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CBS Corp. v. Federal Communications Commission

United States Court of Appeals, District of Columbia Circuit

May 8, 2015

CBS CORPORATION, ET AL., PETITIONERS
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS NATIONAL ASSOCIATION OF BROADCASTERS, ET AL., INTERVENORS

Argued: February 20, 2015.

On Petition for Review of an Order of the Federal Communications Commission.

Robert A. Long argued the cause for petitioners. With him on the briefs were Mace J. Rosenstein, Andrew Soukup, and Kevin F. King.

Rick Kaplan, Jerianne Timmerman, Justin Faulb, and Jack N. Goodman were on the brief for intervenor National Association of Broadcasters in support of petitioners.

David M. Gossett, Deputy General Counsel, Federal Communications Commission, argued the cause for respondents. With him on the brief were David I. Gelfand, Deputy Assistant Attorney General, U.S. Department of Justice, Kristen C. Limarzi and Daniel E. Haar, Attorneys, Jonathan B. Sallet, General Counsel, Federal Communications Commission, Jacob M. Lewis, Associate General Counsel, and Lily S. Farel, Counsel. Robert B. Nicholson, Attorney, entered an appearance.

Michael K. Kellogg, Scott H. Angstreich, Timothy J. Simeone, Gary L. Phillips, David P. Murray, Matthew A. Brill, Matthew T. Murchison, Samuel L. Feder, and John Flynn were on the brief for intervenors AT& T, Inc., et al. in support of respondents. John R. Grimm and Christopher J. Wright entered appearances.

Pantelis Michalopoulos, Stephanie A. Roy, David A. LaFuria, and Brooks E. Harlow were on the brief for intervenors DISH Network Corporation and the American Cable Association in support of respondents.

Before: TATEL, SRINIVASAN, and WILKINS, Circuit Judges. OPINION filed by Circuit Judge TATEL.

OPINION

Page 700

Tatel, Circuit Judge.

Tatel, Circuit Judge: To facilitate speedy consideration of two mergers of major cable companies, the Federal Communications Commission ordered the merger applicants to submit certain proprietary documents for review and, central to this case, proposed to make them available for examination by other players in the cable industry on an expedited schedule. Concerned that those documents would reveal information about their own dealings, petitioners--several other large entertainment companies--asked the Commission to reconsider. The Commission refused. Because, for the reasons set forth in this opinion, we find the Commission's action both substantively and procedurally flawed, we grant the petition for review and vacate the order.

I.

The Communications Act of 1934 requires the Commission to review cable-company mergers. 47 U.S.C. § 310. The heart of that mandate, section 310(d), prohibits any merger unless it serves " the public interest, convenience, and necessity." To assess a particular merger, the Commission has long required the parties to submit information about their business. In the context of cable-company mergers, that information usually includes key affiliate contracts and negotiation documents. To help it better understand those materials, the Commission has on occasion asked third parties--usually people with insight into the specific industry--to review and comment on them. See Examination of Current Policy Concerning the Treatment of Confidential Information Submitted to the Commission, 13 F.C.C.R. 24816, 24831 (1998) ( ¶ 21) (" Confidential Information Policy" ) (" In recent years, the Commission has . . . permitt[ed] limited disclosure for a specific public purpose." ).

The issues in this case arise in the context of two proposed mergers: AT& T seeks to join forces with DirecTV, and, until recently, Comcast wanted to combine with Time Warner Cable and Charter Communications. (On April 24, Comcast and Time Warner dropped their merger

Page 701

bid. See Shalini Ramachandran, Comcast Kills Time Warner Cable Deal, WALL STREET JOURNAL, Apr. 24, 2015, available at http://goo.gl/vPG1hh.) Because the original merger applicants made up five of the world's seven largest video-programming distributors, the Commission requested that they submit for review certain documents that it believed would help it evaluate these important corporate marriages.

We can best explain why the Commission needs such documents with a hypothetical. Suppose DirecTV is eager for its customers to have access to ESPN--ESPN being the most-watched cable channel among the key 18-49 demographic group. See Rick Kessell, ESPN No. 1 in Cable Ratings for 2014, VARIETY.COM, available at http://goo.gl/QQG2Bp. If DirecTV wishes to offer ESPN to its subscribers, it will have to negotiate a price with Disney, which owns the channel. Likewise, AT& T will have to reach its own deal with Disney if it wants to offer its customers the same sports package DirecTV does. And when DirecTV and AT& T ask for permission to merge, this information--what kind of a deal DirecTV agrees to with Disney, and how AT& T's compares--could help the Commission understand what the market would look like if the two cable companies combined.

Petitioners--CBS, Viacom, Disney, and several other content producers--have no complaint about the Commission's decision to review that information. In fact, they seem quite eager for the Commission to take a hard look at the proposed merger, and they agree that those contracts and negotiating documents are important to the process. They worry, however, that the Commission plans to show that information to third parties and that their own proprietary documents have gotten caught up in the dragnet.

For example, suppose the Commission discloses the DirecTV and AT& T contracts described earlier. Although the decision to make this kind of proprietary business material available to outsiders is not always popular, the Commission maintains, it is the price of doing business. If two companies want to merge, they must prove that the merger is in the public interest, and to do so they often have to release some information. If the Commission gives third parties access to information about the merger applicants' dealings with ESPN and Disney, however, more than just the applicants will be affected. For instance, by disclosing AT& T's contracts with Disney, the Commission will necessarily be disclosing Disney's contracts with AT& T. It would therefore be a simple matter for, say, Fox to peruse those documents, figure out what Disney charges for ESPN, and then price its own sports channel accordingly. Not having signed up for that exposure, petitioners think it unfair and, more important for our purposes, unlawful. Specifically, they argue that such disclosure is precluded by the Trade Secrets Act, which prohibits disclosing sensitive business information unless " authorized by law," 18 U.S.C. § 1905, as well as the Commission's own regulations and internal policies, which provide that a " persuasive showing as to the reasons for inspection will be required," 47 C.F.R. § 0.457(d)(1), that disclosure must serve a " compelling public interest," that the benefits of disclosure must outweigh the costs, and that the underlying documents must be " necessary" to the review process. Confidential Information Policy at 24820-21, 24824 ( ¶ ¶ 5, 8).

The Commission has been sensitive to those concerns. Indeed, recognizing that its disclosure decisions could have significant collateral consequences, the Commission has long worked to ensure that confidential materials are as protected as

Page 702

possible--while also serving the public's interest in meaningful merger review--by using protective orders. According to the Commission, such orders " can provide the benefit of protecting competitively valuable information while permitting limited disclosure for a specific public purpose." Id. at 24831 (ΒΆ 21); see also News ...


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