantly, despite the Commission’s conduct, the
D.C. Circuit found no notice problem with the Commission’s
moving of the goal posts after the auction. The only lack of notice
5
22
the federal bureaucracy “wields vast power and
touches almost every aspect of daily life” City of Arlington, Tex. v. FCC, 569 U.S. 290, 313 (2013) (Roberts, C.J., dissenting) (quotation marks omitted), such
an amorphous notice standard makes no logical sense
and establishes a troubling precedent for administrative law.
A. The D.C. Circuit’s Notice Standard
Eliminates Bureau-Level Decisions as
Valid Precedent Going Forward.
As the Court is aware from first-hand experience,
lawyers are not particularly good soothsayers. Thus,
if counsel is charged with having to “reasonably anticipate” how an administrative agency “might” act, then
the ability to rely on precedent—no matter how
sparse—takes on added significance. In the case at
bar, the Agency instructed auction participants to “…
review carefully the Commission’s decisions regarding the designated entity provisions.” July 2014 Public Notice at ¶ 79. As is standard practice in the
telecommunications bar, such a command immediately points counsel to official FCC actions, but also
implies that counsel should look to relevant bureaulevel decisions made on delegated authority (the vast
majority of which are never appealed to the full Commission for review). See 47 CFR §§ 1.101 et seq.; see
also Pet. Brief at 8-9; 28-29. While actions taken on
delegated authority obviously do not have the full
force and effect of a Commission-level order, the fact
D.C. Circuit was concerned about was that FCC did not tell Petitioners that if they misinterpreted the law, the FCC might not
give them an opportunity to cure. See Pet. App. at 49a.
23
remains that bureau-level decisions nonetheless provide a legitimate indication of how the Agency has
treated similar fact patterns in the past (particularly
when they were never appealed to the full Commission-level).6 And when bureau-level decisions are the
only precedent available when billions of dollars are
at stake, counsel should be entitled to accord them
some credible level of precedential value.
In SNR Wireless, however, the D.C. Circuit effectively held that all bureau-level decisions made on
delegated authority at a federal agency have no precedential value going forward. Accordingly, by eliminating this common and well-accepted source of
precedent, the D.C. Circuit’s ruling actually makes it
harder—not easier—for the public to “reasonably anticipate” what an agency “might” do. Worse, under
the D.C. Circuit’s logic, in the absence of a definitive
6
The fact that the full Commission did not take up a bureau-level decision could indicate that the Agency had no concerns with the actions taken on delegated authority. As thenCommissioner Ajit Pai testified before the Senate Committee on
Commerce, Science, and Transportation,
It has long been customary at the FCC for Bureaus
planning to issue significant orders on delegated authority to provide those items to Commissioners 48
hours prior to their scheduled release. Then, if any one
Commissioner asked for the order to be brought up to
the Commission level for a vote, that request would be
honored. I can tell you from my time as a staffer in the
Office of General Counsel that we consistently advised
Bureaus about this practice.
Testimony of FCC Commissioner Ajit Pai before the Senate
Committee on Commerce, Science, and Transportation (March
18, 2015).
24
agency-level order, any regulated entity who has
made a good-faith reliance heretofore on a bureaulevel decision could now be exposed to substantial financial penalties. As detailed in the next section,
such an interpretation now injects significant regulatory uncertainty into the market which, in turn, is
likely to have a significant adverse impact on economic investment incentives.
B. A “Reasonably Anticipate” Notice
Standard Injects Significant Regulatory
Uncertainty for Entities Subject to
Federal Regulation, Potentially Leading
to Diminished Investment in Critical
Infrastructure.
An amorphous “reasonably anticipate” notice
standard also injects significant regulatory uncertainty for entities subject to federal regulation, potentially leading to diminished investment in critical
infrastructure. Of all the myriad ways that regulation can fail, the lack of credibility of the regulator—
its inability to keep its word and follow its own precedent—is perhaps the most important. Participating
in regulated industries which provide critical infrastructure (e.g., telecommunications, electricity, and
transportation) requires large fixed and sunk investments whose returns are realized only sporadically
over long periods. If firms (and their investors) fear
expropriation of returns by a regulator unable to commit to its policies, however, then investment will be
severely curtailed. See, e.g., G.S. Ford and L.J. Spiwak, The Unpredictable FCC: Politicizing Communications Policy and its Threat to Broadband
25
Investment, PHOENIX CENTER POLICY PERSPECTIVE
NO. 14-05 (October 14, 2014).7
As noted by Levy and Spiller,
The combination of significant investments
in durable, specific assets with the high level
of politicization of utilities has the following
result: utilities are highly vulnerable to administrative expropriation of their vast
quasi-rents. Administrative expropriation
may take several forms. Although the easiest form of administrative expropriation is
the setting of prices below long-run average
costs, it may also take the form of specific requirements concerning investment, equipment purchases, or labor contract conditions
that extract the company’s quasi-rents.
