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Prometheus Radio Project v. Federal Communications Commission

United States Court of Appeals, Third Circuit

September 23, 2019

PROMETHEUS RADIO PROJECT *National Association of Broadcasters **Cox Media Group LLC, Intervenors
FEDERAL COMMUNICATIONS COMMISSION; UNITED STATES OF AMERICA Prometheus Radio Project and Media Mobilizing Project, Petitioners in No. 17-1107 Multicultural Media, Telecom and Internet Counsel and National Association of Black Owned Broadcasters, Inc., Petitioners in 17-1109 The Scranton Times, L.P., Petitioners in 17-1110 Bonneville International Corporation, Petitioners in 17-1111 * Prometheus Radio Project, Media Mobilizing Project, Benton Foundation, Common Cause, Media Alliance, Media Council Hawaii, National Association of Broadcasters Employees and Technicians Communications Workers of America, National Organization for Woman Foundation, Office of Communication of the United Church of Christ Inc., Intervenors *(Pursuant to the Clerk’s Order date 1/18/17) ** (Pursuant to the Clerk’s Order dated 2/7/17) PROMETHEUS RADIO PROJECT; MEDIA MOBILIZING PROJECT, Petitioners (No. 18-1092, 18-2943) INDEPENDENT TELEVISION GROUP, Petitioners (No. 18-1669) MULTICULTURAL MEDIA, TELECOM AND INTERNET COUNCIL, INC.; NATIONAL ASSOCIATION OF BLACK-OWNED BROADCASTERS, Petitioners (No. 18-1670, 18-3335) FREE PRESS; OFFICE OF COMMUNICATION, INC. OF THE UNITED CHURCH OF CHRIST; NATIONAL ASSOCIATION OF BROADCAST EMPLOYEES AND TECHNICIANS-COMMUNICATIONS WORKERS OF AMERICA; COMMON CAUSE, Petitioners (No. 18-1671)

          Argued June 11, 2019.

          On Petition for Review of An Order of the Federal Communications Commission (FCC Nos. FCC-1: FCC-16-107; FCC-17-156; FCC-18-114)

          Angela J. Campbell Andrew J. Schwartzman James T. Graves Institute for Public Representation Georgetown Law, Counsel for Petitioners.

          Prometheus Radio Project, Media Mobilizing Project Counsel for Intervenor Respondents

          Benton Foundation, National Association of Broadcast Employees and Technicians Communication Workers of America, National Organization for Women Foundation, Office of Communication Inc. of the Church of Christ, Cheryl A. Leanza (Argued) Best Best & Krieger, Counsel for Petitioners

          Prometheus Radio Project, Media Mobilizing Project, Office of Communication Inc. of the United Church of Christ, National Association of Broadcast Employees and Technicians Communications Workers of America, Common Cause Dennis Lane (Argued) David D'Alessandro, Counsel for Petitioner.

          Multicultural Media Telecom and Internet Council National Association of Black Owned Broadcasters, Inc. Craig E. Gilmore Kenneth E. Satten Wilkinson Barker Knauer. Counsel for Petitioners Scranton Times LP, Bonneville International Corp.

          Jack N. Goodman (Argued) Law Offices of Jack N. Goodman. Counsel for Petitioner Independent Television Group

          Jessica J. Gonzalez Free Press Counsel for Petitioner Free Press

          Thomas M. Johnson, Jr. General Counsel David M. Gossett Deputy General Counsel Jacob M. Lewis (Argued) Associate General Counsel James M. Carr Matthew J. Dunne (Argued) William Scher Richard K. Welch Federal Communications Commission. Counsel for Respondent Federal Communications Commission

          Makan Delrahim Assistant Attorney General Michael F. Murray Deputy Assistant Attorney General Nickolai Gilford Levin Robert B. Nicholson Robert J. Wiggers United States Department of Justice Antitrust Division/Appellate Section. Counsel for Respondent United States of America

          Helgi C. Walker (Argued) Andrew G. I. Kilberg Gibson Dunn & Crutcher. Counsel for Intervenor Petitioner/Respondent National Association of Broadcasters

          Yosef Getachew Common Cause. Counsel for Intervenor Respondent/Petitioner Common Cause David

          E. Mills Cooley. Counsel for Intervenor Petitioner Cox Media Group LLC

          Kevin F. King Rafael Reyneri Andrew Soukup Covington & Burling. Counsel for Intervenor Respondent Fox Corp.

          David D. Oxenford Wilkinson Barker Knauer. Counsel for Intervenor Respondent Connoisseur Media LLC

          Paul A. Cicelski S. Jenell Trigg Lerman Senter. Counsel for Intervenor Respondent New Corp.

          Eve Klindera Reed Jeremy J. Broggi Wiley Rein. Counsel for Intervenor Respondent Nextar Broadcasting Inc.

