Defendants' Reply Memorandum in Support of Motion for Summary Judgment.
Re: AT&T and TCI v. Portland and Multnomah County, U.S.D.C., Oregon, Case No. CV 99-65-PA.
Date: March 26, 1999.
Source: Mt. Hood Cable Regulatory Commission. The names and addresses of the attorneys filing the brief have been omitted; the Certificate of Service has been omitted; otherwise, this document has been edited for HTML, but not for content.

[attorneys' named omitted]

UNITED STATES DISTRICT COURT
DISTRICT OF OREGON

TABLE OF CONTENTS

TABLE OF AUTHORITIES

Case Cites:

AMSAT Cable Ltd. v. Cablevision of Connecticut Limited Partnership, 6 F.3d 867 (2d Cir. 1993)
American Libraries Assoc. v. Pataki, 969 F. Supp. 160 (S.D.N.Y., 1997)
Ben Rich Trading, Inc. v. Vineland, 126 F.3d 155 (3d Cir. 1997)
BSA, Inc. v. King County, 804 F.2d 1104 (9th Cir. 1986)
California Federal Savings & Loan Ass’n v. Guerra, 758 F.2d 390 (9th Cir. 1985), aff’d 479 U.S. 672 (1987)
Century Communications Corporation v. Federal Communications Commission, 835 F.2d 292 (D.C. Cir. 1987)
City of Dallas v. FCC, 165 F.3d 341 (5th Cir. 1999)
Copeland v. City of Waldport, 147 Or. 60, 31 P.2d 670 (1934)
Crawford v. Lungren, 96 F.3d 380 (9th Cir. 1996)
Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 98 S. Ct. 2207 (1978)
FCC v. Beach Communications, Inc., 508 U.S. 307, 113 S.Ct. 2096 (1993)
FCC v. Midwest Video Corp., 440 U.S. 689, 99 S.Ct. 1435 (1971)
Freightliner Corp. v. Myrick, 514 U.S. 280, 115 S.Ct. 1483 (1995)
Glickman v. Wileman Bros. & Elliot, Inc., 521 U.S. 457, 117 S.Ct. 2130 (1997)
Hillsborough County v. Automated Medical Laboratories, Inc., 471 U.S. 707, 105 S.Ct. 2371 (1985)
Horowitz v. United States, 267 U.S. 458, 45 S.Ct. 344 (1925)
Kleenwell Biohazard Waste and General Ecology Consultants v. Nelson, 48 F.3d 391 (9th Cir. 1994)
Leathers v. Medlock, 499 U.S. 439, 111 S.Ct. 1438 (1991)
P.A.M. News Corp. v. Butz, 514 F.2d 272 (D.C. Cir. 1975)
Pacific Gas & Elec. Co. v. State Energy Resources Conservation & Dev. Comm., 461 U.S. 190, 103 S.Ct. 1713 (1983)
Pacific Northwest Venison Producers v. Smitch, 20 F.3d 1008 (9th Cir 1994)

U.S.C.:

47 U.S.C. § 230(b)(2)
47 U.S.C. § 230(b)(3)
47 U.S.C. § 521
47 U.S.C. § 531
47 U.S.C.§ 532
47 U.S.C.§ 532(b)(2)
47 U.S.C. § 533
47 U.S.C. § 533(d)
47 U.S.C. § 534
47 U.S.C. § 535 
47 U.S.C. § 541(c)
47 U.S.C. § 544(b)(2) 
47 U.S.C. § 544(e)
47 U.S.C. § 552
47 U.S.C. § 552(d)(1) 
47 U.S.C. § 555 a 
47 U.S.C. § 556(a) 
47 U.S.C. § 556(b) 

Code of Federal Regulations:

47 C.F.R. § 73.635 

Legislative History:

H. Rep. No. 934, 98th Cong. 2d Sess, 1984 U.S. Code Cong. Admin. News 4655

Other:

Cable TV Renewals and Refranchising (1983)

Federal Communications Commission, In the Matter of Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996, CS Docket No. 96-85, FCC Report & Order 99-57 (March 29, 1999) 

Federal Communications Commission, Section 706 Report - Inquiry Concerning the Deployment of Advanced Telecommunications, CC Docket No. 98-145, FCC 99-5 (February 2, 1999)

Tribe, American Constitutional Law (2d Ed. 1988)

INTRODUCTION

This litigation has two substantive components. First, the case explores the scope of local governmental authority to limit the anti-competitive use of private cable television facilities operated under government franchise. This piece of the case turns on questions of local law and preemption of local law by federal statute. Second, if the Court finds that both local and federal statutory law permit the challenged local actions, it must then determine whether those actions, otherwise authorized, exceed the constitutional limits imposed on governmental action by the First Amendment, the Commerce Clause, and the Contract Clause of the United States Constitution and the Contract Clause of the Oregon Constitution.

On the question of authority, despite what sometimes seems to be an unstated underlying premise of ATT/TCI’s arguments, this is not a case requiring the Court to search for affirmative grants of authority for local governmental action. This is a case about "retained authority."

No one can seriously contest that prior to the passage of the federal Cable Act local governments enjoyed extremely broad authority, founded in the essentials of municipal law, to condition and regulate their grant of local franchises to use public property. The authority was certainly sufficient to impose an "open access condition." Similarly, no one can contest that if TCI did not already have existing franchises from the City and County, the City and County would have authority, at least under local law, to impose the challenged open access condition as part of any new franchises. If TCI found the condition unpalatable, it could forego the right to profit from the use of City and County rights-of-way, and decline to accept the franchise as conditioned.

