Petition — AM. BROADCASTING CO. INC. v. HOME BOX OFFICE, INC. (Nos. 76-1841, 76-1724, 76-1842)

| JUN 22 1077

| MICHAEL RODAK, JR., CLERK

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1976

No. BY @6~184]

AMERICAN BROADCASTING COMPANIES, INC.,

Petitioner,

HoME Box OfFice, INC., et al,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

James A. Mc KENNA, JR.,

ROBERT W. COLL

McKENNA, WILKINSON & KITTNER

1150 - 17th Street, N.W.

Washington, D.C. 20036

Attorneys for Petitioners.

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TABLE OF CONTENTS

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JURISDICTION ..

QUESTIONS PRESENTED... 0. cic cccccccccces

SEATUEES CNVOLVED, cc ccccedcccccccceses

I. The Decision Presents Important Questions

Involving the Administration of the Commun-

ications Act and the Future of Television

Broadcasting...... Goeeteccecocasecsece

Ii. The Decision is in Conflict With This Court’s

Opinions in Southwestern and Midwest ......

Ill. The Decision is in Conflict With Those of

Other Circuits, Including the District of

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IV. The Decision Applies An Improper Standard

For Review of Agency Action..........+..+.

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TABLE OF AUTHORITIES

Court Decisions:

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

De rahe yea ueees bear ceaue ie

Buckeye Cablevision, Inc. v. FCC, 128 U.S. App.

D.C. 262, 387 F.2d 220 (1967). .... weccccces

Citizens Committee to Save WEFM v. FCC, 165

U.S. App. D.C. 185, 506 F.2d 246 (1974) ......

Conley Electronics Corp. v. FCC, 394 F.2d 620

(10th Cir. 1968), cert. denied, 393 U.S. 858.....

Federal Power Commission v. Transcontinental Gas

Pipe Line Corp., 365 U.S. 1 (1961) .........-..

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

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

(ut)

Court Decisions, continued: Page

Great Falls Community TV Cable Co. v. FCC, 416

F.2d 238 (Sth Cir. 1969)... wc cccccccsccccccces 15

Midwest Television, Inc. v, FCC, 138 U.S. App. D.C.

SOR, GRe Fue PEE COPE cee eee ceébeweacicsec 15

National Association of Independent Television

Producers and Distributors v. FCC, 516 F.2d

SP Ge Gs. SOEEE 4h hohe cand esebeseeeedeiéees 16

National Association of Theatre Owners v. FCC, 136

U.S. App. D.C. 352, 420 F.2d 194 (1969), cert.

Sete, SE Se Se Ss 8.6 66 eww sed bee b eee 6

SEC v. Chenery Corporation, 332 U.S. 194 (1947) ...... 17

Titusville Cable TV, Inc. v. United States, 404 F.2d

2187 (Sed Cie. 1966) . cc ccccccccevecessescces 15

United Air Lines v. CAB, 97 U.S. App. D.C. 42, 228

- BT). PAP rrrerrrrrerirrer eri 17

U.S. v. Detroit and Cleveland Navigation Co., 326

UB. S06 (IDG) . co decccesccsescccvcvseccoese 16

United States v. Midwest Video Corp., 406 U.S. 649,

reh, den., 409 U.S. 898 (1972) ...... 2c eeees passim

United States v. Southwestern Cable Co., 392 U.S.

SSP CEG ccc cece eebccccesseetsiseeseee passim

Statutes:

2B U.S.C. SIZSAT). wc cc ccccccccssccsevesccesess 2

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47 UBL. BOOB wv ccccccecsoveccccesscevesecess 3

" Administrative Decisions:

First Report and Order in Docket No. 18397, 20 FCC

> fl. SPPrrerTrrEirrrrcrrrerrtiiy 7

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Administrative Decisions, continued:

First Report and Order in Dockets 19554 and 18893,

Se Ge Oe OUTED 664 ban 66s bet cbcdusbeedeees 2

First Report on Subscription Television, 23 FCC 532,

SD Gt SU GREE rece vibccesecdcoceveboeseece 5

Fourth Report on Subscription Television, 15 FCC 2d

466 (1968), aff'd sub nom. National Association of

Theatre Owners v. FCC, 136 U.S. App. D.C. 352,

420 F.2d 194 (1969), cert. denied, 397 U.S. 922

POUT T EVE CET TERURE TTT TET ET ee 6

Memorandum Opinion and Order in Docket 18397,

BD DERs BO Ge CBee cv cc ccccesecssceuscessees 7

Memorandum Opinion and Order in Dockets 19554

and 18893, 54 FCC 2d 797 (1975) .......ccecceces 2

Memorandum Opinion and Order in Docket 20682,

GO TUS BS GSS (ISTE. cc cc cescccccscccteccess 13

IN THE

SUPREME COURT OF THE UNITED STATES

OCTOBER TERM, 1976

No.

