D.C. Circuit Throws Cautionary Flag at FCC
 
July 12, 2005
 

The Federal Communications Commission (FCC) has suffered several high-profile defeats in the courts recently. In the latest loss, on May 6, 2005, the D.C. Circuit held that the FCC lacks authority to require the installation of "broadcast flags" in certain consumer electronics equipment.¹

The FCC's broadcast flag regulations were adopted in 2003 and were scheduled to take effect on July 1, 2005.² The rules would have required that devices capable of receiving digital television broadcast signals be equipped with technology to recognize a "flag" within the broadcast. The broadcast flag is essentially a digital code embedded in the signal emitted by a digital television station. Equipment receiving the broadcast flag would be designed to prevent unauthorized redistribution of the broadcast content surrounding the embedded code. Cheered on by the Motion Picture Association of America (MPAA) and the National Association of Broadcasters, the FCC adopted the rules in an effort to deter the illegal dissemination of broadcast content via the Internet.

Consumer electronics manufacturers appealed the FCC's decision to the D.C. Circuit, arguing, among other things, that the Commission lacked any express jurisdiction from Congress to regulate the components of digital receivers. The Commission countered that it could adopt such regulations by exercising its ancillary jurisdiction. Ancillary jurisdiction may be exercised by the Commission when two criteria are present: 1) the Commission's general jurisdictional grant of authority to regulate "all interstate and foreign communication by wire or radio"³ covers the regulated subject; and 2) the regulations are reasonably ancillary to the Commission's effective performance of its statutorily mandated responsibilities.⁴ In this case, the Commission stated that 1) television receivers are covered under the Commission's general jurisdictional grant and 2) the broadcast flag regulations are reasonably ancillary to the Commission's regulatory authority to foster a diverse range of broadcast television programs and promote the DTV transition.⁵

Writing for a unanimous three-judge panel, Judge Edwards attacked the FCC for overstepping its jurisdiction, noting that "[i]n the seven decades of its existence, the FCC has never before asserted such sweeping authority." ⁶ The court reasoned that because the broadcast flag is triggered only after the broadcast signal has been received by the equipment, the FCC has no authority to require that the equipment recognize the flag. In other words, the flag has nothing to do with the digital receiver's reception of the broadcast signal, and thus the FCC has no authority to regulate in this area. The FCC's analysis of its ancillary jurisdiction was faulty, the court ruled, because the first prong of the ancillary jurisdiction test (i.e., the general authority to regulate communications by radio) was not satisfied.⁷ The court held that the broadcast flag was not even "incidental to" the transmission of broadcast signals.⁸

The D.C. Circuit's decision is a stinging rebuke of not only the FCC's broadcast flag decision, but seemingly the FCC's tendency to regulate industry through ancillary jurisdiction. The ramifications of the court's holding could reach beyond the immediate impact on manufacturers of consumer electronics to other segments of industry that are now regulated by the FCC through purported ancillary jurisdiction.

Having lost in the courts, the broadcast flag battle may turn to Congress. The MPAA has indicated that it will lobby for legislation that would give the FCC the specific authority that the D.C. Circuit found lacking. Given the heightened attention being paid to digital television on the Hill this year, it is possible that the MPAA will succeed. What is clear, however, is that the FCC must be far more careful in justifying its jurisdictional authority from now on.

For more information, e-mail David A. O’Connor at david.oconnor@hklaw.com or call toll free, 1-888-688-8500.

¹ American Library Association v. FCC, 406 F.3d 689 (D.C. Cir. May 6, 2005).

² Digital Broadcast Content Protection, Report and Order and Further Notice of Proposed Rulemaking, 18 FCC Rcd 23550 (2003) (Report and Order).

³ 47 U.S.C. § 152(a).

⁴ Report and Order, 18 FCC Rcd at 23563. The FCC’s authority to exercise ancillary jurisdiction has been upheld by the Supreme Court. See, e.g., United States v. Southwestern Cable Co., 392 U.S. 157 (1968).

⁵ Id. at 23563-66.

⁶ 406 F.3d at 691.

⁷ Id. at 700 (“The insurmountable hurdle facing the FCC in this case is that the agency’s general jurisdictional grant does not encompass the regulation of consumer electronics products that can be used for receipt of wire or radio communication when those devices are not engaged in the process of wire or radio transmission.”).

⁸ Id. at 703.