Skip Navigation

Federal Communications Commission

English Display Options

Commission Document

The Jurisprudence of Innovation

Download Options

Released: June 25, 2014
image01-00.jpg612x792

The Jurisprudence of Innovation

Prepared Remarks of Jon Sallet,* General Counsel, FCC

Delivered June 23, 2014

FCBA Year in Review CLE

Washington, DC

I.

Introduction

[In enacting the Communications Act] Congress was acting in a field of regulation

which was both new and dynamic[,] … a field of enterprise the dominant

characteristic of which was the rapid pace of its unfolding. – Felix Frankfurter, J. in

National Broadcasting Co. v. U.S., 319 U.S. 190, 219-220 (1943).

My goal in talking with you today is to share some thoughts and to work through some ideas on

how the FCC should think about our own legal processes in a time of dynamic innovation. This

talk is called “The Jurisprudence of Innovation.” What does that mean? I am going to discuss

four principles: certainty, flexibility, access (or accessibility), and learning. Each of these has

been discussed in particularized contexts or on their own. But I am interested in trying to

identify the way in which these same four issues come up in context after context so we can see

how they can be applied to the complicated law and policy issues facing the Commission. More

to the point, I am interested in thinking about how these principles should be applied and what

the best way to seek outcomes is – and I welcome input from the bar on these questions.

The starting point of anything called “The Jurisprudence of Innovation” has to be innovation. As

we know and experience daily, we are living through a period of rapid and dynamic innovation –

in technology, in business models, in consumer expectations. Our task as regulators is to

reconcile cross-cutting and sometimes opposing desires. Stakeholders, including markets,

industry, consumers, and our friends in the legislative branch – whatever their political leanings

– tell us they want regulatory certainty. (They may mean very different things when they say

this, by the way.) And yet detailed prescriptive rules that provide no allowance for individual

circumstances are thought to be overly rigid. Certainty, that is, does not necessarily align with

dynamism of innovation.

Certainty v. flexibility. This is the classic administrative law dichotomy, and it is critical to the

way that the FCC operates.

In earlier times, the reconciliation of these two ideas may not have

been as important. But today we live in a time of constant innovation. Strict standards offer a

form of certainty, but they leave little leeway for handling the exceptional or unanticipated case –

and innovation is almost by definition hard to anticipate.

* Madeleine Findley, Associate General Counsel, provided invaluable assistance in the preparation of this

presentation, which does not necessarily reflect the views of the Federal Communications Commission.

1

image02-00.jpg612x792

Case-by-case enforcement offers a potentially more dynamic approach, permitting the

Commission to respond to and learn from the rapid pace of change in the communications

market. This approach allows the Commission to assess the specific facts involved in an actual,

real-world scenario and provides flexibility in determining whether a particular practice

comports with the legal standard, but it could lead to unpredictability and inconsistency. And

yet, although I am myself enamored of the common-law tradition, we do not have the luxury of

hundreds of years to work out, for example, the law of trespass.

And there is a third dynamic that must also be acknowledged. Decades ago, in times of the Ma

Bell era of regulatory monopoly, the government stood in the shoes of consumers. Without

consumer-driven innovation, the regulated entity and the government operated in a closed

sphere. This was the era when consumers could choose any color phone they wanted, as long as

it was black. But today, millions of Americans feel an intense personal interest in how their

broadband networks operate. And the impact of FCC actions can have major impacts on the rest

of the Internet ecosystem, including smaller edge providers, who may be distant from

Washington D.C. in geography and resources. How can the FCC ensure that it is effectively

accessible to all?

As we – both at the Commission and in the market generally – grapple with issues that are new

and novel, we need to ensure that we are accessible to the public, consistent in our approach

across areas, and are able to balance competing objectives. Public interest in FCC processes has

only increased, making thoughtful attention to these issues more relevant now than ever.

Access to our processes is only part of the story, of course. We must also think about access in a

more substantive way. How can we be sure that competition is well-served by access to critical

inputs, such as spectrum for wireless companies?

