NATIONAL CABLE TELEVISION ASSN. v. U.S.
Legal provision: 31 U.S.C. 483
Argument of Stuart F. Feldstein
Chief Justice Warren E. Burger: We'll hear arguments first this morning in number 72-948, National Cable Television against the United States and the Federal Communications Commission.
Mr. Feldstein you may proceed whenever you’re ready.
Mr. Stuart F. Feldstein: Mr. Chief Justice and may it please the Court.
This case this morning arises from an appeal from the Fifth Circuit Court of Appeals’ opinion upholding the fee schedule of the Federal Communications Commission as it applies to the CATV Industry, and in particular, that portion of the fee schedule which is related to annual fees on a per subscriber basis.
In general, the facts are as follows.
In 1952, as a writer to the Appropriations Act, Title V was appended.
This Title gives the Federal Communications Commission and all other so situated agencies the power to enact fees to collect some of the cost of regulation which they incur.
As a part of this Act, the Budget Bureau under the President’s Office was directed to perpetrate some kinds of standards for the collection of the fees.
The operative document in this case, which is appended in the appendix, is Budget Bureau Circular A-25, which was last amended in 1959 so that is the circular we are working with under these fees.
Under these two pieces of authority, in 1963, the Federal Communications Commission first enacted fees.
These fees were enacted in docket 14-507 and they were based on applications for licenses and other kinds of filings made in front of the FCC.
These fees collected approximately 25% of the budget of the Federal Communications Commission.
There were appeals from these fees incidentally did not apply to the CATV Industry, because CATV was not at that time regulated by the Federal Communications Commission.
In the Seventh Circuit, in a case called Aeronautical Radio, Inc. v. U.S. and later this Supreme Court affirmed the FCC’s fees, and in so doing stated that Title V of the 1952 Appropriations Act enabled the FCC to collect these filing fess.
In 1970, the Commission decided to revise its fee schedule.
So they filed in February of 1970 a Notice of Proposed Rulemaking.
This Notice of Proposed Rulemaking proposed to do three or four things.
It proposed to raise the filing fees, it proposed to add CATV for the first time, including filing fees, since they had now taken jurisdiction over CATV as far back as 1965 and 1966, and annual fees were added.
In particular for CATV, the annual fees were to collect some 90% to 95% of the fees which the FCC decided it wished to collect from the CATV Industry.
These annual fees which were adopted later in 1970 were done on a per subscriber basis, 30 cents per subscriber.
A CATV system obtains the vast bulk of its revenue from subscribing homes which it hooks up to its system, and it is usually expressed -- the size of a system is expressed in the number of subscribers.
The FCC therefore, stated its annual fee on a basis of per subscriber fee, thus 30 cents.
Parenthetically, as is noted in our brief, the 1972 still outstanding Rulemaking proposes to raise these fees from 30 cents per subscriber to 40 cents.
Chief Justice Warren E. Burger: Somewhere in the briefs or perhaps in the appendix, I saw some figure as to the total cost to the Commission for the people engaged in the regulatory work relating to Cable Television.
Do you recall what that figure is just approximately?
Mr. Stuart F. Feldstein: Yes, the activity costs are on page 31 of the appendix, and it gives the cost as $1,145,400 or 4.6% of the FCC’s budget.
Now, these costs incidentally are both direct costs of the Cable Bureau and attributable costs such things as the Field Engineering Bureau and the Commissioner’s Offices which cannot be attributed a lock, stock, and barrel to one activity, but are spread as a percentage across. So you have direct cost and then you have indirect cost.
Chief Justice Warren E. Burger: Will it be fair to say that if Cable Television disappeared from the face of the earth for some reason or other that most of that million dollars plus would be out of their budget?
Mr. Stuart F. Feldstein: I would presume so, yes.
Several parties appealed the Commission’s Report and Order of July 1970 and the first appeal was filed in the Fifth Circuit so all appeals were transferred there.
And in the Clay case, which is the decision before you, in 1972 the FCC was upheld in all particulars.
The CATV Industry’s appeal was based on the annual fee, and the allegations were that the annual fee was not related to the statutory criteria of the Appropriations Act and had misapplied the criteria stated in Budget Bureau Circular A-25.
Now, in more detail, the authority to collect fees comes from Title V, and this is reprinted on page 151 of the appendix.
And in that Section, they state that Congress -- it is the sense of the Congress that any and it lists several things, these types of activities are done by an agency, shall be self-sustaining to the full extent possible.
And then it states subject to such policies as the President may prescribe, which is the authority for Budget Bureau Circular A-25.
And then it goes on to say about two-thirds of the way down that statute, and these are the operative criteria; that the fees must be fair and equitable taking into consideration (1) direct and indirect cost to the government, (2) value to the recipient, (3) public policy or interest served, and (4) other pertinent facts.
Justice Harry A. Blackmun: Mr. Feldstein, I take that the parties are agreed that the authority to assess these fees focuses in this particular statute, nowhere else, this is it?
Mr. Stuart F. Feldstein: That is correct.
The companion case has some arguments about stuff in the Federal Power Commission Act, but there is no authority in the Federal Communications Act with one small example, which has nothing to do with CATV, so we are discussing this particular statute.
