[00:00:01] Speaker 04: Case number 17-1129, for your press at L, Petitioners versus Federal Communications Commission at L. Mr. Schwartzman for the petitioners, Mr. Carr for the respondents. [00:00:23] Speaker 02: Judge, I'd like to reserve five minutes for rebuttal. [00:00:25] Speaker 02: Thank you, and may it please the court [00:00:31] Speaker 02: In the absence of any factual record, the decision to reinstate the UHF discount on reconsideration for what may be a period of many years at the least was arbitrary and capricious. [00:00:46] Speaker 02: On reconsideration in 2017, the FCC didn't dispute, much less disprove, the following short sentence in the Commission's 2016 decision, quote, [00:00:59] Speaker 02: The UHF discount serves only to confer a factually unwarranted benefit on owners of UHF television stations that undermines the purpose of the national audience reach cap. [00:01:13] Speaker 02: Despite the failure to challenge that finding, [00:01:16] Speaker 02: The reconsideration decision reinstated a definition of audience measurement that was inaccurate. [00:01:25] Speaker 02: It reversed a decision that had made the definition of audience reach accurate. [00:01:31] Speaker 02: That's a paradigmatic instance of arbitrary and capricious decision making. [00:01:36] Speaker 04: Can you go back to the beginning for us and start by addressing the standing issue that's been raised in this case? [00:01:42] Speaker 02: Yes, Your Honor. [00:01:44] Speaker 02: This circuit has held that viewers have standing to challenge changes in FCC ownership rules. [00:01:54] Speaker 02: The administrative record and the supplemental declaration establish that petitioners have alleged injury and the injury they've alleged comes well within the definitions that this court described in the Rwandi and NAACP cases of injury that's cognizable by this circuit. [00:02:19] Speaker 03: But Mr. Schwarzman, typically we have, when we have an organization as a certain representational standing, we have declarations of members, their individual harm, and we don't have that here. [00:02:35] Speaker 02: Well, that's certainly the case in license renewal proceedings where individual viewers assert injury, but in a rulemaking proceeding where you have organizations that are devoted to the very purpose of promoting diversity in the media, [00:02:54] Speaker 02: I don't believe that it's necessary for individual viewers to assert their standing. [00:03:00] Speaker 02: The organizations can say that they act on behalf of their members and so doing, and that's what the Declaration of Matthew Wood says. [00:03:09] Speaker 01: What's your best case for that? [00:03:10] Speaker 01: Isn't there a more general standing principle after Summers that when you're alleging organizational standing, under prong one of the test, you have to [00:03:23] Speaker 01: identify a member and then make the case for standing as to that member. [00:03:29] Speaker 02: I don't think you have to identify an individual member, especially where you have organizations that have been recognized and active in this area on behalf of their members for years and whose activity through case after case has demonstrated that their members are indeed injured by this. [00:03:47] Speaker 02: I don't think the formalism of just having one member say, this is me, this isn't like walking through the woods in an environmental situation. [00:03:57] Speaker 01: I agree with you to the extent of you say you have millions of members and many of them watch [00:04:06] Speaker 01: I'll give you that much, but there's nothing in the declarations addressing traceability and redressability as to any one member. [00:04:19] Speaker 02: Well, I agree not as to any one member, but certainly that was not problematic in the NAACP case or the Lurandi case. [00:04:31] Speaker 02: And the Matthew Wood declaration said that there are members who regularly view television are adversely affected by concentration control and broadcast ownership. [00:04:41] Speaker 02: I don't believe that the causation needs to go to an individual member, because after all, we're dealing here with a kind of injury. [00:04:49] Speaker 02: It's not quite like the aesthetic injury, walking through the woods. [00:04:54] Speaker 02: You're talking about a kind of loss of diversity of voices that isn't going to be reflected by one member's [00:05:03] Speaker 02: perception that, oh, this particular program would be better if there were more diversity. [00:05:08] Speaker 02: And the court has recognized that in many cases where it's afforded this understanding. [00:05:13] Speaker 04: I'm very confused. [00:05:14] Speaker 04: The basic step one on associational standing from the mouth of the Supreme Court is to demonstrate that at least one member would have standing to sue in their own right. [00:05:25] Speaker 04: Now, if you're arguing that no individual member [00:05:28] Speaker 04: would have standing that's too diffuse an injury, then you've just talked yourself right out of associational standing under Hunt. [00:05:35] Speaker 02: Well, I'm saying that all the members are, and they say they're acting on behalf of all those members. [00:05:40] Speaker 04: Well, how do we know all the members are? [00:05:41] Speaker 04: You haven't made any representation about a single member's interest in diversity or a single member's injury. [00:05:53] Speaker 04: a single member's concern about loss of diversity. [00:05:55] Speaker 04: You just haven't said that in the standing declaration. [00:05:59] Speaker 02: Well, I agree, Your Honor, that there is no such statement, but it certainly has not been required in these prior cases where, in the context of these ownership decisions, they... It was in the other case. [00:06:12] Speaker 04: If you read those opinions, you'll see them talking about the individuals and the allegations. [00:06:16] Speaker 02: Well, that certainly wasn't the case in the NAACP decision. [00:06:20] Speaker 02: There was no individual assertion of an individual personally claiming that kind of injury for this court to have found standing. [00:06:30] Speaker 01: But it was the case in Rainbow Push where this issue came up and the plaintiff made the same sort of argument that [00:06:39] Speaker 01: were pursuing, were advocating on behalf of a rule that's designed to ensure diversity and the court said you still have to show standing under normal standards on an individual point of basis. [00:06:57] Speaker 02: Your Honor, both the rainbow push cases, and there's two, involve license renewals, where the court has wanted an individual viewer to demonstrate the kind of standing that you talk about. [00:07:10] Speaker 02: That's not a rulemaking. [00:07:12] Speaker 02: And in those instances, the injury was very diffuse. [00:07:15] Speaker 02: They were not asserting the kind of injury that was recognized in NAACP and Lurandi, which was a loss of diversity, which, as I said, is harder to measure in terms of one