Share
A federal appellate court has considered a challenge to a Federal Communications Commission (“FCC”) rule outlawing the practice of exclusive cable contracts in multi-unit developments.
The FCC enacted a rule in 2007 prohibiting cable companies from “enforcing existing exclusivity clauses and executing new ones” with multi-unit developments such as apartment buildings and condominium associations. Cable companies used these contract provisions to prevent other providers from serving residents in mulit-unit developments. The FCC enacted this ban because it found that these exclusivity clauses caused significant harm to competition. Congress has given the FCC the power to enact rules to protect competition in the cable/satellite marketplace.
The National Cable & Telecommunications Association, an industry trade group, and two real estate groups representing owners of multi-unit housing groups (collectively, the “Challengers”) filed a lawsuit challenging the FCC’s rule. The Challengers argued that the FCC had exceeded its statutory authority in banning exclusive contracts. The trial court entered judgment in favor of the FCC, and the Challengers appealed.
The United States Court of Appeals for the District of Columbia affirmed the trial court. The court employed the traditional test used to evaluate administrative laws. First, the court examined whether the federal agency had the appropriate statutory authority to enact the law. Second, if the statute arguably supports the agency’s statutory interpretation, the court will then defer to that interpretation so long as it is reasonable.
Looking at the statute relied on by the FCC, the court found that the statute sought to eliminate practices that had an anticompetitive effect on the market for cable/satellite services. While Congress had discussed another type of harm during the enactment process, the statutory language was broad enough to support the FCC’s application of the statute to exclusivity clauses. Thus, the court ruled that the FCC had the statutory authority to enact the rule. The court also found that the FCC’s rules were a reasonable interpretation of the statutory language. Thus, the court upheld the FCC’s rules.
Next, the Challengers argued that the FCC’s behavior violated the Administrative Procedures Act (“Act”) because the FCC had specifically refused to find that exclusive contracts were anticompetitive in 2003. The Act requires an agency to act consistently with its prior rulings or have a reasonable basis to depart from precedent. The court found that the FCC had not changed its policy on exclusive contracts; instead, the FCC had merely stated in 2003 that it was possible for these contracts to have both pro- and anticompetitive effects. In 2007, the FCC undertook an extensive study on the effects of these contracts and determined they had an anticompetitive effect on competition. Thus, the court ruled that the contracts did not violate the Act.
Finally, the court considered the Challengers’ arguments that the FCC could not enforce this rule against existing contracts, only future contracts. Administrative agencies are required to balance the harm to prior contract relations caused by new rules against the benefits of having the rules apply to preexisting relationships. The court found that the FCC had considered the benefits and burdens of applying this new ban to existing contracts, and the FCC had determined that it “strongly favored the public interest” to ban these types of contracts. Thus, the court rejected the challenge to the FCC’s rules.
National Cable & Telecommunications Ass'n v. FCC, 567 F.3d, (D.C.Cir. 2009).