# Petition — Wisconsin Department of Health and Social Services-Probation

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## Record

- **Collection:** Supreme Court brief
- **Document type:** Petition
- **Published:** January 1, 1988
- **Citation:** 485 U.S. 976

## Text

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FILED

MICHAE; POA:
(2d Cir., January 25, 1978), pet. for cert.

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IN THE

Supreme Court of the United States

OCTOBER TERM, 1978

ROBERT E. KELLY, Chairman; JERRY A. DANZIG, Vice-Chairman;
MICHAEL H. PRENDERGAST; ELI WAGER; and EDWARD J.
WEGMAN, Commissioners of the New York State Commission on Cable
Television,

Petitioners,
against

BROOKHAVEN CABLE TV, INC. CAPITOL CABLEVISION, INC.;
SAMSON CABLEVISION CORP., TELEPROMPTER ELECTRON-
ICS CORPORATION; WARNER CABLE OF OLEAN, INC.; NA-
TIONAL CABLE TELEVISION ASSOCIATION, INC.; NEW
YORK STATE CABLE TELEVISION ASSOCIATION; ard HOME
BOX OFFICE, INC., ‘eal

UNITED STATES OF AMERICA and FEDERAL COMMUNICATIONS
COMMISSION,
Respondents.

Peririon For A Writ or CERTIORARI TO THE UNITED States Court or
APPEALS FOR THE SECOND CIRCUIT

A.
.

BRIEF FOR PETITIONERS

To the Honorable Chief Justice of the United States and
the Associate Justices of the Supreme Court of the United
States :

Petitioners, the Commissioners of the New York State
Commission on Cable Television, pray for a writ of certior-
ari to review the decision of the United States Court of
Appeals for the Second Circuit entered on March 29, 1978.

Decisions Below

The decision of the Second Cireuit Court of Appeals,
not yet reported, is reproduced in the Appendix A. The
decision of the District Court, 428 F. Supp. 1216 (N.D.N.Y.,
1977), which was affirmed by the Court of Appeals, is re-
produced in Appendix B. The Final Judgment of the
District Court is reproduced in Appendix C.

Jurisdiction

This Court’s jurisdiction is invoked pursuant to Title 28
United States Code, § 1254(1). The decision of the Court
of Appeals was entered on March 29, 1978.

Questions Presented

1. Whether the United States Court of Appeals for the
Second Circuit erred in ruling that the Federal Communi-
cations Commission has jurisdiction to preempt State reg-
ulation of rates charged for pay cable television, where
this Court’s consistent construction of Section 2(a) of the
Communications Act of 1934 (47 U.S.C. §$152[a]) limits
FCC jurisdiction over cable television to actions ‘‘reason-
ably ancillary to the effective performance of the Com-
mission’s various responsibilities for the regulation of
television broadeasting.’’ (United States v. Southwestern
Cable Co., 392 U.S. 157, 178 [1968]).

2. Whether the United States Court of Appeals for the
Second Circuit was correct in holding that the Federal
Communications Commission has, in fact, validly exercised
a preemption of State regulation of pay cable television
rates by the mere utterance of statements to that effect
without any procedures for rule making, inquiry or the
consideration of comments on this issue.

Statement of the Case

A. Introduction

This action was originally commenced in the United
States District Court for the Northern District of New
York. Respondents are five cable television companies
with operations in New York, two trade associations and a
service corporation which provides entertainment program-
ming to cable television systems. The petitioners are the
Commissioners of the New York State Commission on
Cable Television, an agency of the State of New York
created by Article 28 of the New York Executive Law.
With the permission of the District Court, respondents
were joined by the United States of America and the Fed-
eral Communications Commission (‘‘FCC’’ or ‘‘Commis-
sion’’), as intervenors, and petitioners were joined by the
National Association of Regulatory Utility Commissions
(NARUC), as intervenor.

Respondents alleged that actions of the New York State
Commission on Cable Television, in an attempt to enforce
New York statutory law which requires municipal and
State approval of all rates charged to cable television sub-
seribers, Executive Law, §§ 822 and 825, should be en-
joined as violative of a valid federal preemption expressed
by the FCC which prohibits State and local regulation of
the rates charged for ‘‘pay cable’? services (those pro-
grams sold for additional charges on a per-program or
per-channe] basis).

B. The Nature of Cable Television

“Cable Television” (or CATV) is a means of transmitting
or delivering signals by wire or cable from an origination
point to a receiving terminal, i.e., the subscriber’s television
set. The services that may be provided by cable television
are virtually limitless and include the retransmission of
over-the-air radio and television broadeast signals, the

4

transmission of locally originated video programming, com-
puter data and a variety of other information and pro-
gramming. At the present time, the majority of cable tele-
sion companies in the State of New York provide a service
package for a fixed amount which includes local and distant
television and radio broadcast signals, and in certain cases,
various channels dedicated to use by the local governments,
the local school district and the public generally. In addi-
tion to the above service package, many cable television com-
panies, including respondent-companies, provide non-broad-
cast programming or services for an additional per pro-
gram or per channel charge. Such programming is gen-
erally referred to as “pay cable” or “premium pro-
gramming.” However, regardless of the type of services
provided, it is the mode of transmission which makes cable
television a distinctive communications medium and estab-
lishes the basis for State jurisdiction.

C. Regulation of Cable Television by the FCC

Direct regulation of cable television services by the FCC
began in 1966 with the adoption of rules limiting the tele-
vision broadcast signals that could be carried on cable tele-
vision systems (former part 74 of the FCC’s regulations).
The FCC’s jurisdiction to impose such signal carriage
limitations was challenged and upheld by this Court in
United States v. Southwestern Cable Co., 392 U.S. 157
(1968). The Court in Southwestern found that the FCC’s
jurisdiction over cable television services could not be de-
rived from any direct statutory language, but was a neces-
sary complement to the express jurisdiction provided over
radio services (including television broadeast stations) by
the Communciations Act of 1934 (47 U.S.C. $4 151, et seq.).
The FCC’s cable television jurisdiction was therefore
limited to those actions “reasonably ancillary to the effec-
tive performance of the Commission’s various responsi-
bilities for the regulation of television broadcasting.” 392
USS. at 178.

5

By 1969 the FCC had broadened its regulatory program
for cable television services to require cable television sys-
tems with 3500 or more subscribers to initiate program
origination.* This regulatory requirement was challenged,
and eventuaily upheld by this Court in United States v. Mid-
west Video Corp., 406 U.S. 157 (1972). In that case, a
plurality of this Court found that the standard expressed
in Southwestern had been met and that the new rules were
“reasonably ancillary” to the FCC’s television broadcast
responsibilities. However, the concurring opinion of the
Chief Justice expressed caution on the issue of FCC juris-
diction:

‘‘Candor requires acknowledgement, for me at least,
that the Commission’s position strains the outer limits
of even the open-ended and pervasive jurisdiction that
has evolved by decisions of the Commission and the
eourts.’’ 406 U.S. at 676.*

In 1972, the FCC adopted a comprehensive new regula-
tory program for cable television services (47 C.F.R. part
76, effective March 31, 1972). Cable Television Report
and Order, 36 F.C.C. 2d 143, affirmed on reconsideration,
36 F.C.C. 2d 326 (1972). At that time it imposed limita-
tions and requirements in areas not before addressed
(e.g., an obligation to obtain federal certification prior to
operation—subpart B; mandatory standards for municipal
franchises—subpart C; an obligation to protect the pro-
gram exclusivity of local broadcast stations—subpart F;
limitations on the types of programming that may be sold
for additional charges—subpart G, section 76.225, and a

* First Report and Order in Docket No. 18397, 20 F.C.C. 201
(1969).

* See, also, Staff of Subecomm. on Communications, Comm. on
Interstate and Foreign Commerce, Cable Television: Promise
versus Regulatory Performance, 80-83 (1976) (Subeomm. Print)
wherein it is stated (at page 80) that FCC authority to require
“eablecasting” is not authority to regulate all aspects of cable TV.

6

requirement to provide access channels to the public and
minimmm channel capacity—subpar G, section 76.251).
Several of these regulations were subsequently found to
be violative of the jurisdictional limits imposed upon
the FCC by the Southwestern standard: Nationai As-
sociation of Regulatory Utility Commissioners v. F.C.C.,
533 F. 2d 601 (D.C. Cir., 1976), invalidating the pur-
ported FCC preemption of State regulation of cable tele-
vision services providing two-way, poin-to-point, non-
video, intrastate programming; Home Box Office, Inc.
v. F.C.C., 567 F.2d 9 (D.C. Cir., 1977), invalidating FCC
regulations purporting to limit the programs that could
be sold for additional charges; and Midwest Video Corp.
v. F.C.C., —— F. 2d ——. Slip op. No. 76-1496 (8th
Cir., February 21, 1978), pet. for cert. filed 46 U.S.L.W.
3710, invalidating FCC rules requiring access channels and
minimum channel capacity. These cases are discussed
more fully below.

During the past twenty years various proposals have
been submitted to Congress for the adoption of direct stat-
utory federal jurisdiction over cable television services.
With two exeeptions, none of these proposals have yet
been enacted. The two instances in which Congress has
passed legislation regarding cable television regulation
occurred within the last two years. On October 19, 1976 a
new copyright law was enacted (Pub. L. 94-553, 90 Stat.
2541, Title 17 U.S.C. ) which provided for the first
time for copyright liability for cable television transmis-
sions of broadcast signals. This statute provided no new
regulatory authority for the FCC. On February 21, 1978
several amendments to the Communications Act of 1934
were enacted (Pub. L. 95-234, 92 Stat. 33), which for the
first time provided reference to cable television regulation
in that statute. However, these amendments were limited
to the creation of an FCC forfeiture power over cable tele-
vision operations (47 U.S.C. §503[b]) and to the creation
of FCC jurisdiction over the conditions of utility pole

7

attachments by cable television system (47 U.S.C. § 224).
Even here, the FCC’s jurisdiction over pole attachments is
not preemptive of State regulation but, rather, would be
effective only in the absence of comparable State standards.
To date, Congress has failed to adopt express FCC regu-
latory authority over cable television services which would
be preemptive of State or municipal jurisdiction.

D. Regulation of Cable Television by New York State

Cable television services have traditionally been subject
to local government controls through means of contractual
franchise provisions executed with local municipalities as a
necessary requirement to operations in local public streets
and rights of way. On May 24, 1972, the State of New York
approved an act for the regulation of cable television serv-
ices and the creation of a State Commission on Cable Tele-
vision. Laws of New York, 1972, Chapter 466 (effective
January 1, 1973); Exeeutive Law, Art. 28, §§ 811, et seq.
This act was expressly designed to coordinate with the
newly adoptéd cable television regulations of the FCC, and
was drafted in consultation with FCC staff.

The New York cable television statutory scheme provides
for the primary regulation of this service to continue on
the municipal level as a part of the negotiated franchise
privileges of the operator. Executive Law, $825. The
Commission on Cable Television is authorized to promul-
gate state-wide standards and provide guidance and regu-
latory oversight. Consistent with this approach, subscriber
rates are negotiated between the company and the munici-
pality as a condition of the franchise, and amendments of
the franchise (including rate modifications) are submitted
to the State Commission for ultimate approval. Executive
Law, § 822. In addition, pursuant to statutory direction
(Executive Law, § 815), the State Commission on Cable
Television has promulgated regulations which include mini-
mum standards for municipal franchise agreements (9 New

8

York Codes, Rules and Regulations, part 595) requiring,
among other things, the specification of rates for subserip-
tion channels. 9 N.Y.C.R.R. § 595.1(e).

At the time the New York cable television law and regula-
tions were adopted they were not inconsistent with any
federal standards or expressed policy. In fact, the regula-
tions adopted by the FCC in 1972 (47 C.F.R. § 76.31[a] [4]
required that all subscriber rates be subject to the approval
of the franchising authority.* This mandate was expressed
without condition or exception:

Section 76.31 Franchise standards.