individual. [00:07:27] Speaker 02: But it was about whether the FCC should have fined a broadcaster rather than designated for hearing and whether the FCC should have enforced its EEO rules. [00:07:40] Speaker 02: That's very different than the kind of concrete injury that's being described here in NAACP. [00:07:47] Speaker 01: Why would the distinction between a narrowly focused license renewal and a broader rulemaking [00:07:57] Speaker 01: an assessment of a broad agency rule matter for Article 3 standing purposes? [00:08:02] Speaker 02: For Article 3 standing, the listener standing going all the way back to United Church of Christ requires a viewer in the listening area of the station. [00:08:11] Speaker 02: So you need to particularize it to somebody who is viewing that station because the application for renewal of that station is an issue. [00:08:20] Speaker 02: In a rulemaking, it's the entire country. [00:08:22] Speaker 02: It's much more general. [00:08:24] Speaker 02: And that's why I think the court has recognized that you don't need to have that level of individual injury in order to be able to allege standing with respect to loss of diversity. [00:08:37] Speaker 04: What case have we said an association can have standing without demonstrating an individual injury in a rulemaking case? [00:08:45] Speaker 04: What case said that? [00:08:46] Speaker 03: Post summers. [00:08:47] Speaker 03: Because I think Lurandi and NAACP are pre summers. [00:08:50] Speaker 02: That's correct, Your Honor. [00:08:51] Speaker 02: They are pre-Summers, but I do think that the holding there, which relates to these many members is- Holding where? [00:09:02] Speaker 04: Are you talking about Summers? [00:09:03] Speaker 02: NAACP. [00:09:05] Speaker 02: Stan, I don't think Summers has reversed that kind of basics form of injury, Your Honor. [00:09:09] Speaker 03: You wouldn't have any objection to supplementing the record with declarations of individual members. [00:09:16] Speaker 02: Absolutely not, Your Honor. [00:09:17] Speaker 03: Just to close that loop if we thought that were necessary. [00:09:19] Speaker 02: Absolutely not, Your Honor. [00:09:20] Speaker 02: We'd be happy to do that, and Judge Bork did that, for example, in a case called [00:09:29] Speaker 02: had to do with section 315. [00:09:36] Speaker 02: I'm sorry, but yes, that has been done where there's some question about linking up the standing. [00:09:41] Speaker 04: Do you, and when I say you, I mean all of the petitioners collectively. [00:09:45] Speaker 04: It's a number of organizations. [00:09:49] Speaker 04: Do you have members [00:09:51] Speaker 04: across the United States, collectively? [00:09:55] Speaker 02: Yes, and that is alleged in the pleadings throughout the United States. [00:10:02] Speaker 04: Where is that alleged? [00:10:17] Speaker 02: I'm sorry, Your Honor. [00:10:18] Speaker 04: The Declaration says, I'm an activist and members nationwide, but what I'm really wondering is, does that mean in every state? [00:10:26] Speaker 02: Yes, I'm confident the common cause has chapters in every state, for example. [00:10:30] Speaker 04: Well, does it have irritated listeners in every state? [00:10:33] Speaker 02: I think the loss of diversity is something that obviously has a national impact. [00:10:45] Speaker 02: So I think it does affect every state, the effect that it has on the market overall. [00:10:52] Speaker 01: Do you have any burden to make a case as to traceability and redressability? [00:11:00] Speaker 01: I understand your argument that the rule is designed to further those goals. [00:11:06] Speaker 01: But for standing purposes, don't you have to make some showing that whoever your listeners are, are in a market where it is likely that [00:11:17] Speaker 02: unless you prevail, diversity will be lessened in a way that... Well, I don't think you need to show any individual market, because one of the effects of a national footprint is that it changes the way in which local news is covered in all of those markets. [00:11:37] Speaker 02: But certainly, the Prometheus Radio Project Ex Parte JA269 [00:11:43] Speaker 02: describes the dramatic diminution of diversity that will harm the viewing public if the proposed decision is adopted. [00:11:51] Speaker 02: And JA 273 says will rapidly usher in numerous transactions that will diminish diversity in the mass media and harm the public's First Amendment right to have diverse sources of information. [00:12:07] Speaker 02: My yellow light is on, Your Honor, so I thought to reserve the remainder of my time. [00:12:14] Speaker 04: Well, I would like to ask you on the merits. [00:12:18] Speaker 04: Is there evidence that mergers or consolidations have happened in the wake of the reconsideration order? [00:12:30] Speaker 02: Well, it's obviously to some degree outside the record, Your Honor, but there have been applications including, I think the briefs do discuss the fact that Sinclair Broadcasting is attempting to acquire Tribune Broadcasting and there's another acquisition again outside of the record involving a company called Bonten. [00:12:49] Speaker 02: So, yes, there have been, and certainly we showed in the briefs and in the ex parte that was filed by Prometheus Radio Project that broadcasters are lined up as soon as this court clarifies what the situation is for the future and expect many billions of dollars in transactions to take place. [00:13:17] Speaker 04: Did any of those take place after the transition to digital transmission but before the repeal order in that way? [00:13:27] Speaker 02: Well, yeah, I mean there was substantial acquisitions as a result of the additional headroom that broadcasters got through the digital transition. [00:13:36] Speaker 02: For example, Fox went from 37.1% prior to the digital transition, the mere effect of the digital transition as the commission says in the 2016 decision. [00:13:49] Speaker 02: Yeah, we reduced it to 24 percent, and they used that headroom to acquire stations in San Francisco and Charlotte that they could not otherwise have done. [00:13:57] Speaker 04: All right. [00:13:59] Speaker 04: And then what is your answer to the argument that when Congress set 39 percent as the reach cap, it did that knowing there was this UHF discount in there? [00:14:13] Speaker 02: Well, first of all, I want to emphasize that whether the 39 percent cap and the UHF discount can be modified is a secondary point in our argument. [00:14:27] Speaker 02: The principal point I want to stress this morning is it was simply even if the FCC had authority to modify either of those, it was arbitrary and capricious to do it in the absence of any factual record. [00:14:41] Speaker 02: But if you look at the 2004 appropriations amendment, there were two additional parts of it besides the fact that it was silent on the UHF discount. [00:14:58] Speaker 02: It removed the national ownership cap from the originally biennial then quadrennial reviews. [00:15:08] Speaker 02: And it