Case: Document: 91 Page: 1 07/03/ (L) IN THE. United States Court of Appeals FOR THE SECOND CIRCUIT

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1 Case: Document: 91 Page: 1 07/03/ (L) IN THE United States Court of Appeals FOR THE SECOND CIRCUIT Time Warner Cable Inc. and National Cable & Telecommunications Association, ---v.--- Petitioners, Federal Communications Commission and United States of America, Respondents. ON PETITION FOR REVIEW OF AN ORDER OF THE FEDERAL COMMUNICATIONS COMMISSION BRIEF OF PUBLIC KNOWLEDGE AS AMICUS CURIAE IN SUPPORT OF RESPONDENTS Harold Feld Senior Vice President Sherwin Siy Vice President, Legal Affairs PUBLIC KNOWLEDGE Attorneys for Amicus Curiae 1818 N Street, NW Suite 410 Washington, DC (202)

2 Case: Document: 91 Page: 2 07/03/ CORPORATE DISCLOSURE STATEMENT Pursuant to Rule 26.1 of the Federal Rules of Appellate Procedure, Public Knowledge certifies that it has no parent corporation and that no publicly held corporations own 10% or more of its stock. i

3 Case: Document: 91 Page: 3 07/03/ TABLE OF CONTENTS CORPORATE DISCLOSURE STATEMENT... i TABLE OF CONTENTS... ii TABLE OF AUTHORITIES... iv IDENTITY OF AMICUS...1 SUMMARY OF THE ARGUMENT...2 ARGUMENT...4 I. THIS COURT SHOULD NOT CONSIDER PETITIONERS FIRST AMENDMENT CHALLENGE TO THE PROGRAM CARRIAGE RULES AT THIS TIME...4 A. Petitioners Facial Challenge is Not Ripe for Review...4 B. Petitioners First Amendment Challenge Has Already Been Adjudicated and Dismissed in This and Other Courts...6 II. EVEN IF PETITIONERS FACIAL CHALLENGE IS RIPE FOR REVIEW, THE PROGRAM CARRIAGE RULES DO NOT VIOLATE THE FIRST AMENDMENT...9 A. The Program Carriage Rules are Subject to Intermediate Scrutiny...9 B. The Program Carriage Rules Satisfy Intermediate Scrutiny The Rules Continue to Advance an Important Governmental Interest...11 i. The Cable Industry Continues to Possess and Exercise Dominant Market Power...11 ii

4 Case: Document: 91 Page: 4 07/03/ ii. Developments in the Broader MVPD Market Have Not Diminished the Harmful Capacity of Cable Operators to Discriminate Against Unaffiliated Video Programmers The Rules Do Not Burden Substantially More Speech Than Necessary...23 i. Procedural Limitations Within the Rule Do Not Significantly Burden MVPDs Free Speech Interest...23 ii. Petitioners Speech Interest Under the Standstill Rule is Particularly Weak...24 CONCLUSION...28 CERTIFICATE OF COMPLIANCE...29 CERTIFICATE OF SERVICE...30 iii

5 Case: Document: 91 Page: 5 07/03/ TABLE OF AUTHORITIES Cases Adams v. Zenas Zelotes, Esq., 606 F.3d 34 (2d Cir. 2010)...4 Associated Press v. United States, 326 U.S. 1 (1945)...26 Cablevision Sys. Corp. v. FCC, 570 F.3d 83 (2d Cir. 2009)...4, 6, 8, 9 Cablevision Sys. Corp. v. FCC, 597 F.3d 1306 (D.C. Cir. 2010)...8, 16 Hobbs v. County of Westchester, 397 F.3d 133 (2d Cir. 2005)...9 Madsen v. Women s Health Ctr., 512 U.S. 753 (1994)...25 Ohio Forestry Ass n, 523 U.S. 731 (2001)...5 Sierra Club v. Peterson, 185 F.3d 349 (5th Cir. 1999)...5 Texas v. United States, 523 U.S. 296 (1998)...5 Turner Broad. Sys., Inc. v. FCC, 512 U.S. 622 (1994)...12 Turner Broad. Sys., Inc. v. FCC, 520 U.S. 180 (1997)... passim United States v. O Brien, 391 U.S. 367 (1968)...10 Ward v. Rock Against Racism, 491 U.S. 781 (1989)...9, 23 Administrative Proceedings Adelphia Commc ns Corp., 21 FCC Rcd (2006)...14, 15 Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Thirteenth Annual Report, 24 FCC Rcd. 542 (2009)...12, 24 Applications of Comcast Corp., Gen. Elec. Co. and NBC Universal, Inc., 26 FCC Rcd (2011)...15, 19 iv

6 Case: Document: 91 Page: 6 07/03/ Comments for TWC, Public Notice on Interpretation of the Terms Multichannel Video Programming Distributor and Channel as Raised in Pending Program Access Complaint Proceeding, MB Docket (FCC Mar. 30, 2012)...18 Complaint of Sky Angel U.S., LLC against Discovery Communications, LLC, et. al. for Violation of the Commission s Competitive Access to Cable Programming Rules, MB Docket No (FCC Mar )...20 Implementation of Section 3 of the Cable Television Consumer Protection and Competition Act of 1992 Statistical Report on Average Rates for Basic Service, Cable Programming Service, and Equipment, MM Docket No (FCC Feb. 14, 2011)...23 Annual Assessment of the Status of Competition in the Mkt. for the Delivery of Video Programming, 26 F.C.C.R (2011)...17 Inquiry Concerning the Deployment of Advanced Telecommunications Capability, 25 FCC Rcd (2010)...19 Public Notice on Interpretation of the Terms Multichannel Video Programming Distributor and Channel as Raised in Pending Program Access Complaint Proceeding, MB Docket (FCC Mar. 30, 2012)...21 Review of the Commission s Program Access Rules and Examination of Programming Tying Arrangements, 22 FCC Rcd. 17,791 (2010)...13, 15 v