(a) In order to obtain a certificate of compliance, a
proposed or existing cable television system shall have
a franchise or other appropriate authorization that
contains recitations and provisions consistent with
the following requirements:

(4) The franchising authority has specified or ap-
proved the initial rates that the franchisee charges sub-
scribers for installation of equipment and regular sub-
seriber services. No increases in rates charged to
subscribers shall be made except as authorized by the
franchising authority after an appropriate public pro-
ceeding affording due process;

* Subdivision (4) of section 76.31(a) of the FCC’s regula-
tions was deleted by order in Docket No. 20681, effective Sep-
tember 23, 1976. Report and Order, 60 FCC 2d, 671, 38 Pike
& Fischer RR 2d 110 (1976). Section 76.31(a) was eliminated
in its entirety by Report and Order in Docket No. 21002, 66 FCC
2d 380, 41 RR 2d 885 (September 30, 1977). Unfortunately,
neither of these actions eliminated the issue in dispute in this
case.

9

E. The Asserted Preemption of Pay Cable Rate Regulations

It is not surprising that the regulations of the FCC did
not make provision for pay cable services in 1972, because
such services could best be described as in a pre-natal stage
of development at that time. Subsequently, with the
dramatic development of commercial markets for these new
services, the FCC tried to do what it had not the foresight
to do earlier.

Not until 1974 did the FCC make specific reference to its
claimed preemption. Clarification of the Cable Television
Rules and Notice of Proposed Rule Making and Inquiry in
Docket Nos. 20018 et al., 46 F.C.C. 2d 175 (1974). The
alleged preemption was discussed as an accomplished fact.
46 F.C.C. 2d 199-200. This action was not described as a
proposed preemption, although it was, in fact, a significant
amendment of the then-effective section 76.31(a)(4). No
attempt was ever made in this proceeding, or in any subse-
quent proceeding, to invite comments on this action. The
1974 Clarification, and all later FCC proceedings in which
this preemption was discussed, dealt directly with other
matters upon which comment was invited.

In New York, the State Commission on Cable Television
acted as early as 1973 to insure that the rates for pay cable
services were subject to municipal approval in accordance
with State statutory requirements and consistent with the
standards of the FCC at that time. On October 1, 1973, the
State Commission obtained an Order from the Albany
County Supreme Court restraining TelePrompter County
Cable TV from imposing such charges in the City of Mount
Vernon without municipal and State approval. This action
was followed by an application for such approval submitted
by this company and approved by the State Commission on
October 19, 1973. On the same day, the State Commission
issued a Statement of Policy regarding the “Rates Charged
By Cable Television Companies for Subscription Pro-
gramming,” which indicaied the State’s intention to enforce

10

its statutory mandates and require approval of all such pay
cable rates.*

On March 1, 1976, the State Commission issued its
Clarification of Commission Policy, which reiterated its
position of 1973.** It was in response to this action by the
State Commission, and the proposed enforcement of State
law described therein, that the respondents herein initiated
the instant litigation.

The Decisions Below

The District Court (Port, J.) granted summary judgment
to the respondents and declared that the FCC had pre-
empted the regulation of rates charged for pay cable tele-
vision. (Appendix B). An injunction was issued prohibit-
ing the New York State Commission on Cable Television
from regulating pay cable rates or from requiring cable
television companies to specify pay cable rates in franchises
granted by municipalities within the State of New York.
(Appendix C).

The District Court’s ruling accepted the arguments of
the respondents that the FCC’s jurisdiction over cable tele-
vision services is broad and general and is supported by
the general purposes section of the Communications Act
of 1934 (47 U.S.C.C. §152[a]), as confirmed by the Su-
preme Court in United States v. Southwestern Cable Co.,
392 U.S. 157 (1968), and United States v. Midwest Video
Corp., 406 U.S. 649 (1972). The Court concluded that the
alleged preemption was jurisdictionally valid and had been
imposed by FCC.

Upon appeal, the Second Cireuit Court of Appeals af-
firmed the decision of the District Court on both the juris-

* Appendix D.
** Appendix E.

11

dictional and procedural issues. The Second Circuit again
cited this Court’s decisions in the Southwestern and Mid-
west Video cases, and concluded that, ‘‘It follows that the
FCC may regulate cable TV if its regulation will further
a goal which it is entitled to pursue in the broadcast area.’’
(Appendix A at p. 4a). The Court then applied this
standard:

‘*A decision to delay all price regulations of special
pay cable meets that test; a policy of permitting devel-
opment free of price restraints at every level is rea-
sonably ancillary to the objective of increasing pro-
gram diversity, and far less intrusive than the manda-
tory origination rules approved in Midwest Video.’’
(Appendix A at p. 4a).

It summarily distinguished the holdings of the District of
Columbia Cireuit and the Eighth Cireuit Courts of Ap-
peals on these issues (National Ass’n. of Reg. Util. Com’rs.
v. F.C.C., 533 F. 2d 601 [D.C. Cir., 1976]; Home Box Office,
Inc. y. F.C.C., 567 F. 2d 9 [D.C. Cir., 1977]; and Midwest
Video Corp. v. F.C.C., —— F. 2d ——, [8th Cir., 1978], pet.
for cert. filed, 46 U.S.L.W. 3710) as factually unrelated.
(Appendix A at pp. 45a). On the procedural issue, the
Second Cireuit Court traced the alleged preemption back
to the FCC’s 1974 Clarification, supra, and concluded as
follows:

‘‘That the FCC has, in fact, sought to preempt state
and local price regulation of special pay cable program-
ming is evident from a survey of FCC pronouncements
in the area since 1974...

“Finally, we do not believe that the FCC’s choice to pro-
ceed by means of policy statements and interpretations
rather than formal regulations vitiates its attempt to
preempt. The policy to preempt has been shouted
from the rooftops, see Scawartz v. Texas, 344 U.S.
199, 202-3 (1952), and the FCC has explicitly indicated

12

its intent that there be no price regulation whatever
of the relevant area, see Bethlehem Steel Co. v. New
York State Labor Relations Board, 330 U.S. 767, 773-
74 (1947).’’ (Appendix A at p. 6a).

Reasons for Granting the Writ

POINT |

The Federal Communications Commission exceeded
its jurisdiction in purporting to preempt state and
local price regulation of pay cable services.

The standard for FCC jurisdiction over cable television
services is defined by the decisions of this Court in United
States v. Southwestern Cable Co., 392 U.S. 157 (1968),
and United States v. Midwest Video Corp., 406 U.S. 649
(1972). In the absence of express statutory authority in
this field, these decisions represent the sole bases for deter-
mining the limits of appropriate FCC regulatory actions.
In the Southwestern case, this Court concluded, without
expressing any view ‘‘as to the Commission’s authority,
if any, to regulate CATV under any other circumstances or
for any other purposes,’’ that the Commission does have
jurisdiction over cable television ‘‘reasonably ancillary to
the effective performance of [its] various responsibilities
for the regulation of television broadeasting . . .’’ 392
U.S. at 178.

The FCC’s alleged preemption of pay cable rate regula-
tion in the context of municipal franchising is clearly be-
yond the scope of this Court’s standard. No broadcast
regulatory goal could be used to justify such an intrusion
upon the otherwise undisputed rights of local governments
to control the use of their streets. Furthermore, the FCC
has never attempted to interfere with the continuation of
State and local rate regulation for the retransmission of
broadcast signais by cable television systems, an area di-
rectly related to broadcasting. Thus, only aspects of cable

13

television which have little to do with broadcasting are
regulated by the FCC’s claimed preemption.

Even the liberal jurisdictional approach taken by this
Court in the 1972 Midwest Video decision cannot justify the
FCC’s claimed preemption of local government rights.
Previous cases before this Court were brought by private
parties resisting federal regulation of their activities. In
this case, petitioners make no effort to deny federal au-
thority over broadcast related cable television activities, but
rather to ask confirmation that such federal authority can-
not, without further statutory support, usurp traditional
franchise powers. That congress intended to protect the
Constitutional rights of States and local governments to
control their own streets is evident from the express limita-
tions placed on FCC authority by the recently enacted
amendments to the Communications Act relating to “pole
attachments” (47 U.S.C. § 224), and from the more limited
jurisdiction afforded to the FCC over non-broadcast
carriers (compare, 47 U.S.C. § 152[b] and 47 U.S.C. § 301).

The fact that the FCC has the jurisdiction to regulate or
authorize the operations of subscription television services
providing similar programming, or to preempt and refrain
from rate regulation of this broadcast service (National
Assoc. of Theatre Owners v. FCC, 420 F. 2d 194 [D.C. Cir.,
1969], cert. den. 397 U.S. 922 [1970]), can no more justify
intrusion upon local rate regulation of franchised cable
services than it could justify similar intrusion upon local
rate regulation of any other non-broadcast entertainiment

service with a possible effect upon the market of subscrip-
tion TV.

The mere goals, however laudatory, of program diversity
or the growth of communications outlets are not sufficient
to meet the test of broadcast television relevance set down
in Southwestern. This was expressed clearly by the Eighth
Cireuit Court of Appeals in Midwest Video Corp. v. F.C.C.,
— F. 2d —,, Slip op. No. 76-1496 (8th Cir., February 27,

14

1978). pet. for cert. filed, 46 U.S.L.W. 3710. There, the
Cireuit Court, in ruling invalid the FCC’s rules requiring
aecess channels, stated as follows:

“The standard established by the Supreme Court is
‘reasonably ancillary;’ not merely ‘ancillary. The
standard is already broad, and the term ‘reasonably,’
requiring some nexus with the Commission’s statutory
responsibility, must not be read out of it. Nor can there
be deleted what the Court said cable actions must be

- ‘reasonably ancillary’ to, i.e., ‘the effective performance
of the Commission’s various responsibilities for the
regulation of television broadcasting.’ 392 U.S. at 178
(emphasis added).

“Though neither Southwestern nor Midwest Video sup-
ports jurisdiction here, it is a ‘reasonably ancillary’
standard we apply, and it is the 1976 Report rules we
review. Each regulation of cable television must in-
dividually stand or fall, not on legal precedent concern-
ing other regulations, but on whether or not the regula-
tion under the review meets the standard established
by the Court. The Commission reliance on Southwest-
ern and Midwest Video ignores the indications in those
eases that it has no sweeping jurisdiction over cable
television, that whatever jurisdiction it may have is
contingent upon its delegated powers, and that each
attempt to regulate cable systems must be individually
justified. Nat’l. Ass’n. of Reg. Util. Comm'rs. v. FCC,
533 F. 2d 601, 612 (D.C. Cir., 1976).” Slip op. No. 76-
1946, pp. 25, 26.

A similar conclusion should be reached with regard to
the preemption at issue in the instant case. To conclude
otherwise would be to allow the FCC unfettered authority
over any form of non-broadcast entertainment on the
grounds that ‘‘outlets for expression’’ were involved.

15

The District of Columbia Court of Appeals has also
expressed its view that FCC regulation of cable television
is limited in nature. In Home Box Office, Inc. v. FCC, 567
F. 2d 9 (D.C. Cir., 1977), cert. den. 46 U.S.L.W. 3216 (Octo-
ber 3, 1977), the cireuit court invalidated FCC regulations
limiting the types of programs on pay cable services, rest-
ing its decision in large part upon the jurisdictional limits
of the FCC. There, the Court stated, in part, as follows:

‘*. . . and if judicial review is to be effective in keep-
ing the Commission within that boundary, we think the
Commission must either demonstrate specific support
for its actions in the language of the Communications
Act or at least be able to ground them in ea well-
understood and consistently held policy developed in
the Commission’s regulation of broadcast television,
cf. Greater Boston Television Corp. v. FCC, 143 U.S.
App. D.C. 383, 394, 444 F. 2d 841, 852 (1970), cert. den.
403 U.S. 923 (1971).’’ 567 F. 2d at 28.

The decision of the District of Columbia Cireuit Court in
National Ass’n. of Regulatory Utility Comm’rs. v. FCC,
533 F. 2d 601 (D.C. Cir., 1976) is particularly relevant here
because it involved an attempted FCC preemption of state
regulation over cable television services. There the D.C.
Cireuit struck down the preemption and found that tbe
FCC had no authority to regulate two-way, non-video,
point-to-point, intra-state services. Although this decision
dealt with cable television services that were clearly intra-
state in nature, the jurisdictional comments of the Court
are pertinent:

‘“We are not persuaded that either the statute on its
face or the construction which it has been given in
Southwestern and Midwest supports the Commission’s
argument that it has a blanket jurisdiction over all
activities which cable systems may carry on .

The statute’s introductory secticn is made a locus for

16

powers which must of necessity be recognized if the
purposes set out in the broadcasting sections are to
receive their fullest realizations. The Court thus was
not recognizing any sweeping authority over the entity
as a whole, but was commanding that each and every
assertion of jurisdiction over cable television must be
independently justified as reasonably ancillary to the
Commission’s power over broadcasting.’”’ 533 F. 2d
at 612.