also directed the FCC that it could not use its Section 10 forbearance procedures. [00:15:16] Speaker 02: That was clear indications that the intention was to lock in the 39 percent. [00:15:21] Speaker 02: But it was certainly acting with awareness that the FCC had said repeatedly [00:15:26] Speaker 02: that it was going to modify the UHF discount at the time of the digital transition and indeed the 2003 biennial review decision, which predated the appropriations amendment, they partially repealed the UHF discount as to network-owned stations. [00:15:45] Speaker 02: They sunset it as soon as the digital transition took place for them. [00:15:49] Speaker 02: So Congress was acting with an awareness that the FCC was [00:15:53] Speaker 02: just intending to repeal the UHF discount and had actually partially repealed it going forward. [00:15:59] Speaker 02: So I think you need to look at that and the use of an administrative term that has a regulatory meaning, audience reach, certainly suggests an awareness of that factor, Your Honor. [00:16:11] Speaker 01: The UHF discount is just part of the way they calculate the cap. [00:16:20] Speaker 01: So why is it taking as a given all of your very fair concerns about the UHF discount [00:16:30] Speaker 01: Why is it arbitrary and capricious for the agency to say, we do want to look at that issue, but we want to look at it in the context of a broader inquiry into the cap itself? [00:16:43] Speaker 01: Well, it's arbitrary and capricious. [00:16:45] Speaker 02: They certainly can conduct a rulemaking to do that, Your Honor. [00:16:47] Speaker 02: To do both. [00:16:48] Speaker 02: To do both. [00:16:50] Speaker 02: In the interim, for what could be years, to reinstate something that admittedly the FCC does not dispute, has no legitimate factual underpinning, to put it back in is arbitrary and capricious. [00:17:04] Speaker 02: And as this Court is aware, just because the FCC starts a proceeding doesn't mean it finishes it. [00:17:10] Speaker 02: There are recent cases involving stoles, [00:17:13] Speaker 02: and the prison phone case earlier this year, the FCC took eight, ten years to complete what seemingly could have been proceedings that could have happened in a short period of time. [00:17:24] Speaker 02: And candidly, Your Honor, if this Court affirms, [00:17:28] Speaker 02: The FCC has almost no incentive to do anything with that rulemaking because broadcasters will have all the headroom they need for many years to come. [00:17:36] Speaker 02: So it's arbitrary and capricious to put the rule back in pending that linked consideration if that's what the FCC wants to do. [00:17:48] Speaker 01: If we were one day before the repeal order, [00:17:53] Speaker 01: And the arguments are otherwise the same. [00:17:56] Speaker 01: And your clients say, look, whatever else is the case, you have to get rid of the UHF discount. [00:18:05] Speaker 01: And other people are saying, well, fine, think of that in the context of a broader inquiry. [00:18:11] Speaker 01: and the FCC had gone the route of opening a proceeding on the broader inquiry, but that wouldn't be arbitrary and compressive. [00:18:19] Speaker 02: That's right, but in the 2016 decision, the FCC gave a very cogent explanation why the delay and the damage to diversity and localism that would take place while that longer inquiry proceeded made it inappropriate. [00:18:36] Speaker 02: After all, [00:18:37] Speaker 02: The digital transition took place in 2009, and the FCC didn't even get around to proposing a fix that it had said it was going to do 10 years earlier until 2013. [00:18:48] Speaker 02: And they didn't get around to finishing that until 2016. [00:18:50] Speaker 02: And I think it was perfectly reasonable for the FCC to say, we've got to stick a finger in the dike now, and we can think about other things later. [00:19:00] Speaker 03: Mr. Horsman, on your theory that the [00:19:06] Speaker 03: Temporarily retaining the UHF discount is arbitrary. [00:19:10] Speaker 03: When did that violation start? [00:19:16] Speaker 02: Well, there was a rolling deregulation that started in 2009 with the UHF Discount and the FCC's extended failure to live up to its promise. [00:19:28] Speaker 02: But the FCC went to fix that by making the definition accurate in 2016. [00:19:36] Speaker 02: The arbitrary capriciousness, if I understand your question, was April 20th. [00:19:40] Speaker 02: 2017 when the FCC said we're going to put it back in even though we agree it has no policy or legal justification. [00:19:49] Speaker 02: We're just going to put it back in while we suck our thumb for we don't know how many years. [00:19:53] Speaker 03: So it's having taken it up and having built a record the only conclusion from which in your view [00:20:00] Speaker 03: is that there is no ground for the UHF discount. [00:20:04] Speaker 03: That is what creates the violation. [00:20:07] Speaker 02: That's correct, Your Honor. [00:20:07] Speaker 03: So if they hadn't started that rulemaking at all in 2013, and then in 2016 issued a notice and comment, notice of proposed rulemaking, and said, we're going to consider this together with the cap, [00:20:23] Speaker 02: They certainly could have done that, and they could have considered them both at the same time, although there was considerable doubt as to their power to do anything with a 39 percent cap. [00:20:35] Speaker 02: And indeed, it's not clear that there's a majority of the sitting commission that even agrees that it can do that. [00:20:41] Speaker 02: So, yeah, they had very good reason not to look at both of them at the same time. [00:20:49] Speaker 03: Isn't there, in fact, in some circumstances, a legal obligation on an agency to institute a rulemaking in a case in which the factual circumstances have evolved such that a rule on the books is... I don't want to go down the rabbit hole of track the FCC, Your Honor, but I think that a non-privilege mandamus petition could have lain had one been brought about the failure to follow through on this. [00:21:17] Speaker 01: And there is a history of delay. [00:21:19] Speaker 02: The FCC, if it has one talent, your honor, it's delay. [00:21:25] Speaker 01: Fair enough. [00:21:26] Speaker 02: And as I've mentioned a couple cases before, there are just extraordinary examples of prolonged agency and action. [00:21:36] Speaker 02: But indeed, track. [00:21:38] Speaker 01: Understood. [00:21:38] Speaker 01: But we also have the December [00:21:42] Speaker 01: And if I'm understanding the deadlines correctly, the deadlines for submitting comments should have closed already. [00:21:53] Speaker 01: So regardless of any past delay, it seems like they are moving ahead. [00:22:00] Speaker 01: to consider all these issues now, and this whole thing may be overtaken by events in the relatively near future. [00:22:09] Speaker 02: I don't know about active, Your Honor. [00:22:11] Speaker 02: The comments actually were extended, and the reply comments were filed