Sixth Circuit Cable Order Challenged by City Coalitions

Three coalitions of cities filed briefs with the U.S. Sixth Circuit Court of Appeals asking for the court to reconsider its decision in City of Eugene et al. v. FCC. That decision, handed down May 26, upheld several key elements of an FCC decision that may have significant financial impacts on states and localities. The briefs, filed Monday in certain of the consolidated cases that challenged the FCC decision (Anne Arundel County v. FCC, Portland v. FCC and Eugene v. FCC), argue that the decision is inconsistent with precedent in the Sixth Circuit and other circuits, U.S. Supreme Court precedent and federal law. The briefs will go to the Sixth Circuit panel that initially decided the case, and that panel will decide whether or not to amend the decision. If the decision is not amended, the entire Sixth Circuit can decide to rehear the case.

The Sixth Circuit decision reviewed an FCC order finding that most requirements contained in cable franchises (which the FCC called “in-kind requirements”) should be treated as franchise fees, and the fair market value should be offset against the franchise fees owed to communities, or paid for directly by the community. The exceptions to the general rule were “[i]n-kind, cable-related contributions do not include the costs of complying with build-out and customer service requirements.” The FCC also ruled that franchising authorities could not regulate the provision of any service provided over a cable system, other than cable services, and also could not levy a fee on non-cable services offered over the cable system, even if that fee was otherwise permissible under state law. It specifically disapproved of a fee that the City of Eugene levied on broadband services, even though that fee was upheld by the Oregon Supreme Court. The regulations reflecting the order appear at 47 CFR 76.42 and 47 CFR 76.43.

The Sixth Circuit upheld the “in-kind” rule, but found that the franchise fee offset or direct payment was limited to the operator’s marginal cost of satisfying the requirement. It found that the FCC’s “no regulation” rule was not valid, but did agree that the Eugene fee was preempted. That ruling may be particularly important, as “cord-cutting” results in cable systems making less money from the sale of cable services (reducing franchise fees) and more from the sale of broadband services. The briefs challenge the panel’s conclusion that most franchise requirements should be treated as franchise fees, as well as its determination that cable operators cannot be charged fees on non-cable services. 

Tomorrow, July 15, BB&K is co-hosting a webinar about the court’s decision and best practices on incorporating its ramifications into local communities’ cable franchise negotiations and ongoing operations. Attorneys from BB&K and Spiegel and McDiarmid LLP, who represent  local governments before the Sixth Circuit, are joining together for this presentation. Register here.

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