7 Case: Document: 91 Page: 7 07/03/ Revision of the Commission s Program Carriage Rules; Leased Commercial Access; Development of Competition and Diversity in Video Programming Distribution and Carriage, Second Report and Order, 26 FCC Rcd (2011)...4, 23, 26 Statutes and Regulations 47 U.S.C. 536(a)(2) U.S.C. 543(b)(7)(A)...25 Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No , 106 Stat Satellite Home Viewer Improvement Act of 1999, Pub. L. No , 113 Stat Other Materials Andrew Odlyzko, Know your limits: Considering the Role of Data Caps and Usage Based Billing in Internet Access Service, Public Knowledge (Apr. 23, 2012), Comcast Press Release, Comcast and Time Warner Announce Long-Term TV Everywhere Agreement for Xfinity Customers (Feb. 1, 2011) easedetail.ashx?prid=1040&sc...13 Jenna Green, TV Regulation Drama Unfolds at the Federal Communications Commissions, Nat l L.J. (June 5, 2012), vi

8 Case: Document: 91 Page: 8 07/03/ Joe Flint, Justice Department probing pay-tv industry, Los Angeles Times (June 13, 2012), n/la-et-ct-cable-doj ,0, story...14 National Cable & Telecommunications Association, Top 25 Multichannel Video Programming Distributors (Mar. 2012), 18, 22 S. Rep. No (1991), reprinted in 1992 U.S.C.C.A.N , 18 Steve Fravel, DOJ investigates MVDPs, National Telecommunication Cooperative Association (June 17, 2012), vii

9 Case: Document: 91 Page: 9 07/03/ IDENTITY OF AMICUS Public Knowledge 1 is a non-profit public interest 501(c)(3) organization, working to defend citizens rights in the emerging digital culture. Its primary mission is to promote online innovation, protect the legal rights of all users of copyrighted works, and ensure that emerging copyright and communications policies serve the public interest. Applying its years of expertise in these areas, Public Knowledge frequently files amicus briefs in cases that raise novel issues at the intersection of media, copyright, and telecommunications law. Public Knowledge files this brief pursuant to Rule 29(a) of the Federal Rules of Appellate Procedure. Counsel for all parties have consented to the filing of this brief. 1 No party s counsel has authored this brief in whole or in part. No party, party s counsel, or any other person has contributed money to Public Knowledge that was intended to fund the preparation or submission of this brief. Public Knowledge law clerks Justin Kaufman and Milagros de Pomar assisted in the preparation of this brief.

10 Case: Document: 91 Page: 10 07/03/ SUMMARY OF THE ARGUMENT This Court should decline to adjudicate Petitioners overly broad facial challenge to the program carriage regime. The rules at issue in this case i.e., the standstill rule and the prima facie case standard are procedural in nature, and this Court need not relitigate previously settled constitutional challenges to the statute from which they arise to decide Petitioners actual claims. To entertain Petitioners facial challenge here would be to encourage similarly situated litigants to frame narrow rulemaking disputes as sweeping constitutional challenges in the future. In any event, Petitioners claim that the program carriage regime violates the First Amendment does not pass muster. The program carriage regime directs the FCC to promote competition in the video distribution marketplace by prohibiting carriers from discriminating against unaffiliated programmers. This regulation does not reach the message of a programmer s content, and is thus content-neutral. This appraisal of the program carriage provisions is well-settled precedent. First Amendment challenges to content-neutral rules are subject to intermediate scrutiny. Under this standard, a challenged rule will be held constitutional if it serves an important governmental interest and does not burden substantially more speech than necessary in furtherance of that interest. Congress enacted the 1992 program carriage legislation to promote the important government interests of competition and diverse programming in an 2

11 Case: Document: 91 Page: 11 07/03/ industry with a natural propensity toward horizontal consolidation and vertical integration. See Cable Television Consumer Protection and Competition Act of 1992, Pub. L. No , 106 Stat ( Cable Act or 1992 Cable Act ). However, Petitioners argue that modern developments in the video distribution market now undermine this important governmental interest. This claim is disingenuous. In fact, the cable industry has rapidly consolidated since 1992, leaving just two vertically integrated cable operators with monopoly (or nearmonopoly) power in many major local markets. Further, the emergence of satellite and Internet video distribution platforms has not diminished the capacity and incentive of cable operators to discriminate against unaffiliated programmers. Indeed, the same important governmental interest in passing the program carriage legislation in 1992 persists today. Finally, the standstill rule and prima facie case standard at issue here do not burden substantially more speech than necessary to serve this important governmental interest. These procedural rules merely streamline the resolution of disputes between carriers and programmers in a manner least disruptive to consumers. Indeed, because these rules are aimed at resolving conflicts over content that a distributor has previously agreed to carry, Petitioners asserted speech interest is weak at best. 3

