Lead Opinion
Opinion for the court filed by Circuit Judge BROWN.
Concurring opinion filed by Senior Judge EDWARDS.
In аn industry marked by constant innovation and year-to-year change, the dispute over the regulations in this case has lasted a full decade. DISH Network L.L.C. (“DISH”),
I
Multichannel video programming distributors (“MVPDs”)—a category that includes both cable and satellite television service providers—commonly offer access to their content through navigation devices, such as converter boxes. See 47 C.F.R. § 76.1200(a)-(c). Traditionally, cable television subscribers leased their navigation devices directly from their cable providers. See Gen. Instrument Corp. v. FCC,
In 2002, with FCC prompting, cable television service providers negotiated with representatives of the consumer electronics industry to arrive at uniform standards that would allow compatibility across all cable systems. In particular, the FCC sought standards enabling “plug and play,” which would allow consumers tо connect digital television receivers directly to their cable systems, thus circumventing the need for an external navigation device. The negotiations resulted in a memorandum of understanding (“MOU”)—a set of joint recommendations to the FCC—including rules prescribing what distributors could encode within their programming streams, and banning “selectable output control,” which allows distributors and content providers to remotely shut off a connector or output on a program-by-program basis (e.g., preventing a subscriber from reсording a certain television program). The agreement was contingent on application of the encoding rules to all MVPDs, not just cable television service providers.
The FCC issued a notice of proposed rulemaking in January 2003 soliciting comment on the MOU’s proposed rules. During the comment period, various satellite carriers criticized the proposed application of the encoding rules to all MVPDs. They both complained that satellite carriers were excluded from the negоtiations that gave rise to the MOU and also characterized imposition of the encoding rules on all MVPDs as a quid pro quo for cable service providers’ acquiescence to plug-and-play standards. The FCC nevertheless adopted the proposed rules with only minor changes in Implementation of Section 301 of the Telecommunications Act of 1996, Second Report and Order, 18 FCC Red. 20885 (2003) (“Order”). As the MOU recommended, the Order’s encoding rules barred selectable output control. The adopted encoding rules also addressed two related issues: prohibiting down-resolution of broadcast programming—which involves streaming content at an intentionally degraded resolution quality—and limiting the level of copy protection encoding applicable to certain categories of programming. In the FCC’s view, applying the encoding
DISH now petitions for review of the Order and the Reconsideration Order.
II
DISH argues the FCC’s decision to apply the encoding rules to all MVPDs exceeded the agency’s statutory authority. Because we agree the FCC lacked the power to impose the encoding rules on all MVPDs, we need not reach DISH’s alternate contention that the decision was arbitrary and capricious. But first we must satisfy ourselves of our jurisdiction to review DISH’s challenge.
A
As a threshold matter, the FCC insists § 405 of the Communications Act bars review of DISH’s claim that the agency was without authority to apply encoding rules to all MVPDs. Section 405 bars judicial review of questions upon which the Commission, or its designated authority, has been afforded no opportunity to pass unless a party first files a petition for reconsideration. 47 U.S.C. § 405(a). The question, then, is whether the FCC had an opportunity to consider DISH’s challenge to its authority to promulgate the encoding rules.
Because § 405 is phrased in the passive voice, whether the FCC “has been afforded [an] opportunity to pass” on an argument does not depend on whether DISH raised it. See Time Warner Entm’t Co., L.P. v. FCC,
The Order’s discussion of the FCC’s authority satisfies us that § 405’s requirements have been met. See Order ¶¶ 45-47, 55-57, 18 FCC Red. at 20905-10. In justifying the encoding rules, the FCC invoked both explicit and ancillary authority under § 629 of thе Communications Act, as well as ancillary authority under § 624A of the Act, which covers “[cjonsumer electronics equipment compatibility.” 47 U.S.C. § 544a. This was no cursory reference; the FCC devoted several pages of the Order to discussing the statutory basis of its authority to promulgate encoding rules regulating all MVPDs. Even if no other party brought the matter to the agency’s attention, the FCC’s independent contemplation of the issue satisfies § 405’s mandate. See DIRECTV, Inc. v. FCC,
B
The FCC cites three sources for its authority: § 629’s mandate that the FCC “adopt regulations to assure the commercial availability ... of converter boxes, interactive communications equipment, and other equipment used by consumers to access multichannel video programming,”
Section 629 provides no direct authority for the encoding rules, but deference to the FCC’s view of § 629’s meaning is appropriate so long as “Congress has not directly addressed the precise question at issue” and the FCC’s interpretation is “reasonable.” Chevron U.S.A., Inc. v. NRDC,
Certainly, § 629 provides no explicit textual basis for the encoding rules, instead authorizing “regulations to assure the commercial availability” of navigation devices. 47 U.S.C. § 549(a). But the FCC points out the encoding rules fulfill “consumers’ expectations that their digital televisions and other equipment will work to their full capabilities.” Order ¶ 60, 18 FCC Red. at 20911; see also id. ¶ 64, 18 FCC Red. at 20913 (invoking the same argument to support restriction of down-resolution); id. ¶ 68, 18 FCC Red. at 20915 (doing the same with respect to copy protection limits). Cоnsumer 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. In fact, the FCC concluded “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 оther MVPD services, particularly cable operators, [justified] not applying” other § 629 rules to satellite service providers. Implementation of Section 304 of the Telecommunications Act of 1996, Report and Order, 13 FCC Red. 14775, 14800 (1998). And, as the Order itself recognizes, satellite equipment is “already available at retail” and “portable nationwide.” Order ¶ 46, 18 FCC Red. at 20905. Applying the encoding rules to cable providers may meet consumer expectations with respect to the market for cable devices, but that is nо reason to impose these rules on all MVPDs.