AMERICAN BROADCASTING COMPANIES, INC..

Petitioner,

HOME Box OFFICE, INC., ct al,

Respondents.

PETITION FOR A WRIT OF CERTIORARI

TO THE UNITED STATES COURT OF APPEALS

FOR THE DISTRICT OF COLUMBIA CIRCUIT

American Broadcasting Companies, Inc. (“‘Petitioner’’)

respectfully petitions for a writ of certiorari to review the

opinion and judgment of the United States Court of

Appeals for the District of Columbia Circuit entered

in this case on March 25, 1977.!

IThe case below consisted of fifteen consolidated petitions for

review otf orders of the Federal Communications Commission.

Petitioner brought two of those (Nos. 75-1788 and 75-2130) and

was Intervenor in six others (Nos. 75-1280, 75-1342, 75-1358,

75-1430, 75-1496 and 75-1555).

l

2

OPINIONS BELOW

The opinion of the Court of Appeals has not yet

been officially reported. The First Report and Order of

the Federal Communications Commission (“‘Commission’’)

in Dockets 19554 and 18893 is reported at 52 FCC 2d 1

(1975) and its Memorandum Opinion and Order acting on

petitions for reconsideration thereof is reported at 54

FCC 2d 797 (1975).

The full texts of the opinions below are printed in

Appendices A-G to the Petition for Writ of Certiorari

filed by the Commission in these cases on June 3, 1977,

sub nom. Federal Communications Commission v. Home

Box Office, Inc. (No. 76-1724). For convenience, ref-

erence herein will be to the Commission’s Appendices

(“FCC App.’’).

JURISDICTION

The judgment of the Court of Appeals was entered on

March 25, 1977 (FCC App. G, pp. 243-246). The juris-

diction of this Court is invoked under 28 U.S.C. §1254

(1).

QUESTIONS PRESENTED

1. Whether the Court of Appeals erred in holding that

the Commission lacks jurisdiction to regulate pay tele-

vision orginations by cable television systems which also

carry broadcast signals.

2. Whether the Court of Appeals erred in holding that

pay cable regulations are barred by the First Amendment

to the Constitution and that identical regulations, appli-

cable to over-the-air pay television, are not.

3. Whether the Court of Appeals applied an improper

standard of judicial review in insisting that the Com-

mission must await the occurrence of actual public injury

3

before regulating and that it cannot reasonably anticipate

and plan in advance of foreseeable events

STATUTES INVOLVED

Pertinent provisions of the Communications Act of

1934, as amended are set forth in FCC App. I, pp. 251-

252.

STATEMENT

1. This petition seeks review of an opinion and judg-

ment (FCC App. A, pp. 1-122 and G, pp. 243-246) in-

validating those portions of the Commission’s regula-

tions applicable to pay cablecasting, while affirming their

validity as applied to over-the-air pay television. The

regulations were designed by the Commission to prevent

program “siphoning,” i.e., the diversion to a system or

systems of pay television of the same entertainment and

sports programs regularly distributed through the ad-

vertiser-supported (“free’’) television system.

Pay cable is a system of program origination by cable

television systems which also carry multiple broadcast

signals, whereby one or more channels are dedicated (by

the cable operator or a lessee) to the transmission of

“scrambled” programs which are unscrambled upon the

payment by the subscriber of a fee (per program or per

channel) additional to the usual monthly subscription

2The Court of Appeals also ruled that the procedures followed

by the Commission in its informal rulemaking, characterized by

ex parte presentations invited by the Commission's Notice, were

improper and, depending upon the outcome of further proceed-

ings ordered, possibly vitiated the validity of the rules altogether

(FCC App. A, pp. 92-108). While Petitioner believes this ruling is

also in error and presents substantial questions requiring review by

this Court, we defer to the Commission’s presentation of the point

in its June 3, 1977 Petition for Writ of Certiorari (pp. 28-43).

