Brace Yourself, Voluntary Commitments Are Coming: An Analysis of the FCC's Transaction Review.

• Date: 01 May 2018
• Author: Farr, Michael

TABLE OF CONTENTS I. INTRODUCTION 239 II. THE FCC'S LEGAL FRAMEWORK FOR REVIEWING COMMUNICATION INDUSTRY TRANSACTIONS 240 A. Overview of the FCC's Antitrust Mandate to Review Transactions 241 B. How the FCC Achieves the Public Interest: Modes and Actions 242 C. Policymaking Through Voluntary Commitments in Communication Industry Transactions 243 III. ESTABLISHING THE OVERREACH OF VOLUNTARY COMMITMENTS AND THE ROAD TO REVIEWABILITY 244 A. The FCC's Imposition of Voluntary Commitments is De Facto Rulemaking 245 1. AT&T/BellSouth 246 2. Ameritech/SBC 247 3. Comcast/NBC Universal 248 B. The Concept of Reviewability: Agency Action and No-Action 249 1. Decisions Committed to Agency Discretion by Law are Unreviewable 250 2. Heckler v. Chaney: Four Factors to Overcome the Presumption of Unreviewability in Decisions Committed to Agency Discretion by Law 251 C. Voluntary Commitment's First Cousins: Settlement Negotiations and Consent Decrees 253 IV. JUDICIAL REVIEW AS THE REMEDY FOR THE FCC'S OVERREACH IN TRANSACTION REVIEW 254 A. Obtaining Judicial Review by Virtue of the APA 256 1. Article III Courts are Necessary and Appropriate to Adjudicate Claims of the FCC's Overreach in Transaction Review 256 2. Voluntary Commitments Are Not Presumptively Unreviewable under 5 U.S.C. [section] 701(a)(2) Because It Weighs in Favor of the Heckler's Factors 257 3. Voluntary Commitments are Settlement Negotiations Reviewable by Article III Courts 258 B. Obtaining Judicial Review through Congress: The Tunney Act as a Blueprint 259 V. CONCLUSION 260 INTRODUCTION

Imagine you walk into the offices of an unelected regulatory body tasked with setting policy at the highest levels. They've been busy crafting rules and regulations, but the slow process has reached a boiling point. Some are willing to do whatever it takes to speed up the process--including throwing the rulebook out altogether. You tell the regulators they don't need to look beyond its enabling statute, which allows them to make policy in an alternative fashion without the mess of following statutorily prescribed procedures or subjecting their decisions to the courts. The regulators say it sounds too good to be true, and asks if this is limitless authority. You reply with an emphatic "yes!" They then ask a follow-up question. Can we coerce American businesses in transactions to bend to our policy at-will? You once again reply in the affirmative and leave them with a newfound purpose and way of doing business.

As stakeholders who care deeply about the rule of law, this situational exaggeration of an example would be just how it sounds--fictional and silly. However, some have argued that it is closer to reality than we would like to think, particularly when it comes to the Federal Communications Commission ("FCC"). Over the course of many years, the independent agency has relied upon a single statutory provision to carve out for itself a role in reviewing communication industry transactions valued in the tens of billions of dollars, and in the process, imposes binding obligations ranging from digital literacy programs to mandated disaster relief donations. The agency has become more interested in using its ancillary antitrust authority as a first option to craft policy, rather than through their primary powers prescribed in the Administrative Procedures Act ("APA").

As a vast majority of the American legal community has come to accept, the administrative state must fit comfortably within the executive branch under Article II of the United States Constitution in order to survive a basic constitutional inquiry. (1) That is not to say that administrative agencies have always stayed in their lane. (2) Skeptics are often quick to label the administrative state as a "headless [f]ourth [b]ranch" of government when there is a perception of agency overreach. (3)

The FCC's transaction review authority embodies this skepticism as it is tied to a vague public interest standard. (4) Among the FCC's statutory powers, reviewing transfers of licenses is unlike some other agencies that tend to review major transactions. (5) In applying this standard, the FCC has developed a unique tool--the voluntary commitment--to extract broad commitments from communications companies in transactions. (6) This, in turn, enables the FCC to use voluntary commitments as a mechanism to achieve public policy goals without going through the APA processes, and without sufficient judicial review.