As an alternative justification, the FCC also reasoned that the encoding rules “are an essential component of the MOU,” and that the MOU “will assure the commercial availability of navigation devices.” Id. ¶ 47, 18 FCC Red. at 20906. But this cannot be enough to tether the encoding rules to § 629. The FCC cannot simply impose any regulation stipulated in an MOU as a means of promoting the commercial availability of navigation devices, no matter how tenuous its actual connection to § 629’s mandate. To read § 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
We next turn to the FCC’s assertion of its ancillary jurisdiction under both § 629 and § 624A, which, under certain circumstances, extends the agency’s regulatory powers beyond express statutory mandates. Under § 4(i) of the Communications Act of 1934, the FCC is authorized to “perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions,” 47 U.S.C. § 154(i); see United States v. Sw. Cable Co.,
The FCC contends the encoding rules are reasonably ancillary to its mission of assuring the commercial availability of navigation devices because they removed one of the “stumbling blocks” to the consumer electronics industry’s production of such equipment for retail: the “inаbility of industry to agree on a comprehensive set of technical copy protection measures and corresponding encoding rules” that would “ensure the availability of high value content to consumers in a protected digital environment.” Order ¶ 55, 18 FCC Red. at 20909. Yet by this standard, there is little the FCC could not regulate in the name of fulfilling § 629’s mandate. Could cable providers have stipulated that their adoption of the MOU was premised on FCC restrictions on satellite providers’ content offerings? Could they have demandеd the FCC limit the number of channels satellite providers might broadcast in high definition? Under the FCC’s view, its ancillary jurisdiction is effectively plenary. The FCC is not authorized under § 629 to take any
The encoding rules fare no better under § 624A. Unlike § 629, § 624A actually discusses encoding of the sort addressed by the Order. See 47 U.S.C. § 544a(a)(l). But whereas § 629 applies to all MVPDs, § 624A’s reach is limited by its plain language to cable systems, directing the FCC to adopt regulations “as are necessary to assure ... compatibility” between cable systems on the one hand and televisions and video cassette recorders on the other.
The FCC is powerless to wield its ancillary jurisdiction, however, where “there are strong indications that agency flexibility was to be sharply delimited.” Midwest Video II,
Nor is the position espoused by the National Cable and Telecommunications Association (“NCTA”), acting as intervenor, persuasive. The NCTA adopts a more circumspect view of the FCC’s authority, acknowledging the obvious implausibility of interpreting § 629 as empowering the FCC to take any action it deems useful in its quest to make navigation devices commercially available. Instead, the NCTA suggests that § 629 sweeps all MVPDs, not just cable providers, under the ambit of § 624A: “If Section 629 means anything, it means that the Commission now has authority to apply to all MVPDs the same encoding rules that both DISH and the Commission agree the Commission could independently impose on cable operators under Section 624A.” The NCTA’s theory of the interрlay between the two statutes is novel—perhaps because it ignores § 629(f), which cautions, “Nothing in this section shall be construed as expanding or limiting any authority that the Commission may have under law in effect before” enactment of the Telecommunications Act of 1996. 47 U.S.C. § 549(f). The NCTA interprets § 629 to mean the exact opposite.
In the end, we are left with two provisions, neither of which authorizes the encoding rules at issue. Section 629’s text provides no direct authority for the encoding rules, and the FCC’s arguments in favor of such аn interpretation are unconvincing. Section 624A addresses encoding, but only in the context of cable systems. The FCC’s application of encoding rules to all MVPDs was therefore ultra vires.
III
Because the FCC denies that the challenged orders could operate absent the encoding rules—indeed, its argument is premised on this very notion—the encoding rules are not severable. See MD/DC/DE Broadcasters Ass’n v. FCC,
IV
For the foregoing reasons, the petitions for review are
Granted.
Notes
. DISH formerly did business as EchoStar Satellite L.L.C.
