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FCC To Defend UHF Discount Restoration Before DC Circuit Friday

The FCC is expected to have an edge in Friday’s oral argument before the U.S. Court of Appeals for the D.C. Circuit against Free Press and other groups on the agency’s restoration of the UHF discount, but not as big of one as usual, attorneys and industry officials said in interviews. Courts tend to defer to agency decisions, but that dynamic is complicated by this decision being a direct reversal of a 2016 FCC decision to strike down the discount, said Fletcher Heald appellate attorney Harry Cole, who isn't connected to the case. “The FCC has broad discretion,” Cole said, but such a 180-degree turn allows opponents to paint it as a decision motivated by politics rather than the measured work of an expert agency. If the D.C. Circuit isn’t sure what argument is better, it will defer to the commission, said an experienced telecom litigator.

Georgetown Law Institute for Public Representation Senior Counselor Andrew Schwartzman will argue for the anti-consolidation groups, while James Carr, of the FCC Office of General Counsel, will represent the agency. At the request of intervenor Ion, audio of the oral argument will be livestreamed, said a notice (in Pacer) from the court in docket 17-1129.

The regulator's decision to reverse the 2016 order by the previous administration was arbitrary, isn’t entitled to deference, is contrary to the intent of Congress in establishing a national ownership cap, and will pave the way for large anti-consumer purchases such as Sinclair/Tribune, said Free Press, the United Church of Christ Office of Communication, Common Cause and other anti-media consolidation groups in briefs (in Pacer). The FCC and pro-discount intervenors Sinclair, Ion, Univision, Nexstar and Trinity argued the 2016 order knocking down the discount was arbitrary because it affected the discount in isolation from the 39 percent national ownership cap. The 2017 order corrected this because it linked the discount's return to a holistic proceeding that also considers the national cap, their filings (in Pacer) said. That proceeding is ongoing, and replies were due Wednesday.

Petitioners have argued it's arbitrary to use the current national cap proceeding -- which may not result in a rule -- to justify restoring the discount months ago. The FCC hasn’t explained why it needed “to restore the discount pending the outcome of a future proceeding, especially considering likelihood that a majority of the Commission will not vote to modify the national cap,” petitioners said.

Court challenges of agency reversals of prior policies are “popping up all over the place” in response to the wave of deregulation after the 2016 election, an industry lawyer said. The matter is likely to turn on whether the court is persuaded that the FCC has done enough to justify its change in position, attorneys said. “A primary purpose of reconsideration is to give the agency an opportunity to correct its errors,” said a brief from pro-discount interveners. “Preventing agencies from taking this step on their own would channel wasteful and unnecessary litigation into the courts.”

The panel hearing the case is considered slightly favorable for petitioners, since Judges Cornelia Pillard and Patricia Millett are both President Barack Obama appointees, attorneys said. Judge Gregory Katsas was appointed by President Donald Trump last year. Though his tendencies on the bench aren’t known, he was formerly a deputy counsel to Trump and is seen as right-leaning, attorneys said. Though the court previously considered and then rejected a preliminary stay of the UHF discount restoration in this proceeding, that was a different panel and isn’t seen as an indication of this group’s tendencies.

The FCC challenged the standing of the petitioners to bring the case, and the degree to which the panel focuses on that argument could indicate the challenge could be rejected on procedural grounds, Cole said. Free Press and the others “failed to produce any evidence that they or their members suffered any concrete or particularized injury,” the FCC said. The groups said they represent members of the public who will be affected by broadcast consolidation in the wake of the discount’s restoration. Courts can focus on standing arguments because rejecting a case on procedural grounds allows them to avoid making a substantive ruling that could have far reaching affects, attorneys said.

The outcome of the case could have important consequences for Sinclair/Tribune -- which in its current form is dependent on the UHF discount to comply with the national cap -- and the proceeding on the future of the national cap, said attorneys following the case. If the court sides with the petitioners, “chaos will reign,” said Cole, since many companies, including Sinclair, would likely have to unwind their plans. “It is a highly complicated question,” said Schwartzman. Free Press Senior Counsel Jessica Gonzalez said she would like to see the court vacate the discount’s restoration and remand the matter to the FCC for it to decide how to proceed. Though the discount is a great concern to companies operating at or near the national ownership cap, the great majority of broadcasters are nowhere close and so wouldn’t be immediately affected, attorneys said. Sinclair and the FCC didn't comment.

UHF Replies

In reply comments in FCC docket 17-318, broadcasters, MVPDs and anti-consolidation groups argued Wednesday over whether the UHF discount should be extended to all broadcasters. It's a policy the American Cable Association derisively called “the Everybody Discount.”

Such a discount would allow broadcasters to compete with MVPDs that don’t face ownership caps, Entravision said. Opponents who believe broadcasters shouldn’t be able to consolidate freely because their medium is dominant are living in “an alternate video universe,” NAB said. Commenters proposing retention of the national cap “provide no justification for retaining the cap beyond their unsubstantiated theories that ‘big is bad,’” Nexstar said. Sinclair took aim at arguments by MVPDs that larger broadcast groups lead to higher retransmission consent rates. “DISH’s and the ACA’s self-serving arguments have nothing to do with the public interest, and instead relate only to their own financial interests,” Sinclair said.

Most commenters agree there’s no technical basis for the UHF discount and it should be eliminated, Free Press said, while the National Urban League said that any changes to the cap should consider the effects on diversity. The FCC shouldn’t “sidestep” the debate over the national cap ”through unwarranted and unlawful revisions to the UHF discount,” ACA said.