Petitioners Brief — Channel Two Television Co. v. National Citizens Committee for Broadcasting

Supreme Court brief1977

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Text

7 Supreme Court Wy

FILED

Nos. 76-1471, 76-1521, 78-1595. 76-1

76-1624, 76-1685

IN THE

Supreme Court of the United States

Octroser Team, 1977

No. 76-1521

CAN NEIL, Two Teievision Company,

Tue Hovstow Post Company,

Curonicte Broapcastine Company,

Tue CHronicte Pustisnine Company,

KSL. Lycorporaten (Deseret News),

Post-Newsweex Stations, Caprrat Area, Ic.

Tae Wasninotron Post Cour,

WHAS, Iwe. (Tur Covrier-Jourwan anp

Tue Lovisvuie Times),

Petitioners,

Nationa, Citizens Couurrrã]1Z ror BroapcasTING, K AL.,

Respondents

On Writ of Certiorari to the United States Court of Appeals

for the District of Columbia Circuit

CHANNEL TWO TELEVISION COMPANY. ET AL.

Eanest W. Jennes

Russet. H. Carpenter, Jr.

Michal. L. Weiss

888 - 16th Street, N. W.

Washington, D.C. 20006

Attorneys for Petitioners

Of Cownsel:

Covinoton & BUN

888 - 16th St N.W.

Washington, D.C. 20006

{Consolidated cases listed on inside cover]

Pumse of Braow 8. Aan Purtine, Inc, Wasnineton, D.C.

NOV 17 1977

JR, CLERK

No. 76-1471

FeperaL Communications Commission, Petitioner

National Crrizens ComMitter von Broapcastin, Er AL.,

No. 76-1595

NATIONAL. Association oF Broapcasters, Petitioner

NaTtORAL Crrizens CoMMITTEer ron BroaDcasTINa, ET AL.,

No. 76-1604

American Newspaper Pvs.isuers Association, Petitioner

Nationat Crrizens Committees ron Broapcastine, ET AL.,

No. 76-1624

ILIAx os Broapcastine Co., et A., Petitioners

Nationa. Crrizens Committers ron BroapcasTInG, ET AL.,

No. 76-1685

Tue Post Company, et A., Petitioners

Nationa. Crrizens CoMMITTEE ron BroaDcasTING, ET AL.,

— eae Oe ne

TABLE OF CONTENTS

Page

ü = 2

SOND cc ccccccascccscccceccccccccccevccocvce 3

TE ED — 4

rere eee eee +

DOD GP GHD GED cccvcccccccocccvccccecccees 4

Background of the Administrative Proceeding ... 5

The Record Developed Before the Commission 8

The Second Report and Order 13

The Court of Appeals Decision ................ 17

Z Oe 21

r . 25

I. Tae Commission Rationatty Conciupep TxHat

tHe Pvusiic Interest Does Nor Require Re-

VERSAL oF EstasLisHep Commission Polier To-

warp Lonc-Approvep Newspaper Cross-OwNER- 8

FF neha aide dienes uinkios

Standing Commission Policy .............. 27

1. The Commission was not required to

make any change in its policy .......... 28

2. The Commission’s decision to change

policy prospectively does not affect its dis-

cretion not to change its renewal policy .. 30

B. The Commission has Discretion to Grand-

father Absent an Affirmative Showing of

. 111 35

1. Grandfathering is a routine Commission

I 35

ii Table of Contents Continued

Page

2. The Commission’s practice of grand-

fathering reflects a basic principle of the

legal ö o 39

C. The Decision to Grandfather Is Also Ra-

tionally Supported by the Specific Harmful

Consequences Feared by the Commission .. 45

1. Continuity of service ..............---- 45

2. Local ownership and economic dislocation 48

II. Tue Court or Appears Exceepep Its AvTHoriry

1x Reverstnc tae Commussion’s Decision TO

/ = eee nnren 50

III. Tue Commusstion’s GranpraTHER Rutes SHouLD

resse eee ee 57

f,, . . 59

TABLE OF CITATIONS

Cases: Page

ACLU v. FCC, 523 F.2d 1344 (9th Cir. 1975) ........ 36

Alianza Federal de Mercedes v. FCC, 539 F.2d 732

(DD. Che, BGG) .ccccccccccccsccscccccscccess: 44

* Airlines Inc. v. CAB, 192 F. 2d 417 (D.C. Cir. 9

7 12§é6ͤLͤ rrr errr eee

6 1 Company v. EPA, 501 F.2d 722 (D. C. Cir. 2

eee ee eee ee eee ee

Black Hills Video Corp. v. FCC, 399 F. 2d 65 (8th Cir.

11 ee 36

Bowman Transportation, Inc. v. Arkansas-Best Freight

System, Inc., 419 U.S. 281 (1974), rehearing de-

nied, 420 U.S. 956 (1975) 25, 51, 54

Buckeye Cablevision, inc. v. FCC, 387 F.2d 220 (D.C.

1 occccccccccdecccccccccoccccceccesess 42

Citizens Ass'n of Georgetown v. Washington, 370 F.

Supp. 1101 (D.D.C. 197)))))) 40, 42

Citizens Communications Center v. FCC, 447 F.2d 1201

(PAD. Cle. ) b e e 32, 33, 34

Citizens to Preserve Overton Park v. Volpe, 401 US.

GE GED 1—?öẽ?7ꝛ 25,

Claridge Apartments Co. v. Comm’r, 323 US. 141

Table of Citations Continued ili

Page

Columbia Broadcasting System, Inc. v. FCC, 454 F.2d

1018 (D.C. Cir. 1 2 mn ane eee 28

Coe v. Secretary of HEW, 502 F.2d 1337 (4th Cir.

P reas sae peeiene 43

Connecticut Committee Against Pay TV v. FCC, 301

F.2d 835 (D.C. Cir.), cert. denied, 371 U.S. 816

%% AAA 42

Ethyl Corp. v. EPA, 541 F.2d 1 (D.C. Cir.), cert.

denied, 426 U.S. 941 (1976) .................... 51

FCC v. Pottsville Broadcasting Co., 309 U.S. 134

/ AAA 50, 55, 56, 57

First National Bank of Fayetteville v. Smith, 508 F. 2d

1371 (8th Cir. 1974), cert. denied, 421 U.S. 930

pee a +. oe ee Fern 8 51

iger Line, Inc. v. Boyd, . Supp.

(DDE 17EAEĩ˙¹ ̃ p?MöñL ̃—⁵ü

Frontier Airlines, Inc. v. CAB, 439 F. 2d 634 (D.C. Cir.

c 42

Greater Boston Television Corp. v. FCC, 444 F.2d 841

(D.C. Cir. 1970), cert. denied, 403 U.S. 923 (1971),

rehearing denied, 404 U.S. 877 (1971) ....... 32, 33, 44

Hassett v. Welch, 303 U.S. 303 (1938) ................ 43

International Business Machines Corp. v. United

States, 343 F.2d 914 (Ct. Cl. 1965), cert. denied, 383

, ·¹⸗Am K 43

Joseph v. FCC, 404 F. 2d 207 (D. C. Cir. 1968) 44

Kennecott Copper Corp. v. Train, 526 F.2d 1149 (9th

Cir. 1975), cert. denied, 425 U.S. 935 (1976) ..... 41

KFKB Broadcasting Ass’n, Inc. v. Federal Radio

Comm’n, 47 F.2d 670 (D.C. Cir. 1931) ........ 31

W — v. Comm er, 238 F.2d 589 (3d Cir.

1 ˙Ü1'—.ÄÄ⁰ nn, Pam en EE 41

Louisville Joint Stock Land Bank v. Radford, 295 U.S.

TT rer 43

McClatchy Broadcasting Co. v. FCC, 239 F.2d 15 (D.C.

Cir. 1956), cert. denied, 353 U.S. 918 (1957) ..... 54

NAITPD v. , 516 F.2d 526 (2d Cir. 1975) ....... 51

New Orleans v. Dukes, 427 U.S. 297 (1976) .......... 42

NLRB v. Boeing Co., 412 U.S. 67 (1973) ............ 52

NLRB v. E4B Brewing C 276 F.2d 594 (6th

Cir. 1960), cert. denied, 366 U.S. 908 (1961) ... 43

NLRB ». Food Store Employees Union, 417 U.S. 1

„ toate: deny 55, 56

iv Table of Citations Continued

Page

NLRB v. Truck Drivers Local Union No. 449, 353 US.

J ?b“—:᷑ 8 55

Office of Communication of United Church of Christ

v. FCC, 359 F.2d 994 (D.C. Cir. 1966) .......... 31

Pacific Coast European Conf. v. U.S., 350 F.2d 197

1 54

Pinellas Broadcasting Co. v. FCC, 230 F.2d 204 (D.C.

Cir.), cert. denied, 350 U.S. 1007 (1956) ....... 28, 54

Place v. Weinberger, 497 F.2d 412 (6th Cir.), cert. de-

nied, 419 U.S. 1040 (1974) ti: eee eeeeees

Red Lion Broadcasting Co. v. FCC, 395 U.S. 367

1 14, 52

Retail, Wholesale, and Department Store Union v.

NLRB, 466 F.2d 380 (D.C. Cir. 1972) ........... 43

SEC v. Chenery Corp., 332 U.S. 194 (1947) ......... 43, 55

South Prairie Construction Co. v. Local No. 627, Int’l

Union of Operating Engineers, 425 U.S. 800

oa 55

South Terminal Corp. v. EPA, 504 F. 2d 646 (1st Cir.

% ˙ 40. 42

* Public Utilities Commission, 295 U.S. 76 in

111 2

Trafficante v. Metropolitan Ins. Co., 409 U.S. 205 (1972) 52

United States v. Maher, 307 U.S. 148 (1939) ........ 42

United States v. Pierce Auto Lines, 327 U.S. 515 (1946) 55

Watson v. Maryland, 218 U.S. 173 (1910) ........... 42

Youakim v. Miller, 425 U.S. 231 (19760) 52

STATUTES:

Administrative Procedure Act:

Seeed cc ccccccccccesescscceseces 50

Civil Aeronautics Act of 1938, Pub. L. No. 706, 75th

Cong., 3d Sess., 52 Stat. 973 (193) 39

Clean Air Act:

GD BEE. SEs . deset eee 40

GE BEE, GHEE . esse eee 40

Ir 40

ILE 40

42 U.S.C. 1857 f-. h.. . 40

ieee,

Table of Citations Continued v

Page

Communications Act of 1934:

Section 303 (g), 47 U.S.C. § 303 (g)) 19

Section 307 (a), 47 U.S.C. § 307 (ah 27

Section 307 (d), 47 U.S.C. § 307 (d 27

Economic Stabilization Act of 1970, 12 U.S.C. § 1904

J . .. 40

Federal Food, Drug, and Cosmetie Act of 1938, as

amended:

, ee

Pub. L. No. 87-781, § 107 (e) (4), 76 Stat. 789 (1962) 40

Federal Water Pollution Control Act, 33 U.S.C. 5 1316 40

Interstate Commerce Act, as amended:

Z 39

r ! ! n 39

r ů⸗ů · ! r ee 39

e ee 39

e e 39

Natural Gas Act, 15 U.S.C. 5717 f (ey 40

Newspaper Preservation Act, 15 U.S.C. 5 1803 (b) 40

Rroularioxs:

r e 41

r = eee 41

20 C. F. R. 5 405.415 (a) (3) (ii) (a 0000008. 41

r neue ccceees 40, 41

EE .... t eee 41

. ͤ ccccccecccccccccecccesccs 41

ZZ IE dnc cddcccccdccccdecééecé 41

ee id nw kee acnacasenseenantons 41

L K 47

vi Table of Citations Continued

Page

47 C.F.B. $73.35 mote ! l 37

47 C. F. R. & 73.240 notes 37

47 C. F. R. 5 73.636 note 8 s 37

FCC Decisions:

Amendment of Multiple Ownership Rules, 9 P&F Radio

Reg. 1563 (195300)))))))))))):;: 37

Belo Broadcasting Corp., 47 F.C.C.2d 240 (1974) .... 34

Cable Television Report and Order, 36 F.C.C.2d 143

hh. 6 66 666066600 36

CATV-TV Stations —Cross-ownership Rules, 55 F. C. C.

2d 540 (1975), appeal pending, NCCB v. FCC,

BAC, Caw, Wee. FORD ccc cccccccccccccastccceses 37

Cowles Florida Broadcasting, Inc., 62 F.C.C.2d 953

(1977), appeal pending, Central Florida Enter-

prises, Ine. v. FCC, D.C. Cir. No. 76-1742 . 32, 33, 34

Distribution of Television Broadcasting Signals By

CATV Systems, 2 F.C.C.2d 725 (1966) ..........

Diversification of Control of CATV Systems, 23 F.C.C.

Bd BBB (1GTO) 2... nc ccccccccscccccccccccccceecs

Formulation of Policies Relating to the Broadcast Re-

newal Applicant, Stemming from the Comparative

Heari Process, —— F.C.C.2d ——; 40 P&F

Radio LIE 32, 33

Hearings on Applications for Second VHF Station,

3 P&F Radio Reg.2d 909 (196))))))))))

Interim Policy on Television Multiple Ownership, 5

P&F Radio Reg.2d 271 (1960: 37

Interstate and Foreign M Toll Telephone Ser-

vice and Wide Area Telephone Service, 57 F.C. C.