Given the broad power of local governments to control the private profit-making use of public property, the two "authority" questions for the Court are these: (1) Did the City of Portland and Multnomah County, by entering into the existing franchises with TCI, give away their inherent authority to impose the open access condition? (2) If the City and County retain local authority to impose the condition, has Congress nonetheless stripped them of their authority by the preemptive effect of the federal Cable Act? In short, the open access condition is legal, and ATT/TCI’s challenge to the local governments’ authority to enact it must fail, unless plaintiffs can show that the existing franchises or the federal law prohibits its imposition. They have not done so and they must not prevail.

On the constitutional questions, most of what ATT/TCI have to say is simply not relevant. They have mis-characterized the open access condition as a constraint on speech, when it does no more than regulate economic relations among various parties to serve competition. They argue, but present no proof, that the condition interferes with interstate commerce, when they themselves admit that the condition will only alter their operations locally. And they invoke the contract clauses in a case where no contract has been breached and sovereign authority has not been contracted away.

Although they now criticize the policy behind the City and County’s open access condition, ATT/TCI do not, as they could not, ask the Court to review its wisdom. ATT/TCI’s complaint does not allege that the policy had no basis or that it is unreasonable. Nor can ATT/TCI deny that the City and County had before them a record demonstrating that ATT/TCI’s monopoly control of the cable modem gateway to the Internet presented a grave problem for competition.

To be sure, on reply, ATT/TCI argue that there are alternative ways to access the Internet. But as plaintiffs are also aware, they did not present this information before the City and County Councils. Further, several analysts have declared that these alternatives do not now provide competitive alternatives to cable modem service to the home and may never do so. The risk that ATT/TCI will be able to exercise anti-competitive control over high-speed residential access to the Internet is real. TCI/ATT may disagree with the City’s conclusion in this regard, but that does not mean the City’s action was unsupported or unreasonable. What is more, there was evidence before the FCC from which one could conclude that it may be substantially more difficult to impose an access condition later, than it is to impose one now, as TCI systems are upgraded post-merger.

Finally, ATT/TCI’s own arguments in this Court help reveal the danger. They warn that the open access provision may change the calculus regarding when or whether ATT/TCI offers Internet service in Portland. Plaintiffs’ Reply Mem. at 34. ATT/TCI are to be fully compensated for providing access to others. Thus, ATT/TCI have simply announced that this Court should permit it to control the broadband gateway to the Internet or otherwise they will use their bottleneck control to block the service altogether. Of course, every monopolist could threaten to go out of business if forced to compete. Such threats cannot outweigh the public’s interest in promoting competition -- or here, provide a basis for overturning the City’s actions.

Cities historically established requirements for third party access to cable systems as part of their franchising and regulatory control over cable systems. The authority to establish these conditions is part of the sovereign power vested in municipalities, and is not derived from federal law. To prevail, it is therefore not enough for ATT/TCI to show the Cable Act is silent on third party access to provide cable modem services; it must show, affirmatively, that federal laws preempt historical local authority in this area. ATT/TCI rely on "field preemption," "express preemption," and "conflict preemption" theories to make its case. None of these theories withstands scrutiny.

A. ATT/TCI’s New "Field Preemption" Theory Has No Substance

On reply, ATT/TCI rely primarily on a novel "field preemption" argument. Their theory is that while Congress has not preempted the "entire field" of cable television regulation, it has occupied a subsidiary field within the field of cable regulation. ATT/TCI characterize this "field within a field" as "programming access."

Setting aside whether a "field without a field" theory can possibly be applied here, the argument fares no better than the original field preemption argument the City has already rebutted. "Field preemption" is a form of implied preemption, and cannot be lightly presumed where a statute – such as the Cable Act – contains express, limited preemption provisions. To be sure,"the existence of an express preemption clause does not necessarily foreclose[] any possibility of implied preemption." Freightliner Corp. v. Myrick, 514 U.S. 280, 288, 115 S.Ct. 1483, 1488 (1995), but it does "impl[y] -- i.e., support[] a reasonable inference -- that Congress did not intend to preempt other matters." Id. 514 U.S. at 288. That "reasonable inatttference" is almost always conclusive and in this case is reinforced by the more general rule -- that the Court must assume that State (and local) powers are not superseded by federal law unless that was the "clear and manifest purpose of Congress." Rice v. Santa Fe Elevator Corp., 331 U.S. 218, 230, 67 S.C. 1146, 1152; Hillsborough County v. Automated Medical Laboratories, Inc., 471 U.S. 707, 715, 105 S.C. 2371, 2376 (1985). Indeed, in light of the specific, emphatic and repeated reservation of state and local authority in the federal legislation, 47 U.S.C. §§ 556(a)-(b), 533(d), 552(d)(1), § 521 note, and 544(b)(2), the Court cannot imply preemption without effectively rewriting the statute. As ATT/TCI has itself pointed out to the Ninth Circuit, such "anti-preemption" provisions confirm that "federal law here provides ‘a floor’ and ‘not a ceiling’"

As a consequence, in order to surmount the reasonable inference, the general presumption, and the express reservations of state and local authority, this Court must have some more exacting basis than the facile field-within-a-field that ATT/TCI has constructed. ATT/TCI argue that "Congress has preempted the field of mandatory programming access to cable systems," by legislating must-carry requirements, 47 U.S.C. §§ 534, 535; allowing local establishment of public, educational and governmental ("PEG") channel use requirements, 47 U.S.C. § 531; and providing for leased access to commercial video programming provided by unaffiliated companies, 47 U.S.C. § 532. (Plaintiffs’ Reply Mem. at 11-12).

These provisions were not even adopted in the same decade (the public access and leased access provisions were adopted in 1984; the must-carry provisions were adopted in 1992). There is no statutory provision or legislative history to suggest that these provisions were meant to establish comprehensive federal standards for third party access to cable systems.

To the contrary, the leased access section, at Section 612 (b)(2), 47 U.S.C. § 532(b)(2), contains a preemption provision that is limited to video programming. The legislative history makes it clear that this limitation was intentional. Paragraph 612(b)(2) prohibits any governmental entity from requiring an amount of channel capacity to be set aside in excess of what is expressly provided by the section.

