HomeMy WebLinkAboutCivil Action 92-2494 Time Warner Entertainment Company LP against Federal Communications Commission and United States of America CUNITED STATES DISTRICT COURT
FOR THE DISTRICT OF COLUMBIA
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TIME WARNER ENTERTAINMENT )
COMPANY, L.P., )
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Plaintiff, )
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-against- ) Civil Action 9 y 9 y
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FEDERAL COMMUNICATIONS COMMISSION, )
and )
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UNITED STATES OF AMERICA, )
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Defendants. )
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PLAINTIFF'S MEMORANDUM IN SUPPORT OF
ITS MOTION FOR A PRELIMINARY INJUNCTION
TABLE OF CONTENTS
Page
PRELIMINARY STATEMENT 1
ARGUMENT 4
I. PLAINTIFF TWE FACES THE THREAT OF IRREPARABLE
INJURY AND THE REQUESTED RELIEF IS IN THE PUBLIC
INTEREST 5
II. PLAINTIFF MAKES A SUBSTANTIAL CASE ON THE
MERITS 6
A. The Government Must Establish a Compelling
Interest 6
1. Cable Speakers Are Entitled to First
Amendment Protection Equivalent to
That Given the Print Press 6
2. The Challenged Provisions Are Content
Based and Directly and Significantly
Burden TWE's Speech, Thereby Triggering
Heightened Scrutiny 10
3. Where The Regulation Gives Government
Broad Discretion That Can Impact Speech
Directly, Heightened Scrutiny is
Compelled 12
B. The Statutory Scheme Cannot Withstand
Heightened Scrutiny or Even The Less
Rigorous Evaluation of Incidental Burdens
on Speech 13
1. The Must Carry Provisions 17
2. Retransmission -Consent Provisions 21
3. PEG and Leased Access Requirements 23
4. The Premium Channel Preview Notice
Provision 28
Page
5. The Vertically Integrated Video
Programmer Provisions 28
a. Price and Terms Standardization 28
b. Prohibition of Exclusive
Programming Agreements 31
6. The Rate Regulation and Service Content
Provisions 33
7. Vertically Integrated Service
Limitations 38
8. Limits On Number of Cable Subscribers
Are Invalid 39
9. Limits On Creation of Video
Programming 40
10. Government -Owned Cable Systems 41
C. The Statutory Scheme Violates The Takings
Clause 42
CONCLUSION 44
TABLE OF AUTHORITIES
CASES
Page
Alaska Airlines. Inc. v. Brock, 480 U.S. 678
(1987) 22
Buckley v. Valeo, 424 U.S. 1 (1976) 2, 14
Broaderick v. Oklahoma, 413 U.S. 601 (1973) 28
Century Communications Corp. v. FCC, 835
F.2d 292 (D.C. Cir. 1987), clarified, 837
F.2d 517 (D.C. Cir.), cert. denied, 486 U.S.
1032 (1988) 7, 17
Century Federal. Inc. v. City of Palo Alto,
710 F. Supp. 1552 (N.D. Cal. 1987) 7, 8,
25, 26
City of Lakewood v. Plain Dealer Publishing Co.,
486 U.S. 750 (1988) 12,
City of Los Angeles v. Preferred Communications,
Inc., 476 U.S. 488 (1986) 6
Columbia Broadcasting System. Inc. v. Democratic
National Committee, 412 U.S. 94 (1973) 26
Consolidated Edison Co. v. Public Serv. Comm'n,
447 U.S. 530 (1980) 10, 13
Cox Cable Communications. Inc. v. United States,
774 F. Supp. 633 (M.D. Ga. 1991) 7
Elrod v. Burns, 427 U.S. 347 (1976) (plurality
opinion) 5, 13
FCC v. Midwest Video Corp., 440 U.S. 689
(1979) 6, 24
-iv-
Page.
First Nat'l Bank of Boston v. Bellotti,
435 U.S. 765 (1978) 13
Forsyth County v. Nationalist Movement,
U.S. _, 112 S. Ct. 2395 (1992) 12
Grosjean v. American Press Co., 297 U.S. 233
(1936) 39, 42
Group W Cable. Inc. v. City of Santa Cruz, 669
F. Supp. 954 (N.D. Cal. 1987) 7, 25,
26
Hill v. Wallace, 259 U.S. 44 (1922) 22
Home Box Office, Inc. v. FCC, 567 F.2d 9
(D.C. Cir.) (per curiam), cert. denied,
434 U.S. 829 (1977) 8, 10,
International Soc'y for Krishna Consciousness,
Inc. v. Lee, U.S._, 112 S. Ct. 2711 (1992) ... 15
Leathers v. Medlock, U.S._, 111 S. Ct. 1438
(1991) 6, 10,
11, 32
Loretto v. Teleprompter Manhattan CATV Corp.,
458 U.S. 419 (1982) •42
Members of City Council of Los Angeles v.
Taxpayers for Vincent, 466 U.S. 789 (1984) 13
Miami Herald Publishing Co. v. Tornillo, 418
U.S. 241 (1974).
Midwest Video Corp. v. FCC, 571 F.2d 1025
(8th Cir. 1978), aff'd on statutory grounds,
440 U.S. 689 (1979)
6, 7,
8, 15,
24, 25,
26
7, 27
Page
Minneapolis Star and Tribune Co. v. Minnesota
Comm'r of Revenue, 460 U.S. 575 (1983) 10, 11,
13
NAACP v. Button, 371 U.S.. 415 (1963) 19
National Advertising Co. v. Town of Niagara,
942 F.2d 145 (2d Cir. 1991) 22
Pacific Gas & Elec. Co. v. Public Utils. Comm'n,
475 U.S. 1 (1986) 13, 14,
15
P.A.M. News Corp. v. Butz, 514 F.2d 272,
(D.C. Cir. 1975) 42
Penn Central Transp. Co. v. City of New York,
438 U.S. 104 (1978) 43
Preferred Communications, Inc. v. City of
Los Angeles, No. CV 83-5846, slip op.
(C.D. Cal. Jan. 5, 1990) 25
Preferred Communications, Inc. v. City of
Los Angeles, 754 F.2d 1396 (9th Cir. 1985),
aff'd on narrower grounds and remanded,
476 U.S. 488 (1986) 8, 14
PruneYard Shopping Center v. Robins,
447 U.S. 74 (1980) 43
Ouincy Cable, Inc. v. FCC, 768 F.2d 1434
(D.C. Cir. 1985), cert. denied, 476 U.S.
1169 (1986) 7, 8,
9, 17,
18, 19,
20, 24
Riley v. National Federation of the Blind,
487 U.S. 781 (1988) 11, 12,
35
Sable Communications of California, Inc. v. FCC,
492 U.S. 115 (1989) 16
-vi-
Page
Schad v. Borough of Mount Ephraim,
452 U.S. 61 (1981) 13
Schneider v. New Jersev_, 308 U.S. 147 (1939) 13
Schneider v. State, 308 U.S. 147 (1939) 13
Shuttlesworth v. City of Birmingham,
394 U.S. 147 (1969) 13
Student Press Law Center v. Alexander,
778 F. Supp. 1227 (D.D.C. 1991) 5
United States v. Jackson, 390 U.S. 570 (1968) 22
United States v. O'Brien, 391 U.S. 367
(1968) 14
United Video. Inc. v. FCC, 890 F.2d 1173
(D.C. Cir. 1989) 32, 33
Washington Metropolitan Area Transit Comm'n
v. Holiday Tours. Inc., 559 F.2d 841
(D.C. Cir. 1977) 4
Wooley v. Maynard, 430 U.S. 705 (1977) 13
STATUTES AND OTHER AUTHORITIES
The Cable Television Consumer Protection and
Competition Act of 1992 passim
The Cable Communications Policy Act of 1984 passim
47 U.S.C. § 608 22
47 C.F.R. 76.33 36
47 C.F.R. 76.92-97 33
Page
47 C.F.R. § 76.33 37
47 C.F.R. § 76.92-97 33
47 C.F.R. §§ 76.151-76.163 32, 33
47 C.F.R. § 76.501 29
Letter from Barbara Hackman Franklin, Secretary
of Commerce, and William P. Barr, Attorney
General, to Edward J. Markey, Chairman of the
House Subcommittee on Telecommunications and
Finance (April 1, 1992) 16
S. Rep. No. 92, 102d Cong., 1st Sess. (1991) 14, 30,
37
George H. Shapiro, Philip B. Kurland, and
James P. Mercurio, CableSpeech: The Case
for First Amendment Protection
(1983) 9
U.S. Dep't of Commerce, Video Program
Distribution and Cable Television: Current
Policy Issues and Recommendations, NTIA
Report 88-233 (1988) 33
PLAINTIFF'S MEMORANDUM IN SUPPORT OF ITS
MOTION FOR A PRELIMINARY INJUNCTION
PRELIMINARY STATEMENT
On September 22, 1992, Congress passed the Cable Television
Consumer Protection and Competition Act of 1992 ("1992 Cable Act"),
which becomes effective on December 4, 1992. (§ 28) Read in
conjunction with Sections 611 and 612 of the Cable Communications
Policy Act of 1984 ("1984 Cable Act") (47 U.S.C. §§ 531, 532), the
1992 Cable Act singles out cable system operators and cable
programmers for special --indeed especially harsh --treatment. It
further singles out the narrow class of those cable speakers that are
vertically integrated. At the same time the Act favors traditional
broadcast interests over cable operators and programmers, and elevates
various entities' speech over plaintiff's, based on an unsupported
perception that the cable industry is too concentrated and powerful.