2d 1216 (1976), 59 F. O. C. 2d 83 (1976) .......... 36

Memorandum Opinion and Order, 45 F.C.C.2d 768

TEETED ccccccdccvccccevesscecessocaneeconsenss 8

Multiple Ownership of Standard Broadcast Stations,

8 Fed. Reg. 16065 (194))))))))))! eens 38

666

Table of Citations Continued vii

Page

Multiple Ownership of Television Broadcast Stetions,

12 P&F Radio Reg.2d 1501 (1968) ............. 37

Multiple Ownership of AM, FM and Television Broad-

cast Stations, 18 F.C. C. 288 (1953) ........... 36, 37

Multiple Ownership of Standard, FM and Television

Broadcast Stations, 45 F.C.C. 1476 (1964) ..... 37

Multiple Ownership of Standard, FM, and Television

Broadcast Stations, First Report and Order, 22

F. C. C. 2d 306 (1970), modified, 28 F.C.C.2d 662

.es 7, 37

Multiple Ownership of Standard, FM, and Television

Broadeast Stations, Further Notice of Proposed

Rule-Making, 22 F.C.C.2d 339 (1970) ........... 7,8

Multiple Ownership of Standard, FM, and Television

Broadcast Stations, Notice of Proposed Rule-Mak-

ing, 33 Fed. Reg. 5315 (1968) .................- 6, 37

Newspaper Ownership of Radio Stations, 9 Fed. Reg.

2 28

Notice of Proposed Rule-Making, 25 Fed. Reg. 12898

ü K 47

Policy Statement on Comparative Broadcast Hearin

LI 31, 34

— Statement Concerning Comparative pan

nvolving Regular Renewal Applicants, 22 F.C. C.

"{1970)

EL.

Procedures on Transfer and Assignment Applications,

LL. ü- 46, 47

Report on Chain Broadcasting, Order No. 37, Dyt. No.

1. 229» 36, 38

Revision of FM Broadcast Rules, 23 P&F Radio Reg.

LI... ccccocecosuceceeceesadceeediunes 36

Seven (7) League Productions, Inc., 1 F.C.C.2d 1597

22K. 34

vin Table of Citations Continued

Page

MISCELLANEOUS:

Air eS — Office, EPA, Region IV, Evaluation of

the rgia Control Strategy, June 21, 1974, re-

vised March 31, 197/··⁊ͤsssss 41

K. Davis, Administrative Law of the Seventies (1976) 50

Note, Drug Efficacy and the 1962 Drug Amend-

ments, 60 Geo. LJ. 185 (19777) 40

Eagle Peak Copper Mining Co., 55 1.D. 251 (1935) .... 40

Executive Withdrawal Order, 54 J. D. 205 (1933) 40

Export Administration Bulletin No. 161, Oct. 18, 1976 41

Griswold, ‘‘A Summary of the Regulations Problem,“

54 Harv. L. Rev. 398 (19477) cece cenee 41

Howard, ‘‘ Multiple Broadcast ay * Regulatory

History, 27 Fed. Comm, B. J. 1 (1974) 37

Rev. Rul. 77-40, Internal Revenue Bulletin No. 1977-29,

Daly TA, THUG ccccccccccccccccccccccscccccscess 41

Rogovin, ‘‘The Four R’s: 3 = i Re-

liance and Retroactivity—A View From Within,“

52 Standard Federal Tax Reports No. 56 (Dee.

˖˙ — — —— 41

Shapiro, The Choice of Rule-making or Adjudication

in the Development of Administrative Poliey,“

78 Harv. L. Rev. 921 (196500)))/᷑): 54

Story, Constitution (189117) 43

U.S. Postal Service, Delivery Service, Filing No. 331-1,

Amend. 45, September 1972, as amended by

Memorandum on Delivery Policy of Nov. 16,1976. 41

Verkuil, ‘‘Judicial Review of Informal Rulemaking,

60 Va. L. Rev. 185 (197 0))))))))))))))) ceee 54

IN THE

Supreme Court of the United States

Ocroser Term, 1977

No. 76-1521

CnaxxRL Two Tevevision Company,

Tux Houston Post Company,

Curonicte Broapcastine Company,

Tue Curoyicte Pustisnine Company,

KSL, Inconporatep (Deseret News),

Post-Newsweek Srations, Caprrat Area, Inc.,

THe Wasnineton Post Company,

WHAS, Ixc. (Tae Covrmer-Jovrwat anp

Tae Lovisvite Tuts),

Petitioners,

Nationa. Citizens CoMMITTEE FOR BRoabcasTING, ET Al.,

Respondents

On Writ of Certiorari to the United States Court of Appeals

for the District of Columbia Circuit

BRIEF FOR PETITIONERS

CHANNEL TWO TELEVISION COMPANY, ET AL.

The opinion of the United States Court of Appeals

for the District of Columbia Circuit, filed March 1,

1977, may be found at pp. 339-431 of Volume I of the

Joint Appendix (hereinafter cited as J. A.“), and is

reported at 555 F.2d 938.* That court’s opinion on the

Volume II of the Joint Appendix wl be cited as Exh.”’

? The Court of Appeals considered in a single opinion both this

ease (No. 75-1064) and several companion cases (Nos. 75-1152, 75-

1289, 75-1379, 75-1386, 75-1387, 75-1388, 75-1567, and 75-1618).

Petitioner Channel Two Television Company is the licensee of tele-

vision and radio stations in Houston commonly owned with the

Houston Post, which is published by petitioner The Houston Post

Company; petitioners The Chronicle Publishing Company and

Chronicle Broadcasting Company commonly own the San Fran-

cisco Chronicle and a television station in San Francisco; peti-

tioner KSL, Incorporated, is the licensee of television and radio

stations in Salt Lake City which are commonly owned with the

Deseret News through a parent corporation ; petitioners The Wash-

ington Post Company and Post-Newsweek Stations, Capital Area,

Inc, commonly own The Washington Post and television and radio

stations in Washington. Petitioner WHAS, Inc., is the licensee of

television and radio stations in Louisville which are commonly

owned with The CourierJournal and The Lowisville Times. All

Commission's motion to stay the mandate, filed April

5, 1977, appears at J.A. 435-444, and is reported at 555

F.2d 967. The Second Report and Order of the Federal

Communications Commission may be found at J.A.

134-221 and is reported at 50 F.C.C.2d 1046 (1975). The

Commission’s Memorandum Opinion and Order deny-

ing petitions for reconsideration appears at J.A. 317-

338 and is reported at 53 F.C.C.2d 589 (1975).

The judgment of the Court of Appeals, which ap-

pears at J.A. 432-434, was entered on March 1, 1977. A

petition for certiorari was filed by the present petition-

ers on May 2, 1977, and other petitions were filed, re-

spectively, by the Federal Communications Commis-

sion on April 22, 1977, by the National Association of

Broadcasters on May 13, 1977, by the American News-

paper Publishers Association on May 16, 1977, by

Illinois Broadcasting Company, Inc. on May 20, 1977,

and by The Post Company on May 27, 1977. These peti-

tions were all granted on October 3, 1977, and the cases

were consolidated for argument. This Court has juris-

diction under 28 U.S.C. § 1254/1).

these petitioners were parties in Case No. 75-1064, and some were

parties in one or another of the companion cases.

This brief is also supported by the Evening News Association,

which owns The Detroit News and television and radio stations in

Detroit, and The Pulitzer Publishing Company and KSD/KSD-

TV, Ine., which commonly own The St. Lowis Post-Dispatch and

television and radio stations in St. Louis. These newspaper-broad-

caster cross-owners were parties to the FCC proceeding, but did not

pursue appeals in the court below.

STATUTES INVOLVED

Sections 2(a), 4(i), 4(j), 301, 303(g), 307(a),

307(d), 309(a) and 309(d)(1) of the Communications

Act of 1934, 47 U.S.C. §§ 152(a), 154(i), 154(j), 301,

303(g), 307(a), 307(d), 309(a) and 309(d)(1), are

set forth in J.A. 27-32.

The questions presented by the Court of Appeals

decision are:

1. Whether the Communications Act requires that

repeatedly-approved ownership of newspapers and

broadcast stations in the same community must now

be divested without any showing of public harm, and

if not, whether a reviewing court may set aside a ra-

tional policy determination of the Federal Communi-

cations Commission that the public interest will not

be served by divestiture.

2. Whether a reviewing court may substitute its

judgment for that of the Federal Communications

Commission by forbidding the Commission to grand-

father existing licensees when adopting a new licens-

ing policy prospectively in the hope of increasing

diversity.

STATEMENT OF THE CASE

In 1975, after a five-year inquiry, the Federal Com-

munications Commission adopted rules partly chang-

ing and partly continuing its traditional policy toward

the common ownership of a newspaper and a broadcast

station in the same community (‘‘newspaper cross-own-

ership’’).* The rules preclude the creation of any new

newspaper cross-ownerships, but grandfather existing

combinations except in communities where the only

daily newspaper and the only television station or the

only broadcast station of any kind are commonly

owned. Cross-owners in such communities must divest

either the newspaper or the station within five years.

On review, the Court of Appea', affirmed the pros-

pective rules barring new cross-ownerships but re-

versed the grandfather rules. The court held that the

policy of the prospective rules must be applied to

existing cross-ownerships as well, and instructed the

Commission to require their divestiture subject to

waiver in exceptional cases.

Background of the Administrative Proceeding

Local newspaper owners have operated broadcast

stations in their home cc mmunities since the early days

of broadcasting. In many cities they were the broadcast

pioneers, who made the financial commitment and took

the risks to establish the first radio or television station

at a time when the prospects for profit were uncertain

or distant. Confronted with a scarcity of qualified and

willing licensees, the Commission not only granted

licenses to these newspaper owners, but, in the case of

television, affirmatively encouraged them to provide a

local broadcast service.“

»The text of the rules is set forth at J. A. 243-263. There are

separate rules for cross-ownerships involving AM radio, FM radio,

and television stations respectively.

*Second Report and Order at J 100, J. A. 190; National Ass n

of Broadcasters’ Comments and Arguments on the Proposed Rules

(April 8, 1971) at 93-95.

The Commission’s encouragement of newspaper

cross-ownerships ceased as the supply of qualified ap-

plicants increased, but its approval of newspaper cross-

ownership as consistent with the public interest did not.

In choosing among competing applicants for new sta-

tions, the Commission came to favor those who lacked

other media interests in the community, because such

applicants were presumed more likely to add to the

diversity of viewpoints expressed through the local

media.’ But like other such predictive presumptions

developed by the Commission for selection among ap-

plicants for new stations, this policy has not been

treated as controlling in proceedings for the renewal

of existing licenses. The Commission has consistently

renewed the licenses of the newspaper cross-ownerships

that it previously encouraged or approved, if the

licensee has not been guilty of a pattern of abuses of

its common ownership and if the station’s performance

has otherwise served the public interest.

This long-standing distinction in Commission policy

between new cross-ownerships and the renewal of ex-

isting licenses was preserved in the Notice of Proposed

Rule-Making that initiated the first phase of the in-

stant proceeding in 1968.“ In that 1968 Notice, which

did not apply to newspaper cross-ownerships, the Com-

mission proposed a prospective rule barring the licens-

ing of new broadcast cross-ownerships, 1.e., cross-own-

erships of a television and a radio station or of an AM

radio and an FM radio station in the same market.

* See Policy Statement on Comparative Broadcast Hearings, |

F.C.C.2d 393, 394-95 (1965).

* Multiple Ownership of Standard, FM, and Television Broad-

east Stations, Notice of Proposed Rule-Making, 33 Fed. Reg. 5315

(1968).

Existing cross-ownerships were to be unaffected. Such

a prospective rule was adopted as to television-radio

combinations in a First Report and Order of March

1970."

At the same time, the Commission issued a Further

Notice of Proposed Rule-Making to consider whether

newspaper cross-ownerships should be similarly pro-

scribed." Newspaper cross-ownership was to be con-

sidered primarily because studies submitted in the first

phase of the proceeding had indicated that daily news-

papers and television stations were the two sources

most commonly looked to by the public for news and in-

formation about public affairs.“ For this reason, the

Commission hypothesized that ‘‘it is not desirable that

these two organs of mass communication should be

under the same control in any community.“

The Further Notice also invited comments on a pro-

posal to break up by divestiture both all existing news-

paper cross-ownerships and all existing television-radio

cross-ownerships of the sort prohibited prospectively

under the First Report and Order. Although the Com-

mission had initially believed that divestiture should

not even be considered, a few comments submitted in

response to the 1968 Notice had urged dissolution of

Multiple Ownership of Standard, FM, and Television Broad-

east Stations, First Report and Order, 22 F.C.C.2d 306 (1970)

(J.A. 33), modified in 28 F.C.C.2d 662 (1971). As later modified,

the rule applied only to VHF television cross-ownerships, thus

excluding UHF television stations.

* Multiple Ownership of Standard, FM, and Television Broad-

east Stations, Further Notice of Proposed Rule-Making, 22 F.C.C.2d

339 (1970) (J.A. 101).

Id. at 344-46 (JA. 111-115).

Id. at 346 (J. A. 115).

existing combinations as a means of further increasing

diversity in local media,” and the Commission inferred

from other comments the possibility that divestiture

could be accomplished without serious disruption.” The

Commission nonetheless emphasized that it had ‘‘in-

sufficient information on the subject, and voiced

„substantial concern“ about the potential disruptive

effects of divestiture on the broadcast service of di-

vested stations.“

The Record Developed Before the Commission

The public response to these new proposals was volu-

minous and broadly based. Some 200 parties filed writ-

ten submissions in two separate rounds of comments

and replies,“ after which the Commission heard two

and one-half days of oral argument from 45 parties.”