Finally, in a fast-moving world of technological and economic change, a critical requirement of

government is that it is constantly learning and monitoring its prior actions against new market,

technological, and social evidence. But how can we accomplish that as well?

Here is my starting point: We can make our processes accessible to as many participants as

possible. We can gather facts and information from as many sources as possible. We can craft

rules to ensure that small and regional wireless providers have an opportunity to participate

meaningfully in an auction for highly desirable spectrum. We can propose an ombudsperson

office that will advocate for small edge providers and other entities in the Open Internet

environment. We start, of course, with the language of our statutes.

We can ensure that we

promote competition and that we follow the Network Compact as enunciated by Chairman

Wheeler: access, consumer protection, interconnection, and public safety and security.

Those values tell you why the actions that the FCC takes are so very important. They tell you

what we decide. I want to talk with you about how we decide. What does the FCC ultimately

do, after all, if not establish the legal culture governing communications networks? We want to

enable all of those networks. Our statutory mandate is to maximize entrepreneurship,

competition, innovation and consumer benefits. Our goal is to permit new markets to be created

under law, and to allow existing markets to be challenged by the process of creative destruction.

2

image03-00.jpg612x792

The four procedural imperatives that I mention – certainty, flexibility, accessibility and learning

– are, I believe, the ingredients of the jurisprudence of innovation at the FCC. They are the

ingredients in a recipe that is not yet finished. Consider how they inform three forms of

Commission process that I will discuss: 1) dispute resolution; 2) mergers and transactions; and 3)

waivers.

II.

Dispute Resolution

Resolving policy disputes is one of the key functions that the FCC performs. Sometimes it is

consumers bringing complaints to us; sometimes it is service providers seeking relief from

conduct that harms their business. Often, however, it is the FCC weighing competing concerns

and conflicting demands, and attempting to set a policy course. Resolving policy disputes is a

complicated undertaking, and requires balancing the parties’ need for certainty with a competing

need for flexibility, an overarching interest in making the dispute process accessible to all

parties, and a need to learn from our experience.

a.

Certainty

The Commission has a responsibility to provide certainty, guidance, and predictability to the

marketplace and to consumers. The most important form of such guidance comes through the

adoption of a particular legal standard, providing a “rule of the road.” Such rules allow all

parties to measure conduct against a known rule of law. But the Commission is also mindful of

the distinction between the authority to adopt a standard and its subsequent application. Let’s

take a look at a concrete example.

As many of you know, the FCC has issued a Notice of Proposed Rulemaking addressing what it

calls its Open Internet rules. The proposed Open Internet rules are threefold: an enhanced

transparency rule, a no blocking rule, and a bar on commercially unreasonable practices. This is

not the first time the agency has grappled with how to promote and protect competition in the

broadband marketplace. In 2010, the Commission adopted a no “unreasonable discrimination”

rule to prevent fixed broadband providers from engaging in bad conduct when transmitting

lawful network traffic over a consumer’s broadband Internet access service. The DC Circuit

vacated that rule because it found that the rule improperly relegated fixed broadband providers to

common carrier status.

Put another way, the court rejected the particular rule that the Commission adopted in 2010. But

it did not reject the Commission’s authority to adopt a rule. In fact, it suggested that a rule

preventing certain types of conduct by broadband providers might be acceptable, particularly if it

more closely resembled the “commercially reasonable” standard adopted by the Commission in

the data roaming context.

Supreme Court watchers among you know that the Court recently granted cert in Perez v. Mortgage Bankers

Association, which poses the following intriguing administrative law question: Whether a federal agency must

engage in notice-and-comment rulemaking before it can significantly alter an interpretive rule that articulates an

interpretation of an agency regulation.