. Whether application of Chevron in this context is sensible is an entirely different matter. See AKM LLC d/b/a Volks Constructors v. Sec’y of Labor,
. We note that the FCC’s interpretation of the reach of its ancillary jurisdiction is owed no deference, since Chevron only applies in instances in which Congress has delegated an agency authority to regulate the area at issue. See United States v. Mead Corp.,
. We set aside for now whether § 624A’s reference to "video cassette recorders,” now a largely antiquated technology, is adequate to sustain the FCC's purported interest in the ability of consumers to retain "the full benefits of ... the functionality” of their recording devices. Order ¶ 56, 18 FCC Red. at 20910.
. "A canon of construction holding that to express or include one thing impliеs the exclusion of the other, or of the alternative.” Black's Law Dictionary 661 (9th ed.2009).
Concurrence Opinion
concurring:
I agree with the majority that the Federal Communications Commission (“FCC” or “Commission”) has neither direct nor ancillary authority under Section 624A of the Communications Act, 47 U.S.C. § 544a, nor ancillary authority under Section 629(a) of the Act, 47 U.S.C. § 549(a), to impose the disputed “encoding rules” on satellite carriers. The Commission’s positions on these points cannot survive scrutiny under Chevron Step One or Step Two. See Chevron, U.S.A., Inc. v. Natural Resources Defense Council, Inc.,
I do not read the majority opinion to say that the FCC has no authority under Section 629 to impose encoding rules on satellite carriers, however. 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. Congress obviously afforded the FCC сonsiderable discretion in directing the agency to promulgate standards “to assure the commercial availability ... of converter boxes, interactive 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.” 47 U.S.C. § 549(a). 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.
Petitioner readily concedes that “the plug-and-play standards” adopted by the FCC “may be deemed within the scope of Section 629.” Pet’r Br. at 20. Petitioner’s concern is that “the nature of the encoding rules as a quid pro quo to get a private party to agree to these standards is not a sufficient nexus to Section 629.” Id. Nexus, however, is not necessarily a matter of authority; rather, it concerns a connection, bond, or link between different things. I agree that, in this case, the FCC has failed to show the necessary link between the imposition of encoding rules on satellite carriers and the mandate of Section 629. Therefore, the agency’s decision fails for want of reasoned decisionmaking, not for lack of authority. See Motor Vehicle Mfrs. Ass’n of the U.S., Inc. v. State Farm Mut. Auto. Ins. Co.,
In some circumstances, there is an overlap in the analysis required pursuant to Chevron Step Two,
Petitioner has pressed the point that, in the circumstances at hand, the Commission’s application of the encoding rules to all Multichannel Video Programming Distributors (“MVPD”) is arbitrary and capricious. See Pet’r Br. at 40-48. Indeed, Petitioner convincingly shows that the FCC adopted the disputed encoding rules here to serve the interests of the cable industry and consumer electronics manufacturers in almost total disregard of the interests of satellite carriers.
The FCC acknowledged the fait accompli nature of the [disputed] rules: “[a]bsent adoption of these encoding rules, the cable and consumer electronics industries have indicated that the compromise agreement reached in the [Memorandum of Understanding Among Cable MSOs and Consumer Electronics Manufacturers (“MOU”) ] will be upset and their efforts to produce unidirectional digitаl cable products will falter.” Plug and Play Order, 18 FCC Red. at 20906 ¶ 47. The very speed with which the FCC placed the MOU and its rules on public notice (22 days) foreshadowed the FCC’s acquiescence. The FCC appears to have taken little time to independently review and consider the proposal based on statutory objectives. The FCC did not propose any independent revisions to the proposed rules, and instead simply issued the MOU-proposed rules as its own proposal. The Plug and Play Order went on to adopt the encoding rules in their entirety, and apply them to all MVPD providers for one principal reason—lest the MOU fall apart and leave the FCC with unfulfilled directives under Sections 624A and 629.
This reasoning is of suspect validity at best. First, the FCC did not have its hands tied; it could promulgate its own set of rules—a better set of rules that considers the positions of all MVPD providers. Second, the threat of defection from a private agreement should not carry weight in an agency’s deliberation. The FCC acts pursuant to statutory authority and objectives, and the FCC’s reаsoning that its directive would be frustrated were the MOU to falter is reasoning that is far too attenuated.
Pet’r Br. at 42-43.
Much of what Petitioner says is on the mark and unrefuted by the FCC. However, I reject Petitioner’s suggestion that FCC rulemaking may never take into account the threat of defection from a private agreement. This argument overreaches. The telling point in this case is that the FCC relied on a threat of defection that was tied to a condition—requiring satellite carriers to adopt encoding rules— that was patently unreasonаble. Apart from the threat of defection, the FCC failed to explain how requiring satellite carriers to adopt encoding rules was necessary to assure the commercial availability of converter boxes and other equipment pursuant to Section 629.
In sum, it is clear that the action taken by the FCC pursuant to its asserted authority under Section 629 was the antithesis of reasoned decisionmaking and, thus, arbitrary and capacious. In my view, there is no Chevron issue to be decided by this court. See Judulang,