The parties included not only affected broadcasters and

newspaper owners, but also publie interest advo-

cates, economists and other researchers, student groups,

private individuals, and the Antitrust Division of the

Department of Justice. Besides argument, the sub-

missions presented a variety of academic studies and

research analyses of newspaper cross-ownership, and

Id. at 340 (JA. 102-03).

See id. at 341, 347-48 (J.A. 105, 118-19).

Id. at 340 (J.A. 103).

Id. at 348 (J. A. 119).

Second Report and Order at Appendix A (J.A. 221). After

the first round, the Commission requested additional comments

focused on specifie questions which it believed required further

attention. Memorandum Opinion and Order, 45 F.C.C.2d 768 (1974)

(J.A. 127).

„FCC Publie Notice 26054-B, July 15, 1974 (Exh. 922).

numerous detailed examinations of the operating re-

lations between specific commonly-owned newspapers

and broadcast stations.

Although a number of parties supported the Com-

mission’s proposed rules, they relied almost entirely on

theoretical and policy arguments rather than on evi-

dence of actual practice. They emphasized the potential

for abuse in the form of joint use of commonly-owned

media to propagandize or to restrain competition, and

the presumption that an increase in the number of

independent competing media owners will increase

either economic competition or the diversity of view-

points expressed through the media. They also argued

that there is an inherently undesirable media concen-

tration in cross-ownership markets. But no claims

were made that newspaper- television station owners

have committed any specific non-competitive acts.

And there was no showing in the record of a

pattern of other sorts of abuses of cross-ownership by

existing cross-owners.” Similarly, only one submission

See Comments of the U.S. Dept. of Justice (May 18, 1971) at

22-30; Supplemental Comments of the U.S. Dept. of Justice (May

15, 1974) at 3-13; T. de Jonckheere, Monopoly in the Media;

Further Comments of NCCB (May 15, 1974) (Exh. 843-844).

Second Report and Order at J 96 (J.A. 186).

made a substantial attempt to document any actual ad-

verse consequences of newspaper-broadcast cross-own-

ership in general; “ and its conelusion (that television

stations commonly owned with newspapers in the same

market charge somewhat higher advertising rates than

other stations) was shown by other studies to be both

defective in methodology and wrong in result.”

Markle Foundation (1974) (Exh. 990). This paper collected

from newspaper stories, magazine articles, congressional] testimony

and filings at the FCC all discoverable allegations of misconduct

ever made against a newspaper cross-owner. Most of the allega-

tions were untested hearsay. Some were contentions that had been

tested and rejected by the Commission in other proceedings. Most

were in any event not allegations of misuse of cross-ownership but

rather allegations of misconduct involving a single medium of the

sort that any owner might commit. Had it properly been a part of

the record of this proceeding, the study would not have shown any

pattern of abuses of cross-ownership. Although it was not part of

the record, the court below saw no harm in taking notice of it in

the process of concluding that ‘‘the record was essentially incon-

clusive’’ on the question of whether cross-ownership in practice had

either harmful or beneficial results. (J.A. 403 n. 71, 403-04, 413-14).

2° Owen, Empirical Results of the Price Effects of Joint Owner-

ship in the Mass Media’’ (1969), Appendix I of J. Rosse, B. Owen,

D. Grey, Economic Issues in Joint Ownership of Newspaper and

TV Media (referred to by the Commission as the Rose study).

* Reply Comments of Post-Newsweek Stations, Capital Area,

Ine. (June 17, 1974) (Exh. 899); A. Lago and D. Osborne, A

Quantitative Analysis of the Price Effects of Joint Mass Com-

munication Media Ownership, Exhibit B (Revised) to NAB Com-

ments, supra note 4. These studies show that, among its other errors,

the ‘‘Rosse’’ study simply overlooked the obvious correlation be-

tween higher television advertising rates and larger audiences.

The Commission also considered a study purporting to demon-

strate that the populace of one cross-ownership market (Zanes-

ville, Ohio) was less well informed on public affairs than the popu-

lace of one community where there is no cross-ownership (York,

Pennsylvania). American Institute for Political Communication,

The Effeets of Local Media Monopoly on the Mass Mind (1971)

(see JA. 187). The findings of this lone isolated case study could

On the other hand, the submissions in opposition to

the proposed rules ineluded a variety of studies of the

extent of newspaper cross-ownership and its effects.

Studies of this sort showed that the number of inde-

pendently-owned major media in typical markets has

greatly increased, not decreased, over the years; that

the incidence of newspaper-television cross-ownership

has been decreasing both absolutely and in relation to

the total number of television stations; and that there

is a variety of separately-owned media in all mar-

kets ranging as high as several hundred in typical large

urban areas.“ Another study demonstrated that news-

paper cross-owners as a group provide much greater

continuity of ownership than do other owners.“ In

readily be explained by the fact that the York market is served by

many more major local media and reached by many more outside

media than the small and remote Zanesville market. See M. Seiden,

Mass Communications in the United States (1970), Exhibits A-2,

A-4 to NAB Comments; id., Summary Volume (Exh. 466).

C. Sterling, Ownership Characteristics of Broadcasting Sta-

tions and Newspapers in the Top 100 Markets: 1922-1967 Exhibit

C to NAB Comments, supra note 4, and Supplement to Exhibit C

(May 1974) (Exh. 680, 690-692, 868, 871).

* Sterling, supra note 22 (Exh. 682-687), and Supplement at

Tables 7 and 8; J. Udell, ‘‘Economie Consequences of FCC

Proposal and Critique of Relevant Literature,’’ Comments of

American Newspaper Publishers Ass’n (April 2, 1971) [hereinafter

cited as ANPA Comments ] Vol. II, Study D at D-27-D-29;

ANPA Comments Study E at E-31; Supplemental Statement of

NAB and Exhibit F Regarding Recent Transfers of Broadcasting

Stations (Revised) (May 1974).

Seiden, supra note 21; ANPA Comments, supra note 23, at

E-21-E-30.

** Robbins, ‘‘A Study of Pioneer AM Radio Stations and Pioneer

TV Stations,’’ Exhibit D to NAB Comments, supra note 4 (Exh.

694).

addition, the Commission itself analyzed the data sub-

mitted for its public files in newly-required annual

program reports and concluded that stations affiliated

with newspapers broadcast more local news, public

affairs, and other non-entertainment programming

than other stations.“

The record also showed that cross-owned newspaper

and broadcast stations commonly operate as separate

media, with separate and autonomous news, editorial,

and sales operations and personnel, and no common

editorials, common advertising rates, or joint sales.”

Despite common ownership, the station and the news-

paper compete vigorously for such advertising as is

adaptable to both media.” These showings were sup-

ported by a study demonstrating a lack of correlation

Second Report and Order at Appendix C (JA. 230). Two pre-

vious studies submitted in support of the proposed rules, which

did not have the benefit of the annual program report evidence

on which the Commission based its study, had concluded that there

was no substantial difference in the programming performance of

newspaper-affiliated and non-newspaper-affiliated stations. Com-

ments of Students FCC Study Group, Appendix A (May 17, 1971) ;

H. Levin, The Policy on Joint Ownership of Newspapers and

Television Stations, Some Assumptions, Objectives, Effects.

* E.g., Comments of The Washington Post Company et al., (Exh.

732-733) ; Comments of the Houston Post Company, Channel Two

Television Company, and KPRC Radio Company (May 17, 1971)

(Exh. 719-721) ; Comments of Pulitzer Publishing Company, May

17, 1971 at 5-6; Comments of KSL, Incorporated, May 15, 1974 at

4; Supplemental Comments of The Chronicle Publishing Co. and

Chroniele Broadcasting Co., May 15, 1974 at 9-10; Comments of

WHAS, Ine., May 17, 1971 at 14-15.

E., Comments of The Washington Post Company et al., supra

note 27 (Exh. 732-733) Comments of A. II. Beio Corporation, May

17, 1971, at 8-9 (Exh. 730-731) ; Supplemental Comments of The

Chronicle Publishing Co., et al., supra note 27, at 10.

in fact in the news content of cross-owned stations and

newspapers.”

A number of submissions considered the possible ad-

verse economic consequences of divestiture on the scale

proposed.” These submissions foresaw a danger that

such divestiture could result in a searcity of available

investment capital for broadcasting, with attendant

high interest rates, which could adversely affect the

service rendered by the new owners of divested sta-

tions and the broadcast industry in general.

The Second Report and Order

In evaluating this voluminous record, the Commis-

sion began by emphasizing that the proposal for di-

vestiture, ‘‘[a]lthough not unprecedented . . was a

departure from the typical Commission approach of

limiting any new rules to prospective effect. (J. A. 137,

15). That proposal, the Commission said, had to be

„examined separately“ from the prospective rules and

tested by different criteria. (Id.). In particular, the

Commission had to consider ‘‘the impact that divesti-

ture would have, taking into account factors not pres-

ent in connection with prospective rules, . . . which

J. Anderson, Broadcast Stations and Newspapers: The Prob.

lem of Information Control: A Content Analysis of Local News

Presentations (1971), Exhibit E to NAB Comments, supra note

4 (Exh. 639-642) ; see also Cr ments of Cox Broadcasting Corp.

(1971) at Appendices A and B.

8.9. First National City Bank, ‘Financial and Investment

Issues of Forced Divestiture, ANPA Comments, supra note 23,

Vol. II. Study B see also, ¢.g., Frazier, Gross & Co, Ine, Valus

tion of Newspaper Owned Television and Radio Stations Affected

by The FCC's Proposed Divestiture Rule, ANPA Comments,

supré note 23, Vol. II, Study A.

must be examined if fairness is to be achieved. (Id.

at 189, 199).

The proposed new rules were intended to further the

Commission’s ‘‘longstanding policy of promoting di-

versification of ownership of the electronic mass com-

munications media. (Id. at 138, 19). That policy is in

general designed to promote both diversity of view-

points and economic competition.” (Id. at 189, 199).

The Commission views “diversification of ownership.“

or what it sometimes refers to as “diversity of control”

or diversity of programming sources,“ as a tangible

means to an abstract goal“ of maximizing the flow of

information and argument into an uninhibited mar-

ket place of words and ideas in which truth will ulti-

mately prevail. While separate ownership of

separate media does not necessarily increase diversity

of content,” the Commission presumes that [t Ihe di-

vergency of their viewpoints” is ordinarily likely to

be greater than under common ownership.

The Commission adopted its prospective rule barring

new newspaper cross-ownerships on the basis of this

theoretical expectation that the grant of a new license

to an applicant other than a local newspaper owner

Second Report and Order at 979, 10, 108, 110 (JA. 138-40,

197, 199), quoting Red Lion Broadcasting Co. v. FCC, 395 US.

367, 390 (1969).

„it would not do so, for example, where each of the commonly

owned media presents a diversity of viewpoints as a matter of

policy, or presents a greater volume of information and opinion

than would separate owners, or where the separate owners share

and promote common economic interests or political views. See, 9.

Comments of Post-Newsweek Stations, Capital Area, Inc. (May,

1974) (Exh. 830-831).

Second Report and Order at J 111 (JA. 200).

would “‘add to local diversity.“ (Id. at 191, 1101). In

the Commission’s view, this was a “worthwhile goal”

even if the need for greater diversity was not “urgent,”’

since it could be accomplished without any substantial

countervailing harm to the public interest. (Id. at 193,

1 104). Conceding that “newspapers brought a pioneer-

ing spirit to broadeasting“ in its early days, the Com-

mission felt ‘‘obliged to give recognition to the changes

which have taken place . . . . Now, the broadcast

medium had “‘matured’’ and become profitable, and

newspapers were no longer ‘‘the sole reservoir of ex-

perience on which reliance has to be plaeed.”’ Thus,

the Commission concluded,

„the reason for encouraging newspaper

— vm at the [presumed] cost of a lessen-

ed diversity, is no longer generally — in the

way it once was.” (Id. at 190, 1 100).

Where divestiture of existing cross-ownerships was

concerned, however, the abstract goal“ of diversity,

while no less important, was no longer ‘‘the only point

to consider.” (Id. at 197, 1 108). The additional publie

interest considerations presented by the divestiture pro-

posal included not only the matter of fairness, but

also the potential adverse consequences that broad-

scale divestiture might have on broadcast service. The

expressed concern that “‘[rJequiring di-

vestiture could reduce local ownership . . ; that the

“continuity of operation would be broken“ and the

divested gwner’s ‘‘[]]ong knowledge of the communi-

ty“ would be lost; and that local economic disloca-

tions’’ and increased interest rates for broadcast ea pi-

tal might occur as a result of the vast demand for

equity capital. (Id.)

The Commission focused particularly on the loss of

the unusual continuity of meritorious service exhibited

by newspaper-affiliated licensees. ‘‘[S]tability and con-

tinuity of ownership,“ it said. do serve important

publie purposes. In the case of newspaper-related

stations, ‘‘{t]raditions of service were established and

have been continued, leading in many cases to an ex-

ceptionally “long record of service to the public.” (Id.

at 197-98, 1109). As a group, newspaper-affiliated

broadcast stations ‘‘show an undramatic but nonethe-

less statistically significant superiority . . . in a number

of program particulars.” (Jd. at n.26). Moreover,

e jntrance and exit from broadcast — 2

these parties are determined by factors other than

— —— maximization. Many began operation

ong before there was hope of profit and were it

not for their efforts service d have been much

delayed in many areas.” (Jd. at 197-98, 1109).