This restriction, however, only applies to the designation of channel capacity for purposes of providing video programming.

H. Rep. No. 934, 98th Cong. 2d Sess, 1984 U.S. Code Cong. Admin. News 4655, 4686-87 (emphasis added).

Therefore, Section 612 cannot be read to preempt, by implication or otherwise, local regulation of access to the cable system by third parties for delivery of non-video cable services. Plaintiffs’ case, of course, rests on the argument that cable modem service is a non-video cable service.

Nor can plaintiffs seriously argue that any of the other cited provisions were somehow meant to apply to – much less preempt – regulations that permit ISPs to access cable systems to provide Internet services. The Cable Act’s must-carry provisions apply to carriage of broadcast television. The Cable Act’s public access provisions are not aimed at commercial use of the system by third parties.

In short, even within the artificially tailored field-within-a-field posited by ATT/TCI, there is no basis for finding a Congressional intent to supersede local authority that would somehow override the anti-preemption provisions of the statute.

ATT/TCI seek to distinguish the cases which establish that local economic regulation of cable operators is not preempted. They say that those cases have nothing to do with "programming access," Time Warner Entertainment Co. v. FCC, 56 F.3d 151 (D.C. Cir., 1995), Total TV v. Palmer Communications, Inc., 69 F.3d 298 (9th Cir., 1995), cert. dismissed 517 U.S. 1152, 116 S.Ct. 1459 (1996); or that where the local law did concern access to programming, it did not require cable operators to carry particular programming, Storer Cable Communications v. City of Montgomery, 806 F. Supp. 1518 (M.D. Ala., 1992). Plaintiffs’ Reply Mem. at p. 13-14. Those cases, however, cannot be read so narrowly.

In Time Warner, the court endorsed the FCC's view that local authorities retained "concurrent jurisdiction" over certain cable operator billing practices despite the fact that Congress expressly preempted local rate regulation. 56 F.3d at 193. The case highlights the narrow construction that even the FCC affords the express preemptions in the Cable Act, and the court's rejection of a claim of field preemption. The decision in Total TV is to the same effect.

The court in Storer rejected as "disingenuous" a claim that three FCC decisions "occupied the field of exclusive cable programming" even though the federal rules upon which the preemption claim was based in that case "encompass policy choices which arguably bear some relation to the practices at issue in this case." Storer Cable Communications v. City of Montgomery, supra, at 1546. The court concluded that the federal rules cited were "highly detailed and specific response to a very different problem." Here as well, the leased access, PEG access and must-carry provisions of the Cable Act are "detailed and specific response[s]" to a very different problem than that which is addressed by the City and County open access provisions. Under Storer, preemption cannot be implied.

B. ATT/TCI Cannot Point To Any Express Preemption of Local Authority

ATT/TCI have now narrowed their express preemption argument primarily to two statutory provisions: § 621(c), which prohibits the regulation of cable systems as common carriers, 47 U.S.C. § 541(c), and Section 624(e), which prohibit local franchising authorities from "prohibiting, conditioning, or restricting a cable system's use of any type of subscriber equipment or any transmission technology." 47 U.S.C. § 544(e). These arguments fail.

1. Section 621(c)

ATT/TCI argue that the City and County open access provisions run afoul of § 621(c) and common carrier limits because they would "force TCI to open up its cable system for use by all ISPs." Plaintiffs Reply Mem. at 17. In our initial brief, however, we showed that a requirement for open access to competitors (as opposed to unlimited service to the public) is not the same as a common carriage requirement.

ATT/TCI rely upon FCC v. Midwest Video Corp., 440 U.S. 689, 99 S.Ct. 1435 (1971). But in that case: (a) the FCC offered no competitive justification for the rule; and (b) the rule required the operator to make its system available for unbounded access by the general public. The Midwest Video Court distinguished the challenged regulations from the broadcast access requirements upheld in United States v. Southwestern Cable Co., 392 U.S. 157, 178, 88 S.Ct. 1994, 2005-2006 (1968). The Court noted that the rules requiring cable systems to carry local broadcast stations were justified on other grounds (preservation of the viability of local broadcasters) and in any case did not violate the "common carrier" proscriptions of the Act because the requirements did not grant unbounded access to the public. Therefore ATT/TCI’s claim that all access requirements are common carrier requirements is plainly wrong. Further, the City and County open access provision does not suffer from the defects that led to Court to strike down the public access rules in Midwest Video as prohibited common carrier regulations: the open access provision addresses a competitive evil and protects consumers; the provision does not grant access to the general public.

That not all access requirements are "common carrier" requirements should be obvious in light of the many essential facilities cases cited in Defendant's Memorandum in Support of Defendant's Cross Motion for Summary Judgment at 32-33. In an effort to avoid these cases, and shoehorn the challenged regulation here into common carriage, ATT/TCI make two additional arguments with respect to the City and County's right to impose access requirements as a form of economic regulation. First, they argue that such economic regulation may only be undertaken by courts under antitrust laws of general application. They provide no legal authority for this argument, because there is none. "A fundamental principle of legislation is that Congress is under no obligation to wait until the entire harm occurs but may act to prevent it." Turner Broadcasting System v. FCC , 520 U.S. at 212, 117 S.Ct. at 1197. The power of the City and County councils, within their own domains, is as plenary as that of Congress. Indeed, the position ATT/TCI now take is inconsistent with their positions before the Ninth Circuit.

Secondly, ATT/TCI argue that the economic regulation at issue is misguided because their cable system is not really a bottleneck facility. This is only a veiled substantive due process claim (one that is not raised in the Complaint), and it is without merit. At issue in this case is the authority of the City and County to adopt the open access provisions at issue. If they have that authority, their legislative policy choices are entitled to deference. FCC v. Beach Communications, Inc., 508 U.S. 307, 113 S.Ct. 2096 (1993).

