Petition for Writ of Certiorari — National Ass'n of Theatre Owners v. Federal Communications Commission

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SUPREME COURT, U. 5S.

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| Supreme Court of the Hated Staten

October Term, 1969 | ee

No. 932

NATIONAL ASSOCIATION OF THEATRE OWNERS and

JOINT COMMITTEE AGAINST TOLL TV,.

Petitioners,

: a

Vv.

FEDERAL COMMUNICATIONS COMMISSION and

UNITED STATES OF AMERICA

and

ZENITH RADIO CORPORATION >

and

TECO, INC.,

Respondants.

PETITION FOR A WRIT OF CERTIORARI TO THE

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT |

MARCUS COHN

5 I

sty

OPINION BELOW. :

JURISDICTION . °.

QUESTIONS PRESENTED - .

THE CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

STATEMENT .

REASONS FOR GRANTING THE WRIT.

CONCLUSION

APPENDIX. ..

CITATIONS

Cases: ¥

~Banzhaff v. United States,

405 F.2d 1082, cert. denied, sub. nom.

_ °° Tobacco Institute v. Federal Communica-

tions Commission. 395 U.S. 973 .

Eastern R. R. Presidents Conference v.

Noerr Motor Freight, Inc.,

365 U.S.127 .

_ Federal Communications Commission v.

Sanders Bros. Radio Station,

309 U.S. 470 .

Greene v. McElroy,

360 U.S. 474 .

<< ae

; 13,19

Eee eee

A TA

IRENE DAL Naira 4

(ii) °

Griffin v. Mlinois,

ro) BP 8 > SUR ds Sra

. Grosjean v. American Press Co.,

297 US. 233 .

Hannegan v. Esquire, '

327 U.S. 146 .

Harper v. Virginia Board of scsi

' 383 U.S. 663 . ;

Interstate Commerce Commission v.

United States ex rel. Los Angeles,

280 U.S. 52 ule

Joseph Burstyn, Inc. v. Wilson,

343 US.495 . .°

Kent v. Dulles,

357 US. 116 .

McIn tire v. William Penn Selatan Co.,

‘ 151 F.2d 597, cert. denied, 327 U.S. 779..

' Mills v. Alabama,

384 U.S. 214 . ;

National Broadcasting Co. v. United States,

Re ee 2

Near v. Minnesota,

283 U.S. 697 .

Pulitzer Publishing Co. v. Federal Com-

munications Commission, 94 F.2d 249.

Red Lion Broadcasting Co. v. Federal Com-

munications Commission, 395 U.S. 367

Superior Films, Inc. v. Department of

Education, 346 U.S. 587. .

Thomas v. Collins,

323 U.S. 516 .

3,12

. 13,19

21, 22, 24

PA 7 ¥

A (iii) 7

Page

United States v. Southwestern Cable Co., :

ee ee

Winters v. New York, |

SURI i ee os eae a ee Be a,

Proceedings,of the Federal Communications:

Matter of Subscription Television Service; -

FCC 55-165 © 1 eee we ee 4

Matter of Subscription Television Service,

First Report, 23 FCC 532, 16 Fike & ;

PU FP ee a ew Oe

Matter of Subscription Television Service,

Second Report, 16 Pike & Fischer, RR 1539. . . . . - 5

Matter of Subscription Television Service, -

‘ Third Report, 26 FCC 265, 16 Pike & Fischer,

RR 1540a .... . . Vie arom Meee es 8, a oe

Matter of Subscription Television ‘Service,

Fourth Report, {5 FCC 2d 466, 5,6, 7, 8,9

Soa tote. 6 ee ee ee Se AEBS

Report on Programming Policy, .

- 20 Pike & Fischer,RR1901 . ~ .@ .. ... . 19

United States Constitution and Statutes:

Radio Act of 1927... 6 ck ce os 3,14,

Communications Act of 1934, as amended, :

WE oe le ee

Sections :

BE ee Se as DET Oe eee eee

I ae Soe ages Oa ee oh gn alee ares 10

WN he Sot ne ge aoe Gea et ae ee ee 14

Seren Wires Oe neem eee ak tra

e ,

OAT TOE NSN RS AP ey _ 23S ile RUT PONS TR AE

(iv)

Page

Interstate Commerce Act,

REN MM ae ee ee a

Motor Carrier Act,

Sy eee Ee ae ee eee 15

Aviation Act, ; : f

shi a in SO RE SOR ERE ROM rs ea eee

_ Shipping Act, ,

21 Ae DED og ee eet nn ee

United States Constitution:

First Amendment. -. . 2 2. 7)... . . 9£20,21,22

Equal Protection Clause ee oa,

Miscellaneous: ; oe

Discrimination Against The Poor and the 14th

Amendment, 81 Harv.L.Rev.435. . 2... 1.95. 24

Barron, Access To The Press—A New First Amend-~*

ment Right, 80 Harv. L.Rev.1641. . 2. 2°... , 24

(ec

Supreme Court of the Huited States

October Term, ° —

_No.

“

- NATIONAL ASSOCIATION OF THEATRE OWNERS and

JOINT COMMITTEE nial TOLL TV,

Petitioners,

ie, 2

FEDERAL COMMUNICATIONS COMMISSION and

- . UNITED SFATES OF AMERICA |

‘and

ZENITH RADIO CORPORATION

e and

TECO, INC.,

“ae _ Respondants. .

PETITION FOR A WRIT OF CERTIORARI.TO THE |:

UNITED STATES COURT OF APPEALS FOR THE

DISTRICT OF COLUMBIA CIRCUIT

The_National Association “of Theatre Owners: and

Joint’ Committee Against Toll TV (“Petitioners”) pray

that a writ of certiorari issue to review the judgment of

the United States Court of Appeals, for the District of

Dalle

’

\“

~ groups. aM

Columbia Circuit entered in this case on September 30,

1969.!

OPINION BELOW

‘The opinion of the Court of Appeals (Appendix A)

has not yet been.reported.

JURISDICTION

The judgment of the Court of Appeals was entered

September 30, 1969. The jurisdiction of this Court is

invoked under 5 U.S.C. 1034 and 28 U.S.C. 1254(1).

QUESTIONS PRESENTED

1. Whether ,the Federal Communications —

Commission (‘‘Commission’’) possesses the statutory

authority to authorize a permanent nation-wide television

broadcast service which requires the direct payment of

fees by members of the public to broadcast licensees in

order to receive the pay broadcast service; and

2. Whether, assuming the requisite statutory author-

ity, the Commission’s recent action establishing a nation—

wide pay television. service, and promulgating rules to

regulate that service, improperly; arbitrarily and un-

constitutionally discriminates against lower income

— I The National Association of Theatre Owners is a nation-wide

organizftion «consisting of owners of motion picture theatres

throughout the United States. The Joint Committee Against Pay

_ TV is a voluntary association organized for the purpose of oppos-

ing Federal Communications Commission authorization of pay

television. The Petitioners participated in the rule making proceed-

ing before the Federal Communications Commission, which culmi-

nated in the Commission’s authorization of a nation-wide pay

television ‘system, and were the petitioners who obtained review of

the Commission Order in the United States Court of Appeals for

the District of Columbia Circuit.

3 °e

THE CONSTITUTIONAL AND STATUTORY

PROVISIONS INVOLVED

\The pertinént sections of the Constitution (Amend-

ments I and XIV) and the Communications Act of 1934,

as amended, 48°Stat. 1064, 50 Stat. 191, 66 Stat. 715,

47 U.S.C. 151,"et seg. (Sections 153(0), 301, 303, 326)

are set out in Appendix-B.

STATEMENT

This Petition seeks review of a decision by the

United States Court of Appeals for the District of

‘Columbia Circuit in a matter which the Court below

termed ‘a: question of national importance, id est,

whether the Federal Communications Commission

possesses the requisite power to authorize nationwide

over-the-air subscription television (commonly referred to

as pay ‘TV’) on a permanent basis” (Slip Opinion, p. 2,

footnote omitted). This issue vitally affects literally tens

of millions of viewers in their economic and social lives.

Because of the drastic change in the nature of American

broadcasting which pay television may well cause, the

issue here, presented is perhaps the most far-reaching and

important question of statutory ifiterpretation of the

Communications Act which has come before this Court

since its landmark 1943 decision in National Broadcast-

ing Co. v. United States, 319 U.S. 190 (1943).

American radio and television have traditionally

been free in that the listening and viewing audiences,

after purchasing their sets, pay. no direct charges to the

originating stations for receiving programs which those

stations broadcast. The distinction between American

broadcasting and that of-foreign countries, where such

charges often exist in the form of taxes or listening fees,

was specifically and repeatedly recognized in the early

congressional debates on the Radio Act of 1927 (see 67

Cong. Rec. 5490-1, 12335). It was in this framework

that government regulation of broadcasting began.

‘

In 1955, the Commission, in response to petitions

by a number of pay television proponents, instituted a

Notice of Proposed Rule Making,” inviting Comments to

determine whether pay television would be in the public

interest, and requesting Comments on whether the Com-

mission had the statutory power to authorize such opera--

tions.? Thereafter, in a 1957 Notice of Further Proceed-

ings,4 the Commission announced that the Comments

did not provide an adequate basis for arriving at a final

decision, and that trial demonstrations would be neces-

sary before a final decision could be made. Subsequently,

the Commission issued its First Report on Pay Televi-

sion> which concluded that the Commmission had power

to authorize over-the-air pay television under the present ©

Act, and which listed the conditiOns under which appli-

cations for trial operations would be accepted.

The issuance of the First Report stirred critical «

congressional comment. The House Committee on Inter-

state and Foreign Commerce, after hearings, adopted a

resolution stating that the Commission should not act to

authorize pay television operations until the Communica-

tions Act was specifically amended to grant such power

to the Commission.® In response, the Commission issued

2 Matter of Subscription Television Service, F.C.C. 55-165,

released ee 1955, 20 F.R. 988. ™

+ 3 Pay television was described by the Commission as the trans-

mission of programming paid for by the public on a subscription

basis. ;

4 22 F.R. 3758 (1957).

5 Matter of Subscription Television Service, First Report, 23

FCC 532, 16 Pike and Fischer, RR 1509 (October 1957).

inevitably requiring large investments, would establish pay televi-

sion as a fait accompli before Congress could consider appropriate

legislation. See remarks of Congressman Oren Harris, Chairman of

the House Interstate and Foreign Commerce Committee, 105

Cong.Rec. 4812.

its Second Report’? which withheld the processing of

applications under the First Report until the expiration

of the 85th Congress, a policy which was voluntarily

‘continued by the Commission until the end of the 86th

Congress.

Upon the expiration of the 86th Congress, the Com-

mission issued its Third Report. The Third Report re-

adopted and reaffirmed virtually all the conditions for

trial operation set out in the First Report,? and. in-

dicated that when “sufficient and meaningful data”

became available, the Commission would hold public (3

hearings to decide whether pay television should ec

permanently authorized (Third Report, supra, at Par. 27;

First Report, supra at Par. 92). Only three applications

were ever filed for trial operations pursuant to the Third

Report, and of these only one ever went into operation,

Station WHCT, Hartford, Connecticut.!®

7 Matter of Subscription Television Service, Second Report, 16

Pike and Fischer, RR 1539 (February 1958).

8 Matter of Subscription Television Service, Third Report, 26

FCC 265, 16 Pike and Fischer, RR 1540a (March 1959).

? Operational limitations were set out to protect the public and

to limit the scope of the trial. See Third Report, Pars. 6, 19,

20-22, 26-27, 26 FCC at 266, 269-71,.16 Pike and Fischer, RR at

1540b, 1540e through g.

10 The application by Station KVUE for Channel 40, Sacra-

mento, California, was denied for failing to comply with the

conditions of the Third Report. A second applicant, Station

KTVR, Channel 2, Denver, Colorado, obtained authorization, but

did not engage in pay television operations and later relinquished

its authorization. See Fourth Report, Par. 4, 15 FCC 2d at 467.