4

charge for the regular cable service. Over-the-air pay tele-

vision is the broadcast, over a regular television channel,

of a “scrambled” picture which the subscriber, upon

payment of a fee, is enabled to unscramble through a

device installed at the television set.

The rules adopted by the Commission (and considered

by the Court of Appeals) applied alike to pay cable and

over-the-air pay television and were modifications of

earlier, generally more restrictive, rules initially adopted

to apply only to over-the-air pay television?

The Court of Appeals ruled that the regulations, while

valid when applied to over-the-air pay television, were

invalid in the case of pay cable transmissions because (a)

the Commission is without statutory authority to limit

pay cable originations (FCC App. A, pp. 37-75) and (b)

even if statutory authority existed, any such limitations

would be barred by the First Amendment (FCC App. A,

pp. 75-91).

Upon Commission motion, the Court of Appeals

stayed its mandate, pending possible review by this

Court, except for its striking down the rule limiting

pay cable’s use of theatrical feature films (FCC App.

H, pp. 247-249). This limited stay was granted be-

cause the Commission advised the Court below that for

reasons not explained, the Commission would not contest

the Court’s ruling with respect to feature films. Petitioner

strongly believes that review by this Court should com-

prehend clarification of the entire question of the Com-

mission’s authority and responsibility to adopt such

3Neither these rules, nor any other, apply to other methods of

pay television distribution, for example, closed circuit cable

originations disassociated from carriage of television broadcast

signals, theatrevision or the like. The Commission has never had

occasion to decide the question of its authority to regulate such

services.

5

effective anti-siphoning regulation as is called for by the

public interest, particularly since the Commission has

offered no explanation for reversal of its position?

2. The opinion of the Court of Appeals was issued

against the background of lengthy deliberations over pub-

lic interest problems foreseen from the development of

pay television, first over-the-air and, later, as pay cable.

Commercial U.S. radio and television broadcasting has

developed solely on an advertiser supported basis.” Shortly

after World War II, however, various proponents of pay

television brought their proposals to the Commission, and

Commission consideration of such proposed operations

began in the early 1950’s. After conducting several

~*~. [A]n agency changing its course must supply a reasoned

analysis indicating that prior policies and standards are being

deliberately changed, not casually ignored, and if an agency

glosses over or swerves from prior precedents without discussion

it may cross the line from the tolerably terse to the intolerably

mute.” Greater Boston TV Corp. v. FCC, 143 U.S. App. D.C. 383,

394, 444 F.2d 841, 852 (1970), cert. denied. 403 U.S. 923 (1971)

(Footnotes omitted).

5at the First National Radio Conference in 1922, then Secre-

tary of Commerce Herbert Hoover observed that in “certain

countries the government has prohibited the use of receiving in-

struments except upon payment of a fee out of which are supported

government sending stations. I believe that such a plan would

seriously limit the development of the art and its social possibili-

ties . . .”” By the Fourth Conference in 1925, he was able to report,

“The decision that we should not imitate some of our foreign

colleagues with governmentally controlled broadcasting supported

by a tax upon the listener has received for us a far greater variety

of programs and excellence in service free of cost to the listener. . .”

Thus, “When Congress debated the legislation which emerged as

the Radio Act of 1927 [predecessor to the Communications Act of

1934], the practice of ‘free’ broadcasting had become established

and was universally followed [in this country] .” First Report on

Subscription Television, 23 FCC 532, 539, 16 RR 1509, 1517

(1957).

6

experiments and receiving extensive comments on the

public issues associated with pay television, the Commis-

sion, in 1968, authorized over-the-air pay television serv-

ice, limiting the programs which could be presented by

such service in order to preserve the free system.® Chal-

lenges to the Commission’s authority, and the constitution-

ality of the restrictions under the First Amendment, were

rejected by the District of Columbia Circuit, the Court

finding such limitations proper “to insure the continu-

ing economic vitality of free television. . .”” The Court

approved the Commission’s premise that there would be

no discernible public interest served if pay television

programming “is merely duplicative of types of programs

now appearing on free TV in quantity.’” and accepted

the validity of the stated purpose of the regulations — to

channel pay television into offering diverse programs —

concluding that “the likely result of the Commission’s

action is to provide the public with additional informa-

tion and ideas rather than repressing existing sources.””?