2. Section 624(c)

ATT/TCI's argument that the open access provision is expressly preempted by Section 624(e) is also unfounded. Section 624(e) prohibits local franchising authorities from "prohibiting, conditioning, or restricting a cable system's use of any type of subscriber equipment or any transmission technology." 47 U.S.C. § 544(e). ATT/TCI argue that the open access provisions "condition" a "transmission technology" by requiring "modifications" to its cable system. Plaintiffs Reply Mem. at 18. In support, they cite an FCC decision; In the Matter of Implementation of Cable Act Reform Provisions of the Telecommunications Act of 1996, CS Docket No. 96-85, FCC Report & Order 99-57 (March 29, 1999).

ATT/TCI simply misstate the FCC’s decision. The decision plainly affirms local authority to require operators to modify their systems:

While the 1996 Act imposes some specific limits of the role [local franchising authorities] play with respect to subscriber equipment and transmission technology, it does not diminish the [local franchising authorities'] important responsibilities in determining local cable-related needs and interests and seeing that those needs are met through the franchising and renewal process. Although local authorities are limited in dictating the use of transmission technologies, other facility and equipment requirements can still be enforced under Section 624(b).

of 1996, CS Docket No. 96-85, FCC Report & Order 99-57, ¶ 141-142 (March 29, 1999).

The FCC decision also makes it clear that Section 624(e) is not a general prohibition on the regulation of facilities and equipment, but instead applies to efforts to control "whether a cable operator uses digital or analog transmissions [or to] determine whether its transmission plant is composed of coaxial cable, fiber optic cable or microwave radio facilities ...." Id at ¶ 141-142. The open access provision, of course, says nothing about whether ATT/TCI should use fiber, or digital, or analog; it does not implicate Section 624(e) in any respect. The FCC rejected TCI's position in that proceeding that local franchising authorities "may not continue to require standards in conjunction with upgrades or rebuilds, such as channel capacity requirements ...." Id. at ¶ 137. This Court should do the same.

ATT/TCI's final preemption argument is that the open access provision conflicts with stated congressional objectives to "minimize unnecessary regulation," and to leave the Internet "unfettered by Federal or State regulation." Plaintiffs’ Reply Mem. at 19. Reliance on such broad statements of congressional "objectives" is fundamentally unhelpful in determining the scope of the conflict preemption that ATT/TCI urge upon the Court. On their face, such statements would allow the plaintiffs to argue in favor of invalidating every economic and technical regulation, every labor law or tax law, every zoning requirement or SEC regulation, at least insofar as they apply to ATT/TCI or the Internet.

Further, such arguments ignore the specific language of the laws, as well as expressions of Congressional intent that support the actions taken by the City. For example, while reciting its desire to foster an Internet "unfettered by Federal or State regulation," Congress emphasized that it also had the following equally important objectives: "to encourage the development of technologies which maximize user control over what information is received by individuals, families, and schools who use the Internet and other interactive computer services," 47 U.S.C. § 230(b)(3), and to "preserve the vibrant and competitive free market". 47 U.S.C. § 230(b)(2). Indeed, a rule like the Portland rule properly reconciles these potentially conflicting goals because the need for future regulation is minimized by allowing competition in the provision of Internet service through the cable system.

D. TCI/ATT Ignore The Import Of Section 613(d)

In their initial brief, the City and County showed that Congress intended to leave cities free to address the anti-competitive consequences of mergers. It gave them the explicit authority to do so by amending Section 613(d) of the Cable Act. 47 U.S.C. § 533.

ATT/TCI’s preemption analysis never really comes to grips with the force of this section, because their preemption arguments must assume that local governments have no authority to redress anti-competitive activities. Instead, ATT/TCI try to evade the force of the provision by arguing that Section 613(d) has no relevance because it is only concerned with "competition among owners of cable systems." They rest this argument entirely on the fact that Section 613(d)(2) refers to competition in the delivery of cable service. According to ATT/TCI, only cable systems are engaged in the delivery of cable service, and hence only competition among cable systems is implicated by Section 613(d)(2).

As is the case with many of the assertions made in ATT/TCI’s brief, this critical claim is unsupported and wrong. If ATT/TCI were correct, then Section 613(d)(2) would be a superfluity. Section 613(d)(1), adopted at the same time as Section 613(d)(2), preserves local authority to limit one party’s cable ownership "because of such person’s ownership ... of any other cable system in such jurisdiction." 47 U.S.C. § 533(d). Section 613(d)(2) therefore must sweep more broadly than ATT/TCI can afford to admit. It allows local limits on ownership to protect "competition" generally.

In fact, Congress plainly believed that third parties that lease capacity from cable operators are engaged in the delivery of cable service. The first section of the leased access provisions, Section 612(a) makes this point. 47 U.S.C. § 532 ("the purpose of this section to promote competition in the delivery...of video programming."). The reference to "delivery" thus allows a community to consider the effect of a merger on competition between entities using the same cable system -- and that is precisely what Portland did.

TCI/ATT offer no other reason to ignore the obvious import of Section 613(d). ATT/TCI states that the Department of Justice and FCC concluded the merger did not address any competition-related concerns. That is irrelevant to the Section 613(d)(2) analysis, which preserves a concurrent and independent role for local review of the competitive consequences of a merger.

The companies also claim that the merger had nothing to do with competition-related concerns that led to the adoption of the open access provision. That is not true. AT&T’s SEC filings and @Home filings indicated that the merger would bring to bear financial resources that simply were not available to TCI. This heightens the risks associated with the merged company’s control over this critical high-speed gateway to the Internet. ATT/TCI really do not dispute the impact of the merger. They instead seek to confuse the issue by reference to statements made by the FCC which cannot be dispositive of issues under Section 613(d)(2), since it allows separate local consideration of issues of competition.