12 Case: Document: 91 Page: 12 07/03/ ARGUMENT I. THIS COURT SHOULD NOT CONSIDER PETITIONERS FIRST AMENDMENT CHALLENGE TO THE PROGRAM CARRIAGE RULES AT THIS TIME Petitioners facial challenge to the constitutionality of the program carriage regime is neither related to the FCC s recently codified rules nor fully ripe for review by this Court. See generally Revision of the Commission s Program Carriage Rules; Leased Commercial Access; Development of Competition and Diversity in Video Programming Distribution and Carriage, Second Report and Order, 26 FCC Rcd (2011) 33 (JA ) ( FCC Program Carriage Order ). Indeed, the program carriage regime and other interrelated provisions of the 1992 Cable Act, such as the program access rules has consistently withstood constitutional scrutiny in this and other courts. A. Petitioners Facial Challenge is Not Ripe for Review Petitioners have suffered no First Amendment injury since this Court (and others) last upheld provisions of the 1992 Cable Act. Cf. Cablevision Sys. Corp. v. FCC, 570 F.3d 83 (2d Cir. 2009) ( Cablevision I ) (holding that the program access rules do not violate the First Amendment). Nor do Petitioners sufficiently allege that a substantial number of the rules potential applications would be unconstitutional. Adams v. Zenas Zelotes, Esq., 606 F.3d 34, 38 (2d Cir. 2010). 4

13 Case: Document: 91 Page: 13 07/03/ Rather, Petitioners arbitrarily ask this Court to use its powers of imagination to review, de novo, whether changes to the procedural implementation of the program carriage legislation could strain constitutional credibility in the future. Texas v. United States, 523 U.S. 296, (1998) (declining to adjudicate a facial challenge to a statute that had not yet been applied because the Court did not have sufficient confidence in [its] powers of imagination regarding how the statute might be applied). Indeed, the basis of Petitioners facial challenge is that the circumstances under which the 1992 Cable Act arose have now changed a premise which amicus directly contests in this submission. See TWC Br. 9. This Court would be in good company in declining to hear Petitioners facial challenge to the rules on ripeness grounds. See, e.g., Ohio Forestry Ass n, 523 U.S. 731, 735 (2001) (noting that ripeness doctrine gives great weight to avoiding premature review that may prove too abstract ); Sierra Club v. Peterson, 185 F.3d 349, 362 n.16 (5th Cir. 1999) (reiterating the Supreme Court s view that abstract disagreements over administrative policies will not make a controversy ripe ). As a matter of policy, this Court should take this opportunity to insist that Petitioners limit the scope of their challenge to the alleged violations of the Administrative Procedure Act ( APA ). Accordingly, this Court should not entertain Petitioners First Amendment claims at this time. 5

14 Case: Document: 91 Page: 14 07/03/ B. Petitioners First Amendment Challenge Has Already Been Adjudicated and Dismissed in This and Other Courts Petitioners attempt to challenge two recently codified procedural rules with a broad facial challenge to the statute from which they arise. See TWC Br. 21 (arguing that [t]he FCC s program carriage regime strikes at the heart of the First Amendment ). By adjudicating Petitioners First Amendment claims, this Court could be tacitly endorsing the use of sweeping legal challenges to settled statutes by litigants seeking to overturn narrow procedural rules. Provisions of the 1992 Cable Act regulating carriage of, or access to, programming have already been held content-neutral and constitutional under the First Amendment by this Court and the Supreme Court. See, e.g., Cablevision I; Turner Broad. Sys., Inc. v. FCC, 520 U.S. 180 (1997) ( Turner II ). Petitioners contend that the program carriage regime is substantially different from the mustcarry provisions upheld in Turner II. However, the two provisions come from the same law, impose similar limitations on the actions of Multichannel Video Programming Distributors ( MVPDs ), and should therefore receive the same constitutional treatment. In Turner II, the Supreme Court determined that sections 4 and 5 of the Cable Act, which contained the must-carry provisions, did not violate the First Amendment because they were content-neutral provisions that protected important government interests. Section 4 of the Cable Act refers to the obligation of cable 6

15 Case: Document: 91 Page: 15 07/03/ operators to carry local commercial television signals, while section 5 refers specifically to the obligation to carry non-commercial educational television. Like sections 4 and 5, the program carriage regime imposes objective limitations on MVPDs power to decide which programs are transmitted. All of the program carriage provisions therefore regulate a market that has a natural propensity toward vertical integration, and in which a lack of competition could easily hurt programmers and horizontal competitors, limiting the number of voices heard. Program carriage regulations were also upheld in a challenge involving Direct Broadcast Satellite ( DBS ) companies, who argued that the enactment of a carry-one carry-all provision violated their First Amendment rights because it conditioned their use of a statutory copyright license to carry a local broadcast television station upon their carriage of all local television stations. See Satellite Broad. & Communs. Ass n of Am. v. FCC, 275 F.3d 337 (2001); Satellite Home Viewer Improvement Act of 1999, Pub. L. No , 113 Stat The Fourth Circuit, citing Turner I and Turner II, held that the carry-one carry-all provision was content-neutral and constitutional, finding that the same interest in providing a vibrant system of free, local broadcast television that justifies the mustcarry provisions also justified the carry-one carry-all provision, and that the rules 7

