Petitioners Reply Brief — Federal Communications Commission v. National Citizens Committee for Broadcasting

FOR ARGUMENT

Ja 18 1978

No. 76-1471 MICHAEL RODAK, JR., CLERK

(Consolidated with Nos. 76-1521,

76-1595, 76-1604, 76-1624 and 76-1685)

In the Supreme Court of the Unite States

Octroser TRX, 1977

FepERAL COMMUNICATIONS COMMISSION, PETITIONER

.

NATIONAL CrTizENS COMMITTEE FOR BROADCASTING, BY AL.,

RESPONDENTS

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE DISTRICT OF CO-

LUMBIA CIRCUIT

PETITIONER’S REPLY BRIEF

DANIEL M. ARMSTRONG,

Associate General Counsel,

SHELDON M. GUTTMANN,

JOHN E. INGLE,

KEITH H. FAGAN,

Counsel,

Federal Communications Commission,

Washington, D.C. 20564.

INDEX

I. The Commission's order was lawful and rational.

II. Noch and the Department have not shown that the Commis-

sion's decision not to require across-the-board divestiture was

erroneous

III. NCCB’s further attempts to defend the court below are without

— aoe

IV. Gray has not shown that the commission's limited divestiture

rules were erroneous. —

CITATIONS

Court decimions :

Ashbacker Radio Co. v. FCC, 326 U.S. 327 1048)

Crowder v. , 390 F. 4 (D.C. Cir.), cert. denied, 383

U.S. 962 (1960) —

United States v. Radio Co. p. of America, 358 U.. 884 (1950)

agency decisions :

Suoles Flovide Rroadoseting, Inc., 2 FOO 2d OS (1977), appeal

pending sub nom. Ventral Floride Enterprises, Inc. v. FOC, No.

74-17 (D.C. Cir.) Rü — —

Mei ple Qwnereip of Btaneurd Broadcast Stations, 8 Fed. Rex.

(1948) a

_ Homerthip Rules (Docket No. 0967), 16 FCO 288 (8

Multiply Ocnersiip Reales (Deeket No 14711), 45 FOO 1478

1964) Sewn

2 Rutan (Docket No. WOES), 32 —⅛

Multiple Qwnership Rules (Docket No. 18110) 50 FOC 2d 1046

(1976)...

Muitigie Oronershiip, Mules (Docket No. 20648) 68 FOC 24 824

1

Vewepaper Ownership of Radio Stations, 9 Fed. Reg. 702 (1944)

Poltoy Statement on Coraperatéve Brvedeast Heerings, 1 FOC 2d

308 (1965)

Report on Chain Broadcasting (1941)

Rules and Regulation Governing Television Broadcast Stations,

6 Fed. Reg. 2284 (1941)

Re —— —— — p8

2382 (1940).

Seven (7) League Productions, Inc., 1 FOC 24 1507 (1806)

(1)

253-716—78-——_1

1 Md is 1 0 g

Statute:

Administrative Procedure Act, 80 Stat. 381, as amended:

5 U.S.C. § 553(b) (3—

Communications Act of , 49 Stat. 100,

47 U.S.C. § 307(d) ---~-..-----------~-

@. US.0. §890(6) .....-<<<.-<0-<.---

Miscellaneons -

— :

IK Davis, Adminiatpetive Dew 97.02 (2082)... .--.-...--...-

H.R. Rept. No. 1750, S20 Cong, 24 Sess. (1952) --__.__.-.--._.-

8. Rept. Ne. 44, 888 Cong, ist Sess, (1051)

—ͤ—ñ—— a: ! ̃ —:vÜ“ — —

—

In the Supreme Court of the Unite States

Ocropm Term, 1977

No. 76-1471

FepEeRAL COMMUNICATIONS COMMISSION, PETITIONER

v.

NATIONAL Citizens COMMITTEE FOR BROADCASTING, ET AL.,

RESPONDENTS

ON WRIT OF CERTIORARI TO THE UNITED STATES

COURT OF APPEALS FOR THE DISTRICT OF

COLUMBIA CIRCUIT

PETITIONER’S REPLY BRIEF‘

The following comments are submitted in reply to the

briefs of respondents National Citizens Committee for Broad-

casting (NCCB), the Department of Justice (the Depart-

ment) and Gray Communications Systems, Inc. (Gray).