As the City and County explained in their opening memorandum, each of them retained substantial authority in the relevant franchises with TCI to impose the challenged condition, either as part of, or separate from, a request for a "change control" or "transfer" of the relevant franchises.

ATT/TCI want the court to read the franchises narrowly, rather than broadly, to limit rather than protect the municipalities’ authority to act in the public interest. The words of the franchises do not support the plaintiffs’ position. Their arguments, furthermore, fly in the face of the judicial rule that franchises are to be construed broadly to protect public authority. In order to prevail, ATT/TCI would need to show that the franchises affirmatively prohibit imposition of the challenged condition. This plaintiffs cannot do.

ATT/TCI assert that only the "scope" of a franchise grant is subject to the special interpretative rules aimed at protecting the public interest. Plaintiffs’ Reply Mem. at 25. We urge the Court to read the cases, rather than rely on Plaintiffs’ bowdlerized accounts. For instance, consider Copeland v. City of Waldport, 147 Or 60, 70, 31 P.2d 670, 674 (1934), which relied on Vicksburg v. Vicksburg Water Works Co., 202 U.S. 453, 26 S.Ct. 660, 665 (1906). In that case, the Oregon court cited with approval "the well established rule ... which requires grants of franchises and special privileges to be most strongly construed in favor of the public, and that, where the privilege claimed is doubtful, nothing is to be taken by mere implication as against public rights."

Of course, the converse of a "grant" of privilege to a franchisee is the authority retained by the granting government. If the former is narrowly construed, the latter is broadly construed. As applied, this rule means, among other things, that if a franchise holder cannot point to an "express agreement" limiting governmental powers, then no limitation will be implied. Copeland v. City of Waldport, quoting Tillamook Water Co. v. City of Tillamook, 150 Fed. 117, 119 (9th Cir. 1906). See generally, Stevenson, Antieau on Local Government Law, (including 1998 Update) at § 28.04.

The City and County believe they can prevail in this case even without the aid of this public interest rule of interpretation. They do not and have not "created ambiguities where none exist." But the rule is nonetheless important, for if there is any doubt about the defendants’ authority, it must be resolved in favor of the retention of their powers.

B. There Is No Confusion About What Approval Standard Applies

Throughout the administrative process, ATT/TCI asserted with vigor that they were engaged in a "change of control" not a "transfer". They demanded that the City and County treat their transaction as such. See, e.g., Testimony of Duane Bosworth before City Council, Exhibit 31 to Luppold Affidavit at 5. They reiterated the point in their complaint . ¶¶ 27, 28. The franchises contain different wording when describing the two types of transactions.

ATT/TCI now want to claim that their transaction is a "transfer" not a "change in control" and then accuse the defendants of changing their position on this matter.

In doing so, ATT/TCI have all but conceded that they lose if this transaction is a change in control. Nowhere in their memorandum do they argue that what the City and County did was beyond local authority to review "changes in control" under the explicit terms of the franchises. Instead, ATT/TCI’s whole argument is premised on the assumption that this is a "transfer" to which a different review standard applies.

Unfortunately for ATT/TCI, they are wrong in their changed characterization and wrong in their factual assertions that the City and County treated the transaction as a "transfer". The documents that lie at the heart of this litigation show that the City and County councils treated the transaction as a "change in control." The all important directive language in both the City and the County resolutions "approves AT&T’s request for a change in control of the following cable franchises." Exh. 29 to Luppold Aff. at 3; Exh. 32 to Luppold Aff. at 3. Similarly, in the critical "acceptance form" letters which the governments drafted and AT&T signed (with some amendments), all parties called the transaction "the change in control to the Transferee of the following cable franchises." Exh. 29 to Luppold Aff. at 5; Exh. 32 to Luppold Aff. at 5.

The Court can read the statement of material facts, the complaint, and the documents and understand what is at issue. ATT/TCI requested approval for what they called a change in control. TCI is not transferring the franchises to anyone; it will continue to operate the franchises. When AT&T purchased TCI, there was, instead, a "change in control of the ... parent corporation" holding the franchises. City Franchise § 15.2, County Franchise § 14.2. Because the relevant sections of the franchise do not contain the language ATT/TCI claims limits local review authority, ATT/TCI’s contract arguments are beside the point.

The City and County can act in the public interest to condition or deny a franchise transfer. As part of the transfer review, the City and County are entitled to review the "technical, legal, and financial qualifications of the prospective transferee to perform according to the terms of the Franchise...," but local authority to review a transaction is not limited to these matters. Even if it were, the City and County explained in their opening memorandum how the phrase "technical, legal and financial qualifications" is broad enough to encompass a review of the competitive effects of a transfer.

In response, ATT/TCI make two primary arguments. First, they say that under the City and County’s position, the phrase "‘technical, legal, and financial qualifications’" could mean anything." Plaintiffs’ Reply Mem. at 27. This first argument is nothing but a straw man of no relevance. The City and County no where make the open-ended assertion that the franchise language could mean anything.

Plaintiffs also argue that the City and County have ignored the import of certain words in the franchise, namely, that transfer conditions may "relate[] to the technical, legal, and financial qualifications of the prospective transferee to perform according to the terms of the Franchise...." But the emphasized words do not somehow limit City and County authority. Even under federal law, which ATT/TCI say should prevail here, the right to hold a franchise at all--the most fundamental legal qualification for a transferee--can depend on the competitive effects of a transferee’s operation of the franchise. Cable Act, Section 613(d), 47 U.S.C. § 533(d). Since ATT/TCI propose to perform under the franchises in an anti-competitive fashion, they are not qualified to own the franchise -- unless the anti-competitive tendencies are controlled by appropriate conditions.