In this action, plaintiff Time Warner Entertainment Company,
L.P. ("TWE"), challenges this patently unconstitutional statutory
scheme and seeks a preliminary injunction against enforcement of §§ 3,
4, 5, 6, 7(b) and (c), 9, 10(d), 11, 15, 19, 24 and 25 of the 1992
Cable Act, and §§ 611 and 612 of the 1984 Cable Act.
TWE, majority owned by Time Warner Inc., a publicly traded
company, is comprised principally of three unincorporated divisions:
Time Warner Cable ("TWC"), which operates cable television systems;
Home Box Office ("HBO"), which provides pay television programming
services; and Warner Bros., which produces and distributes motion
pictures and television programs. TWE also owns, directly or
indirectly, minority interests in various cable programming services.
Though establishing a policy that purportedly relies "to the
maximum extent feasible" on the marketplace to foster a diversity of
viewpoints (1992 Cable Act § 2(b)), Congress has, in fact, enacted a
statute that leaves little to the marketplace. Rather, Congress has
chosen to cripple the ability of particular speakers within that
marketplace, cable operators and programmers, to distribute their
speech effectively, in large part to attempt to halt the continued
decline of one of cable's competitors--broadcasters.
Congress' effort to favor one set of speakers (whether
broadcasters or nonvertically integrated videoprogramming suppliers)
strikes at the heart of the First Amendment. As the Supreme Court
stated in Buckley v. Valeo, 424 U.S. 1, 48-49 (1976), "the concept
that government may restrict the speech of some elements of our
society in order to enhance the relative voice of others is wholly
foreign to the First Amendment".
In conjunction with the 1984 Cable Act, the 1992 Cable Act
among other things:
(a) requires cable operators to offer to their subscribers
the programming of certain commercial and noncommercial broadcast
television stations, regardless of whether the operators wish to
carry or their subscribers wish to receive such programming (§§ 4
and 5 of the 1992 Cable Act);
(b) requires cable operators to set aside a portion of the
channels that constitute their communicative capacity for
"public, educational and governmental" ("PEG") programming, and
to lease other channels to unaffiliated programmers without
regard to the operator's willingness to convey or be associated
with such programming (§§ 611 and 612 of the 1984 Cable Act);
(c) forbids cable operators to exercise any editorial
discretion with respect to the broadcast, PEG and leased access
programming it requires them to carry (§§ 4 and 5 of the 1992
Cable Act and §§ 611 and 612 of the 1984 Cable Act);
(d) as a result of the provisions in (a) and (b), has
converted an average of 30% of plaintiff's channel capacity to
government and other parties' use;
(e) specifies the content of cable operator's lowest-price
or "basic" service offering and enables municipal officials
and/or defendant FCC to set the price of non-premium services
(§ 3 of the 1992 Cable Act);
(f) singles out vertically integrated programmers for special
regulations requiring that, with very limited exceptions, they
sell to all distributors on the same terms and conditions and
abrogating their ability to maintain exclusive relationships
.(§§ 11 and 19 of the 1992 Cable Act); and
(g) requires the FCC to consider the "necessity" of placing
limits on the ability of cable operators to engage in the
production and creation of programming (§ 11 of the 1992 Cable
Act).
Considered individually each of the provisions challenged is
constitutionally infirm. Together the collection of restraints on
speech constitutes an unprecedented assault on the First Amendment.
If this set of restrictions and controls were put upon almost any
industry it would be harsh and problematic; placing it on electronic
publishers like plaintiff engaged in core speech cannot be
countenanced.
ARGUMENT 2/
In deciding whether to grant a preliminary injunction, a
court must balance four factors: (1) plaintiff's likelihood of
prevailing on the merits; (2) the threat of irreparable injury to the
plaintiff absent interim relief; (3) the possibility of substantial
harm to other interested parties; and (4) the interests of the public.
Washington Metro. Area Transit Comm'n v. Holiday Tours. Inc., 559 F.2d
841, 842-43 and n.1 (D.C. Cir. 1977).
A plaintiff may demonstrate "either a combination of
probable success and the possibility of irreparable injury or that
serious questions are raised and the balance of hardships tips sharply
in his favor". Washington Metro. Area Transit Comm'n, 559 F.2d at
844. Where a movant has made a substantial case on the merits, the
court may grant equitable relief if the remaining three factors weigh
strongly in movant's favor. Id. at 843.
J The relevant facts are summarized in the affidavits submitted
herewith of Jeffrey Bewkes (President and COO of HBO), Thayer Bigelow
(President and CEO of Time Warner Cable Programming) and Joseph
Collins (Chairman and CEO of TWC).
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I. PLAINTIFF TWE FACES THE THREAT OF IRREPARABLE INJURY AND
THE REQUESTED RELIEF IS IN THE PUBLIC INTEREST.
A deprivation of First Amendment rights, however temporary,
constitutes irreparable injury. See Elrod v. Burns, 427 U.S. 347, 373
(1976) (plurality opinion) ("The loss of First Amendment freedoms for
even minimal periods of time, unquestionably constitutes irreparable
injury."); Student Press Law Center v. Alexander, 778 F. Supp. 1227,
1234 (D.D.C. 1991) (citing Elrod and stating that "[t]he Court
presumes that irreparable harm will flow to plaintiffs from a
continuing constitutional violation").
TWE shows below that the challenged statutory provisions
impermissibly infringe upon TWE's First and Fifth Amendment rights.
Consequently, this Court can presume the existence of irreparable
injury. Moreover, the affidavits submitted herewith demonstrate that
TWE faces imminent and irreparable injury, both as a First Amendment
publisher and as a competitor.
An award of interim relief favors the protection of a
party's constitutional rights and is necessarily in the public
interest. In addition, much of the public depend upon the cable
industry for news, information, opinion and entertainment. Any injury
to the ability of members of that industry to exercise their First
Amendment rights disserves the public interest.
II. PLAINTIFF MAKES A SUBSTANTIAL CASE ON THE MERITS.
A. The Government Must Establish a Compelling Interest.
1. Cable Speakers Are Entitled to First Amendment
Protection Equivalent to That Given the Print Press.
TWE engages in speech that is protected by the First
Amendment. (See Collins Aff. SS 7-9, 13-21; Bewkes Aff. Is 5-6) The
Supreme Court recently reaffirmed that "[c]able television provides to
its subscribers news, information, and entertainment. It is engaged
in 'speech' under the First Amendment, and is, in much of its
operation, part of the 'press'." Leathers v. Medlock, 111 S. Ct.
1438, 1442 (1991); see City of Los Angeles v. Preferred Commu-
nications, Inc., 476 U.S. 488, 494 (1986) ("through original
programming or by exercising editorial discretion over which stations
or programs to include in its repertoire, respondent seeks to
communicate messages on a wide variety of topics and in a wide variety
of formats"); FCC v. Midwest Video Corp., 440 U.S. 689., 707 (1979)
(same, striking down FCC cable access regulations on statutory
grounds).
Cable television is an electronic publisher which has become
an important source of news, opinion, and other information to over
54 million people. (Collins Aff. q 3) As such, it is entitled to
protection equivalent to that accorded the print media in Miami Herald
Publishing Co. v. Tornillo, 418 U.S. 241, 258 (1974) (invalidating
Florida statute requiring right of reply in newspapers as impairing
editorial functions). 2/ Not only does cable serve as an important
component in an average household's daily gathering of information,
but it also serves as an immediate source of newsworthy
information --global and local. 2J
Cable's activities in creating, gathering, packaging and
distributing news, information and entertainment parallel the
editorial functions of the print press recognized in Tornillo. 418
U.S. at 258 (press editorial activity includes choice of material,
decisions on size and content, and decisions as to treatment of public
issues).
2 In two decisions from this Circuit, Century Communications Corp.
v. FCC, 835 F.2d 292, 298 (D.C. Cir. 1987), clarified, 837 F.2d 517
(D.C. Cir.), cert. denied, 486 U.S. 1032 (1988), and Ouincy Cable TV.
Inc. v. FCC, 768 F.2d 1434, 1454 (D.C. Cir. 1985), cert. denied, 476
U.S. 1169 (1986) ("Quincy"), this question has not been reached.