          Jeetander T. Dulani Pillsbury Winthrop Shaw Pittman. Counsel for Intervenor Respondent Sinclair Broadcast Group Inc.

          Before: AMBRO, SCIRICA, and FUENTES, Circuit Judges.


          AMBRO, Circuit Judge

         Here we are again. After our last encounter with the periodic review by the Federal Communications Commission (the "FCC" or the "Commission") of its broadcast ownership rules and diversity initiatives, the Commission has taken a series of actions that, cumulatively, have substantially changed its approach to regulation of broadcast media ownership. First, it issued an order that retained almost all of its existing rules in their current form, effectively abandoning its long-running efforts to change those rules going back to the first round of this litigation. Then it changed course, granting petitions for rehearing and repealing or otherwise scaling back most of those same rules. It also created a new "incubator" program designed to help new entrants into the broadcast industry. The Commission, in short, has been busy. Its actions unsurprisingly aroused opposition from many of the same groups that have battled it over the past fifteen years, and that opposition has brought the parties back to us.

         One of these petitioners argues that the FCC did not go far enough, and that the same logic by which it repealed the so-called "eight voices" test of the local television ownership rule (which forbade mergers that would leave fewer than eight independently-owned stations in the market) should also have led it to abolish the "top-four" restriction in the same rule (which forbids mergers among two or more of the four largest stations in a market). We disagree; this was a reasonable exercise of the Commission's policy-making discretion, as we held in the first round of this litigation.

         Another group of petitioners argues that the Commission's new incubator program is badly designed, as its definition of "comparable markets" for the reward waivers was unlawfully adopted and would create perverse incentives. It also argues that the Commission has unreasonably failed to act on a proposal to extend the so-called "cable procurement rules, " which promote diversity in the cable television industry, to broadcast media. We disagree: the "comparable markets" definition for the incubator program was also a reasonable exercise of discretion, and the FCC's failure to act on the procurement rules proposal is not unreasonable so far.

         We do, however, agree with the last group of petitioners, who argue that the Commission did not adequately consider the effect its sweeping rule changes will have on ownership of broadcast media by women and racial minorities. Although it did ostensibly comply with our prior requirement to consider this issue on remand, its analysis is so insubstantial that we cannot say it provides a reliable foundation for the Commission's conclusions. Accordingly, we vacate and remand the bulk of its actions in this area over the last three years. In doing so, we decline to grant the requested extraordinary relief of appointing a special master to oversee the FCC's work on remand.

          I. Background

         To avoid sounding like a broken record, we recount only in brief the history of this case up through our most recent decision. The full account of the entire saga can be found in our earlier opinions. See Prometheus Radio Project v. FCC, 373 F.3d 372, 382–89 (3d Cir. 2004) ("Prometheus I"); Prometheus Radio Project v. FCC, 652 F.3d 431, 438–44 (3d Cir. 2011) ("Prometheus II"); and Prometheus Radio Project v. FCC, 824 F.3d 33, 37–39 (3d Cir. 2016) ("Prometheus III").

         Under the Communications Act of 1934, 47 U.S.C. § 151 et seq., Pub. L. No. 73-416, 48 Stat. 1064 (1934), the Federal Communications Commission has long maintained a collection of rules governing ownership of broadcast media. By preventing any one entity from owning more than a certain amount of broadcast media, these rules limit consolidation and promote a number of interests, commonly stated as "competition, diversity, and localism." See, e.g., Report and Order and Notice of Proposed Rulemaking-2002 Biennial Regulatory Review, 18 F.C.C.R. 13620 ¶ 8 (July 2, 2003). By 1996, however, there was growing sentiment that these rules were overly restrictive, and so Congress passed the Telecommunications Act. Pub. L. No. 104–104, 110 Stat. 56 (1996). Section 202(h) of that Act requires the Commission to review the broadcast ownership rules on a regular basis- initially biennial, later amended to quadrennial, see Pub. L. No. 108–199, § 629, 118 Stat. 3, 99–100 (2004)-to "determine whether any of such rules are necessary in the public interest as the result of competition." Telecommunications Act, § 202(h). The Commission "shall repeal or modify any regulation it determines to be no longer in the public interest." Id.

          Thrice before we have passed on the Commission's performance of its duties under § 202(h), or the lack thereof. In Prometheus I we reviewed the results of the 2002 quadrennial review cycle. Then in Prometheus II we reviewed the results of the 2006 review cycle, which included the FCC's actions on remand from Prometheus I, as well as a separate order adopting various policies designed to promote broadcast media ownership by women and racial minorities.