3. While these deliberations proceeded, the Commis-

sion, in 1965, addressed the separate public interest prob-

lems associated with the explosive growth of cable

S Fourth Report on Subscription Television, 15 FCC 2d 466

(1968), aff'd sub nom. National Association of Theatre Owners v.

FCC, 136 U.S. App. D.C. 532, 420 F.2d 194 (1969), cert. den.

397 U.S. 922 (1970). The rules then adopted and affirmed were

more generally restrictive than those considered by the Court in its

Home Box Office opinion.

National Association of Theatre Owners v. FCC, supra, 136

U.S. App. D.C. at 366, 420 F.2d at 208.

8S Fourth Report, supra, 15 FCC 2d at 484.

9National Association of Theatre Owners v. FCC, supra, 136

U.S. App. D.C. at 366, 420 F.2d at 208.

7

television. At that time, such systems seldom originated

programming and never on a per-program or per-channel

charge basis. The focus of the Commission’s early inquiry

was therefore limited to the impact on television broad-

casting of cable’s carriage of broadcast signals, par-

ticularly “distant” signals, i.e., those not readily avail-

able off the air, but made available through the use

of sophisticated receiving antennas or microwave trans-

missions. The Commission’s authority to regulate cable

carriage of such signals was unanimously affirmed by

this Court in United States v. Southwestern Cable

Co., 392 U.S. 157 (1968). This Court approved the

specific regulations adopted and affirmed the Commis-

sion’s authority over cable television as including ‘‘that

reasonably ancillary to the effective performance of the

Commission’s various responsibilities for the regulation

of television broadcasting.”!°

Thereafter, in an effort to introduce greater diversity in

the service provided by cable television systems, the Com-

mission adopted an order requiring systems of substantial

size to originate specified amounts of local programming. !!

On reconsideration of that order, it being pointed out

that cable originations, particularly if accompanied by

per program or per channel charges, could lead to program

“siphoning” exactly as in the case of over-the-air pay

television, the Commission imposed upon such origina-

tions (where per program or per channel charges were

made), the same limitations as had been earlier applied to

over-the-air pay television. !

10 United States v. Southwestern Cable Co., supra at 178.

'1 First Report and Order in Docket No. 18397, 20 FCC 2d 201

(1969).

12Memorandum Opinion and Order in Docket No. 18397, 23

FCC 2d 825 (1970).

8

This Court considered the mandatory origination re-

quirements (but not the pay cable limitations) in United

States v. Midwest Video Corp., 406 U.S. 649, reh. den.,

409 U.S. 898 (1972). Affirming the Commission’s au-

thority to require cable originations by only the narrow-

est of margins, the Court nonetheless appeared unanimous

on the question of the Commission’s authority to adopt

regulation of programs offered through cable originations.

Thus, the plurality opinion observes: '°

“In the one case, of course, the concern is with the

strength of the picture [referring to Southwestern |

and voice received by the subscriber, while in the

other it ts with the content of the programming

offered. But in both cases the rules serve the policies

of §§1 and 303(g) of the Communications Act on

which the cablecasting regulation is specifically

premised, [citations omitted] and . . . ‘facilitate

the more effective performance of [its] duty to

provide a fair, efficient, and equitable distribution of

television service to each of the several States and

communities’ under §307(b).”

The views of the dissenting Justices appear entirely

consistent :!*

“The fact that the Commission has authority to

regulate origination of programs if CATV decides to

enter the fteld does not mean that it can compel

CATV to originate programs.”

4. Largely at the urging of the major Hollywood pro-

ducers, the Commission conducted further rulemaking,

commencing in 1972, to investigate possible revision of

the substantive limitations then applicable to both over

'3 United States v. Midwest Video Corp., 406 U.S. at 669-70.

Emphasis supplied.

14 hid. at 680. Emphasis supplied.

9

the-air pay television and pay cable originations. Its 1975

decision relaxed those limitations uniformly in respect to

both services. There followed the decision by the Court

of Appeals, striking down the rules as applied to pay

cable and affirming them in the case of over-the-air pay

television.

