FCC Faces Tough Questions in Council Tree Argument
PHILADELPHIA: Judges gave mixed signals in their questions and reactions to attorneys as the 3rd U.S. Appeals Court, Philadelphia, Wed. heard oral arguments on the FCC’s designated entity order. Arguments unfolded over nearly 90 minutes in a case that will determine whether the long-awaited advanced wireless services auction will begin as expected Aug. 9. Lawyers watching the proceedings said the court’s direction was difficult to augur.
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Judge Marjorie Rendell peppered FCC Gen. Counsel Sam Feder with questions, seeming the most hostile to the FCC. Judge Thomas Ambro was harder to read, but there may be a bad sign for the FCC in that he authored the 3rd Circuit’s 2004 Prometheus decision, rejecting the FCC’s analysis in support of more relaxed media ownership rules. Judge Richard Nygaard, not at hand but attending via video feed, had no questions for either side.
Rendell asked both sides about the net effect of the court staying the DE rules but allowing the auction to proceed as planned Aug. 9. The judges asked if they would be provided with an immediate transcript of arguments and Rendell promised the panel would reach a quick decision. One source said the court could rule within days.
Rendell told Feder the FCC seemed to be trying to apply a “Band-Aid” to DE program problems, but ended up “cutting off the flow of the oxygen to the patient,” freezing DEs out of the auction. Rendell noted that 2 commissioners, Adelstein and Copps, voiced reservations about the FCC DE order. The 2 were “very torn as to the process and end result,” she said: “That has to give us pause.”
Dennis Corbett, arguing for Council Tree, told the judges the FCC decision to restrict future sale of licenses bought using bidding credits -- through tough rules on “unjust enrichment” -- has forced DEs like Council Tree to skip the auction. Financing for Council Tree went away almost as soon as the order came out, he said. “Our business plan was destroyed,” Corbett said: “Our financing was destroyed. We couldn’t in good faith” file a form to participate in the auction.
Corbett told the judges when the FCC began examining whether to tighten DE restrictions its focus was on keeping the big carriers from buying spectrum licenses through DEs. But the Commission’s order focused on unjust enrichment, with a tight restrictions on sale of licenses within 10 years of purchase and on “material relationships” between DEs and all carriers, not just major national carriers.
The rules’ provenance is unclear, since it never sought comment, Corbett said. “The Commission didn’t tee it up so I can’t point to anything in the record,” he said: “Somehow the Commission pulled 10 years from thin air.” Corbett said DEs as a group are far less likely to bid in the auction due to the restrictions. “How many DEs would have filed?” he said: “We don’t know. They don’t know.”
Corbett said simply staying the DE rules won’t fully address Council Tree’s problem, since the DE didn’t file to participate in the auction out of concern over the rules. “We have to put Humpty Dumpty together again,” he said: “It broke and we have to put it together.”
Feder, in his first oral arguments as general counsel, mounted a vigorous defense of the FCC. He said many filers, including DoJ, raised concerns about ties between DEs and carriers, which the agency sought to address. The FCC “struck a reasonable balance” in writing the rules, he said. “This is not a science,” he said: “This is a balancing. It’s a very difficult thing.”
Ambro appeared receptive to that argument. “At some point they have to do a balancing act,” he said of the FCC. “They have a right to make rules in these areas, do they not?”
Feder also said the FCC relied on its long experience in conducting auctions when it established the revised rules. He said Council Tree failed to show it suffered “irreparable harm” from the FCC actions, causing the case to fail on that point alone “no matter what the court thinks on the merits.”
Bill Lake, arguing for wireless carriers who intervened in support of the FCC, also appeared to score points with the panel. Lake termed the FCC DE rules logical. “The key question [the rules ask] is not who is the relationship with, but what kind of relationship is it,” he said.
Discussion centered on a recent FCC filing declaring that 252 parties filed to enter the AWS auction, with 166 claiming DE status. Feder and Lake said those numbers contradict the Council Tree arguments about DE participation in the auction. But Rendell seemed skeptical. “We don’t know what that means,” she said. “We don’t know if [some DEs] put in bids as placeholders.” Corbett said no one knows how many DEs would have filed if the FCC hadn’t revised its rules.
Rendell, wife of Pa. Gov. Ed Rendell (D), was appointed by President Clinton, as was Ambro. Nygaard, appointed by President Reagan, is the panel’s lone Republican.