3

image04-00.jpg612x792

In the NPRM, the FCC has proposed requiring broadband providers to use “commercially

reasonable” practices in the provision of broadband Internet access service. This “commercially

reasonable” rule would be an enforceable legal rule prohibiting broadband providers from

engaging in harmful practices. The NPRM’s proposed approach contains three essential

elements: (1) an enforceable legal standard of conduct barring broadband provider practices that

threaten to undermine Internet openness, (2) clearly established factors that give additional

guidance on the kind of conduct that is likely to violate the enforceable legal standard, and (3)

encouragement of individualized negotiation and, if necessary, a mechanism to allow the

Commission to evaluate challenged practices on a case-by-case basis, thereby providing

flexibility in assessing whether a particular practice comports with the legal standard. It would

take the ingredients of certainty and flexibility and then try to bring them together in balance.

The proposed rule would require broadband providers to use “commercially reasonable”

practices in providing broadband Internet access services. It is not a lengthy or convoluted rule.

It would prohibit only commercially unreasonable practices. Providers, edge providers,

customers, and consumers would know that broadband Internet access providers may serve

customers and engage in individualized negotiations as long as they are commercially

reasonable.

The proposed rule would provide certainty; its application would provide flexibility.

b.

Flexibility

How does the application of a rule provide flexibility? For one thing, it allows parties and the

Commission to learn from the experience of the present as well as the logic of the past. One of

the hallmarks of rules is that they reflect the state of knowledge at one fixed moment in time.

They do not anticipate the future. This is why they begin to “lag behind” as our understanding of

past and present trends grows more complex and as we experience more and more of the

“future.”

How does an agency like the FCC address the need to provide certainty in the form of rules, yet

also allow for flexibility? We can focus on grounding our generally applicable rule in our

enduring values and our statutory mandate. For example, among the factors that the NPRM

articulates are consumer protection, protection against anti-competitive behavior, and protection

against impingement of non-economic interests, such as the free exercise of speech. We can

engage in case-by-base enforcement, looking at the totality of the circumstances of a particular

situation. To guide such case-by-case adjudication, we can articulate factors that we will use in

applying our rules and propose rebuttable presumptions. We can identify per se violations to

clarify the limits of “commercially reasonable” practices.

As I mentioned, the proposed rule would prohibit as commercially unreasonable those broadband

providers’ practices that, based on the totality of the circumstances, threaten to harm Internet

openness and all that it protects. Well, the first question is: what does that mean? The key point

is that the Commission would start with a legal standard – commercially reasonable practices –

and then apply that standard to the particular facts of any given dispute. Taking a case-by-case

4

image05-00.jpg612x792

approach to enforcement offers the Commission flexibility to account for the totality of the

circumstances, including innovation, evolution, and learning over time.

As in the data roaming context, the NPRM proposes to identify factors that the Commission can

use to administer the proposed commercially reasonable practices standard. Articulating such

factors is a way to categorize a series of behaviors that the Commission believes are particularly

important in protecting the Open Internet. These pre-defined factors would provide guidance to

encourage commercially reasonable individualized practices. If disputes were to arise, the factors

would provide the basis for the Commission to evaluate whether a particular practice satisfies the

enforceable legal standard. Among the factors that the Commission proposes to consider are: the

effect of broadband provider practices on present and future competition; the impact on

consumers; the impact on speech and civic engagement; the technical characteristics of

broadband provider practices; good faith negotiation; industry practices; and a catch-all category

for other relevant considerations.

Providing factors or other forms of guidance serves both the need for certainty and flexibility.

But articulating such factors is not the end of the work. Factors may lead to further rulemaking

or rulemaking interpretations, but may also lead to case-by-case precedent. We would anticipate

providers seeking additional guidance. T-Mobile, for instance, filed a petition last month

seeking additional guidance on the criteria the Commission will use when applying the

“commercially reasonable” standard for data roaming agreements. (Comments on that petition

are due July 10, and replies are due August 11.)

Presumptions also offer a useful way to articulate some of the factors that the Commission may

look to in administering the commercially reasonable standard. These are a long-used

adjudicatory tool, most familiar from litigation. The Commission has proposed using rebuttable

presumptions as a tool to focus attention on the likely impacts of particular practices on the Open

Internet. For example, the Commission has proposed a rebuttable presumption that a broadband

provider’s exclusive (or effectively exclusive) arrangement prioritizing service to an affiliate

would be commercially unreasonable. Other rebuttable presumptions might focus on exclusive

contracts, specific forms of service degradation, or conduct foreclosing a rival’s entry into the

market.

