Time Warner Cable Inc. v. Fed. Commc'ns Comm'n

TIME WARNER CABLE INC.,NATIONAL CABLE & TELECOMMUNICATIONS ASSOCIATION, Petitioners, v. FEDERAL COMMUNICATIONS COMMISSION,UNITED STATES OF AMERICA, Respondents.

Docket No. 11-4138(L)

Docket No. 11-5152(Con)

UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT

August Term, 2012

Argued: October 4, 2012

Decided: September 4, 2013

Before:

RAGGI, CHIN and CARNEY, Circuit Judges

Petitions for review of a 2011 Order of the Federal Communications Commission promulgating rules under § 616(a)(3) and (5) of the Communications Act of 1934, as amended by the Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460 (1992) (codified at 47 U.S.C. § 536(a)(3), (5)). Petitioners contend that the prima facie standard established by the 2011 Order, as well as § 616(a)(3) and (5) pursuant to which it was promulgated, violate the First Amendment. They further assert that the 2011 Order's standstill rule was promulgated in violation of the AdministrativeProcedure Act's notice-and-comment requirements. See 5 U.S.C. § 553(b), (c). We reject the first argument, but are persuaded by the second.

PETITIONS DENIED IN PART AND GRANTED IN PART, AND FCC ORDER VACATED IN PART.

FLOYD ABRAMS (Marc Lawrence-Apfelbaum, Jeff Zimmerman, Time Warner

Cable Inc., New York, New York; Richard P. Press, Matthew A. Brill,

Amanda E. Potter, Matthew T. Murchison, Latham & Watkins LLP,

Washington, D.C.; Landis C. Best, Ari Melber, Cahill Gordon &

Reindel, New York, New York, on the brief), Cahill Gordon & Reindel,

New York, New York, for Petitioner Time Warner Cable Inc.

MIGUEL A. ESTRADA (Rick Chessen, Neal M. Goldberg, Michael S. Schooler,

Diane B. Burstein, National Cable & Telecommunications Association,

Washington, D.C.; Cynthia E. Richman, Scott P. Martin, Gibson, Dunn

& Crutcher LLP, Washington, D.C.; Howard J. Symons, Tara M.

Corvo, Mintz, Levin, Cohn, Ferris, Glovsky & Popeo, P.C.,

Washington, D.C., on the brief), Gibson, Dunn & Crutcher LLP,

Washington, D.C., for Petitioner National Cable &

Telecommunications Association.

PETER KARANJIA, Deputy General Counsel (Joseph F. Wayland, Acting

Assistant Attorney General, Catherine G. O'Sullivan, Nancy C.

Garrison, United States Department of Justice, Washington, D.C.; Sean

A. Lev, General Counsel, Jacob M. Lewis, Associate General Counsel,

James M. Carr, Counsel, Federal Communications Commission,

Washington, D.C., on the brief), Federal Communications Commission,

Washington, D.C. for Respondents Federal Communications

Commission and United States of America.

Stephen Diaz Gavin, Andrew M. Friedman, Patton Boggs LLP, Washington,

D.C., for Amicus Curiae Bloomberg L.P.

Erin L. Dozier, Jane E. Mago, Jerianne Timmerman, The National Association

of Broadcasters, Washington, D.C., for Amicus Curiae The National

Association of Broadcasters.

Harold Feld, Senior vice President, Sherwin Siy, vice President, Legal

Affairs, Public Knowledge, Washington, D.C., for Amicus Curiae

Public Knowledge.

C. William Phillips, Covington & Burling LLP, New York, New York;

Stephen A. Weiswasser, Kurt A. Wimmer, Gerard J. Waldron, Neema

D. Trivedi, Covington & Burling LLP, Washington, D.C., for Amici

Curiae The Tennis Channel, Inc. & NFL Enterprises LLC.

REENA RAGGI, Circuit Judge:

Time Warner Cable Inc. ("Time Warner") and the National Cable & Telecommunications Association ("NCTA" and, collectively with Time Warner, the "Cable Companies") petition for review of an August 1, 2011 order of the Federal Communications Commission ("FCC" or "Commission").¹ See Revision of the Commission's Program Carriage Rules, 26 FCC Rcd. 11494 (2011) ("2011 FCC Order"). The 2011 FCC Order promulgates rules under § 616(a)(3) and (5) of the Communications Act of 1934 ("Communications Act"), as amended by the Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No. 102-385, 106 Stat. 1460 (1992) ("Cable Act") (codified at 47 U.S.C. § 536(a)(3), (5)). Section 616(a)(3) and (5) and that part of the 2011 FCC Order establishing the standard for demonstrating a prima facie violation of these statutory provisions (collectively, the "program carriage regime") are intended to curbanticompetitive behavior by limiting the circumstances under which a distributor of video programming can discriminate against unaffiliated networks that provide such programming. The Cable Companies contend that, on its face, the program carriage regime violates their First Amendment right to free speech. See U.S. Const. amend. I. They further argue that the 2011 FCC Order's standstill rule—which requires a distributor to continue carrying an unaffiliated network under the terms of its preexisting contract until the network's complaint against the distributor under the program carriage regime is resolved—was promulgated in violation of the notice-and-comment requirements of the Administrative Procedure Act ("APA"). See 5 U.S.C. § 553(b), (c).