In discussing preemption under the Communications Act
of 1934, this Court has stated:

‘* | . In areas of the law not inherently requiring
national uniformity, our decisions are clear in requir-
ing that state statutes, otherwise valid, must be upheld
unless there is found ‘such actual conflict between
the two schemes of regulation that both cannot stand
in the same area, [or] evidence of a Congressional
design to preempt the field.’ Florida Avocado Grow-
ers v. Pawl, 373 U.S. 132, 134.’’ Head v. New Mexico
Board, 374 U.S. 424, 430 (1963).

In the area of pay cable, where the service provided is
furnished to areas completely independent of each other
physically and geographically by completely independent
cable TV companies, a requirement of national rate uni-
formity is unrealistic. Regulation by local franchising,
with the oversight of a state commission, is both logical
and a recogntion of the legitimate interests that local gov-
ernments have in their franchises.

The control of ‘‘pay cable’’ rates along with the basic
rates was deemed necessary in order to avoid a variety
of evils; e.g., it had been found that cable television com-
panies had used ‘‘pay’’ rates to overcome adverse munici-
pal action or basic rates. Clarification of Commission
Policy, supra, Appendix E at p. 4la. Moreover, with

17

the increasing complexity of cable television program
marketing arrangements, it has become impossible to
clearly distinguish between those services once these serv-
ices are identified as ‘‘pay’’ and ‘‘basic,’’ respectively.

POINT II

The Federal Communications Commission failed to
adopt the purported preemption in a procedurally
proper manner.

The FCC’s alleged preemption of State and local rate
regulation of pay cable services can be found no earlier
than its 1974 Clarification of the Cable Television Rules
and Notice of Proposed Rule Making and Inquiry in Docket
Nos. 20018 et al., supra. No prior notice was given of the
FCC’s intention to adopt this preemption, nor did that
agency solicit comments on this action (although comments
were invited on other actions, interpretations or proposed
rule makings discussed in prospective terms in the same
proceeding). These defects were not cured in any subse-
quent proceeding in which this preemption was discussed.

The adoption of this preemption should have been gov-
erned by the procedural standards of the Administrative
Procedure Act, 5 U.S.C. $553. Pursuant to §553(b)(A),
notice in the Federal Register need not be published for
‘interpretive rules’’ or ‘‘general statements of policy.’’
However, the creation of the alleged preemption was
neither merely interpretive nor a general statement of
policy, but the making of a new rule of the first magnitude.
In fact, this action also constituted a significant amend-
ment of the existing rule, section 76.31(a)(4), requiring
local approval for all regular subscriber rates. By adopt-
ing the preemption, the FCC redefined ‘‘regular’’ sub-
seriber rates (as used in Section 76.31[a][4]) to mean
something never previously supposed, and it ignored its
own broad requirement, imposed by that section, that ‘‘No
increases in rates charged to subscribers shall be made
except as authorized by the franchising authority after an

18

appropriate public proceeding affording due process.’’
Clearly a major new regulatory action was taken, but the
method of its adoption was unconscionably unorthodox.

Although it is not alleged that the purported preemption,
if jurisdictionally valid, necessarily had to be adopted by
a formal amendment of the Code of Federal Regulations,
some adequate notice and some opportunity for comment
were required. Home Box Office, Inc. v. F.C.C., supra.
Because the FCC held no hearings, nor took any evidence,
prior to its decision to adopt its asserted preemption,
the standard of review herein is whether this action was
‘‘arbitrary, capricious, an abuse of discretion, or otherwise
not in accordance with law.’”’ 5 U.S.C. §706(2)(A). It is
not relevant to consider merely if the FCC’s decision to
preempt was ‘‘supported by substantial evidence,’’ 5 U.S.C.
§ 706(2)(E). Considered by this standard, the FCC’s ac-
tion must fall, if only because it made no effort to deter-
mine factually whether the reasons for the proposed pre-
emption were in any way justified. Vague references to
“eonsiderable study of the emerging cable industry and
its prospects for introducing new and innovative communi-
cations services’’ (Clarification in Docket Nos. 20018 et al.,
46 F.C.C. 2d 175, 199-200 [1974] are not sufficient to dem-
onstrate a record of regulatory inquiry sufficient to justify
an action of preemption. Without such an inquiry and
such a record, the FCC’s haphazard preemptive statements
are procedurally defective and fatally so. Home Box Office
v. F.C.C., swpra; Burlington Truck Lines, Inc. v. United
States, 371 U.S. 156 (1962); Citizens to Preserve Overton
Park v. Volpe, 401 U.S. 402 (1971); City of Chicago v.
Federal Power Commission, 458 F.. 2d 731 (D.C. Cir., 1971),
cert. den. 405 U.S. 1074 (1972).

As indicated above, the FCC has never provided a direct
opportunity for the petitioners or any other parties to raise
these objections, because no proceeding was ever addressed
to this issue.

19

POINT III

The Rulings of the United States Court of Appeals
for the Second Circuit on the FCC’s cable television
jurisdiction are in conflict with those of the District
of Columbia and Eighth Circuit Courts of Appeals.

The United States Court of Appeals for the Second Cir-
cuit has held in this case that the jurisdiction of the Federal
Communications Commission over the field of cable televi-
sion is broad and lawful. In another case brought before
that court by the petitioner, New York State Commission
on Cable Television v. F.C.C., —— F. 2d ——, Slip op. No.

» P. (2d Cir., January 25, 1978), pet. for cert.
filed 46 U.S.L.W. 86, an FCC limitation on the amount of
fees or regulatory assessments that may be collected from
franchised cable television operations by states and
municipalities was upheld. The Petition for Certiorari to
review this decision raises issues of FCC jurisdiction as
well as regulatory process and interpretation.

As indicated, supra, p. 11, the Courts of Appeals for the
District of Columbia Circuit and the Eighth Circuit have
both issued rulings on the FCC cable jurisdiction which im-
pose a much stricter standard than that adopted by the
Second Circuit.

In consideration of the fact that FCC cable television
jurisdiction rests entirely on the interpretive rulings of this
Court, and in consideration of the substantial diversity of
opinion amongst the federal courts and various govern-
mental agencies, regarding the current implications of these
rulings upon specific actions of the FOC, and in order to
avoid a genuine conflict of federal law, as interpreted by
various Circuit Courts, it is respectfully suggested that this
honorable Court clarify the jurisdictional limits of the
Federal Communications Commission in the field of cable
television regulation.

20

CONCLUSION

For the foregoing reasons, the petition for a Writ of
Certiorari should be granted.

Dated: New York, New York
June 27, 1978

Respectfully submitted,

Louis J. LerKowITz
Attorney General of the
State of New York
Attorney for Petitioners

Samvue. A. HirsHowiTz
First Assistant Attorney General

Cuarues A. BrapLey
Assistant Attorney General
of Counsel

la

APPENDIX A—Decision of the United States Court
of Appeals for the Second Circuit.

UNITED STATES COURT OF APPEALS
For THE Seconp Circuit
Nos. 458, 482 September Term, 1977
Argued: March 8, 1978 Decided: March 29, 1978
Docket Nos. 77-6156, 77-6157

é
vr

Brookuaven Caste TV, Inc.; Caprrou Castevision, Inc.;
Samson CaBieviston Corp.; TELEPRomPTER ELECTRONICS
Corporation; WarNeR CaBLe oF OxeaNn, Inc.; NaTIONAL
Caste ‘TeLEviston Association, Inc.; New York State
Caste TeLevision Association; and Home Box Orrics,
INc.,

Plaintiffs-Appellees,

Unrrep States or AMEricA and FeperaL CoMMUNICATIONS
CoMMISSION,

Plaintiffs-Intervenors-Appellees,
— :

Rosert F. Keiiy, Chairman; Jerry A. Danzic, Vice Chair-
man; Micuare. H. Penpercast; Ext WacNner; and Epwarp
J. Wecman, Commissioners of the New York State Com-
MISSION ON CaBLE TELEVISION,

Defendants-Appellants,

NaTIONAL AssociaTION oF ReauLatory Urmiry
CoMMISSIONERS,

Defendants-Intervenor-A ppellant.

+
A

2a
Appendiz A.

Before: Lumparp and Oakes, Circuit Judges, and
WyzanskI, District Judge.*

Appeal from declaration by the Northern District of New
York, Port, J., that New York State Commission on Cable
Television’s attempt to regulate rates charged for spe-
cialized pay cable programming was improper in light of
FCC preemption, and from injunction against such regula-
tion.

Affirmed.

Lumsarp, Circuit Judge:

This appeal raises two questions: whether the Federal
Communications Commission has the authority to preempt
state and local price regulation of one aspect of cable tele-
vision—specialized programming for which a per-program
or per-channel charge is made—and if so, whether the FCC
has adequately and effectively exercised that authority.
The Northern District of New York, Port, J., finding that
the FCC both possessed and had asserted the requisite au-
thority, granted summary judgment to the plaintiffs herein,
declaring that the action of the New York State Commission
on Cable Television [“Commission”] seeking to impose
price regulation on specialized pay cable was invalid, and
enjoining defendants from attempting such regulation in
the future. We affirm.

I

Plaintiffs are five cable television operators, two trade
associations and Home Box Office, a supplier of special pay
cable programming. In addition, Judge Port permitted the
FCC and the United States to intervene as parties. The
Commission and its members were joined as defendants by
intervenor National Association of Regulatory Utility Com-
missioners [“NARUC”}].

* Sitting by design«cion.

3a
Appendia A.

This action was commenced in response to New York’s
scheme for regulating cable TV, N.Y. Exec. Law §§ 811-831
(McKinney’s 1972-1977 Supp.) (article 28). The relevant
portions of article 28 are set forth in the margin.’ The
provisions in dispute here concern the setting of rates by
the state and local franchising authorities.

The sections concerning rates generated considerable con-
fusion when promulgated in 1972, particularly with regard
to special programming on cable systems. Accordingly,
on March 1, 1976, the Commission issued a “Clarification of
Commission Policy,”* which indicated (1) that no exemp-
tion or exclusion from franchising and rate approval re-
quirements was intended for “pay,” “auxiliary” or “sub-
scription” cable services—the specialized programming at
issue here; (2) that companies already providing pay cable
services would not be required to amend their franchises
immediately, but would have to give notice within two
months to the appropriate authorities of their current rates,
or face “appropriate sanctions”; and (3) that “active en-
forcement” of these policies would be undertaken.

Plaintiffs sought a declaration that the policies expressed
in the Clarification violated the supremacy clause of the
United States Constitution—because of alleged FCC pre-
emption—as well as the first, fifth and fourteenth amend-
ments. The district court granted summary judgment on
the supremacy clause claim, and this appeal followed.

Il

We hold that the FCC has the authority to preempt state
and local price regulation of special pay cable pro-
gramming; that it has exercised this authority; and that the
means it has chosen to preempt state regulation are ade-
quate and effective.

In United States v. Southwestern Cable Co., 392 U.S. 157,
178 (1968), the Supreme Court upheld the FCC’s jurisdic-
tion to regulate cable TV to the extent that such regulation

4a
Appendix A.

is “reasonably ancillary to the effective performance of the
Commission’s various responsibilities for the regulation of
television broadcasting.”’

The Court elaborated on and expanded this standard
in United States v. Midwest Video Corp., 406 U.S. 649,
667-69 (1972), in which it approved the FCC’s mandatory
cable origination rules as “reasonably ancillary” to “the
achievement of long-established regulatory goals in the
field of television broadcasting by increasing the number
of outlets for community self-expression and augmenting
the public’s choice of programs and type of service.’’ It
follows that the FCC may regulate cable TV if its regula-
tion will further a goal which it is entitled to pursue in
the broadcast area.

A decision to delay all price regulation of special pay
cable meets that test; a policy of permitting development
free of price restraints at every level is reasonably ancil-
lary to the objective of increasing program diversity, and
far less intrusive than the mandatory origination rules
approved in Midwest Video, supra. Cf. National Associa-
tion of Theater Owners v. FCC, 420 F.2d 194, 203 (D.C.
Cir. 1969), cert. denied, 397 U.S. 922 (1970) (upholding
FCC’s non-regulation policy in subscription television field
pending accumulation of expertise.)