REASONS FOR GRANTING THE WRIT

The writ should be granted because the decision of the

Court of Appeals: (1) raises important questions involv-

ing the administration of the Communications Act and

the future of television broadcasting in the United

States; (2) is in conflict with the decisions of this Court

in Southwestern and Midwest Video; (3) is in conflict

with many decisions of other circuit courts, including

the District of Columbia Circuit; and (4) applies an im-

proper standard for review of agency action by depriving

the Commission of discretion to “‘plan in advance of fore-

seeable events.”

THE DECISION PRESENTS IMPORTANT QUESTIONS

INVOLVING THE ADMINISTRATION OF THE COM-

MUNICATIONS ACT AND THE FUTURE OF TELEVI-

SION BROADCASTING

Section 1 of the Communications Act directs the

Commission “. . . to make available, so far as possible, to

all the people of the United States a rapid, efficient,

Nation-wide and world-wide wire and radio communica-

tions service with adequate facilities at reasonable

charges. ..””!® Section 307(b) commands the Commission

to “make such distribution of licenses, frequencies, hours

of operation, and of power among the several States

15 47 U.S.C. §151.

10

and communities as to provide a fair, efficient, and equit-

able distribution of radio service to each of the same.’’!®

In furtherance of these statutory goals, the Commission

has promoted a nationwide system of advertiser-supported

television broadcasting, now providing multiple services

to virtually all of the people of the United States at no

direct charge. As observed by this Court, the significance

of the Commission’s efforts “can scarcely be exaggerated,

for broadcasting is demonstrably a principal source of

information and entertainment for a great part of the

Nation’s population.’’!’

Pay television, by definition, is available at most only

to a minority able and willing to pay. In addition,

because of technical and economic considerations, many

of those able and willing to pay will not have the service

available. As acknowledged by the opinion below, '* the

costs associated with wiring the nation limit cable and

pay cable to a small, probably affluent, minority:

“Extension of service to other urban areas [in addi-

tion to New York City and parts of California]

might be accomplished at a capital cost of some $8

billion, but laying cable to reach that half of the

American population which lives in rural areas

would . . . be extremely expensive, perhaps requiring

an additional $240 billion. [ Footnote omitted]. Be-

cause of these capital requirements, extension of

cable service with cablecasting capability to the

country as a whole does not seem possible in the

immediate future.”

16 47 U.S.C. §307(b).

'7 United States v. Southwestern Cable Co., supra, st 177.

18 ECC App. A, pp. 34-35.

11

Yet, as found by the Commission, a small number of

paying subscribers can generate more revenue than the

advertiser-supported system for the same entertainment

and sports attractions heretofore available to all through

that system. The Commission referred to estimates by

Stanford Research Institute and others:!9

“ec

. . that by 1980 the number of pay subscribers,

both cable and STV, will reach 11,805,000 and pay

revenue will reach $1.67 billion; more than the com-

bined program expenses of the three television net-

works in 1973 .. . Six million cable homes could

raise over $43 million to compete for pro football

rights if $1 were charged for each regular game and

25 percent of subscribers watched, and $3 were

charged for the Super Bowl and 50 percent of sub-

scribers watched . . . by serving four million sub-

scribers and imposing an additional monthly fee of

$1, cable television could take in $1 million more

revenue than free television derives from its broad-

cast of all NFL games and the World Series.”’

Recognizing the self-evident economic incentive of

program producers, sports entrepreneurs and the cable

industry to prefer the most profitable method of distribu-

tion (either by over-the-air frequencies or cable systems),

the Commission undertook regulation to promote truly

diverse offerings through pay television “‘while at the

same time insuring that the public’s reliance on conven-

tional television is not unreasonably impaired.””°

The opinion below leaves the Commission powerless

to preserve the present nationwide, advertiser-supported

system, thus defeating continued achievement of the

19 FCC App. C, p. 131.

20 FCC App. C, p. 165.

12

statutory goals of providing a “fair, efficient and equit-

able” distribution of television service to “all of the

people of the United States.”” (47 U.S.C. §§151, 307(b)).

THE DECISION IS IN CONFLICT WITH THIS COURT’S

OPINIONS IN SOUTHWESTERN AND MIDWEST.