on Wednesday. [00:22:17] Speaker 02: The deadline was Wednesday. [00:22:19] Speaker 02: And that's the timer on my phone in my attache case going off. [00:22:24] Speaker 02: I apologize to the court. [00:22:36] Speaker 04: I thought it was the ice cream truck. [00:22:42] Speaker 04: You know what, Mr. Schwartzman, I think you can just sit down for now. [00:22:45] Speaker 04: We'll hear from the other side. [00:22:46] Speaker 02: Thank you, Your Honor. [00:22:47] Speaker 02: Please get the phone out of the room. [00:22:49] Speaker 02: It was time to take my meds. [00:22:52] Speaker 04: Get the phone out of the room. [00:22:53] Speaker 04: Thank you so much. [00:23:01] Speaker 04: Make sure you come back, because we'll give you some time for rebuttal. [00:23:29] Speaker 04: Good morning. [00:23:30] Speaker 00: Good morning, your honors. [00:23:32] Speaker 00: May it please the court, my name is James Carr, and I represent the Federal Communications Commission. [00:23:38] Speaker 00: I'd like to start with a standing issue. [00:23:40] Speaker 00: I think the court is exactly right that under current law, when you're trying to establish associational standing under the Supreme Court's decision in summers, which has been followed by this court, you have to identify individual members of the association. [00:23:56] Speaker 00: And the purpose of that [00:23:58] Speaker 00: is to show that those individual members have suffered a concrete and particularized injury that can be redressed by this litigation. [00:24:10] Speaker 00: That they would have independent standing to sue on their own. [00:24:13] Speaker 00: And we don't believe that these petitioners have done that to this point. [00:24:18] Speaker 01: What do you do with Lorandi where we seem to say that if the [00:24:28] Speaker 01: If the plaintiff asserting viewer standing is litigating in defense of rules that are designed to ensure diversity, the plaintiff, by definition, those are the court's words, is injured in that context. [00:24:49] Speaker 00: I think Lurandi is somewhat distinguishable from this case, Your Honor, because it involved the duopoly rule which was focused on a particular market and so those particular individual viewers could say we're harmed by the Commission's failure to enforce its rule in our market, that it directly affects the television we're viewing in our market. [00:25:14] Speaker 00: It's a little unclear to me [00:25:16] Speaker 00: given the national scope of the cap, exactly what the particularized injury is here. [00:25:23] Speaker 01: Another thing I would note… But it does seem to give them a pass on the traceability and redressability inquiries that you might otherwise think would be live, like exactly how will the legal change impact the available programming. [00:25:40] Speaker 00: I think that's probably fair, Your Honor. [00:25:43] Speaker 00: I would also point out that subsequent to Lurandi, the two Rainbow Push decisions in 2003 and 2005, while they recognized that Lurandi was still good law, they were careful to say that viewer standing is not automatic. [00:25:58] Speaker 00: There had to be some sort of showing. [00:26:01] Speaker 00: And Mr. Schwarzman has tried to distinguish those cases factually here. [00:26:07] Speaker 00: My larger point is that for purposes of associational standing, these petitioners haven't made the showing they need to make in order to establish their standing here. [00:26:20] Speaker 04: Do you not dispute the breadth of their membership? [00:26:25] Speaker 04: and of these collective provisionaries. [00:26:27] Speaker 04: You see these folks a lot. [00:26:28] Speaker 00: Yes, I don't have reason to dispute the breadth of their membership, Your Honor. [00:26:33] Speaker 00: No, I don't. [00:26:35] Speaker 00: But I would still say, once again, there's a purpose behind actually identifying individual members. [00:26:41] Speaker 04: No, I'm just saying, the question here seems to be more one of having built the record as opposed to the factual existence of standing. [00:26:49] Speaker 03: Sir, can you explain the procedural regularity of the reconsideration petition here, which was not filed within 30 days of the order, which I thought was the window provided in the statute? [00:27:05] Speaker 00: I'm sorry, Your Honor, do you mean the petition for reconsideration that was granted here? [00:27:10] Speaker 00: It actually was filed within 30 days of the Federal Register publication of the original order. [00:27:21] Speaker 00: And there was never any question, no party had raised a question as to [00:27:26] Speaker 00: the timeliness of the reconsideration petition. [00:27:29] Speaker 00: The clock starts to run for rulemaking proceedings. [00:27:33] Speaker 00: The clock for reconsideration starts to run when the original order is published in the Federal Register. [00:27:39] Speaker 00: So the timeliness was not an issue here on reconsideration. [00:27:47] Speaker 00: If there are no further questions on that, I'm sorry. [00:27:50] Speaker 03: What's your position on whether the agency has an obligation to act when a rule that has a particular factual basis, the factual basis has ebbed away? [00:28:06] Speaker 03: Does the agency have an obligation? [00:28:08] Speaker 03: I mean, the cases such as Bechtel and Geller or American Horse really do suggest that [00:28:14] Speaker 03: there is some affirmative obligation to clean house on this. [00:28:19] Speaker 00: I think you're right, Your Honor, the Bechtel decision makes it clear that agencies have an obligation when facts on the ground change to take a new look at existing rules. [00:28:32] Speaker 00: I would point out that [00:28:34] Speaker 00: The situation with the UHF discount is not the only situation here where there's a question about the continuing viability of aspects of the rule, and the Commission pointed to this out in the reconsideration order. [00:28:46] Speaker 00: the percentage level of the cap itself has not been changed in 14 years. [00:28:51] Speaker 03: Right. [00:28:52] Speaker 03: The question I think is, and I take it that your position hinges on the inextricability of the cap and the UHF discount. [00:29:02] Speaker 03: Is that right? [00:29:03] Speaker 00: That's right, Your Honor. [00:29:04] Speaker 00: A 39% cap without a discount is much tighter than a cap with a discount. [00:29:10] Speaker 03: If we were to disagree on that point, [00:29:15] Speaker 03: then do you have a fallback position? [00:29:18] Speaker 03: I mean, it seems to me that if one looks at the UHF discount and if one were to, and I realize this is not your position, but if one were to see it as separable from the cap, then the rulemaking that looked at its factual foundation and said it is gone would have only one conclusion, which is to get rid of it. [00:29:43] Speaker 00: Well, again, Your Honor, I think this is really a matter of the Commission structuring its own proceedings. [00:29:49] Speaker 00: This is a matter of procedural