For the reasons set forth in this opinion, we reject the Cable Companies' First Amendment challenge to the program carriage regime. At the same time, however, we conclude that the challenged standstill rule was not promulgated in accordance with the APA. Accordingly, the Cable Companies' petitions are denied in part and granted in part, and the 2011 FCC Order's standstill rule is vacated without prejudice to the FCC's pursuing promulgation consistent with the APA.

I. Background

A. The Video Programming Industry

To provide context for our discussion of the legal issues raised by the Cable Companies, we begin with an overview of the video programming industry and its relevant terminology. As pertinent to this case, the video programming industry includes videoprogramming vendors, multichannel video programming distributors ("MVPDs"), and online video distributors ("OVDs"). See Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, No. 12-203, 2013 WL 3803465, ¶¶ 2-6, 9-11 (July 22, 2013) ("2013 FCC Report"); Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, 27 FCC Rcd. 8610, ¶¶ 2-6, 9-11, 18, 42 (2012) ("2012 FCC Report").²

Video programming vendors are primarily programming networks, such as ESPN, Bravo, and CNN, which create or acquire video programming, such as television shows and movies, and which contract with MVPDs and OVDs to distribute that programming to consumers. See 47 C.F.R. § 76.1300(e) (defining "[v]ideo programming vendor"); 2012 FCC Report ¶¶ 18-19, 44, 238, 244-248, Table B-1. MVPDs and OVDs are services that transmit video programming to subscribers for viewing on televisions, computers, and other electronic devices. See 47 C.F.R. § 76.1300(d) (defining "[m]ultichannel video programming distributor"); 2012 FCC Report ¶¶ 2 n.6, 9, 18-19, 21, 237-39. MVPDs and OVDs generally do not alter the programming that they transmit; rather, once an MVPD or OVD acquires programming from networks, it functions as a "conduit for the speech ofothers, transmitting it on a continuous and unedited basis to [consumers]." Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622, 629 (1994) ("Turner I"); see 2012 FCC Report ¶ 238.

MVPDs include (1) cable operators, such as Time Warner and Comcast Corporation ("Comcast"), which transmit programming over physical cable systems; (2) direct broadcast satellite ("DBS") providers, such as DISH Network and DIRECTV, which transmit programming via direct-to-home satellite; and (3) telephone companies, such as AT&T and Verizon, which transmit programming via fiber-optic cable. See 2012 FCC Report ¶¶ 18, 30.³ While MVPDs primarily transmit programming to televisions, increasingly, they also offer access to their programming through the Internet. See id. ¶¶ 6, 21. MVPDs sometimes acquire ownership interests in the networks from which they obtain video programming, and vice versa. See id. ¶ 42. Such networks are deemed "affiliated" with MVPDs, whereas networks without any shared ownership interests are deemed "unaffiliated." Id. ¶¶ 42-43. The "geographic footprint[]" of an MVPD varies based on the type and size of the MVPD. Id. ¶ 24. Cable operators, for instance, operate in "discrete geographic areas defined by the boundaries of their individual systems," id., and "[n]o cable operator provides nationwide coverage or statewide coverage," 2013 FCC Report ¶ 25. Telephone companies are similarly limited by their physical systems. See id. ¶ 28. By contrast, DBS providers have "nationalfootprints," id. ¶ 23, offering "service to most of the land area and population of the United States," id. ¶ 27.

OVDs, like Hulu and Netflix, are relatively new services that transmit video programming to consumers via broadband Internet for viewing on television and other electronic devices.⁴ See 2012 FCC Report ¶¶ 2 n.6, 9, 237-39, 246, 252-53. OVDs may offer programming for free, by subscription, on a rental basis, or for sale. See id. ¶¶ 10, 245-46, 252-53. "[A]n OVD's market generally covers the entire national broadband footprint." Id. ¶ 243; see 2013 FCC Report ¶ 220.

Two markets in the video programming industry are relevant to this case. The first, which we will refer to as the "video programming market," is the market in which programming networks and other video programming vendors compete with each other to have MVPDs and OVDs carry their video programming. See 2012 FCC Report ¶¶ 9, 11; 2011 FCC Order ¶ 4 & nn.10-12. The second market, which we will refer to as the "MVPD market," consists of MVPDs and, to a lesser extent, OVDs competing to deliver video programming to consumers. See 2012 FCC Report ¶¶ 3-6, 9, 11; 2011 FCC Order ¶ 4 & n.13. See generally Cablevision Sys. Corp. v. FCC, 597 F.3d 1306, 1319 (D.C. Cir. 2010) (Kavanaugh, J., dissenting) (citing Christopher S. Yoo, Vertical Integration & Media Regulation in the New Economy, 19 YALE J. ON REG. 171, 220 (2002), and discussing chain of production in video programming industry).

B. The Cable Act

In 1992, after three years...