Say that I operate an ISP and you are my customer. You are experiencing service that you

perceive to be below the level for which you contracted, and you believe that I am favoring my

own traffic and content over the traffic and content of the websites and apps that you prefer to

use. You bring a complaint against me before the Commission, and the Commission examines

the facts about my service, your usage, and everything relevant to that dispute. The Commission

may look at the effect of my practices on the market now and in the future. It may look at

whether my ISP is vertically integrated with related entities that compete with third-party

providers’ services. Whether I am transparent with you about my practices and the amount of

control and choice you have would also be factors in its review. The Commission would look to

see if my practices harm free speech or civic engagement. The technical characteristics of my

service would matter, as would my willingness to engage in good faith negotiations with you or

with other providers. My peers’ practices would be relevant to the FCC: are my practices

consistent with “industry practice,” and who gets to define what that is?

5

image06-00.jpg612x792

Case-by-case enforcement of this kind provides guidance for broadband and edge service

providers but also flexibility in allowing providers to engage in individualized dealing. A critical

hallmark of Anglo-American jurisprudence has been that courts and adjudicators learn from the

cases that come before them and reflect that learning in their evolving case law. Case-by-case

enforcement enables the FCC to examine closely—and learn from—technological and

innovative advances, and to respond with evolutions in the marketplace, rather than lagging

behind. As a back-stop to its enforcement, the Commission has proposed identifying certain per

se violations of the commercially reasonable standard. If I committed one of those violations,

that would be the end of the inquiry. Identifying per se violations would help delineate the outer

boundaries of the commercially reasonable standard: it encompasses a whole range of practices

in this area, but not beyond this line.

And it is important to note that, while I have described the approach proposed by Chairman

Wheeler, the NPRM asks very expressly for comments about the best legal standard – whether

Section 706 or Title II. Indeed, the NPRM contains a detailed set of inquiries about the potential

use of Title II, including seeking comment on both its application and the use of forbearance

were it to be applied. As most everyone knows, initial comments on the Open Internet NPRM are

due on July 15th; reply comments are due on September 10th. Almost 130,000 comments have

been submitted already.

c.

Access

This takes us to my third point about dispute resolution, access. To be effective, the dispute

resolution process must be accessible to diverse array of affected parties. It must account for the

tremendous disparity in size and economic and legal resources among entities ranging from large

ISPs to individual app developers to small startup businesses to a family living in a rural

community in the Midwest. To that end, the Commission has invited comment on additional

forms of dispute resolution that might make the Commission’s processes more accessible.

In our example, again, I am acting as your ISP and you would like to bring a complaint against

me over my provision of broadband services to you. You could complain to me directly or you

could file a complaint at the FCC. I’m one person and I think I’m relatively approachable.

Imagine, however, that you are not my retail customer, but rather an edge provider or an app

developer. Perhaps you don’t have – and don’t want – a contract with me. You might not be

sure whom to call or in what format to submit your complaint. You may not have access to the

same legal resources as your ISP does. What steps can the Commission take to ensure that its

processes are accessible to you?

The FCC has proposed creating an ombudsperson to advocate on behalf of small edge providers

and other entities. The ombudsperson’s duty would be to act as a watchdog to protect and

promote the interests of those entities. The FCC has also asked if it should relax the procedural

and initial pleading requirements for such entities. Finally, the FCC has asked for suggestions on

how to improve its informal complaint process to make it easier for small entities and

individuals; and on whether other forms of alternative dispute resolution would be appropriate.

6

image07-00.jpg612x792

And the FCC has asked if it should permit individuals to report noncompliance anonymously or

take other steps to protect the identity of individuals where retaliation is a threat.

III.

Mergers and Transactions

The second context where I see the four ingredients coming together is in the transaction space.

