Did the Third Circuit correctly vacate three Federal Communication Commission orders because the Commission did not adequately justify how those orders would impact minority media ownership?
This case asks the Supreme Court to decide whether the United States Court of Appeals for the Third Circuit erred when it vacated several Federal Communications’ Commission orders that, among other things, relaxed agency cross-ownership restrictions. Prometheus Radio Project, which challenges the FCC’s orders, claims that the FCC acted arbitrarily and capriciously because it did not consider how repealing cross-ownership restrictions would affect minority and female ownership of broadcast services. The FCC counters that courts owe the agency substantial deference when it considers multiple policy factors in its rulemaking capacity. The Supreme Court’s decision could affect the scope of judicial review of administrative actions, the integrity of local news coverage, and the diversity of broadcast media.
Questions as Framed for the Court by the Parties
Whether the U.S. Court of Appeals for the 3rd Circuit erred in vacating as arbitrary and capricious the Federal Communications Commission orders under review, which, among other things, relaxed the agency’s cross-ownership restrictions to accommodate changed market conditions.
The Federal Communications Commission (“FCC” or “Commission”) regularly issues orders to regulate broadcasting media. Prometheus Radio Project v. FCC at 573. However, under the Telecommunications Act of 1996, the FCC is required to review its rules every four years to ensure that they remain “necessary in the public interest as the result of competition.” Id. at 574. As part of its quadrennial review, the FCC issued a “Reconsideration Order” in 2017 that rescinded certain rules governing local television ownership. Id. at 584. Specifically, the Reconsideration Order eliminated the “eight voices” rule, which prohibited mergers that “would leave fewer than eight independently-owned stations in the [television] market.” Id. at 573. However, the FCC retained the “top-four” restriction subject to discretionary waiver, which prohibited mergers “among two or more of the four largest [television] stations in a market.” Id. at 573, 575.
The FCC also promulgated an “Incubator Order” in 2018 that created a program to provide new broadcast-market entrants with “training, financing, and access to resources” from established broadcasters. Id. at 576. To incentivize broadcasters to participate, the Incubator Order allowed broadcasters to receive “reward waivers” that can be used in any market “comparable” to the incubation market. Id. The FCC stated that a market was “comparable” if it was within the same tier of stations, with tiers stratified based on the number of stations in that particular market. Id.
Several groups of petitioners challenged the FCC’s promulgation of these orders in the United States Court of Appeals for the Third Circuit, which retained exclusive jurisdiction over challenges to the FCC’s rulemaking. Id. at 576–77. First, the Third Circuit found that the petitioners had standing to challenge the FCC in court. Id. at 578–81. Then, the Third Circuit found that there was sufficient evidence to support the FCC’s retention of the top-four rule because stations are usually local affiliates of ABC, CBS, NBC, and Fox, and “mergers between the largest stations in a market pose a unique threat to competition.” Id. at 581–82. The Third Circuit also upheld the FCC’s definition of “comparable markets” in the Incubator Order. Id. at 584. However, the Third Circuit reached the opposite conclusion for the Reconsideration Order. Id. at 584–88. The Third Circuit concluded that the FCC had failed to adequately consider the impact that the Reconsideration Order would have on ownership of broadcast media by women and minorities. Id. at 587. The Court explained that the FCC had not used any evidence about gender diversity when it concluded that relaxing cross-ownership in a market would not impact rates of ownership by women and racial minorities. Id. at 585. The Third Circuit also found the FCC’s record evidence about minority ownership to be overly simplistic because it rested on “faulty and insubstantial data.” Id. at 586–87. The Third Circuit therefore vacated the entire Reconsideration Order, the Incubator Order, and the definition of the “eligible entity.” Id. at 589. It directed the FCC to consider the issue of ownership diversity more fully. Id.
The FCC, as well as several industry groups, petitioned the United States Supreme Court for writs of certiorari. On October 2, 2020, the Court granted these writs and consolidated the FCC and the industry petitioners’ cases.