Divestiture of such ownership ‘‘introduces the possi-

bility of disruption for the industry and hardship for

individual owners.“ (Id. at 198).

To justify these adverse consequences, the Commis-

sion concluded that a more compelling and unambigu-

ous showing of need was required than the mere hope

or expectation that a change in ownership would bring

pubic benefits.” (Id. at 196-97, 1 108). Accordingly, the

Commission set out to determine whether there was an

actual need for divestiture in cross-ownership markets

apart from the presumed value of maximum diversifi-

cation of ownership, sufficient to justify divestiture

under these circumstances. After reviewing the record

(which contained no such showing of need), the Com-

™ See generally supra, pp. 9-10. There was, for example, no

showing of a pattern of abuses of cross-ownership by existing cross-

mission concluded that divestiture should be required

only where it appeared from the ownership structure

in the market that there might be a lack of real com-

munity-wide diversity ... on... topics of local con-

cern.” (Id. at 203, 1112).

The Commission found such a prima facie threat to

diversity in 16 markets where either the only news-

paper and television station, or the only newspaper and

radio station in a market not served by a television

station, are commonly owned. In these “egregious

cases,“ notwithstanding the availability of other media,

the Commission concluded that there was no single

full-fledged choice ... available. In that sense,

the cross-ownership in such a market had “an effective

monopoly in the marketplace of ideas as well as eco-

nomically.“ (Id. at 203).

On the other hand, in markets where a newspaper

eross-ownership faces full-fledged direct broadcast

competition in addition to the other sources of diver-

sity, there was no such prima facie lack of either di-

versity or competition. In these circumstances, the

Commission concluded that to order divestiture „re-

gardless of competition“ was not warranted on the

record before us and would cause serious public in-

jury.” (Id. at 201,1 112 n.29). Likewise, the Commission

found no occasion to require divestiture of television-

radio cross-ownerships in any market. (Id. at 214,

1125).

The Court of Appeals Decision

In the Court of Appeals, several petitions challenged

the prospective rules barring new newspaper cross-

owners, and the Commission noted that it had not been offered

-. . Specific data in this proceeding on which to rely in applying

— standards. Second Report and Order (J. A. 201, f 112

Nn. 29.

ownership on the grounds that they were unconstitu-

tional, unauthorized, or unsupported by the record. The

court rejected these contentions and affirmed the rules

as appropriate applications of the Commission’s diver-

sification policy. (J.A. 362-88).

While no party disputed the decision not to order

divestiture for existing radio-television combinations,

Respondents National Citizens Committee for Broad-

casting and the Antitrust Division filed petitions at-

tacking the Cormmission’s grandfathering of most ex-

isting newspaper cross-ownerships. The burden of these

petitions was that the Commission should have given

greater weight to diversity and less weight to the con-

sequences of divestiture in considering whether the

public interest requires the breakup of previously ap-

proved television-newspaper cross-ownerships.

The court’s opinion not only accepts these arguments

but goes beyond them. The court holds that there was

no rationa! basis for treating existing cross-owners

differently from new applicants. It therefore concludes

that a general divestiture was required for both tele-

vision-newspaper and radio-newspaper cross-owner-

ships alike. And having reached its own decision on the

merits of the public interest question presented, the

court does not confine its holding to a remand for the

publie interest balance to be reconsidered or redrawn

by the Commission Tnstead, it concludes that the Com-

mission must adopt ‘‘a presumption against cross-own-

ership’’ and on remand must follow a ‘‘policy of giving

diversity of media ownership controlling weight.“

(J.A. 426, 443) (emphasis added).

This holding is not based on any dispute with the

Commission’s conclusion ‘‘that the factual case for

broad-seale divestiture bad not been made.“ (Id. 411).

The court finds the record ‘‘essentially inconclusive”

as to any actual negative effects on the public interest

attributable to newspaper cross-ownership in general

or to existing cross-ownerships in particular. (Id. 414).

Therefore, it says the question before the Commission

turned primarily on policy, not factual considera-

tions.“ (Id. 396, footnote omitted).

As a matter of policy, the court holds that the Com-

mission erred in refusing to order divestiture in the

absence of a showing of tangible public interest harm.“

(Id. 415). In the court’s view, the Commission should

have adopted a ‘‘presumption that cross-owned stations

do not serve the public interest.“ (Jd. 417). This pre-

sumption is said to find ‘‘support”’ in the Commission’s

obligation under the Communications Act to ‘‘encour-

age the larger and more effective use of radio in the

public interest,“ 47 U.S.C. § 303(g), (J. A. 29), in the

“policies of the First Amendment“ favoring diversity,

and ‘‘perhaps most importantly, [in] the Commission’s

long-standing policy . . . that diversification of media

sources is of central importance.” (Id. 417-18, foot-

note omitted).

On the question of retroactive application of the

Commission’s new cross-ownership policy, the court

notes that, under the Communications Act, broadcast

licensees have no ‘‘vested right“ in their licenses, and

may be denied renewal if the Commission determines

that the public interest so requires. (Id. 416). The

court disparages each of the Commission’s other coun-

tervailing policies and values as unpersuasive or un-

important. The policy favoring local ownership is

dismissed as “of little concern to the Commission“

(id. 419); in any event, the court finds no reason to

suppose that local ownership will be reduced by divest-

ing the licenses of newspaper cross-owners. (Jd. 420-

21). The court decides that the loss of the unusual

continuity of operation provided by newspaper cross-

owners is of negligible significance. (Jd. 421-23). It

discounts the Commission’s findings that existing

newspaper-related television stations have superior

programming, because ‘‘the Commission did not stress

this superiority in deciding to grandfather most sta-

tions,“ and because “comparing amounts of program-

ming types aired ... would. . . seem to be a crude

measure of the public interest.” (Jd. 399) (emphasis

added). It rejects the possibility that a mass divesti-

ture could result in a shortage of broadcast capital,

on the ground that the same shortage could result

from voluntary sales which the Commission permits.

(Id. 425).

All the Commission’s countervailing concerns, the

court concludes, reflect ‘‘lesser policies“ than diversity.

(Id. 427). In addition, they are not supported by fac-

tual showings in the record that breaching these poli-

cies would entail actual harm to the public interest.

(See id. 413-14, 426-27). “In sum, the Commission

could not have rationally concluded that [they] . . .

justified grandfathering absent a show of harm,“ or

that „their potential impairment overcame the pre-

sumption against cross-ownership.’’ (Id. 426, footnote

omitted). Divestiture is therefore required except in

special cases ‘‘where the evidence clearly discloses that

[a] eross-ownership is [affirmatively] in the public in-

terest.“ (Id. 431).

Finally, the court holds that even if the Commission

could properly grandfather existing newspaper cross-

ownerships, the decision to order divestiture in sixteen

markets where cross-ownerships were found to have an

“‘effective monopoly was irrational and could not

stand. The court finds no support in the record for ‘‘the

conclusion that divestiture would be more harmful in

the grandfathered markets than in the sixteen affected

markets,“ or that there was a compelling need for di-

vestiture in the latter markets. And it appears to con-

clude that in those markets the Commission could not

rely on the presumptive expectation that increasing the

number of separate media owners will increase the

diversity of viewpoints expressed. (Id. 429-30).”

In a subsequent opinion on a motion to stay the man-

date pending this Court’s review, the Court of Appeals

left no doubt that it had instructed the Commission

to adopt a rule on remand, subject to a waiver provi-

sion for exceptional cases. Having affirmed the pros-

pective ban on new newspaper cross-ownerships, the

court said its decision had ‘‘ordered the Commission

. . . to ensure that everyone [will] be consistently

treated under the standard already adopted for new

license applicants (subject, of course, to an appropriate

waiver procedure. . ). (Id. 443) (emphasis added).

This Brief is submitted in support of the Commis-

sion’s decision that the public interest does not require

general divestiture of existing newspaper cross-owner-

ships. Under the applicable standards of appellate re-

explain the relevance of those differences to the purposes of

the Federal Communications Act.’ Citation omitted! (J.A.

view, the central question is whether, as the Court of

Appeals concluded, this view of the public interest is

irrational in light of the record. In fact, the decision to

grandfather most of the cross-ownerships repeatedly

approved by the Commission in the past is solidly

grounded in established, judicially-recognized Commis-

sion policies and in rational publie interest concerns.

Since there is no possible dispute as to the lawfulness

of existing newspaper cross-ownership under the Com-

munications Act, the Court of Appeals exceeded its

authority in reversing the Commission and, a fortiori,

in requiring the Commission on remand to order gen-

eral divestiture.

For 40 years, the Commission has consistently found

individual newspaper cross-ownerships to be in accord

with the public interest under the Communications Act.

The question in the present rule-making proceeding

was whether this established view of the public interest

should now be changed. Vespite an exhaustive record

and the participation of a number of opponents of

cross-ownership, there was no showing of changed cir-

cumstances supporting a change of policy, and no show-

ing of recurrent abuses of cross-ownership or other

actual harm to the publie interest calling for regula-

tory relief. Instead, the case for divestiture rested on

the Commission’s long-standing presumption that di-

versification of ownership serves the public interest be-

cause it is likely to result in greater diversity of in-

formation and viewpoints in the marketplace of ideas—

a venerable policy which has not heretofore precluded

the licensing of newspaper cross-owners. Accordingly,

the Commission could reasonably have concluded that

no change at all in its policy toward newspaper cross-

ownership was required.

The fact that the Commission nonetheless decided

in its discretion to change policy on a prospective basis

as applied to applications for new licenses does not

affect the rationality of its decision not to change its

renewal policy as applied to existing licensees. The

question presented by the Commission’s divestiture

proposal is quite different from the question whether

newspaper applicants for a new license, who have long

been disfavored as against other qualified applicants,

should now be wholly excluded. The Commission’s es-

tablished general licensing policy distinguishes sharply

between the standards applied in selecting among ap-

plicants for new licenses on the one hand, and the eval-

uation of renewal applications submitted by existing

licensees on the other. The principal ground of the dis-

tinction has been that, in the Commission’s view, a sta-

tion’s past record of actual performance provides a

better basis for predicting the quality of future service

to the public than do the abstract predictive criteria,

such as the presumption disfavoring cross-ownership,

that are applied where only new applicants are in-

volved.

Moreover, like other administrative agencies, the

Commission has discretion in changing policy to grand-

father relationships established under the prior policy

unless convinced that the public interest requires it not

to do so. Grandfathering is a commonplace of both sta-

tutory legislation and legislative rule-making by ad-

ministrative agencies, reflecting a general bias of the

legal system against retroactive legislating. It has been

routinely practiced by the Commission itself in adopt-

ing new rules, including rules designed to diversify

broadcast ownership. Grandfathering is the preferred

approach for administrative agencies because it avoids

disruption of established arrangements and disappoint-

ment of expectations built on prior policy. Thus, the

Commission's decision to grandfather in this case re-

quired no special justification.

In the absence of a concrete showing of need for di-

vestiture, the Commission’s decision to grandfather is

also rationally supported by the several specific ad-

verse effects on broadcast service that the Commission

believed were potential consequences of broad divesti-

ture—the loss of the continuity of meritorious service

provided by newspaper cross-owners as a group, the

possible loss of meritorious local ownership, and the

possibility that new owners would confront a scarcity

of broadcast capital in the wake of a general divesti-

ture. There is specific support in the record for the

possibility that each of these consequences could occur.

Indeed, the loss of exceptional continuity of ownership,

on which the Commission placed primary reliance in

furtherance of a long-standing Commission policy, is

certain to occur.

In these circumstances, the court exceeded its au-

thority in reversing the Commission’s decision to

grandfather. The Commission violated no law in reach-

ing that decision; it merely decided to continue doing

what it has lawfully done for more than 40 years. The

court’s dispute with the Commission is wholly one of

policy as to the relative weight to be given to the perti-

nent considerations that the Commission rationally

took into account. Accordingly, apart from the plain

error of instructing the Commission as to what public

interest conclusions it must reach on remand, the court

improperly substituted its judgment for that of the

Commission on a question of public interest policy.

Even though the Commission's decision to grand-

father save in exceptional cases is thus free of error,

there remains a possible separate question as to the

exceptional cases in which divestiture is required. The

decision to order divestiture where a cross-ownership

has an effective monopoly“ of major mass media ad-

dressing local issues in its market was not based on any

record showing of need, but on the Commission’s judg-

ment that in such markets there is a prima facie danger

of inadequate diversity or anti-competitive market

conditions. That conclusion, although not required, was

not irrational. In any event, it does not affect the

validity or rationality of the policy determination to

grandfather except where such a prima facie danger

is recognized.

For these reasons, the decision of the Court of Ap-

peals should be reversed, and the Commission’s grand-

father rules should be affirmed.

ARGUMENT

I. THE COMMISSION RATIONALLY CONCLUDED THAT THE

PUBLIC INTEREST DOES NOT REQUIRE WHOLESALE RE-

VERSAL OF ESTABLISHED COMMISSION POLICY TOWARD

LONG-APPROVED NEWSPAPER CROSS-OWNERSHIPS.