         After Prometheus II the Commission failed to complete its 2010 review cycle prior to the start of the 2014 cycle, and so in Prometheus III we reviewed not final agency action pursuant to § 202(h) but rather, for the most part, agency inaction. Although we found the FCC had unreasonably delayed action on the 2010 and 2014 review cycles, we declined to vacate the broadcast ownership rules in their entirety, but noted such a drastic remedy could become appropriate in the future if the Commission continued dragging its feet. Id., 824 F.3d at 53–54. Relatedly, we remanded a newly adopted rule governing the treatment of joint sales agreements for purposes of the television local ownership rule, reasoning that the FCC could not have a valid basis for promulgating such a rule without first having determined, as required by § 202(h), that the local ownership rule itself should remain in place. Id. at 58–60.

         We also held that the Commission had unreasonably delayed a determination on the definition of "eligible entities." These are given certain preferences under the ownership rules, see id. at 41, and the purpose of these preferences was to encourage ownership by women and minorities. The definition, however, was drawn from the Small Business Administration's definition of small businesses, and focused solely on a company's revenues. In Prometheus I we had suggested that, on remand, the FCC should consider adopting a different definition based on the criteria for "socially and economically disadvantaged businesses" ("SDBs"). See 373 F.3d at 428 n.70; see also 13 C.F.R. § 124.103 (defining socially disadvantaged businesses). The Commission declined to adopt an SDB definition, and in Prometheus II we held that the revenue-based definition was arbitrary and capricious because there was no evidence it would advance the goals of increasing ownership by women and minorities. 652 F.3d at 469–71.

         But the Commission had not reached a determination one way or the other by Prometheus III. Instead it had suggested- in various documents issued after Prometheus II, none of which constituted final agency action on the matter-that it would reject a SDB definition, or the similar "overcoming disadvantage preference" ("ODP") proposal, because it did not believe those rules could survive constitutional scrutiny under the Equal Protection Clause of the Fourteenth Amendment. See 824 F.3d at 45–48. It therefore indicated its tentative plan to adopt the same definition we held unlawful in Prometheus II, even though it still lacked evidence that this would promote ownership diversity, because promoting ownership by small businesses would be in the public interest regardless. Id. at 46.

         We held that the Commission "had more than enough time to reach a decision on the eligible entity definition." Id. at 48. This led to a remand and an "order [to] the Commission . . . to act promptly to bring the eligible entity definition to a close." Id. at 50. It was to "make a final determination as to whether to adopt a new definition;" "[i]f it need[ed] more data to do so, it must get it." Id. Finally, we pointed out that we did "not intend to prejudge the outcome" of the FCC's analysis, and that we would review the merits of its eventual decision once that decision had been made through a final order. Id. at 50–51.

          Three months after we decided Prometheus III, the Commission followed through on its promise to take final action on the 2010 and 2014 review cycles. Its Second Report and Order, 2014 Quadrennial Regulatory Review, 31 F.C.C.R. 9864 (2016) (the "2016 Report & Order"), retained all of the major broadcast ownership rules-the newspaper/broadcast cross-ownership rule, the radio/television cross-ownership rule, the local radio ownership rule, and the local television ownership rule-in their existing forms. It also adopted, again, a revenue-based definition for eligible entities. It concluded that an SDB or any related race- or gender-conscious definition could not withstand constitutional scrutiny because, even though courts might accept viewpoint diversity as a compelling governmental interest, the evidence did not show a meaningful connection between female or minority ownership and viewpoint diversity. Id. ¶ 297. The Commission also declined to adopt an ODP standard, reasoning that it would require individualized assessment that is not compatible with the smooth operation of the FCC's rules, and that such an individualized assessment could run afoul of First Amendment principles. Id. ¶ 306. On a related issue, the Commission declined to implement an "incubator program, " under which established broadcasters would be encouraged to assist new entrants to break into the industry, that would have employed an ODP standard. Finally, the Commission reviewed a number of other proposals to increase ownership diversity, rejecting most but noting some merit in a proposal to extend the cable procurement rules, which require cable companies to encourage minority-owned businesses to work with them, to broadcast media. The Commission did not adopt this idea, instead calling for further comment.

         A number of industry groups filed a petition for rehearing, and in November 2017 the Commission granted that petition in its Order on Reconsideration and Notice of Proposed Rulemaking, 32 F.C.C.R. 9802 (2017) (the "Reconsideration Order"). This Order made sweeping changes to the ownership rules. It eliminated altogether the newspaper/broadcast and television/radio cross-ownership rules. It modified the local television ownership rule, rescinding the so-called "eight voices" test but retaining the rule against mergers between two of the top four stations in a given market-albeit now subject to a discretionary waiver provision. And it announced the Commission's intention to adopt an incubator program, although it left the formal implementation of that program to a subsequent order. In this context, the Reconsideration Order called for comment on various aspects of the program, including how to define eligibility and how to encourage participation by established broadcasters.