DEFERENCE GIVEN TO THE FCC
Petitioner FCC argues that it enjoys extensive judicial deference when it comes to regulating media ownership in the public interest. Brief for Petitioner, Federal Communications Commission at 21. The FCC maintains that the Administrative Procedure Act allows courts to set aside agency actions only when those actions are arbitrary and capricious, meaning an agency’s judgment must receive broad deference. Id. at 21–22. The FCC asserts that, because it provided legitimate reasons for promulgating the Reconsideration Order, a court cannot substitute its own judgment for that of the FCC. Id. at 22–23.
The FCC further contends that the Telecommunications Act of 1996 (“the Act”) also gives the FCC broad discretion to regulate—and deregulate—in “the public interest.” Id. at 23, 26. The FCC states that the broad deference that the agency receives is essential to the proper administration of the Act because of the structure of the Act’s review process. Id. The FCC explains that the Act requires the FCC to act upon predictions based on imperfect information because of the changing competitive landscape of the regulated industry. Id. at 24, 26, 44. The FCC argues that the structure of the Act limits any potential consequences of these predictions, since the FCC is required to review its actions ever four years. Id. at 26–27.
Respondent Prometheus Radio Project (“Prometheus”) counters that the Reconsideration Order does not survive the “arbitrary and capricious” level of review. Brief for Respondent, Prometheus Radio Project at 30. Prometheus claims that the FCC relied on the same facts from a previous order but failed to provide reasons for changing its rule when it promulgated the Reconsideration Order. Id. In particular, Prometheus contends that the FCC relied on a 2016 Order that found the “public interest” was served by a strong relationship between minority ownership and minority-focused programming. Id. at 31. Prometheus argues that the FCC failed to provide a reason why its Reconsideration Order found that retaining the ownership rules would no longer promote diversity. Id. at 32. Thus, Prometheus asserts that the lower court was correct to require the FCC to provide a more reasoned explanation for the Reconsideration Order. Id. Further, Prometheus argues that in vacating all of the three FCC orders, the lower court avoided substituting its own policy judgments on how best to regulate in this area, instead ensuring that the FCC could continue to set policy pursuant to Congress’s directive. Id. at 52.
Prometheus likewise argues that the Telecommunications Act of 1996 does not require courts to give the FCC more deference than any other agency. Id. at 48. Prometheus contends that the structure of the Act requires the FCC to look retrospectively to see if a rule is “no longer” in the public interest, so it does not give the FCC leeway to experiment with prospective predictions about female and minority ownership. Id. Prometheus maintains that the four-year review structure does not safeguard against arbitrary and capricious decisions because relaxing ownership requirements will lead to mergers that will be difficult and time-consuming to undo. Id. at 49.
THE IMPORTANCE OF FCC CONSIDERATION OF MINORITY AND FEMALE OWNERSHIP
The FCC argues that it adequately considered all available facts when it fashioned the Reconsideration Order. Brief for Petitioner at 27–28. The FCC contends that it researched the effect of its policy changes on minority and female ownership and concluded that the previous regulations did not substantially protect or promote diverse ownership. Id. at 29. The FCC argues that the previous ownership restrictions were based on an “unsubstantiated hope” that they would be able to promote diverse ownership, and therefore were not worth the cost and inconvenience to traditional networks. Id. at 30. The FCC argues that when the lower court ruled that the FCC’s change in policy was arbitrary and capricious, the court incorrectly weighed the consideration that should be afforded to minority and female ownership. Id. at 33. The FCC claims that the lower court treated one policy factor—diverse ownership—as dispositive for evaluating the public interest implications of a policy change. Id. at 34. The FCC instead claims that its public interest analysis involves many factors and diversity in ownership should be just one of those factors. Id. Furthermore, the FCC argues that data about diversity in ownership is difficult to obtain, so the agency drew its conclusions consistent with the available data. Id. at 37–43. Ultimately, the FCC argues that the lower court incorrectly substituted its own judgment for that of the FCC when it weighed these policy factors. Id. at 36.