Other courts, however, have concluded that cable operators are
entitled to First Amendment protections co -extensive with that
accorded print media. See Cox Cable Communications. Inc. v. United
States, 774 F. Supp. 633, 636 (M.D. Ga. 1991) ("The analogy of cable
television to the traditional media of newspaper is close enough to
afford cable the same first amendment protection as print media.");
Century Federal. Inc. v. City of Palo Alto, 710 F. Supp. 1552, 1554
(N.D. Cal. 1987) (applying Tornillo to access channel and universal
service requirements); Group W Cable. Inc. v. City of Santa Cruz, 669
F. Supp. 954, 961 (N.D. Cal. 1987) ("the starting point for the
Court's analysis is that unless cable television differs in some
material respect from the print media, the First Amendment standards
that apply to newspapers apply with equal force to cable"); see also
Midwest Video Corp. v. FCC, 571 F.2d 1025, 1055-56 (8th Cir. 1978)
("(t)hough we are not deciding that issue here, we have seen and heard
nothing in this case to indicate a constitutional distinction between
cable systems and newspapers in the context of the government's power
to compel public access"), aff'd on statutory grounds, 440 U.S. 689
(1979).
J TWC's cable systems serving New York City, for example, produce
and deliver a 24 -hour -a -day local news service. (Collins Aff. ¶ 4)
-7-
Analogies to the broadcast industry and distinctions based
on cable as an alleged "natural monopoly" have been and should
continue to be rejected as a basis for intrusive regulation of cable.
Judicial decisions in the broadcast context are premised upon
industry -wide physical limitations of available frequencies that
constrain broadcast radio or television signals. This so-called
"scarcity rationale" has no place in evaluating government regulation
of the cable industry. See Quincy, 768 F.2d at 1449; Home Box Office.
Inc. v. FCC, 567 F.2d 9, 45 (D.C. Cir.) (per curiam), cert. denied,
434 U.S. 829 (1977) ("HBO") ("[A]n essential precondition of that
[broadcast] theory --physical interference and scarcity requiring an
umpiring role for government --is absent."). J
Similarly, proof of "economic scarcity" does not justify
government restrictions upon protected speech. See Tornillo, 418 U.S.
at 248-55 (concentration of control of newspapers in large cities
cannot justify government restrictions upon press's editorial
discretion). J
J See also Preferred Communications. Inc. v. City of Los Angeles,
754 F.2d 1396, 1405 (9th Cir. 1985), aff'd on narrower grounds and
remanded, 476 U.S. 488 (1986) (cable not characterized by physical
scarcity like broadcasting); Century Federal, 710 F. Supp. at 1554
("This Court has already concluded that the justification for such
governmental intrusion into broadcast media, the physical scarcity of
radiowaves, is inapplicable to the instant case.").
J See also Quincy, 768 F.2d at 1450 (citing Tornillo as having
categorically rejected the suggestion that purely economic constraints
can justify intrusion upon First Amendment rights); HBO, 567 F.2d at
46 ("In any case, scarcity which is the result solely of economic
conditions is apparently insufficient to justify even limited
intrusion into the First Amendment rights of the conventional press
and there is nothing in the record before us to suggest a
-8-
The only arguable difference between the print press and
cable is cable's use of public rights of way --the traditional basis of
municipalities' rights to franchise operators. However, even if that
puts cable somewhat below print on the spectrum of First Amendment
protection, cable operators so closely resemble the print media that
the First Amendment protection applicable to cable television should
be virtually co -extensive with that of the print media. Certainly any
regulations should be limited to those compelled by that use, which
the challenged provisions here are not.
If the Tornillo standard applies, inquiry as to the
government interest served by the challenged legislation is
unnecessary. See Quincy, 768 F.2d at 1453 (noting that Tornillo Court
struck down press "access" statute "without so much as alluding to
even the possibility of a subordinating government interest"). Even
if a slightly less stringent standard is applied, the legislation can
be upheld only if it serves a compelling government interest. As
shown below, no such interest exists.
constitutional distinction between cable television and newspapers on
this point.") (citation omitted); George H. Shapiro, Philip B.
Kurland, and James P. Mercurio, CableSpeech: The Case for First
Amendment Protection 9-13 (1983) (concluding that the assumption that
cable television is a natural monopoly is unsubstantiated and citing
evidence that suggests the contrary). "The cable industry itself is
not highly concentrated" by any customary economic measure (the
ten largest multiple system operators ("MSO") account for
approximately 55% of all cable subscribers), and the principal effect
of the increasing size of larger cable operators has been to enhance
their ability to finance new programming ventures and thus increase
the number of 'media voices' that are available". (Collins Aff. q 6)
-9-
2. The Challenged Provisions Are Content Based
and Directly and Significantly Burden TWE's Speech.
Thereby Triggering Heightened Scrutiny.
Even without Tornillo, if the challenged provisions of the
Cable Acts impose.a "direct", as opposed to "incidental", restriction
upon speech, they will be upheld only if "necessary to achieve an
overriding governmental interest" and "precisely drawn". Minneapolis
Star and Tribune Co. v. Minnesota Commix' of Revenue, 460 U.S. 575, 582
(1983); see also Consolidated Edison Co. v. Public Serv. Comm'n, 447
U.S. 530, 540 (1980).
The challenged provisions of the 1992 Cable Act constitute a
direct burden on speech and therefore require application of this
stringent standard. This Circuit has indicated that a direct burden
on speech exists where restrictions are "intended to curtail
expression either directly . . . or indirectly by favoring certain
classes of speakers over others". HBO,, 567 F.2d at 47-48 (citations
omitted). In Leathers, the Supreme Court expounded upon this latter
principle, holding that differential taxation of speakers is "consti-
tutionally suspect" and "will trigger heightened scrutiny under the
First Amendment" when it: (1) "threatens to suppress the expression
of particular ideas or'viewpoints", (2) "targets a small group of
speakers" or (3) "discriminates on the basis of the content".
Leathers 111 S. Ct. at 1443-44.
The challenged provisions clearly fall within the first two
Leathers categories. First, as discussed further below, Congress has
suppressed the expression of cable speakers in order to further the
speech of broadcasters. The Act expressly admits as much. See 1992
-10-
Cable Act §§ 2(a)(13) and (16) (stating that in view of the "marked
shift in market share from broadcast television to cable television
services" a principal purpose of the Act is to maintain the "economic
viability of free local broadcast television").
Second, the 1992 Cable Act targets the exercise of protected
speech by a certain limited class of speakers --cable operators and
programmers --and even within that narrow class, it singles out a
specific sub -group of vertically integrated speakers, those which have
interests in both cable systems and programming services. The
targeting of particular speakers silences particular viewpoints and
thereby "distort[s] the market for ideas". Leathers, 111 S. Ct.
at 1444. Such laws directly burden the speech of the targeted few and
will only be upheld if "necessary to achieve an overriding governmen-
tal interest". Minneapolis Star, 460 U.S. at 582.
Heightened scrutiny must also be applied under the
principles of Riley v. National Federation of the Blind, 487 U.S. 781
(1988). Under Riley, legislation "[m]andating speech that a speaker
would not otherwise make" is "content -based". Id. at 795. J As set
forth above, the challenged provisions compel TWE, as both cable
operator and programmer, to speak where it would prefer to be silent.
That compulsion is constitutionally suspect and subject to heightened
scrutiny.
J Though the context of compelled speech and compelled silence is
somewhat different, "the difference is without constitutional
significance". Id. at 796. "[E]ven with the purest of motives, [the
government] may not substitute its judgment as to how best to speak".
Id. at 791.
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3. Where The Regulation Gives Government Broad
Discretion That Can Impact Speech Directly, Heightened
Scrutiny is Compelled.
Under a number of circumstances, the rate -making provisions
of the 1992 Cable Act grant the FCC and local governments the
authority to promulgate rate -making regulations under an undefined
"reasonableness" standard.
Government control of the price a speaker may charge for
speech is antithetical to the values underlying the First Amendment.
Telling a speaker what he or she can charge necessarily will affect
the content, quality and quantity of his speech. It is difficult to
imagine a more intrusive infringement of speech short of outright
censorship.
Here, Congress has granted broad discretion to the FCC for
the regulation of TWE's protected speech activities. Under the guise
of reasonableness, the speech of certain speakers may be stifled or
particular viewpoints favored. When government has been granted
overly broad discretion to regulate speech, heightened judicial
scrutiny is appropriate. See City of Lakewood v. Plain Dealer
Publishing Co., 486 U.S. 750, 772 (1988) (invalidating ordinance
giving mayor discretion to deny permits for newsracks or to condition
permits on terms he deems "necessary and reasonable"). J
J See also Forsyth County v. Nationalist Movement, 112 S. Ct. 2395,
2402-03 (1992) (invalidating ordinance which did not articulate any
standards for administrator to set permit fees for public assemblies
and parades and where administrator testified fee based on a judgment
as to what was "reasonable"); Riley, 487 U.S. at 794 (invalidating
statute allowing government to determine "reasonable" fee that
fundraisers could charge in soliciting charitable contributions since
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B. The Statutory Scheme Cannot Withstand Heightened Scrutiny or
Even•The Less Rigorous Evaluation of Incidental Burdens on
Speech.
