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American Family Association, Inc. v. Federal Communications Commission

May 11, 2004

AMERICAN FAMILY ASSOCIATION, INC. PETITIONER
v.
FEDERAL COMMUNICATIONS COMMISSION AND UNITED STATES OF AMERICA, RESPONDENTS
NATIONAL PUBLIC RADIO, INC. AND ASSOCIATION OF PUBLIC TELEVISION STATIONS, INTERVENORS



On Petitions for Review of Orders of the Federal Communications Commission

Before: Sentelle, Henderson and Tatel, Circuit Judges.

The opinion of the court was delivered by: Sentelle, Circuit Judge

Argued September 18, 2003

These consolidated petitions for review challenge the Federal Communication Commission's ("FCC") new system for allocating noncommercial educational ("NCE") broadcast licenses among competing applicants. This system allocates the licenses primarily by awarding "points" to each applicant based on several criteria; the applicant with the highest number of points presumptively is awarded the license. The FCC promulgated the system by order after a notice-and-comment proceeding, In re Reexamination of the Comparative Standards for Noncommercial Educational Applicants, 15 FCC Rcd 7386 (2000), vacated in part, Nat'l Pub. Radio, Inc. v. FCC, 254 F.3d 226 (D.C. Cir. 2001) (" Order "), and affirmed the rule on rehearing, In re Reexamination of the Comparative Standards for Noncommercial Educational Applicants, 16 FCC Rcd 5074 (2001) (" Reh'g Order ").

Petitioner American Family Association, Inc., ("AFA") a national Christian ministry that owns and operates 113 NCE stations, claims that the new criteria for allocating such licenses systematically discriminate against religious national broadcasting networks and are thereby unconstitutional. AFA also says that the FCC irrationally justified the point system, making it arbitrary and capricious. Petitioner Community Television, Inc., an NCE licensee based in Atlanta, Georgia, produces secular and religious programming and joins AFA's claims. Separately, the state of Oregon asserts that, for different reasons, the criteria are irrational and exceed the FCC's authority under the Telecommunications Act. We reject all of petitioners' contentions and deny the petitions.

I. Background

A. The Point System

Petitioners' claims concern the process the FCC has adopted for the allocation of NCE broadcast licenses. NCE licenses confer on license holders the exclusive right to broadcast on television and FM radio frequencies that the FCC has set aside exclusively for noncommercial educational use. About twenty percent of total channels and frequencies have been so reserved.

The new system at issue in this case arose from the FCC's decision, in the late 1990s, to change the way it allocates these licenses. The old system allocated them via individualized FCC hearings that selected among competitors based on what was, in the FCC's words, a "vague standard [that] may [have made] rational choices among noncommercial applicants difficult, if not impossible." Reexamination of the Policy Statement on Comparative Broadcast Hearings, 7 FCC Rcd 2664, 2669 (1992). In 1998, the FCC gave notice of and invited comment on a proposal to implement a new system that would allocate NCE licenses based on more objective criteria. See In re Reexamination of the Comparative Standards for Noncommercial Educational Applicants, 13 FCC Rcd 21167 (1998).

After receiving comments, the FCC eventually adopted a new point system for allocating NCE licenses. As between qualified applicants who seek the same license, the system presumptively awards the license to the applicant with the greatest number of "points" (subject to some complications not relevant here). 47 C.F.R. § 73.7003(a) (2003). If applicants have the same number of points, the applicant with the fewest existing licenses gets the license. Id. § 73.7003(c)(1). If applicants have the same number of points and the same number of existing licenses, the applicant with the fewest outstanding license applications wins. Id. § 73.7003(c)(2). To screen out fraudulent claims in applications, the FCC stated that its staff will conduct random audits of applications. Order ¶ 89. Also, the FCC will conduct "acceptability studies" for each applicant who has the most points. Id. ¶ 90. If an application is deemed unacceptable after investigation, the FCC will return it. Finally, winning applicants must maintain the characteristics for which they received points for at least four years of the eight-year license term. 47 C.F.R. § 73.7005(a). During that period, any entity that buys the station must demonstrate eligibility for the same number of points as the selling applicant had. Id.

The system awards points as follows:

ù two points for "local diversity of ownership";

ù one to two points for the "best technical proposal";

ù three points for "established local entities"; and

ù two points for status as a "state-wide educational network," but only for a network that does not qualify for diversity-of-ownership points.

Id. § 73.7003.