16 Case: Document: 91 Page: 16 07/03/ were adequately tailored to fulfill that interest. Satellite Broadcasting, 275 F.3d at 349, 356. More recently, the D.C. Circuit upheld as constitutional an FCC rule prohibiting cable operators from entering into exclusive agreements with their cable affiliated programming vendors for the next five years. Cablevision Sys. Corp. v. FCC, 597 F.3d 1306 (D.C. Cir. 2010) ( Cablevision II ). Cable operators similarly claimed that the non-exclusivity rule violated the First Amendment and the APA, but the court determined that market conditions continued to justify the provision. Id. at (finding that [w]hile cable no longer controls 95 percent of the MVPD market, as it did in 1992, cable still controls two thirds of the market nationally [and that in] designated market areas in which a single cable company controls a clustered region, market penetration of competitive MVPDs is even lower than nationwide rates ). The Court found that the FCC s findings were reasonable and therefore not arbitrary or capricious. Id. Further, the Court found no valid First Amendment argument and denied the petition for review. Id. Despite all of the rulings upholding provisions of the program carriage legislation as constitutional, Petitioners again argue that the program carriage regime violates the First Amendment. This Court should reject Petitioners effort to overturn matters settled in Turner II, Cablevision I and Cablevision II, and Satellite Broadcasting. 8

17 Case: Document: 91 Page: 17 07/03/ II. EVEN IF PETITIONERS FACIAL CHALLENGE IS RIPE FOR REVIEW, THE PROGRAM CARRIAGE RULES DO NOT VIOLATE THE FIRST AMENDMENT A. The Program Carriage Rules are Subject to Intermediate Scrutiny The degree of scrutiny that applies to Petitioners challenge is contingent on whether the rules at issue are content-based or content-neutral. See Cablevision I, 570 F.3d at 96. Here, the challenged rules prohibit MVPDs from discriminating against video programming vendors on the basis of affiliation, and are thus content-neutral. See Hobbs v. County of Westchester, 397 F.3d 133, 149 (2d Cir. 2005) ( Government regulation of expressive activity is content neutral so long as it is justified without reference to the content of the regulated speech. ). Indeed, the Supreme Court has stated that [t]he principal inquiry in determining content neutrality, in speech cases generally is whether the government has adopted a regulation of speech because of disagreement with the message it conveys. Ward v. Rock Against Racism, 491 U.S. 781, 791 (1989) (emphasis added). The program carriage regime does not regulate the message of the content an MVPD carries. Instead, it merely assesses an objective characteristic of the speaker: its affiliation. Congress requires the FCC to regulate the video distribution market to ensure that non-affiliated programming vendors are not excluded solely on the basis of their non-affiliation status with a specific MVPD. The FCC does 9

18 Case: Document: 91 Page: 18 07/03/ not favor any specific message or speech. Therefore, the program carriage regime is clearly content-neutral and subject to intermediate scrutiny. Petitioners confuse the content of the rules with the procedures necessary to enforce them. Petitioners argue that, because the FCC uses in its analysis different criteria such as genre, rating, and target advertisers, the rules are content-based. However, Petitioners ignore the fact that those criteria are only used to analyze whether there has been discrimination based on affiliation, not to favor or disfavor one type of content over another. The FCC is not concerned with favoring or disfavoring, for instance, reality TV programming vendors over vendors of classic movies; only whether an MVPD is treating affiliated reality TV vendors more favorably than otherwise similar non-affiliated reality TV vendors. Rather than favoring any particular speech, the rules simply impose a non-discrimination requirement on MVPDs that have a natural incentive to inhibit market competitors to affiliated vendors by blocking their distribution and, therefore, their economic sustainability. B. The Program Carriage Rules Satisfy Intermediate Scrutiny To survive intermediate scrutiny, a rule must furthe[r] an important governmental interest [and be] no greater than is essential to the furtherance of that interest. United States v. O Brien, 391 U.S. 367 (1968). Applying the O Brien rule, the program carriage regime satisfies both of these requirements. 10

19 Case: Document: 91 Page: 19 07/03/ The Rules Continue to Advance an Important Governmental Interest Congress enacted the program carriage provisions of the Cable Act to protect the public s interest in having access to diverse content and promote competition in the video distribution market. Petitioners claim that radical changes in the video distribution market have so increased competition that the program carriage regime now encroaches upon their First Amendment rights. TWC Br. 9. However, industry data actually supports the opposite conclusion. Indeed, many of the conditions of market concentration and power that inspired the 1992 Cable Act s program carriage provisions are even more pronounced today. Thus, the program carriage regime remains necessary to promote competition and a diversity of programming in the video distribution market. i. The Cable Industry Continues to Possess and Exercise Dominant Market Power Congress passed the program carriage provisions of the 1992 Cable Act out of a fear that dominant cable operators would have the ability and incentive to discriminate against unaffiliated video programmers. At least two market conditions formed the basis for this fear: the national and local market power held by a small number of cable operators, and the rising vertical integration of cable operators and video programmers. See generally S. Rep. No (1991), 11

