DC Circuit Hears Arguments in NAB Challenge of Foreign-Sponsored Content Rules
The FCC's 2024 foreign-sponsored content rules are potentially "problematic" in how they put most advertising into the category of "leases," U.S. Court of Appeals for the D.C. Circuit Judge Gregory Katsas said at oral argument Monday. NAB is challenging the rules (docket 24-1296) (see 2501220078). During oral argument, the group repeatedly emphasized that there's a difference between leases and ad time. Meanwhile, Judge Karen Henderson seemed skeptical of NAB arguments that the order caught it unaware.
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The foreign-sponsor rules set disclosure requirements on leased programming. Much of the oral argument revolved around NAB's assertions that the FCC had changed the definition of “lease” in the rule. Appellate lawyer Stephen Kinnaird, representing NAB, said the FCC additionally violated its notice-and-comment obligations by extending the rule to political ads and public service announcements. The definition of "lease" that the agency set in a 2021 order -- a discrete block of broadcast time being made available for programming by a third party in return for some kind of compensation -- doesn’t include typical 30- and 60-second ad spots, Kinnaird said. “Ads are not programming,” and the agency has long recognized that distinction.
There also was back-and-forth between the judges and Kinnaird about how the broadcast industry works, with the attorney asserting that advertisers typically don't contract for a discrete block of time -- an ad running between 9 and 10 a.m. on a particular day, for example -- and Katsas interjecting that Super Bowl advertising is contracted for a specific time period. Super Bowl-type ads are a very small slice of broadcast advertising, Kinnaird responded. That’s why the broadcast industry was “blindsided” by the 2024 order, which effectively ended distinguishing between leases and advertising spots, treating everything as leases, Kinnaird said.
Judge Neomi Rao questioned whether there was a substantive distinction between leases and ad spots, while Henderson seemed skeptical of the “blindsided” assertion. “You're having all these ex parte communications with the FCC,” and NAB is hearing about what’s in the draft order before it’s approved, such as the types of ads the foreign-sponsorship identification rules apply to, she said. “You were not blindsided.”
Kinnaird replied that there has to be notice in the Federal Register for the public to comment. Regardless of what NAB found out via "the rumor mill," it's not that public notice.
He also argued that the rule "lacked a rational basis," with there being no evidence of foreign involvement in these types of broadcasts. The FCC "put hundreds of thousands of transactions through meaningless paces," he said.
Katsas repeatedly asked whether the changed definition, being in the preamble of the order rather than the body of it, needed formal notice and comment. He said that updated definition could be seen as the agency changing only its interpretation of a regulation, rather than the regulation itself. Bradley Craigmyle of the FCC's Office of General Counsel replied that the court could simply accept that the preamble was merely an interpretation since there would be a later opportunity to challenge the rule in the context of an enforcement proceeding. What's more, he said, the public did, in fact, have sufficient notice about how the FCC was thinking, as evidenced by the fact that NAB's filings addressed the "lease" definition.