I. THE COMMISSION’S ORDER WAS LAWFUL AND RATIONAL

The FCC first adopted multiple ownership rules almost forty

years ago. Since then, the Commission has amended these

2

rules on numerous occasions, broadening and strengthening

them so as to respond to changing industry conditions and to

reflect the agency’s accumulating experience. Throughout this

process, the Commission’s objective has been to encourage di-

versified ownership of media in order to promote competition

and diversity of expression. At the same time, where the Com-

mission has confronted existing licensees who have proven

records of service in the publie interest, the Commission has not

lost sight of the desirability of preserving this service. In gen-

eral, therefore, the agency has applied its rules prospectively

only, and has given proper attention to established records of

service.”

After weighing the relevant policy factors in light of the

record and its licensing experience, the Commission in this case

decided to impose a prospective ban on co-located newspaper-

broadeast combinations, but to eschew divestiture except in

cases of effective monopoly. The fact that the Commission did

not order across-the-board divestiture did not mean that it

had departed from its long-standing view that diversification

was a very important regulatory goal. It simply meant that the

agency had not found sufficient justification for applying that

* There was no divestiture required in connection with the Commission’s

“overlap” rules, see 45 FCC 1476, 1478 (1964); its “one to a market”

rules, see 50 FCC 2d 1046, 1075 (1975) (Note: this is the order under

review, but no party has challenged this aspect of the Commission’s deci-

sion); or its “regional concentration” rules, see 63 FCC 2d 824, 829 (1977).

In addition, the agency’s “7-7-5” rules were specifically designed to

minimize the need for divestiture, see 18 FCC 288, 295 (1953). So too, in

some respects, were the “chain broadcasting” rules, see Report on Chain

Broadcasting 67-68 (1941). The original FM and TV “duopoly” rules were

necessary prospective only, since these services had not then developed,

see 5 Fed. Reg. 2382 (1940) and 6 Fed. Reg. 2284 (1941). And of course,

there was no divestiture ordered when the Commission decided to pursue

its multiple ownership objectives on a case-by-case basis rather than rule;

eq., in the first “newspaper-broadcast” proceeding, see 9 Fed. Reg. 702

(1944), and in the “top 50 markets” proceeding, see 22 FCC 2d 696 (1968).

Thus, the only time the Commission made no distinction between existing

and future licensees was when it adopted the original AM “duopoly” rules,

see 8 Fed. Reg. 16065 (1943), and even then it afforded an opportunity for

case-by-case review.

abe

3

policy so as to override all other public interest considerations.

Since there was nothing in the Constitution or the Communi-

cations Act that compelled the Commission to attach over-

riding significance to diversification under all circumstances,

this decision was unquestionably lawful.

The decision was also eminently rational. The record in this

proceeding did not reveal any pattern of harm from cross-

ownership, but it did reveal that many newspaper-owned sta-

tions had long records of service in the public interest, and many

of these station owners had community ties arising out of

local residence. It was clear, moreover, that divestiture would

disrupt this proven, relied upon service, and would also work

a hardship on the licensees who had invested time and money

in delivering this service by destroying their legitimate renewal

expectancies.’

At the same time, while the Commission presumed that

diversity could be expected to increase if there was separate

ownership, it recognized that this was an “abstract” goal be-

cause, as the court later put it, there was “no guarantee that

the presumed effect would follow. 50 FCC 2d at 1078 (App.

197); 555 F. 2d at 950 (App. 373). Finally, the Commission

feared that in the event of divestiture, many new owners would

have to borrow large sums of money at high interest rates and

*The 1952 amendments to the Communications Act make it clear that

such expectancies are legitimate. In that year, Congress deleted that part

of Section 307(d) of the Act which provided that action on renewal

applications “shall be limited to and governed by the same considerations

and practice which affect the granting of original applications,” and sub-

stituted a provision that renewals “may be granted * * * if the Commission

finds that public interest, convenience and necessity would be served

reason for the change was that the deleted portion was “neither realistic

thereby.” The House Report accompanying this legislation stated that the

nor [did] it reflect the way in which the Commission bas actually handled

renewal eases,” H.R. Rep. No. 1750, 82d Cong., 2d Sess., 8 (1952), and

the Senate Report added Commission had “the right and duty to

consider, in the case of a station which has been in operation and is apply-

ing for renewal, the overall performance of that station against the broad

standard of public interest, convenience and necessity.” S. Rept. No. 44,

82d Cong., Ist Sess. 7 (1951).

