[attorneys' named omitted]
UNITED STATES DISTRICT COURT
Defendants City of Portland (City) and Multnomah County (County) submit this memorandum of law in support of their motion for summary judgment and in opposition to the motion for summary judgment by plaintiffs AT&T Corp., Telecommunications, Inc., TCI Cablevision of Oregon, Inc. and TCI of Southern Washington (ATT/TCI).
The City of Portland and Multnomah County, by ordinance and resolution, approved a change in the control of franchises now held by TCI Cablevision of Oregon, Inc. and TCI of Southern Washington (the "Franchisees") from Tele-Communications, Inc. to AT&T Corp. As one of the conditions of the transfer, the City required Franchisees to provide an open cable modem platform (the "open access provision") that would permit subscribers to use third parties, unaffiliated with the plaintiffs, to obtain access to the Internet.
The open access provision would allow competing Internet access and online service providers use of the cable system to contract with subscribers to offer different types of Internet access, different levels of Internet access, and different pricing schemes to address the different interests and different requirements of different consumers. It would, for example, allow one company to offer a simple e-mail only service at a discounted rate. Another might offer filtered access to the Internet for a premium to families concerned about the availability of material that may be inappropriate for children. At the same time, it would allow ATT/TCI to bundle or sell separately long distance, local telephone, video on demand, and an affiliated proprietary Internet access and content service. Without the condition, to obtain access to the Internet, every subscriber would be required to purchase plaintiffs proprietary service at retail cost.
The local governments justification for the open access condition is clear and is essentially not controverted by plaintiffs. Plaintiffs have given their proprietary Internet service, @Home, the exclusive right to provide high-speed Internet services over the ATT/TCI systems. These exclusivity agreements are far more significant and troubling in the context of the AT&T/TCI merger. As AT&T put it, the merger brings together assets in a way that it believes will "redefine the communications industry landscape."
The City and County had substantial reasons to believe that residential users who desire high-speed access to the Internet could only do so through a cable system. Currently, telephone lines do not provide a satisfactory alternative to cable for high-speed access; cable modems may have the capability to receive information at speeds at least 100 times faster than a 28.8 modem,and substantially faster than the speeds achieved using ISDN, T-1 land lines, ADSL, or any other service that is comparably priced. Because of the exclusivity agreement with @Home, that company would essentially become the gateway to high-speed residential Internet access. Members of the public, spokespeople for US West, and representatives of other Internet service providers all attested to the anticompetitive impact of this arrangement:
Statement of Richard Horswell, president of Oregon Internet Service Providers, to Portland City Council, December 17, 1984. Mr. Horswell went on to estimate that if @Home were permitted to serve as the sole gateway to the Internet via cable the City could lose hundreds of jobs and $20,000,000 a year that now flows into the local economy. Because these services are, according to plaintiffs, cable services, the effect of the unconditioned merger is to limit cable service competition. See also Exhibits to Luppold affidavit: Exh. 9, p.2; Exh. 10, pp. 9-11; Exh. 11; Exh. 14, pp.3-6; Exh. 15, pp. 18-21; 24-26; Exh. 22, pp. 12-14, 20-24; Exh. 26 (statement of Oregon Consumer League); Exh. 27, p. 15; Exh. 30, pp. 5-7; Exh 31, pp. 11-14.
The growth of the Internet depends on its openness, and the bottleneck created by @Home is a threat to the Internets accessibility. @Homes own SEC filings affirmed that there were reasons for the City to be concerned about the competitive effect of the merger. @Home characterized itself as having exclusive access to a majority of the houses in the United States and described its exclusivity arrangement in ways that left little doubt as to their potential for limiting competition and innovation. To put it another way,
The City and County therefore rightfully concluded that the open access requirement was necessary to protect cable service competition and to protect consumers. That interest was particularly strong given the historical relationship between the City and its cable service providers. Cable franchisees are given a special right to occupy public property to provide cable services. Local governments have an interest in ensuring that this grant of right is not used in a manner that harms the public interest.
One fundamental fact needs emphasis at the outset, for it has been obscured by ATT/TCI rhetoric. Nothing in the City and County condition will "force" ATT/TCI to carry signals or Internet communications that it is not otherwise willing and able to carry. ATT/TCI
have themselves announced that @Home can be used to receive "any available content on the Web," including the content offered by service providers that may want to take advantage of Portlands open access condition. AT&T and TCI have told the FCC that, while they will not provide non-discriminatory access to the cable modem platform to third party Internet service providers, "customers of @Home¼ can still access" those third parties indirectly.
The most significant difference between the City and Countys condition, and what plaintiffs have promised otherwise to do is this: under the AT&T/TCI model, a subscriber must buy the duplicative access services offered by @Home in order to be able to buy services from a provider of his or her choice. In other words, @Homes competitors will be limited to customers who are willing to pay twice for similar services. Under the City and County condition, the customers of third party Internet service providers could obtain direct access to their provider of choice without having to pay the full @Home retail rate. (A portion of the current @Home retail price goes to the Franchisee; under the nondiscrimination open access provision, those who desired access would pay the same percentage). Thus, the City and County condition only affects the economic arrangements under which local cable subscribers can access the Internet.
In short, the open access provision is a classic requirement intended to prevent one entity from controlling an essential facility--in this case, the cable system. Despite some noises made in plaintiffs brief, the Complaint does not challenge the substantive basis for the City decision. This case therefore raises only a single issue: whether the local governments had authority to condition franchise rights in a manner aimed at preventing the holder of a City or County cable franchise from creating a monopoly bottleneck for high-speed access to the Internet. Local law and the franchises at issue here permit such a condition. Federal statutory law contains no prohibition on such local action and, in fact, contemplates that local governments will act to protect competition. Nothing in the federal or state constitutions limits local governmental power to do what the City and County did here.
On the question before the Court, the answer is clear: an open access condition may be imposed on local cable franchisees and in this case was properly imposed.
II. COUNTER STATEMENT OF FACTS
The facts of this case are simple, and largely uncontested. The City and County described them in their motion to dismiss filed on February 8, 1999. Essentially (1) TCI and AT&T were required to obtain the prior written approval of the defendants before merging and filed to obtain that approval; (2) in hearings held on the merger, the defendants were advised that without an open access condition, an approval in the change in control of the franchises would reduce competition in the provision of Internet services, which plaintiffs characterize as cable services; (3) plaintiffs did not seriously contest these claims, and the record that was before the City and County indicated that unless this transfer were conditioned, there would be severe, anticompetitive consequences flowing from the bottleneck control of the cable system over high-speed Internet services.
Plaintiffs description of the facts is largely beside the point or presents legal argument as if it were fact. To the extent that they approach relevance, the plaintiffs statements are misleading. For example, the discussion of the technology and services in plaintiffs Statement of Facts at A-B is misleading to the extent plaintiffs are seeking to imply anything about the competitive effects that would follow the merger, the feasibility of implementing the condition, or the cost of implementing the condition. The record before the City and County, and the SEC filings make clear that (a) there was reason to conclude that the competitive threat is real in Portland; (b) no meaningful objection was raised to the implementation of the condition from anyone other than ATT/TCI; and (c) the cost of implementing open access would be borne by those seeking it.
With respect to the role of local authorities in regulating cable services generally (as briefly described in the Factual Background section, part C of plaintiffs brief in support of summary judgment, ATT/TCI Br. at pp. 2-5), the critical, omitted "fact" is this: local governments did not obtain their right to regulate cable from the federal government. In Portland, (and elsewhere), it is a function of the citys sovereign powers over its property. As we discuss in more detail later, local authority is preempted in some respects, but unless a local action is prohibited by federal law, the locality may act. An affirmative federal grant is not required.
The City and County also take issue with ATT/TCIs characterization of the Federal Communication Commissions treatment of the open access issue. ATT/TCI Br. at pp. 5-7. The FCC simply refused to act at this point; more importantly, neither the FCCs actions, or the Justice Departments actions, could or did vitiate the citys authority to act. See Defendants Response and Objection to Plaintiffs Concise Statement of Material Facts.
The City and County do not dispute ATT/TCIs description of the general sequence of events leading to the denial of their application to transfer control of the City and County cable systems subject to conditions, (ATT/TCI Br. at pp. 9-10), except in these particulars:
(1) TCI mischaracterizes the franchises and conditions at issue. Those franchises contain provisions giving the City and County broad authority to approve and disapprove requests for transfer, in the public interest, and to otherwise establish regulatory requirements in or outside the context of franchise transfers. We discuss these provisions in detail below.