20 Case: Document: 91 Page: 20 07/03/ reprinted in 1992 U.S.C.C.A.N. 1133, ( Senate Report ). Both of these conditions remain prevalent in the cable industry today. In 1992, cable dominated national and local video distribution markets. Nationally, only ten cable operators served more than half of all American television households. Turner II, 520 U.S. at 197. Locally, most communities had little, if any, choice of cable provider. Id. ( Even in communities with two or more cable systems each system [typically had] a local monopoly over its subscribers. ). These market conditions led Congress to conclude that, absent regulation, cable companies could restrict, through physical control of a critical pathway of communication, the free flow of information and ideas. Turner I, 512 U.S. at 657. Petitioners assert that the FCC continues to enforce the program carriage regime as if nothing has changed. TWC Br. 16. However, what has not changed is that cable operators continue to possess and in many cases, wield the national market power and local monopolies that Congress intended to thwart when it passed the Cable Act. On a national scale, cable operators continue to serve more than half of all MVPD subscribers. See Annual Assessment of the Status of Competition in the Market for the Delivery of Video Programming, Thirteenth Annual Report, 24 FCC Rcd. 542, App. B, Table B-1 (2009) ( 13th MVPD Competition Report ). Further, 12

21 Case: Document: 91 Page: 21 07/03/ rapid horizontal consolidation in the cable industry has concentrated market power into the hands of an even smaller number of cable operators than was the case in See Review of the Commission s Program Access Rules and Examination of Programming Tying Arrangements, 22 FCC Rcd. 17, (2010) ( Program Access Order ) ( The cable industry has continued to consolidate since 2002 ). Today, the two largest cable operators serve the majority of all national MVPD subscribers. See National Cable & Telecommunications Association, Top 25 Multichannel Video Programming Distributors (Mar. 2012), ( NCTA Industry Data ). Further, the cable industry continues to use its national market power in furtherance of goals the program carriage regime was designed to prevent. This situation has become evident after the cable industry announced its new TV Everywhere service, by which cable operators such as Comcast and TWC offer their subscribers the option of watching programming over the Internet. See Comcast Press Release, Comcast and Time Warner Announce Long-Term TV Everywhere Agreement for Xfinity Customers (Feb. 1, 2011) 0&SC. The Department of Justice recently launched an investigation into this service, and its potential to hinder competition from over-the-top providers. See 13

22 Case: Document: 91 Page: 22 07/03/ Steve Fravel, DOJ investigates MVDPs, National Telecommunication Cooperative Association (June 17, 2012), Video programmers that struggle to get distribution have expressed the concern that this new service will further empower and incentivize cable companies to impose exclusive agreements on video programming vendors. According to Wealth TV president Charles Herring, some distributors try to force programmers to contractually agree not to sell their channels to a broadbanddelivered service. See Joe Flint, Justice Department probing pay-tv industry, Los Angeles Times (June 13, 2012), ,0, story. Thus, it is clear that the anticompetitive potential in the video distribution market that concerned Congress in 1992 persists at the national level today. On a local level, the cable industry retains powerful monopolies over many major metropolitan markets. First, by clustering their networks, cable operators now serve upwards of 90 percent of MVPD subscribers in certain regional markets. See Adelphia Commc ns Corp., 21 FCC Rcd. 8203, (2006) (Appendix D, Table A-2) ( Adelphia Order ) (providing post-acquisition market share data per Designated Market Area ( DMA )). Indeed, 2006 figures indicated that Comcast served 94.4 percent of all subscribers in the Boston DMA and 80.9 percent of all 14

23 Case: Document: 91 Page: 23 07/03/ subscribers in the Philadelphia DMA, while TWC served 63.8 percent of all subscribers in the Charlotte DMA. Id. In 2011, the FCC reiterated that the cable industry s disproportionate control over local markets reinforced the need for the program carriage regime. See FCC Program Carriage Order. In its review of Comcast s merger with media giant NBC Universal ( NBCU ), the FCC warned that Comcast s tight grip on major metropolitan markets furthered its ability and incentive to discriminate against unaffiliated networks in local markets. See Applications of Comcast Corp., Gen. Elec. Co. and NBC Universal, Inc., 26 FCC Rcd. 4238, (2011) ( Comcast/NBCU Order ) (noting that Comcast controls more than 60 percent of the Chicago and Philadelphia DMAs). The 1992 Cable Act was also spurred by concerns over vertical integration between video distributors and video programmers. In the early 1990s, the same companies acquiring the nation s cable systems also owned many of the largest cable programming networks. Turner II, 520 U.S. at 197 (prior to the enactment of the Cable Act, 64 percent of new cable programmers were [owned by cable operators] ). These concerns over vertical integration in the cable industry remain relevant today. See, e.g., Program Access Order, at 17, (concluding in 2010 that the concerns upon which Congress based [regulations to address 15

24 Case: Document: 91 Page: 24 07/03/ vertical integration in 1992] persist in the marketplace and that such regulations continu[e] to be necessary to preserve and protect competition and diversity in the distribution of video programming ). Indeed, the four largest cable operators are still vertically integrated with six of the top 20 national networks, some of the most popular premium networks, and almost half of all regional sports networks. Cablevision II, 597 F.3d at A shrinking number of MVPDs with increasing ties to video programmers, Congress reasoned, would result in the voices of non-affiliated programmers being excluded from a central medium of communication in this country. The program carriage regime that Petitioners contest was introduced as part of a regulatory scheme designed to forestall such abuse. However, as industry data indicates, the potential for abuse remains as substantial today as it was in ii. Developments in the Broader MVPD Market Have Not Diminished the Harmful Capacity of Cable Operators to Discriminate Against Unaffiliated Video Programmers Petitioners also attempt to claim a lack of market power by depicting cable as just one competitor among several comparable communications media in this country. See TWC Br. 9 (stating that cable operators compete vigorously with satellite providers, telecommunications providers, and Internet video distributors, among others ). However, the cable industry s video service and penetration of the national video market remains unparalleled. 16