Cases relied on by NARUC and the Commission are
readily distinguished. In NARUC v. FCC, 533 F.2d 601
(D.C. Cir. 1976), the court ruled that there was no nexus
shown between FCC preemption of regulation of two-way
non-video leased access cable channels (used for such pur-
poses as burglar alarms) and the goal of increasing pro-
gram diversity. Here a connection has been shown.

Home Box Office, Ine. v. FCC, No. 76-1280 (D.C. Cir.
March 25, 1977), cert. denied, 46 U.S.L.W. 3216 (U.S. Oct.
3, 1977) (Dkt. Nos. 76-1841 and -1842), overturned FCC
anti-siphoning rules because of failure to demonstrate a
genuine problem of siphoning broadcast programming.

da
Appendix A.

The FCO's regulatory goal in HBO was not program diver-
sity, as here, but decreased competition.

Finally, Midwest Video Corp. v. FCC, No. 76-1496 (8th
Cir. Feb. 27, 1978), held that the FCC’s imposition of mini-
mum public access and channel capacity standards on cable
systems was improper. The court ruled that this was an
attempt to do in the cable field something the FCC was
specifically prohibited from doing in the broadcast area—
imposing the burdens of common carriers. The far less
intrusive ‘regulation’ proposed in the instant case is one
which plainly eludes any attempt to analogize the regula-
tion itself—rather than the underlying policy—to the
broadcast area.

That the FCC has, in fact, sought to preempt state and
local price regulation of special pay cable programming
is evident from a survey of FCC pronouncements in the
area since 1974:

In Section 76.31(a)(4) [of 47 C.F.R.] we require
that cable systems, in order to receive a certificate of
compliance, must have a franchise providing for
franchisor approval of initial charges for installation
and regular subsecriver service. We have intentionally
and specifically limited rate regulation responsibilities
to the area of regular subscriber service, and we will
continue to do so. We have defined ‘‘regular sub-
seriber service’’ as that service regularly provided to
all subseribers. This would include all broadcast
signal carriage and all our required access channels
including origination programming. It does not in-
clude specialized programming for which a_per-
program or per-channel charge is made. The purpose
of this rule was to clearly focus (sic) the regulatory
responsibility for regular subscriber rates. It was not
meant to promote rate regulation of any kind.

After considerable study of the emerging cable in-
dustry and its prospects for introducing new and in-

6a
Appendiz A.

novative communications services, we have concluded
that, at this time, there should be no regulation of
rates for such services at all by any governmental
level. Attempting to impose rate regulation on special-
ized services that have not yet developed would not
only be premature but would in all likelihood have a
chilling effect on the anticipated development.

Clarification of the Cable Television Rules and Notice of
Proposed Rulemaking and Inquiry in Docket Nos. 20018
et al., 46 F.C.C.2d 175, 199-200 (1974). See First Report
and Order in Docket No. 19554, 52 F.C.C.2d 1, 68 (1975)
(‘‘Although we have not ourselves undertaken the regula-
tion of rates for the sale of subscription programming, we
regard our prior statements concerning the regulation of
subscription operations as preempting local regulation of
rates as well as program content.’’); Notice of Inquiry in
Docket No. 20767, 58 F.C.C.2d 915 (1976).

Finally, we do not believe that the FCC’s choice to pro-
ceed by means of policy statements and interpretations
rather than formal regulations vitiates its attempt to pre-
empt. The policy to preempt has been shouted from the
rooftops, see Schwartz v. Texas, 344 U.S. 199, 202-03
(1952), and the FCC has explicitly indicated its intent that
there be no price regulation whatever of the relevant area,
see Bethlehem Steel Co. v. New York State Labor Rela-
tions Board, 330 U.S. 767, 773-74 (1947). The Commission
and NARUC both participated in the 1974 proceedings
cited above, and had ample opportunities to attempt to
persuade the FCC to their point of view—which they did
—and to take an appeal when they failed—which they
did not.

Accordingly, we are satisfied that FCC preemption has
rendered invalid New York’s attempt to impose price regu-
lation on special pay cable programming, and that the
injunction was properly issued.

Affirmed.

7a
Appendix A.

FooTNOTES

§ 815. Duties of the commission
The commission shall :

(1) Develop and maintain a statewide plan for develop-
ment of cable television services, setting forth the objectives
which the commission deems to be of regional and state
concern;

(2) to the extent permitted by, and not contrary to ap-
plicable federal law, rules and regulations:

(a) prescribe standards for procedures and practices
which municipalities shall follow in granting franchises. . . .

(b) prescribe minimum standards for inclusion in fran-
chises. .. .

§ 819. Franchise requirement

1. Notwithstanding any other law, no cable television sys-
tem, whether or not it is deemed to occupy or use a public
thoroughfare, may commence operations or expand the area
it serves after April first, nineteen hundred seventy-three
unless it has been franchised by each municipality in which
it proposes to provide or extend service.

2. A municipality shall have the power to require a fran-
chise of any cable television system providing service within
the municipality, notwithstanding that said cable television
system does not occupy, use or in any way traverse a public
street. The provision of any municipal charter or other law
authorizing a municipality to require and grant franchises
is hereby enlarged and expanded, to the extent necessary, to
authorize such franchises.

3. Nothing in this article shal! Le construed to prevent
franchise requirements in excess of .uose prescribed by the
commission, unless such requirement is inconsistent with
this article or any regulation, policy or procedure of the
commission.

§ 825. Rates

1. Except as otherwise provided in this section, the rates
charged by a cable television company shall be those specified
in the franchise which may establish, or provide for the es-
tablishment of reasonable classifications of service and cate-
gories of subscribers, or charge different rates for differing
services or for subscribers in different categories.

8a
Appendia A.

2. Such rates may not be changed except by amendment
of the franchise.

5. In addition to other powers, the commission may, after
public notice and opportunity for hearing, prescribe rates
for cable television service. —

2In re Rates Charged by Cable Television Companies for
“Auxiliary” Programming, Docket No. 90010 (Commission on
Cable Television 1976).

9a

APPENDIX B—Decision of the United States District
Court for the Northern District of New York.

BrooxHaven Casale TV Inc. et al., Plaintiffs,

United States of America and Federal
Communications Commission,
Intervenors-Plaintiffs,

v.
Robert F. Ketry, Chairman, et al., Defendants,

National Association of Regulatory Utility
Commissioners, Intervenor-Defendant,

City of New York, Amicus Curiae.
No. 76-CV-154.
United States District Court, N. D. New York.
March 9, 1977.

MEMORANDUM-DECISION AND ORDER

Port, Senior District Judge.

The plaintiffs and defendants have both moved for sum-
mary judgment on the first claim for relief asserted in the
complaint. That claim challenges the right of the defend-
ants, Commissioners of the New York State Commission
on Cable Television (State Commission), to regulate the
charges for pay cable TV on the ground that the matter
has been preempted by the Federal Communications
Commission.

The United States and the Federal Communications
Commission were granted leave to intervene as parties
plaintiff. The National Association of Regulatory Utility
Commissioners was granted leave to intervene as a party
defendant. The intervenors have joined in the motions

10a

Appendiz B.

for summary judgment. The City of New York was
granted leave to appear as amicus curiae in support of
the defendants’ motions.

The Parties

Five of the original plaintiffs (Brookhaven, Capitol,
Samson, Teleprompter and Warner) are corporations
which operate cable television systems in New York State.
National Cable Television Association, Inc. (NCTA) and
New York State Cable Television Association (NYCTA)
are, respectively, national and state trade associations of
cable television systems. The remaining plaintiff, Home
Box Office (HBO), is an enterpirse which supplies pay
cable programming to cable television systems both in
New York and in other states. Plaintiff intervenors are
the United States and the Federal Communications Com-
mission (FCC).

The defendants are the five members of the New York
State Commission on Cable Television. See N.Y. Exec.
Law § 814 (McKinney Supp. 1975). Defendant intervenor,
the National Association of Regulatory Utility Commis-
sioners (NARUC), is a quasi-governmental, nonprofit or-
ganization whose membership includes governmental and
regulatory bodies throughout the United States.’

Cable and Pay Cable TV

Cable TV essentially operates by retransmitting tele-
vision signals to home viewers by cable, rather than by
over-the-air broadcasting. When it originated, cable TV
performed two basic functions. It enhanced reception of
local television broadcasts, and it also permitted the im-

*The City of New York, appearing as amicus curiae, has
briefed the court in support of the defendants’ position that the
FCC lacks jurisdiction to preempt pay cable TV.

lla
Appendix B.

portation of signals from distant television stations be-
yond the range of local reception.* Today, however, cable
TV systems may also originate their own »rogramming,
which is called ‘‘eablecasting’’,*’ or may make available
certain ‘‘access channels’’ over which individuals may
transmit programming to home viewers.‘ Generally, cable
TV systems provide these services to their subscribers for
a basic monthly fee.*

Pay cable TV augments the basic cable service by pro-
viding the home viewer with additional programming for
an additional monthly or other charge. The most common
pay cable system provides the viewer with an additional
channel for a flat monthly fee over the basic cable TV
charge. The plaintiffs employ such a system. HBO sup-
plies box-office type programming to local cable TV sys-
tems. This programming includes recent motion pictures,
sports events not otherwise televised, and other entertain-
ment, all shown without commercial interruption.’ The
local cable TV system then distributes this programming
to pay cable home viewers over a channel which is accessible
only to the pay cable subscribers. In order to receive HBO,
the subscribers must pay a monthly fee in addition to the
charge for their basic cable TV service.

Other pay cable systems are also being developed. Some
systems provide the viewer with different programming op-
tions, e.g., sports programs or recent films, at different

2 See United States v. Southwestern Cable Co., 392 U.S. 157,
163, 88 S.Ct. 1994, 20 L.Ed.2d 1001 (1968).

* See United States v. Midwest Video Corp., 406 U.S. 649,
92 S.Ct. 1860, 32 L.Ed.2d 390 (1972).

*See American Civil Liberties Union v. FCC, 523 F.2d 1344
(9th Cir. 1975).

5 See Affidavit of Gerald M. Levin, § 2 (dated April 29, 1976).
* Id. JJ 3-5.

12a
Appendia B.

prices. Some systems charge the viewer only for those pro-
grams actually watched.’

The FCC’S Actions

By 1965, the FCC was involved in regulating the growing
cable TV industry." The agency’s jurisdiction over this
developing medium was first upheld by the Supreme Court
in 1968.° In 1969, in an effort to encourage diversity of
programming on cable TV, the FCC promulgated rules re-
quiring cable TV systems having over a minimum number
of subscribers to originate their own programming through
cablecasting.*° The Commission envisioned that some of this
eablecasting would occur over leased access channels."
These are channels made available by the cable TV system,
for a fee, to a third party who provides programming for
home viewers. The FCC announced in 1971 that it had pre-
empted the field of pay cable television cablecasting,” even
though no comprehensive review of pay cable had yet been
undertaken.

Having developed a policy of dual jurisdiction over cable
TV rate regulation, the FOC in 1972 decided to permit local

* See Affidavit of James R. Hobson, § 3 (dated June 4, 1976).
8 See Id. 9 7.

*United States v. Southwestern Cable Co., 392 U.S. 157, 88
S.Ct. 1994, 20 L.Ed.2d 1001 (1968).

*° See First Report and Order in Docket No. 18397, 20 F.C.C.2d
201 (October 20, 1969). These regulations were subsequently
upheld by the Supreme Court in United States v. Midwest Video
Corp., 406 U.S. 649, 92 S.Ct. 1860, 32 L.Ed.2d 390 (1972).

“ See First Report and Order in Docket No. 18397, 20 F.C.C.2d
201, 214 (October 24, 1969).

# “(T]he Commission has pre-empted the field of pay television
cablecasting so that local franchise terms are inoperative and no
further affirmative authorization is required.” Request by Time-
Life Broadcast, Ine., 31 F.C.C.2d 747 (September 8, 1971).

13a
Appendiz B.

regulation of the rates for basic cable TV services only.”
These are the services which the cable system regularly sap-
plies to all subscribers. However, because the FCC wanted
to encourage experimentation in the new medium of pay
cable TV, and because it feared that both federal and local
regulation would be confusing and impracticable, the Com
mission at that time precluded local rate regulation for pay
cable TV.** The FCC’s position and its reasoning were
stated much more clearly in a subsequent clarification in
1974.