Finally, Plaintiffs spend some considerable time disputing an argument the City and County did not make. ATT/TCI say that the franchise provisions that save City and County regulatory power (City Franchise, §§ 17.1, 17.3; County Franchise, §§ 16.1,16.2) cannot be used to "override" the specific language of other franchise provisions. The defendants never suggested otherwise. The authority retained by the City and County under Sections 16 and 17 is effective unless its exercise is in "direct conflict .. . [with] the terms of this Franchise...." There is no direct conflict between the open access condition and the terms of the franchises. The franchises say nothing specific about Internet access. Under the teaching of Oregon case law, local governments are not limited from acting in the public interest by the terms of a franchise unless there is an "express agreement" defining the limitation. Copeland v. City of Waldport, supra, 147 Or. at 70, 31 P.2d at 674. There is none here.

The City’s franchise with TCI has an explicit provision allowing the City Council to require the sharing of franchise facilities by "similar public utilities." Public utility in City law is defined broadly to mean any entity engaged in the "public service."

In response, ATT/TCI ignore the City’s analysis of the Charter and simply assert baldly that the Charter provision does not apply here because they and the competitor Internet service providers do not operate "similar public utilities." But they do: they all provide the public service of Internet access. They may not be traditional, old fashioned "public utilities." But the City of Portland’s Charter -- its organic constitutive document -- was written broadly enough in 1903 to allow interpretation in light of changed industrial, social, and economic conditions.

The significance of the Charter provision is clear: TCI/ATT can hardly claim that imposition of an open access condition breached or impaired (unidentified) franchise rights when the Charter made it clear such a condition could be imposed.

E. The Unmistakability Doctrine Further Justifies The City’s And County’s Action

The "unmistakability doctrine" is a "canon of contract construction [holding] that surrenders of sovereign authority must appear in unmistakable terms." United States v. Winstar Corp., 518 U.S. 839, 860, 116 S. Ct. 2432, 2448 (1996). The City and County have long exercised sovereign governmental authority over their cable franchisees. The franchises at issue here did not unmistakably surrender that pre-existing authority. Quite to the contrary.

ATT/TCI argue that the unmistakability doctrine is not relevant to this case because it only applies when the defendant government exercises general sovereign authority, rather than authority directed at one particular contract. For this statement they rely upon Resolution Trust v. Federal Savings and Loan Ins., 34 F.3d 982, 983 (10th Cir. 1994). That reliance is misplaced.

First, with all due respect to the Tenth Circuit, the allowed exercise of sovereign powers is not somehow limited to "general rules." Nor does the fact that open access condition was imposed in connection with a particular transaction somehow prevent the act from being an exercise of sovereign powers. Regulators are not required to act solely through general rule-making; they can approach issues and develop policy on a case by case basis, as well. SEC v. Chenery, 332 U.S. 194, 202, 67 S.Ct. 1575, 1580 (1947). That is what the City and County have done here.

In addition, the plaintiffs simply confuse and conflate the "unmistakability" doctrine and the "soverign acts" dostrine. The unmistakability doctrine addresses the circumstances under which a government will be deemed to have surrendered its authority to act. It is a "canon of contract construction ...." Winstar, supra. The sovereign acts doctrine, on the other hand, serves as a defense to liability for breach of a government contract when a "public and general act" obstructs the government's performance of the contract. Winstar, supra, 518 U.S. at 891, 116 S.Ct. at 2463, quoting Horowitz v. United States, 267 U.S.458, 45 S.Ct. 344 (1925), makes these distinctions clear, and also makes it clear that ATT/TCI’s reading of Resolution Trust is wrong.

Part III of the plurality opinion in Winstar analyzes the unmistakability doctrine, and observes that "the application of the doctrine ... turns on whether enforcement of the contractual obligation alleged would block the exercise of a sovereign power of the Government." Winstar, supra, 518 U.S. at 879, 116 S.Ct. at 2457. It does not depend on the context in which the sovereign power is exercised, as ATT/TCI claim. Winstar then recognizes that the sovereign acts doctrine is a separate and distinct defense and analyzes it as the "Government's final line of defense" in Part IV of the plurality opinion. Id., 518 U.S. at 891, 116 S.Ct. at 2463.

What the unmistakability doctrine does not do (after Winstar) is bar the award of damages on a breach of contract which results from the exercise of sovereign power because "a requirement to pay money supposes no surrender of sovereign power by a sovereign with the power to contract." Id. 518 U.S. at 881, 116 S. Ct. at 2458.

The unmistakability doctrine and sovereign acts doctrine are thus reconciled but are still separate. The sovereign may legislate unless its power to do so has been unmistakable surrendered, but may be held liable for damages (if there are damages) where the legislation targets its own interests as a contracting party and the risk of changed legislation has not been shifted to the other party. In short, and quite reasonably, one might get damages from the goverment, but one cannot specifically enforce an agreement never to change the law.

In the case before this Court, the unmistakability doctrine means that franchises cannot be interpreted to prevent adoption of the open access provisions because the City and County did not surrender their sovereign authority in unmistakable terms. They did not promise, in even vague terms, never to enact an open access requirement for Internet service providers. In addition, of course, the City and County cannot be held liable for damages for the simple reason that the open access provisions do not breach the franchise agreement, as discussed above, and because federal law bars the award of damages. 47 U.S.C. § 555a.

A. ATT/TCI Have No First Amendment Claim

ATT/TCI claim that the City open access provision is subject to intermediate scrutiny under United States v. O’Brien, 391 U.S. 367, 88 S.Ct. 1673 (1977) and that it fails that test. The argument fails for four reasons.