The Hartford experiment began in the summer of 1962. At

its height, it involved no more than approximately 5,000 sub-

scribers, and during much of its lifetime the number of subscribers

was considerably less.

In 1965, pay television proponents filed a Petition

for Further Rule Making requesting the establishment of

a nation-wide permanent pay television system, which, in

-1967 culminated in the Commission’s Subscription Tele-

vision Committee (which consisted of 3 Commissioners),

submitting for Commission consideration a Proposed

Fourth Report which proposed the establishment of a

permanent pay television service. Oral argument on the

Fourth Report was held before the Commission en banc

in 1967. z=

As was the case with the First Report, the proposed

Fourth Report stirred critical congressional comment.

The Communications and Power Subcommittee of the

House Interstate and Foreign Commerce Committee,

after hearings, recommended, and on November 16,

1967, the full Committee on Interstate and Foreign

Commerce adopted, a resolution stating the sense of

the full Committee that. the Commission should refrain

from taking any action on its Proposed Fourth Report

for one year, or until the Communications Act of 1934

was amended to authorize pay television.!4

On September 3, 1968, the Commission, by Chair-

man Hyde, sent a letter to the Chairman of the Com-

mittee on Interstate and Foreign Commerce indicating

that in view of the lengthy consideration which had

already been given the matter, the Commission did not

11 The reasons fod the Committee’s resolution were the Com-

mittee’s views that: (1) the systems, thus far tested, were “incon-

clusive” as to whether the public interest would be served, (2) the

systems had been unable to demonstrate the ability of pay televi-

sion to offer new, different, or “higher quality” viewing, (3) the

development of public television might adequately fill the need fo

additional cultural programming, and (4) it had not been estab-

lished to the satisfaction of the Committee that authority to

license pay television operation came within the power of the

Commission under the Communications Act. See Fourth Report,

Par. 15, 15 FCC 2d at 470.

believe it could delay resolution of the question. On

September 11, the Commerce Committee, in response,

adopted a resolution indicating the sense of the Com-

mittee to be that the Commission should further refrain

from acting until the end of the first session of the 91st

Congress, or until the completion of action upon legisla-

tion if by the end of the first session legislation pertain-

‘ing to the question was under consideration.! 2 .

Thereafter, on December 13, 1968, the Commission

issued its Fourth Report, which is the subject of. the

opinion of the Court of Appeals here sought to be

reviewed. In the Fourth Report the Commission reaf-

firmed its prior holding that it possessed the requisite

statutory power to permanently authorize pay TV,!3

stated its belief that pay TV would provide “a beneficial

supplement” to the program choices now available,!4

and established the regulatory framework for a perma-

nent nation-wide pay television system, indicating the

12 The September 11 resolution was passed by a vote of 16 to

13. A minority of the Committee sent a letter to the Cominission

indjcating their belief that the Commission should act on the

matter. Fourth Report, Par. 18, 15 FCC 2d at 471472.

13 Fourth Report, Par. 12, 15 FCC 2d at 468-69.

14 See Fourth Report, Pars. 27-69, particularly Pars. 59-69, 15 .

FCC 2d at 474-488. By “beneficial supplement” the Commission

meant only that pay television programming would not be “dupli-

cative” of free television, and that the Commission believed it was

desired and needed by at least a portion of the viewing public.

The term was not meant to connote lack of impact upon free

television, which the Commission treated as a separate question

(Fourth Report, footnote 20, 15 FCC 2d at 473).

requirements which must be met by applicants seeking

pay television authorizations.!5

While establishing a permanent pay television

system, the Commission, nevertheless, recognized that

Pay TV will not, in fact, present minority-type: program-

ming to any significant degree, and will, instead, aim: at

' the mass market to maximize profits (Fourth Report,

Par. 68, 15 FCC 2d at 487-88). The Commission em-

phasized its belief that ‘“‘the preservation af conventional

television service and the continued availability of good

program material to the free service ... [were] extreme-

ly important considerations” (Fourth Report, Par. 90, 15

FCC 2d at 495). The Commission also emphasized that it

“would not consider [it] to be in the public interest”

for certain types of program material now presented on

' the free service to be lost to the pay television operation

(Fourth Report, Par. 130, 15 FCC 2d at 508). In order

to- prevent this possibility, the Commission adopted

15 See Fourth Report, passim. Among the conditions governing

pay television were provisions concerning the technical perform-

ance of the systém, requirements that all systems broadcast at

least 28 hours ba week of free programming, that no pay televi-

sion station enter into a contract which would deprive it of

complete freedom over the programs to be broadcast, or the terms

of payment, that pay television decoders could only be leased, not

sold, and that service would have to be rendered to all persons

desiring it within the Grade A contour of the station unless a

‘ satisfactory signal is not available. (See Pars. 154-276, 339-348, 15

FCC 2d 515-54, 573-77). ;

certhin detailed restrictions on the type and content of

pay television material which-may be broadcast.!®

The Commission specifically refused to adopt any

rules govering the rates to be charged to the public, and

refused even to decide whether it had the power to do |

_ $0. It held that its power to authorize pay television

permanently was not “dependent” upon the power to

regulate rates (Fourth Report, Par. 259, 15 FCC 2d ai

547).

Although the Commission rejected the argument

that its programming restrictions violated the anti-

censorship provisions of the Communications Act (47

U.S.C. 326), and similarly rejected the argument that

such restrictions were a violation of the First Amend-

ment of the Constitution, nevertheless, the Commission

16 These restrictions included:

(i) - No motion picture (with a number of exceptions) can

appear on pay television if the picture is more than 2

years old;

(ii) Sports programs “regularly televised in the community

via free TV during the previous 2 years” cannot be

presented over pay television (Fourth Report, Pars.

289, 305, 15 FCC 2d at 558, 564).

(iii) Pay television stations are prohibited from presenting

any “series type program with inter-connected plot or

substantially the same cast of principal characters.”

(iv) The Commission recognized that movies and sports

would probably be the overwhelming program fare to

be presented on pay television. In order to insure that

at least some pay television programming would be

other than feature films and sports events, the Com-

mission provided that no more than 90% of the total

programming hours could be composed of programs

falling into these two categories.

These program restrictions are rather complex, and the Commis-

sion devoted numerous pages of its opinion to explicating them.

Fourth Report, Pars. 284-310, 15 FCC 2d at 556-565.

made it quite clear‘that it would not have approved the

establishment of a pay television system in the absence

of the authority to lay down such restrictions (see

Fourth Report, Pars. 130, 284, 311-313, 15 FCC at 507,

556, 565-66).

At Petitioners’ request, the Court of Appeals for the

District of Columbia Circuit reviewed the Commission’s

determinations pursuant to the judicial review provisions

of Section 402(a) of the Communications Act (47 U.S.C.

402(a)). The Court affirmed, in all respects, the Fourth

Report. In brief, the Court held that the Commission

possessed the statutory power to authorize a permanent

pay television system, basing its holding on the grounds

that the statute did not explicitly forbid the authoriza-

tion of such a system, that the courts have traditionally

interpreted the Communications Act expansively in view

of the dynamic characteristics of the radio industry, and

that the courts have traditionally followed an agency’s

interpretation of its organic statute, rather than substi-

tute its own interpretation.!7 The Court rejected the

argument that congressional failure to include the power

to regulate the rates charged by pay television demon-

strated the Commission’s lack of power to authorize the

system,!8 and similarly rejected the argument that

authorizing a pay television system improperly and un-

constitutionally discriminated against low income groups

in. the United States!'? which the Commission itself re-

cognized would not be able to take advantage of the

17 Slip Opinion,'pp. 7-15.

187g at pp. 15-18.

19 1g. at pp. 19-24.

a 1

service, and at whose expense the service would be. estab-

lished. The instant Petition followed.?°.

REASONS FOR GRANTING ‘THE WRIT

1. As the Court below indicated, this case involves

an issue “of ‘national importance” (Slip Opinion, p. 2)

and ore “of first impression” (Slip Opinion, p. 11)

concerning what is clearly one of the most -important

questions of interpretation of the Communications Act

of 1934, as amended, that has ever been brought before

the courts. Whether the Federal Communications Com-

‘mission has- the statutory authority under the present

Act to create a nation-wide pay television system, is a

question the resolution of which vitally affects every

citizen. It affects the nature and the amount of informa-

tion, knowledge and entertainment which the population

of the entire country will receive.

In affirming the Commission’s authorizktion of a

_ permanent pay television system, the Court below recog-

nized the novelty of the issue,’and the fact that, primari-.

ly because of this novelty, the legislative history of the

Act shed little light on the scope of the Commission’s

power (see Slip Opinion,-pp. 13-15).2! The Court did

not base its holding upon this legislative history, but

» 20 Upon Pétitioners’ request, the Court of Appeals for the

District of Columbia Circuit has stayed the issuance of its mandate

pending the filing of the instant Petition for certiorari. The Com-

. mission itself had previously announced that it would not grant

any application for pay television authorization until 60 days after

the opinion of the Court of Appeals in this matter. Petitioners

have requested that this policy be continued by the Commission

until thie conclusion of the litigation before this Court.

21 The Court also pointed to proceedings in the Congress which

have been pending for many years, and particularly to Congress’

inability to ‘agree on the scope of the Commission’s power in this

area (Slip Opinion, pp. 14-15, footnote 25).

rz -

upon (a) the la€k of a specific prohibition in the statute

forbidding the Commission to authorize pay television,

(b) the general judicial doctrine of. “expansively”’ inter-

preting the Communications Act in such a way as to

“enable the Commission to cope with new problems while

avoiding “the necessity, of repetitive legislation” (Slip

Opinion,.p. 9), and (c) by applying the traditional theory

of judicial deference to jan administrative agency’s inter-

bee gee

‘ pretation of its organic statute. Petitioners do not quarrel

with the general validity of these judicial axioms. ‘But

Petitioners respectfully submit that these legal general-

ities do not, and cannot suffice to settle the important

specific issues here raised. ‘

There is no question that the Communications Act

sets out a broad regulatory scheme which has enabled

the Commission to license diverse uses of the radio

spectrum, and indeed has enabled the Commission to

proceed in areas of developing technology in order to

protect the integrity and efficacy of the Commission’s

ability to exercise its statutory responsibilities.2? But it

is also true that the Commission’s powers are not all-—

encompassing. This Court pointed out in National Broad-

casting Co. v. United States, 319,U.S):190, 219 (1943)

that Congress did not give the Commission ‘ ‘unfettered

discretion to regulate all phases of the radio industry.”

Many matters regarding the manner in which broadcast

stations derive their revenues and programming were

22 ee, e.g., National Broadcasting Co. v. United States, 319 US.

190 (1943). See also United States v. Southwestern Cable'Co., 392

U.S. 157 (1968): in which this Court held that the Commission

had power to regulate aspects of the newly ia a.

vision” industry because failure to regulate would render the

Commission less able to carry out the functions entrusted to it by

Congress, a result which could not have been intended by Congress

when it enacted the organic statute.

never considered as being within the Commission’ S regu-_

latory jurisdiction. 23 Other limitations upon the Com-

mission’s power appear despite the broad - regulatory:

scheme. Pulitzer Publishing Co. v. Federal Commuinica-

tions Commission, 68 App. D.C. 124, 126, 94 F.2d 249,

251 (1937) and Sanders Bros. Radio Station, supra,

strongly suggest that rate regulation vis-a-vis broadcast

licensees and the public was not encompassed by the

Commission’s regulatory scheme. Congress itself has in-

dicated (House Report No. 1559, 87th Cong. 2d Session)

that it was not Congress’ intention “that the Commission

should have authority to prescribe [manufacturing]

standards {of television equipment] on the basis of any ~

of its existing powers under the Communications Act”

(Pike and Fischer, Current Service, p. 10:485). These

limitations exist despite: the lack of any specific statutory

prohibition.