It remains our intent to keep [leased access] channels
as free as possible from any regulation that might re-
strict or artificially alter their growth. This is par-
ticularly true in the area of rate regulation. We have
pre-empted this area with the explicit purpose of allow-
ing the market place to function freely.

We have intentionally and specifically limited rate
regulation responsibilities to the area of regular sub-
scriber service, and we will continue to do so. We have
defined “regular subscriber service” as that service
regularly provided to all subscribers. This would in-
clude all broadcast signal carriage and all our required
access channels including origination programming. It
does not include specialized programming for which a
per-program or per-channel charge is made. The pur-
pose of this rule was to clearly focus the regulatory re-
sponsibility for regular subscriber rates. It was not
meant to promote rate regulation of any other kind.

85. After considerable study of the emerging cable
industry and its prospects for introducing new and in-

18 Cable Television Report and Order, Docket Nos. 18397 et al.,
36 F.C.C.2d 143, 209 (February 3, 1972).

Td. at 193.

l4a
Appendix B.

novative communications services, we have concluded
that, at this time, there should be no regulation of rates
for such services at all by any governmental level. At-
tempting to impose rate regulation on specialized serv-
ices that have not yet developed would not only be pre-
mature but would in all likelihood have a chilling effect
on the anticipated development. This is precisely what
we are trying to avoid.”

Noting that conventional TV’s dependence on advertising
and its limited broadcast spectrum confined its program-
ming to mass appeal, the FCC in 1975 further explicated
the need for its policy.

Since conventional television often cannot, because of
its nature, cater to minority tastes and interests, we
encourage the development of new technologies which
promise viewing diversity. Subscription television
promises to bring both diversity of programming and
diversity of format to those who are willing to pay a
direct charge for the service. Neither STV nor cable
television must attract advertiser support with pro-
gramming having a broad mass appeal. Cable televi-
sion, with its abundant channel capacity, is particularly
able to program for audiences with specialized inter-
ests. Subscription television’s potential to expand the
public’s program choices, to supplement the pro-
gramming now provided by conventional television,
gives it an important role to play in our national com-
munications structure.”

* Clarification of the Cable Television Rules and Notice of
Proposed Rulemaking and Inquiry, 46 F.C.C.2d 175, 185, 199-200
(April 17, 1974).

** First Report and Order in Docket Nos. 19554 and 18893,
52 F.C.C.2d 1, 43 (April 4, 1975).

15a
Appendiz B.

Once again, in the spring of 1976, the FCC emphasized its
position. “[{T]he Commission has not only declined to regu-
late the rates for these services [including pay cable] but
has preempted their regulation by state and local au-
thorities.’’”’

The State’s Actions

In 1972, the New York State Commission on Cable Tele-
vision (State Commission) was created. N.Y. Exec. Law
§§ 811-31 (McKinney Supp. 1975). The State Commission
was given rather broad powers to regulate cable TV within
New York, see e.g., Id. §§ 816, 824, including the power to
regulate the rates charged by cable TV systems. I/d. §§ 822,
825. Nowhere within the State Commission’s enabling legis-
lation is any distinction drawn between basic cable TV serv-
ice and pay cable TV. The state statutes require that rates
charged by a cable TV company be specified in the com-
pany’s franchise, Jd. § 825(1), and that rates not be changed
except by amendment of the franchise. Jd. §825(2).
Furthermore, any franchise amendment requires the ap-
proval of the State Commission. Jd. §822(1). Thus, any
change in the rates charged for cable TV service requires
the State Commission’s approval.

In March of 1976, the State Commission issued a Clarifi-
eation of Commission Policy, Rates Charged by Cable Tele-
vision ‘Companies for “Auxiliary” Programming, Docket
No. 90010 (March 1, 1976) (Clarification).** In its Clarifica-
tion, the State Commission asserted its authority to regu-
late the rates charged for pay cable TV. It disputed the
FCC’s jurisdiction over such regulation and further dis-

17 Notice of Inquiry in Docket No. 20767, F.C.C. 76-314, ——
F.C.C.2d —— (April 2, 1976) at 2.

“18 The Clarification has been attached to the state defendants’
motion papers. Affidavit of Kenneth J. Connolly, Exh. 1 (dated
May 5, 1976).

l6a
Appendiz B.

puted the FCC’s contention that pay cable rate regulation
had, in fact, been federally preempted. The State Commis-
sion expressed concern that, due to the FCC’s position,
many New York cable TV companies were not complying
with the requirements of the New York Executive Law. In
particular, they were allegedly refusing to file their rates
for pay cable TV, although they did so for basic cable TV.
Many companies supposedly instituted HBO service with-
out specifying the rates charged in their franchise. The
State Commission also claimed that various abuses were oc-
curring concerning the fees charged for pay cable TV.

The Clarification concluded with a specific ruling that pay
cable TV services were not exempt from the requirements
of Section 825 of the Executive Law. In lieu of formal
amendment of their charters “at this time’’, the State Com-
mission required all cable TV companies providing pay
cable services to file a notice of the nature of their pay
cable services along with the rates charged, or else face
appropriate sanction. Finally, the State Commission states
that active enforcement of all these policies will be under-
taken.

[1] Plaintiffs then commenced this action, claiming that
the State’s Clarification violates orders of the FCC in an
area specifically preempted by the FCC. Plaintiffs request
a judgment declaring the State’s attempt to regulate pay
cable TV void and enjoining such regulation.”

* For example, the State Commission alleges that some com-
panies, when refused rate increases for basic cable TV services,
have unilaterally raised their pay cable TV fees.

*° Plaintiffs’ complaint alleges federal jurisdiction under a va-
riety of statutes: 28 U.S.C. §§ 1331, 1337, 1343(3), 2201; 47
U.S.C. §401(b). It seems abundantly clear that this suit arises
under the Federal Communications Act, 47 U.S.C. § 151 et seq.
Jurisdiction is, therefore, based on 28 U.S.C. § 1337. See Post

(footnote continued on following page)

17a
Appendiz B.

Contentions

The plaintiffs simply contend that the State Commis-
sion’s Clarification constitutes price regulation of pay cable
TV which has been prohibited and preempted by the FCC.

Defendants take the position that the State Commission’s
action does not attempt to regulate the charges for pay
cable, that the FCC’s action does not effect preemption,
and the FCC lacks jurisdiction to preempt.

In addition, the defendants seek judgment in their favor
because of an asserted lack of a case or controversy, be-
cause of mootness, and plaintiffs’ lack of standing.

Because these last claims are without substance, and
because the FCC has the power and has preempted the
right to control pay cable charges, judgment should be
granted in favor of the plaintiffs.

Issue

[2] The real issue simmers down to: Whether juris-
diction over pay cable rates is ‘‘reasonably ancillary to the
effective performance of the Commission’s various re-
sponsibilities for the regulation of television broadcast-
ing’? United States v. Southwestern Cable Co., 392 U.S.
157, 178, 88 S.Ct. 1994, 2005, 20 L.Ed.2d 1001 (1968).

Power to Regulate Cable TV

The FCC’s authority to regulate cable TV has been up-
held by the Supreme Court on two occasions. The first
case arose out of an agency rule which forbade a cable

(footnote continued from preceding page)

v. Payton, 323 F.Supp. 799 (E.D.N.Y.1971). The per se inter
interstate nature of cable TV has been noted elsewhere. National
Association of Regulatory Utility Commissioners v. FCC, 174
U.S.App.D.C. 374, 533 F.2d 601, 621 (1976) (Lumbard, J., con-
curring). There is no need to consider the other alleged juris-
dictional grounds.

18a
Appendix B.

TV system from importing distant television signals into
any of the nation’s 100 largest television markets. South-
western Cable Company sought to bring distant (Los An-
geles) signals to its cable subscribers in San Diego, one
of the 100 largest markets. At the request of a third
party, the FCC ordered Southwestern to halt this proposed
expansion of its services. The Supreme Court upheld the
Commission’s authority. United States v. Southwestern
Cable Co., 392 U.S. 157, 88 S.Ct. 1994, 20 L.Ed.2d 1001
(1968). The Court found this authority in the general
language and purpose of the Federal Communications Act.
47 U.S.C. §$§ 151, 152(a). However, without specifically
detailing the limits of the FCC’s power, the Court noted
that such authority is ‘‘restricted to that reasonably ancil-
lary to the effective performance of the Commission's
various responsibilities for the regulation of television
broadceasting.’’ United States v. Southwestern Cable Co.,
392 U.S. 157, 178, 88 S.Ct. 1994, 2005, 20 L.Ed.2d 1001
(1968).

Four years later, the Court further illuminated the
contours of its ‘‘reasonably ancillary’’ test. The FCC had
promulgated rules requiring cable systems with a certain
minimum number of subscribers to originate some pro-
grams. A cable system subject to the new rules challenged
the FCC’s authority to issue them, and the agency’s power
was again upheld. United States vy. Midwest Video Corp.,
406 U.S. 649, 92 S.Ct. 1860, 32 L.Ed.2d 390 (1972). The
Court’s inquiry focused on whether the program-origina-
tion rules were ‘‘reasonably ancillary’’ to the performance
of the FCC’s responsibilities for regulating TV broadeast-
ing. Id. at 663, 92 S.Ct. 1860. Holding in the affirmative,
the Court noted that ‘‘the Commission’s legitimate concern
in the regulation of CATV [cable TV] is not limited to econ-
trolling the competitive impact CATV may have on broad-
cast services ... but extends also to requiring CATV affirm-

19a
Appendiz B.

atively to further statutory policies.’’ Id. at 664, 92 S.Ct.
at 1869.*° The Court also stated that, merely because the
cablecasts would be transmitted without use of the broad-
cast spectrum, the regulation was no less ancillary to the
FCC’s jurisdiction over broadcast services. Id. at 669, 92
S.Ct. 1860. Emphasis was placed on the rule’s effect of
providing home viewers with ‘‘suitably diversified pro-
gramming.’’ Jd. With the distinction between protection
and promotion and that between broadcasting and cable-
casting set aside, the Court’s inquiry became much simpler.

[T]he critical question in this case is whether the
Commission has reasonably determined that its orig-
ination rule will ‘‘further the achievement of long-
established regulatory goals in the field of television
broadcasting by increasing the number of outlets for
community self-expression and augmenting the public’s
choice of programs and types of services . . .’’ (cita-
tion omitted) We find that it has.

Id. at 667-68, 92 S.Ct. at 1870.

Reasonably Ancillary?

[3] The FCC has found that pay cable TV increases
programming diversity,” an objective which has specifically
been held to be reasonably ancillary to the FCC’s respon-
sibilities over broadcasting. United States v. Midwest
Video Corp., supra, 406 U.S. at 667-68, 92 S.Ct. 1860, 32
L.Ed.2d 390. Pay cable TV’s capability to satisfy minority

21In short, the regulatory authority asserted by the Commis-
sion in 1966 and generally sustained by this Court in Southwestern
was authority to regulate CATV with a view not merely to pro-
tect but to promote the objectives for which the Commission had
been assigned jurisdiction over broadcasting. United States v.
nN Video Corp., 406 U.S. 649, 667, 92 S.Ct. 1860, 1870
( ;

22 See note 16 and accompanying text supra.

20a
Appendia B.

tastes which are ordinarily overlooked by conventional tele-
vision® enhances and fortifies this objective.

In furtherance of program diversification and applying
the ‘‘reasonably ancillary’ test, the Ninth Circuit has up-
held the FCC’s power to regulate access channels, including
leased access channels. American Civil Liberties Union
v. FCC, 523 F.2d 1344 (9th Cir. 1975).

Defendants rely heavily on National Association of
Regulatory Utility Commissioners v. FCC, 174 U.S. App.
D.C. 374, 533 F.2d 601 (1976) (NARUC), which limited the
FCC’s reasonably ancillary powers. NARUC held that
the FCC could not preempt state regulation of the use of
cable TV leased access channels for two-way non-video
communications such as surveys and burglar alarms. The
NARUC court reached its result in spite of defining ‘‘an-
cillary to broadcasting’’ broadly.

Midwest, without question, takes a giant step beyond
Southwestern, in relaxing the nature of the ancillari-
ness necessary to support an assertion of Commission
power over cable. As we read the case, it turns upon
a determination that ‘ancillary to broadecasting’’
means not only ‘‘for the protection of broadcasting,’’
but also embodies any regulation of cable which in its
own right serves the purposes pursued by broadcast
regulation. Since a prime purpose in the area of
broadcast regulation is the assurance of variety in
what appears on the home viewer’s screen, the Court
concluded that an origination requirement aimed at
providing ‘‘suitably diversified programming,’’ is with-
in the ancillariness standard.