(2) Contrary to ATT/TCIs contention at p. 10, the City and County did not in fact "adopt ordinances denying the approval of the proposed change in control," and those are not the "ordinances ... challenged in this proceeding." Instead, as described more fully in the Motion to Dismiss filed by the City and County on February 22, 1999, the City and County approved the transfer, with conditions. The ATT/TCI applications for approval were denied by operation of the express terms of the City ordinance and County resolution when ATT/TCI refused to accept all the terms and conditions of the transfer of control, including the open access condition.
The City and County each retain the power to review and approve or reject any transfer or change in control over a cable franchise issued by their Councils. The power to reject an approval implies the power to approve with conditions. In addition, the City and County retained broad regulatory authority over the operations of the franchises. In this case, the City and County imposed a condition that did no more than assure that the company ultimately in control of the franchises--AT&T --would abide by the terms and conditions of the franchises and would not create an anti-competitive bottleneck that would limit cable service competition.
A franchise is a special privilege granted by a local government which generally does not belong to citizens as a common right. Northwest Natural Gas Co. v. City of Portland, 300 Or. 291 (1985); Whitbeck v. Funk, 140 Or. 70, 73-74 (1932). Typically, the grant consists of the privilege of using the public right-of-way within a municipality or county for profit-making purposes. The nature of the use can vary widely, from temporary, limited users, such as garbage-haulers or ambulances, to permanent, extensive occupation of the public right of way, such as natural gas pipelines or telecommunications, electric, or cable television facilities. See generally, Walters, "Franchises, Licenses, and Permits," OREGON LOCAL GOVERNMENT LAW (OLI 1991 & Supp 1993), Chapter 10.
Once acted upon, a franchise issued by a government becomes a contract between the government as grantor and the private party as grantee. Elliot v. City of Eugene, 135 Or. 108 (1931). As such, however, it is subject to special rules of construction significantly different from the standard canons applied to private contracts. "If the terms of the franchise are doubtful, they are to be construed strictly against the grantee and liberally in favor of the public." Northwest Natural Gas v. City of Portland, supra, quoting City of Joseph v. Joseph Water Works Co. 57 Or 586, 591 (1911). "What is not unequivocally granted is withheld, and nothing passes by implication, except what is necessary to carry into effect the obvious intent of the grant." City of Joseph v. Joseph Water Works, supra, 57 Or at 591.
AT&T and TCI have made a particular point of characterizing their transaction as a "change in control" for purposes of the local franchises. Complaint, ¶ 27, 28. That is, TCI will retain the franchise, but the ultimate control over the franchise will rest with AT&T after it has merged with TCI.
The two primary City and County franchises contain very similar provisions related to "changes in control" over franchises. Each franchise says that "a change in control of the Grantee or the Parent Corporations ... make[s] this franchise subject to revocation unless and until the City [County] shall have consented thereto by ordinance [resolution]." City Franchise, §15.2; County Franchise §14.2.
In neither franchise are there any express constraints on the governments review of an application for change in control. Nor are they limited to certain criteria in consenting or withholding consent. The authority to deny an application, of course, carries with it the inherent authority to condition approval of an application to serve purposes that might justify a denial. See Nollan v. California Coastal Commn, 483 U.S. 825, 836; 107 S.Ct. 3141, 3148 (1987).
There is, however, very broad and general authority under the franchises to establish conditions to protect the public, whether it be exercised in or out of the context of a franchise "change in control." Most importantly, the franchises are subject to the "power and right" of the City and County Councils "reasonably to regulate the exercise of the privileges permitted by this Franchise in the public interest." Thus, the test for whether a change in control should be approved is whether the change of control is in the public interest.
Moreover, even if the franchises did not contain an explicit public interest standard, a public interest test for judging changes in control would apply by implication. Under established tenets of franchise interpretation, the lack of clear and express contractual limits on governmental discretion must be construed broadly in favor of the public. Limits on the government are not to "pass by implication." City of Joseph v. Joseph Water Works, supra, 57 Or at 591. Put otherwise, where a franchise itself does not establish specific criteria for the exercise of governmental discretion (for instance, to approve or deny a franchise transfer), the governments must be permitted to grant or deny (or condition) a change in control based on a review of what is in "the public interest" broadly stated.
Here, both governments concluded that changing control of the franchise to AT&T could lead to anti-competitive consequences for the marketing of cable services, including Internet services. AT&T cannot and has never attempted to deny that maintaining competition in the local marketplace for cable services is in the public interest. The condition the governments imposed, therefore, is within their authority.
If there were any doubt about the public value of local competition, in this specific context Congress has removed it. In 1992, in reaction to judicial opinions limiting local discretion in cable ownership decision, Congress inserted a provision in the Cable Television Consumer Protection and Competition Act of 1992 to address this issue. (See fuller discussion, infra.) 47 U.S.C. § 533(d) now declares that federal law must "not be construed to prevent any ... local franchising authority from prohibiting the ownership or control of a cable system ... in circumstances in which the ... franchising authority determines that the acquisition of such cable system may eliminate or reduce competition in the delivery of cable service in such jurisdiction."
In their complaint, ATT/TCI were careful to note that they were not proposing to transfer the underlying franchises, merely to "change control." Complaint ¶ 27. They took this position throughout the country. Plaintiffs also recognized in its complaint that a change in control was governed by Sections 14.2 and 15.2 of the County and City franchises, respectively, the application of which the City has just discussed. ATT/TCI specifically denied that their action was a "transfer," subject to other provisions of the franchises. Complaint ¶ 28.
In their motion for summary judgment, ATT/TCI walk away from the allegations in the complaint. They now say that a change in control over the franchises should be treated like a "transfer," and be made subject to the provisions governing transfers. Under the City and County franchises, a franchise transfer may only occur with "the prior written consent of the City [County] as expressed by Ordinance [resolution]." § 15.1(B)(1); §14.1(B)(1). In determining whether to consent to a transfer the City or County "may inquire into the technical, legal, and financial qualifications of the prospective party" and "may condition any Transfer upon such conditions, related to the technical, legal, and financial qualifications of the prospective party to perform according to the terms of the Franchise, as it deems appropriate." § 15.1(B)(2); § 14.1(B)(2).
ATT/TCI had it right the first time. Their change in control request is governed by sections 14.2 and 15.2 of the franchises. This is clear on the face of the franchises.
But even if one assumes that the transfer provisions (§15.1(B)(2) of the City franchise and §14.1(B)(2) of the County franchise) apply to changes in control, the City and County still acted within their rights. Those provisions do not prevent the City from enacting the open access provision.
1. In the first place, the transfer provisions so heavily relied upon by Plaintiffs do not actually limit the grounds upon which the City may choose to grant or deny a transfer, but instead by their terms discuss the matters that may be investigated and that may form the basis for transfer conditions. Thus, the "public interest" standard discussed above still applies to any transfer or change of control.
2. Moreover, the transfer provisions would not bar the imposition of an open access condition, even assuming arguendo that they established the sole standard for transfer review.
The phrase "technical, legal, and financial qualifications" is not defined in the franchises. Nor is it a phrase used in the federal Cable Act with respect to franchise transfers. ATT/TCI want the Court to read the words narrowly to exclude any local consideration of the competitive effects of the proposed transfer. But this would surely contradict Oregon courts direction to interpret franchises broadly to protect the public. In any case, ATT/TCI do not explain why anti-competitive effects are irrelevant to qualifications to hold a license.
3. As we have already mentioned, there is clear direction from the federal law, which AT&T says should prevail here, allowing local governments to take into account issues of cable service competition when deciding who should own cable systems. 47 U.S.C. 533(d). The right to hold a license at all -- the most fundamental legal qualification -- can depend on whether the local governments decide that a transfer will or will not reduce competition. If a company proposing to operate a cable system intends to do so in a way that a "local franchising authority determines may eliminate or reduce competition," 47 U.S.C. § 533(d), it does not have the requisite "qualifications" to run the system-- any more than would a company that announced an intention to violate its franchises or who has consistently violated franchises elsewhere.
4. It follows that a condition that is designed to overcome an anti-competitive defect in qualifications is permissible, particularly when prescribed as did the City and County here. Consistent with federal law, the City and County established a condition that would allow the transfer to go forward, but denied the transfer, if the condition was not accepted. So here, the transfer was ultimately denied based on a standard explicitly recognized by federal law.
5. If that were all not enough, the City franchise contains a provision requiring that other businesses shall be allowed to use the franchise facilities, upon order of the City Council. See discussion, infra. When AT&T refused the request to provide open Internet service, the company, in effect, announced that it that it did not intend to comply with the franchise. The open access condition was fully appropriate as a way for the City to insure that AT&T would "perform according to the terms of the Franchise." City Franchise, § 15.1.