Petitioners respectfully urge that the Court below

applied an inappropriate legal standard by, in effect,

requiring that the Act specifically prohibit the creation’

of a pay television system before it would hold that ‘the

Commission did not. have such power. It may well be

that congressional failure to enact a specific prohibition’

would be dispositive of an issue concerning circumstances

of which Congress was well aware when it enacted legis-

lation. But it is unpersuasive to assert that Congress

would have enacted a specific prohibition against pay

television when, at the time of the enactment of the Act;

the ‘hallmark of the American broadcasting industry was

the absence of a direct charge to the viewer.

23 This Court stated in Federal Communications Commission v.

Sanders Bros. Radio Station, 309 U.S. 470,|475 (1940) that “the

Act does not essay ‘to regulate the business of the licensee. The

Commission is given no supervisory control of the programs, of

business management or of policy.”

The inauguration of .a permanent pay television

system is more than a mere variation in the broadcasting

‘art. It introduces the most fundamental change in broad-

casting that has occurred since the adoption of the

original Radio Act in 1927. It erects a system ,whéreby

“the use of a scarce and valuable public broadcasting

_ Frequency which, by Section 3(0) of the Act (47 U.S.C. |

153(0)), was intended for the “dissemination of radio

communications intended to be received by the public”

will now be available not to all the public, but only to

those who can afford to pay a fee for its use, thus,

effectively depriving many persons, particularly those in

the lower income groups of the United Spies of the use

of a broadcast frequency. It creates, in egsence,.a second

class citizenry with respect to access to broadcast fre-

quencies. Matters of such fundamental importance should

not be left to régulation by administrative agencies

through inference, assumptions and deductions. As this

Court noted in Interstate Commerce Commission y.

United States ex rel. Los Angeles, 280 U.S. 52, 69

(1929), “{a] proper statute would seem to require de-

tailed directions, and we should @xpect the intention -to

be manifested in plain terms and not to be left to be

- implied from varied ,regulatory provisions of uncertain

scope.” ‘ |

But the Commission’s lack of authority is indicated

not only by failure of the Act to explicitly allow the |

authorization of pay television. It is most effectively

demonstrated by the omission from the Act of authority

‘for rate regulation by the Commission of the prices to be

‘charged the public. Indeed, the proponents of pay televi-

sion have consistently and vigorously asserted that the

Act does not give the Commission the authority to

regulate rates. The Commission has compounded the

paradox by refusing to decide whether it has the power

to regulate’ pay television tates under the present Act.

And the Commission’s refusal to decide this issue has

now been upheld by the Court below, so that the Com-

mission may very well be launching a system over which

it has no effective regulatory power to protect the

public.

Although the Commission and the court below have

refused to decide the maiter, the question of whether

the present Act allows for rate regulation is critical to

the interpretation of the Commission’s authority under

thes Act to authorize pay television. The reason is simply

that, viewing congressional precedents in such matters, it

is inconceivable that Congress would have allowed

broadcast licensees to charge for the use of what are

conceded to be public facilities without either explicitly

authorizing such rate regulation or, at the very least,

establishing a regulatory scheme to oversee it. This is

demonstrated by the conceded fact that in the Com-

munications Act, and indeed in every other Act of which

petitioner is aware in which the public was to be charged

direct fees for the use of public or quasi-public facilities,

‘Congress specifically enacted detailed provisions govern-

ing Commission regulation of such charges.24 The

absence of such specific authorization in the Communica-

tions Act with respect to broadcast frequencies per-

suasively indicates that Congress did not intend that the

general public be directly charged for the use of its own

airways.

gt: ¢

The Court rejected Petitioners’ contentions on two

somewhat contradictory grounds. The Court first asserted

(Slip Opinion, pp. 16-17) that the difference in treat-

ment between broadcast licensees and “common carriers”

24 This was not only true in the Communications Act itself (see,

e.g., 47 U.S.C. Secs. 201-211), but also in the Interstate Com-

merce Act (49 U.S.C. Secs. 1-23), the Motor Carrier Act (49

U.S.C. Sec. 316), ttie Aviation Act (49 U.S.C. Sec. 1374), and the

Shipping Act (46 U.S.C. Sec. 817).

geet

reflected Congressional belief that broadcasting is not a

“natural monopoly,” and that the dangers of monopolies

would, be handled by the “‘competition among those

providing broadcasting services in a given area.” The

Court appeared to believe that the absence of rate regula-

tion was not related to any cost relationship to the

public vis-a-vis the licensee, but rather to the existence of

limited competition among licensed radio stations.

But there are two difficulties with this analysis.

First, the Court failed to recognize the significance of

the fact that under the Commission’s proposed licensing

scheme there will be a natural monopoly for the pay

television licensee in a given community. The Commis-

sion has created a regulatory framework whereby there

will be only one pay television station in each com-

munity, so that there will be in pay television precisely

the “‘natural monopoly” that the Court held not to exist

in the case of conventional broadcasting systems (Fourth

Report, Pars. 125, 165, 200, 15 F.C.C. 2d at 505, 518,

528).

Perhaps more important, the ‘Court’s analysis is logi-

cally deficieht because it is at least as likely (if not more

likely) that Congress drew a distinction between common

carriers, on the one hand, and broadcasting, on the

other, precisely because there was to be no direct charge

levied by the broadcast licensee upon the general public.

The question is whether Congress would have eschewed

rate regulation with respect to broadcast frequencies if it

intended that those frequencies could. only be reached by

that segment of the public willing to pay a fee. Petition-

ers believe the answer to be ‘clearly in the negative,

particularly since such a course would be singularly un-

precedented in Congressional annals. It is difficult to

believe that Congress would have allowed the imposition

of a direct fee system without at the same time giving

the Commission the power to regulate the heart of that

system, i.e., the direct fees to be charged to the public.

The Court itself appeared to be concerned with the

anomaly of Congress allowing a direct fee system to be

instituted without giving the Commission the proper

regulatory tools to prevent abuse. Thus, as its second

ground for affirmance the Court suggests, as did the

Commission, that the Commission possesses appropriate

regulatory tools “through the licening process.’’ (Slip

Opinion, p. 17). But this analysis, it is submitted, begs

the question. If, as pay TV’s proponents vigorously assert

(and the Commission has not denied the validity of the

assertion), the Commission is without power to regulate

the rates charged-directly, it is difficult to see how these

rates could be regulated indirectly through the licensing

function. If regulation of rates is not within the Commis-

sion’s province, how could the Commission condition its

licensing functions upon factors such as the reasonable-

ness of the rates charged? What the Commission cannot

do directly, cannot be done indirectly merely by the

assertion that it is neene done in the furtherance of its

“licensing” authority.” :

The question to be decided is not (as the Court

| below appears to believe) whether the Commission

should at this time institute rate regulation.2® The real

issue is what light the absence of the power to regulate

rates sheds upon Congressional intent with respect to

Commission authority to authorize a permanent pay tele-

vision system. Petitioners submit that the absence of

25 For example, Section 326 of the Communications Act (the

anti-censorship provisions) prohibits the Commission from requir-

ing a broadcast station to take a particular editorial stance. But it ©

is inconceivable that the Commission would, nonetheless, be

allowed (or indeed would even attempt) to condition the grant of

a license upon the taking of an editorial position by an individual

station.

26 it very well may be, as the Court suggested, that the question

of whether the Commission should now institute rate regulation

need not be settled, and may await future developments.

Sf A

such power is indicative of Congressional intent not to

allow the Commission to authorize a permanent pay

television system. _

There is yet a third indicia of absence of authority:

the fact that interpreting the Act in the manner claimed

by the Commission results in_ introducing concepts which

are directly inconsistent with the specific anti-censorship

provisions of Section 326 of the Act,:(47 U.S.C. 326)

and .which would raise the most serious Constitutional

& questions. “The courts have traditionally been loath to

_ interpret statutes in such a manner.

Section 326 provides that the Commission

cannot ,enact, any regulation or condition ‘“‘which shall

interfere, with the right of free speech by means of radio

commu ication.” Yet the Commission has enacted pre-

»cisely such restrictions on ‘free speech by forbidding pay

television from presenting particular types and/or per-

centages of programming material.27 Thus, the: Commis-

_ sion has’ proposed to issue a broadcast license for a

ae broadcast service upon the specific condition that the

licensee not present certain types or exceed fixed per-

centages of program material, the proscription being in

terms of the form of the media, the program content,

and the program structure. And the Commission made it

absolutely clear that the imposition of these conditions

"was an essential element of its decision to authorize a

permanent pay television system. The Commission stated

fhat unless these conditions were established, it would -

not have authorized a permanent pay television

system.2® It must be emphasized that these restraints

27 Thus, the Commission has forbade the broadcast over pay

television systems of certain motion pictures, sports events, and

other specific tvpes of programming material. See Fourth Report,

Pars. 284-309, 15 F.C.C. 2d at 556-565.

28 See Fourth Report, Pars. 130, 284, 15 F.C.C. 2d 507, 556.

and restrictions f a licensee’s right to broadcast types

of programming are singular and unprecedented. The

Commission has never before attempted to impose such

restraints upon the types ‘of. programs which may be

pfesented by broadcast licensees; indeed, as recently as

1960, the Commission itself specifically rejected the

notion that it could condition a grant, denial or revoca-

tion of a license upon the eect egtee “own subjective

determination” as to programming.”

The Commissidn’s imposition of these restrictions is

not only contrary to its own prior interpretations. of its

powers over programming under the Act; it is contrary

to repeated judicial interpretations. In Federal Communi-

cations Commission v. Sanders Bros. Radio Station, 309

U.S. 470, 475 (1940), this Court stated:

“The Commission [was] given no supervisory

control over the programs . . . [to be presented

by broadcast facilities] .”

To the same effect, see McIntire v. William Penn

Broadcasting Co., 151 F.2d 597, 599 (3d Cir.), cert.

denied, 327 U.S. 779 (1945):

[It] is clear from history and the interpreta-

tion of the Federal Communications Act that

the choice of programs rests with the broad-

casting stations licensed by the F.C.C.

And see Pulitzer Publishing Co. v. Federal Communica-

tions Commission, 68° App. D.C. 124, 126, 94 F.2d 249,

251 (1937):

The licensee of a radio station chooses its own

advertisers and its own programs .

29 See 1960 Report on Programming Policy, 20 Pike & Fischer,

RR 1901, 1907, 1909.

The restraint is even more repugnant where, as here,

it is a prior restraint, a form of restraint particularly

repugnant to our institutions:

This Court recognized many years ago

that...a previous restraint is a form of in-

fdinkement upon freedom of expression to be

especially condemned. 30

In the satant case, the Court below upheld. the

Commission’s ‘restrictions, but did so on the basis of

contentions which, it is submitted, cannot withstand

critical analysis. The Court placed reliance on the fact

that the Commission, acting in good faith, adopted

restraints for the purpose of gaining more rather than

less programming, and “sought only to insure the con-

tinuing economic vitality of free television” (Slip

Opinion, p. 25). But the courts have long recognized that

a direct prior restraint upon the content of protected

speech cannot be sustained on the grounds that the

legislature or administrative agency acted “reasonably,”

or with the purest of intentions. This Court made clear

in Thomas yv. Collins, 323 U.S. 516, 530 (1945) and

Mills v. Alabama, 384 U.S. 214 (1966) that the validity

of a free speech restriction cannot be tested by such

criteria as the sincerity of purpose of the enacting body,

or whether the enactment is reasonably calculated to

achieve an otherwise vdlid result. The Court of Appeals

itself recognized in a recent decision Banzhaff v. United

States, U.S. App. D.C. , 405 F. 2d 1082, 1096

- 30 Joseph Burstyn, Inc. v. Wilson, 343 U.S. 495, 503 (1952).

There can be no doubt that if such a direct, prior restraint as is

here present were placed on matter in newspapers or motion

picture films, the restraint would be struck down as unconstitu-

tional, even if specifically authorized by the appropriate legislative

body. Grosjean v. American Press Co., 297 U.S. 233 (1986); Near

v. Minnesota, 283 U.S. 697 (1931); Superior Films, Inc. v. Depart-

ment of Education, 346 U.S. 587 (1954).