*8 Td.

** National Association of Regulatory Utility Commissioners vy.
FCC, 174 U.S.App.D.C. 374, 533 F.2d 601, 610 n. 44 (1976)
(NARUC).

2la
Appendia B.

Id. at 615 (footnotes omitted). NARUC concluded that
non-video return signals*’ from the viewer to the cable TV
system had no relation to the FCC’s power over broad-
casting. These signals were private in nature and, in fact,
had nothing to do with broadcasting. The court con-
trasted cable prograins which, to the home viewer, are
indistinguishable from broadcasts, even though they are
transmitted by cable and not over the air. Jd. at 615-16.
Although NARUC did limit the FCC’s powers, that limit
was placed well beyond the FCC’s present attempts to
regulate pay cable TV.”

The nexus between broadcasting purposes and “leased
access channels for two-way, point-to-point, non-video com-
munications’”” which was found to be so patently missing in
NARUC is obviously present in pay cable TV.

The FCC has determined that rates for pay cable TV
should be set by marketplace forces and not regulated by
state or local authorities. The rationale behind this deci-
sion is simply that rate regulation can be expected to chill
development of the new medium, whereas a free market en-
vironment should enable it to grow. Since the FCC has
also determined that pay cable TV will increase pro-
gramming diversity, it follows that efforts to nurture and

28 The court specifically limited its consideration to “non-video
return transmissions’, and did not consider return video signals
because of the latter’s present economic and technological un-
feasibility. NARUC, supra, at 605 n.1.

26 Judge Wilkey’s opinion for the court ruled on an alternative
ground—that these systems were really carriers and, because they
were intrastate as well, they were specifically excluded from the
FCC’s purview by 47 U.S.C. § 152(b). However, NARUC was
decided by a 2-1 vote, with Judge Lumbard of the Second Cir-
cuit concurring, and Judge Skelly Wright dissenting. Judge
Lumbard’s opinion deals only with the “reasonably ancillary”
question and does not reach the issue raised by 47 U.S.C. § 152(b).

27 NARUC, supra, at 605.

22a
Appendia B.

protect this infant medium will, likewise, result in an in-
crease in programming variety. This same rationale sup-
ported an earlier decision of the FCC to preclude rate regu-
lation of another infant medium, subscription television
(STV).** National Association of Theatre Owners v. FCC,
136 U.S.App.D.C. 352, 420 F.2d 194 (D.C.Cir.1969), cert.
denied, 397 U.S. 922, 90 S.Ct. 914, 25 L.Ed.2d 102 (1970)
(NATO). NATO upheld the FCC’s jurisdiction over rate
regulation for STV. More recently, the Ninth Circuit has
affirmed the FCC’s jurisdiction to regulate the rates for
cable TV access channels, including those for leased access
channels. American Civil Liberties Union v. FCC, 523 F.2d
1344 (9th Cir. 1975).

Defendants argue that rate regulation of pay cable TV
transcends the limits of the FCC’s “ancillary” jurisdiction.
In Midwest Video, the Supreme Court upheld the FCC’s
cablecasting requirements by a 5-4 vote, with Chief Justice
Burger casting the deciding vote. In his concurring opinion,
the Chief Justice stated his belief that “the Commission’s
position strains the outer limits of even the open-ended and
pervasive jurisdiction that has evolved by decisions of the
Commission and the courts.” United States v. Midwest
Video Corp., 406 U.S. 649, 676, 92 S.Ct. 1860, 1874, 32
L.Ed.2d 390 (1972) (Burger, C. J., concurring). Relying on
the language of the Chief Justice, defendants argue that the
present attempt to rate regulate pay cable TV exceeds these
“outer limits”. However, if a cable TV system can be
“drafted against [its] will to become a broadcaster” 406
US. at 680, 92 S.Ct. at 1876 (Douglas, J., dissenting), and
still be within the “outer limits”, it is hard to see how per-
mitting free play in the great variety of pay TV programs
can be outside those limits.

Head v. New Mexico Board of Examiners, 374 U.S. 424,
83 S.Ct. 1759, 10 L.Ed.2d 983 (1963) and TV Piz, Ine. v.

** STV is pay over-the-air television.

23a
Appendix B.

Taylor, 304 F.Supp. 459 (D.Nev. 1968), aff’d, 396 U.S. 556,
90 S.Ct. 749, 24 L.Ed.2d 746 (1970), cited by defendants are
inapposite. On an analysis of the facts in those cases, the
Court merely found that the Commission had not, in fact,
exercised its power to preempt. In this case, the preemption
or, as stated by the defendants’ clarification, the “purported
preemption of the field’’, is virtually conceded. The defend-
ants, however, “fail to agree with the legality of the FCC’s
preemptive policy”.

The state defendants argue that their actions are merely
concerned with franchising. Since the power to franchise is
a state power, delegable to localities, the PCC allegedly
cannot preempt this area.** Defendants have overstated
their case. The FCC has developed a policy of dual juris-
diction over cable TV, with responsibilities divided between
the Commission and state and local governments. See Na-
tional Cable Television Association v. United States, 415
US. 336, 339, 94 S.Ct. 1146, 39 L.Ed.2d 370 (1974). Specifi-
eally, the FCC has concluded that local franchising of cable
TV systems is preferable to a scheme of federal licensing.”
Also, rate regulation of basic cable TV services has been
delegated to the states. On the other hand, the FCC has
consistently precluded local rate regulation of pay cable

2°In support of this assertion, the state defendants cite two
old Supreme Court cases. Russell v. Sebastian, 233 U.S. 195, 34
§.Ct. 517, 58 L.Ed. 912 (1914); City of Owensboro v. Cumberland
Telephone & Telegraph Co., 230 U.S. 58, 33 S.Ct. 988, 57 L.Ed.
1389 (1913). However, neither of these cases deal with federal
preemption nor do they involve problems of conflicting state and
federal powers. They concern the protection of property rights
acquired by utility companies prior to the development of fran-
chising systems.

3° Commission Proposals for Regulation of Cable Television, 31
F.C.C.2d 115, 136 (August 5, 1971); see 47 C.F.R. § 76.31 (1975).

31 See notes 13 to 15 and accompanying text, supra.

24a
Appendiz B.

TV.” The state defendants’ present actions go beyond mere
franchising; they attempt to regulate the rates charged for
pay cable TV in clear conflict with federal policy. Although
defendants argue that their actions are authorized by their
enabling legislation, N.Y. Exec. Law §§ 811-31 (McKinney
Supp.1975), this very statute contradicts their assertion of
authority independent of the FCC. One of the enumerated
legislative findings therein is a need “to promote the rapid
development of the cable television industry responsive to
community and public interest and consonant with policies,
regulations and statutes of the federal government... .”
Id. § 811 (emphasis added).

Ripeness, Mootness, Standing

The defendants’ claims of ripeness, mootness and stand-
ing can be disposed of with little discussion.

[4-6] The defendants’ Clarification®® of Commission
policy makes it abundantly clear that it is the Commission’s
policy to require cable TV companies in New York to
specify in the franchise the rates for “auxiliary program-
ming’’ as well as “rates for . . . regular subscriber serv-
ices”. The Clarification further recognizes the “growing
popularity of the ‘home box office’ programming service”.
The Clarification then acknowledges that cable TV services
have failed to file the rates for cable pay TV, « practice
which was “attributable to the Federal Communications

** Notice of Inquiry in Docket No. 20767, FCC 76-314, ——
F.C.C.2d —— (April 2, 1976); First Report and Order in Docket
Nos. 19554 and 18893, 52 F.C.C.2d 1 (April 4, 1975); Clarifica-
tion of the Cable Television Rules and Notice of Proposed Rule-
making and Inquiry, 46 F.C.C.2d 175 (April 17, 1974); Cable
Television Report and Order, Docket Nos. 18397, et al., 36 F.C.C.2d
143 (February 3, 1972); Request by Time-Life Broadcast, Inc.,
31 F.C.C.2d 747 (September 8, 1971).

** See note 18 supra.

25a
Appendix B.

Commission’s position that state and local governments
may not involve thémselves in the regulation of subscriber
rates for cable television services other than those described
above as ‘regular’ or ‘basic’.”* The Clarification then goes
on to state that, because the preemption policy of the Com-
mission has not been tested in a court, it will insist on the
filing as required under its Clarification. Thus, although
inviting a court test, it now, given the opportunity, seeks to
avoid it.** For noncompliance, it threatens enforcement. In
short, it prefers the threat to the test.

Although it has not required the plaintiffs presently sup-
plying pay cable TV service to amend their charter, “at this
time”, no assurance is given of when such amendment might
be required. The necessary long term and substantial com-
mitments required for the development of pay cable TV are
not likely to be undertaken while “waiting for the other shoe
to drop”.

Under these circumstances, the test for ripeness is met.
Abbott Laboratories v. Gardner, 387 U.S. 136, 87 S.Ct.
1507, 18 L.Ed.2d 681 (1967).

Abbott Laboratories, swpra, established a two-part test
for determining the ripeness of an action. The test re-
quires the district courts to ‘‘evaluate both the fitness of
the issues for judicial decision and the hardship to the
parties of withholding court consideration.’’ Abbott
Laboratories v. Gardner, 387 U.S. 136, 149, 87 S.Ct. 1507,
1515, 18 L.Ed.2d 681 (1967). The factors which led the
Court to find that case fit for judicial decision are all
present here. First, this action involves purely legal ques-
tions, essentially whether the FCC has jurisdiction to pre-

34 Td.

85 Tt should be noted that New York could have contested the
FCC’s preemption of pay cable TV rate regulation without forcing
plaintiffs to bring this suit. The FCC’s decision was reviewable
in the Courts of Appeals pursuant to 28 U.S.C. § 2342.

26a

Appendiz B.

empt pay cable TV rate regulation. Secondly, the Clarifica-
tion issued by the State Commission possesses the requisite
finality. It is not an informal statement, nor is it the rul-
ing of a subordinate administrative officer. Rather, it is
a ruling by the five-member state commission which has
jurisdiction to regulate cable TV in New York. Finally,
the Clarification is effective upon publication. Tt demands
compliance within two months, threatens sanctions, and
promises active enforcement of its rulings.

The second prong of the ripeness test considers the harm
caused to the plaintiffs by withholding judicial review. In
Abbott Laboratories, supra, plaintiffs were forced to
comply or else to face civil and criminal sanctions. Here,
although the threat of sanction is not as ominous, and the
required filing not as onerous, the mere issuance of the
Clarification has adversely affected all plaintiffs. Because
cable TV is a capital intensive enterprise, cable systems
which want to begin pay cable operations have been de-
terred from doing so by the threat of rate regulation.”
Existing pay cable systems are deterred from expanding
geographically. Also, since the issuance of the Clarifica-
tion, HBO has been severely hampered in its efforts to ob-
tain new affiliates in New York State.** These facts are
unlike those in Daley v. Mathews, 536 F.2d 519 (2d Cir.
1976), cert. denied sub nom., Daley v. Califano, —~ U.S.
——, 97 S.Ct. 1548, 51 L.Ed.2d 773 (1977), where the See-
ond Cireuit recently affirmed a dismissal for want of ripe-
ness. In contrast to the “tentative possibility of future
inspection” Jd. at 528, present in Daley, swpra, the hard-

-

** See Affidavit of Stuart Feldstein, {2 (dated June 10, 1976).
See also affidavit of James R. Hobson, {| 12 (dated June 4, 1976).

* See Affidavit of Stuart Feldstein, 16 (dated June 10, 1976).
** Affidavit of Bruce P. Sawyer, 4 (dated June 11, 1976).

¢

27a
Appendix B.

ship to the plaintiffs herein is present and real.** The
action is ripe for judicial review.

Mootness

[7] Little need be said concerning defendants’ claim of
mootness as to four of the plaintiff TV systems which have
filed with reference to pay cable TV. No claim is made
that the case has been mooted as to the fifth cable TV
plaintiff. In addition, the four filing plaintiffs filed under
protest. The threat of having to amend their franchises
and obtain the approval of the State Commission at any
time subject to sanctions for failure is bound to affect
adversely the stations filing under protest.** As indicated
previously, making long range plans is impractical while
‘‘waiting for the other shoe to drop’’. In addition, moot-
ness is not raised as to the intervening plaintiffs.