Prometheus responds that while the FCC may weigh multiple factors in assessing the “public interest,” the agency erroneously used competition as a dispositive factor without considering effects on diversity in ownership. Brief for Respondent at 27. Prometheus contends that the FCC had an explicit and longstanding goal of maintaining diversity in ownership, so the FCC must “transparently” acknowledge that goal when it rescinds a rule. Id. at 32. Likewise, Prometheus argues that there is no indication that Congress wanted the FCC to consider competition alone when evaluating a new policy. Id. at 30. Rather, Prometheus notes that Congress requires the FCC to prioritize diversity of broadcast ownership in other administrative settings, such as in spectrum auctions. Id. at 28. Prometheus claims that in addition to purporting this goal, Congress expressed no interest in limiting the breadth of the public-interest inquiry when the FCC evaluated new polices. Id. at 29. Rather than weighing legitimate policy goals against one another, Prometheus argues that the FCC’s order relied on a flawed premise that relaxing ownership rules would not decrease diversity in ownership. Id. at 32. Additionally, Prometheus asserts that the FCC had no reason to change its policy based on the available data, because the FCC previously relied on that same factual record to maintain the ownership rule that it seeks to rescind. Id. at 34, 41–42. Prometheus contends that the FCC only needs to more clearly consider how rescinding its rule could affect female and minority ownership. Id. at 54–55.
THE BREADTH OF THE REMEDY ISSUED BY THE THIRD CIRCUIT
The FCC argues that the remedy of vacatur was overbroad because the Court of Appeals only considered the reasoning of the rules pertaining to “ownership rule-changes” in the Reconsideration Order to vacate both the Reconsideration and Incubation Orders and the definition of “eligible entity” in their entirety. Id. at 47–49. Further, the FCC contends that the Court of Appeals impermissibly issued a directive that the agency explain why Commission did not adopt a different definition of “eligible entity” if the agency on remand determines that its proposed definition “will not meaningfully advance ownership diversity.” Id. The FCC explains that nothing under the statutory framework forbids the pursuit of a certain type of broadcast diversity in a regulatory program unless that same program furthers another form of diversity. Id. at 48–49.
Prometheus responds that vacatur was the appropriate remedy due to the error’s seriousness and propensity for “disruptive consequences.” Brief for Respondent at 51. By vacating all three orders, Prometheus contends, the Court avoided making its own policy assessments by breaking up the orders and returning them in part to the FCC. Id. at 52. Prometheus further contends that the orders and definition are interrelated: because the ownership rules and the programs that waive them “must work coherently together,” the Third Circuit was correct to “return the entire regulatory scheme” where there is no “reasoned and transparent analysis” on how it together serves the public interest. Id. at 53.
ENSURING THE AVAILABILITY OF ROBUST LOCAL NEWS COVERAGE
ABC Television Affiliates Association et al. (“Affiliates”), in support of the FCC, argue that broadcasters that provide local news coverage are struggling to compete in an ever-changing media landscape. Brief of Amici Curiae ABC Television Affiliates et al., in Support of Petitioner at 7. Affiliates contend that local broadcast television stations cannot compete with online news providers that are unencumbered by FCC regulations when faced with decreasing advertising revenues. Id. at 8–9, 17. Affiliates analogize broadcast media to local newspapers that have “all but disappeared” under current FCC regulations prohibiting cross-ownership of a newspaper and a broadcast station in a single market. Id. at 21. In fact, Affiliates contend that local broadcasters could have joined forces with local newspapers but were unable to under the current ownership rules, denying consumers additional news sources. Id. at 22. Affiliates asserts that relaxing the FCC’s ownership rules—which would allow one media company to own both a local news television station and a local newspaper—could enable broadcasters to spread out the cost of local news reporting and remain competitive with online news sources. Id. at 14. Affiliates explain that allowing broadcasters to consolidate efforts would increase investment in facilities, equipment, and staff that translates to higher-quality local news. Id. Affiliates emphasize the value of local broadcast news to market residents that rely on it for up-to-date information about local news, weather, public safety, and public health. Id. at 10–11.