         In August 2018 the Commission issued the Report and Order-In the Matter of Rules and Policies to Promote New Entry and Ownership Diversity in the Broadcasting Services, 33 F.C.C.R. 7911 (2018) (the "Incubator Order"). That Order established a radio incubator program that would encourage established broadcasters to provide "training, financing, and access to resources" for new entrants in the market. Id. ¶ 6. Eligibility to receive this assistance was defined using two criteria: an incubated entity must (1) qualify as a small business under the Small Business Administration's rules, and (2) qualify as a "new entrant, " meaning that it must own no television stations and no more than three radio stations. Id. ¶ 8. The eligibility criteria make no overt reference to race, gender, or social disadvantage, but the Commission concluded that using the "new entrant" criterion would help boost ownership by women and minorities, as a bidding preference for new entrants in FCC auctions had that effect. Id. ¶ 21.

         As an incentive for established broadcasters to participate in the program, the Incubator Order grants the incubating entity a reward waiver for the local radio ownership rules. Among other options, the waiver may be used in any market "comparable" to the one in which incubation occurs. Id. ¶ 66– 67. This means that it must be in the same market tier for purposes of the local radio rule, and these tiers are defined by the number of stations in a market. One tier runs from zero to 14 stations, another from 15 to 29, a third from 30 to 44, and finally the highest tier includes all markets with 45 or more stations.

         Before us are 10 different petitions for review challenging different aspects of the Commission's actions since Prometheus III. After the 2016 Report & Order issued in November of that year, Prometheus Radio Project ("Prometheus") and Media Mobilization Project ("MMP") filed a petition for review in our Court. About the same time, three other petitions for review of the 2016 Report & Order were filed in the D.C. Circuit Court of Appeals: one by The Scranton Times, L.P. ("Scranton"); one by Bonneville International Corporation ("Bonneville"); and one jointly by the Multicultural Media, Telecom and Internet Council, Inc. ("MMTC") and the National Association of Black-Owned Broadcasters ("NABOB"). The cases before the D.C. Circuit were transferred here and the four cases consolidated in January 2017; they were then held in abeyance while the Commission considered the petitions for rehearing.

         After the Reconsideration Order issued in November 2017, four additional petitions for review were filed: one by Prometheus and MMP in our Court as well as three in the D.C. Circuit from (1) Independent Television Group ("ITG"), (2) MMTC and NABOB, and (3) a coalition of groups including Free Press, the Office of Communication, Inc. of the United Church of Christ ("UCC"), the National Association of Broadcast Employees and Technicians-Communications Workers of America ("NABET-CWA"), and Common Cause. Once again the D.C. Circuit transferred the petitions before it to our Court, and we consolidated the new wave of cases with the existing petitions.

         In February 2018 we stayed all proceedings pending the close of notice and comment on the Incubator Order. Once the final Order issued in August 2018, Prometheus and MMP filed a petition for review in our Court, and MMTC and NABOB filed another in the D.C. Circuit that was transferred here and the cases consolidated.

         For purposes of briefing and oral argument, the various petitioners divided into three groups. The first included Prometheus, MMP, Free Press, UCC, NABET-CWA, and Common Cause, who argue that the Commission has not adequately considered how its changes to the broadcast ownership rules will affect ownership by women and racial minorities. We refer to this group as "Citizen Petitioners, " consistent with our past practice. See Prometheus III, 824 F.3d at 39. A second group, consisting of MMTC and NABOB, argues that the Incubator Order's definition of "comparable markets" is unlawful and that the Commission has unreasonably withheld action on a proposal to extend cable procurement rules to broadcast media. To distinguish this group, we refer to its members as "Diversity Petitioners." Finally, ITG-standing alone now as the only "Deregulatory Petitioner"-challenges the retention of the "top-four" component of the local television rule (which, to repeat, bans mergers between two or more of the four largest stations in a given market).

          The Commission defends its orders in their entirety. Additionally, a group of Intervenors-including both Scranton and Bonneville as well as many of the Deregulatory Petitioners from prior rounds of this litigation-defends the FCC's actions and argues further that Citizen and Diversity Petitioners lack standing.

         II. Jurisdiction and Standard of Review

         We have jurisdiction to hear these petitions for review of agency action under 47 U.S.C. § 402(a) and 28 U.S.C. § 2342(1). As noted above and covered in § III.A below, Intervenors argue, with the support of the Commission, that Citizen and Diversity Petitioners lack standing.

         Per § 706(2) of the Administrative Procedure Act ("APA"), we can set aside agency action that is arbitrary or capricious. 5 U.S.C. § 706(2). "The scope of review under the 'arbitrary and capricious' standard is narrow and a court is not to substitute its judgment for that of the agency." Motor Vehicle Mfrs. Ass'n of U.S. v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). Despite this deference, we require the agency to "examine the relevant data and articulate a satisfactory explanation for its action[, ] ...

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