As posed by the Court of Appeals, the question pre-

sented by the Commission’s decision not to order

general divestiture for existing newspaper cross-own-

ership is

whether the + pe | decision is rational and based

on consideration of the relevant factors, Citizens

to Preserve Overton Park v. Volpe, (' 401 U.S. *

416 (1971)] ... ; Bowman

Arkansas-Best Freight System, Inc., 419 U.S. 281.

285 (1974); whether, in terms of the APA, the

agency decision is arbitrary and caprieious.“

(J.A. 394).

The court did not fault the Commission for any failure

to take account of relevant public interest considera-

tions. Nor did it dispute the Commission’s evaluation

of the evidence of record.” Instead, it held that the

Commission’s policy choice was irrational—that ‘‘the

Commission could not have rationally concluded that

the competing policies it offered justified grandfather-

ing absent a showing of harm.“ (J.A. 426).

The Commission’s decision to grandfather existing

cross-ownerships in all but exceptional cases was in

substance a decision not to change its overall policy

toward previously-approved cross-ownerships in the

absence of an affirmative showing of need. That de-

cision, rational on its face, reflects the Commission’s

established general licensing policy. Moreover, grand-

fathering in the absence of a showing of affirmative

need for a retrospective policy change is routine prac-

tice at the Commission and in legislative rule-making

generally, and requires no special justification. The

Commission’s decision is also fully supported by the

specific adverse public interest consequences for broad-

east service identified in its opinion. In sum, the justi-

fication for the decision to grandfather is so ample

that the more substantial question on the record of

this proceeding is whether a decision not to grand-

father could be rationally explained.

See J. A. 411-15.

A. Neither the Record Nor the Court of Appeals Opinion

Identifies Any Change of Circumstances Requiring a

Change In Long-Standing Commission Policy.

The Communications Act authorizes the Commission

to grant and renew licenses for broadcast facilities if

it finds that public interest, convenience, or necessity

will be served thereby. 47 U.S.C. §307(a), (d) (J.A.

29-30). Under this standard, broadcast licenses are

granted initially for a three-year term and must be

renewed every three years thereafter.

Since the Communications Act was passed in 1934,

the Commission has granted and triennially renewed

broadeast licenses for daily newspaper owners pub-

lishing in the city of license. By 1955, with the benefit

of the Commission’s early affirmative encouragement,

there were 127 telev’ ion-newspaper cross-owner-

ships,” of which some 79 remained in 1974." There

have been larger numbers of radio-newspaper combi-

nations throughout the life of the Commission.” In its

repeated renewals of the licenses of cross-owned sta-

tions over the years, the Commission has made literally

thousands of separate findings that the licensing of

such cross-ownerships serves the public interest, con-

venience, and necessity under the Act.

Nor is the present proceeding the first time the

Commission has considered treating the question of

newspaper cross-ownership by general rule. In 1943, at

a time when the Commission had begun to adopt rules

* J. Udell, supra note 23, p. D-27.

"Second Report and Order § 112 n.29 (JA 201). The number

of newspaper television cross-ownerships has been further reduced

since the record was closed.

* See C. Sterling, supra note 22 ( Exh. 682-687).

limiting common ownership of broadcast media in the

same market in order to promote diversity,” it ex-

amined that possibility at length and decided “not to

adopt any general rule with respect to newspaper

ownership of radio stations.“

In short, the question presented for public comment

by the Commission’s Further Notice in this proceeding

was scarcely one of first impression. The question was

whether the Commission’s policy of approving news-

paper cross-ownership as consistent with the public

interest, spanning the 40 years of the Commission’s

existence, should now be changed.

1. Tur Commission Was Nor Reguirep To Make

Any CHANGe tN Its Po.icy.

The Commission does have discretion to change

policy in the light of changed circumstances or evolv-

ing perceptions of the public interest. In some instan-

ces, a change of even firmly established policy could be

effectively compelled by new developments affecting

the public interest. But the established policy pre-

sumptively defines the public interest until a neea for

change has been shown. And it is the change of es-

tablished policy, not its continuation, that requires

special justification.“

Curiously, the opinion of the court below makes no

attempt to explain why a change of Commission policy

* See infra p 38.

„Newspaper Ownership of Radio Stations, 9 Pe. Reg. 702

(1944).

“ See Columbia Broadcasting System, Inc. v. FOC, 454 F.2d

1018, 1026 (D.C. Cir. 1971); Pinellas Broadcasting (o. v. FCC,

230 F.2d 204, 206 (D.C. Cir.), cert. denied, 350 U.S. 1007 (1956).

was required. The court dismisses the record evidence

on the actual effects of newspaper cross-ownership as

essentially inconclusive” and irrelevant to the proper

disposition of the case. (J.A. 414). On an inconclusive

record, the court holds that the Commission’s long-

standing public interest objective of diversifying

broadcast ownership must control. It neither asks nor

answers why this objective must now control the ques-

tion of newspaper cross-ownership, when the Com-

mission has until now consistently concluded that it

does not. The court has, in effect, treated the Com-

mission’s notice of rule-making proposing a change

in its cross-ownersaip policy as if it were a decision

establishing the policy it proposed for consideration.

The Commission’s eventual decision not to change

policy is thus transformed in the court’s opinion into

a decision to make a change that requires some special

showing.”

In fact, the record before the Commission contained

no showing of diminished diversity, decreased competi-

tion, or any other new developments suggesting, much

less requiring, that previously approved cross-owner-

ships should now be condemt ed.“ Nor did the Commis-

sion find any pattern of abuses or other adverse conse-

quences of existing cross-ownership pointing to a pre-

viously unperceived need for remedial action. It con-

cluded—and the court agreed—that the case for ending

newspaper cross-ownership rested wholly on the theo-

retical public interest gain to be hoped for or expect-

ed from broadcast diversification.” And nothing in

Ses J. A. 418-19.

Ses supra pp. 9-10, 16.

“ See supra pp. 16, 19.

the record as assessed by the Commission or by the

court shows that gain to be greater now than it was for

the 40 years when the Commission consistently found

that it was not enough. There are now, in fact, more

separate broadcast and newspaper owners in cross-

ownership markets than before.“

2. Tue Commission’s Decision ro CHANGE PoLicy

ProspectiveLy Dors Nor Arrect Its Discretion

Nor ro CuHance Its Renewat Povicy.

The Commission decided, in its discretion, to make a

change in its newspaper cross-ownership policy as ap-

plied prospectively to new applicants. It did so, not be-

cause it saw a new or urgent need, but expressly be-

cause it believed that the special reason for encour-

aging newspaper ownership, even at the [presumed]

cost of a lessened diversity, is no longer generally op-

erative in the way it once was. While that decision

was not compelled by anything in the record, this Brief

proceeds on the assumption that it was within the Com-

mission’s public interest discretion.“ Whatever its

merits, that decision neither affects the Commission’s

discretion to decline to change its policy toward re-

newal of existing licensees, nor relieves the Commis-

sion of the necessity of justifying any such change it

might order.

The Commission’s stated reason for its prospective

policy change, i. e., the increased availability of other

qualified license applicants now that the risks attached

to broadcast investments have diminished, has no ap-

* See supra p. 11.

Second Report and Order { 100 (J. A 190).

If the prospective ban is unlawful, the grandfather issue would

of course be moot.

plication to the question whether renewal of the licenses

of incumbent cross-owners must now be deemed gen-

erally contrary to the public interest. As the Commis-

sion has long recognized, decisions on license renewal

applications present a quite different public interest

question than decisions on applications for new licenses.

In both types of decisions, the Commission must pre-

dict how the applicant would operate its station during

the ensuing three-year license term. But as the Court

of Appeals has noted:

Although in granting an initial license the

Commission must of necessity engage in some de-

gree of forecasting future performance, in a re-

newal proceeding past performance is its best cri-

WI. of Communication of the United

Church of Christ v. FCC, 359 F.2d 994, 1009 (D.C.

Cir. 1966).”

Where an applicant for a new license is involved, the

forecast must rest heavily on presumptions arising

from various predictive considerations that the Com-

mission has developed for want of a record of factual

performance on the station in question.

This distinction is most sharply defined in the Com-

mission’s treatment of comparative licensing proceed-

ings, in which more than one applicant seeks the same

license. These proceedings are of two kinds: those in

which only new applicants are involved, and compara-

tive renewal proceedings in which one of the applicants

is an incumbent licensee. The Commission chooses

among new applicants on the basis of a series of pre-

dictive presumptions codified in a 1965 Policy State-

“ See also KFKB Broadcasting Ass'n, Inc. v. Federal Radio

Comm'n, 47 F.2d 670, 672 (D.C. Cir. 1931).

ment on Comparative Broadcast Hearings, 1 F.C.C.2d

393 (1965). The foremost of these is the presumption

underlying the Commission’s ownership diversification

policy—that diversification of ownership will result in

greater diversity of information and opinion. A second

set of presumptively beneficial characteristics includes

local ownership and integration of local ownership

with station management, participation by the licensee

in the civie affairs of the community, and the appli-

cant’s past broadcast record with other stations and

communities. But these criteria are not applied in the

same way to comparative renewal proeeedings. Where

a renewal applicant is involved, the Commission looks

principally at the record, and a record of proven meri-

torious service in the public interest will ordinarily be

controlling.”

°° See Formulation of Policies Relating to the Broadcast Renewal

Applicant, Stemming from the Comparative Hearing Process, ——-

F.C.C.24 ——, 40 P&F Radio Reg. 2d 763 (1977) ; Cowles Florida

Broadcasting, Inc., 62 F.C.C.2d 953, 955-57 (1977), appeal pending,

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

Policy Statement Concerning Comparative Hearings Involving

Regular Renewal Applicants, 22 F.C.C.2d 424 (1970), rev'd, Citi-

zens Communications Center v. FCC, 447 F.2d 1201, 1214 (D.C.

Cir. 1971) Greater Boston Television Corp. v. FCC, 444 F.2d 841,

854-55 (D.C. Cir. 1970), cert. denied, 403 U.S. 923 (1971), rehear-

ing denied, 404 U.S. 877 (1971).

In 1970, the Commission articulated this long-standing funda-

mental difference in its treatment of comparative renewal appli-

eants in the formal Policy Statement Concerning Comparative

Hearings cited in the preceding paragraph of this footnote. That

1970 Policy Statement also eliminated comparative hearings alto-

gether on competing applications if the incumbent established that

it had a record of substantial performance in the public interest

and had not been guilty of serious infractions of applicable laws

or Commission rules or policies. The Court of Appeals held this

procedure invalid on the ground that the Communications Act re-

quires a full hearing for each applicant. Citizens Communications

The Court of Appeals has previously recognized this

basic distinction with approval as applied specifically

to newspaper cross-ownership. In Greater Boston Tele-

vision Corp. v. FCC, 444 F.2d 841 (D.C. Cir. 1970)

cert, denied, 403 U.S. 923 (1971), rehearing denied, 404

U.S. 877 (1971), the Commission had granted a license

to a new applicant for a station previously operated

by a newspaper cross-owner. It had treated the cross-

owner as a new applicant, not as an incumbent seeking

renewal, because of special circumstances arising from

the owner’s attempt to exert improper influence at the

Commission. Therefore, the Commission decided the

case on the basis of the 1965 Policy Statement, supra,

relying heavily on the criterion of diversification of

ownership. The Court of Appeals affirmed expressly on

the ground that the cross-owner was properly treated

as a new applicant. Had an ordinary and meritorius

renewal applicant been involved, the court made clear

that the Commission’s decision to oust an incumbent

newspaper cross-owner on the strength of the Commis-

sion’s general diversification policy would have pre-

sented different and serious questions. Id. at 854.

The conclusion of the court below that the Commis-

sion’s diversification policy requires general divesti-

ture of existing cross-ownerships altogether missed

this fundamental distinction in Commission practice

between the treatment of renewal applicants and other

Center v. FCC, supra. But despite extensive dicta purporting to

tell the Commission what standards to apply in assessing the per-

formance of existing licensees, the court accepted the premise that

ineumbent licensees should be judged primarily on their records

of past performance. 447 F.2d at 1213. The Commission’s present

policy continues to reflect that principle. See Formulation of Pol-

icies Relating to the Broadcast Renewal Applicant and Cowles

Florida Broadcasting, Inc., both supra.

licensing questions. The error may have resulted from

the court’s apparent confusion about the Commission’s

licensing policies. At one point the court miscites the

1965 Policy Statement on Comparative Broadcast

Hearings, supra, as the 1965 Policy Statement on

Comparative Renewal Hearings.“ (J. A. 352 n.9) (em-

phasis added). Elsewhere it states that the 1965 Poliey

Statement by its terms. applies . to comparative

renewal hea rings“ (J. A. 419 n.94), whereas in fact its

terms make no reference to renewal proceedings.“

Whatever the reason, the court failed to recognize

that the proposal to order divestiture for existing cross-

owners was a proposal to change a firmly established

policy not dependent upon or determined by the Com-

mission’s policy toward new applicants. The court thus

See Cowles Florida Broadcasting, Inc., supra note 50, 62 F. C. C.

2d at 957.

‘he court also incorrectly states that the Commission has ap-

plied the 1965 Policy Statement in noncomparative hearings, al-

though by its terms it is not applicable,’’ citing Seven (7) League

Productions, Inc., 1 F.C.C.2d 1597 (1965), and Belo Broadcasting

Corp., 47 F.C.C.2d 540 (1974). (J. A. 352 n.9). The statement is

wrong in fact and the cited cases do not support it.