Fortunately for the FCC, this summer brings no shortage of opportunities to think about these

issues. There are two large transactions currently before us, as well as continuing work on two

significant spectrum auctions. And we all read the same newspapers and industry publications,

which suggest that more may be coming the Commission’s way sometime soon.

Transactions provide another scenario in which the Commission has a responsibility to provide

certainty, guidance, and predictability to the marketplace and to consumers. Some steps involve

providing certainty around our processes. What the FCC’s expectations are should be clear and

public. Parties should know the “rules of the road” so they may rely on them in making strategic

business decisions. To that end, the FCC can take steps to articulate legal standards and clear

procedures. But certainty and flexibility, accessibility and learning do not exist independently.

They are interconnecting aspects of the Commission’s work, and this is perhaps most obvious in

the transaction review process.

a.

Certainty

When reviewing a proposed transaction, the Commission evaluates whether the Applicants have

demonstrated that the proposed transaction will serve the public interest, convenience and

necessity. Applicants, in other words, bear the burden. This is Congress’s mandate to the agency.

The Commission considers whether the proposed transaction could result in public interest harms

– through, for example, substantially frustrating or impairing the objectives or implementation of

the Communications Act or related statutes, or of public interest benefits.

The Commission’s public interest standard is substantive. As part of its analysis, the

Commission analyzes the proposed transaction’s effects on both current market conditions and

likely future competition and innovation. It accomplishes this through a fact-based analysis of

the evidence that the Applicants have submitted in support of the proposed transaction. It then

balances any potential public interest harms from the transaction against any potential public

interest benefits. This is necessary to enable the Commission to determine whether the

Applicants have met their burden of proving, by a preponderance of the evidence, that the

proposed transaction, on balance, will serve the public interest. If the Applicants fail to meet

their burden, then Congress has required (§ 309(e) of the Act) that the Commission designate the

transaction for a hearing.

This was the staff recommendation in the AT&T/T-Mobile transaction and it is worth reviewing

how the staff came to its conclusion. After reviewing the parties’ submissions, FCC staff

concluded that the transaction was likely to result in significant harms to competition. Those

likely harms included increased prices for consumers, reduced incentives for innovation, and

decreased consumer choice of wireless providers and service offerings. The staff found that the

7

image08-00.jpg612x792

parties had not adequately supported their claims regarding potential benefits of the transaction,

including potential economic efficiencies and consumer benefits. As a result, the staff found that

AT&T and T-Mobile had failed to carry their burden of proving that the proposed transaction

would, on balance, serve the public interest.

The Commission’s public interest standard provides certainty about the standard that Applicants

must meet for a transaction to be approved. But, as is the case with dispute resolution, the other

three ingredients—flexibility, access, and learning—are also important.

b.

Flexibility

Flexibility comes when decision makers seek to provide guidance that goes beyond general legal

standards. As discussed, the Commission can also identify certain factors or rebuttable

presumptions guiding how it applies the public-interest standard. One example comes from

transactions involving mobile spectrum licenses. These transactions receive case-by-case review

under the FCC’s public interest standard, subject to certain triggers that provide additional

regulatory flexibility. One of those triggers is the so-called spectrum screen, which evaluates

how much spectrum the acquiring firm would hold, after the transaction, that is “suitable” and

“available” in the near term for providing mobile telephony or broadband services. The screen

does not create a bright-line rule that no provider may hold more than X amount of spectrum.

Rather, it serves as a trigger for additional FCC scrutiny when a transaction will lead to a single

wireless licensee holding 1/3 or more of the total amount of suitable and available spectrum in a

given market. Knowing which spectrum bands are included in the spectrum screen permits

wireless spectrum licensees to evaluate potential transactions – mergers or acquisitions – in

advance, and to plan investments and business decisions. The spectrum screen provides

guidance to providers without setting an absolute rule.

But the spectrum screen is not a static, unchanging standard. Rather, it must change as the

wireless ecosystem changes. In that way, it reflects the dynamic innovation in our world.