1. The O’Brien test is never reached unless there is some cognizable impact on speech -- as opposed to a potential economic impact on a speaker. Warner Cable Communications, Inc. v. City of Niceville, 911 F.2d 634, 638 (11th Cir. 1990), reh’g denied, 920 F.2d 13 (11^th Cir. 1990), cert. denied, 501 U.S. 1222, 111 S.Ct. 2839 (1991); AMSAT Cable Ltd. v. Cablevision of Connecticut Limited Partnership, 6 F.3d 867 (2d Cir. 1993). In this case, plaintiffs affirm that with or without the condition, users will be able to access through the cable system any content or any Internet service provider they desire, and that users will not even be required to view the content that plaintiffs wish to provide. Plaintiffs’ Reply Mem. at 33. ATT/TCI does not contend, and could not seriously contend, that the City’s ordinance prevents it from providing an Internet service, or controls content for an Internet service. ATT/TCI’s own speech is not affected, nor is the company being required to carry any information that it has not already said it will carry. All the open access provision affects is whether a subscriber can have "direct" access to the ISP of its choice or whether the subscriber will have to pay for a @Home service he or she does not want.

The open access requirement ensures that TCI/ATT’s competitors can fairly compete for customers, but such a pro-competitive condition does not harm protected speech rights. "[E]nding...monopoly control...does not give rise to a First Amendment claim." 6 F.3d at 871.

2. Even assuming some free speech interest was implicated, the only harm even alleged in the complaint is that ATT/TCI will be required to carry the speech of others. That allegation is irrelevant, because ATT/TCI have already committed to such carriage. But setting that point aside, "forced speech" cases are analyzed under the framework in Glickman v. Wileman Bros. & Elliot, Inc. 521 US 457, 117 S.Ct. 2130 not under O’Brien. We have already shown that the City passes the Glickman test, and TCI/ATT do not claim otherwise.

ATT/TCI argue that Glickman is irrelevant because it did not single out a particular medium of expression. But: (a) the Supreme Court has applied the "forced speech" test to analyze regulations aimed only at the cable industry; and (b) as we have shown, the requirement imposed here is not particularly unique. It is akin to requirements imposed on various owners of bottleneck facilities. Its application here raises no particularly unique issues, and could not require abandonment of Glickman.

3. In any case, for all of ATT/TCI’s protests, the Portland regulation easily passes the O’Brien test, properly applied. ATT/TCI wants the Court to believe that test, as explicated in TurnerI and Turner II, (The cases are Turner Broadcasting System v. FCC, 512 U.S. 622, reh. denied 512 U.S. 1278 (1994)("Turner I") and Turner Broadcasting System v. FCC, 520 U.S. 180 (1997) ("Turner II") requires the City to have developed an extensive and detailed record before enacting the challenged transfer ordinance. There is no such requirement. The Turner cases merely require that a community be able to provide some "empirical support or at least sound reasoning" to support its claim that a regulation incidentally affecting speech is justified by a substantial government interest. Century Communications Corporation v. Federal Communications Commission, 835 F.2d 292 (D.C. Cir. 1987). The empirical data need not rise to the level that might be required for a court or administrative agency to resolve an issue; it is enough that the evidence permit the legislative body to draw "reasonable inferences" that a problem is more than "fanciful." As pointed out in the City’s initial brief, there was more than enough evidence to support the conclusions drawn by the City. ATT/TCI attempt to belittle this evidence by arguing that it came from ATT/TCI’s competitors, but Turner II makes it clear that this is no criticism at all: "[i]t is the nature of the legislative process to consider the submissions of the parties most affected by legislation." 520 US at 199, 117 S.Ct. at 1191. What is as significant is that ATT/TCI submitted no evidence to the City or County to contradict the information submitted by others. The local governments were not required to investigate where there was no dispute as to the facts relevant to the City. And the Court is not required to look further in the absence of a complaint that actually raises a dispute.

Moreover, the City was not required to operate in a vacuum. It was acting after several courts, including the Supreme Court, had concluded that cable operators do have gatekeeper or bottleneck control. See, e.g., Turner II 520 U.S. at 228, 117 S.Ct. at 1205 (Breyer, J. concurring); Turner I, 512 U.S. at 623-624, 656, 114 S.Ct at 2450. The City had ample reason to conclude that ATT/TCI’s bottleneck control presented a real hazard to competition in the delivery of Internet cable services. The fact that the FCC came to a different conclusion is not significant under Turner, any more than a decision by one state as to how to regulate signs would be foreclosed by the decision of another state that no regulation was required. As the Supreme Court has stated "'the possibility of drawing two inconsistent conclusions from the evidence does not prevent ... [a] finding from being supported by substantial evidence.'" Turner II, 520 U.S. at 211, 117 S.Ct. at 1196. Indeed, the information that was submitted to the FCC – which included a number of economic studies and information supplied by consumer groups and ATT/TCI competitors – indicates that there was a reasonable basis for the City’s decision. The warning issued by ATT/TCI that it may not provide cable modem service if required to compete does not undercut any of these studies. If anything, ATT/TCI’s statements suggest that concern about monopoly behavior was well-warranted.

ATT/TCI argue that the open access provision does not advance any "substantial" government interest. In fact, the provision, inter alia, (a) promotes consumer choice and consumer protection, (b) promotes competition in the provision of Internet services and ensures that service is available from a diversity of sources; (c) prevents monopolization of an information resource critical to Portland’s economy. These interests are of the sort found to be substantial enough to withstand similar first amendment challenges by the cable industry. Time Warner Entertainment, L.P. v. F.C.C., 93 F.3d 957 (D.C. Cir. 1996). Indeed, in Time Warner the court upheld several Cable Act provisions (including the leased access provision) without the detailed record ATT/TCI claim is required. Requirements for set-aside of capacity on satellites were upheld without any specific fact findings, based on the "long experience" of Congress with broadcast television and because the requirements advanced well established government policy in favor of open access in an industry that used public resources. Here, of course, the City has a hundred years or more experience with franchising and ATT/TCI make substantial use of public resources, i.e., the streets.