The court may have meant to say that the 1965 Policy State-

ment has been applied in comparative renewal hearings, although

by its terms it is not applicable to renewals. The cases relied on

by the court were cited in briefs as standing for that proposition,

and they in fact involved comparative renewal hearings. If that is

what the court meant, it was still confused. In the cited cases, the

1965 Policy Statement was applied only to the introduction of

evidence. See Cowles Florida Broadcasting, Inc., supra, at 957 and

n.7. In the Belo case, the Commission stressed that, on the merits,

eat ions Center v. FCC, supra note 50, 447 F.2d at 1208-09 n.23.

misperceived the decision to grandfather as a new

policy initiative by the Commission to protect existing

licensees rather than a decision to continue existing

policy in the absence of a demonstrated need for

change.

B. The Commission Has Discretion to Grandfather Absent

an Affirmative Showing of Public Interest Harm.

Quite apart from the basic distinction between in-

cumbent licensees and new applicants in the Commis-

sion’s licensing scheme, the decision to grandfather

is an exercise of a discretion inherent in the very

power to make legislative rules. Grandfathering exist-

ing relationships established in reliance on a prior

policy that is being changed is a routine regulatory

tool for the Commission, for other administrative

agencies and for Congress. It is rooted in the em-

pirical tradition of regulatory legislation in the

United States and in the fundamental bias of the

legal system against retroactive rule-making. It is

an intrinsically rational approach that needs no special

justification.

1. GranpratTHertne Is A Routine Com™Mussion

PRACTICE.

As the Commission said in the Second Report and

Order,

Although not unprecedented, the idea of di-

vestiture of — [is] . . . a departure

from the typical Commission approach of limit-

ing 7 new rules to prospective effect. (J. A.

137, 15).

A retroactive application of new rules so as to re-

quire divestiture entails inherent “disruption” and

“hardship,” that “must be examined if fairness is to

be achieved.” (Id. 198, 189, 11 109, 99).

Although the Commission treated these proposi-

tions as self-evident, requiring no citation to authori-

ty, they are well supported by Commission precedent.

The Commission has often taken account of the in-

herently disruptive’? consequences of divestiture.”

It has frequently grandfathered existing non-con-

forming arrangements when changing policy in a va-

riety of contexts.” It has grandfathered, or otherwise

accommodated the disruptive consequences of retro-

active application, when adopting policy changes spe-

cifically aimed at promoting diversification of owner-

chip.“ The grandfather principle is incorporated in the

Fg, Report on Chain Broadcasting Order No. 37, Dkt. No.

5060 (1941) at 67; Multiple Ownership of AM, FM and Television

Broadcast Stations, 18 F.C. C. 288, 292 (1953); Distribution of

Television Broadeasting Signals by CATV Systems, 2 F.C.C.2d

725, 784-85 (1966) ; Diversification of Control of CATV Systems,

23 F.C.C.2d 833, 835 (1970).

E. g., Revision of FM Broadcast Rules, 23 P&F Radio Reg.2d

1801, 1836-39 (1962) (adoption of FM table of assignments with

grandfathering of existing stations having non-conforming antenna

height or broadcast power) ; Distribution of Television Broadcast

Signals by CATV Systems, 2 F.C.C.2d 725, 784-85 (1966), f d

sub nom., Black Hills Video Corp. v. FCC, 399 F.2d 65 (8th Cir.

1968) (rules limiting signal carriage by cable television systems

with grandfathering of non-conforming systems already in opera-

tion); Cable Television Report and Order, 36 F.C.C.2d 143, 185

(1972), aff'd sub nom., ACLU v. FCC, 523 F.2d 1344 (9th Cir.

1975) (revision of cable signal carriage rules with grandfathering

of non-conforming existing systems) ; Interstate and Foreign Mes-

sage Toll Telephone Service, 57 F.C.C.2d 1216, 1220 (1976); 59

F.C.C.2d 83, 84-86 (1976) (rules on telephone terminal equipment,

grandfathering equipment currently in use).

„No divesti on . ben the © - .

lappi ; ee — prohibited in

text of the Commission’s duopoly rules forbidding

ownership of more than one station in each broadcast

service (AM, FM, or television) with overlapping serv-

ice contours.” Indeed, in the Second Report and Order

under review, the Commission again reaffirmed its

decision to grandfather all existing radio-television’

cross-ownerships—which far outnumber newspaper

cross-ownerships—prohibited prospectively under the

each broadcast service, Multiple Ownership of Standard, FM and

Television Broadcast Stations, 45 F.C.C. 1476 (1964); or when it

adopted policies regarding concentration of ownership in the top

50 markets, Hearings on Applications for Second VHF Station, 3

P&F Radio Reg.2d 909 (1964), Interim Policy on Television Multi-

ple Ownership, 5 P&F Radio Reg.2d 271 (1965), and Multiple

ip of Television Broadcast Stations, 12 P&F Radio Reg.2d

1501, 1507 (1968); or when it proposed and adopted rules pro-

hibiting television-radio cross-ownership in the same market, 33

Fed. Reg. 5315 (1968) and Multiple Ownership of Standard, FM

& Television Broadcast Stations, 22 F. C. C. 2d 306 (1970) (JA. 33).

the total number of station licenses in each broadcast service per-

mitted to any one owner, it deliberately set the limits high enough

to avoid extensive divestment of holdings by existing licensees.

on the ground that ‘‘this would be unduly disruptive.’’ Multiple

Ownership of AM, FM and Television Broadcast Stations, 18 F.C.C.

288, 292 (1953). Even in the few cases where existing holdings ex-

ceeded the new limits, divestiture was not automatic but was to be

determined on a case-by-case basis. Amendment of Multiple Owner-

ship Rules, 9 P&F Radio Reg. 1563, 1572 (1953). It appears that

any divestiture at all was in fact ordered. See Howard,

Multiple Broadcast Ownership: Regulatory History, 27 Ped.

Comm. BJ. 1, 15 (1974).

See also CATV-TV Cross-Ownership Rules, 55 F.C.C.2d 540

(1975), appeal pending, NCCB v. FCC, D.C. Cir. No. 75-1933,

where the Commission ordered divestiture of cable systems com-

monly owned with television stations only in egregious cases, not-

withstanding its prospective ban on all future such cross-ownerships.

** 47 C.F.R. §§ 73.35 note 8, 73.240 note 8, and 73.636 note 8.

First Report and Order, and no party challenged this

sweeping grandfather rule in court.

The only change in the Commission’s broadcast di-

versification rules that has not on its face taken ac-

count of the special problem presented by retroactive

changes is its adoption of the original AM duopoly

rules in 1943, prohibiting existing as well as new

ownership of more than one AM station in the same

market.* That decision, however, was preceded by

measures addressed to radio duopoly which had only

prospective effect. The Commission adopted duopoly

rules for FM radio and for television, where no divesti-

ture was required, in 1940 and 1941 respectively ; but it

did not at the same time adopt any such rules for AM

radio, the only broadcast service then generally avail-

able to the public and the only service in which there

were existing instances of duopoly ownership. Instead,

the Commission sought to deal with AM duopoly on a

case-by-case basis.“ The decision to order divestiture,

which was not made until nearly three years later,

was first proposed only after the Commission had

determined in its chain broadcasting investigation

that existing network duopoly ownerships were anti-

competitive and should not be allowed to continue.”

In short, the Commission’s grandfathering in the

present case, where there was no showing of affirma-

tive need for divestiture, is a consistent application of

„Multiple Ownership of Standard Broadcast Stations, 8 Fed.

Reg. 16065 (1943).

» Report on Chain Broadcasting, Order No. 37, Dkt. No. 5060

(1941) at 2.

Id. at 68.

a well-established uncontroversial approach to rule-

making. That approach is peculiarly appropriate as

applied to existing broadcast licensees under the

Communications Act, since their performance is sub-

ject to review and approval every three years in license

renewal proceedings. The approach is as rational here

as when practiced throughout the Commission’s history.

2. THe Commussion’s Practice or GRANDFATHERING

Rer.ects 4 Basic Principe or THE LEGAL SYSTEM.

As the Commission’s customary approach suggests,

grandfathering is a commonplace of American regu-

latory legislation and administrative rule-making. The

principle of prospective application permeates the

major federal regulatory statutes. In some cases, en-

tire regulatory schemes have been imposed only on a

prospective basis, with all existing relations perma-

nently grandfathered.” Where grandfathering is not

Thus, for example, the Civil Aeronautics Act of 1938 required

all air carriers to obtain certificates of public convenience and ne-

cessity as a condition of engaging in air transportation, but pro-

vided that a carrier which was operating when the Act was passed

was entitled to a certificate ‘‘upon proof of such fact only . . .

unless the service rendered by such applicant . . was inadequate

.. Pub. L. No. 706, 75th Cong., 3d Sess., 52 Stat. 973, 987-88

(1938). The Act thereby effectively grandfathered an entire indus-

try subject to new regulation.

Such industry-wide grandfather exemptions to existing carriers

have also been granted to motor carriers, 49 U.S.C. §§ 306, 309;

water carriers, 49 U.S.C. §§ 909(a), (f); and freight forwarders,

49 U.S.C. § 1010(a).

Similarly, the comprehensive drug regulatory scheme of the

Federal Food, Drug, and Cosmetic Act of 1938 is directed pri-

marily at new drugs. See 21 U.S.C. § 321(p)(1). The original

Act grandfathered drugs marketed before the Act was passed. See

commanded by the statutes themselves, the regulatory

agencies have routinely adopted it in the exercise of

their public interest discretion.” Such discretionary ad-

Note, ‘‘Drug Efficacy and the 1962 Drug Amendments,’’ 69 Geo.

LJ. 185, 187 (1971). The 1962 amendments imposing major new

regulations on sale and labeling not only preserved much of the

original grandfathering of pre-1938 drugs, but also grandfathered

some pre-1962 drugs against application of the new standards.

Pub. L. No. 87-781, 107 (e) (4), 76 Stat. 789 (1962) ; Note, supra,

60 Geo. LJ. at 192 & 195.

See also, e.g., grandfather provisions under the Natural Gas Act,

15 U.S.C. § 717 f (e) ; the Clean Air Act, 42 U.S.C. §§ 1857 f-1, 1857

f-2, 1857 £-5, 1857 f-5a, 1857 f-6f; the Federal Water Pollution

Control Act, 33 U.S.C. § 1316 (applicable only to new sources),

§ 203(¢)(1) of the Economie Stabilization Act of 1970, 12 U.S.C.

§ 1904 note; and the Newspaper Preservation Act, 15 U.S.C. § 1803

(a), (b).

% Much administrative grandfathering is so routine that it is

done as a matter of course without specific mention even in agency

regulations. At the Food and Drug Administration, this practice

of grandfathering in the normal course is now codified in a regula-

tion providing that any

determines that substantial public interest considerations pre-

elude such continued acceptance. 21 C.F.R. § 10.90(b) (6).

Under this rule, the FDA consistently applies new testing stand-

ards for harmful effects of the chemical substances present in the

products subject to its regulation only to chemicals first tested after

the standard is adopted, unless an affirmative need for retesting is

found.

In agencies which have not so codified their routine grandfather-

ing ped nye the practice is occasionally referred to in judicial or

decisions. E g., South Terminal Corp. v. EPA, ——

4 (ist Cir. 1974) and Citizens Ass’n of

. 370 F. Supp. 1101, 1108-09 (D. D.C. 1974) (EPA

grandfathering of existing parking spaces under regional air qual-

ity control plan); Executive Withdrawal Order, 55 I.D. 205, 210-11

(1935) and Eagle Peak Copper Mining Co., 54 1.D. 251, 255-56

(1933) (Interior Department grandfathering of non-vested interests

Service, Delivery Service, Filing No. 331-1, Amend. #5, September

29, 1 as amended by Memoraadum on Delivery Policy of Nov.

16, 1976; 20 CFR 415(a)(3)(ii)(a) (HEW cost accounting

for health-care providers not applicable to old provider

Four R's Rulings, Reliance and Retroactivity—A

View From Wirbin, 52 Standard Federal Taz Reports No. 56 at

stringently

to existing sources. F.., 40 C. FR §§ 129.102(b) (3), 129.108(b)(3)

(effluent water pollutants) 16 CFR §§ 1201.1(b), 1207.2 (Con-

sumer Product Safety Comm'n standards for architectural glass

and swimming pool slides) ; 33 C.F_R. § 159.12, 40 C_F_R. § 140.3(c)

(marine sanitation devices) Air Programs (Office, EP A, Region IV,

Strategy, June 21, 1974, revised

March 31, 1975, at 2-3; ond see Kennecott Copper Corp. v. Train,

526 F.2d 1149, 1152 & n.16 (9th Cir. 1975), cert. denied, 425 U.S.

935 (1976) (air pollutant emissions from smokestacks). See also

the regulation of tae Food and Drug Administration cited in note

60, supra.

307 U.S. 148, 153 (1939). Prospective rules permit

the rule-maker to respond to “‘the felt need for regu-

lating . . . through familiar administrative devices,

while at the same time . . . [satisfying] the dictates

of fairness by affording sanction for enterprises

theretofore established. Id.“

Moreover, the prevalence of

dectn 0 toaster he of Gn tanh een coe Ge

* See South Terminal Corp. v. Environmental Protection Agency,

504 F.2d 646, 674 (lst Cir. 1974) ; Citizens Association of George-

town v Washington, 370 F. Supp. 1101, 1108-09 (DDC. 1974).