Recognizing that fact, the FCC last month evaluated the screen in light of the continuing

evolution in the wireless market, recent and upcoming auctions and rule changes.

It was updated

– removing some spectrum bands and adding others –based on the Commission’s experience and

understanding about whether specific spectrum is available for mobile broadband use currently

or in the near term. The ability of the spectrum screen to evolve with innovation, technology,

and market conditions enables the FCC to provide guidance and predictability to the market even

as market conditions change.

Articulating and updating transaction-review factors offer another way the Commission can

apply what it learns from changing market conditions. For example, the FCC recognizes that

spectrum located in the below-1-GHz bands is extremely attractive because of its favorable

propagation characteristics. This spectrum is also available to the market in limited supply,

making the upcoming 600 MHz Incentive Auction central to the development and deployment of

mobile broadband for years to come. Recognizing these facts, the Commission decided that

going forward, below-1-GHz spectrum holdings will become an enhanced factor, not just a

factor, receiving particular review in the Commission’s transaction evaluations. Treating such

holdings as an enhanced factor permits the Commission the flexibility to distinguish between the

8

image09-00.jpg612x792

characteristics of different frequency bands without imposing a weighting schema that may fail

to accurately reflect their competitive significance.

c.

Access

In addition to setting standards and identifying factors involved in reviewing transactions, the

Commission can take steps to make scarce resources more widely available. It is important to

recognize that the form of access I am going to talk about here is distinct from accessibility to

FCC processes. The FCC’s efforts in this area have taken many forms throughout the agency’s

history, but most salient to our current work is ensuring that scarce spectrum licenses for the

most attractive low-band spectrum are as widely available to as many bidders as possible in our

upcoming incentive auctions. Spectrum is a scarce resource, and the FCC takes seriously its

responsibility to protect against excessive concentration of spectrum at the cost of competition.

Smaller, regional, and rural wireless providers need access to additional spectrum, particularly to

below-1-GHz spectrum, in order to build their next-generation networks and deliver these

offerings to consumers in both rural and urban areas. The propagation characteristics of the 600

MHz spectrum that will be available in the Incentive Auction make these licenses extremely

attractive for providers serving less densely populated or rural areas, and needing reliable in-

building coverage. The FCC determined that replacing the standard individualized review after

the auction with an upfront band-specific spectrum reserve for the upcoming 600 MHz spectrum

licenses would encourage participation and competition and promote the public interest.

For the 600 MHz band incentive auction, the FCC established a market-based spectrum reserve

of up to 30 MHz in each license area designed to ensure against excessive concentration in

holdings of low-band spectrum. The exact size of the reserve will depend on the as-yet-unknown

outcome of the reverse and forward auctions in the Incentive Auction. The reserve, unlike some

other potential options for promoting competition, gives wireless providers significant latitude to

bid on the spectrum licenses they may need in each area to meet their network requirements.

The reserve also provides flexibility because it is dynamic; that is, its size – even its existence –

depends not on a regulator’s bright-line rule but on real-world bidding in the reverse and forward

auctions.

Given the current pattern of spectrum holdings among U.S. wireless providers, the FCC

concluded that it was not appropriate to apply the market-based spectrum reserve equally to

every wireless provider. That is, some wireless providers hold very large quantities of spectrum,

including significant amounts of attractive low-band spectrum, while others are much more

dependent on the efficiencies of low-band spectrum.

To address these asymmetries, the FCC adopted rules largely based on bidders’ existing mobile

spectrum holdings to grant access to the market-based spectrum reserve. In sum, bidders may

bid on any amount of unreserved spectrum in a market, but may only bid on the reserved

spectrum if they are eligible for it. Any nationwide provider that holds approximately 1/3 or

more of available low-band spectrum in a license area will be able to bid on all unreserved

spectrum in that area, but not on any reserved spectrum. In license areas where a nationwide

provider holds less than 1/3 of available low-band spectrum, it will be able to bid on all

9

image10-00.jpg612x792

unreserved spectrum, and all reserved spectrum in that license area. Non-nationwide providers

will be able to bid on both reserved and unreserved spectrum in all license areas.