The Citys franchise with TCI contains, as it must, provisions specifically required by the City Charter. Section 1.5 of the Franchise says that "Sections 10-201 through 10-218, inclusive, of the Charter ... are hereby incorporated by reference and made a part of this Franchise, to the extent authorized by law." Section 10-210 of the Charter (passed in 1913 by evidently prescient voters) says that:
The cables and cable modems and other structures constructed under the TCI franchise are not "rolling stock" or "power." Thus, the City Council, having found it advantageous to the public, has the authority to order AT&T, if it intends to use those things to provide Internet access, to allow its competitor Internet service providers to use them as well. That is all the open access condition did. When AT&T declared that it intended to violate the terms of the franchise and refuse to provide open access, the City Council was entitled to deny AT&Ts request to take control of the franchise.
The only evident obstacle to the Citys reliance on this Charter franchise provision would be if it could be said that the ATT/TCI competitors (such as U.S. West and independent Internet service providers) were not "operating a similar public utility." But the breadth and purpose of the City Charters provisions sweeps that obstacle aside.
Under the Charter, "public utility" is defined much more broadly than one might expect.
City Charter § 10-101. A public utility, of course, has long been understood to mean "a business enterprise, as a public service corporation, performing an essential public service and regulated by federal, State, or local government." Random House Dictionary of the English Language (Unabridged, 1973)(emphasis added). No one would argue that Internet service providers are typically "regulated by government" in the sense that phrase is used in the public utility context. (That is, an "industry required by law to render adequate service in its field at reasonable prices to all who apply for it." The Columbia Encyclopedia, (5th Ed., 1993) at 2848.)
But the City definition of public utility has a second part, not tied to the concept of comprehensive governmental regulation. A public utility is also any plant or operation that is "engaged in the public service within the City...." "Public service" is simply "the business of supplying an essential commodity, as gas or electricity, or a service, as transportation, to the general public." Random House Dictionary of the English Language (Unabridged, 1973).
The purpose of the City Charters dual definition of public utility can only be viewed therefore as an attempt by the drafters to make sure that their intent--open access, open competition--would apply whether or not the particular enterprise was a traditional, comprehensively regulated "public utility" or some other firm engaged in "supplying a service to the general public," even if the business were not generally regulated by the government.
Moreover, the determination of what is or is not a public utility is a legislative determination. See, Priest, Principles of Public Utility Regulation (1969), Vol. 1 at 6. Here the Portland City Council has determined, at least for purposes of the open access and common use provision of its own Charter, that those who provide access to the Internet should be treated as public utilities. The Charter is the Citys organic law; the Council has the right to read it in a manner that takes into account the changes of society and technology. The Councils determination should not be second-guessed by the federal judiciary.
In this case, ATT/TCI and its competitors seek to provide a service to the public--Internet access. For purposes of the City Charter provision requiring open access and common use of facilities, that public service is a "public utility." As a result, there is no obstacle to the City enforcing its Charter to require open access for the cable modem platform of operators of City cable franchises.
Plaintiffs case fares not better even if one assumes that the change in control and transfer provisions do not themselves authorize imposition of the open access condition. For to prevail in their claim, plaintiffs must show that the condition could never have been imposed as an exercise of the Citys and Countys general regulatory authority. This, plaintiffs cannot do.
In judging this issue of ultimate local governmental authority to impose the open access condition, the Court must bear in mind
United States v. Winstar Corporation, 518 U.S. 839, 860, 116 S.Ct. 2432, 2448, 135 L.Ed.2d 964 (1996). "Neither the right of taxation, nor any other power of sovereignty, will be held ... to have been surrendered, unless such surrender has been expressed in terms too plain to be mistaken." Id., 518 U.S. at 874-875, 116 S.Ct. at 2454-2455, citing Jefferson Branch Bank v. Skelly, 1 Black 436, 446, 17 L.Ed. 173 (1862).
As the Supreme Court has explained:
518 U.S. 875, 116 S.Ct. at 2455.
Application of the unmistakability doctrine to the instant case reveals that neither the City nor the County surrendered their authority to legislate the terms and conditions of an offering of broadband Internet access service via the franchised cable facilities. There is simply no provision in either the City or County franchise agreement which can be construed as a surrender of their "sovereign jurisdiction" to do so -- in any terms, much less "unmistakable" terms. As acknowledged, indeed insisted, by ATT/TCI in their motion for summary judgment, "the existing contract ... makes no reference to that subject." (ATT/TCI Br. at p. 13).
But the franchises did save City and County regulatory authority to deal with changing circumstances. As we have noted, each franchise says: "The City [County] Council shall be vested with the power and right reasonably to regulate the exercise of the privileges permitted by this Franchise in the public interest." City Franchise, § 17.1, County Franchise § 16.2. Only in the event that there arises a "direct conflict between the City regulatory action and the terms of this Franchise," will the terms of the "Franchise ... prevail." City Franchise § 17.3, County Franchise § 16.2. Since there is no provision in the franchise with which the open access condition directly conflicts, a City and County decision to require open access prevails under the unmistakability doctrine.
ATT/TCI rely upon the provisions of the franchise agreements which authorize the City and County to consider and approve the legal, technical and financial qualifications of a transferee as "limiting" the local governments. We have already discussed, however, why those provisions do not constrain the Citys and Countys authority to establish open access conditions for facilities constructed under City and County franchises. The fact that a transfer application presented an occasion for the City and County to consider the issue, while providential, would not transform a regulatory requirement adopted in that context into a breach of contract. The City and County would have been entitled to regulate, to the same purpose and effect, with or without the predicate of a request to approve a transfer of control of the TCI franchises.
The City and County have authority under local law to impose the open access condition. The next question becomes--has that local authority to act somehow been preempted or prohibited by Congressional legislation? As we shall discuss below, the open access condition imposed by Portland and Multnomah County is entirely consistent with the federal Communications Act, as amended, 47 U.S.C. § 151, et seq., and in particular with the provisions of Title VI of the Act regulating cable communications, 47 U.S.C. §§ 521-573 (the "Cable Act"). The local authority to impose open access conditions is not preempted by federal law, either expressly or by implication.
The Supreme Court has recognized three types of preemption: conflict preemption, field preemption, and express preemption. See Cipollone v. Liggett Group, Inc., 505 U.S. at 516, 112 S.Ct. at 2617 (1992). Conflict preemption occurs "when compliance with both state and federal law is impossible, or when the state law stands as an obstacle to the accomplishment and execution of the full purposes and objectives of Congress." California v. ARC America Corp., 490 U.S. 93, 100-01, 109 S.Ct. 1661, 104 L.Ed.2d 86 (1989) (citations omitted) (quoting Hines v. Davidowitz, 312 U.S. 52, 67, 61 S.Ct. 399, 85 L.Ed. 581 (1941)). Field preemption exists when federal law so thoroughly occupies a legislative field "as to make reasonable the inference that Congress left no room for the States to supplement it." Fidelity Fed. Sav. & Loan Ass'n. v. de la Cuesta, 458 U.S. 141, 153, 102 S.Ct. 3014, 73 L.Ed.2d 664 (1982) (quoting Rice v. Santa Fe Elevator Corp., 331 U.S. at 230, 67 S.Ct. at 1152 (1947)). Finally, express preemption exists when Congress explicitly states its intent to displace state law in the statute's language. See, Cipollone, 505 U.S. at 516, 112 S.Ct. at 2617 (1992).
Whatever theory is used, the Supreme Court has set out the standards for a preemption analysis several times. In sum, the Court has said:
Medtronic v. Lohr, 518 U.S. 470, 485-486, 116 S.Ct. 1146, 2250-2251 (1985).
This is an express preemption case. Here, Congress has passed legislation specifically addressing the roles of federal and local governments in cable regulation and explicitly addressing the question of preemption. Consistent with the standards laid down by the Supreme Court, this Court must construe the express preemptory provisions of the Cable Act narrowly and give fullest measure to those provisions which expressly reserve state and local authority. Against the narrowly drawn restrictions on local authority set forth in the Act, upon which plaintiffs rely in this case, and which are not in terms implicated by the City and County open access provision, the Court must weigh the several express reservations of state and local authority also included in the Act, as well as the historical context in which franchising authority has been exercised.