By contrast, Media Law and Policy Scholars (“Scholars”), in support of Prometheus Radio Project, assert that local broadcast television remains competitive, innovative, and profitable in light of the FCC’s current ownership rules. Brief of Amicus Curiae Media Law and Policy Scholars, in Support of Respondent at 21. Scholars point to increased broadcast-industry revenues, stable employment opportunities in local broadcast television, and the proliferation of sixteen new local broadcast stations between 2018 and 2020. Id. at 21–24. Scholars further assert that broadcasters have innovated without FCC deregulation by publishing their news content online. Id. at 24. Scholars further allay concerns about decreases advertising revenue by highlighting the new opportunities for revenue that broadcasters have leveraged in the digital age, including compulsory copyright licensing schemes and retransmission fees. Id. Scholars warn that if broadcasters are deregulated and allowed to consolidate, broadcasters will have too much leverage in retransmission negotiations. Id. at 26. Scholars asserts that those consolidations could potentially cause consumers to lose access to valuable local-news sources during fee negotiations. Id. at 26–29. Scholars caution that broadcasters advocating for deregulation are primarily driven by increased profits rather than “altruistic” goals of improving local-news coverage for consumers. Id. at 19.
IMPACT OF DEREGULATION ON DIVERSE VIEWPOINTS IN BROADCAST MEDIA
Affiliates argue that relaxing the FCC’s ownership rules could force local broadcasters to shutter their operations due to competition with larger competitors. Brief of Affiliates at 32. As a result, Affiliates contend that women and minorities would necessarily have a harder time entering the market, acquiring local stations, and providing needed diverse perspectives. Id. Further, Phoenix Center for Advanced Legal & Economic Public Policy Studies (“Phoenix Center”), also in support of the FCC, asserts that ownership diversity is only one of many factors that the Commission must consider when considering whether to roll-back regulations. Brief of Amicus Curiae Phoenix Center for Advanced Legal & Economic Public Policy Studies, in Support of Petitioner at 7, 10. Phoenix Center maintains that there are many additional types of diversity—such as program, source, and viewpoint diversity—that the FCC must consider beyond diversity in ownership. Id. at 10–11. Phoenix Center argues that courts should not supplement their judgment for the Commission’s and elevate one type of diversity as more important than others without explicit statutory directives from Congress. Id.
Sue Wilson, the director of Media Action Center, in support of Prometheus Radio Project, counters that because the number of broadcast frequencies is physically limited, permitting consolidated broadcasters to operate multiple broadcast frequencies in a single town would leave fewer remaining frequencies for new, diverse market entrants. Brief of Amicus Curiae Sue Wilson, Media Action Center, in Support of Respondent at 4. After conducting research on the impact of granted top-four waivers, Wilson reports that when one owner is allowed to operate two news stations in a market, the two stations “merely duplicate [the] local news coverage” on each station. Id. at 3. Further, The Leadership Conference on Civil and Human Rights et al. (“Leadership Conference”), in support of Prometheus Radio Project, argues that ownership diversity is intimately related to other types of diversity, such as viewpoint and program diversity, and leads to programming that combats stereotypes and casts the lives of people of color and women in a positive light. Brief of Amici Curiae The Leadership Conference on Civil and Human Rights et al., in Support of Respondent at 10.
- Greg Stohr & Todd Shields, FCC, Broadcasters Get Top Court Hearing on Ownership Rules, Bloomberg Law (Oct. 2, 2020).
- Adam Jacobson, SCOTUS Selects Date for Remand Case Oral Arguments, Radio & Television Business Report (Nov. 30, 2020).
- Mark Walsh, Second Half of SCOTUS Term Might Bring the Temperature Down Compared to its Feverish First, ABA Journal (Dec. 28, 2020).