4

that this could possibly affect program quality.“ In light of all

this, the Commission concluded that it just did not make sense

to order across-the-board divestiture.

II. NCCB AND THE DEPARTMENT HAVE NOT SHOWN THAT THE

COMMISSION’S DECISION NOT TO REQUIRE ACROSS-THE-

BOARD DIVESTITURE WAS ERRONEOUS

Because the Commission’s refusal to require massive divesti-

ture was both lawful and rational, it should have been upheld

by the court below. That body, however, substituted its judg-

ment and reversed the agency. Both NCCB and the Depart-

ment support this action by the court.’ In attempting to defend

it, however, they commit numerous errors of fact, law and logic.

A discussion of some of these errors follows.

A. NCCB adopts the position of the court below that the

Commission’s reasons for not ordering full divestiture were

insufficient to evercome a “presumption” against cross-owner-

ship. NCCB br. at 28-29, 45. The Commission has already

demonstrated, however, that there is ne such presumption

against existing cross-owners. FCC Pet. br. at 33-37,

B. NCCB claims that the Commission improperly placed

the burden of proof in this proceeding on “those who sought

diversification over concentration.” NCCB br. at 28. It is

true that the Commission believed that divestiture should not

be required without a strong showing of need. It is clear, how-

ever, that the Commission imposed no burden of proof on

any party. Its actions were based mainly on what Professor

Davis would term the finding of “legislative facts,” see 1 K.

Davis, Administrative Law § 7.02 (1958), rather than on any

*The D.C. Circuit, albeit in the context of trafficking, has stated that

this is a legitimate concern: Trafficking“ * * may inflate the price

of a station so that only wealthy individuals or businesses will be eligi-

ble transferees. And it may lead the new ownership, in an attempt to

recover its investment, to decrease the quality of its programming while

increasing the quantity of its commercials—all at the expense of public

audiences.” Crowder v. FCC, 399 F. 2d 569, 572, cert. denied., 393 US.

962 (1968) [emphasis added.]

5’ The two respondents do not agree, however, as to certain other as-

pects of the court’s decision. See part III, infra.

5

party’s success or failure in meeting a predetermined burden.

C. NCCB contends that the Commission has “regularly”

ordered divestiture in connection with its multiple ownership

rules. The record clearly shows, however, that divestiture has

been an exceptional remedy. See n. 1, supra.

D. NCCB objects to the Commission’s taking local owner-

ship into account as a factor weighing against divestiture.

Yet in its Further Comments submitted during the course of

this proceeding, NCCB correctly referred to the Commis-

sion’s “long standing preference for local ownership.” (App.

860). See letter M, infra.

E. NCCB also asserts that the Commission’s fears of a de-

cline in local ownership are groundless because “there is no

reason to suppose that local entrepreneurs will not find tele-

vision an attractive investment.” NCCB br. at 33, citing 555

F. 2d at 964 (App. 421). But existing cross-owners under

orders to divest, particularly those interested in swapping sta-

tions with other cross-owners, would not have to deal with

these local entrepreneurs, but could sell to or swap with whom-

ever they wished, since under Section 310(b) of the Communi-

cations Act, the Commission is barred from denying a trans-

fer application because the public interest might be better

served by someone other than the proposed transferee. Given

this constraint, it was entirely reasonable for the Commission

to follow the course that was least likely to result in increased

absentee ownership.

F. NCCB attacks the Commission’s contention that licensees

who serve the public interest have legitimate license renewal

expectancies by contending that “the same public interest

criterion applies to both initial and renewal applications,”

NCCB br. at 40. In so stating, NCCB relies on certain lan-

guage in Ashbacker Radio Co. v. FCC, 326 U.S. 327, 332 (1945).

But this language was explicitly predicated on a portion of

§ 307(d) of the Communications Act which has since been

repealed by Congress. See n. 2, supra.