25 Case: Document: 91 Page: 25 07/03/ Petitioners emphasize recent entrants into the MVPD market as evidence of a vibrant competitive landscape that no longer warrants carriage regulations. See id. Specifically, Petitioners suggest that satellite and Internet video distributors provide a competitive alternative to cable for programmers seeking carriage. However, neither satellite nor Internet video (in part due to the actions of Petitioners) can fully or directly compete with cable in the current video landscape. Further, the trajectory of cable industry consumer pricing is consistent with this conclusion. While the emergence of satellite providers has been a positive development for the MVPD market, it is disingenuous to portray them as comparable competitors to cable. In evaluating competition in the MVPD market, the FCC looks beyond rudimentary economic data and considers the relative performance of MVPDs. See Annual Assessment of the Status of Competition in the Mkt. for the Delivery of Video Programming, 26 F.C.C.R , (2011) (the Performance metric includes [t]he quantity and picture quality of programming ). Indeed, satellite subscribers generally pay less than cable subscribers because satellite does not provide the same offerings or standards of performance as cable. For example, during periods of inclement weather, satellite subscribers can expect degraded video performance (i.e. lower picture quality or quantity) or 17

26 Case: Document: 91 Page: 26 07/03/ even complete loss of signal while cable households tend to enjoy uninterrupted, high quality service. Indeed, lawmakers skepticism over whether satellite service [could] provide the necessary competition to cable in 1992 remains relevant today. Senate Report, 1992 U.S.C.C.A.N. at Further only two of the top 25 MVPDs are satellite services. See NCTA Industry Data (emphasis added). Petitioners point to the emergence of the Internet as a video-distribution platform as evidence of a vigorously competitive market. TWC Br. 9. However, in its current state, online video does not provide meaningful competition to traditional MVPDs. Further, Petitioners vigorously oppose the very measures that would enable online video distributors (OVDs) to compete in the MVPD market. See Comments for TWC at 2, Public Notice on Interpretation of the Terms Multichannel Video Programming Distributor and Channel as Raised in Pending Program Access Complaint Proceeding, MB Docket (FCC Mar. 30, 2012) (arguing that [a]s a textual matter the Act does not support classification of OVDs as MVPDs ). Thus, in one matter, Petitioners emphasize online video as a vibrant source of competition, while simultaneously in another, they attempt to stifle the ability of OVDs to compete. Online video cannot currently be relied upon as a viable alternative to the services offered by MVPDs given the current state of broadband networks nationwide. In 2010, the FCC adjusted its definition of broadband to comport 18

27 Case: Document: 91 Page: 27 07/03/ with the minimum speeds required to receive and originate high quality video online. See Inquiry Concerning the Deployment of Advanced Telecommunications Capability, 25 FCC Rcd. 9556, (2010) ( Sixth Broadband Deployment Report ). However, approximately 14 to 24 million Americans remain without broadband access capable of meeting the requirements set forth in section 706. Id. Indeed, in its recent review of cable provider Comcast s merger with NBCU, the FCC concluded that broadband networks will not be capable of fully competing with cable video for several years to come. See Comcast-NBCU Order, 26 FCC Rcd. at (discussing the capacity of online video to compete with cable). Further, cable operators actively pursue both technical and legal avenues in their efforts to thwart OVDs from developing into full competitors in the video programming market. First, by controlling the high-speed infrastructure that OVDs must use, cable operators can (and do) impose technical barriers, such as data caps, to competition from online sources. See Comcast-NBCU Order, 26 FCC Rcd. at (justifying the FCC s demand for nondiscriminatory access requirements on the finding that, as a vertically integrated company, Comcast will have the incentive and ability to hinder competition from other OVDs, both traditional MVPDs and standalone OVDs, through a variety of anticompetitive strategies ); see also Andrew Odlyzko, Know your limits: Considering the Role of Data Caps and Usage Based Billing in Internet Access Service, Public Knowledge (Apr. 23, 19

28 Case: Document: 91 Page: 28 07/03/ ), (warning about the possible use of data caps by network operators as an easy solution to monetize network congestion and scarcity, and therefore to create artificial scarcity ). Second, by opposing MVPD status for OVDs that provide multiple channels of video programming, Petitioners intrinsically acknowledge that the regulatory benefits which enabled satellite and telecommunications companies to attract customers continue to isolate OVDs from the MVPD market. This was the position sustained by Petitioners in the recent dispute between Sky Angel and Discovery Communications over the FCC s program access rules. Complaint of Sky Angel U.S., LLC against Discovery Communications, LLC, et. al. for Violation of the Commission s Competitive Access to Cable Programming Rules, MB Docket No (FCC Mar ). In that proceeding, Discovery had an agreement with Sky Angel to provide it with multiple channels until Despite that, in 2010, Discovery effected an early termination of their agreement, arguing that it was uncomfortable with Sky Angel s distribution methodology, even though that methodology had not changed. See Jenna Green, TV Regulation Drama Unfolds at the Federal Communications Commissions, Nat l L.J. (June 5, 2012), Sky Angel filed 20