See, e., New Orleans v. Dukes, 427 U.S. 297, 303-06 (1976)

(per curiam) ; Stanley v. Public Utilities Commission, 295 U.S. 76

(1935) (per curiam); Watson v. Maryland, 218 U.S. 173, 178

(1910).

* See also Buckeye Cablevision, Ine. v. FCC, 387 F.2d 220, 227-

28 (D.C. Cir. 1967).

EPA, 501 F.2d 722, 734-85 (D.C. Cir. 1974); Frontier Airlines,

Ine. v. CAB, 439 Vd g, 40 (D.C. Cir. 1971) ; Connecticut Com-

mittee Against Pay TV v. PCC, 301 F.2d 835, 837-38 (D.C. Cir.),

cert. denied, 371 U.S. 816 (1962) ; American Airlines, Ine v. CAB,

192 F.2d 417, 421 (D.C. Cir. 1951).

presumptive unfairness of most retroactive lawmak-

ing. Retroactivity, even where permissible, is not

favored, except upon the clearest mandate.” Claridge

Apartments Co. v. Comm’r, 323 U.S. 141, 164 (1944).”

Retroactive laws are sometimes held unconstitution-

al.“ When statutes are ambiguous as to whether they

are to apply retroactively, they are “presumed, in

the absence of clear expression to the contrary, to

operate prospectively,’ Hassett v. Welch, 303 U.S.

308, 314 (1938); Place v. Weinberger, 497 F.2d 412,

414 (6th Cir.), cert. denied, 419 U.S. 1040 (1974). Re-

sponding to the same perception of the potential un-

fairness of retroactive application, the courts have

sometimes forbidden agencies to give new rules re-

troactive effect.” And to avoid retroactivity, agencies

are, as a general matter, expected insofar as possible

to make policy through the “quasi-legislative promul-

gation of rules to be applied in the future,” rather

than by adjudication. SEC v. Chenery Corp., 332 U.S.

194, 202 (1947).

The Court of Appeals concluded that the Commis-

sion was not procluded from applying its new rules

* See else Story, Constitution 1398 (1891);

— ipwe ova, indead, genevelily endust: and, as has

der foreibly said, neither accord with sound legislation nor

with the fundamental principles of the social compact.

L.., Louisville Joint Stock Land Bank » Radford, 295 US.

555 (1935); Coombes v. Getz, 285 U.S. 434 (1932).

* See, %., Coe v. Seeretary of HEW. 502 F.2d 1337, 1340 (4th

Cir. 1974); Retail Wholesale and Department Store Union v.

NLRB, 466 F.2d 380, 390 (D.C. Cir. 1972); International Busi-

ness Machines Corp. v. United States, 343 F.2d 914, 921-23 (Ct. cL

1965) cert. denied, 382 U.S. 1028 (1966) ; NLRB v. Kah Brewing

Co, 276 F.2d 594, 600 (6th Cir. 1960), cert. denied, 366 U.S, 908

(1961).

retroactively so as to require divestiture, because

broadeast licensees under the Communications Act

do net have any vested right to their licenses after

the ex iration of the three-year license term (J.A.

416). This conclusion overlooks the “legitimate ex-

pertancies of renewal” which the Court of Appeals

has elsewhere recognized may arise from a meritorious

record of broadcast service.” And it does not even

speak to the proposition that retroactive application,

though not forbidden, may rationally be eschewed by

the Commission as a matter of policy. The bias against

disappointing expectations and disrupting arrange-

ments based upon existing law or policy is not confined

to cases where it is constitutionally compelled.

This is not to suggest that grandfathering is in-

variably practiced by administrative agencies. On a

sufficient showing, an agency may even have a duty

to apply new policy retrospectively in order to carry

out its statutory mandate.” But a decision to grand-

father absent a showing of need for retroactivity

ix self justifying. It is a decision not to grandfather

that calls for affirmative sup port. Until the decision of

the Court of Appeals in this case, to our knowledge

no coirt has suggested that there is a presumption

against grandfathering or hat grandfathering must

he specially explained. The presumption runs the

other way.

Greater Boston Television Corp. » FCC, 444 F.2d 841, 854

(D.C. Cir. 1970), cert. denied, 403 US. 923 (1971), rehearing

denied, 404 U.S. 877 (1971) ; Alianza Federal de Mercedes v. FCC,

539 F 2d 732, 736 n. 9 (D.C. Cir. 1976).

See Joseph v. FCC, 404 F.2d 207, 211-12 (D.C. Cir, 1968).

C. The Decision to Grandfather Is Also Rationally Supported

by the Specific Harmful Consequences Feared by the

Commission.

In declining to order a general divestiture of news-

paper cross-ownerships, the Commission also relied on

three potential adverse consequences of general di-

vestiture in this case for broadcast service to the

publie, the Commission’s overriding public interest

responsibility. These concerns provide independent

rational justification for the decision to grandfather.

1. Conrrnurty or Service

The Commission’s primary concern was the loss of

exceptional continuity of service provided by news-

paper cross-owners as a group, that would result

from divestiture.” The record shows that, unlike vari-

ous other broadcast pioneers, newspaper owners who

became licensees in the early days of broadcasting

have typically displayed a long-term commitment

to providing broadcast service in their community

of license, regardless of either hardships in the early

years of operation or subsequent opportunities to

sell their stations at large profits." At the time of

the Commission proceeding, over 80 per cent of the

television stations established by newspaper owners

before 1948 were still being operated by the original

owners. In contrast, nearly half the other stations

originated before 1948 had been sold by the original

licensee—the majority within five years of the start

of broadcast service.” The continuity of newspaper

Fes supra p. 16.

™ See generally Robbins, supra note 25 (Exh. 694).

Id. (Exh, 710-712). A similar pattern is evident among the

early newspaper and non-newspaper owners of radio stations. Id.

(Exh. 707-710).

ownership and the commitment it commonly reflects,

would be permanently ruptured by divestiture.

The importance of continuity to the Commission

is related o the premise of the licensing scheme estab-

lished by the Communications Act. That scheme places

licenses to broadcast in the hands of the owners of

a multitude of local stations rather than of a few

central national outlets. The theory is that local sta-

tions will provide a broadcast service tailored to the

peculiar needs of local communities. Continuity of

service by a licensee over a particular station en-

ables the broadcaster to develop a knowledge of his

community and its needs and an expertise in meeting

those needs through broadcast service. The Commis-

sion’s experience has demonstrated that ‘‘time is

needed to fully or substantially implement“ a licen-

see’s proposals for a broadcast service attuned to the

needs of the community, “to gain a better understand-

ing of the program needs and desires of the com-

munity, and to adjust programming to such needs and

interests.“

In part, the Commission places special value on

long continuity of service because it is exceptional.

The high rate of turnover of broadcast licenses has

long been a source of Commission concern. It raises the

“important public interest question of whether num-

erons communities throughout this country are being

deprived of the benefits which [the Commission] be-

lieve{s], based upon [its] experience, come from sus-

tained station ownership.“ Because of this concern

Procedures on Transfer and Assignment Applications, 32 F. C. C.

689, 690 (1962).

1d.

at the high rate of turnover of broadcast licenses, in

1960 the Commission adopted a rule requiring a full

hearing to justify a license transfer during the first

three-year license term.”

In disparaging the substantiality of this Commis-

sion policy, the Court of Appeals argued that it was

irrational to be concerned about disrupting continuity,

since the Commission permits substantial license turn-

over by “routinely approving license assignments.”

(J.A. 423). But the question whether to forbid trans-

fers by licensees who have in fact lost interest in

rendering a broadcast service over their stations is

quite different from the question whether those li-

censees who do exhibit a voluntary long-term commit-

ment should be highly prized. Although the Commis-

sion has not believed it desirable to lock in licensees

who do not wish to continue after three years, the

resulting turnover accentuates rather than dimiflishes

the importance of preserving exceptional continuity

where it is found.

The court also argued that a one-time alteration

of the ownership structure of the broadcast industry

should not effect [sic] the publie’s interest in quality

programming,” because the new owners could de-

velop reeords of continuity of their own which the

Commission would presumably not terminate by di-

7 (.F. R. § 1.597; Notice of Proposed Rule-Making, 25 Fed.

Reg. 12898 (1960). Besides the concern about preserving the bene-

fits of ‘‘sustained station ownership,’’ the three-year rule was de-

signed to discourage ‘‘trafficking,’’ ie, the practice of obtaining u

broadeast license with the intent to sell it at a profit rather than to

provide a broadcast service. See Procedures on Transfer and As

signment Applications, supra note 73, 32 F.C. C. at 689.90.

vestiture (J. A. 422). This argument discounts the

years required for a successor to achieve a comparable

expertise in providing a broadcast service responsive

to community needs. That aside, the Commission had

reason to believe that a non-newspaper successor is

far less likely to develop a comparable record of con-

tinuity or display a comparable commitment to local

broadcasting. The special broadcast service that news-

paper owners as a group are able to provide will not

be speedily replaced, and may well not be replaced

at all.

The importance of continuity is enhanced in the case

of newspaper cross-owners because of the quality of the

stability of ownership they provide. As the Commission

recognized, these licensees have developed ‘‘traditions

of service” grounded in something more than purely

commercial considerations.” According to the Commis-

sion’s programming study, they devote more time to

news, public affairs, and other types of programming

that the Commission deems valuable to the publie in-

teres. than do stations not affiliated with newspapers.“

in short, beyond the fruits of continuity itself, these

licensees as a group offer other benefits resulting from

the commitment to local broaucast service that causes

them to stay.

2. LocaL OWNERSHIP AND Economic DisLocaTion

in addition to the certain loss of continuity of service

by meritorious licensees, the Commission also briefly

adverted to a possible loss of local ownership and pos-

sible economic dislocations as potential adverse conse-

Second Report and Order at § 109 (J.A. 197).

Id. at 198, 9 109 n.26.

quences of a general divestiture. Both these concerns

are rationally based. Most of the existing newspaper

cross-ownerships are locally owned; in the event of

divestiture “‘many sales would have to be to outside

interests,“ “ the court’s speculation to the contrary not-

withstanding. (J. A. 421). The Commission’s concern

about possible economic dislocations is directly sup-

ported by showings in the record.” While these con-

cerns are of relatively peripheral importance in the

Commission’s opinion, together with the lost continuity

of meritorious ownership that would result from dives-

titure they constitute a sound basis for the Commis-

sion’s conclusion that general divestiture should not be

ordered in the absence of an affirmative showing of

need.

+ —

The Court of Appeals held the Commission's grand-

fathering decision irrational. It was, instead, so clearly

rational that it did not require elaborate explanation.

The Commission’s summary explanation is, if any-

thing, more than was needed. Its approach was rational

as a decision not to change long-established policy with-

out a showing of changed circumstances or previously

d. at 197, 178-79, J 108, 78.

In reviewing the record, the Commission took note of several

submissions which sought to show that ‘‘new owners of divested

stations would face significant economic burdens, principally as a

result of paying high prices for broadcast properties that have ap-

preciavcd greatly over the years.’’ According to these submissions,

because of ieh interest rates, the cost of debt service will reduce

the working capital and profit accumulation which would other-

wise be available for programming. Id. at 177-78, J 77. Eeo-

nomie studies included in the record also concluded that in the

event of a general divestiture of newspaper-related stations, in

many instances the price will remain too high to service the debt

capital necessary to purchase a station. Id. at 167, 57.

unperceived need; rational as a reflection of general

Commission licensing policy toward incumbent licen-

sees with records of performance in the public interest;

rational as a routine administrative decision to grand-

father when adopting new policy where no affirmative

showing to support retroactive application has been

made; and rational as well on account of the potential

adverse consequences of divestiture for broadcast serv-

ice which the Court of Appeals sought to disparage.

Il. THE COURT OF APPEALS EXCEEDED ITS AUTHORITY IN

REVERSING THE COMMISSION'S DECISION TO GRAND-

FATHER.

Since the Commission’s decision that general divesti-

ture of newspaper cross-ownerships is not required was

plainly rational, the Court of Appeals exceeded its

authority in holding the decision invalid. Whatever the

precise formulation of the applicable standard of re-

view, a reviewing court is required to affirm an ageney

decision that has a rational basis unless the decision

contains errors of law or is not based on a considera-

tion of the relevant factors.“ Citizens io Preserve Over-

ton Park, Ine. v. Volpe, 401 U.S. 402, 416 (1971).”

See also FCC v. Pottsville Broadcasting Co., 309 U.S. 134, 145

(1940); K. Davis, Administrative Law of the Seventies, § 29.01

(1976).

In Citizens to Preserve Overton Park, this Court articulated the

appropriate standard of review for agency rule-making under the

Administrative Procedure Act, 5 U.S.C. § 706(2)(A):

„Section 706(2)(A) requires a finding that the actual choice

made was not ‘arbitrary, capricious, an abuse of discretion,

or otherwise not in accordance with law.’ To make this finding

the court must consider whether the decision was based on a

consideration of the relevant factors and whether there has

been a clear error of judgment. Although this inquiry into

the facts is to be searching and careful, the ultimate standard

of review is a narrow one. The court is not empowered to sub-

There is no claim that the Commission failed to take

account of any relevant public interest considerations,

and its grandfather decision is fully consistent with all

pertinent requirements of law.

The Court of Appeals does not suggest that news-

paper cross-ownership is forbidden by the Communica-

stitute its judgment for that of the agency.’’