G. NCCB avers that the Commission’s concern for protect-

ing “legitimate license renewal expectancies” serves only the

private interests of licensees. NCCB br. at 39 n. 50. It has long

been recognized, however, that such expectancies also serve

the public interest by providing licensees with the incentive to

invest in quality programming rather than simply to maximize

profits, The Department disagrees with NCCB on this point.

Dept. br. at 40. Cf, n. 3 supra,

H. NCCB contests the Commission's statement that divesti-

ture would disrupt proven service, claiming that this is directly

contradicted by the agency's finding that the above average

performance of newspaper-owned stations “was in no way

shown to be the result of the fact of owning a newspaper.”

NCCB br. at 35, citing 53 FCC 2d 592 (App. 324), What

finally counts, however, is that, for whatever reasons, these

stations have performed well enough to win repeated license

renewals and indeed have performed better as a class than

other stations in several important areas, That such perform-

ance was not shown to be the result of newspaper ownership

is immaterial,

I, The Department contends that the Commission's reasons

for not ordering full divestiture “appear insubstantial,” Dept.

br. at 36, 51—but the Department has no special expertise in

communications, Instead, the Department, which also argued

for general divestiture before the Commission and the court

below, is simply seeking to substitute for the agency's policy

balance one more nearly to its liking.”

J. The Department characterizes the most significant part of

the Commission's argument against divestiture—its concerns

for the continuity of existing meritorious service and for fair-

ness to existing licensees—as arguments of counsel, Dept. br. at

45-51. But in fact the special merit and the equities of existing

cross-owners as n group are clearly recognized in paragraph 100

of the Commission's Second Report and Order, That para-

graph shows that these concerns were not post hoc rationaliza-

tions, but were—from the outset—at the very heart of the

Commission's decision against an order of general divestiture.

50 FOC 2d at 1078 (App. 197-198),

The court below rejected the Department's arguments, which were

hased on antitrust policy, 555 F. 2d at 065 n. 107 (App. 427-428). The

Department now seems to have abandoned this theory of the case.

7

K. The Department adverts to an alleged Commission claim

that incumbency alone gives a broadcaster an interest in main-

taining his license, Dept. br. at 46, and proceeds to demolish

this straw man by quoting numerous precedents to the effect

that the grant of a broadcast license confers no vested right.

Later, however, the Department admits that the Commission

never made any such statement. /d, at 40 m. 41 (“The Commis-

sion . . . speaks of renewal expectancies only for licensees that

have ‘given good service“)

I. Both NCCB and the Department reiterate the reason-

ing of the court below that the Commission's policy on divesti-

ture is at odds with its policy on transfers. 555 F. 2d at 963, 964,

6% (App. 420, 423, 425); NCCB br. at 33, 34, 38; Dept, br.

at 42-44, But as previously stated (FCC Pet. br. at 34, 38),

the Commission grants voluntary transfers because it recog-

nizes that forced obligations would not result in conscientious

service, This scarcely demonstrates, however, that its reluc-

tance to order divestiture by licensees who want to remain in

broadeasting is irrational, Indeed, it is all the more reason to

prize continuity of proven service where it can be found.

M. Both NCCB and the Department refer to the Policy

Statement on Comparative Broadcast Hearings, 1 FCC 2d 393

(1965), in their attempts to prove that the Commission's order

is irrational, F.., NCCB br. at 32, 45; Dept. br. at 5. But that

Policy Statement was intended for use in choosing among new

applicants for broadcast facilities, and the Commission has

held that the statements contained therein as to the weight

to be accorded various factors are inapplicable in situations in-

volving existing licensees. Seven (7) League Productions, Inc,,

1 FOC 2d 1957, 1599 (1965); Cowles Florida Broadcasting,

/ne,, 62 FCC 2d 953, 955-57 (1977), appeal pending sub nom.,

Central Florida Enterprises, Inc. v. FCC, No, 76-1742 (D.C,

Cir.). Accordingly, it is of no significance here that the Policy

Statement gives little credit to new applicants for local owner-

ship per se, or for “past broadcast record” at other stat ions.