Standing

[8] Both NCTA and NYCTA, whose standing is at-
tacked, clearly represent members adversely affected by the
defendants’ action. They, as well as HBO, whose
pecuniary interest is clearly involved, have standing.”

8° Furthermore, the FCC has intervened as a party-plaintiff
in this action. That agency, which was created “to make avail-
able a rapid, efficient, Nation-wide, and world-wide wire and radio
communieation service”, 47 U.S.C. § 151, has a very real interest
in preventing New York from regulating areas within the sphere
of federal control.

*° See Begins v. Philbrook, 513 F.2d 19 (2d Cir. 1975).

1 “Tt is clear that an organization whose members are injured
may represent those members in a proceeding for judicial review.”
Sierra Club v. Morton, 405 U.S. 727, 739, 92 S.Ct. 1361, 1368, 31
L.Ed.2d 636 (1972). See also New York Public Interest Research
Group, Inc. v. Regents of the University of the State of New York,

(footnote continued on following page)

28a
Appendia B.

For the reasons herein, the motion of the plaintiffs for
summary judgment on the first claim in the complaint
should be granted. The plaintiffs are to prepare a judg-
ment to be agreed upon and submitted to me for signature.
If the parties are unable to agree, judgment may be settled
on three days notice.

SO ORDERED.

(footnote continued from preceding page)

516 F.2d 350 (2d Cir. 1975). In fact, one of these plaintiff or-
ganizations, NCTA, has represented its members in similar federal
litigation. See, e. g., National Cable Television Association, Inc.
‘1 “ States, 415 U.S. 336, 94 S.Ct. 1146, 39 L.Ed.2d 370

29a

APPENDIX C—Judgment of the United States Dis-
trict Court for the Northern District of New York.

UNITED STATES DISTRICT COURT
NortrHern District or New York

76-CV -154

FinaL JUDGMENT

+
. 4

BrookHaven Caste TV Inc.; Capiron Casievision Inc.;
Samson Cas.evision Corp.; TELEPROMPTER CaBLe Sys-
TEMS, Inc.; WARNER CaBLE OF OLEAN, INc.; NATIONAL
Caste TeLevision Association, Inc.; New York Strate
Caste Tevevision Association, and Home Box Orrice,
Inc.,

Plaintiffs,

Unrrep States or America and FEepeRaAL CoMMUNICATIONS
ComMISsION,

Intervenors-Plaintiffs,
—against—

Rosert F’. Ketty, Chairman; Jerry A. Danzic, Vice Chair-
man; MicuaeL H. Prenpercast; Exr1 Wacner; and
Epwarp J. Weeman, Commissioners of the New York
State Commission oN CaBLe TELEVISION,

Defendants,

NatTIonaL AssociaTION oF RecuLatory UTILITY
CoMMISSIONERS,
Intervenor-Defendant,

Ciry or New York,
-_—-- Amicus Curiae.

+
ve

30a
Appendiz C.

Pursuant to the Memorandum Decision and Order of this
Court dated March 9, 1977, granting plaintiffs’ motion for
summary judgment on the first claim in the complaint:

A. It is hereby ordered, declared, adjudged and decreed:

1. The Federal Communications Commission (‘‘FCC’’)
has the authority and jurisdiction to preempt the regula-
tion of pay cable rates and to prohibit state and local gov-
ernments from regulating such rates ;*

2. The FCC has validly preempted the regulation of pay
cable rates and prohibited state and local governmental
regulation of such rates;

3. Neither the State of New York nor any instrumen-
tality thereof nor any locality therein has the authority to
regulate pay cable rates;

4. Attempts by the New York State Commission on
Cable Television (‘‘State Commission’’), including its
Clarification of Policy dated March 1, 1976, to require cable
television companies to file their pay cable rates and
changes therein with the State Commission other than for
purely informational purposes and to require such com-
panies to specify said rates and changes in their franchises
and to require such companies to obtain consent of the
franchising locality and the State Commission for such
rates and any changes therein are null and void; and

5. Pay cable rates may be determined and changed by
any cable television company without the consent of any
franchising locality or the State Commission.

* Pay cable rates refer to per-channel and per-program charges
for programs and services offered by cable television systems in
addition to basic cable television services (i.e., the carriage of
television signals and origination of access and other programs
for which there is no separate charge in addition to the regular
fee charged to all subscribers).

3la
Appendix C.

B. Defendants, their agents, employees and all persons
in active concert ond participation with them are hereby
permanently enjoined and restrained from directly or indi-
rectly:

1. Regulating or attempting to regulate pay cable rates
in any manner;

2. Requiring or attempting to require cable television
companies to specify their pay cable rates in their fran-
chises, or requiring or attempting to require approval of
such rates or changes by the State Commission or local
franchising authority; and

3. Commencing any judicial. administrative or other
proceedings or applying or threatening to apply any sanc-
tions against any plaintiff or any cable television company
for imposing or changing any pay cable rates without
specifying any such rates or changes in its franchise, or
without obtaining the approval of the State Commission or
of any local franchising authority.

C. It is further ordered, adjudged and decreed that
jurisdiction is retained by this Court for the purpose of
enabling any of the parties to apply for such further relief
as may be necessary or appropriate for the effectuation of
this Final Judgment, for the enforcement of compliance
therewith, and for the punishment of violations thereof.

D. The Clerk is directed to make entry of final judgment
in accordance with Rule 58 of the Federal Rules of Civil
Procedure.

Dated: May 11, 1977
Epmvunp Port
United States District Judge

32a

APPENDIX D—Statement of Commission Policy,
Rates Charged by Cable Television for Subscrip-

tion Programming.
STATE OF NEW YORK

CoMMISSION ON CaBLE TELEVISION

In the Matter of

Rates Charged By Cable Television Companies
for Subscription Programming

STATEMENT OF Po.icy
(Issued: October 19, 1973)

Subdivisions 1 and 2 of Section 825 of the Executive Law
provide as follows:

1. Except as otherwise provided in this section, the
rates charged by a cable television company shall be
those specified in the franchise which may establish,
or provide for the establishment of reasonable classi-
fications of service and categories of subscribers, or
charge different rates for differing services or for
subscribers in different categories.

2. Such rates may not be changed except by amend-
ment of the franchise.

Subdivision 1 of Section 822 of the Executive Law provides
as follows:

No. . . amendment of any franchise . . . shall be
effective without the prior approval of the commis-
re

We have this day issued an order granting an application
by TelePrompTer County Cable TV Corporation for ap-

33a
Appendix D.

proval of a franchise amendment setting forth the rate at
which subscription programming will be made available by
TelePrompTer in the City of Mt. Vernon. In the course of
our review of the TelePrompTer application, it has come
to our attention that other cable television companies in the
state are either presently offering subscription program-
ming for which a charge is made or intend to do so in the
near future. In a number of instances of which we are
aware, the franchises under which these companies operate
do not set forth the rate at which such programming is
being, or will be, made available. Apparently, many cable
television companies are either unaware of the require-
ments of Sections 822 and 825 or uncertain as to their
applicability to the rates for subscription programming.

We have made clear in the TelePrompTer case that we
believe this Commission’s jurisdiction under Sections 822
and 825 of the Executive Law extends to the rates for
subscription programming offered by cable television
companies.

In TelePrompTer, we sought and obtained a judicial
order prohibiting the company from charging for subscrip-
tion programming prior to Commission approval of a
franchise amendment specifying the rate for such service.
However, the circumstances of that case were, in our view,
quite unique,* and we have concluded that the public in-

*In TelePrompTer, we were faced with a situation in which
the company first applie@ for our approval of a franchise amend-
ment and then withd e application, claiming “pre-emption,”
when we failed to take #tion in accordance with the company’s
apparent timetable. In these circumstances, there could be no
basis for any claim that the company was unaware of the re-
quirements of the statute. And, having initially resolved any
uncertainty as to the applicability of these requirements in favor
of Commission jurisdiction, the company’s subsequent resort to
the pre-emption argument had a somewhat hollow ring.

34a
Appendix D.

terest would not be served by a similar approach in all
cases. Accordingly, we will not, as a general matter, insti-
tute legal proceedings to enjoin cable television companies
that are presently engaged in subscription programming,
or that are planning to engage in such programming prior
to December 1, 1973, from charging for such programming
if the cable television company notifies the Commission, in
writing by not later than October 29, 1973

(1) of the material facts concerning each such exist-
ing or proposed operation (including, at least, the
name of the program supplier, the municipalities to be
served, the rate for such service and the date service
commenced or will commence and

(2) that it will promptly, and with due diligence, take
whatever measures are necessary to satisfy the re-
quirements of Sections 822 and 825 of the Executive
Law.

Cable television companies who avail themselves of this
procedure will, of course, be expected to in fact use due
diligence to satisfy these regulatory requirements. The
Commission will review all Section 822 applications filed in
accordance with this policy statement, and our disposition
of those applications will be governed by the provisions of
that section.

Any cable television company intending to engage in
subscription programming as to which the notification pro-
cedure described above either is inapplicable or has not
been followed must comply with the requirements of Sec-
tions 822 and 825 prior to demanding, exacting, or collect-
ing any charge for such programming.

Commissioners participating: Robert F. Kelly, Chair-
man; Jerry A. Danzig, Vice Chairman; Eli Wager, Edward
Wegman, Michael H. Prendergast, Commissioners.

35a

APPENDIX E—Clarification of Commission Policy,
In Re Rates Charged by Cable Television Com-
panies for “Auxiliary” Programming.

STATE OF NEW YORK

CoMMISSION ON CaBLE TELEVISION
Docket No. 90010
In the Matter of

Rates Charged by Cable Television Companies for
‘‘ Auxiliary’’ Programming

CLARIFICATION OF Commission PoLicy
(Issued: March 1, 1976)

For the reasons hereafter described, we are today
clarifying our policy regarding the regulation of subscriber
rates for cable television services. In particular, we wish
to make clear that Article 28 of the Executive Law re-
quires that all rates charged to subscribers by cable
television companies in New York must be specified in the
cable television franchise held by the cable operator. This
requirement applies not only to rates for such regular
subscriber services as the transmission of television and
radio broadeast signals and non-broadecast access and
origination programming, but also to the rates for
auxiliary programming such as that provided for an addi-
tional per-channel charge.

LeGcaL ConTEXT

Section 825 of the Executive Law provides, in part, as
follows:

1. Except as otherwise provided in this section, the
rates charged by a cable television company shall be

” 36a
Appendiz E.

those specified in the franchise which may establish, or
provide for the establishment of reasonable classifica-
tions of service and categories of subscribers, or charge
different rates for differing services or for subscribers
in different categories.

2. Such rates may not be changed except by amend-
ment of the franchise.

Section 822 of the Executive Law provides, in part, as
follows:

1. No transfer, renewal or amendment of any
franchise . . . shall be effective without the prior
approval of the commission.

Although these provisions, by their terms, apply to all
rates charged by a cable television company, it has been
the practice of many cable television companies to comply
with Sections 822 and 825 with regard to their rates for
‘‘basic’’ subscriber services (i.e., the transmission of tele-
vision and radio broadcast signals and access and origina-
tion programming) while avoiding these same provisions
with regard to their rates for specialized programming
sold to their subseribers on a per-channel basis. The extent
of this practice is not now known with precision, but the
growing popularity of the ‘‘Home Box Office’’ pro-
gramming service has made the practice increasingly more
widespread in recent years.*

The view that rates for subscription programming are
excluded from the requirements of Section 825 is at-

*In March 1973 only 16,100 subseribers in New York State
received “pay cable” services. By November 1975 approximately
142,500 subseribers were receiving “pay” cable services. Of these
almost 139,000 were subscribers to the Home Box Office pro-
gramming package.

37a
Appendiz E.

tributable to the Federal Communications Commission’s
position that state and local governments may not involve
themselves in the regulation of subseriber rates for cable
television services other than those described above as
‘‘regular’’ or ‘‘basic.’’ See, e.g., paragraph 84 of the
Clarification of Cable Television Rules, FCC 74-384, 46
FCC 2d 175, 29, RR 2d 1621 (1974); paragraph 216 of the
First Report and Order in Docket Nos. 19554 and 18893,
FCC 75-369, 52 FCC 2d 1, 33 RR 2d 367 (1975). The FCC
asserts that it has lawfully pre-empted all regulation in
this area pursuant to its authority under the supremacy
clause of the United States Constitution** and its mandate
to regulate broadcast communications under the Com-
munications Act.*** This preemption it is argued, nullifies
any law or franchise agreement to the contrary. The FCC’s
assertions in this matter have never been tested in a court
of law.**** However, as a result of the FCC’s position,
many cable television companies and many municipalities
in New York have been confused with regard to the au-
thority of local governments to deal with the rates of ‘‘pay
cable’’ services.