It is the government's burden to establish that the chal-
lenged provisions serve a compelling interest and are precisely drawn
to further that interest. $/ In the areas of prohibiting or requiring
speech the government has rarely been able to sustain its burden. J
This scheme and each of its parts cannot survive even if
this Court applies the test set forth for "incidental" burdens on
"scheme necessarily chill[s] speech in direct contravention of the
First Amendment's dictates"); Shuttlesworth v. City of Birmingham, 394
U.S. 147, 150-51 (1969) (invalidating ordinance which conferred
"virtually unbridled and absolute power" to regulate protected speech
activities).
J Minneapolis Star, 460 U.S. at 585; Consolidated Edison Co.,
447 U.S. at 540; First Nat'l Bank of Boston v. Bellotti, 435 U.S. 765,
785 (1978) (prohibitions aimed at speech can only survive if
compelling interest exists, and burden is on the government to
demonstrate such an interest); Elrod, 427 U.S. at 362 (government must
show interest that is "paramount" or "one of vital importance").
While Congress has offered various justifications for its reregulation
of the cable industry, its assertion of the supporting interests are
subject to scrutiny by the courts. See Members of City Council of Los
Angeles v. Taxpayers for Vincent, 466 U.S. 789, 803 n.22 (1984) ("We
may not always assume that the [statute] will advance the asserted
state interests sufficiently to justify its abridgment of expressive
activity"); Schad v. Borough of Mount Ephraim, 452.U.S. 61, 72-73
(1981) ("'the delicate and difficult task falls upon the courts to
weigh the circumstances and to appraise the substantiality of the
reasons advanced in support of the regulation of the free enjoyment of
[First Amendment] rights'") (quoting Schneider v. State, 308 U.S. 147,
161 (1939)).
2/ See. e.g., Pacific Gas and Electric Co. v. Public Util. Comm'n,
475 U.S. 1, 20 (1986) (plurality opinion) (invalidating speech
compelled by state commission); Consolidated Edison, 447 U.S. at 544
(holding unconstitutional prohibitions upon speech); Bellotti, 435
U.S. at 795 (invalidating prohibitions imposed upon corporate speech);
Wooley v. Maynard, 430 U.S. 705, 716-17 (1977) (invalidating state law
compelling speech).
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protected speech in United States v. O'Brien, 391 U.S. 367 (1968).
Under O'Brien, the challenged provisions can only be sustained if they
further "an important or substantial government interest" and "the
incidental restriction on alleged First Amendment freedom is no
greater than is essential to the furtherance of that interest". Id.
at 377.
Congress offers three broad justifications for the need to
bring cable speakers under greater federal and local control. First,
the 1992 Cable Act was intended to ensure the economic viability (and
thus the continued availability) of local broadcast stations. (See
§ 2(a)(9)-(16); S. Rep. No. 92, 102d Cong., 1st Sess. 41 (1991).
Second, the Act was intended to promote "First Amendment" interests in
"diversity of views" (§ 2(a)(6), (b)(1)) and in continued "access to
local noncommercial stations", (§ 2(a)(7)). Third, the Act was
intended to redress perceived competitive imbalances between cable
operators and other media, including broadcasters.
(§ 2(a)(4)(11)-16)) None of these interests is "substantial", much
less "compelling".
a. Protection of Broadcasters. No permissible government
interest is served by penalizing cable operators and programmers in
order to secure for broadcasters patronage and viewership that they
have been unable to garner in the competitive marketplace and in the
marketplace of ideas. See Buckley v. Valeo, 424 U.S. 1, 48-49 (1976);
Pacific Gas & Elec. Co. v. Public Util. Comm'n, 475 U.S. at 19.
b. Promotion of "Diversity". This purported government
interest rests on a fundamental misconception of the First Amendment.
-14-
The First Amendment does not grant powers to Congress. See
International Soc'y for Krishna Consciousness. Inc. v. Lee, 112 S. Ct.
2711, 2716 (1992) (Kennedy, J., concurring in the judgment). On the
contrary, the First Amendment limits Congress's powers. Id., The
fundamental premise of the First Amendment is that oppressive govern-
ment is best avoided through a watchful press that polices the
government --not through a watchful government that polices the press.
In Tornillo, 418 U.S. at 248, 258, the Supreme Court
concluded that a purported interest in ensuring that "a wide variety
of views reach the public" could not justify the abridgement of free
speech. 10 Moreover, the Supreme Court rejected "promoting a
diversity of views" as a justification for rules of a must carry
nature in Pacific Gas & Elec. Co. v. Public Util. Comm'n, 475 U.S. at
19. In Pacific, a utility ratemaking board had ordered a utility to
include in its billing envelopes a newsletter issued by a citizens'
group critical of the utility's policies on rates. When the utility
brought a First Amendment challenge, the ratemaking board sought to
justify the order by asserting a state interest in "promoting speech
by making a variety of views available" to utility customers. Id. at
20.• Writing for a plurality, Justice Powell said that the order was
not a narrowly tailored means of furthering that interest, because
"the State cannot advance some points of view by burdening the
expression of others". Id.
10 In fact, diversity of sources and types of programming is
abundant on cable systems. (See Collins Aff. q 14)
-15-
c. Competitive Imbalance. If checking purported market
power were a "compelling" government interest for purposes of First
Amendment analysis, then newspapers located in "one newspaper towns"
across the nationwouldhave been regulated long ago in a fashion at
least as intrusive as that imposed upon the cable industry here. As
both the Commerce and Justice Departments have recognized, however,
any competitive injuries caused by cable operators can be adequately
addressed through the antitrust laws, which have general
applicability. (See Letter from Barbara Hackman Franklin, Secretary
of Commerce, and William P. Barr, Attorney General, to Edward J.
Markey, Chairman fo the House Subcommittee on Telecommunications and
Finance (April 1, 1992) (Collins Aff. Ex. E) Congress' apparent
belief that many cable operators have excessive market power is not a
"compelling", or even a substantial, reason to impose special
restraints upon cable operators' editorial discretion when there are
already antitrust laws to combat any abuse of such power. 11/
As we show below, each of the challenged provisions offends
the First Amendment.
21/ The legislative record does not support a finding that the
interests Congress sought to further could not be attained through the
enforcement of antitrust laws of general applicability. Thus, it
would be improper for a court to assume that Congress made an implicit
finding and to defer to that finding. See Sable Communications of
California. Inc. v. FCC, 492 U.S. 115, 129 (1989) ("geyond the fact
that whatever deference is due legislative findings would not
foreclose our independent judgment on the facts bearing on an issue of
constitutional law, . . . the congressional record contains no
legislative findings that would justify us in concluding that there is
no constitutionally acceptable less restrictive means . . . to achieve
the Government's interest . . . .").
-16-
1. The Must Carry Provisions. The D.C. Circuit Court of
Appeals has twice struck down must carry regulations issued by the FCC
as violating cable operators' First Amendment rights. Century
Communications Corp. v. FCC, 835 F.2d 292 (D.C. Cir. 1987), cert.
denied, 486 U.S. 1032 (1988); Ouincy Cable TV. Inc. v. FCC, 768 F.2d
1434 (D.C. Cir. 1985), cert. denied, 476 U.S. 1169 (1986).
Analytically, the must carry provisions of Sections 4 and 5 of the
1992 Cable Act are no different from the rules struck down in Century
and Quincy and should meet a similar fate. Two secretaries of
Commerce and the Department of Justice have already recognized the
"serious First Amendment" problems these provisions create. (See
Collins Aff. Exs. E and F)
Sections 4 and 5 of the 1992 Cable Act require cable opera-
tors to retransmit some number of local commercial and noncommercial
television stations, as well as qualified low-power stations, with the
exact number subject to calculation pursuant to statute. Cable
operators must do so on the same channel as that on which the
retransmitted station is broadcast over the air if the station
requests. In the case of non-commercial stations, when the number of
stations prescribed by the statute is not available locally, the
operator must import signals from another community.
The must carry provisions invite the most exacting kind of
First Amendment scrutiny in three distinct ways. 12 First, the
22j See also Ouincy, 768 F.2d at 1451-53 (concluding that must carry
rules favor one group of speakers over another and expressing "serious
-17-
provisions substantially
discretion to select the
Ouincv_, 768 F.2d at 1452
act as a mouthpiece for
share". Id. 14
Second, under
guaranteed the right to
while cable programmers
number of channels".
limit "the operator's otherwise broad
programming it offers its subscribers." 13
. Thus, they may "force cable operators to
ideological perspectives that they do not
the must carry rules, "local broadcasters are
convey their messages over the cable system
must vie for a proportionally diminished
Id. at 1451. Thus, the must carry provisions
impermissibly discriminate against some speakers (cable programmers)
in favor of others (broadcast stations).
Third, the must carry requirements target a small subsegment
of the press (multichannel video programming distributors), and within
that subsegment discriminate further against an even smaller subgroup
(cable operators, as opposed to, for example, MMDS, DBS, or SMATV
operators). 25/
doubts about the propriety of applying the standard of review reserved
for incidental burdens on speech").
