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Regulatory Comments In this ex parte letter, ICLE analyzes the law and economics of both the underlying statute and the FCC's proposed rulemaking that would affect the interpretation of cable franchise fees. For a variety of reasons set forth in the letter, we believe that the Commission is on firm legal and economic footing to adopt its proposed Order. Congress intentionally enacted the five percent revenue cap to prevent LFAs from relying on cable franchise fees as an unlimited general revenue source. In order to maintain the proper incentives for network buildout — which are ever more-critical as our economy increasingly relies on high-speed broadband networks — the Commission should adopt the proposed Order.
Congress passed the 1984 Cable Act in order to create a unified national framework for regulating networks for cable networks involving municipalities, cable operators, and the FCC. As described by its primary sponsor, Sen. Barry Goldwater of Arizona, the Cable Act was drafted in order to reduce barriers standing in the way of the adoption of cable technology.
The Act was passed and later amended in a way that carefully drew lines around the acceptable scope of local franchising authorities’ de facto monopoly power in granting cable franchises. The thrust of the Act was to encourage competition and build-out by discouraging franchising authorities from viewing cable providers as a captive source of unlimited revenue. It did this while also giving franchising authorities the tools necessary to support public, educational, and governmental (“PEG”) programming and enabling them to be fairly compensated for use of the public rights of way. Unfortunately, since the 1984 Cable Act was passed, an increasing number of local and state franchising authorities (collectively, “LFAs”) have attempted to work around the Act’s careful balance. In particular, these efforts have created two main problems:
First, LFAs frequently attempt to evade the Act’s limitation on franchise fees to five percent of cable revenues by seeking a variety of in-kind contributions from cable operators that impose costs over and above the five percent limit. LFAs do this despite the plain language of the statute defining franchise fees quite broadly as including any “tax, fee, or assessment of any kind imposed by a franchising authority or any other governmental entity.”
Although not nominally “fees,” such requirements are indisputably “assessments,” and the costs of such obligations are equivalent to the marginal cost of a cable operator providing those “free” services and facilities, as well as the opportunity cost (i.e., the foregone revenue) of using its fixed assets in the absence of a state or local franchise obligation. Any such costs will, to some extent, be passed on to customers as higher subscription prices, reduced quality, or both. By carefully limiting the ability of LFAs to abuse their bargaining position, Congress ensured that they could not extract disproportionate rents from cable operators (and, ultimately, their subscribers).
Second, LFAs also attempt to circumvent the franchise fee cap of five percent of gross cable revenues by seeking additional fees for non-cable services provided over mixed use networks (i.e. imposing additional franchise fees on the provision of broadband and other non-cable services over cable networks). But the statute is similarly clear that LFAs or other governmental entities cannot regulate non-cable services provided via franchised cable systems.
In this ex parte letter, ICLE analyzes the law and economics of both the underlying statute and the FCC’s proposed rulemaking that would affect the interpretation of cable franchise fees. For a variety of reasons set forth in the letter, we believe that the Commission is on firm legal and economic footing to adopt its proposed Order. It should be unavailing – and legally irrelevant – to argue, as many LFAs have, that declining cable franchise revenue leaves municipalities with an insufficient source of funds to finance their activities, and thus that recourse to these other sources is required. Congress intentionally enacted the five percent revenue cap to prevent LFAs from relying on cable franchise fees as an unlimited general revenue source. In order to maintain the proper incentives for network buildout — which are ever more-critical as our economy increasingly relies on high-speed broadband networks — the Commission should adopt the proposed Order.
Click here to read the full ex parte letter.
TOTM In a remarkable ruling issued earlier this month, the Third Circuit Court of Appeals held in Oberdorf v. Amazon that, under Pennsylvania products liability law, Amazon could be found liable for a third party vendor’s sale of a defective product via Amazon Marketplace.
In a remarkable ruling issued earlier this month, the Third Circuit Court of Appeals held in Oberdorf v. Amazon that, under Pennsylvania products liability law, Amazon could be found liable for a third party vendor’s sale of a defective product via Amazon Marketplace. This ruling comes in the context of Section 230 of the Communications Decency Act, which is broadly understood as immunizing platforms against liability for harmful conduct posted to their platforms by third parties (Section 230 purists may object to myu use of “platform” as approximation for the statute’s term of “interactive computer services”; I address this concern by acknowledging it with this parenthetical). This immunity has long been a bedrock principle of Internet law; it has also long been controversial; and those controversies are very much at the fore of discussion today.
Read the full piece here.
TOTM Despite the simplistic narrative tying President Trump’s vision of the world to conservatism, there is nothing conservative about his views on the First Amendment and how it applies to social media companies.