The FCC circumvents the built-in checks and balances of the APA by achieving public policy goals through the imposition of voluntary commitments. This Note asserts that voluntary commitments are coercive because the FCC's approval of a transaction hinges on the acceptance of these terms. These voluntary commitments become conditions or effectively consent decrees, exempted under the APA or not, upon which noncompliance would result in the serious harm of revocation of a deal. This yields enormous discretion on the part of the FCC to further its own policy goals while circumventing procedural protections and adding an element of uncertainty about whether these conditions can be the subject of judicial review.

Therefore, this Note argues that the FCC's public interest standard, the preferred mechanism in achieving public policy goals, has been used to extract voluntary commitments from parties to a transaction, and this process for policy formation falls outside of lawful policymaking. In order to curb this overreach, Article III courts must have the final say on whether parties should contest to a commitment's imposition. At least one antitrust authority allows for judicial review in consent decree cases and there is no reason to think that voluntary commitments should operate any differently. (7)

Accordingly, Section II of this Note provides the basic underpinnings of the FCC's transaction review authority. Section III offers examples that illustrate the FCC's overreach in imposing voluntary commitments to circumvent agency law, and the hurdles for reviewability of these commitments. Finally, Section IV contends that this abuse must be checked by the courts and offers arguments for why judicial review is appropriate in transaction review.

2. THE FCC'S LEGAL FRAMEWORK FOR REVIEWING COMMUNICATION INDUSTRY TRANSACTIONS

   The FCC has statutory authority to review transfers of licenses it has issued, including in the case of a merger or acquisition among licensees, all of which are reviewed based on a public interest standard. (8) The traditional manner in which the FCC achieves its policy goals is through formal APA rulemaking. Typically, Article III courts can review agency actions in promulgating policy this way. Another way in which the FCC crafts policy is through imposing voluntary commitments on transactions involving licenses in order to win its approval. A rich amount of case law has developed on whether courts can review agency "no action" decisions (like not prosecuting a case), as opposed to traditional actions (like rulemaking). Reviewability depends on the characterization of the decision. It is not clear whether the imposition of voluntary commitments is an action or no action. In order to properly understand the constitutional issues surrounding the FCC's transaction review authority, it is necessary to understand how the FCC crafts rules and regulations to enact policy.

   1. Overview of the FCC's Antitrust Mandate to Review Transactions

      In most industries, either the Federal Trade Commission ("FTC") or the Department of Justice ("DOJ") reviews big transactions to assess their compliance with antitrust laws. (9) Under the Hart-Scott-Rodino Act, the FTC and DOJ review proposed transactions that affect interstate commerce and may take legal action to prevent mergers that the agencies think "substantially lessen competition."(10) By contrast, the FCC reviews transactions relating to its jurisdiction, including the transfer of licenses granted to communications companies, under the Communications Act of 1934. (11) If there are no transfers of licenses, the FCC is without jurisdictional authority to approve or deny the merger, as the FTC or DOJ would instead be the relevant agency to conduct the review. (12) While the statute does not explicitly grant transaction or merger review authority, the FCC has treated incidental license transfers as a means to evaluate and approve communication industry transactions and mergers. (13) The FCC approves the transaction as long as it serves "the public interest, convenience, and necessity." (14) Those seeking approval bear the burden of proving the transaction enhances the public interest. (15)

      In transactions involving telecommunications firms, agencies ranging from public utility commissions to international antitrust authorities could be involved to review a wide array of potential concerns. (16) Arguably, no government agency has more discretion in their review than the FCC. (17) This is so because the FCC reviews big transactions under a "public interest standard" (18)--a more expansive standard of review than the FTC or DOJ's competition-based review. (19)

      The broad scope of the FCC's standard in transaction review is well understood. The Supreme Court has characterized the FCC's public interest standard as a "supple instrument for the exercise of discretion by the expert body which Congress has charged to carry out its legislative policy." (20) The FCC claims that the public interest standard focuses on maintaining "competition, diversity, localism," encouraging advancements in technology, and the potential benefits to the public that a transaction would bring about. (21) In giving its approval or disapproval of transactions, the FCC inherently makes policy decisions.

      Under its governing statutes, the Communications Act of 1934 and the APA, the FCC formally makes policy through its delegated rulemaking authority. (22) However, under the public interest standard...