discretion. [00:29:52] Speaker 00: Yes, the Commission could consider in certain circumstances proceeding incrementally, but it also has the discretion, in proper circumstances, to decide that it's going to take a comprehensive [00:30:03] Speaker 00: or holistic approach, that is reviewing the cap and the discount together. [00:30:07] Speaker 00: And that's precisely what the commission is doing here. [00:30:10] Speaker 00: I thought it was interesting when Mr. Schwarzman appeared to concede that if the repeal order had never come out, [00:30:17] Speaker 00: The commission would have been well within its rights to issue an NPRM, even a further NPRM in this proceeding, saying, we're going to consider the cap and the discount together. [00:30:26] Speaker 00: There would have been no problem with that, and the commission would not, could not have been faulted, particularly in your approach. [00:30:34] Speaker 04: That might be because you wouldn't have the commission on record in the repeal order saying, this thing is utterly obsolete. [00:30:40] Speaker 04: It has been obsolete for quite some time. [00:30:44] Speaker 04: no one suggests that the original justification is still valid. [00:30:51] Speaker 04: It impedes the objectives of the statute. [00:30:53] Speaker 04: I mean, the problem here is you have, and it's not contested in the reconsideration order, some pretty powerful findings about the obsolescence, not just the obsolescence, but actually the [00:31:07] Speaker 04: the harm to the public interest that has been caused by perpetuating UHF discount in the current environment. [00:31:16] Speaker 04: Isn't that a pretty good reason that the order is different here and it matters? [00:31:20] Speaker 00: There are arguments being made about the harm, but I think the reconsideration order pointed out [00:31:26] Speaker 00: that there were no examples given in the repeal order of any way in which the continued application of the URHS discount for seven years after the digital transition took effect had had any particularized harm on competition, diversity, or localism. [00:31:42] Speaker 00: And the commission's concern- Wait, wait, wait. [00:31:44] Speaker 04: There's plenty of findings here that it was having the other strong record. [00:31:48] Speaker 04: It's your record that it was allowing folks to effectively have [00:31:53] Speaker 04: up to a 78% national reach. [00:31:58] Speaker 04: Isn't that important? [00:32:01] Speaker 00: Well, it depends, Your Honor. [00:32:03] Speaker 00: It depends on whether the cap itself, and this was the commission's point in the reconsideration order. [00:32:09] Speaker 00: What the repeal order did was it eliminated the discount, but it made no findings with respect to whether the cap itself was still set at the proper level. [00:32:19] Speaker 00: And that amounted to a tightening of the cap without any particular finding. [00:32:23] Speaker 04: It did not tighten the cap. [00:32:24] Speaker 04: It kept it at Congress's 39%. [00:32:26] Speaker 04: The problem had been that with the transition to digital and the sudden preference for UHF standards, that in fact, [00:32:35] Speaker 04: people could blow right by it, and we're doing it by buying up more UHF channels. [00:32:41] Speaker 04: So the 39% thing was becoming, you know, like a speed limit in DC, people wave as they go by. [00:32:48] Speaker 00: It tightened the effect of the cap, because as we've explained in our group, it did not tighten the level of the cap, but it tightened the wave. [00:32:59] Speaker 00: It made it real. [00:33:00] Speaker 04: It made it real, it made it effective. [00:33:05] Speaker 00: That's how I read the regulator. [00:33:06] Speaker 00: And that still leaves the question, is a 39% cap itself in the public interest? [00:33:12] Speaker 04: After 14 years... And the FCC is certainly free to look at that, but my question is, you look at it, you go through this rule of making, what are your options [00:33:24] Speaker 04: for dealing with the UHF discount, once you've figured out whatever you think, whether you think you can change it, and then whatever you think that number should be, once you've crossed those bridges, the world in which the UHF discount will be kept, given the uncontested, unchallenged findings in the 2006 repeal order, [00:33:45] Speaker 00: Well, Your Honor, questions are being asked in the ongoing rulemaking about whether there are rationales for keeping some sort of UHF discount. [00:33:54] Speaker 00: It may be unrelated to technical justifications. [00:33:56] Speaker 04: Are those questions different than the ones that were raised at the repeal order and rejected repeal? [00:34:00] Speaker 00: No, no. [00:34:01] Speaker 00: Okay, so that's everything. [00:34:03] Speaker 00: And I want to make that clear, no. [00:34:04] Speaker 04: Okay, so given that the reconsideration order doesn't undo those findings, and so its decision to keep the UHF order in place has got to be on a rationale that's consistent with those findings. [00:34:19] Speaker 04: It could, at the end of the day, it could always revisit anything, but its decision to keep the UHF discount in place, normally that would come if there's some assumption we would keep it at the end, but those concerns, the only arguments now being raised are ones that are already [00:34:34] Speaker 04: reject it. [00:34:35] Speaker 04: So it doesn't seem that there's any option for keeping it in its current form. [00:34:40] Speaker 04: That seems at least plausible at this stage. [00:34:44] Speaker 04: And if you're just going to throw it away at the end when you've got a new number, then what is the point of carrying this UHF discount forward, this sort of moribund body, you're going to keep it on life support going forward. [00:34:58] Speaker 04: If there's no prospect of it being reinstated at the end, it's just buying more time. [00:35:03] Speaker 00: Let me return to what the reconsideration said about the repeal order. [00:35:09] Speaker 00: Among other things, it said that the Commission thought the early order was arbitrary and capricious, and that was in part based on Judge Ambrose's decision in Prometheus 3, where the Third Circuit found that [00:35:22] Speaker 00: the commission had made an attempt to modify the calculation of an ownership restriction, saying it was closing a loophole, much as it said it was doing in the UHF discount context, but it hadn't considered whether the overall ownership restrictions were still in the public interest. [00:35:42] Speaker 00: And Judge Ambrow put it, [00:35:43] Speaker 00: it might not be in the public interest to close loopholes to rules that should no longer exist. [00:35:50] Speaker 00: The idea is that before you make a change in methodology, you have to take a look at the ultimate goal, which is establishing an ownership restriction that serves certain public interest purposes. [00:36:01] Speaker 00: If the 39% cap itself is no longer in the public interest, if it's too