13 The intrusion is substantial, as, in some cases, the combined
effect of the must carry rules may be to capture more than 30% of an
operator's channel capacity. (§ 4(b) of the 1992 Cable Act)
14 This spectre is by no means imagined. For example, in its
Canton, Ohio system, TWC may be required to carry a religious
broadcast station that it currently does not carry and that it does
not wish to carry. (See Collins Aff. q 33(a))
15 While § 25 of the 1992 Cable Act also imposes modified must
carry obligations on DBS operators, those obligations are much less
burdensome on the DBS operator than the must carry requirements
imposed on cable operators. See § 25(a).
-18-
As in Quincy, there is no need here to answer "[t]he
difficult question whether, taken as an abstract proposition, [the
interest in preserving free, locally -oriented television] is
sufficiently weighty to warrant the rules' interference with First
Amendment rights", 16 768 F.2d at 1454, for there exists another,
easier, ground for disposing of this case: The must carry provisions
fail because they are overbroad.
As the Supreme Court has recognized, "[b]road prophylactic
rules in the area of free expression are suspect. Precision of
regulation must be the touchstone in an area so closely touching on
our most precious freedoms". nAACP v. Button, 371 U.S. 415, 438
(1963) (citations omitted). Finding such precision lacking, the Court
in Quincy held that the must carry rules there could not withstand
First Amendment scrutiny. Because the means -end "fit" of the must
carry provisions of the 1992 Cable Act suffers from the same three
infirmities as the FCC rules struck down in Quincy, the result here
must be the same.
First, while Congress apparently found local broadcast
stations important sources of local news and other services, under
Section 4 local stations are entitled to carriage even if they carry
no local programming. The only requirement for must carry status is
11/ At a minimum, this seems open to significant doubt. Congress's
reasoning would also seem to permit rules requiring newspapers to
print a daily guide to the programming of local television stations,
as such rules would surely further the goal of ensuring the economic
viability of free local broadcast television. Surely, however, such
rules would fail.
-19-
that a station be licensed to broadcast in the same area in which the
cable system on which it wishes to be carried is franchised.
(§ 4(h)(1)(A)) Because many local stations broadcast little or no
locally originated programming, the ADI in which a station is licensed
to broadcast is an exceedingly imprecise proxy for the content of its
programming. When free-speech rights are implicated, the First
Amendment does not countenance such imprecision.
Second, a cable system can be required to devote up to a
third of its channels to the carriage of local commercial stations.
(1992 Cable Act, § 4) As the Court said in Ouincy:
"The 18th station is entitled to carriage no less than the first
. . . . It is far from clear . . . how a community that already
has 17 local broadcast stations carried over the cable system is
not already enjoying the advantages that derive from having local
outlets that will be responsive to local needs." 768 F.2d at
1460-61 (internal quotation marks omitted).
At some point, adding one more local station furthers only an interest
in protecting local broadcasters, and no longer furthers an interest
in protectinglocal broadcasting. Id. at 1460. The must carry rules
of the 1992 Act, by requiring cable operators to carry possibly dozens
of local stations, go far beyond this point.
Third, the rules "protec[t] . . . every local broadcaster
regardless of whether or to what degree the affected cable system
poses a threat to its economic well-being". Id. at 1461. Indeed,
many of the local commercial stations that will be able to claim must
carry status have reported very respectable earnings in recent years.
(See Collins Aff. q 18) It is entirely unclear why these stations
require economic protection from cable.
The noncommercial must carry provisions fare no better under
this analysis. While forcing cable operators to provide carriage to
promote various speakers is not a compelling or substantial government
interest, there is again no need for this Court to determine whether
Congress has offered a sufficiently weighty governmental interest
justifying the noncommercial must carry provisions because they are
just as overbroad as the commercial station must carry provisions.
For example, the Act imposes a potentially limitless burden on cable
operators in that it requires at least the larger systems to carry all
(nonduplicate) locally available noncommercial stations. Surely,
there must come a point where adding one more noncommercial station is
no longer "essential" to further any government interest.
The channel -positioning provisions (§ 614(b)(6)),
§ 615(g)(5)) are equally unsound and impact TWE's editorial control.
(See Collins Aff. Q 17)
2. Retransmission -Consent Provisions. Section 6 of the
1992 Cable Act makes it unlawful for multichannel video programming
distributors to retransmit the signal of a commercial
broadcast -television station without its consent, unless the station
elects must carry status under § 4. Since the must carry rules
violate the First Amendment and the must carry rules are inseverable
from the retransmission -consent provisions, it follows that the
latter, too, must fall.
Whether an otherwise valid provision can survive the
invalidation of another provision of a statute depends on whether,
without the offending provision, the statute will function in a manner
-21-
inconsistent with Congress's intent. See Alaska Airlines. Inc. v.
Brock, 480 U.S. 678, 685 (1987). The unconstitutional portion cannot
be severed if "the statute created in its absence is legislation that
Congress would not have created". Id. 22/
The must carry and retransmission -consent regimes are
inextricably intertwined because a local commercial station must make
an election between the two. Clearly, Congress did not intend an
election of retransmission -consent status to be risk-free for
broadcasters. Under §§ 4 and 6 as enacted, a station that elects
retransmission -consent status irrevocably forfeits three years' worth
of must carry and channel -positioning rights. Because a cable
operator is free to delete or reposition a station that elects
retransmission -consent status, a station that miscalculates its value
to a cable operator might well end up with neither a retransmission
fee nor carriage. Assuming Congress is right about the importance of
non -carriage, a station will think twice about electing
retransmission -consent status, so that, under the scheme as enacted,
an election of retransmission -consent status will be the exception,
not the rule.
17 Although the 1934 Communications Act (which § 6 of the 1992 Act
amends) contains a severability clause, 47 U.S.C. § 608, "the ultimate
determination of severability will rarely turn on thg presence or
absence of such a clause". United States v. Jackson, 390 U.S. 570,
585 n.27 (1968). Where, as here, there is strong evidence that a
valid provision would not have been enacted without the offending
provision, courts have not hesitated to strike down both, even in the
face of a severability clause. See. e.g., Hill. v. Wallace, 259 U.S.
44, 70-72 (1922); cf. National Advertising Co. v. Town of Niagara, 942
F.2d 145, 151 (2d Cir. 1991) (involving state statute).
-22-
With § 4 gone, any such restraint disappears, and
retransmission consent has no downside. The operator may pay a fee,
but if it proves unwilling to do so, the station can simply give its
consent for nothing, placing it in the same position as if it had made
no election. Absent must carry, all stations have an incentive to
elect, and election will be the rule, not the exception. Further, a
cable operator will have to bargain with each station and thereby
incur substantial transaction costs. Such a system clearly is not
what Congress intended when it passed § 6.
3. PEG and Leased Access Reauirements. Section 611(b) of
the 1984 Cable Act authorizes franchising authorities to "require"
that "channel capacity be designated for public, educational, or
governmental use". In addition, Section 7(b)(4)(B) of the 1992 Cable
Act permits a franchising authority to "require adequate assurance"
that a cable operator will provide "adequate" PEG "channel capacity,
facilities, or financial support".
Section 612(b)(1) of the 1984 Cable Act requires a cable
operator to "designate channel capacity for commercial use by persons
unaffiliated with the operator". Section 612(b)(1)(A)-(C) of the 1984
Cable Act specifies the number of channels that must be so designated,
which may range up to 15% of an operator's capacity.
These sections also expressly prohibit the cable operator
from exercising any editorial control over PEG or leased-access
programming, and the 1992 Act for the first time subjects the operator
to civil and criminal liability if a program it carries under either
regime is obscene.
Sections 611 and 612 of the 1984 Cable Act directly impact
speech. They impermissibly force cable operators to act as a conduit
for the speech of others, by requiring operators to transmit messages
they would not otherwise transmit, on the PEG channels without
compensation and on the leased access channels for prices now
controlled by the government. In fact, the franchising authority is
permitted not only to use PEG channels without payment, but also,
under § 7(b)(4)(B), to require the operator to finance and provide
facilities for such use.
As the Quincy Court noted in striking down must carry
regulations:
"The rules coerce speech; they require the operator to carry the
signals of local broadcasters regardless of their content and
irrespective of whether the operator considers them appropriate
programming for the community it serves.
''Even when not occasioning the displacement of
alternative programming, compelling cable operators
indiscriminately to accept access programming will interfere with
their determinations regarding the total service offering to be
extended to subscribers." 768 F.2d at 1452 (quoting Midwest
Video, 440 U.S. at 707-08 n.17).
Similarly, Congress now coerces speech in which TWE has chosen not to
engage. The First Amendment prohibits such forced association.
Further, it is entirely irrelevant that some cable operators
have excess channel capacity. As the Supreme Court noted in Tornillo,
with respect to a similar claim concerning "access" to a newspaper:
"Even if a newspaper would face no additional costs to
comply with a compulsory access law and would not be forced to
forego publication of news or opinion by the inclusion of a
reply, the Florida statute [requiring access] fails to clear the
barriers of the First Amendment because of its intrusion into the
function of editors. A newspaper is more than a passive
receptacle or conduit for news, comment, and advertising. The
choice of material to go into a newspaper, and the decisions made
-24-
as to the limitations on the size and content of the paper, and
treatment of public issues and officials --whether fair or
unfair --constitute the exercise of editorial control and
judgment." 418 U.S. at 258.