4. Finally, ATT/TCI try to suggest that a municipality’s actions can only be upheld if, "when passing the ordinance" the local government expressly articulated an interest passing O’Brien scrutiny. Plaintiffs’ Reply Mem. at 31, 33. While the City and County believe their actions were justified by the record before them, as a matter of law, the justification or rationale for governmental actions need not be confined to the record or to contemporaneous findings adopted by the City or County. BSA, Inc. v. King County, 804 F.2d 1104 (9^th Cir. 1986); Crawford v. Lungren, 96 F.3d 380 (9^th Cir. 1996); Ben Rich Trading, Inc. v. Vineland, 126 F.3d 155 (3d Cir. 1997)(it is not necessary for factual basis for ordinance to have been submitted to legislative body; justification may be submitted in court). In a legislative context, actions can be justified post hoc, contrary to ATT/TCI’s arguments. But since ATT/TCI never confront the justifications submitted by the City and County in any meaningful way, that is not necessary in any case.

B. The Open Access Provision Does Not Violate The Commerce Clause

Nothing ATT/TCI say in their responsive memorandum adds weight to their insufficient Commerce Clause claim.

Plaintiffs assert that the City and County’s open access condition is a "direct regulation of interstate commerce." They confuse regulation of the local activities of a company engaged in interstate commerce with the direct regulation of interstate commerce, an error that the very case they rely upon warns against. "The Supreme Court has explicitly rejected the notion that any regulation that affects particular companies engaged in interstate commerce necessarily represents an impermissible burden upon [commerce]...." Kleenwell Biohazard Waste and General Ecology Consultants v. Nelson, 48 F.3d 391, 397 (9th Cir. 1994).

The City and County are not regulating the Internet or the content of Internet communications or the activities of the farflung and diverse individuals and entities who may wish to communicate over the Internet. The open access condition only seeks to regulate the provision of local access to the Internet, within defined (intrastate) geographic boundaries, over publicly franchised facilities, constructed on public property.

"As the party challenging the regulation, [ATT/TCI] ... must establish that the burdens that the regulation imposes on interstate commerce clearly outweigh the local benefits arising from it." Kleenwell Biohazard v. Nelson, supra, 48 F. 3d at 399. ATT/TCI attempt to avoid that burden by demanding that the City and County identify the local benefit. They have done that. The record in this case reveals that the local governments acted to maintain a competitive local market for Internet access, a fully justifiable local benefit.

In contrast, ATT/TCI have asserted no "material facts" and presented no evidence of any burden on interstate commerce. Instead of evidence, they rely on their lawyers’ arguments, arguments that actually contradict any claim of interstate impacts. According to their memorandum, AT&T’s cable company will be required to "alter its procedures and open its facilities only in these Municipalities." ATT/TCI Reply Mem. at 40 (emphasis added). Since the changes take place locally -- and do not alter operations elsewhere--there is little or no interstate effect.

3. Commerce Clause jurisprudence is not as clear as litigating parties often may wish to assert. But a review of the actual cases show that certain kinds of interstate commerce impacts are of greatest concern. "These impacts include the disruption of travel and shipping due to a lack of uniformity in state laws ... , impacts on commerce beyond the borders of the defendant state ... , and impacts that fall more heavily on out-of-state interests." Pacific Northwest Venison Producers v. Smitch, 20 F.3d 1008, 1015 (9th Cir 1994). No such impacts are present in this case.

What the local governments did here -- and the effect it has on ATT/TCI interstate operations -- pales in comparison with state and local actions that have been upheld by the Supreme Court. Consider, just by way of example, the scheme approved in Exxon Corp. v. Governor of Maryland, 437 U.S. 117, 98 S. Ct. 2207 (1978). In that case, Maryland banned producers or refiners of petroleum from operating retail service stations within the state. Because there was no refining within Maryland, the regulation really only affected out of state refiners. Exxon had to divest itself of 36 service stations. The Supreme Court upheld the Maryland law, saying that "we cannot adopt [Exxon’s] ... novel suggestion that because the economic market for petroleum products in nationwide, no State has the power to regulate the retail marketing of gas." Id., 437 U.S. at 128, 98 S.Ct. at 2215.

4. In the end, and as the City and County noted in their earlier filings, ATT/TCI’s Commerce Clause argument is really nothing more than its preemption argument. They say that the municipal open access condition violates the Commerce Clause because it "target[s] a nationally regulated industry in an area Congress has preempted." ATT/TCI Reply Mem. at 39. But if, as the City and County believe to be the case, Congress has not preempted the local open access condition, then neither should this Court declare it a violation of the Commerce Clause. A Court should not "second guess" the Congressional choice and "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).

If the City and County did not breach their franchise contracts with TCI, there obviously can be no Contract Clause "impairment of contract" claim brought against them. Even if the City and County did breach their franchise contracts, it is not clear that an impairment claim would follow, for then defendants would be liable for breach, not impairment. ATT/TCI cannot seriously claim that every government contract breach is also a violation of the federal or state Constitution.

Plaintiffs would unnecessarily entangle the Court in the conceptually complex task of determining whether there is an impairment of the franchise agreements. But even assuming there is reason to undertake such an analysis, at the very least plaintiffs would be obligated to show that the City and County, in some form, guaranteed plaintiffs that an open access provision would never be imposed. In doing so, plaintiffs must show more than they would in a standard breach of contract case. The whole point of the unmistakability doctrine is that a sovereign act will be upheld as constitutional even if it somehow alters the value of a contract--unless there is an unmistakable indication that the sovereign waived it rights to take the act in question. The facts in this case are far away from such a circumstance.

What the City and County said in their opening memorandum anticipated and rebuts the arguments made by plaintiffs on Reply with respect to the Contract Clauses. No more need be written.

For reasons stated above, defendants’ request for summary judgment should be granted, and plaintiffs’ request for summary judgment denied.

DATED April 16, 1999.

Respectfully submitted,

_____________________________

[certificate of service omitted]