(1968) cert. denied, sub. nom. Tobacco Institute v.

Federal Communications Commission, 395 U.S. 973

1969), that restraints upon a licensee’s discretion cannot

be upheld “merely upon the ground that it may reason-

ably be thought to serve the public interest.”

In defending the Commission’s restriction, the Court

below appeared to draw a distinction between protection

accorded to general programming material, on the one

hand, and that accorded to “ideas” and “debate on-

public issues” on the other (Slip Opinion, pp. 25-26), the

latter, according to the Court, being more “central con-

cerns of the First Amendment” than the former. But this

analysis is one which creates distinctions flatly rejected |

by this Court in numerous cases, principally Winters -v.

New York, 333 U.S. 507 (1948). In Winters the Court

made clear that there are no degrees of protection ac-

corded to various categories of speech depending upon

whether they fall within the realm of “entertainment” or

doctrinal polemic (333 U.S. at 510):

The line between the informing and the enter-

taining is too elusive for the protection of that

basic right (a free press). Everyone is familiar

with instances of propaganda through fiction.

What is one man’s amusement, teaches

another’s doctrine.

This Court recognized in Red Lion Broadcasting Co. -v.

Federal Communications Commission, 395 U.S. 367, 396

(1969) that “the Commission’s refusal to permit the

broadcaster to carry a particular program ... . . would

raise . . . . serious first amendment issues.”” The Commis-

sion has now enacted precisely such a refusal in its Pay

TV restrictions and has presented the issue which was

not present in Red Lion.?!

But the principal error of the Court below lies not

so much in allowing the imposition of prior restraints,

but in failing to recognize that the Commission’s position

does, in fact raise a serious question of prior restraints.

The primary issue before the Court is the interpretation

of the Commission’s authority under the Communica-

tions Act. In order to sustain its interpretation, the

Commission has forced an interpretation of the Act in a

manner which appears not only prima facie inconsistent

with the explicit anti-censorship provisions of Section

326, but which raises grave First Amendment questions. |

As this Court held in Hannegan v. Esquire, 327 U.S. 146,

156 (1946), a statute will not be gratuitously interpreted

in such a manner as to clothe an agency with authority

which, if exercised, ‘would raise the gravest constitutional %

objections:

The provisions of the [governing statute]

would have to be far more explicit for us to

assume that Congress made such a radical

departure from our traditions ....

See also Greene v. McElroy, 360 ‘U.S. 474 (1959); be

Eastern R.R. Presidents Conference v. Noerr Motor

Freight, Inc., 365 U.S. 127 (1961); Kent v. Dulles, 357

US. 416, 13001958).

31 The instant case is unlike Red Lion in other respects. In Red

Lion the Court affirmed the Commission’s power to enforce the:

“fairness doctrine,’ whereby each licensee is required to fairly

present all sides of a particular issue. As the Court pointed out,

the fairness doctrine acts not to restrict speech, but to enlarge the

scope of material broadcast by licensees. In the instant case, the

Commission is not enlarging the scope of material which will be

- presented, but, instead, is deliberately fated it.

Finally, Petitioners believe that the establishment of

pay television represents an unconstitutional discrimina-

tion against low income groups. The evidence before the

Commission indicated that a pay television service is one

which benefits the upper and middle income brackets at

the expense of the lower income groups.>* The Commis-

sion also indicated that only a small fraction of potential

listeners will utilize the pay ‘television frequency, so that

the Commission has taken an over-the-air broadcast fre-

quency, capable of reaching hundreds of thousands of

persons, and has limited its use to a relatively few per-

sons in the upper income brackets.33

Petitioners urged below that free television has now

become such an essential service to the nation that it

cannot legitimately be granted to one economic class and

denied to another. Access to free television is of such

fundamental importance that its denial, based upon

economic circumstances, is a discrimination against the

poor of constitutional dimensions.

The Court below refused to accept this argument,

holding that “[s] uch a result would cléarly be a constitu-

tional innovation that we are unwilling to make... .”

(Slip Opinion, p.”22). In view of the novelty of the

question, it is perhaps understandable that the Court of

Appeals was reluctant to go forward in this area. But

32 4 breakdown of the Hartford trial subscribers demonstrated

that virtually no persons in the income level $0-3,999, an income

level which represents almost one-third of the families in the

United States, were able to subscribe to the test (see Fourth

Report, Pars. 86-87, 15 FCC 2d at 493).

pay television frequency was not only recognized by the Commis-

sion,.but was the basis of the Commission’s holding that institu-

tion of the service would not adversely affect the audiencé for free

service (See Fourth Report, Par. 125, 15 FCC 2d at 505).

33 The fact that only a small minority of persons would en the

y |

Petitioners believe that this Court should squarely face

the issue, and declare that access to free television is a

constitutionally protected right. This Court has recog- —

nized in other contexts that certain rights are so basic

and fundamental that their deprivation to the poor is

unconstitutional. In Harper v. Virginia Board of Elections,

383 U.S. 663, 668 (1966), the Court declared a state

poll tax unconstitutional because it necessarily excluded °

from voting those “‘unable to pay a fee.” In Griffin vy.

- Illinois, 351 U.S. 12 (1956), the Court held constitution-

ally impermissible the refusal to give transcripts to in-

digents who. were unable to pay a fee. There is growing

recognition that because poverty often interferes with

the ability of the poor to exercise their legal rights, it

may be necessary to supply counsel in civil cases involv-

ing such matters as eviction proceedings, divorces and

child custody suits. etc. See Discrimination Against The

Poor and the 14th Amendment, 81 Harv. L. Rev. 435

(1967). Similarly, there is a recognition that, in order to

fulfill their citizenship responsibilities, or, indeed, to ef-

fectively achieve their rights, the poor must have access

to the mass media. See Barron, Access To The Press — A

New First Amendment -Right, 80 Harv. L. Rev. 1641

(1967); see also Red Lion Broadcasting Co. v. Federal .

Communications Commission 395 U.S. 367 (1969), in.

which the Court stressed the importance”of access. by the

public to radio and television frequencies. At the very

least, Petitioners urge that this Court recognize that ac-

_ cess to broadcast frequencies (both as participants and as ‘

viewers) cannot legally, or indeed constitutionally, be

based upon a pocket book test any more than can the

right to vote.

In sum, the Court below has upheld an interpreta-

tion of the Communications Act which would |

perhaps the most drastic change in the structure 01

American broadcasting since the passage of the original

Radio Act of 1927 in the face of the facts that:

1. The Commission’s organic statute does not

provide either explicitly or implicitly for.

such a change.

The Act does contain none of the normal

regulatory powers which would have been

included if Congress had intended to insti-

tute a diréct fee system for the use of the

public airway.

3. ‘The Commission’s interpretation creates the

gravest constitutional questions and flies direct-

. ly in the face of the specific anti-censorship

provisions of Section 326 of the Act.

4. The Commission’s interpretation of the Act

has been challenged by important segments of

the Congress as going far beyond the powers

which Congress originally intended tq grant.

5. The establishment of pay television rep-

resents a direct and unconstitutional discrim-

ination against low income groups. :

CONCLUSION ~*

All of the above considerations indicate that the

question here is, as the Court below correctly recognized,

‘““one of national importance.” Petitioners submit that it

should be passed.upon by this Court.

Respectfully submitted,

MARCUS COHN

1920 L Street, N. W.

Washington, D. C. 20036

MARTIN J. GAYNES

1920 L Street, N. W.

Washington, D. C. 20036

Attorneys for Petitioners

December _, 1969

APPENDIX A ©

Mnited States Court of Appeals

FOR THE DISTRICT OF COLUMBIA CIRCUIT

No. 22,623

NATIQNAL ASSOCIATION OF THEATRE OWNERS

and JOINT COMMITTEE AGAINST TOLL TV,

Petitioners,

FEDERAL COMMUNICATIONS COMMISSION and

UNITED STATES OF AMERICA,

Respondents,

ZENITH RADIO CORPORATION and TECO, INC..,

Intervenors.

Petition for Review of an Order of the

Federal Communications Commission

Decided September 30, 1969

Mr. Marcus Cohn, with whom Mr. Martin J. Gaynes

was on the brief, for petitioners.

Mr. Daniel R. Ohlbaum, Deputy General Counsel.

with whom Mr. Henry Geller, General Counsel, and Miss

Katrina Renouf, Counsel, Federal Communications Com- .

mission, were on the brief, for respondent Federal Com-

munications Commission. Mr. John H. Conlin, Associate ~

General Counsel, and Mrs. Lenore G. Ehrig, Counsel.

Federal Communications Commission, also entered ap-

pearances for respondent Federal Communications Com-

mission.

_ Mr. Howard E. Shapiro was on the brief, for re-

spondent United States of America.

Mr. Harold David Cohen, with whom Messrs. W.

Theodore Pierson and Vernon C. Kohlhaas were on the

brief, for intervenors. |

Before TAMM, LEVENTHAL and ROBB, Circuit Judges.

TAMM, Circuit Judge: Today we are faced with a

question of national importance, id est, whether the

Federal Communications Commission possesses the re-

quisite power to authorize nationwide over-the-air subs-

cription television! (commonly referred to as “pay TV”)

on a permanent basis. For the reasons hereinafter stated,

we hold that the Commission .can authorize such a

service under the authority conferred upon it by the

Communications Act of 1934, 48 Stat. 1064, as

amended, 47 U.S.C. 8 301-397 (1964), and that the

Commission acted properly in prescribing rules for the

development of this new service.

1 Over-the-air subscription television differs from convertional

broadcasting in the nature of the signal that is transmitted; a

subscription station broadcasts a “scrambled” signal that can be

converted to intelligible form by special equipment which also

assesses charges for the subscription programs viewed. CATV

systems with direct cable links to subscribers’ television sets are

also technically capable of using similar devices to offer

subscription services. The Federal Communications Commission

investigated the possibility of authorizing subscription services on

CATV networks, and concluded that the most efficient means of

establishing pay television at present was through broadcasting

stations. See Fourth Report and Order on Subscription Television,

15 F.C.C, 2d 466, 579-87 (1968). [hereinafter Fourth Report].

A-3

I. PROCEDURAL HISTORY

The history of the Commission’s involvement with

subscription television (hereinafter STV) is indeed

lengthy. Nearly two decades ago, on February 25, 1952,

the Zenith Radio Corporation filed a petition with the

Federal Communications Commission requesting author-

ity to institute a subscription television service. 2 On

February 10, 1955, the Commission issued a Notice of

Proposed Rulemaking, 20 Fed. Reg. 988, in which it

requested comments from interested parties on the ques-

tion of whethet the Commission had the statutory power

to authorize such operations. After voluminous responses

to this inquiry were filed, the Commission released a

Notice of Further Proceedings, 22 Fed. Reg. 3758

(1957), in which it announced that trial demonstrations

of STV would be necessary before a final decision could

be made. Shortly thereafter, on October 17, 1957, the

Commission issued its First Report on subscription televi-

sion, 23 F.C.C. 532, which concluded that the Commis-

sion could authorize pay television, but that trial opera-

tions should be conducted first. At this point Congress

began to take notice of the problem, and the House

Committee on Interstate and Foreign Commerce con-

ducted hearings on the subject. Upon conclusion of these

hearings, the Committee passed a resolution requesting

the Commission to defer authorization of any STV

operations. See 16 P&F RADIO REG. 1539-40 (1958).

The Commission then issued its Second Report? on pay

television which suspended the processing of all STV

applications until the expiration of the 85th Congress;

this delay was subsequently extended through the 86th

Congress.

2 20 Fed. Reg. 988 n.1 (1955).