For years, local governments had plenary authority over the provision and economic terms of local cable television services. Thus, when Congress passed the 1984 Cable Act, it did not grant authority to local governments, for they already had authority. Instead, Congress established a federalized approach to cable regulation by explicitly granting certain authority to the Federal Communications Commission and expressly limiting the otherwise very broad power of local governments. Most generally, the Cable Act declares the congressional intent as follows:
47 U.S.C. § 556 (a)-(c).
Thus, Congress preempted state and local regulation only insofar as it is demonstrably inconsistent with another provision of the Cable Act. Congress explicitly and emphatically preserved state and local authority to the extent its exercise is not inconsistent with federal law. As a result, as the Fifth Circuit has recently affirmed, a court must construe the preemption provisions of the Cable Act narrowly. Dallas v. FCC, 165 F.3d 341 (5th Cir. 1999). Courts must "start with the assumption that the historic police powers of the States were not to be superseded by [a federal act] ... unless that was the clear and manifest purpose of Congress." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.Ct. 1146, 1152, 91 L.Ed. 1447 (1947); Hillsborough Cty., Hillsborough County v. Automated Medical Laboratories, Inc., 471 U.S. 707, 715-716, 105 S.Ct. 2371, 2376, 85 L.Ed.2d 714 (1985).
This presumption in favor of local authority extends as well to the construction of an express preemption. "[I]f Congress intend[ed the Cable Act] to preempt a power traditionally exercised by a state or local government, it must make its intention to do so unmistakably clear in the language of the statute." City of Dallas v. FCC , 165 F. 3d at 347-348 (citations omitted).
Congress can preserve local authority either by not expressly preempting it or by specifically preserving it. In the case of the Cable Act, Congress used both methods to protect local authority to do exactly what the City and County did here.
To begin with, to correct misinterpretations of the Cable Act by the judiciary, Congress in 1992 enacted a new provision of the Cable Act that addresses the issue in this case directly. The Cable Act now says that:
47 U.S.C. § 533(d). Congress enacted this amendment to Section 613 specifically to overrule a federal court holding that only the FCC had authority to block a cable transfer for competitive reasons. See H.R. Rep. No. 628, 102d Cong., 2d Sess. 91 (1992), citing Cable Alabama Corp. v. City of Huntsville, 768 F.Supp. 1484, 1499 (N.D.Ala., 1991).
The legislative history to Section 613(d) is particularly instructive:
H.R. Rep. No. 628, 102d Cong., 2d Sess. 91 (1992)
Under Section 613(d), the City and County could have denied the requested change in control from TCI to AT&T outright in order to protect competition. If denial is allowed, a fortiori, an approval conditioned to achieve the same competitive goals is permitted. See Nollan v. California Coastal Commn, 483 U.S. 825, 836; 107 S.Ct. 3141, 3148 (1987).
The City and County would submit that this should be the end of the matter. Congress specifically preserved local governments authority to consider and act to protect local competition in the provision of cable services--exactly what the City and County did here.
But ATT/TCI have further argued that, notwithstanding this express and relevant provision in one part of the Cable Act preserving local authority of the sort exercised by Portland and Multnomah County here, other parts of the Cable Act evince a congressional intend to preempt such authority. This is a curious approach to statutory construction, to say the least. It is also, in this case, wrong. Congress did not preempt the action of the City and Multnomah County anywhere in the Cable Act.
Plaintiffs rely upon the general preemption provision of Cable Act set forth at Section 636(c), 47 U.S.C. § 556(c), and allege that the City and County open access provisions are "expressly preempted and superseded." Complaint, para. 17, 24. As the City and County have discussed above, Section 636 only preempts local action that is specifically inconsistent with other provisions of the Cable Act. Its general terms do nothing to elucidate the specific issue before this Court. Unless some other provision of the law expressly preempt the City and County action, § 636 supports the City and Countys position by making it clear that local authority was preserved.
ATT/TCI acknowledge as much when they argue that "the statute [Section 636(c)] prohibits local governments from imposing requirements that abrogate any of the rights or obligations provided by the Act." (ATT/TCI Br. at p. 19) This is a wholly unobjectionable statement of black letter law, but it is unaccompanied by any showing whatsoever that any "right" or any "obligation" afforded ATT/TCI under federal law is hindered or even affected by the City and County open access provisions.
ATT/TCI point to parts of Section 624, 47 USC § 544, which addresses generally the regulation of "services, facilities and equipment" of cable operators, and in particular to Section 624(a), 624(b)(1), 624(e), and 624(f)(1). These provision do not preempt the open access provision and are in most respects irrelevant to this Courts consideration of the open access condition.
(a) Section 624(a) Section 624(a) provides that "[a]ny franchising authority may not regulate the services, facilities and equipment provided by a cable operator except to the extent consistent with this subchapter." 47 U.S.C. § 544(a). The plain terms of Section 624(a) patently contemplate a role for local franchising authorities in the regulation of cable facilities, equipment, and services. It mirrors the structure of Section 636 in that it expressly preserves local authority to the extent its exercise is not in conflict with another provision of the Cable Act. Thus, it must be construed as recognizing the "concurrent jurisdiction" of federal and state authorities and does not, in and of itself and without reference to other provision of the law, preempt any particular local action.
(b) Section 624(b)(1) Section 624(b)(1), 47 U.S.C. § 544(b)(1), provides that "a cable operator may not be required ... to provide particular video or other information services." H.R. Rep. No. 98-934, at 68 (1984). There is no particular video or other information service that is being required here. The ordinance does not require that ATT/TCI provide any service. At most, it requires only that plaintiffs provide non-discriminatory access to the cable modem platform for both affiliated and unaffiliated providers of Internet and online services.
(c) Section 624(e) Section 624(e) directs the FCC to "establish minimum technical standards relating to cable systems technical operation and signal quality," and further provides that "no state or franchising authority may prohibit, condition, or restrict a cable systems use of any type of subscriber equipment or any transmission technology." 47 U.S.C. § 544(e). Plaintiffs argue without elaboration that "the City and Countys requirement that AT&T and TCI open their cable system to all online and Internet service providers impermissibly regulates the use of transmission technology." (ATT/TCI Br. at p. 23)
Plaintiffs are wrong. The open access requirement does not condition plaintiffs use of any "transmission technology." ATT/TCI are free to adopt whatever "transmission technology" they choose. ATT/TCIs argument is simply an attempt to expand the limited preemption of § 624(e) into a general preemption of any rules that might prevent them from using the system anti-competitively. The statute simply cannot be leveraged so broadly to preempt local authority.
The legislative history makes it clear that the purpose of Section 624(e) is to prohibit cable franchising authorities "from regulating in the areas of technical standards, customer equipment, and transmission technologies." S. Rep. 230, 104th Cong., 2d Sess. at 168 (February 1, 1996). Pointing to this legislative history, the FCC has rejected an argument that the statute prohibits the imposition of other conditions in local authorizations to construct facilities merely because those conditions may have some impact on the cable system. See, e.g., In the Matter of TCI Cablevision of Oakland County, Inc., 12 FCC Rec. 21396 (September 18, 1997) ("We do not believe that the Citys conditioning the grant of a cable construction permit in this manner can fairly be considered to constitute a prohibition, condition, or restriction on the use of any subscriber equipment or particular transmission technologies within the terms of section 624(e). The condition simply does not relate to TCIs choice and use within its cable system of either subscriber equipment or transmission technology. Rather, the endorsement is directed at the types of services which may be provided, and the regulatory requirements with which the operator must comply before providing telecommunications services over the subject facilities.")
(d) Section 624(f)(1) Section 624(f)(1) provides that "[a]ny Federal agency, State, or Franchising authority may not impose requirements regarding the provision or content of cable services, except as expressly provided in this subchapter." 47 U.S.C. § 544(f)(1). ATT/TCIs citation to Section 624(f)(1) does also not establish a congressional intent to preempt a local requirement such as the open access condition..
First, the section is not applicable, because, as noted above, plaintiffs are not being required to provide a particular service. Second, Section 624(f)(1) cannot be raised to prevent imposition of conditions that protect against anticompetitive conduct, whether or not one treats the conditions as service conditions. To do so would make Section 613(d)(2) meaningless. Third, Section 624(f)(1) is not an explicit preemption of local authority. It applies equally to federal, state and local regulatory authorities. Thus, ATT/TCIs limited construction of this provision would not only preempt the City and County open access provisions, but would also deprive the Federal Communications Commission of authority to require competitive access to cable operators essential facilities for the provision of broadband Internet access. Such an interpretation would effectively insulate any anticompetitive conduct from scrutiny or remedy -- a result plainly at odds with the competitive goals of the Cable Act. In fact, no such result is required, because the provision is addressed only to the content of video programming provided to subscribers, not to the sort of condition imposed here.