The statement that a court must consider Whether there has been

a clear error of judgment does not mean that a court may re-

verse an agency merely because the court di with the ageney's

ruling. For ‘‘(t)he court is not empowered to substitute its judg-

ment for that of the agency. Rather, the clear error of judg-

ment language shows only that the agency's action must have a

rational basis.

This principle has been formulated in a variety of ways. Sce

Bowman Transportation, Inc. v. Arkansas-Best Freight System,

Ine., 419 U.S. 281, 290 (1974), rehearing denied, 420 U.S. 956

(1975) (‘‘we ean discern in the Commission’s opinion a rational

basis for its treatment of the evidence, and the ‘arbitrary and ca-

pricious’ test does not require more); Ethyl Corp. v. EPA, 541

F. 2d I. 34-36 & n.74 (D.C. Cir.), cert. denied, 426 U.S. 941 (1976)

bt) be immersion in the evidence is designed solely to enable the

court to determine whether the agency decision was rational and

based on consideration of the relevant factors . It is settled that

we must affirm decisions with which we disagree so long as this

test is met.) (emphasis in original); NAITPD ». FCC, 516 F.2d

526, 542 (2d Cir. 1975) (‘‘Publie poliey is not like a single track

where only one train can run at a time. ‘The court’s responsibility

is not to supplant [a] Commission's balance of . . . [competing]

interests with one more nearly to its liking, but instead to assure

itself that the Commission has given reasoned consideration to

each of the pertinent factors... ; First National Bank of Fay-

etteville v. Smith, 508 F.2d 1371, 1376 (8th Cir, 1974), cert. denied,

421 U.S. 930 (1975) (‘‘ ‘Administrative action may be regarded

as arbitrary and capricious only where it is not supportable on any

rational basis Something more than mere error is necessary to

meet the test... To have administrative action set aside as arbi-

trary and capricious, the party challenging the action must prove

that it was ‘willful and unreasoning action, without consideration

and in disregard of the facts or circumstances of the case... .’ ’’)

tions Act or any other law. No such claim would be

tenable under the Communications Act in the face of

the Commission’s repeated determinations to the con-

trary in approving cross-ownerships throughout the

40-year life of the Act. This consistent, judicially

recognized, administrative construction of the statute

by the agency charged with its enforcement is conclu-

sive on the question of legality.”

The court does appear to conclude that a presumption

against existing cross-ownership is recognized in Com-

mission policy and ‘‘supported’’ by the Communica-

tions Act and “policies of the First Amendment“

(J.A. 417). No eases are cited in support of that pre-

sumption ; the court relies instead on the Commission’s

rhetorical declaration—which the court itself concedes

cannot be taken literally—that “nothing can be more

important than insuring that there is a free flow of

information from as many divergent sources as possi-

ble.“ But in the case of existing cross-ownerships,

any such presumption in Commission decisions is be-

lied by the Commission’s established policy of approv-

ing such cross-ownerships over the years. The Com-

mission does not presume that its long-standing con-

sistent policy is wrong.

Promoting diversity of information, opinion and

ideas is an important element of the public interest

under the Communications Aci. The Commission’s

opinion gives expansive recognition to the importance

of that objective. Its prospective rules, as well as its

See, e.g., Youakim v. Miller, 425 U.S. 231, 235 (1976) ; NLRB

v. Boeing Co., 412 U.S. 67, 74-75 (1973) ; Trafficante v. Metropoli-

tan Life Ins. Co., 409 U.S. 205, 210 (1972) ; Red Lion Broadcasting

Co. v. FCC, 395 U.S. 367, 381 (1969).

J. A. 418, quoting Second Report and Order, J 111, J.A. 200.

limited divestiture order, are based upon it. But as

shown above, the Commission has never regarded di-

versification of ownership in the hope of maximizing

diversity as controlling on the ultimate public interest

question of whether continued licensing of existing

meritorious ownerships will provide the broadcast

service best attuned to the public interest. The court

simply misunderstood the Commission’s general licens-

ing policy and ignored its long-standing practice of

grandfathering even when adopting new policies de-

signed to promote diversity.”

The court’s basic disagreement with the Commission

is not one of law, but of public interest policy. Although

the court recognizes that the contention that divesti-

ture contains elements common to suspect retroactive

legislation goes. .. to the reasonableness’’ of a Com-

mission decision regarding divestiture,“ the court ap-

parently concludes, without explanation, that the poli-

cies underlying the Commission’s bias against divesti-

ture are less important than the hope of increasing

diversity. Similarly, the court’s argumentative debate

with the Commission over the specific adverse conse-

quences for broadcast service that a general divestiture

might cause does not show that the Commission’s con-

cerns are unintelligible or unfounded,” but only that in

the court’s view they all serve ‘‘lesser policies“ than

diversification of broadcast ownership.” Under the

Communications Act, publie interest policy judgments

of this sort are peculiarly within the domain of the

See supra pp. 31-39.

. A. 390 (footnote omitted).

Fee supra pp. 20, 45-49.

J. A. 427. The court incorrectly asserts that these policies lack

support in the record. Id. at 419-27. As shown above at pp.

Commission’s regulatory expertise.” The “power to

weigh the competing interests and arrive at a balance

that is deemed ‘the public convenience and necessity’ ”

under such statutes is delegated to the agency, not the

courts.” And a reviewing court is not empowered to

45-49, the record supports the Commission's conclusions that excep-

tional continuity of meritorious service would be lost in the event

of general divestiture, that meritorious local ownership would be

reduced, and that broad divestiture could cause economic dis-

ruptions.

In any event, if the court means that in a rule-making proceed-

ing the Commission cannot rely on general policies developed on

the basis of its experience in administering its statute unless the

policies are supported by evidence adduced by the parties to the

particular proceeding at hand, it is simply mistaken. [SJ ince

rulemaking is ‘sub-legislative,’ it permits the agency to look beyond

the record at a whole range of interests.’’ Verkuil, ‘‘Judicial Re-

view of Informal Rulemaking,’’ 60 Va.L.Rev. 185, 189 (1974).

The agency, in rulemaking, can look beyond the particular hear-

ing record since it otherwise would be unable to draw upon its

expertise. Pacifie Coast European Conf. v. IS., 350 F.2d 197,

205 (9th Cir. 1965) ; see also Flying Tiger Line, Ine. v. Boyd, 244

F. Supp. 889, 892 (D. D.C. 1965) ; Shapiro, The Choice of Rule-

making or Adjudication in the Development of Administrative

Poliey,’’ 78 Harv.L.Rev. 921, 937 (1965).

This elementary principle has been fully recognized in prior

decisions of the Court of Appeals. In Pinellas Broadeasting Co. v.

KOC, 230 F.2d 204 (D.C, Cir.), cert. denied, 350 U.S. 1007 (1956),

in a comparative proceeding involving new license applicants, the

Commission chose a local newspaper owner over competing appli-

cants one of whom had no local media interests. The Commission

held that diversification, while imporiant, was not determinative.

Id. at 209. The court said of this determination:

The Commission is operating within the area of legislative-

executive judgment. The courts cannot interfere so long as the

process, the premises, and the judgment are not arbitrary.

Id. at 206.

See also MeClatchy Broadcasting Co. v. FCC, 239 F.2d 15, 18 (D.C.

Cir. 1956), cert. denied, 353 U.S. 918 (1957).

**Bowman Transportation, Inc. v. Arkansas-Best Freight Sys-

tem, Inc., 419 U.S. 281, 293 (1974), rehearing denied, 420 US.

substitute its judgment for that of the agency.” Citizens

to Preserve Overton Park v. Volpe, supra, 401 U.S.

at 416.

Nor does the court stop at substituting its judgment

by reversing the Commission. Having rebalanced the

publie interest consideratio.is underlying the Commis-

sion’s grandfather rule, the court not only vacates the

rule but instructs the Commission to adopt a new rule

codifying the court’s balance. In so doing, it iniproper-

ly deprives the Commission of its fundamental disere-

tion to grandfather,” and denies it the elementary pre-

rogative of making the final assessment of what the

publie interest requires in light of the purported legal

errors identified by the court. The court thereby con-

travenes the basic principle of appellate review that

administrative public interest determinations, unless

mere formalities, may be made only by the agency, and

not by a reviewing court. South Prairie Construction

Co. v. Local No, 627, Int’l Union of Operating Engi-

neers, 425 U.S. 800, 806 (1976); NLRB v. Food Store

Employees Union, 417 U.S. 1, 8-9 (1974); SEC vy.

Chenery Corp., 318 U.S. 80, 88 (1943). And it disre-

gards this Court’s square holding in FCC v. Pottsville

Broadcasting Co., 309 U.S. 134 (1940).

In Pottsville, the Court of Appeals also sought to

go beyond identifying Commission error and to impose

a final result. This Court reversed an order directing

the Commission to accept the court-imposed result. A

reviewing court, it said,

956 (1975), quoting United States v. Pierce Auto Lines, 327 US.

515, 535-36 (1946) ; see also NLRB ». Truck Drivers Local Union

No. 449, 353 U.S. 87, 96 (1957).

" See supra pp. 35-44.

‘Citations 2 N er

mination in w is a

= to judicial review does not impliedly fore-

close the administrative agency, after its error has

been corrected, from enforeing the legislative poli-

7 2 to its charge.” [Citation omitted. ]

. at .

Once the court had identified the legal error in what

the Commission had done, it had

„exhausted the only power which ( gave

it. At this point the Commission was charged

with the of judging the application in the

light of ie interest, convenience or necessity’

. . The rt of A cannot write [its views ]

ication from the curtailed review allowed by the

unieations Act is at war with the basic poliey

The rule confining a reviewing court’s role to iden-

tification of legal error, besides preserving the “in-

tegrity of the administrative process,“ “ protects

against the possibility that law will be made on the

basis of a court’s misapplication or misunderstanding

of agency policies, or an inadequate consideration of

the relevant publie interest factors by the agency, or

a mere failure of articulation of explanation in an

agency opinion. If the agency is not given a chance

to repair such non-legal mistakes, whether the court’s

or its own,

“the contingencies of judicial review and of

litigation, rather than the publie interest, would

„NR „ Food Store Employees Union, supra, 417 US. at 9.

be decisive factors. FCC v. Pottsville Broad-

casting Co., supra, 309 U.S. at 145-46.

In the present case, this danger is more than aca-

demic. The court misconstrues the agency’s diversi-

fication policy, elevating diversity from an important

publie interest factor into a virtually irrebuttable

presumption, and ignores or misunderstands a variety

of other Commission policies and concerns. In hold-

ing the Commission bound by its alleged failure to

state satisfactory reasons for not “giving diversity

of media ownership controlling weight” (J.A. 443),

the court would imprison the Commission in any inade-

quacies of its opinion-writer and write the court’s mis-

understanding of Commission policies into law. This

mistake exacerbates the usurpation of the Commis-

ions publie interest function that pervades the

court’s opinion.

Ill. THE COMMISSION'S GRANDFATHER RULES SHOULD

BE AFFIRMED.

Because of the plain error of ordering the Com-

mission to require general divestiture, the Court of

Appeals decision must be reversed. More fundamen-

tally, the court's holding that the Commission was re-

quired to proceed on the basis of a presumption

against continuation of its policy toward existing

cross-ownerships is in error, and there is no other

permissible basis for invalidating the Commission’s

decision not to order divestiture in the absence of a

finding of affirmative need.

The grandfather rules inelude a provision requir-

ing divestiture of cross-ownerships which the Com-

mission found to have an “effective monopoly”’

of major mass media addressing local issues in a

particular market. Besides invalidating the decision

not to order general divestiture, the court held that

the line drawn by the Commission to identify cases

of affirmative need for divestiture was irrational.

JA. 429-30.

The Commission's decision to order divestiture in

cases of “effective monopoly” is not based on any

showing in the record, but on the Commission’s prima

facie presumption that there was a danger of insuf-

ficient diversity of points of view as well as inade-

quate economic competition in such markets. That

presumption is not necessarily compelled. But it does

not seem irrational for the Commission to have con-

cluded that any such potential dangers are more likely

to be present in cross-ownership markets that lack an-

other local daily newspaper or comparable broadcast

station, than where there is such a local competitor.

The presence of at least one such competitor would

seem to provide both a competitive spur to cross-owned

media to offer a greater diversity of information and

opinion, and an institutional check against the possi-

bility of abusive use of a cross-ownership to propagan-

dize or indoctrinate. As the Commission recognized,

line-drawing often entails some potential arbitrariness.

It therefore provided for waiver in individual situa-

tions. If divestiture is to be required in any cases, it is

difficult to say that the line drawn by the Commis-

sion is irrational. In any event, the rationality of the

hasie decision to grandfather in all but exceptional

cases is not affected.

For the foregoing reasons, the Commission’s rules

providing for grandfathering should be affirmed.

Respectfully submitted,

Ernest W. Jennes

Russe. H. Carrenrer, Jr.

Micnaet L. Wetis

888 - 16th Street, N.W.

Washington, D.C. 20006

r — * wee a

n wo Te evision Company

The Houston Post Com

The Chronicle Publishing

KSL, Incorporated ( — —

Post-Newsweek Stations, Capital Area, Inc.

The Washington Post C

WH AS, Inc. (The Courier-Journal and

The Louisville Times)

Of Counsel:

Covineton & Buriine

888 - 16th Street, N.W.

Washington, D.C. 20006

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.