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The Federal Communications Commission lacks the statutory authority to restrict the use of so-called “encoding” technologies that block consumers from recording television programs, a federal appeals court has ruled (EchoStar Satellite LLC v. FCC, D.C. Cir., No. 04-1033, 01/15/13).
The decision handed down Jan. 15 by the U.S. Court of Appeals for the District of Columbia Circuit stems from a 2003 agreement between the cable industry and 14 manufacturers of television sets on a “plug and play” standard that allowed buyers of digital-ready sets to receive high-definition TV programming from cable companies without an HDTV set-top box. The landmark industry deal addressed a key holdup in the migration to all-digital television, but also led to FCC rules prescribing which companies could “encode” within their programming streams. Ultimately, the agreement was contingent on the FCC imposing encoding rules on not just cable operators, but all multichannel video programming distributors, or MVPDs, including satellite TV providers.
EchoStar, now Dish Network, challenged the rules in court because the satellite industry had not been a party to the negotiations or the FCC-ratified agreement.
“Applying the encoding rules to cable providers may meet consumer expectations with respect to the market for cable devices, but that is no reason to impose these rules on all MVPDs,” Judge Janice Rogers Brown wrote in the court's opinion.
In justifying the encoding rules ten years ago, the FCC had invoked both explicit and ancillary authority under the Communications Act, particularly section 629. The court, however, was unpersuaded.
“Though section 629's directive to 'adopt regulations to assure the commercial availability' of navigation devices may afford the FCC some wiggle room in crafting its regulatory regime, the statute's language is not as capacious as the agency suggests,” Brown said. “Certainly, section 629 provides no explicit textual basis for the encoding rules, instead authorizing 'regulations to assure the commercial availability' of navigation devices. But the FCC points out the encoding rules fulfill 'consumers' expectations that their digital televisions and other equipment will work to their full capabilities.' Consumer satisfaction enhances consumer demand, ensuring a viable commercial market. However, as the FCC acknowledges, the encoding rules are not necessary to sustain a commercial market for direct broadcast satellite devices.”
The court noted that the FCC itself had concluded that “differences in the marketplace” for direct broadcast satellite equipment, where devices are available at retail and offer consumers a choice, as compared to equipment for cable TV services, “justified not applying” other section 629 rules to satellite TV providers.
And while the FCC maintained that the encoding rules are an “essential component” of the industry agreement to “assure the commercial availability of navigation devices,” the court said that this alone cannot be enough to “tether” the encoding rules to section 629.
“The FCC cannot simply impose any regulation stipulated in a memorandum of understanding as a means of promoting the commercial availability of navigation devices, no matter how tenuous its actual connection to section 629's mandate,” the court explained. “To read section 629 in this way would leave the FCC's regulatory power unbridled--so long as the agency claimed to be working to make navigation devices commercially available. Nor does the FCC adhere to the view that rigid imposition of the encoding rules is essential to making navigation devices commercially available.”
Senior Circuit Judge Harry T. Edwards, in a concurring opinion, said that while he agreed that the rules should be vacated, he did not agree that the FCC has no authority under section 629 of the Communications Act to impose encoding rules on satellite TV providers.
“This court certainly cannot say that Congress' direction to the FCC to ensure the commercial availability of navigation devices may never be reasonably interpreted to support the application of encoding rules on satellite carriers. We simply do not know this,” Edwards said. “Congress obviously afforded the FCC considerable discretion in directing the agency to promulgate standards 'to assure the commercial availability . . . of converter boxes, interacte communications equipment, and other equipment used by consumers to access multichannel video programming and other services offered over multichannel video programming systems, from manufacturers, retailers, and other vendors not affiliated with any multichannel video programming distributor.' The statute does not by its terms prohibit the requirement of encoding rules. Rather, any challenge to the agency's exercise of its discretion under Section 629 must take into account the circumstances presented and the commission's explanation for the action in question.”
Reached for comment Jan. 15, an agency spokesman told BNA that the FCC is reviewing the court's opinion.
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