In United Video v. FCC, 890 F.2d 1173, 1188-1189 (D.C. Cir., 1989), the Court of Appeals of the District of Columbia Circuit examined the context in which Congress adopted Section 624(f):
* * *
Id. at 1189.
Similarly, in Storer Cable Communications v. City of Montgomery, Ala., 806 F.Supp. 1518 (M.D. Ala., 1992), the district court upheld local cable regulations which addressed discrimination in the provision of cable programming, and which were designed to assure "free and vigorous competition by curtailing ... anticompetitive abuses employed by cable providers who can leverage their market power." Id. at 1528. The court found that the challenged ordinance was focused on "the market effects of the targeted licenses, not on the content of the programming." Id. at 1545. See also Morrison v. Viacom, Inc., 52 Cal. App. 4th 1514, 61 Cal. Rptr.2d 544 (Cal. Ct. App., 1997) (Section 634(f) does not preempt state antitrust claims alleging the unlawful tying of cable programming services).
ATT/TCI argue that cable operators are to have general control over their own programming subject only to the congressional decision to "carve out three limited exceptions to cable operator control over access and programming." (ATT/TCI Memorandum in Support of Motion for Summary Judgment, p. 21). ATT/TCI go on to contend that because an open access provision is not among these "exceptions," it must be preempted.
This argument betrays a fundamental misapprehension of the scheme of "concurrent jurisdiction" contemplated by the Cable Act. Time Warner Entertainment Co. v. FCC, supra, 56 F.3d at 193-194. The legality of the open access provision does not depend upon an affirmative grant of local authority by the federal government. Local governments have authority to impose the open access condition unless that authority was explicitly eliminated by Congress. If ATT/TCI are asserting a form of "field preemption," their argument must fail inasmuch as Section 636 expressly preserves local authority except insofar as its exercise is inconsistent with the Cable Act.
The City and County have never suggested that the open access provision is, or need be, "authorized" by the must-carry rules of 47 U.S.C. §§ 534, 535, or the requirement that cable operators provide public, education and governmental (PEG) capacity under 47 U.S.C. § 531. Nor do the City and County need to argue that the open access provision is authorized by Section 612's "leased access" requirements, 47 U.S.C. § 532. Thus, ATT/TCIs argument that the open access provision "does not fit in any of these categories" (ATT/TCI Mem., p. 22) is beside the point.
The local governments point is the simple and the relevant one: (a) there is no provision of the Act which prohibits imposition of an open access condition; (b) there is, further an express provision of the Cable Act that would permit the City and County to deny the merger altogether on competitive grounds; (c) a condition that permits the merger to go forward by addressing the competitive problems is by definition consistent with Cable Act and therefore is actually expressly protected by the preemptive provisions of Section 636(c).
The flawed assumptions on which plaintiffs arguments rest is perfectly illustrated by their discussion of Section 612, the "commercial use" or "leased access" provisions of the Cable Act. As plaintiffs correctly point out, Section 612 establishes federal requirements with respect to the commercial carriage of video programming produced by unaffiliated third parties. The Section prohibits a franchising authority from requiring an operator to designate channel capacity for commercial use by third parties in excess of the federal limits. Section 612(b)(2), 47 U.S.C. § 532(b)(2). However, commercial use is defined to mean video programming. The limitation by its terms does not prevent enforcement of provisions governing access to the system to provide non-video services. Plaintiffs, of course, say that their modem platform will be used to deliver non-video programming. Under basic preemption principles, discussed supra, the limited scope of the preemption means that local authority to enforce non-video carriage conditions is preserved. The Cable Acts legislative history confirms this interpretation of the statutory language:
H.Rep. No. 934, 98th Cong. 2d Sess, 1984 U.S. Code Cong. Admin. News 4655,4686-87.
ATT/TCI also assert that the City and County open access condition violates, and is preempted by, Section 621(c) of the Communications Act. That statutory section provides that "any cable system shall not be subject to regulation as a common carrier or utility by reason of providing any cable service," 47 U.S.C. § 541(c). Plaintiffs argue that the City and County open access provisions "impermissibly imposes common carrier duties on AT&T and TCI." (ATT/TCI Br. at p. 23)
The thrust of this argument is that because non-discriminatory access requirements are sometimes imposed upon common carriers, every imposition of an analogous requirement is, ipso facto, common carrier regulation. The argument falls of its own weight. As plaintiffs point out, the Cable Act itself actually authorizes what might be considered a form of carriage requirements under Section 611. 47 U.S.C. §§ 531. Congress did not view these as common carrier or utility requirements; otherwise 47 U.S.C. § 541(c) would need to except Section 611 from the scope of the common carrier prohibition.
Whatever Section 621(c) and its prohibition on common carrier regulation may mean, it assuredly does not mean that local franchising authorities may not set reasonable conditions requiring the cable operator to provide access to the cable system, merely because similar conditions may be imposed on common carriers. The best reading of this limitation is the most obvious one: a state cannot evade the express limitations contained in the Cable Act by classifying cable as a common carrier or utility. So, for example, the state could not use its authority over common carriers to engage in a form of rate regulation that would otherwise be prohibited by the Cable Act.
A common carrier, e.g., a trucking company, is not necessarily a monopoly or properly regulated as such. Just as clearly, a monopoly, like a local cable company, need not be regulated as a common carrier in order to address the potential anti-competitive effects of its market power. See, e.g., Morrison v. Viacom, Inc., 52 Cal. App. 4th 1514, 61 Cal. Rprt. 2d 544 (Cal. App., 1997), (court rejected argument that claims under the anti-tying provisions of Californias antitrust law amounts to unlawful rate regulation in violation of Communications Act). See also Total TV v. Palmer Communications, Inc., 69 F.3d 298 (9th Cir., 1995).
Further, being required to provide non-discriminatory access to facilities is not an automatic indicia of common carrier status. Eleven years after telephone companies were first regulated as common carriers by the federal government under the Mann-Elkins Act of 1910, ch. 309, § 7, 36 Stat. 539, 544 (1910), "federal law recognized the telecommunications industry as a common carrier ... but [it] did not [at the same time] even impose upon AT&T an obligation to interconnect with other communications common carriers...." MCI Communications Corp. v. American Telephone and Telegraph Co., 708 F.2d 1081, 1100-1101 (7th Cir., 1982), cert den. 464 U.S. 891 (1983).
Even more to the point, it is clear that the denial of access to communications facilities can be addressed and remedied outside of a pervasive common carrier regime. In MCI v. AT&T, the Seventh Circuit emphatically rejected the argument that AT&T was immune from liability and payment of damages for its refusal to provide its competitors with access to its facilities because such access was not required by the pervasive federal regulation of AT&T as a common carrier. The Court held that "the mere pervasiveness of a regulatory scheme does not immunize an industry from antitrust liability for conduct that is voluntarily initiated." MCI v AT&T, supra, 708 F.2d at 1103.
Like the damages assessed in MCI v. AT&T, the open access provision has its genesis, not in common carrier regulation, but in the regulation of competition. Specifically, it descends from the "essential facilities" doctrine, where analogous remedies have been invoked to demand "open access" to facilities ranging from football stadiums to ski resorts. The doctrine originated with United States v. Terminal Railroad Association, 224 U.S. 383, 32 S.Ct. 507, 56 L.Ed. 810 (1912), where a group of railroads acquired ownership over the only feasible terminal for rail traffic coming to St. Louis from the West. The Supreme Court ruled that the terminal owners had to make the facility equally accessible to all users. It has been applied in a variety of contexts outside of traditional common carrier regulation. See Otter Tail Power Co. v. United States, 410 U.S. 366, 93 S.Ct. 1022, 35 L.Ed.2d 359 (1973) (utility that had monopoly over wholesale electric power market violated [antitrust limits] by refusing to sell to competitors); Associated Press v. United States, 326 U.S. 1, 65 S.Ct. 1416, 89 L.Ed. 2013 (1945) (A.P.s bylaws restricting membership by competitors of existing members struck down as unreasonable restraint on competition); Byars v. Bluff City News Co., 609 F.2d 843 (6th Cir. 1979) (wholesale periodical distributor that refused to continue selling to a small jobber because it wished to take over the jobbers business violated antitrust limit); Woods Exploration & Producing Co. v. Aluminum Co. of America, 438 F.2d 1286 (5th Cir.1971), cert. denied, 404 U.S. 1047, 92 S.Ct. 701, 30 L.Ed.2d 736 (1972) (defendants hindered plaintiff from extracting natural gas from a field by refusing access to transport facilities, pooling arrangements or a right-of-way); Six Twenty-Nine Productions, Inc. v. Rollins Telecasting, Inc., 365 F.2d 478 (5th Cir.1966) (local radio station refused to pay normal commission for material prepared by an advertising agency, effectively refusing to deal with it); Hecht v. Pro-Football, Inc., 570 F.2d 982 (D.C. Cir., 1977) cert. denied 436 U.S. 956 (1978) (plaintiff entitled to jury instruction as to whether football stadium was essential facility).