3 16 P&F Radio Reg. 1539 (1958). oe

A-4

In 1959 the Commission issued its Third Report on

subscription television, 26 F.C.C. 265, 16 P&F RADIO

REG. 1540a, in which it reasserted the conditions for

trial operations set out in the First Report. In addition,

the Third Report stated that as soon as the trial

operations provided sufficient data, public hearings

would be held to determine whether STV should be

authorized on a permanent basis. Pursuant to the Third

Report, three applications were filed for trial STV

operations; only one such station ever commenced

operations, however.* This station, which was operated

by Zenith Radio Corporation and its licensee Teco,

Inc.,> intervenors in this action, began broadcasting over

UHF station WHCT in Hartford, Connecticut during

1962. This operation was initially licensed for three

years, but the license was subsequently extended for an

additional three years in 1965; in 1968 it was again

extended for three years, or -until such time as the

Commission authorized STV on a permanent basis. The

Commission’s authority to license the trial operation was |

approved. by this court in Connecticut Committee

Against Pay TV v, FCC, 112 U.S. App. D.C. 248, 301

F.2d 835, cert. denied, 371 U.S. 816 (1962).

In 1965 Zenith and Teco jointly filed a petition for

further rulemaking to establish permanent nationwide

STV on the basis of the data derived from their trial

operation in Hartford. The Commission then issued, .in

1966, a Further Notice of Proposed Rulemaking and

Notice of Inquiry, 31 Fed. Reg. 5136, 7 P&F RADIO

REG. 2d 1501, which, in essence, requested further

4 One of the three applications ‘vas denied; of the two which

were granted, one station relinquished its license before

commencing operations. Fourth Report, 15 F.C.C..2d at 467.

> Zenith has patented “Phonevision,” a ‘system for over-the-air

subscription television, and has licensed Teco to enfranchise local

Phonevision operations. Brief for the Intervenors at 2 n. 1. .

A-5 .

comments on the feasibility of nationwide STV.

Subsequently, in 1967, the FCC’s Subscription ‘Television

Committee submitted to the Commission a Proposed

Fourth Report, 10 P&F RADIO REG. 2d 1617 (1967);

the FCC, en banc, invited comments and held oral

argument on the proposed report.

After the issuance of the Proposed Fourth Report,

which concluded that the Federal Communications

Commission did have statutory power to authorize

permanent nationwide STV, the Communications and

Power Subcommittee, of, the House Interstate and

Foreign Commerce Committee conducted hearings on the

subject of STV ‘sguring the week of October 9, 1967.

Upon. conclusion/of these! hearings the full Committee

recommended that the Commission refrain from taking

any action for one year or until the Communications Act

of 1934 was amended to authorize subscription

television. See 15 F.C.C.2d at 466, 470. On September

3, 1968, the Commission, through Chairman Hyde, sent

a letter to Chairman Staggers of the House Committee

on Interstate and Foreign Commerce indicating that the

Commission could not delay any further in resolving‘ the

important question of STV authorization.® The

Commerce Committee ‘responded on September 11,

1968, by adopting a resolution announcing that it was

“the sense of the Committee” that the Commission

should delay action on STV “until the end of the first

session of the 91st Congress” or until “‘completion of

action on legislation if by the end of said first session

legislation pertaining- to . . . [STV] is under

consideration.’ The resolution went on to state that “‘it

is the further sense of this committee that to avoid any

further delay . .. hearings . . should be scheduled by

the end of May 1969.” 15 F.C.C. 2d at 471.

6 Fourth Report, 15 F.C.C. 2d at 470-71.

A-6 *

| Finaily, on December 12, 1968, the Commission

< . | igsued its Fourth Report on subscription television,. 15

.C.C.2d 466, in which it reaffirmed its earlier

onclusion that it possessed the power to authorize a

D nationwide system of STV and established

| rules governing the operation of that system. The

/.\ National Association of Theatre Owners and the Joint

| ‘Committee Against Toll TV, participants in the

Commission proceedings, filed a petition for review in

this court pursuant to, section 402 of the

Communications Act, 47 U.S.C. 8402 (1964), alleging

statutory and constitutional errors in the Commission’s

determinations.

Il. THE FOURTH REPORT

The’ Commission’s Fourth Report and Order is a

lengthy (144 pages) and carefully reasoned document

which surveys the potential advantages and disadvantages

of subscription television in light of the Hartford

experiment and the contentions of various parties

interested in pay television. On the basis of its

seventeen-year inquiry’ into STV, the Commission

concluded that subscription television would provide a

‘“‘beneficial supplement” to conventional ‘“‘free”

broadcasts’ in the sense that STV broadcasting “is not

duplicative of the programming of free TV and that [it]

7 There is some question whether the term “free TV” is a

misnomer; in the Fourth Report, for example, the Commission

stated: “[F]ree TV is not really free. The advertising costs which

support free TV. are eventually passed on to the public, and a

profit is made by the licensee or others from the use of the

public’s channels.” 15 F.C.C. 2d at 548; but cf. id. at 548 n. 51;

Brief for Petitioners at 39: “[E]conomists have contended that

free television is indeed ‘free’ because, as more and more units of

a particular commodity are sold, the purchase price goes down and

the advertising costs are borne not by the panic, but by the:

results of mass production.”

A-7

is desired or needed by at least a portion of the viewing ~

public.” 15 F.C.C.2d at 473'n. 20; see also id. at 483-88.

In considering the critical question of whether STV

would have substantial adverse impact on free television,

the Commission placed primary emphasis on the

possibility that programs, audiences, and talent would be

diverted (“siphoned”) from free television to STV.

Because the Commission recognized that the public’s

“tremendous investment . . . in television receivers based

on the expe¢tation of free service ought to be protected

and the millions of viewers who rely on that service for

free entertainment should be permitted to do so,” it

imposed a number of restrictions on STV operations. In

brief, the Commission provided that STV stations could

be established only in communities located entirely

within the Grade A contours of five or more commercial

broadcast stations, and that only one STV» station could

be located in each such community; that each STV

station must broadcast at least twenty-eight hours per

week of free programming; and that STV stations must

observe detailed ‘restrictions on the kind and quantity of

subscription programs broadcast, in order to prevent

“siphoning.” See 15 F.C.C.2d at 494-95, 515-23, 595,

597, 598; see also pt. IVB, infra. _ Rules were also

established governing the technical specifications and °

modus operandi of STV stations; see 15 F.C.C.2d at

544-48, 595-98. .In promulgating these restrictions, the

Commission attempted to strike a balance between the -

danger of allowing STV operations to acquire enough

economic power to destroy free broadcasting, and the

risk of hedging the new service with so many restrictions

that it would “smother” before it ever got started. Thus,

’ the Commission rejected the suggestion, urged by

petitioners and others, that direct regulation of the rates

charged by STV stations was necessary in order to

prevent “gouging” of the public; instead, it concluded

that the available evidence rendered this possibility

remote, and that free market forces would be a sufficient

A-8

“check on the prices charged for STV services. (Jd. at

526, 548.)° We hold that the ‘Commission acted

reasonably and within the scope of its authority, both in

making its initial decision to authorize permanent

nationwide STV and in imposing specific regulations

governing subscription television.

iil. THE COMMISSION'S POWER TO AUTHORIZE

SUBSCRIPTION TELEVISION

' The petitioners advance three arguments, in support:

of their contention that the Commission exceeded the

proper bounds of its power in authorizing nationwide

subscription — television. First, they assert that the

unications Act contains no _ explicit grant

“can be infdrred from the januunce or history of the Act

(Brief for Petitioners at 17-21). Second, petitioners

contend that the Commission lacks authority to regulate

the rates charged for broadcast services; and that the

absence of such authority is persuasive evidence of

Congress’ intent to preclude establishment of

direct-charge broadcast, operations such as STV (Brief for

Petitioners at 21-24). Finally, petitioners claim that even

if the Commission did have the necessary authority to

establish pay television,:its failure to regulate rates or to

decide the question of whether it possessed rate-making

- power constituted an arbitrary and capricious exercise of

this authority (Brief for Petitioners at 35-43). We shall

consider each of these contentions separately.

A. The Language and History of the

Communications Act

Our inquiry into the scope of the Commission’s

authority begins with section 303 of the

A-9

Communications Act of 1934, 48 Stat. 1082, as

amended, 47 U.S.C. 8303 (1964), which sets forth the

Commission’s general powers and duties in regulating ©

' radio broadcasting. In pertinent part, this, section directs

the Commission, “as [the] public convenience, interest,

or necessity requires,” to:

(a) Classify radio stations;

(b) Prescribe the nature of the service to be

rendered by each class of_licensed stations. . .:

(e) Regulate the kind of apparatus to be used with

-respect to its external effects and the purity and

sharpness of the emissions from each station. . .;

(g) Study new. uses. for radio, provide for

_ experimental uses of frequencies, and generally

encourage the larger and more effective use of radio.

in the public interest. .

In addition, section 307 of the Act, 47 U.S.C.

§ 307(a) (1964), provides that “[t]he Commission, if

‘public convenience, interest, or necessity will be served

thereby, subject to the limitations of this chapter, shall

grant to any applicant therefor a station license... .”

We find it unnecessary to determine the precise

significance as precedent of our ruling in Connecticut

Committee Against Pay TV vy. FCC, 112 U.S.App.D.C.

248, 301 F.2d 835, cert. denied, 371 U.S. 816 (1962).

Connecticut Committee, which arose out of the same

series of proceedings as this litigation,® dealt with the

propriety of Commission authorization for a trial STV

operation, and our opinion placed considerable emphasis

8 See part I, supra.

A-10

upon the experimental nature of the undertaking.? Thus,

although Connecticut Committee can provide, assistance

in our present inquiry, we feel it appropriate to give

fresh consideration to the question of whether the

Federal Communications Commission has authority to

license STV for an idefinite period.

The basic structure. of title III of the

Communications Act, from which the foregoing sections

are quoted, is a broad grant of general licensing authority

to the Commission, subject to a number of specific

exceptions and limitations. (See, e.g., 47 U.S.C. 8 310,

312, 313(b) (1964).) This plan is consistent with the

dynamic and rapidly-changing nature of the statute’s

subject matter, radio broadcasting, and the courts have

consistently recognized that Congress intended to vest

expansive powers in the Commission in order to avoid

the necessity of repetitive legislation.!® The classic

9 In his opinion for the court, Judge (now Chief Justice) Burger

‘ pointed out that “Congress. specifically commanded the

Commission by Sec. 303(g) of the Communications Act, to ‘study

new uses for radio, provide for experimental uses of frequencies,

and generally encourage the larger and more effective use of radio

in the public interest.’ ” (Emphasis in original.) In addition, he

concluded that “[t] he distinguishing characteristic of the Federal

Communications Commission’s authorization of subscription

television in this case is the experimental or trial basis upon which

the system is to operate for the duration of its thrée years

authority.” 112 U.S. App. D.C. at 250, 301 F.2d at 837.

10 See General Telephone Company of California v. FCC, No.

22,106 (D.C. Cir. April 30, 1969) (slip op. at 15):

Over the years, the Commission has been required to meet new

problems . . . and as cases have reached the courts the scope

of the Act has been defined, as Congress contemplated

would be done, so as to avoid a continuing process of

statutory revision. To do otherwise in regulating a dynamic

public service function such as broadcasting would place an

intolerable regulatory burden on the Congress—one.which it

sought to escape by delegating administrative functions to

the Commission.

qe PIR PGE SMB PS cL SER ES ial

A-11

affirmation of the broad scope of the Commission’s

authority was enunciated nearly thirty years ago by the

Supreme Court in National Broadcasting Company _v.

United States: -

In the context of the chine problems to which

it was directed, the Act gave the Commission not

niggardly but expansive powets. It was given a

comprehensive mandate to “enkourage. the larger

and more effective use of radio in the public

interest”’.

While Congress did not give the

Commission unfettered discretion to regulate all

phases of the radio industry; it did not frustrate the

purposes for which the Communications Act of

1934 was brought into being by attempting an

itemized catalogue of the specific manifestations of

the general problems for the’ solution of which it

was establishing a regulatory agency. That would

have stereotyped the powers of the Commission to

‘specific details in regulating a field of enterprise the

dominant characteristic of which was the rapid pace

of its unfolding.!!