29 Case: Document: 91 Page: 29 07/03/ a complaint with the FCC, requesting program access on the grounds that the service they provided was intrinsically the same as an MVPD s, and therefore should receive the same rights to program access and the standstill rule that enables MVPDs to continue to receive programming while a claim is in progress under the same terms and conditions that were previously available. The FCC denied Sky Angel s standstill request but initiated a proceeding to determine the proper interpretation of the terms MVPD and channel as each was raised in the complaint. Public Notice on Interpretation of the Terms Multichannel Video Programming Distributor and Channel as Raised in Pending Program Access Complaint Proceeding, MB Docket (FCC Mar. 30, 2012). In that proceeding, Petitioner TWC opposed allowing Sky Angel to receive the same benefits and burdens that MVPDs have. See id. It is therefore interesting to note that, in the present proceeding, TWC describes OVDs as actual competitors in the distribution market while they argue elsewhere that OVDs cannot be MVPDs, and therefore should be denied the competitive advantages available to MVPDs. These regulatory distinctions, conceded by TWC in other proceedings, are significant factors in market definition, and they make clear that MVPDs do have some benefits from which they want to exclude OVDs. In short, OVDs and Internet TV providers are not in 21

30 Case: Document: 91 Page: 30 07/03/ the same competitive market as other MVPDs, as they do not have the same access to important popular programming through program access. Ultimately, these technical and legal barriers continue to prevent online video from fully competing with the services offered by the cable industry. In many instances, Petitioners control the infrastructure over which OVDs must operate. Access to popular video programming remains scarce on the Internet, and, to the extent that live sporting events, premium content, and first-run scripted content is available online, access is generally limited to MVPD subscribers. Accordingly, Petitioners depiction of online video as a sufficient alternative to MVPDs for independent and local programmers seeking carriage distorts the current reality of Internet video. Finally, if Petitioners claims of a vigorously competitive market were accurate, one would expect to see consumer pricing for residential cable video moving along a competitive trajectory. However, since 1996, Petitioners have in fact raised prices and realized continued annual gains in revenue. See NCTA Industry Data. Between 1996 and 2011, cable industry revenue from residential video services alone has increased from $24,136 to $56,938. Id. Further, the average cable bill for consumers has consistently and substantially risen in recent years, indicating that competition in the video distribution market is not as fierce as Petitioners claim. Indeed, the average 22

31 Case: Document: 91 Page: 31 07/03/ monthly cable bill increased 6.3 percent annually, from $22.35 in 1995 to $52.37 in See Implementation of Section 3 of the Cable Television Consumer Protection and Competition Act of 1992 Statistical Report on Average Rates for Basic Service, Cable Programming Service, and Equipment, MM Docket No (FCC Feb. 14, 2011). 2. The Rules Do Not Burden Substantially More Speech Than Necessary i. Procedural Limitations Within the Rule Do Not Significantly Burden MVPDs Free Speech Interest Considering that the program carriage regime under analysis is limited to MVPD obligations not to discriminate against unaffiliated program vendors, and that the FCC Program Carriage Order only establishes procedures that implement these non-discrimination principles (i.e., by establishing clear pleading standards for independent programming vendors seeking to file a complaint, setting deadlines for the Media Bureau s and the administrative law judges decisions, and codifying a standstill provision), the regime clearly remains focused on achieving Congress stated objectives. The Supreme Court has held that the requirement of narrow tailoring is satisfied so long as the... regulation promotes a substantial government interest that would be achieved less effectively absent the regulation. Ward, 491 U.S. at 799. This means that a regulation will be upheld as constitutional if it furthers a 23

32 Case: Document: 91 Page: 32 07/03/ valid government interest. In this case, the development of the market and the appearance of non-affiliated programming vendors demonstrate that the Cable Act and its implementing rules have indeed furthered the government s interest in promoting competition and a diversity of voices on television. See 13th MVPD Competition Report at 3-4 (noting that despite the increased choice, better picture quality, and greater technology that has resulted from increased competition in the video distribution market, prices continue to outpace the general level of inflation and that DBS competition has not constrained cable prices as wireline competition has done ). ii. Petitioners Speech Interest Under the Standstill Rule is Particularly Weak Whereas the need to protect the independence of the programming market remains vital and necessary, the First Amendment interest purportedly burdened by the standstill rule challenged here is even weaker than the already weak interest found to apply in Turner II. See Turner II, 520 U.S. at 214 (characterizing as modest the interest in channel lineup under intermediate scrutiny). Indeed, Petitioners do not even advance a theory as to how the specific rule at issue, the standstill rule, raises any new First Amendment burden. To the contrary, in an apparent tacit admission that the actual rule adopted does not impose any new First Amendment burden, Petitioners have attempted to convert their section 402 Petition for Review of a specific rulemaking into a broad facial challenge against 24

33 Case: Document: 91 Page: 33 07/03/ the statute itself. Even if the Court entertains the facial challenge as against the statute as a whole, rather than considering the as-applied challenge to the standstill rule, the program carriage statute burdens significantly less speech than the mustcarry statute found permissible in Turner II. Intermediate scrutiny requires the court to consider the strength of the First Amendment interest at issue so as to determine whether the challenged regulation burdens no more speech than necessary. See Madsen v. Women s Health Ctr., 512 U.S. 753, 765 (1994). In Turner II, the Court found that while the government interest in promoting competition and diversity of views and perspectives an interest of the highest order, the cable operator s burden in carrying a particular suite of programming was modest. Turner II, 520 U.S. at 214. The speech interest burdened under the program carriage rule is even weaker than that found under Turner II. Under the must-carry rule considered in Turner II, the inclusion of a local broadcast station required the cable operator not merely to carry a channel it did not wish to carry, but potentially to remove a program channel the cable operator preferred because of the channel constraints that existed at that time. Id. The must-carry rule dictated where the cable operator must place the unwanted broadcaster and to offer the unwanted broadcaster with every possible subscriber package as part of the basic tier reserved for broadcasters and public, educational and government channels. See 47 U.S.C. 543(b)(7)(A). 25

