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February 28, 2013

Court of Appeals Fires Away at FCC in Comcast-Tennis Case

EDITOR'S NOTE: This story originally appeared in CableFAX Daily. Go here to subscribe.

The FCC's 1st decision finding that a cable operator violated program carriage rules appeared in jeopardy Mon morning, with a 3-judge panel of the DC Circuit Court of Appeals hammering the Commission with questions about its '12 ruling that Comcast discriminated against Tennis Channel ( Cfax , 7/25). It's never over until the court issues its opinion, which could take 2-4 months, but the line of questioning at Mon's oral arguments didn't seem to bode well for the FCC. Judge Harry Edwards latched onto the statute of limitations, while Judge Brett Kavanaugh raised 1st Amendment concerns.

This all harkens back to Tennis' Jan 2010 program carriage complaint that claimed Comcast discriminated against it in favor of its own channels, Golf and Versus (now NBC Sports Net). Tennis was relegated to a sports tier in most systems, while Golf and Versus have much broader distribution. An administrative law judge sided with Tennis in Dec '11 and the Commission, over the objections of Republicans Robert McDowell and Ajit Pai, upheld the ALJ decision last July. The DC Circuit stayed the FCC's order requiring Comcast to make Tennis available to virtually all its subs as it challenged the decision.

has backed the MSO. Comcast has argued since Day 1 that Tennis' complaint should have been dismissed because the statute of limitations bars claims brought more than 1 year after the parties enter into a contract. In this case, that would mean Tennis' chance to bring forth such a claim expired in '06. Edwards repeatedly stated that the FCC's rules "make it absolutely clear" that there is a 1-year statute of limitations and even questioned why the court was hearing the case, saying the FCC's interpretation would make a contract "silly." "It's rare you get something so clear," he said. Comcast has rights under its contract, "you can turn that on its head."

FCC deputy gen counsel Peter Karanjia argued that in '08, Tennis Channel had a number of improvements, including the rights to the US Open and HD rights, so "it was a very different network" and that reopened the issue of how it was carried. If the 3-judge panel decided the statute of limitations was violated, Tennis' program carriage complaint would be moot and the court could throw it out as untimely. Edwards was the only judge to pursue that line of questioning, so it's unclear if the other judges share his concerns.

Judge Kavanaugh suggested the FCC had failed by finding that Comcast engaged in discrimination but didn't demonstrate that it had market power—saying that both elements were necessary because vertical integration is assumed to be pro-competitive unless there is market power that can be abused. Kavanaugh said it seemed the FCC has "serious problems" with the 1st Amendment in this case.

FCC attorney Karanjia said the agency didn't believe it was necessary to show market power, but believed it could by focusing on the impact on advertising. And he asked that the FCC be given a chance to show Comcast had market power, if the court found it necessary to uphold the regulation. That could mean the court remands the decision to the FCC to show evidence of market power.

Analysts at Stifel Nicolaus agreed that Comcast is likely to win a favorable ruling. "The D.C. Circuit panel questioned Comcast's attorney, but at times the 3 judges seemed to agree with him or prod him to sharpen his points. On the other hand, the judges repeatedly pushed back against the arguments of the FCC and Tennis Channel attorneys, going way over the allotted time for each," the analysts said in a research note.

Comcast attorney Miguel Estrada argued that Comcast has a 1st Amendment right to give priority to affiliated networks, as long as it's not for anti-competitive reasons. He likened it to the NY Times being required to give employment to freelance writers and put them on the front page, even if other publications had them on "page 6 next to the car ads."

Meanwhile, cable is still waiting for the 2nd Circuit to rule on a challenge by Time Warner Cable and NCTA to the FCC's program carriage dispute resolution, including standstill provisions, for independent programmers. Oral arguments occurred back in Oct.

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