The FCC has emphasized that these conditions reflect the current marketplace structure. This is

important, because if this structure changes significantly or a proposed transaction is filed with

the FCC in the future affecting the top four nationwide providers and their spectrum holdings,

the Commission may revisit its decisions regarding the reserved spectrum provisions. The

conditions will evolve with the market and technology.

IV.

Waiver Authority

I have been talking about specific areas of Commission action, but any one of our rules can be

subject to individualized consideration if necessary to foster innovation or ensure fairness.

Section 1.3 of our rules permits the Commission to waive any of our rules at any time for good

cause shown.

Providing guidance to the marketplace is one of the FCC’s important functions. But any effort to

be predictable or to provide certainty loses its attractiveness if the resultant rules are unduly rigid

or unable to accommodate unique or individualized circumstances. That is where the FCC’s

waiver process plays an important role. Waivers offer an important safety valve in scenarios

where uniform application of a rule might lead to inequities. A recent example of the

Commission’s approach to waivers illustrates this point.

a.

Certainty

In March, the Commission amended its ownership attribution rules to reflect its conclusion that

television Joint Sales Agreements (“JSAs”) may convey sufficient influence to warrant

ownership attribution. Additionally, the Commission required that such JSAs shall be filed with

the FCC.

A JSA, for the non-media-types, is an agreement that authorizes a broker to sell some or all of

the advertising time on the brokered station. Say that you own a television station, but you

prefer not to handle all of the ad sales yourself. It so happens that I own a television station in

the same market as you, and I have a very strong sales team. You might enter an arrangement

with me, where I agree to sell some percentage of weekly advertising time on your station for

you. I pick the sales people, and I set the price, but you have the right to reject the ads I sell.

This is a relief for you because you no longer have to try to sell that portion of your advertising

time, but you now have to depend on me to sell it for you.

At some point, I may come to you and say, you know, your programming is really nothing but

shows about taxidermy, and that’s making ad sales difficult; but if you would include a few of

these fun reality shows about junk yards and abandoned storage units, I would be able to sell ads

for you at a significantly higher price. I may not mention this, but my revenues from selling ads

for you also depend on what price I can get. You may not particularly want to change your

programming. But if the ads I sell for you are sufficiently important to your bottom line, you

may be willing to agree to my suggestion and cancel a few hours of Taxidermy Tips in favor of

10

image11-00.jpg612x792

Storage Shed Wars. Our agreement thus may give me the opportunity, ability, and incentive to

exert significant influence over you. This is the situation the Commission addressed with its JSA

attribution and disclosure rules.

The rules provide guidance to the market. Specifically, the FCC found that JSAs permitting the

sale of more than 15 percent of the advertising time per week of the brokered station create the

potential to influence the brokered station and provide incentives for joint operation similar to

those created by joint ownership. Accordingly, the FCC found that such JSAs constitute

attributable ownership interests under its ownership rules. This is consistent with the 15 percent

threshold the FCC applies to JSAs in radio markets, among others. So if you and I had agreed to

a JSA where I sold 20 percent of your weekly advertising time, then I would have an attributable

ownership interest in your station. The JSA rule also provides a bright-line requirement: subject

to OMB approval, the Commission will require going forward that attributable TV JSAs be filed

with the FCC within 30 days after the JSA is entered into.

Some broadcasters have pre-existing JSAs that exceed the 15 percent threshold and would

violate the FCC’s ownership limits. Those parties will have two years from the Order’s effective

date to come into compliance with the rule.

b.