tight, [00:36:08] Speaker 00: based on marketplace considerations and the Commission suggested in the reconsideration order that there have been marketplace [00:36:15] Speaker 00: developments that suggest the cap should be loosened, then going ahead and eliminating the discount and doing nothing further is effectively creating a situation where you could be blocking transactions that would otherwise serve the public. [00:36:29] Speaker 04: That would only be true if there were any plausible basis on the record, which I haven't seen, to say that the UHF discount is actually serving the salutary purpose. [00:36:38] Speaker 04: of adjusting that cap. [00:36:40] Speaker 04: And that's what it's been doing is adjusting it just enough at the margins to allow the changes that would be appropriate under a new cap. [00:36:47] Speaker 04: I assume the commission isn't going to adopt a 78% new cap. [00:36:52] Speaker 00: Well, I'm not going to go on record on that, Your Honor. [00:36:56] Speaker 04: I'm going to make that radical assumption that they're not going to do that, okay? [00:37:00] Speaker 04: And there's no argument, no rationale in either the reconsideration order or the repeal order that suggests that what the UHF discount was doing was just [00:37:10] Speaker 04: inching up the national cap to deal with the problems of keeping an outdated, or not recently updated national cap in place. [00:37:20] Speaker 04: So again, I'm back to, I don't understand what the point of keeping this, what this record tells us is a rational reason for keeping this thing alive when everyone has said it's obsolete [00:37:32] Speaker 04: It's harmful. [00:37:33] Speaker 04: There's no point to it. [00:37:34] Speaker 04: It's way outdated. [00:37:35] Speaker 04: It needs to be gone. [00:37:36] Speaker 04: It's leading to people grossly having an ability to grossly oversweep in the national cap. [00:37:42] Speaker 04: It's going to be gone at the end, so why keep it alive now? [00:37:45] Speaker 00: The rational reason is that as a result of elimination of the discount, without any adjustment of the 39 percent cap, you have a much more restrictive ownership restriction placed on parties. [00:37:58] Speaker 00: So, for example, let's say, for example, [00:38:02] Speaker 00: that a station owner wants to buy another station in the market. [00:38:06] Speaker 00: And this is a station owner who has great programming, great news and public affairs programming. [00:38:12] Speaker 00: The new market would benefit from the new station. [00:38:16] Speaker 00: But that particular station owner is up against what is now the 39% cap without the discount. [00:38:23] Speaker 00: It turns out that the 39% cap is actually much too tight, that as has been suggested by the marketplace evidence, the cap should be higher. [00:38:33] Speaker 00: Let's say it should be 50%. [00:38:34] Speaker 00: And this transaction would fall within that cap. [00:38:40] Speaker 00: What that means is that a particular transaction that would benefit the public is being blocked. [00:38:46] Speaker 04: Well, that's just a reason for the FCC to go fast on reviewing the national cap. [00:38:50] Speaker 04: Anytime you have a cap in place, [00:38:52] Speaker 04: you're going to have that someone's going to be really, really good and they're just going to bump up against it. [00:38:56] Speaker 04: That's what happens anytime any line is drawn. [00:38:59] Speaker 04: But the FCC has been perfectly content until 2017 to leave the national cap as it was. [00:39:07] Speaker 04: So that's on the FCC. [00:39:09] Speaker 04: But that still doesn't justify saying, well, we've gotten rid of this thing that has no salutary purpose, allows people to grossly overshoot the cap in a way that no one is arguing. [00:39:22] Speaker 04: is consistent with the public interest. [00:39:24] Speaker 04: It is not in the public interest. [00:39:26] Speaker 04: They're defining that it is not in the public interest to have that UHF cap there functioning. [00:39:31] Speaker 04: And so saying we're going to keep this thing that there's no technical reason for it, no policy reason for it, just because we want to be able to allow someone at the margins to do something good doesn't seem like a very rational way to approach the problem. [00:39:48] Speaker 00: Your Honor, I think you have to look at it in a broader picture. [00:39:52] Speaker 00: The rule itself has various components. [00:39:55] Speaker 00: The ultimate purpose of the rule [00:39:57] Speaker 00: Which rule are you talking about? [00:39:59] Speaker 00: I'm talking about the national audience reach cap rule. [00:40:04] Speaker 00: It has various components. [00:40:06] Speaker 00: It's got a UHF discount. [00:40:07] Speaker 00: It's got a percentage level of the cap. [00:40:10] Speaker 00: All of those components are designed to work together. [00:40:13] Speaker 04: That's just the math. [00:40:14] Speaker 04: That's just the math formula for deciding whether you've met the cap. [00:40:17] Speaker 04: It's not a multi-factor balancing of interest. [00:40:20] Speaker 04: It's just how we decide whether you're there or not. [00:40:23] Speaker 00: I understand all of that, Your Honor, but all of those factors [00:40:25] Speaker 00: all of those components are designed to work together. [00:40:28] Speaker 00: Their ultimate purpose is to achieve a... All of those, the UHF is meant to calculate. [00:40:35] Speaker 00: The ultimate purpose of the rule is to achieve a restriction that's going to serve certain public interest objectives. [00:40:43] Speaker 00: And the commission's view on reconsideration was that the commission in the repeal order [00:40:47] Speaker 00: simply hadn't found that the cap as currently constituted as modified by eliminating the discount was serving the public interest because we had no idea given the Commission's statement in the repeal order that it wasn't even considering a reexamination of the cap. [00:41:07] Speaker 04: Didn't Congress say 39% is in the public interest when it put there unless and until the FCC finds that 39% is not in the public interest? [00:41:18] Speaker 00: It said it directed the commission to amend its rules to... That's right. [00:41:25] Speaker 00: Don't we assume that when Congress does, it's in the public interest? [00:41:27] Speaker 00: So it's in the public interest. [00:41:29] Speaker 00: And it gave the commission the ability going forward, if circumstances changed, to adjust the cap. [00:41:36] Speaker 00: So under the Bechtel rationale, just as technological changes might have justified eliminating the discount, [00:41:47] Speaker 00: Marketplace changes may well justify adjusting the cap. [00:41:52] Speaker 00: And that's the commission's point. [00:41:54] Speaker 00: It didn't make sense to go forward with one major change without taking a broader look at the rule in general and considering the discount and the cap together. [00:42:03] Speaker 03: What is the current justification for