The City and County retain local authority to require access to "essential facilities." The fact that the remedy chosen by the City and County is prophylactic rather than compensatory does not turn it into a forbidden form of common carrier regulation.
Plaintiffs finally argue that even if the open access provisions are not expressly preempted, as indeed they are not, the Court should find that they are impliedly preempted under the judicial doctrine of "conflict preemption" because they would frustrate Congress objectives, and because compliance with both federal law and the open access requirement is impossible. (ATT/TCI Br. at pp. 26-27)
The first and best reason for rejecting this argument is that plaintiffs are in no position to raise it. The argument presumes the FCC has authority to impose an access condition, should it desire to do so, and that local imposition of such a condition would "conflict" with the FCC authority. TCI and AT&T, however, have both argued that the FCC has no authority to impose such a condition. AT&T and TCI cannot have it both ways. The companies cannot assert conflict preemption now having just sought and obtained federal approval of the merger based in part on an argument that the FCC itself lacks authority to impose an open access condition act.
In any case, conflict preemption cannot be found here in light of the express preemption provided for under the Cable Act and the broad reservations of state and local authority crafted by Congress at 47 U.C.C. § 556. The Supreme Court has recognized that "an express definition of the pre-emptive reach of a statute implies-- i.e., supports a reasonable inference -- that Congress did not intend to pre-empt other matters...." Freightliner Corp. v. Myrick, 514 U.S. 280, 288 (1995), citing Cipollone v. Liggett Group, Inc., supra.
Moreover, the open access provision is entirely consistent with an over-arching Congressional objectives underlying the Cable Act--the encouragement of competition. Consistent with Section 601(6), the open access provision represents a minimally intrusive regulation that is designed to foster competition without imposing an undue economic burden on local cable systems. 47 U.S.C. § 521(6). The open access requirement is specially geared toward "preserv[ing] the vibrant and competitive free market that presently exists for the Internet...." 47 U.S.C. § 230(b)(2).
In support of the argument that the open access provision is preempted because compliance with both federal and local law is impossible, ATT/TCI points to the FCC decision approving the firms merger. In the Matter of Applications for Consent to the Transfer of Control of Licenses and Section 214 Authorizations From Tele-Communications, Inc. to AT&T Corp. (FCC Approval Order), CS Docket No. 98-178, FCC Opinion & Order 99-24 (February 18, 1999), and its Report In the Matter of Inquiry Concerning the Deployment of Advanced Telecommunications (Advanced Telecom Report), CS Docket No. 98-146 , FCC Rep. 99-5, (January 28, 1999). In each instance, the FCC chose not to impose on ATT/TCI, and cable operators generally, an obligation to provide Internet service providers with non-discriminatory access to the cable platform. ATT/TCI argue that "where there has been a decision not to regulate, it may reflect a decision that regulation is not appropriate, a decision entitled to preemptive effect," citing Freightliner Corp. v. Myrick, 514 U.S. 280, 286, 115 S.Ct. 1483, 131 L.Ed.2d 385 (1995); Ray v. Atlantic Richfield Co., 435 U.S. 151, 177-78, 98 S.Ct., 988, 55 L.Ed.2d 179 (1978).
A closer examination of the cited cases reveals that they are both better authority for the proposition that Congress and the FCC have not preempted state authority to impose an open access obligation. In Freightliner, the Court ruled that the failure of the National Highway Traffic Safety Administration (NHTSA) to adopt regulations governing the stopping distance of trucks and trailers did not preempt state regulation. And in doing so, the Court distinguished Ray v. Atlantic Richfield on the ground that "we found in Ray that Congress intended to centralize all authority over the regulated area in one decisionmaker: the Federal Government." Freightliner Corp. v. Myrick, 514 U.S. at 286, 115 S.Ct. at 1487, citing Ray v. Atlantic Richfield, supra, 435 U.S. at 177, 98 S.Ct., at 1004. In contrast, according to the Court, in Freightliner, "there is no evidence that NHTSA decided that trucks and trailers should be free from all state regulation of stopping distances and vehicle stability." Id.
Here as well, in light of the express statutory reservations of state and local authority, it is clear that Congress has not decided to "centralize all authority" over cable franchise transfers in the Federal Government. In light of Sections 636(b)-(c), 613(d) and 632(d)(1) of the Act, it is equally clear that the FCC could not, even if it wanted to, decide that the competitive effects of cable system acquisitions "should be free from all state regulation."
The Court in Freightliner also emphasized that the absence of federal regulation by NHTSA "did not result from an affirmative decision ... to refrain from regulating," but "from the decision of a federal court that the agency had not compiled sufficient evidence to justify its regulations." In this case as well, in both the FCC Approval Order and its Advanced Telecom Report, the FCC made clear that it was not making an "affirmative decision" that no regulation was appropriate, but was only withholding judgment. In the FCC Approval Order, the FCC concluded simply that "the equal access issue raised by the parties to this proceeding do not provide a basis for conditioning" the requested license and authorization transfers. FCC Approval Order, supra, para. 96.
The Advanced Telecom Report was not a rulemaking at all, and thus cannot be said to preempt state law in any event. In what was only a "report" following an "inquiry," the FCC observed that the focus of the inquiry was upon "all methods" of providing broadband access, not cable access in particular. The FCC concluded, on the basis of the record before it, only that "we see no reason to take action on this issue at this time." Advanced Telecom Report, supra, at para. 101.
Neither the FCC Approval Order nor the Advanced Telecom Report offer any support for the claim that plaintiffs cannot comply with the open access provision at the same time that they comply with federal law.
According to plaintiffs, the open access condition is unlawful because localities are limited by FCC rules to considering the "legal, technical and financial" qualifications of an applicant for a transfer, and the open access condition has no relationship to those qualifications. The plaintiffs are wrong on both counts.
Neither the Cable Act nor FCC rules on transfers establish substantive rules for determining whether to grant or deny a request for a transfer or change in control. The Cable Act was silent on transfers until 1992, when Congress adopted a new provision that established a federal deadline for local action on transfer requests, and which required the FCC to establish rules as to the minimum information that had to be provided before the deadline could be triggered. However, the Senate Report on the transfer provision that was ultimately incorporated into the Cable Act emphasizes a point wholly ignored by ATT/TCI.
S. Rep. No. 102-628 at 120-121 (1992)(emphasis added). When the FCC established the information form that triggered the federal deadline, it expressly recognized the limitation on its authority. In the Matter of Implementation of Sections 11 and 13 of the Cable Television Consumer Protection and Competition Act of 1992, Memorandum Opinion and Order On Reconsideration of the First Report and Order, 10 FCC Rcd 4654, 4675-4676 (1995).
The FCC did make it clear, however, that localities could consider competitive issues as part of the consideration of legal qualifications issues. See, Form 394, Section I, Part II, question 5 (asking whether applicant has ever been convicted of any violation of antitrust laws). Plaintiffs Exhibit 5 at 11. The FCC could hardly conclude otherwise, given the fact that Congress had expressly authorized localities to deny a franchise altogether where the grant could reduce competition in the provision of cable services.
Plaintiffs assert that the local governments open access provisions violate the First Amendment, relying on Turner Broadcasting System, Inc. v. FCC, 512 U.S. 622, 114 S.Ct. 2445, 129 L.Ed.2d 497 (1994) (Turner I), Turner Broadcasting System, Inc. v. FCC, 520 U.S. 180, 117 S.Ct. 1174, 137 L.Ed.2d 369 (1997) (Turner II), Denver Area Educational Telecommunications Consortium, Inc. v. FCC, 518 U.S. 727 (1996), and United States v. OBrien, 391 U.S. 367, 88 S.Ct. 1673, 20 L.Ed.2d 672 (1968). Plaintiffs reliance on this line of cases is completely misplaced. The open access condition at issue here does not implicate the First Amendment because, unlike the regulatory schemes in the cited cases, the condition has no identifiable impact on speech.
The open access condition permits plaintiffs to offer whatever service they desire and permits any person who desires the service to receive it. TCI and AT&T have told the FCC that even in the absence of open access conditions, @Home users can obtain any content. In fact, TCI and AT&T have asserted that users will be able to obtain service from the very companies that would take advantage of open modem platform conditions -- albeit under economically disadvantageous conditions. Thus, the companies have conceded that the same information could flow over the cable system with or without the open access condition, and the same entities could use the platform.