Yesterday was President Trump’s big “Social Media Summit” where he got together with a number of right-wing firebrands to decry the power of Big Tech to censor conservatives online. According to the Wall Street Journal…
Regulatory Comments The Department should be commended for undertaking this workshop “to explore industry dynamics in media advertising and the implications for antitrust enforcement and policy.... and the competitive dynamics of media advertising in general.” The competitive dynamics of advertising markets—and digital advertising markets, in particular—are complicated and not well-understood.
The Department should be commended for undertaking this workshop “to explore industry dynamics in media advertising and the implications for antitrust enforcement and policy…. and the competitive dynamics of media advertising in general.” The competitive dynamics of advertising markets—and digital advertising markets, in particular—are complicated and not well-understood. As more and more attention is paid to online markets and the welfare implications of various practices, it is crucial that enforcers make measured and informed decisions. As these are rapidly changing markets characterized by novel business models and nonstandard contracts, it is important not to fall prey to the concern that Ronald Coase pointed out half a century ago:
[I]f an economist finds something—a business practice of one sort or another—that he does not understand, he looks for a monopoly explanation. And as in this field we are very ignorant, the number of ununderstandable practices tends to be very large, and the reliance on a monopoly explanation, frequent.
Economic learning has come a long way since then, but markets have also been transformed. This workshop is a valuable step toward updating the economic learning relevant to these novel and economically important markets, and toward ensuring that antitrust enforcement follows suit. As Robert Bork said (and AAG Delrahim quoted in his introductory remarks):
Though the goals of the antitrust statutes as they now stand should be constant, the economic rules that implement that goal should not. It has been understood from the beginning that the rules will and should alter as economic understanding progresses.
We hope that this workshop will be the beginning, not the end, of this discussion undertaken by the US antitrust agencies.
Click here to reach full comments.
TOTM There are some who view a host of claimed negative social ills allegedly related to the large size of firms like Amazon as an occasion to . . .
There are some who view a host of claimed negative social ills allegedly related to the large size of firms like Amazon as an occasion to call for the company’s break up. And, unfortunately, these critics find an unlikely ally in President Trump, whose tweet storms claim that tech platforms are too big and extract unfair rents at the expense of small businesses. But these critics are wrong: Amazon is not a dangerous monopoly, and it certainly should not be broken up.
TOTM What does it mean to “own” something? A simple question (with a complicated answer, of course) that, astonishingly, goes unasked in a recent article in . . .
What does it mean to “own” something? A simple question (with a complicated answer, of course) that, astonishingly, goes unasked in a recent article in the Pennsylvania Law Review entitled, What We Buy When We “Buy Now,” by Aaron Perzanowski and Chris Hoofnagle (hereafter “P&H”). But how can we reasonably answer the question they pose without first trying to understand the nature of property interests?
TOTM My colleague, Neil Turkewitz, begins his fine post for Fair Use Week (read: crashing Fair Use Week) by noting that Many of the organizations celebrating . . .
My colleague, Neil Turkewitz, begins his fine post for Fair Use Week (read: crashing Fair Use Week) by noting that
Many of the organizations celebrating fair use would have you believe, because it suits their analysis, that copyright protection and the public interest are diametrically opposed. This is merely a rhetorical device, and is a complete fallacy.
If I weren’t a recovering law professor, I would just end there: that about sums it up, and “the rest is commentary,” as they say. Alas…
TOTM The FCC’s blind, headlong drive to “unlock” the set-top box market is disconnected from both legal and market realities. Legally speaking, and as we’ve noted . . .
The FCC’s blind, headlong drive to “unlock” the set-top box market is disconnected from both legal and market realities. Legally speaking, and as we’ve noted on this blog many times over the past few months (see here, here and here), the set-top box proposal is nothing short of an assault on contracts, property rights, and the basic freedom of consumers to shape their own video experience.
Regulatory Comments "The Commission undertakes this rulemaking with the commendable goal of enhancing competition. But even the noblest of goals cannot be pursued by plainly illegal means. Unfortunately, that’s exactly what these proposed rules would do..."
“The Commission undertakes this rulemaking with the commendable goal of enhancing competition. But even the noblest of goals cannot be pursued by plainly illegal means. Unfortunately, that’s exactly what these proposed rules would do.
In our Comments we took issue with the disconnect between the stated goal of competition and the mechanism used to implement it, the unintended results, the vast underestimation of the existing vibrant video marketplace, and the fatal inconsistencies in the logic used to justify the Chairman’s NPRM. In this Reply Comment we highlight another overlooked, but crucial, problem with the proposed rules: they directly violate United States treaty obligations.
As we discussed in our Comments, the proposed rules would violate a number of exclusive rights guaranteed to copyright holders — including the right to license their content to MVPDs on narrow, specific grounds —and will create a high likelihood of exposing MVPDs to secondary liability. But the rules also threaten to violate a host of free trade agreements, to substantially interfere with rights holders’ exclusive right of public performance, and to upend the system of retransmission consent agreements authorized by the Cable Act…”