However many channels an operator has available, they are still its
channels, resulting from significant investment by that operator.
In Century Federal. Inc. v. City of Palo Alto, 710 F. Supp.
1552 (N.D. Cal. 1987), the court held that the PEG and leased access
requirements mandated by the city unconstitutionally abridged the
cable operator's First Amendment rights. )J The court reasoned that
"forcing a speaker to communicate the views of another undoubtedly
impacts the content of the speech of the primary speaker". Id. at
1554. See p. 10-11, supra.
Further, the PEG provisions are content -based in that the
franchising authority (or its surrogate) decides who can use PEG
channels. (See Collins Aff. q 34) J Cities are not shy in
demanding PEG channels (for example, Ithaca, New York required TWC to
provide 9 PEG channels (id.)), and § 611 imposes no limits on the
number of PEG channels a franchising authority can require. Because
the city has absolute control over the number and use of PEG channels,
there is a grave danger that it will use such channels as a vehicle to
18 See also Preferred Communications. Inc. v. Los Angeles,
No. CV 83-5846, slip op. at 535 (C.D. Cal. Jan. 5, 1990) (striking
down leased access and PEG requirements); Group W Cable, 669 F. Supp.
at 968-69 (striking down PEG requirements).
19 See Group W Cable, 669 F. Supp. at 969 (the court concluded that
the PEG requirements were content -based because "access is meted out
by a government agency that enjoys unlimited discretion").
-25-
promote incumbent officials' views or to stifle opposing views. 20
As the court stated in Century Federal, 710 F. Supp. at 1555, the PEG
and leased access regimes "carry the inherent risk that a franchisee's
speech will be chilled" and have "the direct, undeniable impact of
intruding into the franchisee's editorial control and judgment". The
access requirements also injure cable programmers by diminishing their
opportunities for distribution. (Bewkes Aff. q 12) The access
requirements in effect reduce cable systems to common carriers --an
approach that is impermissible even in the area of broadcast media.
See Section 3(h) of the 1934 Communications Act; see also
Section 621(c) of the 1984 Cable Act, 47 U.S.C. § 541(c) ("cable
system[s] shall not be subject to regulation as a common
carrier"). 21
As originally enacted, Section 638 of the 1984 Cable Act
granted cable operators immunity from civil or criminal liability for
programs carried on PEG or leased access channels. Section 10(d) of
the 1992 Cable Act amends Section 638 of the 1984 Cable Act to subject
cable operators to civil or criminal liability if a program on those
Group W Cable, 669 F. Supp. at 969 ("access scheme potentially
grants the incumbent government a free platform from which to advance
its own views and candidates"). In Group W Cable, the court also
noted the chilling effect the city's control of the channels might
create. Id. See also Tornillo, 418 U.S. at 257 ("editors might well
conclude that the safe course is to avoid controversy").
21 See also Columbia Broadcasting System, Inc. v. Democratic
National Committee, 412 U.S. 94 (1973) (reasoning that because
Congress had rejected common carrier status for broadcasters,
broadcasters are not required to accept paid editorial
advertisements).
-26-
channels "involves obscene materials". Under § 10(a)(2), operators
may enforce a written indecency policy as to leased channels, but not
as to PEG channels.
This provision must fall even if the Court upholds the
access provisions. If the operator must lease a programmer channel
capacity and can only prohibit programming that is obscene (or
prohibited by its indecency policy), then operators will be forced to
staff up to screen programming and to make difficult judgment calls
about programs they would have never accepted in the first place. 22
If the operator judges wrong, it -will face criminal or civil exposure
for exhibition if obscene. 23 The First Amendment does not
countenance putting such burdens and risks on one who engages in
constitutionally protected speech.
Finally, § 25 of the 1992 Cable Act requires a direct
broadcast satellite ("DBS") service to reserve for PEG type use 4 to 7
percent of its capacity. This may constrain the ability of
programmers such as HBO to offer its programming on DBS services
because channel space may be unavailable. Moreover, Section 25
expressly limits the amount of channel capacity a DBS service must
reserve for PEG type use to°4 to 7 percent, placing cable operators at
22/ See Midwest Video Corp. v. FCC, 571 F.2d at 1056-59 (recognizing
problems inherent in exposing cable operators to liability when
control of access channels is limited to prohibiting obscenity and
indecency).
22/ The written indecency policy provision of § 10(a)(2) does not
save § 10(d). since § 10(a)(2) does not apply to PEG channels.
-27-
a disadvantage in that § 611 imposes potentially limitless
requirements on cable operators.
4. The Premium Channel Preview Notice Provision. Cable
operators often provide free "previews" of a premium programming
service to subscribers who are not currently taking that service.
(Collins Aff. q 16) Section 15 of the 1992 Cable Act requires
operators to provide thirty days notice of such a preview to all
subscribers if the premium channel "offers movies rated by the Motion
Picture Association of America as X, NC -17 or R".
Section 15 is unconstitutionally overbroad because it
requires such notice even if the intended preview will not include any
X, NC -17 or R rated programming, and because it requires notice to all
subscribers --even those who already take the service in question and
presumably have no objection to its content and will not be receiving
any unsolicited programming in any event. The overbroad and
burdensome notice requirements are likely to deter operators from
offering such previews. See Collins Aff. ¶ 41; Broadrick v. Oklahoma,
413 U.S. 601, 612 (1973) (overbroad statutes may discourage
constitutionally protected conduct). Because § 15 is far broader than
necessary to serve any government interest in protecting non -premium
subscribers from indecent programming, it must fall.
5. The Vertically Integrated Video Programmer Provisions.
a. Price and Terms Standardization. Section 19 of the
1992 Cable Act requires the FCC to adopt regulations that prohibit
"discrimination" by a cable programmer in which a cable operator has
an "attributable interest" in the "prices, terms, and conditions of
-28-
sale or delivery" of cable programming "among or between cable
systems, cable operators, or other multichannel video programming
distributors." If these provisions are read to require the FCC to
require a programmer to sell its programming to distributors with whom
it does not wish to deal, they would force speech in the same way as
would a law requiring all columnists carried in, say, the Washington
Post to offer their services on equal terms to, say, the Washington
Times. Such a content -based imposition could withstand scrutiny (if
at all) only if it were precisely tailored to accomplish a compelling
governmental interest.
But even if they do not require the FCC to impose a duty to
communicate with all comers, these provisions violate the First
Amendment in another respect. First, they discriminate between cable
speakers and other members of the press. Second, they discriminate
between programmers in which a cable operator has an attributable
interest and other programmers that are not affiliated with a cable
operator. Thus, they subject CNN, HBO, Black Entertainment Television
and other cable -affiliated programmers to sharp restrictions from
which ESPN, the USA Network, the Family Channel, The Nashville Network
and the Disney Channel (all unaffiliated programmers) are exempt. 25
24 The statute does not define the term "attributable interest".
However, in the FCC cross -ownership regulations a person holding 5% or
more of the voting stock of a broadcast station has an "attributable
interest" in that station. See 47 C.F.R. § 76.501 Note 2(a).
25 Also exempt are several cable programmers that are controlled by
broadcasters such as ESPN (80% owned by Capital Cities/ABC). (See
Bigelow Aff. Ex. B)
-29-
(See S. Rep. No. 92, 102d Cong., 1st Sess. 25 (1991)) The asserted
government interests in preventing vertically integrated programmers
from favoring their affiliates (see § 2(a)(5) & (6); S. Rep. 24-29)
and in "promoting a diversity of views" (§ 2(a)(6)) are neither
compelling nor substantial and cannot justify these regulations. (See
supra pp. 14-16).
As to the first asserted interest, § 19 does not address
only dealings between vertically integrated programmers and their
affiliated cable operators. Instead, it purports to require the FCC
to bar any vertically integrated programmer from varying its business
terms even in transactions involving completely unrelated parties.
For example, under such rules, TWE would be prohibited from
negotiating differing terms with cable operators that have no
connection with TWE. The effect of this provision is simply to impair
TWE's ability to compete with programmers that are not vertically
integrated, who remain free to disseminate their programming on
whatever terms they see fit and may, for example, freely offer
discriminatory terms to cable operators or other multichannel video
programming distributors who compete with each other. 26
26/ This singling out is even more pronounced if the rules are to be
construed to prohibit refusals to deal. In the retransmission -consent
provisions, Congress has gone out of its way to enable broadcasters to
do that which the antidiscrimination provisions prohibit
cable -programming vendors to do: to refuse periodically to deal with
cable operators unless they are satisfied with the terms offered. It
is difficult to see why a refusal by HBO is more harmful than a
refusal by NBC (as an owner of broadcast stations).