34 Case: Document: 91 Page: 34 07/03/ By contrast, the program carriage regime does not mandate any particular carriage or override any expressive considerations on the part of the cable operator. The program carriage regime expressly prohibits only anticompetitive conduct. For example, it prohibits a cable operator from coercing an independent programmer from foregoing contracts with a rival MVPD, or retaliating against a programmer for signing a distribution agreement with a competing MVPD. 47 U.S.C. 536(a)(2). By contrast, the must-carry rule affirmed in Turner II applies even in the absence of any anticompetitive animus or effect. See Turner II, 520 U.S. at 214. Nor does the program carriage regime require the cable operator to carry any specific channel, in any specific place or forego carriage of a more preferred channel, all potential burdens acceptable under must-carry. To the extent an administrative law judge may require carriage or channel placement as a remedy, this only becomes applicable after a finding that the MVPD engaged in prohibited anticompetitive conduct. See generally FCC Program Carriage Order. It is well established that the First Amendment provides no shield to laws designed to prevent anticompetitive conduct. See Associated Press v. United States, 326 U.S. 1, (1945). Thus, cable operators cannot claim any First Amendment right to engage in the anticompetitive conduct directly prohibited by the statute. Whatever First Amendment interest remains, therefore, is clearly weaker than the already modest interest identified in Turner II. 26

35 Case: Document: 91 Page: 35 07/03/ Any First Amendment harm under the standstill rule is even weaker still. The standstill rule merely provides the equivalent of a temporary injunction to prevent a cable operator from retaliating against a programmer the cable operator has already decided to carry. Unlike the forced carriage of a local station affirmed in Turner II, the cable operator subject to the standstill provision has already found the speech of the programmer acceptable. All that the rule requires, therefore, is that the cable operator carry speech it has previously indicated it affirmatively wishes to carry, while the administrative law judge determines whether the cable operator s change of heart is a prohibited exercise of anticompetitive market power. Further, as noted above, the standstill is only available once the complainant has made a prima facie case that the proposed change in the contract is a mater of economic discrimination not editorial discretion. 27

36 Case: Document: 91 Page: 36 07/03/ CONCLUSION For the foregoing reasons, the FCC Program Carriage Order does not violate the First Amendment, and the Court should uphold the FCC Program Carriage Order. July 3, 2012 Respectfully submitted, Harold Feld Senior Vice President /s/ Sherwin Siy Vice President, Legal Affairs Public Knowledge 1818 N Street NW Suite 410 Washington, DC (202)

37 Case: Document: 91 Page: 37 07/03/ CERTIFICATE OF COMPLIANCE This brief complies with the type-volume limitation of Rule 32(a)(7)(B) of the Federal Rules of Appellate Procedure because this brief contains 5,889 words, excluding the parts of the brief exempt by Rule 32(a)(7)(B)(iii) of the Federal Rules of Appellate Procedure. This brief complies with the typeface requirements of Federal Rule of Appellate Procedure 32(a)(5) and the type style requirements of Federal Rule of Appellate Procedure 32(a)(6) because this brief has been prepared in a proportionally spaced typeface using Microsoft Word 2011 in 14 point Times New Roman font. July 3, 2012 /s/ Sherwin Siy Vice President, Legal Affairs Public Knowledge 1818 N Street, NW Suite 410 Washington, DC (202)

38 Case: Document: 91 Page: 38 07/03/ and IN THE UNITED STATES COURT OF APPEALS FOR THE SECOND CIRCUIT Time Warner Cable Inc. and National Cable & Telecommunications Association, Petitioners v. Federal Communications Commission and the United States of America, Respondents. CERTIFICATE OF SERVICE I, Sherwin Siy, hereby certify under penalty of perjury that on July 3, 2012, I electronically filed the foregoing Brief Amicus Curiae of Public Knowledge with the Clerk of the Court for the United States Court of Appeals for the Second Circuit by using the CM/ECF system. Participants in the case who are registered CM/ECF users will be served by that system. Floyd Abrams Landis C. Best Cahill Gordon & Reindell LLP 80 Pine Street New York, NY Counsel for: Time Warner Cable Inc. Miguel A. Estrada Gibson, Dunn & Crutcher LLP 1050 Connecticut Avenue, NW Washington, DC Counsel for: National Cable & Telecommunications Association Matthew A. Brill Amanda E. potter Matthew Murchison Richard P. Bress Latham & Watkins LLP th Street, NW Suite 1000 Washington, DC Counsel for: Time Warner Cable Inc. Nancy C. Garrison Catherine G. O Sullivan U.S. Department of Justice Antitrust Division, Appellate Section 950 Pennsylvania Avenue, NW Room 3224 Washington, DC Counsel for: United States of America 30

39 Case: Document: 91 Page: 39 07/03/ Austin Schlick Peter Karanjia Jacob M. Lewis James M. Carr Federal Communications Commission th Street, SW Washington, DC Counsel for: Federal Communications Commission /s/ Sherwin Siy 31