the UHF discount right now? [00:42:15] Speaker 00: The justification that the commission said was that it wanted to take a look at the rule as a whole. [00:42:23] Speaker 00: So return to the status quo. [00:42:26] Speaker 00: I'm sorry, Your Honor. [00:42:28] Speaker 00: Go ahead. [00:42:28] Speaker 00: I'm sorry. [00:42:29] Speaker 03: No, I was just going to say, just as a sort of formal matter, [00:42:34] Speaker 03: It doesn't have a justification now, but the commission anticipates that as a result of a package reconsideration in the pending rulemaking, it may obtain one. [00:42:50] Speaker 03: Is that right? [00:42:51] Speaker 00: Yes. [00:42:52] Speaker 00: And I think, I mean, another way of thinking about this is let's say the repeal order [00:42:58] Speaker 00: had been challenged in this court, there had been no reconsideration order. [00:43:03] Speaker 00: And let's say the court agreed with the broadcasters challenging that order, that the commission had failed to consider an important aspect of the problem. [00:43:11] Speaker 00: It had failed to consider the impact of changing the discount on the effect of the cap. [00:43:17] Speaker 00: So it remanded the matter and it vacated the earlier order. [00:43:21] Speaker 00: That would mean that we'd be back to the same place we were before the 2013 rulemaking. [00:43:26] Speaker 04: You would have... Well, you're assuming vacatur of the order, which doesn't always happen when we find sufficient explanations. [00:43:31] Speaker 00: Doesn't always happen. [00:43:32] Speaker 00: That's a fair point, Your Honor, but it often happens. [00:43:35] Speaker 00: And certainly, if Judge Randolph was on the panel, it will happen. [00:43:37] Speaker 00: But in any event, if there is vacatur, you're back to the same place where we are now, the rule enforced with the discount. [00:43:49] Speaker 00: And that's basically the commission's point in the reconsideration order. [00:43:52] Speaker 00: It wanted to start from scratch because it believed that it was a flawed process as a matter of policy and a matter of law to proceed with one major change without considering another important aspect of the problem. [00:44:06] Speaker 03: And the matter of law is that changing a method of calculating compliance with the cap, in your view, is inextricably linked with the level at which the cap is set. [00:44:19] Speaker 00: I think it is for some of the reasons that Judge Ambrow gave in his Prometheus III opinion. [00:44:26] Speaker 03: The 1999 order modifying the compliance with the ownership cap in that case, the FCC said it didn't have to consider the cap. [00:44:39] Speaker 00: Again, I think, again, there are factual distinctions there. [00:44:45] Speaker 00: The methodological changes that were being made there were minor. [00:44:49] Speaker 00: They didn't result in anybody exceeding the cap. [00:44:54] Speaker 00: Obviously, in this case, there was a major change, and the commission in the repeal order recognized it was a major change, which is why it grandfathered existing arrangements. [00:45:08] Speaker 03: But doesn't the grandfathering answer, I mean, that makes it analogous, the 1999 order, because it's basically saying we're going to deal with the transition costs in that way. [00:45:20] Speaker 00: It doesn't entirely make it analogous, Your Honor, because of the hypothetical I was giving earlier about [00:45:26] Speaker 00: broadcasters who may want during this time to make a transaction to complete a transaction that would serve the public, but they're blocked because the cap is tighter than it should be. [00:45:40] Speaker 01: I just want to make sure I understand part of your answer to Judge Pillard. [00:45:46] Speaker 01: If I heard you correctly, you said that [00:45:49] Speaker 01: While there may not currently be a justification for a UHF discount, there may be one in the future, as you consider things more holistically. [00:46:00] Speaker 00: One of the things, if you look at the NPRM that came out in December, the Commission is asking questions about what it should do with the UHF discount. [00:46:12] Speaker 00: It has asked for the possibility that there may be [00:46:16] Speaker 00: And some have argued that there are alternative rationales for keeping a UHF discount. [00:46:22] Speaker 00: I don't know what the commission is going to do on that, but that's a possibility going forward. [00:46:26] Speaker 00: As I mentioned to Judge Millett, that really doesn't have anything to do with what we've done to this point. [00:46:32] Speaker 01: Right, because I thought where we are now. [00:46:34] Speaker 01: I think that's right. [00:46:37] Speaker 01: You've taken the position that the cap and the discount are related, and that makes a lot of sense to me. [00:46:43] Speaker 01: And you therefore have a concern that when you get rid of the cap, sorry, when you get rid of the discount, one incidental effect will be to tighten the cap or the effect of the cap or however you want to describe it. [00:46:58] Speaker 01: And you have some awfully good reasons for thinking you might want to raise the cap. [00:47:03] Speaker 00: Yes. [00:47:03] Speaker 01: But the only concern about the discount is that eliminating it might tend to toughen the cap. [00:47:10] Speaker 01: Yes. [00:47:11] Speaker 01: So you sort of, you know, you have reasons for thinking you might want to raise the cap, but you don't really have any reason for thinking that at the end of the day, part of the solution will be the UHF discount. [00:47:28] Speaker 00: Part of the solution will be, you mean eliminating? [00:47:32] Speaker 00: We'll be keeping the discount. [00:47:37] Speaker 00: I think that's probably fair, Your Honor. [00:47:40] Speaker 00: It's not entirely clear. [00:47:42] Speaker 01: So what's the justification, having taken it off the books? [00:47:47] Speaker 01: You are affirmatively reinserting into the Code of Federal Regulations [00:47:53] Speaker 01: something that on its own terms doesn't make sense just because you're worried about collateral consequences that you're addressing in other parts of the proceeding. [00:48:07] Speaker 00: Well, I guess I would not describe them as collateral consequences. [00:48:11] Speaker 00: I think they're direct consequences, and this goes back to the Commission's thinking about treating these in tandem. [00:48:17] Speaker 00: You change the discount. [00:48:19] Speaker 01: You have no justification for distinguishing UHF and VHF, and you're just worried that the 78% is becoming 39% or something like that. [00:48:30] Speaker 00: Right. [00:48:31] Speaker 00: And the commission never found in the repeal order that that sort of effective tightening of the restriction was in the public interest. [00:48:42] Speaker 00: And until there is a finding to that effect, [00:48:46] Speaker 00: the commission felt, rather than make this major change in the rule, it ought to consider all elements of the rule together. [00:48:53] Speaker 00: Consider