This case is therefore about economics, not speech. The First Amendment simply does not shield the company from economic regulation. Associated Press v. United States, 326 U.S. 1 (1945). Indeed and to the contrary, the First Amendment requires the elimination of the barriers to speech created by anticompetitive combinations: "[the First] Amendment rests on the assumption that the widest possible dissemination of information from divers and antagonistic sources is essential to the welfare of the public ... Freedom to publish means freedom for all and not for some." 326 U.S. at 20.
However, even if one assumes the open access condition somehow implicates speech interests, it plainly passes First Amendment "intermediate scrutiny" as demanded by the plaintiffs. See United States v. OBrien, supra, (establishing "intermediate scrutiny" test). Under intermediate scrutiny, a government regulation will be upheld if it promotes an important government interests, unrelated to the suppression of speech and does not burden speech substantially more than necessary. The government interest in preventing monopolization of a medium of mass communication and assuring that consumers can receive information from a variety of sources clearly has been deemed significant enough to support conditions (such as the must-carry requirement of the federal Cable Act upheld in the Turner case) that are far more intrusive than the requirement at issue here. Under Sections 611 and 612 of the Cable Act, cable operators are required to carry programming produced by persons. 47 U.S.C. §§ 531-532. Those provisions have been upheld by the courts. Time Warner Entertainment Co. L.P. v. F.C.C., 93 F.3d 957 (D.C. Cir. 1996). See also Associated Press v. United States, supra.
Plaintiffs attempt to find solace in Turner. They argue that the Court in that case found support for an access condition in the legislative findings, while the legislative findings here (according to ATT/TCI) are limited. That argument misses the point of Turner. In Turner, the Court addressed the significance of legislative findings in the face of a substantive challenge to the reasonableness of the legislation. It did not determine that legislative findings are conditions predicate to surviving first amendment scrutiny, particularly where, as here, the plaintiffs have not claimed the local governments action was unreasonable or that it lacked support based on the record.
In fact, the evidence before the City that led the City to adopt an open access requirement was overwhelming. It included
The City and County acted on the basis on the information before them to establish the condition at issue. The reasonableness of that determination is not at issue here, and there is therefore no basis for challenging the legitimacy of the government interest at issue.
The open access condition plainly does not suppress speech; nor does it concern itself with the content of speech. The Citys condition applies regardless of the identity of the speaker or the purposes for which the system will be used. The condition is directly related to the competitive harm identified by the local governments and narrowly tailored to advance legitimate government interests in preventing that harm. Indeed, how else the City could have addressed the bottleneck problem effectively without eliminating the bottleneck? It follows that the open access condition would pass intermediate scrutiny.
The open access condition also cannot be invalidated on the ground that it forces plaintiffs to carry speech that would otherwise not be carried. Such an argument is ludicrous in light of plaintiffs representations to the FCC: the companies have already asserted that the network is open to all content.
In any case, the forced speech argument also fails as a matter of law because the open access requirement does not even approach the threshold of impermissible compelled speech under the test adopted by the Supreme Court in Glickman v. Wileman Brothers & Elliott, Inc., 521 U.S. 457, 117 S.Ct. 2130, 138 L.Ed.2d 585 (1997). In Glickman the Court considered the constitutionality of so-called "marketing orders" administered by the Department of Agriculture, which require producers of certain agricultural commodities to fund generic advertising. The Supreme Court reversed a Ninth Circuit decision, Wileman Bros. & Elliott Inc. v. Espy, 58 F.3d 1367 (9th Cir., 1995), which held that government-enforced contributions to pay for generic advertising violated the First Amendment. The issue, as framed by the Court, was "whether being compelled to fund this advertising raises a First Amendment issue ..., or rather is simply a question of economic policy." The Court fashioned a three-part test:
Glickman v. Wileman Brothers & Elliott, Inc., supra, 117 S.Ct. at 2138 (1997)[footnotes omitted].
Applying the Glickman test to the instant case, it is clear that the open access provision does not impose any restraint whatsoever on ATT/TCIs "freedom to communicate any message to any audience." It does not compel ATT/TCI "to engage in any actual or symbolic speech." It also does not require ATT/TCI to "endorse or to finance any political or ideological views."
With respect to the first test, ATT/TCI remain free under the requirements of the open access provision to provide their affiliate @Homes Internet access service on whatever terms and conditions they elect. Unlike the producers in Glickman, ATT/TCI cannot even contend that the open access requirement will restrain their own speech by diverting financial resources from their own speech to that of their competitors. The ordinance, unlike the marketing order at issue in Glickman, does not require that ATT/TCI fund their competitors speech. It requires only that they provide non-discriminatory access to the Internet and online services of their competitors.
The open access provision also does not require ATT/TCI to "repeat an objectionable message out of their own mouths." Id., 117 S.Ct. at 2139. The ordinance requires only the provision of access to facilities. It does not require ATT/TCI to convey an antagonistic ideological message, or any message at all, c.f., Pacific Gas & Electric Co. v. Public Utilities Commn of California, 475 U.S. 1, 18, 106 S.Ct. 903, 912-913, 89 L.Ed.2d 1 (1986). ATT/TCIs provision of gateway services to competing Internet access and online service providers does not "associate" the company with anothers message, cf, Prune Yard Shopping Center v. Robins, 447 U.S. 74, 88, 100 S.Ct. 2035, 2044, 64 L.Ed.2d 741 (1980), any more than it is "associated" with the thousands of websites and online services that would be available through its affiliated Internet access provider. ATT/TCI have already undertaken to provide cable customers with "easy access to the on-line content of their choice."
Finally, the open access provision does not require ATT/TCI to "endorse or to finance any political or ideological views" Glickman v. Wileman Brothers & Elliott, Inc., supra, 117 S.Ct. at 2138 (1997). In applying this third test, the Court in Glickman distinguished between a compelled subsidy of speech which "conflicts with ones freedom of belief," Id. 117 S.Ct. at 2139, quoting Abood v. Detroit Bd. of Ed., 431 U.S. 209, 235, 97 S.Ct. 1782, 1799, (1977), and contributions to an organization whose expressive activities are "germane to [the] goals" of appropriate economic regulation. Glickman v. Wileman Brothers & Elliott, Inc., supra, 117 S.Ct. at 2140 (1997). Nothing the City or County did violated AT&T/TCIs freedom of speech.
ATT/TCI argue that the City and County open access provisions burden interstate commerce in violation of the "dormant" Commerce Clause, Art. 1, sec. 8, cl. 3 of the United States Constitution. Under the Commerce Clause, facially nondiscriminatory regulation (such as is at issue here) supported by a legitimate state interest which incidentally burdens interstate commerce is unconstitutional if the burden on interstate trade is clearly excessive in relation to the local benefits. See Pike v. Bruce Church, Inc., 397 U.S. 137, 142, 90 S.Ct. 844 (1970). Plaintiffs must prove the existence of the burden.
ATT/TCIs commerce clause argument must fail. To begin with, in light of the Congressional decision to divide up federal and local authority over cable regulation by statute, the "dormant" Commerce Clause simply should not apply in this case. The Commerce Clause by its terms authorizes Congress to regulate inter-state commerce--which gives it the first and primary authority to determine how and when local governments may or may not affect interstate commerce. If, as the City and County have demonstrated, Congress did not preempt local governments from enacting an open access condition, then a court should not "infer from the dormant commerce clause ... that the Constitution adopts a particularized view of cable television regulation which may be at variance with that which Congress has so painstakingly constructed." Storer Cable Communications v. City of Montgomery, Alabama, 806 F. Supp 1518 1554 (M.D. Ala 1992). Once Congress has spoken here, that ends the matter.
Even if a court were permitted to "second guess Congresss determination as to which aspects of cable television area amenable to local control and which are not," Id., the burden is on ATT/TCI to present proof that the open access condition imposes a burden on interstate commerce that exceeds the local benefits. The Court will search in vain the plaintiffs "statement of material facts" for any fact or any evidence of a fact, regarding effects on interstate commerce. Mere conclusory allegations in the complaint that the conditions "impose unnecessary and impermissible burdens on interstate commerce," Complaint ¶ 33, are not enough.