Flexibility and Accessibility

And here is where the waiver process comes into play. Many entities argued in comments to the

FCC that the JSA rule would work an unfair result. The FCC provided that parties that believe

the application of the attribution rules to their particular circumstances would not serve the

public interest may seek a waiver. The FCC’s waiver analysis will consider the totality of the

circumstances, including specific facts submitted by the applicant showing that the broker station

lacks the incentive or ability to influence the brokered station’s operations and demonstrating

that the brokered station has the incentive and ability to retain independence over operations and

programming decisions. A waiver applicant might demonstrate that a waiver would support

diversity, or would enable a school, community college, or other community support

organization to own a station, and that the public interest benefits of such ownership outweigh

the harms of common ownership. In general, a waiver request that is limited in scope (e.g.,

percentage of station’s advertising sales) and duration so as to minimize or eliminate any

influence on operations or programming is more likely to succeed than an open-ended request.

The waiver option provides a safety-valve for the extraordinary circumstance where application

of the local television ownership rule in a particular situation would adversely affect competition,

diversity, or localism.

But a waiver is not a Get Out of Jail Free pass. The Commission has an obligation to take a hard

look at whether enforcement of a rule in a particular case would serve the rule’s purpose or

would frustrate the public interest. The Commission may not grant waivers without a principled

basis for doing so. As the D.C. Circuit held in Northeast Cellular Telephone Co. v. FCC, 897

F.2d 1164 (D.C. Cir. 1990), before the FCC can grant a waiver for good cause, it must explain

why waiver serves the public interest and describe the nature of the special circumstances

supporting the waiver, so as to avoid discriminatory application of the agency’s rules. The court

has reminded us that unjustified departures from our rules, even for laudable purposes, cannot be

11

image12-00.jpg612x792

sanctioned. A waiver applicant must provide evidence of the particular circumstances

demonstrating why granting a waiver, in light of the totality of the circumstances, serves the

public interest.

V.

Learning

When I began, I told you there were four procedural imperatives that are the ingredients of the

jurisprudence of innovation at the FCC. The fourth of these is learning. The agency must learn

– from its experience and from the issues it confronts. The approach I have described –

articulating a legal standard and using case-by-case adjudication – should be a familiar common-

law approach. For good reason. The common law offers a mechanism of oversight that

combines logic and rigor with flexibility and learning. It is particularly well-suited to the

challenges the FCC faces as it navigates the transformational changes occurring in our

communications networks. It values information and evidence, through experimentation and

information-collecting, and it is flexible enough to adapt to changing market conditions. The

Commission is encouraging what Commissioner Rosenworcel aptly describes as the “sandboxes

of experimentation,” including the direct access to numbers trials for VoIP service providers, and

the AT&T service experiments. By experimenting, the Commission—and everyone else—will

be able to see if innovative new approaches produce the “expected results.” We can gather

evidence about whether – and how much – government action may be required. We can

compare any unexpected adverse outcomes on innovation. Sandbox thinking creates an

incentive for us—as regulators—to continually learn how best to achieve our public policy aims.

VI.

Conclusion

My personal request is that the bar engage with us in a discussion of the jurisprudence of

innovation. I have listed four factors – not always obviously consistent – that I believe are

essential ingredients: Providing certainty; providing flexibility; providing accessibility; and

ensuring that the Commission is a learning institution. There are cross-currents here.

But that is our fate for living in a time of innovation. And we should make the best of it.

In the “Common Law,” Justice Holmes told us that “the most difficult labor will be to

understand the combination of [history and existing theories of legislation] into new products at

every stage.” That is the labor now before us: we are engaging in understanding the combination

of our past and our present into our future. We are articulating standards and rules, educating

ourselves about the current and the coming environment, and balancing the competing needs of

certainty, flexibility, and access. We are learning as we go, and we will learn best, if we have the

views of lawyers who participate in our processes.

Thank you.

12

Note: We are currently transitioning our documents into web compatible formats for easier reading. We have done our best to supply this content to you in a presentable form, but there may be some formatting issues while we improve the technology. The original version of the document is available as a PDF, Word Document, or as plain text.

close
FCC

You are leaving the FCC website

You are about to leave the FCC website and visit a third-party, non-governmental website that the FCC does not maintain or control. The FCC does not endorse any product or service, and is not responsible for, nor can it guarantee the validity or timeliness of the content on the page you are about to visit. Additionally, the privacy policies of this third-party page may differ from those of the FCC.