This continuing imperative need for an expansive’

interpretation of: the Commission’s jurisdiction was —

recently reaffirmed -by the, Supreme Court in United

_ States v. Southwestern Cable Co., 392 U.S.°157, 167-78

(1968§, and has been observed repeatedly by this

11 319 US. 190, 219 (1943); see also FCC-v. Pottsville

Broadcasting Co., 309 U.S. 134, 137-38 (1940).

A-12

court.!?. Morevoer, the Commission has devoted long and

careful scrutiny to the question of whether it possesses

authoritygto license STV operations, and has reached the

conclusion that its jurisdiction under the Act is

sufficient.'3~in this situation, we are bound to observe

the ‘“vefierable ‘principle that the construction of:a

statute by those charged with its execution should be

followed unless there are compelling indications that it is

wrong.” Red Lion Broadcasting Co. v. FCC, 395 U.S.

367, 381 (1969); see also General Telephone Company

of- California v. FCC, No. 22,106 (D.C. Cir. April 30;

1969) (slip. op. at 20).

Nothwithstanding this impressive body of authority,

the petitioners contend that STV is clearly beyond the

contemplation of the Communications Act. In essence,

they assert that “over-the-air pay television represents a

fundamental change in the nature of American

Broadcasting” (Brief for the Petitioners at 13) and that

therefore the power to license pay television cannot be

inferred from the Act. Direct charges for broadcasting

‘services are. not wholly unprecedented in this country,

however; testimony to this. fact may be found in

Functional Music, Inc. v. FCC,+107 U.S.App. D.C. 34,

.274 F.2d 543 (1958), cert. denied, 361 U.S. 813 (1959),

and Muzak Corp., 8 F.C.C. 581 (1941). Indeed, we

_feferred to these .cases ‘in Connecticut Committee as

_ instances.in which subscription sérvi¢es “have been found -

' perfectly. acceptabl¢é by both [the] Commission and the

courts.”” J12 U.S.App.D.C. at 250 n.2, 301 F.2d at 837

n.2. Since. the matter now before us is basically a

12 See, eg.) Paducah Newspapers, Inc. v. FCC, No. 22,007 (D. c.

Cir. June 1969); General Telephone Company of California v.

FCC, No. 22,106 (D.C. Cir. April 30, 1969); Buckeye: Cablevision,

Inc. v. FCC, 128 U.S. App. D.C. 262, 387 F. 2d 220 (1967).

13 See Fourth Report, 15 F.C.C, 2d at 469-73; First Report on

Subscription Television, 23 F.C.C. 532, 535-42 (1957).

A-13

question of first impression,'4 however, we. ‘have

examined the legislative history of the Communications

Act in order to evaluate petitioners’ claim. that

subscription television is “the most fundamental change - :

in broadcasting that has occurred since the adoption. of

the original Communications Act in 1927” (Brief for the -

Petitioners at 20). ‘

The present statute governing the Commission’s

authority over broadcasting services is derived in large

part from the Radio Act-of 1927, 44 Stat. 1162.'> Five

. years before the Radio Act was adopted, the problem of

how radio broadcasts would be financed was still very

much an open question. Proposals included endowment

of stations by public-spirited citizens, municipal or state

financing, donations from the listening public, and taxes

on -the sale of radio receivers; some variants of .tHese

schemes were attempted with limited success in the years

preceding’ the Radio Act’s passage. 16 The concept of

advertiser-financed programs. apparently was first

"14 Aside from Connecticut Committee, the Functional Music

case parallels the facts of the instant controversy more closely

than any other: case which we have been able to discover.. In

Functional Music, however, we did not deal with the specific .

question of the FCC’s authority to license direct-charge —

broadcasting services. The major issues in that case were whether

this court possessed jurisdiction to review the Commission’s action,

and’ whether the Commission had erred in determining that

functional broadcasting was point-to-point communication rather

than broadcasting under the Act.

1) For a brief description of the early federal statutes governing

broadcasting, see National Broadcasting Co. v. United ‘States, 319

U.S. 190, 210-14 (1943). --

16 See E. Barnouw, A Tower in Babel: A_ History of

Broadcasting in the United States 154-57 (1966) {hereinafter

Barnouw] ; G. Archer, History of Radio to 1926, at 252-54 (1938)

[hereinafter Archer] . :,

A-14

developed on a systematic basis'? by the American .

Telephone and Telegraph Company in 1922, as part of a

plan which the company called “toll broadcasting”:!®

initial public reaction to this system has been described

as “lukewarm, and in some cases indignant.”!9 Various

forms of advertising soon became a. commonplace

adjunct of radio programs,?° however, and in spite of

occasional public and official attacks on the practice?! it

had become a well-established—but hardly universal—?2

method of financing radio programs by 1927 when

congested air waves led Congress to establish detailed

federal regulation of broadcasting.

17 Apparently some sporadic efforts at radio advertising were

made in the early 1920’s when individual phonograph record ,

merchants who supplied complimentary phonograph records for

broadcasts began insisting on radio acknowledgment. See Archer

199. v:

18 See Barnouw 106-107; Archer 275-77. ;

19 Barnouw 106-07. Cf C. Siepmann, Radio, Television, and

Society 7 (1950) [hereinafter Siepmann]: “We are today so

accustomed to the dominant role of the advertiser in broadcasting

that we tend to forget that, initially, the idea of advertising on the

. air was. not -even- contemplated and met. with widespread :

‘ indignation when it was first tried.”

20 See generally Barnouw 131-34, 157-60.

2I" archer 285-86, 361, 363; Barnouw 177-78; Siepmann 10-11.

22 At the time the Radio Act was passed, “time-selling stations

were still a minotiry; the climax of:a struggle between commercial.

and noncommercial interests lay ahead.”’ Barnouw 200; see also id.

at 202-03; Siepmann 10 (“[I]n 1929 the National Association of

Broadcasters -adopted ‘Standards of Commercial Practice,’ which

specifically barred commercial announcements from the air

between the Bours of seven and eleven in the evening.”’).

A-15

Given this rather chaotic background, it is not

_ surprising that the legislative history of the Radio Act

casts little light on the precise question presented by this

case. An early version of the Act, which was passed by

the Senate, gave the regulatory body power to “regulate

radio stations where a charge is made to listeners,”?? but

this provision was subsequently deleted in conference

without explanation.24 The problem of authority to

license direct-charge broadcasting was mentioned only

briefly on several occasions during the floor debates on

the Radio Act. The most extensive discussion of the

question was offered by Senator Dill, sponsor of the

Senate bill and Chairman of the Conference Committee:

Mr. WALSH of .Massachusetts. A

Representative from:New York has introduced in

* the House a bill to prevent a radio-braodcaster from

charging the public for listening in. it is claimed

that the possible result of this, legislation may be

the charging of a fee to listeners. . . . Is there any

provision in this bill that permits that to be done?

23 § Rep. No. 772, 69th Cong., Ist Sess. 3 (1926).

24 The portion of the Conference Report which deals with the

» relevant section of the bill states:

The jurisdiction conferred in this paragraph is substantially

the same as the jurisdiction conferred upon the- commission -

by section’ 1(c) of the Senate amendment. The important

change from the provision of the Senate amendment is that

while under the Senate’ bill this original jurisdiction was

vested permanently in the commission, the jurisdiction is by

this compromise . . . limited to one year in time.

H. Rep. No. 1886, 69th Cong., 2d Sess. 17 (1927); S. Doc. 200,

69th Cong., 2d Sess. 17 (1927).

A-16

Mr. DILL. ... . [T]he commission would have: ’

the power to permit or prohibit the use of such

apparatus if it so desired, but. . .in my judgment,

Congress.should not pass a law that would prevent a

broadcasting station from so equipping itself that

people could not listen to its programs unless’ they

had a certain kind of receiving set.

. . .[H]ere in the United States we have built

up a free system of broadcasting and reception, and

it has thrived. . . . I do not believe, with the

condition[s]- existing, that any broadcasting station

can hope to prosper if it attempts to set up a

method by which it would charge the listener in;

but I know of no reason why the Congress should

interfere with that kind of private business any

more than it should interfere with any other kind

of private business.

(68 CONG. REC. 2880-81 (1927).) The bill prohibiting

direct charges was never passed, and further references to

pay broadcasting during the debates were sparse and

inconclusive; in most of these discussions, the principal

concern seems to be the possibility that“large chain

broadcasting organizations would obtain monopoly

power, through patent licensing agreements or other

devices, and use pay broadcasting schemes to extract

monopoly profits from the public. See generally 68

CONG. REC. 2576-77, 2580, 3033-34, 4149 (1927). In

the years intervening between the passage of the Radio

Act of 1927 and the issuance of the Commission’s

Fourth Report on subscription television, Congress has;

On occasion, been confronted with the suggestion that

the present Act authorizes the Commission to license

A-17

direct-charge broadcasting services,2> but no legislation

restricting the broad mandate of the original Act has

been forthcoming.

Thus, we are unable to agree that the

Communications Act absolutely precludes the

Commission from approving a system of direct charges to

the’ public as a means of financing broadcasting services.

Rather, the Act seems designed to foster diversity in the

financial organization and modus operandi. of

broadcasting stations as well as in the content of

' programs, and we feel that the Commission did not

exceed its authority in concluding that subscription

television is entirely consistent with these goals.

B. Rate Regulation and Licensing Power

Petitioners seek to negate the broad sweep of the

Communications Act by asserting that the Commission ~

lacks the authority to regulate the rates charged by STV |

operators, and that the absence of such authority reflects

- Congress’ intent to prevent the Federal, Communications

. 25 See, e.g. Fourth Report, 15 F.C.C. 2d at 598-99; Second

Report on Subscription Television, 16 P&F Radio Reg. 1539

(1957); 98 Cong. Rec. 9032-33 (1952). The proceedings leading

up to the instant case reflect Congress’ inability to agree on

limitations of the Commission’s power in this area. On, September

12, 1968, the day ‘after the House Committee on Interstate and

Foreign Commerce passed its resolution urging the Commission to

defer action on STV (see part I, supra), nine members of the

Commerce Committee sent a letter to the Commission which

stated, in part, that the resolution “represents the thinking of the

barest majority of those present at the Commerce Committee

hearing” and “does not represent a mandate to the Commission.”

The letter concluded: “In our opinion, the failure of the FCC to

act promptly to decide the 13-year-old ‘rulemaking proceeding on

subscription television would be inconsistent with your

responsibilities imposed by the Administrative Procedure Act and

contrary to the public interest... . .” Fourth Report, 15 F.C.C. 2d

at 471-72.

ten,

A-18

\ Commission from authorizing direct-charge broadcasting.

The contention that the Commission lacks rate-making

authority for over-the-air STV is predicated on the

structure of the statute: the Communications Act

distinguishes between communications “common

carriers” and “broadcasting” operators,. providing the

Commission with explicit authority to establish tariffs

for the former but not for the latter. See 47 U.S.C. 8

201, 203 (1964). However, we need not reach the

difficult question of whether Commission power to

establish rates for broadcasting services is implicit in

some provisions of title III, since we are unable to agree

with petitioners’ interpretation of the role ~ which

rate-making authority plays in the Communications Act.

‘Federal control over telephone and_ telegraph

evolved earlier than did regulation of radio broadcasting,

and, in its early forms, it encompassed supervision of the

rates charged by companies providing service.2® Yet,

with this model of common carrier treatment for a

communications service available in 1927, Congress

elected to establish a less rigorous system of federal

control for broadcasting. The significance of this

differential treatment was noted by this court in Pulitzer

Publishing Co. v. FCC, 68 U.S. App. D.C. 124, 126, 94

F.2d 249, 251 (1937):

[WJe have never said that a radio broadcasting .

station is a public utility in the sense in which a

railroad is a public utility. Generally speaking, that

term comprehends any facility employed in

rendering quasi public service such as waterworks,

gas works, railroads, telephones, telegraphs, etc. The -

use and enjoyment of such facilities the public has

the legal right to demand; but its right to the use

and enjoyment of the facilities of a privately owned

radio station is of a much more limited character.