Where the threat of administrative expropriation is great, private investors will limit
their exposure.8
So although the present controversy emanates
from the FCC’s actions in running a multi-billion dol-
The effect of regulatory uncertainty in the telecommunications arena is particularly acute given the FCC’s mandate in
Section 706(a) of the Telecommunications Act of 1996 (47 U.S.C.
§ 1302(a)) to “encourage the deployment on a reasonable and
timely basis of advanced telecommunications capability to all
Americans…”
7
8
B. Levy and P. Spiller, The Institutional Foundations of
Regulatory Commitment: A Comparative Analysis of Telecommunications Regulation, 10 JOURNAL OF LAW, ECONOMICS, & ORGANIZATION, 201-246 (1994).
26
lar spectrum auction, the need for regulatory certainty extends across the federal bureaucracy. If investors believe that a federal regulatory agency will
not honor its commitments simply because it dislikes
the results of its policies, then capital will find
greener grass. Ford and Stern, Ugly is Only Skin
Deep.
III. A “Reasonably Anticipate” Fair Notice
Standard does not Constrain the Power of
the Administrative State; Instead, It Greatly
Expands It.
At issue in this case is what should be the appropriate standard of “fair notice” an administrative
agency must provide to ensure due process. As Justice Cardozo recognized nearly eighty-five years ago,
however, “[d]ue process of law requires that the proceedings shall be fair, but fairness is a relative, not an
absolute, concept. It is fairness with reference to particular conditions or particular results.” See Snyder
v. Com. of Mass., 291 U.S. 97, 116 (1934) (Cardozo, J.)
Certainly, conditions have changed since Snyder.
As Chief Justice Roberts noted in his dissent in City
of Arlington, the federal bureaucracy now “wields vast
power and touches almost every aspect of daily life”
City of Arlington, Tex. v. FCC, 569 U.S. 290, 313
(2013) (Roberts, C.J., dissenting) (quotation marks
omitted). The problem with a “reasonably anticipate”
notice standard, however, is that it does nothing to
constrain the power of the modern administrative
state; to the contrary, it greatly expands it. As such,
there is nothing “fair” or just about this notice standard.
27
First, even at an administrative agency, decisionmakers must respect past decisions “out of fidelity to
our system of precedent whether or not [they] profess
confidence in the decision itself.” Direct Marketing
Association v. Brohl, 814 F.3d 1129, 1148 (10th Cir.)
(Gorsuch, J. concurring), cert. denied, 137 S.Ct. 591
(2016). Yet, despite this basic maxim, scholarly research demonstrates that the role of precedent increasingly has little value in agency decision-making.
See Beard, Ford et al., Eroding the Rule of Law: Regulation as Cooperative Bargaining at the FCC, PHOENIX CENTER POLICY PAPER NO. 49 (October 2015). If
the Court follows the D.C. Circuit’s logic, then the irrelevance of precedent in administrative decisionmaking will accelerate down the slippery slope. To
hold administrative agencies to account, this Court
must force agencies to “attach power to precedent” so
that due process does not “surrender[] similarly situated persons to widely different fates at the hands of
unconstrained” bureaucrats. Brohl, 814 F.3d at 114748. While it is perfectly acceptable for an agency to
change policy direction going forward, an agency
should not be able to “disavow” precedent cavalierly
when it proves inconvenient.
Increasingly, administrative agencies delegate
decision-making to bureaus and offices which effectively create the body of precedent that informs regulated entities on how to behave. A “reasonably
anticipate” standard provides a “plausible deniability” that an agency’s political appointees may invoke
without warning in response to purely political pressures. Such a notice standard effectively end-runs the
28
entire purpose of due process—to ensure that agencies operate under a predictable rule of law rather
than in response to political expediency.
A “reasonably anticipate” standard therefore will
embolden administrative agencies to act without constraint. The central dispute in this case is not over
the bounds of agency discretion to interpret their enabling statutes, see, e.g., Brohl, id.; Utility Air Regulatory Group v. Environmental Protection Agency, __
U.S. __; 134 S.Ct. 2427, 2431 (2014), but over the
bounds of acceptable conduct when an administrative
agency interacts with the public. So long as some circuits place the onus on the public to “reasonably anticipate” what an agency “might” do, then the
government will continue to exploit this gaping legal
loophole to avoid responsibility and act with impunity. Indeed, any standard which essentially requires
the public to read the tea leaves and hope they guess
correctly (or otherwise suffer severe penalties) can
hardly be considered adequate to protect due process.
29
CONCLUSION
For the foregoing reasons, this Court should grant
the Petition for Writ of Certiorari.
Respectfully submitted,
Lawrence J. Spiwak
Counsel of Record
PHOENIX CENTER FOR
ADVANCED LEGAL &
ECONOMIC PUBLIC
POLICY STUDIES
5335 Wisconsin Ave., NW
Suite 440
Washington, D.C., 20015
(202) 274-0235
lspiwak@phoenix-center.org
Counsel for Amici Curiae
February 22, 2018
This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.