ATT/TCI rely upon Healy v. Beer Institute, 491 U.S. 324, 109 S.Ct. 2491, 105 L.Ed.2d 275 (1989), but the case only reveals that application of the commerce clause to invalidate the open access provision would stretch commerce clause jurisprudence beyond recognition. In that case the Court addressed the constitutionality of Connecticuts "price affirmation" statute, which required brewers to affirm under oath that the posted price charged Connecticut beer distributors was no higher than the price charged to distributors in any of the states bordering Connecticut.
The Court concluded in Healy v. Beer Institute that the Connecticut price affirmation statute violated the commerce clause because the statute had "the undeniable effect of controlling commercial activity occurring wholly outside the boundary of the State." Moreover, "the practical effect of this affirmation law, in conjunction with the many other beer-pricing and affirmation laws that have been or might be enacted throughout the country, is to create just the kind of competing and interlocking local economic regulation that the Commerce Clause was meant to preclude." Id., 491 U.S. at 337, 109 S.Ct. at 2500. The Court emphasized what it meant by "competing and interlocking local economic regulation": "the interaction of the Connecticut affirmation statute with the Massachusetts beer-pricing statute ... has the practical effect of controlling Massachusetts prices." Id., 491 U.S. at 337-338, 109 S.Ct. at 2500.
The City and County open access provisions bear no resemblance to the statute held unconstitutional in Healy v. Beer Institute. The open access provision does not apply to conduct that takes place wholly outside City and County borders. It has no practical effect on the conduct of ATT/TCIs business outside of the City and County and ATT/TCI have presented no evidence of any such effect. The City and County have not projected their regulatory regime into any other jurisdiction.
ATT/TCIs second citation, to Bibb v. Navajo Freight Lines, Inc., 359 U.S. 520, 79 S.Ct. 962 (1959), does even more to support the City and Countys case. In that case the Court held that an Illinois statute that required trucks to use mudflaps of a certain design placed an unconstitutional burden on interstate commerce. The Court emphasized the district courts finding that "since it is impossible for a carrier operating in interstate commerce to determine which of its equipment will be used in a particular area, or on a particular day, or days, carriers operating into or through Illinois ... will be required to equip all their trailers in accordance with the requirements of the Illinois Splash Guard statute." Id., 359 U.S. at 524, 79 S.Ct. at 965. Still, the Court noted, "if we had here only a question whether the cost of adjusting an interstate operation to these new local safety regulations prescribed by Illinois unduly burdened interstate commerce, we would have to sustain the law...." Id. 359 U.S. at 526, 79 S.Ct. at 966. The real burden on interstate commerce was that the requirements of the Illinois statute conflicted with those of other states, "making it necessary ... for an interstate carrier to shift its cargo to differently designed vehicles once another state line was reached." Id.
The City and County open access provision does not pose any comparable burden on interstate commerce. It does not require that ATT/TCI outfit their nationwide network to accommodate the requirements of local regulation. The regulation is purely local, and has no effect on ATT/TCIs operations outside the borders of the City and County.
ATT/TCI alleged in their complaint that the open access condition "impaired" contract obligations contained in the TCI franchise in violation of the federal Constitutions "contract clause." U.S. Constitution, Art. I, § 10. In their motion for summary judgment, they have added to that a contention that the City and County have also violated the very similar contract clause of the Oregon Constitution. Oregon Constitution, Art. I, § 21. Neither claim has merit.
Although there may be some differences in the applications of the state and federal contract clauses, Hughes v. State of Oregon, 314 Or 1, 35 (1992), for purposes of this case, those differences are unimportant. For there is simply no basis to argue an impairment here.
Under either the state or federal constitution, "Contract Clause analysis requires [at least two] ... threshold inquiries: (1) whether there is a contractual relationship;[and] (2) whether a change in a law has impaired that contractual relationship.... Transport Workers Union of America, Local 290 v. Southeastern Pennsylvania Transportation Authority, 145 F.3d 619, 621 (3rd Cir., 1998), citing General Motors Corp. v. Romein, supra, 503 U.S. 181, 186, 112 S.Ct. 1105, 1109, 117 L.Ed.2d 328 (1992). Accord, In re Seltzer, 104 F.3d 234, 236 (9th Cir., 1996); Hughes v. State of Oregon, supra, 314 Or at 14.
Here, no one denies that there is a contractual relationship between the City and County, on the one hand, and TCI, on the other. But TCI cannot establish the second part of a contract clause case--that a change in the law has impaired the obligations under the contract. This is so for two fundamental reasons.
First, it must be admitted that conceptually the impairment of a contract is different than the breach of a contract. Hughes v. State of Oregon, 314 or at 35, citing Hays v. Port of Seattle, 251 U.S. 233, 237, 40 S.Ct. 125 (1920). Nonetheless, if a local or state government acts within the terms of its own contracts--that is, if nothing it does violates the terms of a contract or alters, in violation of the contract terms, the anticipated obligations of any party contained in a contract--the contract clauses are simply irrelevant. Here, as the City and County have shown, their franchise agreements with TCI granted them authority, in one way or another, to impose the open access condition. See Part III.A, supra. Since the local governments actions were consistent with the contract, those actions cannot have "impaired" any contract obligation.
Second, even if the right to impose the open access condition were not contained in the explicit terms of the franchises, neither did the City or County explicitly and unmistakably "contract away" their pre-existing authority to impose such a condition. To begin with, the general rule under the Oregon and federal constitutions is that "the state [or local government] may not contract away its police power." Hughes v. State of Oregon, 314 Or at 14, citing Eckles v. State of Oregon, 306 Or 380, 399 (1988), appeal dismissed 490 US 1032 (1989); Stone v. Mississippi, 101 U.S. 814, 25 L.Ed. 1079 (1880); Energy Reserves Group v. Kansas Power and Light, 459 U.S. 400,410, 103 S.Ct. 697 (1983). Since the City and County cannot have made a contractual commitment to forego exercise of their police powers to protect consumers, the exercise of those powers impairs no obligations under the franchise contracts.
Even more important for purposes of the argument here, courts will find contractual limitations on sovereign authority--such as the authority to maintain competition on the local economy and protect local consumers from exercises of monopoly power--only when they are unmistakably expressed in the contract at issue. See Part III A.5., supra. Here the franchises contain no unmistakable relinquishment of general regulatory authority by the City or County. To the contrary, the franchises at issue announce unambiguously that the City and County retained their general regulatory authority.
Thus, the City and County did not oblige themselves in the TCI franchise to refrain from regulatory action generally and certainly did not agree in any explicit way not to require an open access condition. It simply cannot be maintained that the City and County committed, or that TCI could have legitimately expected, that the original franchise agreement insulated it from economic regulation if it threatened to leverage its monopoly control of essential facilities (the cable platform) to the advantage of an affiliated producer in an adjacent competitive market (Internet access). Since there was no "obligation to refrain," the decision to impose an open access condition in no way "impairs" any contractual obligation undertaken by the City or County.
If, despite these arguments, the Court were to conclude that the City and County actions did impair some contractual obligation, under the federal contract clause, that would clearly not end the inquiry. The Court would then need to determine whether the impairment was "substantial" and, if so, if it was otherwise "reasonable and necessary to serve an important public purpose." United States Trust Co. of New York v. New Jersey, supra, 431 U.S. at 25, 97 S.Ct. at 1519 (1977). Applying the standards set out in relevant precedents, the Court could not find a substantial and unreasonable impairment here.
With respect to the state contract clause, it is not clear whether Oregon courts, once having found an impairment of the sort ATT/TCI allege, would go on to investigate the "substantiality" and "reasonableness" of the impairment. There is language in some of the cases indicating to the contrary. But as U.S. West points out in its memorandum in opposition to AT&Ts motion for summary judgment, in all the Oregon cases finding violations of the Oregon contract clause, a state actor impaired or eliminated its own specific financial obligations. Here ATT/TCI are effectively arguing that the local governments have eliminated or "impaired" an implied contractual commitment to forego their normal right to regulate in the public interest. The City and County do not believe that, if presented with this issue, the Oregon courts would lightly overturn the City and Countys action here.
The City and County did not impair any obligations of their franchise contracts with TCI.
ATT/TCI do not seek summary judgment on their claim for damages. Nevertheless, no matter how the Court rules on the merits of their other claims, the Court should dismiss the request for damages. As U.S. West has cogently explained, ATT/TCI may not seek damages against local governments for actions "arising from a decision of approval or disapproval with respect to a grant, renewal, transfer, or amendment of a franchise...." 47 U.S.C. § 555a(a).
For all the foregoing reasons, the Court should grant the motion for summary judgment of the City of Portland and Multnomah, should deny the motion for summary judgment filed by ATT/TCI, and should dismiss this case.
DATED this day of March, 1999.
[certificate of service omitted]