26’See 36 Stat. 539, 544-46 (1910). -

A-19

[T]he power of Congress has not yet been

extended to the point of fixing and regulating the

- rates to be charged by the licensee or the

establishment of rules requiring it to serve alike the

entire public in the use of its facilities.

See also FCC v. Sanders Brothers Radio Station, 309

U.S. 470, 474 (1940). In short, we think that it is fair to

infer that the differential treatment accorded to

communications common carriers and radio broadcasters ~

in the Communications Act reflects Congress” belief that

commercial broadcasting is not a natural monopoly ~

which creates the same kinds of risks that a telephone

system does. Rather, Congress apparently believed that

once the clear dangers of combinations in restraint of

trade were removed, competition among those providing

broadcasting services in a given area would best protect. ,

the public interest. It is also significant that in both the

Radio Act of 192777’ and the present version of the.

Communications Act,2® the principal method which

Congress provided for combatting anticompetitive

practices is regulation through the licensing process—a

_ method which the Commission deemed sufficient to pre-

vent any abuses of economic power by STV operators. See

Fourth Report, 15 F.C.C.2d at 548, 596-97.

%. #2

We approve the Commission’s conclusion that it was

not called upon to decide whether, or in what

circumstances, its licensing regulatory functions might

include surveillance or control over rates charged for

services. The need for such control would presumably be

rooted in developments in . the market which

demonstrated that STV had been granted a monopolistic

or~ ‘‘quasi-monopolistic”’ position, in which the

competition of -ordinary i or other services was not

27 See 44 Stat. 1162, 1168-69 (1927).

28 see 47 US.C. 8 313-14 (1964).

%¢

Sona ara aa aaa eR aw ay ee eee ep ce nan

effective to prevent abuse. On the basis of the rates

charged in the Hartford experiment, the FCC concluded

there was no likelihood of rate abuse. Appellants claim

that these rates were kept artificially low in order to

obtain a good climate for general approval of STV.

Perhaps so, but the Commission was entitled to take into

account the facts as they now exist, without ranging inta

such speculation. If and when the premises of its-

regulatory approach change, the Commission can and

should consider the issues involved. American Airlines;

Inc. vy; CAB, 123 U.S. App.. DX. 310; 359 F.2d 624,

633 (en banc), cert. denied, 385 U.S. 843 (1966). Its

- predictions as to the probable course of rates and

existence of meaningful competition are certainly not

unreasonable; and it is equally certain that the FCC was

nat required to stake out at this time the techniques and

methods it might desire to use in future circumstances

that ha¥e not yet and may ‘not ever take shape. “In a

‘statutory scheme in which Congress has given an agency

various bases of jurisdiction and various tools with which

to protect the public interest, the agency is entitled to

some leeway in choosing which jurisdictional base and

which regulatory tools will be most effective in

advancing the Congressional objective:’’. Philadelphia

Television Broadcasting Co. v. FCC, 123 U.S. App. D.C.

298, 300,.359 F.2d 282, 284 (1966).

C. The Question of Arbitrariness

Petitioners advance a separate but related challenge .

to the Commission’s treatment of the rate regulation

question. Petitioners contend that, even if the

authorization of STV was within the scope of the

Commission’s power, its action in the Fourth Report was

arbitrary and capricious because the Commission failed

‘to set forth adequate reasons for its decisions to employ

regulatory measures less drastic than rate-making, and ie

avoid detailed inquiry into the question of whether ji

possesses the authority to establish rates.

A-21

In essence, petitioners’ argument rests on the

premise that STV operations will be monopolies similar

to the public utilities which have traditionally been

subject to rate regulation (Brief for Petitioners at 41). In

turn, this postulate apparently rests on the assumption

that the relevant product market is the television station,

and that a finding of any other product market would be

so unreasonable as to be capricious.? 9 The question of

market definition is hardly that simple. Within the °

confines of the Fourth Report, there are statements by

various parties suggesting a\number of other possible

product markets affecting \STV: all entertainment

available in a given area; all television programming

available in the area; all programs or performances of a

‘ given type, such as motion pictures or sporting events,

which could be seen in live performances and other

media; subcategories within program types, such as films

less than two years old or athletic events featuring home

town ‘teams; and unique individual programs. See

generally 15 F.C.C. 2d at 474-88, 494-509. Obviously,

entertainment is an industry in which antitrust concepts

such as product market and cross-elasticity of demand?

are exceptionally difficult to apply; the inquiry is further

29 Brief for Petitioners at 41 (emphasis in original):

The Commission urges that rate regulation is

unnecessary since: “We believe that the market place will

regulate charges that are paid .. . .” Yet, it can fairly be

asked: What market place? The Commission has limited pay

television to only one station in each city with five television

allocations. Under these conditions, it is simply fallacious to

argue that a “market place” exists, the operation of which

would protect the public. There is no “market place” when

there is a government-authorized monopoly.

30 See, e.g., United States v. Columbia Pictures Corporation, 189

F. Supp. 153, 183-92 (S.D. N.Y. 1960); Section of Antitrust Law

of the American Bar Association, Antitrust Developments

1955-1968 at 66-70 (1968). :

A-22

complicated by the fact that the copyright law operates

to create some permissible monopolies within the general

area.

In light of the extensive discussion devoted to these

topics in the Fourth Report and the considerations

enumerated in the preceding section, we are not prepared

to hold that the Commission was arbitrary and capricious

in determining that a substantial amount of economic

competition would exist between STV and the other

_forms of entertainment and enlightenment available in

the community.?! Courts should be very, reluctant, we

think, to declare that free market forces must be

supplanted by rate regulation when neither Congress nor

the agency administering the area has found that such—

regulation is essential.

IV. THE FIRST AMENDMENT

AND EQUAL PROTECTION ISSUES

‘Petitioners also challenge the propriety of the

Commission’s actions on the grounds ihat_ the

authorization of STV_ constitutes an _ invidious

discrimination against indigent persons who will be

unable to afford STV equipment or fees, and that the

program restrictions imposed upon STV _ operations

constitute an impermissible restraint on free speech

31 The Commission devoted considerable attention to the

likelihood that STV will compete not only with free television,

but also with motion picture theatres and other “box office”

attractions. See 15 F.C.C. 2d at 474-88, 497, 508-09.

A-23

violative of section 326 of the Communications Act??

and the first amendment to the Constitution. At the

outset, there is some doubt whether petitioners possess

‘the requisite standing to raise these issues. We note, for

example, that in the proceedings before the Commission

petitioner Joint Committee Against Toll TV proposed

-and urged adoption of program restrictions which were

quite similar to the ones which they now attack (J.A.

19-24), and that organizations vitally interested in free

speech supported approval of STV as a means of

promoting diversity of expression (see part IVB, infra).

Similarly, it is significant that the Commission concluded

from the Hartford experiment that in at least one

instance STV subscribers were able to observe a major

_ sporting event in their homes at a per capita cost which

was substantially less than the prices being charged for

viewing the same event on closed circuit television in

neighborhood theaters (15 F.C.C. 2d at 485). At the

same time, we are familiar with the line of authority

cited by petitioners which supports an expansive

interpretation of the standing requirement when

32 47 US.C. § 326 (1964):

Nothing in this chapter shall be understood or

construed to give the Commission the power of censorship:

over the radio communications or signals transmitted by any

radio station, and no regulation or condition shall be

promulgated or fixed by the Commission which shall

interfere with the right of free speech by means of- radio

communication.

A logical extension of petitioners’ constitutional arguments could

well render any form~of direct-charge broadcasting

unconstitutional. Thus, it could be argued that rules against

siphoning of programs, talent, and audiences are required in order |

to prevent STV from damaging. free television and imposing

impermissible hardship on poor people, but any rules against

siphoning would violate the first amendment, and thus the

Commission’ and Congress are without. power to approve

direct-charge broadcasting.

A-24

~~ oad -

‘challenges to the legality of administrative action’ are

‘ made;33 moreover, we think that petitioners’ long and

here and before the Commission, is evidentiary of

“concrete adverseness which sharpens the presentation

of issues upon which the court so largely depends for

illumination of difficult constitutional questions.” Baker

v. Carr, 369 U.S. 186, 204 (1962); see also Flast vy.

Cohen, 392 U:S. 83, 99 (1968). Finally, since we have

determined that petitioners’ constitutional claims must

’ fail on the merits, we shall assume without deciding that

they possess the requisite standing. >

A. Discrimination Against the Poor

_ Petitioners rely on several findings in the Fourth

Report to support their. contention that the

Commission’s authorization of nationwide STV _ will

result in unconstitutional discrimination against people in

low income groups. Specifically, they point to data from

the Hartford experiment which showed that less than

two percent of all subseribers had incomes in the range

of $0-$3,999 (15 F.C.C. 2d at 493), while nearly thirty

percent of the national population in 1964 had incomes

of less than $4,000; thus, they conclude that the

33 The leading ‘case is FCC v. Sanders Brothers Radio Station,

309 U.S. 470, 477 (1940), where the Supreme Court stated that

in enacting the standing provisions of the Communications Act, 47

U.S.C. § 402 (1964), Congress “‘may have been of the opinion that

one likely to be financially injured by the issue of a license would

be the only person having a sufficient interest to bring to the

attention of the appellate court errors of law in the action of the

Commission . . . .” The Court held that the. standing thus

conferred encompassed “any relevant question of law in respect of

-the order of the Commission.” See also Office of Communication

of the United Church of Christ v. FCC, No. 19,409 (D.C. Cir.,

June 20, 1969); National Association of Securities Dealers, Inc. v.

SEC, No. 20,164 (D.C. Cir., April 30, 1969) (slip op. at 24-36;

Chief Judge Bazelon concurring).

\ A-25

authorization of STV is “systematic discrimination”

against thirty percent of our citizens.>4 We need not

reach the question of whether the concepts. of equal —

protection applicable to the federal government by

implication fram the due -process clause of thie fifth’

amendment (cf. Bolling v. Sharpe, 347 U.S. 497 (1954))

are- any different from the concepts of equal protection

applicable to the states under the fourteenth amendment;

‘by any accepted standard of equal protection, we find

the petitioners’ claim insubstantial.

Since the Commission promulgated a number of -

rules designed to protect free television from economic

incufsions by STV—rules which we think are reasonable

and amply supported bythe record— ‘we must confine

our inquiry to the proposition that any .form of pay

broadcasting would, by itself; be discriminatory against

the indigent. We-must also assume that the ‘chargés

imposed by STV. operators will not be exorbitant, since

we have: affirmed ‘the Commission’s determination that

rate regulation is not ‘presently needed to prevent :

monopoly profits. Thus, unless. there _is some factor

which serves to distinguish broadcasting from other

endeavors which are subject to federal regulation, we are

being asked to render a decision which would go far |

toward establishing the rule that every service provided

by a regulated industry must be made available to all

citizens on the basis of their ability to pay. Such a result.

would clearly be a constitutional innovation that: we are

unwilling to make; and -we are not convinced that the

34 Asa matter of statistical technique, we have some doubts

about the reliability of figures obtained by comparing data taken

from the Hartford area to data taken’ from the whole nation; in

theory, it is possible that the Hartford area contains a substantially

smaller proportion of people in the low.income evels than does

‘the nation as a whole, and that as a result the two percent figure

is misleading. For present purposes, however, we’ shall ‘disregard

this potential discrepancy.

A-26

subject of television broadcasting has unique features

distinguishing it from comparable regulated industries.

- The equal protection cases cited by petitioners bear

scant resemblance on their facts to this controversy;

rather the cases involve poll taxes (Harper v. Virginia

Board of Elections, 383 U.S. 663 (1966)) and the

administration of criminal justice (Griffin v._Illinois, 351

U.S. 12 (1956)). Petitioners attempt to relate these cases

and their progeny to subscription television by arguing

that “in order to fulfill their citizenship requirements, or,

indeed, to effectively achieve their tights, the poor must

have access to the mass media” (Brief for Petitioners at

46). We think that this doctrinal bridge is far too

insubstantial to bear the weight of petitioners’ argument,

and that their analysis fails to take account of the realities

which the Commission considered in authorizing STV.