-30-
As to the second purported interest, there is no evidence
that the antidiscrimination rules will in fact "promot[e] a diversity
of views", especially if they are read to require programmers to sell
their product to any buyer. Cable operators ventured into the
programming business because other industries were unwilling to
allocate capital to the risky cable-programming industry, resulting in
a dearth of cable programming and in turn stifling the growth of cable
as a medium. (Cf. Bigelow Aff. 1 5; Collins Aff. ¶ 45) To protect
their investment and discourage free ridership, investors naturally
strive to differentiate their services or products from those of
competitors. The rules would make this difficult or impossible, and
would impair their investment. Thus, far from "promoting a diversity
of views", the likely effect of the antidescrimination rules would be
to reduce the amount of programming available.
b. Prohibition of Exclusive Proaramminq Agreements.
Section 19 of the Cable Act requires the FCC to issue regulations that
prohibit programmers in which a cable operator has an attributable
interest from entering into agreements that confer exclusive
distribution rights as to areas not served by cable as of the date of
enactment. Section 19 appears to require the FCC to issue regulations
that prohibit a vertically integrated programmer from entering into an
exclusive agreement with a cable operator as to areas served by cable,
unless the FCC finds that the agreement is in the "public
interest". 27
Like the antidiscrimination provisions, the exclusivity
sections improperly target a small group of vertically integrated
programmers and prevent them from speaking as they desire. In fact,
while these programming distributors are prohibited from entering into
exclusive agreements, other programming distributors, such as
broadcasters, are specifically authorized by the FCC to enter into
exclusive programming agreements. See 47 C.F.R. §§ 76.151-163 (1991).
This type of targeting runs afoul of the principles articulated in
Leathers v. Medlock, and programming diversity, as shown above, cannot
be achieved by restricting one entity's speech to enhance another's.
In addition, the provisions at issue are overbroad and will
inevitably undercut the diversity objective. First, the FCC has
found, and the Court of Appeals of the District of Columbia has
affirmed, that prohibiting exclusive agreements results in a reduction
of diversity. United Video. Inc. v. FCC, 890 F.2d 1173, 1181 (D.C.
Cir. 1989). •Without exclusive agreements the wealth of new
programming services might not have occurred, and future investment in
new services will likely decrease as operators refuse to carry
services that do not help differentiate them from their competitors.
(Bigelow Aff. SS 5-7; Bewkes Aff. ¶ 19)
22/ Although broadly worded to prohibit exclusive agreements between
a cable operator and any vertically integrated programmer, in light of
the Cable Act's findings, see Section 2(a)(5), Congress probably
intended to prohibit exclusive agreements between cable operators and
cable programmers that have common ownership.
-32-
Second, prohibiting exclusive programming agreements does
not promote the economic well-being of programmers in relation_to
operators. It is well -accepted that exclusivity is a key to success
for cable programmers, as well as for broadcasters and cable
operators. United Video, 890 F.2d at 1179-80.
"Both buyer and seller can benefit from the availability and
enforceability of exclusive rights. For the buyer, exclusivity
may differentiate the programming, making it more marketable.
For the seller, by using exclusivity as a concept to divide the
range of possible licensees into different markets, the seller
can arrange a sequence of distribution that will maximize revenue
from the licensing of the product through several uses." (U.S.
Department of Commerce, Video Program Distribution and Cable
Television: Current Policy Issues and Recommendations, NTIA
Report 88-233, at 109-10 (1988))
Exclusive agreements, therefore, enable programmers to earn a higher
profit. United Video, 890 F.2d at 1180. 28
6. The Rate Regulation and Service Content Provisions. As
amended by § 3 of the 1992 Cable Act, § 623 of the Communications Act
of 1934 requires the FCC to ensure that "reasonable" rates are charged
for basic cable service 7J and equipment by cable operators that are
28 The exclusive license provisions also result in discrimination
between cable operators, on the one hand, and, broadcast stations on
the other hand. FCC regulations explicitly protect broadcast
stations' ability to be the exclusive distributor of particular
programming in a given area, see 47 C.F.R. §§ 76.92-97 (network
nonduplication rules); id. §§ 76.151-163 (syndicated exclusivity
rules), while the exclusive license provisions limit the ability of
cable operators to attain the same status.
7J Section 3(b)(7) requires each cable operator to provide "a
separately available basic service tier" which at a minimum must
include all must carry signals, all PEG channels required by
franchise, and any broadcast station signal (except a superstation)
that is provided to any subscriber. Such a direction as to the
content of the system's offerings is content based and cannot serve a
compelling interest.
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not subject to "effective competition". 2Q/ (§ 623(a)(2)(A), (b)(1),
(b)(3)) It also requires the FCC to establish a framework under which
"unreasonable" rates for all other non -premium cable services can be
challenged. (§ 623(a)(2)(B), (c)(1)) In addition, the Act requires a
cable system to have a uniform rate structure throughout the
geographic area to which it provides service. (§ 623(d)) Another
rate controlling provision, § 623(b)(8), provides that a cable
operator may not require that a subscriber receive any service other
than basic as a requirement to receive programming on a per channel or
per program basis. It also provides that an operator cannot
discriminate with regard to rates charged for such programming on the
basis of whether a subscriber orders the basic or a higher tier.
Finally, § 9 of the Act authorizes the FCC to set the "maximum
reasonable rates" that an operator may charge programmers for leased
access capacity.
Each of these rate regulations is constitutionally infirm.
In passing the 1992 Cable Act, Congress presented two
justifications for rate regulation: (1) to "ensure that consumer
interests are protected in receipt of cable service" "where cable
television systems are • not subject to effective competition" and
(2) to "ensure that cable television operators do not have undue
market power vis-a-vis . . . consumers". (§ 2(b)(4), (5)) These
30 The definition of "effective competition" will subject almost
all TWC systems to rate regulation of the basic tier. (Collins Aff.
Q 48)
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governmental interests are in essence the same: to ensure that
consumers can obtain cable television service at reasonable rates.
This is not mere economic regulation. It singles out a
class of speakers and imposes a financial constraint on them affecting
the content and amount of their speech, while permitting other video
programming distributors complete price discretion (subject only to
other generally applicable laws).
Such price regulation is certain to affect significantly the
content of TWE's speech. How much a program creator spends on
developing its programs is directly tied to the price it believes it
can charge the consumer of the programming. Obviously, a motion
picture producer would invest less in its motion pictures if it knew
the government would limit the price of theater tickets. It is no
different for creators of cable programming, who will lessen their
output. (Bigelow Aff. q 23) It is not for the FCC or local officials
to decide whether TWE will be able to finance new program services,
including news services and the like.
Moreover, just as with the statute in Riley v. National Fed.
of the Blind of North Carolina. Inc., 487 U.S. 781 (1988), § 3
directly burdens speech. In Riley, the North Carolina legislature
attempted to prohibit professional fundraisers from retaining an
"unreasonable" fee from charitable contributions by placing a cap on
the percentage of funds that could be retained. The Supreme Court
rejected the argument that charities are economically unable to
negotiate fair contracts and stated "the government, even with the
purest of motives, may not substitute its judgment as to how best to
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speak for that of speakers and listeners". Id. at 791. Here too, the
government cannot attempt to economically insulate cable subscribers
by capping the amount they may pay for speech, thereby substituting
its view of what are reasonable expenditures for cable operators to
make.
Furthermore, the government presented no explanation of why
access to cable television at a reasonable rate is a compelling
governmental interest or why cable has been singled out from other
speakers, or treated like a -utility --which
vital resource such as electricity.
Even if there were a compelling,
governmental interest, Section 3 could not
well tailored to the government's purpose.
it is not --controlling a
or even substantial,
stand because it is not
First, the uniform rate
provision actually prevents cable operators from offering a lower rate
to subscribers when they would do so in a portion of their franchise
area to meet the rates of a competitor. Second, Section 3 is both
underinclusive and overinclusive in that even governmentally
determined "reasonable" rates will not secure access to cable for many
people. Third, rate regulation of cable operators is triggered not by
the actual presence of market power, but by the simple failure of
other companies to set up a competing multichannel distribution
service --a state of affairs that may well arise simply because the
operator is providing an attractive service at a reasonable price.
The "effective competition" definition (§ 623(1)(1)) conclusively
presumes most cable operators have and are abusing undue market
power. 21/
Section 3 is also overbroad because it applies to a much
larger class than is necessary to achieve Congress' purpose. Congress
found that the rates for cable service have significantly increased
for only a portion (28%) of the cable -viewing public. (See § 2(a)(1))
Indeed, Congress also found that since deregulation the average number
of basic channels offered to subscribers increased from 24 to 30, or,
an increase in channel capacity of 25%. (See § 2(a)(1))
Nevertheless, § 3 directs the FCC to regulate the rates of the vast
majority of cable systems by requiring regulation of all cable
operators not subject to "effective competition". (See Collins Aff.
q 48) As a result, many more systems will be regulated than is
necessary to accomplish Congress's purpose.