The decision is not consistent with the decisions of this

Court in Southwestern and Midwest. In Southwestern,

referring to the Commission’s responsibilities under Sec-

tions 151 and 307(b), this Court unanimously affirmed

the Commission’s authority to regulate the amount of

distant television broadcast signals and programming

which cable could carry because unlimited carriage of

such signals and programming threatened economic injury

to local stations, inconsistent with orderly achievement

of the Commission’s statutory goals. More broadly, this

Court found Commission authority for cable regulation

“reasonably ancillary to the effective performance of the

Commission’s various responsibilities for the regulation of

television broadcasting.”’?!

In Midwest, the Court also affirmed the Commission’s

right to compel local originations by cable systems, noting

that the effect of the regulation “. . . is to assure that in

the retransmission of broadcast signals viewers are pro-

vided suitably diversified programming. . .”2*

The decision below, however, even though acknowledg-

ing Commission authority to regulate cable’s carriage of

broadcast signals and the programming thereon to prevent

destructive competition and acknowledging authonity to

2! tmited States v. Southwestern Cable Co., supra, 392 U.S. at

178.

22 United States v. Midwest Video Corp., supra, 406 U.S. at 668.

13

regulate originations to promote diversity, denies au-

thority to regulate pay originations exercised both to

prevent destructive competition and to promote diversity.

The reasoning by which the Court below avoided a

seemingly inevitable finding of jurisdiction is both irrele-

vant and curious. Referring to a “thicket of disagree-

ment between this court and the Commission,”” the

opinion discusses at length an on-going controversy

concerning Commission responsibility to regulate radio

format changes.** Noting that the Commission, in rule-

making following the Court’s en banc decision holding

that it has responsibility to consider radio format

changes, has refused to acquiesce, the Court reasoned

the Commission has no greater authority to consider the

“formats” of television and pay television services than

it has to consider radio formats. °

Anti-siphoning regulation, however, is not format reg-

ulation. Rather, it is regulation, under Southwestern

and Midwest, to preserve, rather than impair, the nation-

wide television system for which the Commission is re-

sponsible under Sections 1 and 307. As such, it is regula-

tion “reasonably ancillary” to the Commission’s respon-

sibilities for television broadcasting.

23 FCC App. A, p. 44.

24 ECC App. A, pp. 44-52.

25 Citizens Committee to Save WEFM v. FCC, 165 U.S. App.

D.C. 185, 506 F.2d 246 (1974).Thereafter, the Commission de-

clined to accepi the validity of the Court’s ruling. Memorandum

Opinion and Order, 60 FCC 2d 858 (1977) — an action itself again

on appeal in the District of Columbia Circuit (C1se Nos. 76-1692

and 76-1793).

14

THE DECISION IS IN CONFLICT WITH THOSE OF

OTHER CIRCUITS, INCLUDING THE DISTRICT OF CO-

LUMBIA CIRCUIT.

The decision below, both in its statutory construction

and Constitutional objections, fails to recognize the

relationship between anti-siphoning regulation and the

Commission’s authority to regulate carriage of television

broadcast signals. Thus, the opinion states “on the

record before us there is no evidence that cablecasting

and signal retransmission are not completely separate

and distinct activities . . . (no ‘nexus’ between broadcast

and retransmission functions).””

The Eighth Circuit, to the contrary, plainly found the

required “nexus” for Commission regulation and _ re-

jected Constitutional objections similar to those em-

braced by the opinion below:?’

“The Commission’s effort to preserve local tele-

vision by regulating CATVs has the same constitu-

tional status under the First Amendment as regula-

tion of the transmission of signals by the originating

television stations. /t is irrelevant to the Congressional

power that the CATV systems do not themselves

use the air waves in their distribution systems. The

crucial consideration is that they do use radio

signals and that they have a unique impact upon,

and relationship with, the television broadcast serv-

ice. Indiscriminate CATV development, feeding upon

the broadcast service, is capable of destroying !arge

parts of it. The public interest in preventing si. > a

development is manifest.”

26 FCC App. A, p. 79.

27 Black Hills Video Corp. v. FCC, 399 F.2d 65, 69 (8th Cir.

1968). Emphasis supplied.

15

The power of the Commission to regulate cable and

adopt reasonable limitations consistent with the First

Amendment because cable carries broadcast signals has

been likewise recognized by numerous other circuits, in-

cluding the District of Columbia Circuit.** The incon-

sistency of the opinion below is apparent in its efforts

to explain and distinguish.”

‘ IV.