N. Finally, both NCCB and the Department imply that the

Commission's “real” reason for not ordering widespread di-

vestiture was its fear that selling prices would be reduced, thus

254-716-178 2

causing licensees to suffer economic loss, NCCB br. at 38; Dept.

br. at 40, Simply stated, this is a red herring. The Commission

never made this suggestion; in fact, its view was that licensees

would not lose money as a result of divest ture, 50 FOC 2d at

347-348 (App. 118-119),

II NCCB'S FURTHER ATTEMPTS TO DEFEND THE COURT BELOW

ARE WITHOUT MERIT

NCCB (but not the Department) also insists that the Com-

mission's standards for divestiture and for “ad hoc challenge”

are irrational,’ As to the former, NCCB’s argument appears to

be that the Commission purported to set a “monopoly” stand-

ard, but did not use antitrust criteria, NCCB Br. at 47. How-

ever, the word “monopoly” has meaning in contexts other than

antitrust, and as the court below recognized, antitrust policy is

only one component of the Commission's broad public interest

mandate, 555 F. 2d 965 m. 107 (App. 427-428), citing United

States v. Radio Corp. of America, 358 U.S, 334 (1959). On the

latter point, NCCB, like the court below, seems to be under the

mistaken impression that the Commission has limited those

challenging a cross-owner's license renewal to a showing that

the licensee's conduct violated the Sherman Act. F.., NCCB

hr, at 47 m. 62, 50-51; 555 F. 2d at 966 m. 108 (App. 428-429).

In truth, however, the Commission has limited such chal-

lengers only to the extent that it will not permit them to re-

argue in an adjudicatory setting the question already decided

in this rulemaking, i.e., in what circumstances is the continued

existence of co-located newspaper-broadcast combinations

per se undesirable, The Commission has not foreclosed con-

sideration of any acts of abuse alleged to arise out of cross-

ownership. Its reference to the Sherman Act was only meant to

indicate that, in addition to such other allegations of harm as

might be presented, it would also consider, in the light of its

broad public interest mandate, charges of economic monopoli-

"The Department agrees with the Commission that the court erred

in vacating the limited divestiture rules, Dept, br. at 51, u. 44, The Depart-

ment does not address the “ad hoe challenge” issue,

zation of the type proscribed by the antitrust laws. 50 FOC 2d

tl App. 218)."

J * claims that “the Court of Appeals left the

Commission with discretion as to the particular form any rule

on remand would take.” NCCB br. at 57. The Commission has

demonstrated, however, and the Department agrees, that the

court below did deprive the Commission of that discretion.

FCO Pet. br. at 42; Dept. br. at 52. Indeed, the court has ad-

mitted that it “ordered the Commission to take further steps

to ensure that everyone would be consistently treated under

the standard already adopted for new license applicants.” Opin-

ion on Motion for Stay of Mandate, 555 F. 2d 967, 960-970

(App. 443). Accordingly, there can be no doubt that the court

below has usurped an administrative function.

IV. GRAY HAS NOT SHOWN THAT THE COMMISSION'S LIMITED

DIVESTITURE RULES WERE ERRONEOUS

Respondents Gray, et al., who include five of the sixteen li-

censes affected by the Commission's limited divestiture rules,

support the vacation of these provisions by the court below.

Initially, Gray asserts that the Commission never gave notice

that it was considering the adoption of rules based on a stand-

ard of effective monopoly. Gray br. at 9-10, But the Commis-

sion’s Further Notice of Proposed Rulemaking clearly satisfied

the APA, 5 U.S.C. § 553(b)(3), and in any event, the agency's

* Newspaper cross-owners are also subject, of course, to the Commis-

sion’s other multiple ownership rules and policies. Moreover, the Commis-

|

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:

10

the Commission did not consider these adverse consequences

in all cases. On balance, however, it determined that where

there was not even one other voice which could reasonably

be expected to compete effectively with a cross-owner and to

provide a “juxtaposing” of views on local issues, divestiture

was the course of action that would best serve the public in-

terest, 50 FCC 2d at 1081, 1083 (App. 203-207); see generally

id, at 1078-1087 (App. 106-214).

For the reasons stated above and in ite other pleadings be-

fore this court, petitioner again requests that ite orders be

affirmed and the judgment of the court below reversed.

Respectfully submitted,

Dante. M. Anmerrona,

Associate General Counsel,

Suevpon M. Gurrmann,

Joun E. Ivars,

Kerrn H. Faoan,

Counsel,

Federal Communications Commission,

Washington, D.C. 80664.

Janvany 1078.

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