Sections 3 and 9 are constitutionally impermissible because
they grant the FCC and franchise officials across the nation broad
discretion to set "reasonable" rates. "Reasonableness" is an
inherently malleable standard. 32 It allows the FCC and franchise
31 Provisions of the 1984 Cable Act exempted basic cable service
from rate regulation in those communities where cable operators were
subject to "effective competition". The FCC defined that term so as
to encompass cable service areas served by at least three broadcast
stations. See 47 C.F.R. § 76.33(a)(2). With the 1992 Cable Act,
Congress reaffirmed that "[c]able televison systems and broadcast
television stations increasingly compete" (§ 2(a)(14)), but
nonetheless chose to abandon the presence of broadcast stations as an
indication of effective competition.
32 In fact, the Senate Report states that the government will have
"broad discretion to ensure rates are reasonable". (S. Rep. 73)
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officials to alter the overall prices that may be charged by
particular cable systems, and they may do so whenever they decide, for
example, that the cable systems are earning "unreasonable" profits.
(See § 623(b)(2)(C)(vii)) Such a discretionary scheme has manifest
potential for abuse --local officials can easily retaliate against a
cable operator for its political stances by determining that its rates
or profits are "unreasonable". The broad discretion granted here
is not permitted in the area of First Amendment rights.
7. Vertically Integrated Service Limitations. Section
11(c) of the 1992 Cable Act requires the FCC to establish "reasonable
limits on the number of channels that can be occupied by a video
programmer in which a cable operator has an attributable interest".
This provision appears to allow the FCC to limit the number
of channels any cable operator can devote to vertically integrated
services regardless of whether the programmer is affiliated with that
particular operator. Obviously, such a provision has nothing to do
with the supposed ills of vertically integrated programmers' dealings
with cable systems under common ownership. However ultimately framed
by the FCC, the channel limitation provision "targets a small group of
speakers" --vertically integrated programmers and cable operators --and
33 As Mr. Collins of TWC has testified: "[R]ate regulation will
certainly chill cable operators exercise of their First Amendment
right to criticize local government officials; no matter what regime
of rate regulation the FCC ultimately adopts, local officials will be
left with considerable discretion in applying those rules. It is
simply unrealistic to expect that a local news channel produced by a
cable operator would vigorously criticize the very officials who
determine the prices it may charge." (Collins Aff. q 64)
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enhances the voice of other speakers over this group. See pp. 2,
10-11, supra.
In addition, the provision is content -based and directly
interferes with the editorial judgment of the cable operator. See pp.
6-7, 10-11, supra. However ultimately framed, this provision will
interfere with operators' ability to offer attractive line-ups of
programs to their subscribers. The provision is similar to one
restricting the number of employee columnists a newspaper could
publish, which clearly would be unconstitutional.
Further, as with other provisions, this provision will
probably decrease, rather than increase, program diversity.
Vertically integrated programmers will lack economic incentives to
develop new programming because their ability to distribute the
programs through cable operators will be hampered. (Collins Aff.
¶ 44)
8. Limits On Number of Cable Subscribers Are Invalid.
Section 11(c) of the 1992 Cable Act directs the FCC to establish
"reasonable limits on the number of cable subscribers a person is
authorized to reach through cable systems owned by such person, or in
which such person has an attributable interest". This provision
directly impairs cable operators' speech by limiting the number of
persons with whom they can communicate. It is comparable to a law
directing a government agency to determine how many readers a
newspaper may have.
In Grosiean v. American Press Co., 297 U.S. 233, 245 (1936),
the Supreme Court struck down a state statute that imposed a tax on
-39-
newspapers with a circulation of 20,000 or more, reasoning that the
"direct tendency" of the tax was "to restrict circulation". The Cable
Act provision and the FCC action it requires are, if anything, more
pernicious than the Grosean statute in that they require a naked
restraint on the scope of a cable operator's communications --unlike
the newspaper in Grosiean, the operator will not have the option of
paying the tax and then speaking anyway.
Congress enacted § 11 out of concern that the cable industry
has become "highly concentrated", but that concern is demonstrably
unfounded. (See Collins Aff. q 6) Further, by placing the
determination of "reasonable" cable operator size in the discretion of
government officials, the Act creates a real risk that large operators
will be penalized simply because they participate in debate on public
issues and have the means to communicate their views widely.
In short, no permissible government interest justifies such
a naked restraint on operators' ability to speak, especially since the
antitrust laws provide protection against any anticompetitive cable
mergers or abuse of market'power by a single entity.
9. Limits On Creation of Video Programming. Section 11(c).
of the 1992 Cable. Act requires the FCC to "consider the necessity" of
"imposing limitations on the degree to which multichannel video
programming distributors may engage in the creation or production of
video programming". Although purportedly neutral as between cable and
other forms of multichannel distribution, this provision in fact
singles out cable operators, who are at present the only multichannel
distributors that engage in production and creation of programming to
any significant degree. (Collins Aff. SS 51-52)
This provision specifically targets one segment of the press
for limitations on its ability to produce and create news, information
and entertainment. Whatever regulations the FCC ultimately adopts,-
the mere prospect of such regulation exerts an immediate and deadly
effect upon cable operators' exercise of protected rights.
10. Government-Owned Cable Systems. Section 7(c) of the
1992 Act amends § 621 of the 1934 Communications Act to enable
municipal franchise authorities to operate cable systems free of the
extensive franchising requirements (including the payment of franchise
fees) which the Act empowers them to impose on private cable
operators. Section 24 of the 1992 Act also exempts franchise
authorities from damage liability.
Section 7(c) is constitutionally suspect because it targets
certain First Amendment speakers for differential treatment and
elevates government speech over private speech. The provision
impermissibly places government in the position of competing against
the very private cable operators whose prices they control (and part
of whose capacity they regulate), creating the potential for abuse of
regulatory power for both political and economic purposes. Indeed,
the provision creates not just a means but an incentive for abuse of
regulatory power where the municipal cable system stands to benefit
from any regulation or fee which further disadvantages its private
competitors.
Finally, § 7(c) of the 1992 Cable Act, read in conjunction
with Section 24, puts public officials in the position to impair the
value of private competitors' business assets, for political or
economic purposes, with relative impunity. Section 24 enables
municipal franchise authorities to regulate private cable operators
free of liability in damages for regulatory misconduct. "Among the
'evils to be prevented' by the first amendment press guarantee are
'not the censorship of the press merely, but any action of the
government by means of which it might prevent such free and general
discussion of public matters'". P.A.M. News Corp. v. Butz, 514 F.2d
272, 276-77 (D.C. Cir. 1975) (quoting Grosjean v. American Press Co.,
297 U.S. at 249-50).
The burdens which § 7(c) imposes on speech are not justified
by any permissible governmental interest. Empowering government to
play an inherently conflicting role as a regulator and a favored
player among cable operators distorts both the economic marketplace
and the marketplace for ideas; the diversity of existing programming
and speakers on cable and extensive regulations to which cable
operators are already subject, including antitrust laws, are more than
sufficient safeguards to ensure that competing voices can be heard.
C. The Statutory Scheme Violates The Takings Clause.
A permanent physical occupation of private property by
government action constitutes a taking without regard to whether the
action achieves an important public benefit or economic impact.
Loretto v. Teleprompter Manhattan CATV Corp., 458 U.S. 419, 434-35
(1982). The must carry, PEG and leased access provisions achieve a
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permanent occupation of the cable operator's property by entitling
third parties to use the operator's system at will, without the
owner's consent and, in the case of must carry and PEG programming,
without compensation. See PruneYard Shopping Center v. Robins, 447
U.S. 74, 82 (1980) (power to exclude others is essential aspect of
property rights). The provisions resemble the grant of an easement
upon the operator's property for the benefit of strangers and are
conceptually indistinguishable from the regulations held to require
just compensation.
Further, the availability of some compensation for leased
access use does not alter the constitutional analysis. Cable
operators have invested billions of dollars in developing cable
systems based on the legitimate expectation of retaining substantial
control over their facilities, not with the expectation of providing
common carrier services. (Collins Aff. q 11) By seizing substantial
portions of cable operators' facilities for the benefit of others (an
average of 30% of plaintiff's channel capacity, Collins Aff. ¶ 40),
Congress has overturned operators' investment-backed expectations.
Penn Central Transp. Co. v. City of New York, 438 U.S. 104, 124
(1978). Any income from leased access programmers or other benefits
from Congress's scheme could never adequately compensate cable
operators for the loss of journalistic freedom and the right to
control the use of their facilities.
Conclusion
For the foregoing reasons, plaintiff's Motion for a
Preliminary Injunction should be granted.
Respectfully submitted,
/s/
•
Brian Conboy, Esq.
(D.C. Bar No. 152025)
WILLKIE FARR & GALLAGHER
Three Lafayette Centre
1155 21st St., N.W.
Suite 600
Washington, DC 20036-3384
(202) 328-8000
Attorney of Record for
Time Warner Entertainment
Company, L.P.
Of Counsel:
Robert D. Joffe, Esq.
Stuart W. Gold, Esq.
Stephen S. Madsen, Esq.
CRAVATH, SWAINE & MOORE
Worldwide Plaza
825 Eighth Avenue
New York, NY 10019
(212) 474-1000
Dated: Washington D.C.
November 5, 1992