THE DECISION APPLIES AN IMPROPER STANDARD

FOR REVIEW OF AGENCY ACTION.

The opinion below requires that the case for program

siphoning be “proved” before regulation is undertaken.”

Rather than allowing the Commission to anticipate

predictable economic events and resulting public interest

consequences, the opinion appears to insist that actual

program siphoning must occur before regulatory action

is undertaken. *!

It must be conceded that, while the pay cable industry

is rapidly growing (from 16,000 in 1973 to over 1

million in 1977), it does not yet have the economic

capacity to outbid free television for much, if any, of its

program attractions. The Court below, however, is in

error in denying the Commission authority, in its in-

28 Titusville Cable TV, Inc. v. United States, 404 F.2d 1187

(3d Cir. 1968); Great Falls Community TV Cable Co. v. FCC, 416

F.2d 23 (9th Cir. 1969); Conley Electronics Corp. v. FCC, 394

F.2d 620 (10th Cir. 1968), cert. den., 393 U.S. 858; Buckeye

Cablevision, Inc. v. FCC, 128 U.S. App. D.C. 262, 387 F.2d 220

(1967); Midwest Television, Inc. v. FCC, 138 U.S. App. D.C. 228,

426 F.2d 1222 (1970).

29 FCC App. A, pp. 78-79, n. 80.

30 FCC App. A, p. 64.

31 FCC App. A, p. 62-67.

16

formed discretion, to regulate in advance of develop-

ment of that economic power and in requiring that it

await its occurrence.

In Southwestern, this Court recognized that the Com-

mission was undertaking regulation of broadcast signal

carriage at a time when “‘it could not predict with cer-

tainty the consequences of unregulated CATV.”*? The

Court nonetheless found it proper for the Commission to

“plan in advance of foreseeable events, instead of waiting

to react to them.’”®? Other Courts have equally held that

an administrative agency, in its rulemaking function,

“does not have to wait for evidence that can only be

supplied by the future,”** Indeed, the NATO panel of

the same Circuit approved the reasonableness of “regula-

tion in advance” of more stringent rules at a time when

no pay television stations were in operation or in the

offing.

3207.5. v. Southwestern Cable Co., supra, 392 U.S. at 176-177.

33 thid. at 177.

34 National Association of Independen: Television Producers and

Distributors v. FCC, 516 F.2d 526, 541 (2d Cir. 1975). See also,

U.S. v. Detroit and Cleveland Navigation Co., 326 U.S. 236 (1945)

and Federal Power Commission v. Transcontinental Gas Pipe Line

Corp., 365 U.S. 1 (1961).

35 The opinion’s reference to the possibility that “‘regulation in

advance” of over-the-air pay television “had the effect of killing

that medium in its infancy by denying it access to necessary pro-

gramming” (FCC App. A, p. 37) is gratuitous and inaccurate. A

major over-the-air problem was the continued absence of a security

system adequate to prevent the average home owner from un-

scrambling transmitted pictures without subscribing. With the

reputed development of such a security system, multiple pay

television applications were filed (by January 1977, 24 applica-

tions had been filed and five granted) and two stations went on

the air (in New York City and Los Angeles) — all of this

activity before issuance of the opinion below and at a time when

the operators had to assume program access would be limited by

the regulations in question.

eee eer

#

17

The standard which the Court should have applied

was whether the Commission’s forecast of the likelihood

of program siphoning was “arbitrary and capricious.”*®°

Given the readily predictable amount of revenue which

pay systems can generate, the amount of money which

the free television system can economically justify for

program acquisitions, and the undoubted desire of any

entrepeneur to obtain maximum revenue for his product,

an “arbitrary and capricious” conclusion would not be

possible. The effect of the decision was, therefore, to

substitute the Court’s policy judgment for that of the

responsible agency.

CONCLUSION

It is respectfully submitted that the Petition for

Writ of Certiorari should be granted.

Respectfully submitted,

JAMES A. MCKENNA, JR..,

ROBERT W. COLL

McKENNA, WILKINSON & KITTNER

1150 - 17th Street, N.W.

Washington, D.C. 20036

Attorneys for Petitioners.

36 See, for example, SEC v. Chenery Corporation, 332 U.S.

194 (1947); United Am Lines v. CAB, 97 U.S. App. D.C. 42, 228

F.2d 13 (1955).