the discount and the cap in tandem. [00:48:56] Speaker 03: I only have one question. [00:48:57] Speaker 03: I know we've kept you long. [00:48:58] Speaker 03: If I were a VHF owner, wouldn't I have an equal protection challenge? [00:49:07] Speaker 03: Because there's no basis. [00:49:10] Speaker 00: There are broadcasters in the audience. [00:49:12] Speaker 03: You're talking about interests. [00:49:16] Speaker 03: You're talking about interests in a more permissive cap. [00:49:22] Speaker 03: Yes. [00:49:22] Speaker 03: And I think this just follows up on Judge Katz's argument why this is a vehicle, especially given that it really seems like a mismatch with the interest or the potential interest that the commission is exploring. [00:49:40] Speaker 03: In other words, the potential interest being the cap should be looser. [00:49:44] Speaker 03: Because the UHF discount only applies to a subset of stations, and not everybody owns those stations, but might have the same kind of public interest programming to offer, there's an arbitrariness in that aspect of the drawing of the line between these two types of stations that I haven't really heard you address at all. [00:50:04] Speaker 00: I take your point, Your Honor, and there actually is some discussion, and there was some discussion, I think, in the repeal order about whether to actually have a VHF discount. [00:50:13] Speaker 00: I think there's still some discussion about that. [00:50:17] Speaker 03: It's a difficulty. [00:50:19] Speaker 00: Yes, it is something of a difficulty. [00:50:22] Speaker 00: Again, I think the Commission's view was before it made any change to this rule, it really ought to consider all of the elements of the rule together. [00:50:36] Speaker 00: And that's just a matter of structuring its proceedings. [00:50:40] Speaker 00: That's a matter of procedural discretion. [00:50:45] Speaker 00: And that was entirely reasonable. [00:50:48] Speaker 01: Can I just ask what's going on in the rulemaking? [00:50:53] Speaker 01: There have been concerns raised about delay. [00:50:56] Speaker 01: But the deadlines have passed. [00:50:59] Speaker 01: I mean, what we're addressing here has a real possibility of being overtaken by events. [00:51:07] Speaker 01: So, I mean, what's your expected timeline for doing this holistic reconsideration that you're talking about? [00:51:14] Speaker 00: I'm reluctant to give any firm timeline. [00:51:17] Speaker 00: All I can tell you is the Commission has issued the NPRM and the pleading cycle has closed. [00:51:24] Speaker 00: Earlier this week the deadline for filing reply comments passed and so the Commission has and [00:51:33] Speaker 00: And the chairman is on record as saying that he's committed to making this. [00:51:38] Speaker 01: Can you give me any sense? [00:51:40] Speaker 01: I mean, let's say we take six months to write an opinion on average. [00:51:45] Speaker 01: Can you give me any sense of whether, you know, in month five, week three, we'll get something dropped on us? [00:51:52] Speaker 00: I'm uncomfortable about making any representations given, as Mr. Schwarzman said, the Commission's fine reputation for acting promptly. [00:52:04] Speaker 00: As one of the Commission's lawyers, I'd love it if the Commission acted more promptly than it does in most instances. [00:52:10] Speaker 00: Could you ask one other question? [00:52:11] Speaker 00: That was an attempt to help. [00:52:15] Speaker 00: Thank you, Your Honor. [00:52:17] Speaker 00: I appreciate it. [00:52:18] Speaker 04: I assume, I'm not sure things would be overtaken if in fact the reconsideration or if part of a new rule would be to extend the grandfather clause, the grandfather treatment. [00:52:37] Speaker 04: I mean, is that the theory that by keeping this in here, you're going to have a longer grandfather period than you would have had without? [00:52:44] Speaker 04: The reconsideration order, isn't that right? [00:52:47] Speaker 00: Well, grandfathering would certainly be an issue in the next order. [00:52:53] Speaker 00: I think that's right, Your Honor, and I'm not in any position to know exactly what might happen. [00:52:59] Speaker 00: I will say to the extent, if there are [00:53:04] Speaker 00: any applications or acquisitions during this period that are granted and if the Commission adopts a cap and those acquisitions are out of alignment with the new cap, the Commission certainly has authority to require unwinding of the transactions through divestiture. [00:53:25] Speaker 04: No one likes to do that, so maybe what the Commission would do is just not authorize anything while it's going through this process. [00:53:31] Speaker 04: That might make it speed things up too. [00:53:34] Speaker 00: That certainly would be a possibility as well, but I'm not in a position to say exactly what the commission will do at this point. [00:53:45] Speaker 04: Thank you. [00:53:46] Speaker 00: Thank you, Your Honors. [00:53:52] Speaker 04: All right, Mr. Schwartzman, we went over your time, but we will give you two minutes. [00:54:02] Speaker 02: Thank you, Your Honor. [00:54:03] Speaker 02: First, I have received a forceful tutorial from the marshal that you have to push the button twice to power off a phone, and I deeply apologize to the court. [00:54:14] Speaker 02: Two things I'd like to say. [00:54:15] Speaker 02: First of all, with respect to the Prometheus III authority that Mr. Carr cited, that was a case in which the FCC was under a statutory mandate to consider [00:54:26] Speaker 02: all of its rules, and what it did was consider some of its rules and punt on the others. [00:54:33] Speaker 02: And the court was saying, no, you have a statutory mandate to look at all of them. [00:54:38] Speaker 02: And that's very distinguishable from the scenario here. [00:54:43] Speaker 02: With respect to standing, Your Honor, we would like permission of the court to submit the supplemental declaration, but I would say this. [00:54:50] Speaker 02: As long as the law of this court is that petitioners as a group of citizens interested in diverse programming have standing to bring this, [00:54:59] Speaker 02: I think that the nature of the injury being asserted here, which is concrete, is nonetheless difficult for any one listener to submit a declaration saying, I am harmed because this particular company has bought three more stations in another market, which is going to affect my localism. [00:55:18] Speaker 02: That injury is cognizable injury in this court. [00:55:22] Speaker 02: I don't think that subsequent law in the circuit makes it necessary for that level of particularity in the particular circumstances of listener standing. [00:55:35] Speaker 04: Well, you might be advised to include Supreme Court precedent as part of the law of the circuit if we were to permit subsequent filings. [00:55:43] Speaker 02: Yes, Your Honor. [00:55:45] Speaker 02: Thank you, Your Honor. [00:55:46] Speaker 03: Thank you. [00:55:47] Speaker 04: The case is submitted.