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Appeals Court Vacates FCC's Program Carriage Standstill Rule

Cable companies get a small victory in the ongoing scuffle with programmers just days after the CBS and Time Warner Cable standoff came to a close.

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Time Warner Cable, Comcast and other leading cable companies got a partial victory at the 2nd Circuit Court of Appeals on Wednesday when judges there agreed to vacate a Federal Communications Commission rule that allowed the agency to consider requests from programmers for a temporary standstill to the price, terms and other conditions of an existing programming contract.

The FCC came out with the rule in 2011, and it was designed for instances where a TV network filed a complaint for discriminatory treatment against a distributor (MPVD). For instance, Bloomberg TV has long been upset that Comcast has favored affiliated business channels like CNBC on its dial.

The government agency provided an opportunity for programmers like Bloomberg TV to make complaints without repercussion, concluding that "absent a standstill, an MVPD will have the ability to retaliate against a programming vendor that files a legitimate complaint by ceasing carriage of the programming vendor's video programming, thereby harming the programming vendor as well as viewers who have come to expect to be able to view that video programming."

The problem, as articulated by the appeals court today, was that it violated the FCC's obligation to provide notice and an opportunity for public comment before adopting such a regulation.

However, the appellate ruling is far short of what the National Cable & Telecommunications Association and its members were hoping to get.

The cable companies argued that by restraining editorial discretion over which programming networks to carry and on what terms, that it was a violation of their First Amendment rights.

Time Warner Cable and other cable companies argued that the rule represented a content- and speaker-based restriction, and should therefore be subject to strict scrutiny and could only be tolerated upon a showing that it was narrowly tailored to a compelling government interest.

Judge Reena Raggi at the 2nd Circuit rejects that assessment.

"The program carriage regime expresses no government content preference for particular ideas or viewpoints," she writes. "It simply prohibits MVPDs from discriminating against unaffiliated networks similarly situated to the MVPDs' affiliated networks. As such, the regime is properly considered content neutral."

Because of the content neutrality of the rule -- even in the face of objections about evidentiary standards for complaining programmers -- the appeals court agreed with the FCC that only intermediate scrutiny is warranted.

The FCC said that the program carriage regime served the interest of promoting fair competition and a diversity of information sources in the video programming market. The agency's rules call for a "case-by-case" assessment of the anticompetitive effect of an MVPD's purported discrimination against an unaffiliated network, and Judge Raggi notes that the FCC must show it has "a reasonable basis for concluding that some markets exist in which MPVDs have the incentive and ability to harm unaffiliated networks and that application of the program carriage regime will alleviate that harm."

The appeals court judge says the FCC has met this burden, even though she notes the "industry is trending toward more rather than less competition," from the likes of DirecTV, Dish Network, Verizon and others.

"If the trend continues, a day may well come when the anticompetitive concerns animating Congress's enactment of § 616(a)(3) and (5) will so effectively be eliminated or reduced as to preclude government intrusion on MVPDs' carriage decisions," continues the judge, referring to the Cable Television Consumer Protection and Competition Act, which has provided much of the authority to FCC intervention. "We here conclude only that such a day has not yet arrived."

Even though the 2nd Circuit has for now vacated the FCC's program carriage standstill rule for failing to comply with notice-and-comment requirements, the decision is made without prejudice for the agency's authority to repromulgate it.

E-mail: Eriq.Gardner@THR.com
Twitter: @eriqgardner