For any given license, the local diversity-of-ownership criterion favors applicants who do not own or control other stations near the area the license holder will serve. Specifically, an applicant gets two points for diversity of ownership if the applicant has no "attributable" interests in stations with overlapping "principal community contours" (defined as areas covered by a certain broadcast signal strength) and if the applicant's governing documents require that diversity to be maintained. Id. § 73.7003(b)(2). The FCC stated that it adopted this criterion to foster broadcast diversity by allowing the local public to be served by different NCE licensees. E.g., Order ¶ 29.

An applicant has attributable interests in the licenses it owns and the licenses its owners own. "Ownership interests" are defined in the notes to 47 C.F.R. § 73.3555, the commercial ownership attribution rules. 47 C.F.R. §§ 73.3555(f), 73.7000. For example, a licensee gets no points for diversity if its broadcasting range (appropriately defined) overlaps with another licensee who is owned by the same person or corporation. Also attributable to the applicant is an interest of an entity that both provides a third of the applicant's equity or debt and either provides more than 15 percent of the applicant's weekly programming or has an ownership interest (again as defined by section 73.3555) in the same media market. Id. § 73.7000. If an existing licensee, for instance, financed construction of a new station for an applicant, on condition that the applicant air a majority of the existing licensee's programming, the existing licensee's interest would be attributed to the applicant. See Order ¶ 79.

Like the diversity criterion, the "established local entities" factor also advantages applicants the FCC deemed would advance the cause of "localism" - the goal of having licenses controlled by people in diverse communities and who are familiar with the community the license covers. Under that factor, entities that have been "local" continuously for two years are considered "established local entities," which entitles them to three points. 47 C.F.R. § 73.7003(b)(1). "Local," in turn, means that the applicant is physically headquartered, has a campus, or has 75% of its board members residing within 25 miles of the community the broadcast license will serve. Id. § 73.7000. Government entities are considered "local" wherever those entities' authority extends. Id.

The state-wide educational network credit awards two points to certain schools and universities. Educational entities that do not qualify for diversity of ownership points will be awarded two points if they both have authority over at least 50 elementary or secondary schools and provide programming to the schools in furtherance of the schools' curriculum. Id. § 73.7003(b)(3). Higher education institutions qualify if they serve at least five full-time campuses and provide programming in furtherance of those campuses' curriculum. Id.

The FCC created the state-wide educational network credit to compensate for the inability of large educational networks to qualify for the diversity credit. See Order ¶ ¶ 58-60. That inability arises because large educational networks (for example, state universities) control stations that serve many schools and campuses within a single state. The signals of those stations generally overlap with the areas served by other in-state broadcast licenses. The overlap disqualifies the networks who control these stations from receiving two points for diversity of ownership. This inability, the FCC reasoned, merited awarding such networks two additional points, even though they are, according to the criteria, "nondiverse" for licenses within the existing reach of their networks. Id. ¶ 60.

Finally, the system awards points to technically superior applicants. An applicant receives one additional point if its station will cover 10% more area and population than the next technically best applicant's station. 47 C.F.R. § 73.7003(b)(4). An applicant receives two points if its station will cover 25% or more area and population than the next technically best applicant's station. Id.

B. The Structure of AFA, NPR, and PBS

National Public Radio ("NPR") is a nonprofit corporation that produces and distributes news to member radio stations. It also licenses news to nonmember stations, many of which are state colleges and universities. Many NPR member stations also are funded by the Corporation for Public Broadcasting, a federally created corporation. The public fisc, however, is not their only source of money. They also receive individual membership dues and federal and local grants. The Public Broadcasting Service ("PBS") functions similarly. It distributes programming to member stations from individual stations that produce the programming (rather than centrally producing the programming itself).

Many public NCE stations are affiliated with NPR and PBS and derive much of their programming from NPR, PBS, and other national sources. For example, the vast majority of public radio stations' weekly news broadcasts, at least as of a few years ago, came from national sources, like NPR, and Public Radio International. NPR-affiliated radio stations broadcast local programming as well. Music programs comprise most of that local content. As for public television, PBS centrally distributes most prime-time public programming, but public television stations also broadcast local programs.

Despite their influence over public television and radio, PBS and NPR themselves hold no broadcast licenses. Licenses are held instead by the individual affiliates. However, the affiliates do exercise some degree of control over NPR's and PBS's operations. NPR and PBS members, for example, elect managers of affiliated stations to serve on NPR's and PBS's board of directors.

Other national networks, like the one run by AFA, are more centralized than PBS and NPR. AFA is a national media network that produces and distributes news from a Christian perspective. Unlike public broadcasting affiliates, AFA and other large national chains own the stations to which they distribute news. AFA also holds the licenses that authorize its stations to broadcast NCE programming. Eight of ...


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