The public’s access to the broadcast media has never

been wholly free; at minimum, it has ,been necessary to’

procure and maintain the necessary apparatus for

receiving broadcasts, and this burden necessarily weighs

, heaviest on those with least resources. Moreover, any

“deprivation” of access to the broadcast frequencies

which may result from the Commission’s approval of

STV will almost certainly be slight. At most, one out of

five stations serving a given community will be devoted

to STV under the rules promulgated by the Commission;

this station will be required to carry at least twenty-eight

hours of free programming per week: The Commission

also adopted detailed. programming restrictions which are

designed to prevent the more popular kinds of free

programs from migrating to subscription television. At

the same time, the Commission found that the

authorization of STV may create benefits for all citizens

which gould well offset any deprivation. Thus, in some

communities approval of STV operations could result in

the opening of a new station rather than the conversion .

of an existing free station; in this situation, there would

A-27

be a net gain in the amount of free broadcasts because

of the STV _ operators’ obligation to provide free

programs (15 F.C.C. 2d at 494). Similar considerations

will be present when an existing station that is in serious

financial difficulties manages to survive by converting to

subscription operations (/d.). Subscription television may

also make available to a larger viewing public

entertainment which would otherwise be unavailable for

reasons of distance, lack of seating space, the desire o

promoters to protect their gate receipts, or because thd

per capita cost of STV viewing is less than attendance af

a “live” event. Cf. 15 F.C.C. 2d at 484-85. Finally, there

is also the possibility that competition from STV will

spur the free broadcasting networks and stations to make

substantial improvements in ‘their services, resulting in an

overall gain in the quality of television programming (15

F.C.C. 2d at 505). In short, we believe that the

Commission gave full and fair consideration to the

potential impact of STV on poor people and free

television, and that its findings, conclusions, and rules on

these issues were reasonable.

B. The Program Restrictions and the First Amendment

Petitioners’ final contention is that the program

restrictions which the Commission established in order to

prevent STV from siphoning programs, talent, and

audiences from free broadcasting are repugnant to

section 326 of the. Communications Act and the first

amendment of the Constitution as a prior restraint on

free speech. In_ general, these program restrictions

provided that: (1) no advertising could be broadcast

during subscription operations, except for

announcements promoting STV programs; (2) feature

films could not be offered which had been generally

released more than two years prior to the broadcast date,

with several exceptions; (3) sports events which had been

_regularly broadcast live on free television in the two

pte =

abort | ENG Ay IRIE IARI PO is AEE EEE Gabe’ see oomecaemsr tc.

A-28

years preceding their subscription broadcast could not be ad

shown on STV; (4) no series program’ with

interconnected plots or substantially the same cast of

characters could be offered on a subscription basis; (5)

not more than ninety percent of. the total STV

broadcasting hours could consist of feature films and

. sports events combined. 15 F.C.C. 2d at 597-98.

At the outset, it is appropriate to note the extreme

difficulty and delicacy of the tasks which the first

amendment imposes on the Federal Communications

Commission. The Commission is charged’ with

administering a scarce communications resource, the

broadcast spectrum, in such a manner that the great

objectives incorporated into the first amendment are

realized and debate on public issues is “uninhibited,

robust, and wide-open.” New York Times Co. v. Sullivan,

376 U.S. 254, 270 (1964). Thus the Commission must

seek to assure that the listening and viewing public will

be exposed to a wide variety of “‘social, political,

esthetic, moral, and other ideas and experiences.” Red

Lion Broadcasting Co. v. FCC, 395 U.S. 367, 390

(1969). In seeking to provide the broadcasting media

with the diversity demanded by the first amendment,’

however, the Commission must avoid the perils of both

inaction and overzealousness—or abdication which would

allow: those possessing the most economic power to

dictate what may be heard, and of censorship which

would allow the government to control the ideas

communicated to the public. The need to make choices

of this kind requires the Commission to take some

cognizance of the kind and content of programs being

offered to the public.35 Further, the Commission must

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

' 1968); Buckley-Jaeger Broadcasting Corp. of California v. FCC,

U.S. App. D.C.:__, 397 F.2d 651 (1968); Buckeye Cablevision, Inc.

v. FCC, 128 U.S. App. D.C. 262, 387 F.2d 220 (1967); Bay State

Beacon, Inc. v. FCC, 84 U.S. App. D.C. 216, 171 F.2d 826 (1948). (

bi ti RE COB TN PRONE S Ce SERENA RT TRE IE

= 3

A-29

be cautious in the manner in which it acts; regulations

which are vague and overbroad create a risk of chilling

free speech, while rules which are too finely drawn will

arouse judicial suspicion that they are designed to

suppress uncongenial ideas. Cf. Red Lion Broadcasting

Co. v. FCC, 395 U.S. 367, 395-96 (1969). We are

convinced that the Commission acted within these limits

in promulgating its rules for subscription television.

In Banzhaf v. FCC, U.S. App. D.C. : ;

405 F.2d 1082, 1101-1103 (1968), we established several

tests which can ‘aid in determining whether Commission

; rulings and orders are in conflict with the first

‘amendment. The first consideration mentioned in

Banzhaf is whether the rulings ban speech, and, as the

petitioners point out, the STV restrictions prevent

subscription licensees from broadcasting certain kinds of

programs. This characterization of the STV rules ignores

their context and purpose, however; it seems obvious

that -the Commissicn sought only to insure the

continuing economic vitality of free television and not to

affect the ideas which could be presented on either free

or subscription television. Thus, when the net effect of

the program restrictions is considered, it seems quite

likely that the public in STV areas will receive more

rather than less diversity of expression in its television

programming. It is significant that the American Civil

Liberties Unidn and the Americans for Democratic

Action urged. 'the Commission to approve STV as a

means of opening new avenues of speech, and suggested

regulations which were similar in some respects to those

ultimately adopted in the Fourth Report in order to

assure that existing economic forces were directed

toward achieving maximum diversity of expression. See

generally 15 F.C.C. 2d at 516, 526, 546-67, 554-55, 575.

Here, as in Banzhaf, the likely result of the Commission’s

/ action is to provide the public with additional

A-30

information and ideas rather than repressing existing

sources. See 405 F.2d at 1103. “

In addition, we note that the restrictions now being ~

challenged deal with categories_of speech which are, if

anything, farther from the central concerns of the first

amendment than those at issue when comparable rulings

have been upheld by the courts. In Red Lion, the —

Supreme, Court upheld against first amendment attack

the “fairness doctrine,” which restricted broadcasting

stations’ control over political statements—speech which

is certainly the core of the first amendment guaranty.

Similarly, our opinion in Banzhaf upheld restrictions

which required broadcasters to allocate time for

opponents of cigarette advertising, a matter which was

characterized as a public health issue. We think that.the

STV rules create far less risk of diminishing the debate

on vital public issues. Finally, the Commission found

that STV would be’a beneficial supplement to present

television offerings, provided that neither service could

acquire sufficient economic. power to drive the other

from the market-place. The program restrictions are

designed to preserve this balance and to insure against

programming duplication; thus it can be said here, as in

Banzhaf,, that “{e]ven if some valued speech is inhibited

-by the fuling, the First Amendment gain is greater than

the loss.” 405 F.2d at 1102.:

Since: our review of the petitioners’ contentions

reveals no error in the Commission’s determinations, the

Fourth Report and Order must ,be ,

2 ee Affirmed.

APPENDIX B

The Constitution

AMENDMENT [I]

Congress shall make ‘no law _ respecting an

establishment of religion, or prohibiting the free exercise

thereof; or abridging the freedom.of speech, or of the

press; or the right of the people peaceably to assemble,

and: to petition the Government for a redress of

. grievances. -

AMENDMENT XIV

Section 1. All persons born or naturalized in the

United States, and subject to the jurisdiction thereof, are

citizens of the United States and of the State wherein

-they reside. No State shall make or enforce any law

which shall abridge the privileges or immunities of

citizens of the United States; nor shall any State. deprive’

any person of. life, liberty, or property, without due

process of law; nor deny to any person within its

jurisdiction the equal protection of the laws.

“The Cananuniéétions Act of 1934

Section 3(0). ‘‘Broadcasting’’ .megns_ the.

dissemination of radio communications ‘intended to be

received by the public, directly or by the.intermediary of

relay stations.

Section 301. It is the purpose of this Act: among

other things, to maintain the centrol of the United

States over all the channels of interstate and foreign -

radio transmission; and to provide for the use of such .

channels, but not the ownership thereof, by persons for

limited periods of time, under licenses granted ‘by

Federal authority, and no such license shall be construed

to create any right, beyond :the terms, conditions, and

B-2

periods of the license. No persons shall use or operate

‘ any apparatus for the’ transmission of energy or

communications or signals by radio (a) from one place in °

any territory or possession of the United States or in the

District of Columbia to another place ‘in the same

territory, possession, or district; or (b) from any state,

territory, or possession’ of the United States, or from the

_ District of Columbia to any other state, territory, or

possession of the United States; or (c) from any place in

any state, territory, or possession of the United States,

or in the District of Columbia, to: any place in any

foreign country orto any vessel; or (d) within any state

- when the effects of such use extend byond the borders

of said state, or when interference is caused by such,use.

or operation with the transmission of such energy, com-

munications, or signals from within’ said state to»any

place heyond its borders, or from any place beyond its

borders to any place within said state, or with the

.transmission or reception of such energy, communica-

tions, or signals from and/or to places beyond the bor-

ders of said state; or (e) upon any vessel or aircraft of

the United States; or (f) upon any ‘other mobile stations

within the jurisdiction of the United States, except under

_and in accordance with: this Act and with a license in

that behalf granted under the provisions of this Act.* * *

Section 303. Except as otherwise provided in this

Act, the Commission from time to time, as public

convenience, interest, or necessity requires, shall —

: S

(a) Classify radio stations; :

: ;

(b) Prescribe the nature of the service to be

, rendered by each class of licensed stations and each

station within any class;

classes of stations; and assign frequencies for each

B-3

individual station and. determine the power which

each station shall use and the time — which it

may operate;

(d) Determine the location of classes of

stations or individual stations;

(e) Regulate the kind of apparatus to be used

with respect to its external effects and the purity.

and sharpness of the emissions, from each Statiqn

_and from the apparatus therein;

(f) Make such regulations not inconsistent with

law as it may deem _ necessary to” prevent

interference between stations and to carry out the.

provisions of this Act: Provided, however, .that

changes in the frequencies, authorized power; or in’

the times of operation of any station, shall not be

unless, after a public hearing, the Commission shall

determine that such changes will promute - public.

convenience or interest or will < sefve public

necessity, or the provisions of this Act will be mote

fully complied with: 3

(g) Study new uses for radio, provide .

experimental uses of frequencies, and generally

encourage the larger and more effective use of radio’

in the public interest;

(h) Have authority to establish areas or zones

to be served by any station; — *

(i) Have authority to make special regulations

applicable ‘to .radio stations “engaged in chain

broadcasting; |

(j) Have authority ‘to make general rules and

regulations requiring stations to keep such records

of programs, transmissions of energy,

- communications, or signals as_ it may deem

desirable; : 2

ok ok * * *

I AT ee. nee et ae * o

“ B-4

Section 326. Nothing in this Act shall be

understood or construed to give the Commission the

power of censorship over the radio communications or

signals’ transmitted by any radio Station, and no

regulation or condition shall be promulgated or fixed by

the Commission which shall interfere with the right of

free speech by means of radio communication.

‘

. ; <a '

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~~ :

This is a copy of a public record, reproduced as it was published. It is not legal advice, and it may not be the version a court would rely on. Check the official source before you cite it.