** “This Constitution, and the laws of the United States which
shall be made in pursuance thereof; and all treaties made, or which
shall be made, under the authority of the United States, shall be
the supreme law of the land; and the judges in every State shall!
be bound thereby, anything in the Constitution or laws of any
State to the conrary notwithstanding.” U.S. Const., art. VI, el. 2.

*** Communications Act of 1934, as amended.

*e** The United States Supreme Court has upheld the FCC’s au-
thority to regulate the field of cable television in a manner
“ancillary” to its regulation of broadcasting. United States v.
Midwest Video, 406 U.S. 649 (1972); United States v. South-
western Cable, 392 U.S. 157 (1968). Neither of these cases dealt
with the subject at hand and both pre-date the FCC’s current
eable regulations. In TV Piz, Inc. v. Taylor, 304 F. Supp. 459
(D.C. Nev., 1968), aff'd per curiam, 396 U.S. 556 (1969), the
FCC’s right of pre-emption was supported, but this case, too, did
not rule on the question of rate regulation.

38a
Appendiz E.

Ear_ty ComMMIssion ACTIVITY

The problem of “pay cable” regulation is not a new one.
In September, 1973, TelePrompTer County Cable TV Cor-
poration (“TPT”) attempted to establish subscriber rates
for Home Box Office service at Mount Vernon, New York.
Following applicable law, it sought to do so by means of an
amendment to its franchise and approval of that amend-
ment from us. TPT’s application was opposed by a number
of motion picture theatre associations in connection with
their requests for rule making in the general area of “pay”
programming.* TPT subsequently withdrew its applica-
tion, claiming that the FCC preemption relieved it of the
requirement of local or State approval of “pay cable” rates.

On October 1, 1973, we obtained an Order from the Su-
preme Court, Albany County, restraining TelePrompTer
from imposing any charge for subscription programming in
Mount Vernon until we had approved such charge in ac-
cordance with the requirements of Sections 822 and 825 of
the Executive Law. TelePrompTer thereafter requested
once again that we approve its “pay cable” rate, and, on
October 19, 1973 we granted such approval.**

On the day we issued our Order in TelePrompTer, Oc-
tober 19, 1973, we also issued a Statement of Policy regard-
ing “Rates charged by Cable Television Companies for
Subscription Programming.” In that statement, we indi-
eated our recognition of the problems presented in this
area and we reasserted our authority, pursuant to Sections

* Note petitions of National Association of Theatre Owners, Inc.
(NATO), the Metropolitan Motion Picture Theatre Association
and the New York Chapter of NATO.

** TelePrompTer County Cable TV, Order Approving Fran-
chise Amendment Subject to Conditions, October 19, 1973.

39a
Appendiz E.

822 and 825 of the Executive Law, to require franchise
amendments and our approval for the establishment or
modification of any subscriber rates. Although we did not
grant the theatre owners’ requests for strict regulation of
“pay cable” programming, we did require that all cable
television companies which engaged in or proposed to en-
gage in “pay” cable programming services notify us:

(1) of the material facts concerning each such exist-
ing or proposed operation . . . and

(2) that it will promptly, and with due diligence take
whatever measures are necessary to satisfy the re-
quirements of Sections 822 and 825 of the Executive
Law.

In early 1974, we adopted revised rules concerning fran-
chising procedures and franchise standards (9 NYCRR
Parts 594 and 595). Section 595.1(e) of our Rules states
that a franchise will be confirmed by the commission only if
it contains:

A provision setting forth with specificity all rates
to be charged by the franchise for any aspect of cable
television service, or a provision certifying that the
municipality and the franchisee are unable to agree
upon the rate or rates to be charged and specifying
that said rate(s) shall be determined by the Commis-
sion on Cable Television pursuant to section 825(5) (e)
of the Executive Law. (fn.)

[fn.]

Typically, rates are specified with respect to such mat-
ters as installation of first service connection; installa-
tion of additional connections on same premises; basic
monthly service for first connection; basic monthly
service for additional connections ; subscription channel

40a
Appendiz E.

or channels; converters; use of leased channel or chan-
nels; and bulk service to hotels, motels, and others
similarly situated. (emphasis added)

Recent DEVELOPMENTS

Despite the foregoing, no specific actions were taken on
our part to force “pay cable” services into the context of
local franchises. At that time the extent of “pay cable” in
New York was not great and, even with the TelePrompTer
(Mt. Vernon) decision, a policy of strict enforcement did
not appear necessary. We were sympathetic to the gener-
ally accepted policy of allowing the cable television industry
to develop its “auxiliary” services without hindrance, and
were, th«*efore, reluctant to impose the strict requirements
of Sections 822 and 825 upon cable operations and munici-
palities which had themselves established working under-
standings regarding the development of “pay cable”
services.

We remain sympathetic to the notion of free growth in
the field of “auxiliary” cable services. However, tho results
of such development since the initiation of pay cable, and
the failure of many cable operations to comply with our
filing requirements, have indicated that our jurisdiction in
this area, and the obligations of the Executive Law and our
Rules in this regard, must be reaffirmed with a new degree
of certainty.

It is now evident that the message contained in our Tele-
PrompTer Order of October 19, 1973 and our Statement of
Policy was not understood clearly by a large number of
cable television companies and municipalities in New York.
Moreover, the confusion and misapprehension expressed by
these companies and municipalities have not been resolved
in the time since those actions were taken. Late circum-

4la
Appendia E.

stances indicate that the implications of these developments
have become increasingly more serious.

Within the past year several cable television companies
have unilaterally raised their ‘‘pay’’ rates immediately
after they were denied similar increases in their ‘‘regular’’
rates by their respective franchisors.* Some companies
have used the institution of Home Box Office service as an
offer in negotiation, guid pro quo, for increases in their
regular rates.** It has been alleged in recent months ihat,
in some localities, cable television companies have refused
to initiate Home Box Office programming in punitive retali-
ation for the actions of their franchisors regarding ‘‘reg-
ular’’ rates.*** In other instances, companies have nego-
tiated with their franchisors regarding ‘‘pay cable’’ rates
and then have informed the Commission that resulting
franchise provisions have no effect due to FCC pre-emption
of subscription programming.****

As the provision of Home Box Office Service has become
increasingly widespread, many cable television companies
have instituted this service and established subscriber rates
therefor without specifying those rates in their local
franchises.

Discussion AND CONCLUSIONS

The position of this agency regarding the regulation of
subscriber rates for all types of cable television services

* Note, e.g.. Community Development Long Island Corporation
at Oyster Bay.

** Note, e.g., TelePrompTer Corporation at New Windsor and
Cornwall.

**® See letter from Pamela M. Farr, Supervisor Town of Big
Flats regarding TelePrompTer Cable TV, Inc.

#*e° Fg., People’s Cable at Pittsford.

42a
Appendia E.

should never have been doubted by cable operators or
municipal officials. The language of the Executive Law and
our Rules clearly require all subscriber rates to be estab-
lished or modified only through the local franchise and wi‘h
our approval. Our October 19, 1973 pronouncements re-
iterated this position and made it clear that “pay cable’’
services were not excluded.

The sole basis for any contrary conclusion is the FCC’s
purported pre-emption of the field. However, our actions
must be guided by our clear statutory mandate until such
time as a court of competent jurisdiction has ruled that the
FCC has, in fact, duly limited that statutory mandate.
No court has yet so ruled, and the actions of the State
Supreme Court in the TelePrompTer case, referenced
above, indicate support for our position.

Not only do we fail to agree with the legality of the
FCC’s pre-emptive policy; we also question its wisdom.
An examination of rate structures and developments in the
establishment of subscriber rates has made it evident that
a complicated nexus exists between those rates charged for
‘‘regular’’ cable services and those charged for ‘‘auxiliary’’
services. Municipalities are still unsure as to their juris-
diction concerning ‘‘pay cable’’. Moreover, clear instances
of abuse resulting from this uncertainty have become evi-
dent, as cited above. If the present trend continues,
municipalities will have less and less control over sub-
scriber rates as a result of unilateral increases in the pre-
mium programming rate rather than the basic rate. For
practical purposes, neither the locality nor the State would
have control over the price subscribers pay for any cable
television services.

The nature of per-channel or other types of specialized
cable programming charges may require a distinctive regu-
latory approach. It may not always be desirable or neces-

43a
Appendiz E.

sary to regulate ‘‘pay cable’’ subscriber rates without
regard to the nature of the locality involved. However,
whatever actions are appropriate or may be taken with
regard to the regulation of subscriber rates, the public
interest requires that all such rates must be approached on
an equal jurisdictional basis and that the requirements of
applicable statutory law be met.

In view of the above, we wish to make clear that the fol-
lowing policies are consistent with the public interest and
may be considered applicable in this matter.

1. All subscriber rates imposed by cable television com-
panies in New York must be authorized by the local fran-
chise held by such companies, as required by Section 825 of
the Executive Law.

2. No change in subscriber rates may be adopted without
an appropriate amendment of the governing franchise.

3. Any such franchise amendment must be approved by
this Commission before it may be effective, as provided in
Section 822 of the Executive Law.

4. No exclusion or exemption from the above is provided
by State law for rates for any “pay”, “auxiliary” or “sub-
scription’’ cable service.

5. Cable television companies that have already estab-
lished “pay cable” services without following the appropri-
ate legal requirements, as described above, will not be
required at this time to make immediate efforts to amend
their respective franchises. Such companies must however,
file a formal notice with their respective municipalities and
this Commission, within the next two months, describing
the nature of their “pay cable” services and the rates cur-
rently charged to subscribers for such services. Those cable

44a
Appendiz E.

television companies providing “pay cable” services and
not so on record with their respective municipalities and
this Commission by April 30, 1976, will face appropriate
sanctions.

6. Active enforcement of these policies will be under-
taken.

It should be noted that concern has been expressed re-
garding the effect of the above policies on various special
aspects of the “pay cable” market. At this time the market
is, by and large, limited to per-channel specialty services
providing a standard variety of home entertainment pro-
gramming (generally represented by the monthly packages
provided by Home Box Office). We will remain open to
applications for any appropriate modification of our poli-
cies, as expressed above, should the development of par-
ticular variations of “pay cable” services indicate such
modifications.

CoMMISSIONERS ParticipaTinG: Robert F. Kelly, Chairman;
Jerry A. Danzig, Vice-Chairman; Michael H. Prendergast,
Eli Wager, Edward J. Wegman, Commissioners.

45a

APPENDIX F—Statutes Involved.

New York Executive Law

Section 822. Transfer, renewal or amendment of
franchises and transfer of control over franchises and sys-
tem properties.

1. No transfer, renewal or amendment of any franchise,
or any transfer of control of a franchise or certificate of
confirmation or of facilities constituting a significant part
of any cable television system shall be effective without
the prior approval of the commission.

2. A person wishing to transfer, renew or amend a
franchise, or to transfer control of a franchise or of a
substantial part of the facilities thereof shall file with the
commission an application for approval of such change, in
such form and containing such information and supporting
documents as the commission may require.

3. The commission shall approve the application unless
it finds that the applicant, the proposed transferee or the
cable television system does not conform to the standards
embodied in the regulations promulgated by the commission
pursuant to section eight hundred fifteen or that approval
would be in violation of law, any regulation or standard
promulgated by the commission or the public interest:
provided, however, that a failure to conform to the
standards embodied in the regulations promulgated by the
commission shall not preclude approval of any such ap-
plication if the commission finds that such approval would
serve the public interest.

Section 825. Rates

1. Except as otherwise provided in this section, the
rates charged by a cable television company shall be those

46a
Appendia F.

specified in the franchise which may establish, or provide
for the establishment of reasonable classifications of
service and categories of subscribers, or charge different
rates for differing services or for subscribers in different
categories.

2. Such rates may not be changed except by amendment
of the franchise.

---

Source: Frix Law Library, https://www.frixlaw.com/law-library/documents/brief%3Amicro_IA40385005_1227%3A1. Public record. Not legal advice.