Budget Bureau Circular A-25 which begins on page 142 of the appendix interprets this statute and lays out for the federal agencies how they are to go about setting fees.
The first important statement is on page 142 of the appendix under Section 2 coverage, where it states in the second line, “The provisions of this Circular cover all federal activities which convey special benefits to recipients above and beyond those accruing to the public at large.”
Then on page 143, all of Section 3 (a) states the criteria.
The most important of which are set out right in the top of the page where it states under general policy, a reasonable charge, as described below, should be made to (1) each identifiable recipient, (2) for a measurable unit or amount of government service or property from which (3) derives a special benefit.
So the identifiable recipient, measurable unit of service, and special benefit criteria are what I believe, I submit, that we should be looking for in the promulgation of these FCC fees.
Justice William H. Rehnquist: Mr. Feldstein, do you think that the Bureau of the Budget Circular covers the Federal Communications Commission?
Mr. Stuart F. Feldstein: I do, yes sir.
The assumption has been made that it did.
This question was not handled in the court below, and the Congress and the hearings which is cited by the Government in 1969 which urged the agencies to go forward, were urging the Commission to go forward under this, and the Federal Communications Commission was one of the examples that were used in the original legislative history.
Now, under special services on page 143 of the appendix, several things are listed.
Justice Byron R. White: Let’s assume the Federal Communications Commission wrote back to the Budget Bureau and said that “Your construction of the Act is very interesting, but we have a different view and we prefer our own view.”
The Bureau of the Budget has no direct authority under the Commission, I guess, has it?
Mr. Stuart F. Feldstein: No, but in the process of budgets, and the process of promulgating forms, in the process of many things that the Commission does, you must go through the Bureau of the Budget.
For example, when the Commission --
Justice Byron R. White: Well I understand that, how about my question?
Could it to say, you wouldn’t approve of this particular type of fee apparently, but we think it’s fully consistent with the Act and we’re going to follow it.
There’s nothing that the Bureau of the Budget can do about it, is there?
Mr. Stuart F. Feldstein: I think that the Act states that you must follow the criteria that are set down by the President, thus the Act states that subject to such policies as the President may prescribe.
Justice Byron R. White: Where are you reading now?
Mr. Stuart F. Feldstein: I’m reading in the middle of the Title V which is found on 155 of the appendix.
And it’s pursuant to this phrase that Budget Bureau Circular A-25 was promulgated by the President’s Bureau of the Budget.
Justice Byron R. White: But, even so, I don’t suppose the Bureau of the Budget would itself -- I don’t believe to say it would have to be authorized by the Act inconsistently?
Mr. Stuart F. Feldstein: That’s correct.
Justice William H. Rehnquist: Mr. Feldstein, that part you’re reading from there on page 151 as the policies as a President may prescribe is preceded by the language which in case of agencies in the Executive Branch shall be as uniform as practicable and subject to such policies as the President may subscribe.
Doesn’t that suggest that that is perhaps a more limited category of agencies than would be covered by the Act itself?
Mr. Stuart F. Feldstein: The Government I believe, has suggested this in one paragraph in its brief, but I believe that the legislative history of the Act substantiates the view that it was intended that such guidelines would be set down for all agencies which were both Congressional and executive departments.
And as such, the guidelines in Budget Bureau A-25 have the agencies that have promulgated fees have attempted to follow these no matter which category they have been in.
And this was the area which was looked at in fact by the courts in the Aeronautical Radio case.
Chief Justice Warren E. Burger: Going back to Mr. Justice White’s question about the posture of Bureau of the Budget Circular, I suppose it’s a fact that all of the agencies must put their budgets through the Bureau of the Budget, and that historically it has been a coordinating agency and because of its authority, shape, and frame the budgets of the agencies, it has considerable leverage, does it not?
Mr. Stuart F. Feldstein: That is correct, yes.
Chief Justice Warren E. Burger: Whether this Congress of course could increase a budget, but to the Budget Bureau has initially a great deal of authority in the way of enforcement here, do they not?
Mr. Stuart F. Feldstein: Yes, thus when the Commission goes to the Bureau of the Budget with its budget, difficulties which OMB has are hammered out.
Thus, the Commission’s budget maybe decreased or increased by the Bureau of the Budget before it ever sees the appropriate Appropriations Committee in Congress.
Chief Justice Warren E. Burger: But the agency may not generally ask for something which the Bureau of the Budget and OMB has declined to approve, is this not that correct?
Mr. Stuart F. Feldstein: That is correct.
The criteria in the Budget Bureau Circular are then followed on page 143 of the appendix, by a listing of the kinds of special services for which fees are authorized to be collected.
Thus, in 1 (a), (b), and (c) there are examples, receiving patents, craft insurance, license to carry on a specific business, certificates of necessity and convenience, in (b) safety inspections of craft, etcetera.
We submit that the common thread in all of these examples is that a particular identifiable entity has received in identifiable benefit.
The legislative history of the Act, I believe bears this out.
Thus, in the Senate reports which are quoted at some length on pages 22 through 26 of the NCTA reply brief, you will find language to that effect, likewise, the sole floor comments, since there was limited floor debate on that by Representative Yates printed on page 25 and 26 of our reply brief, talk about portion, getting fees back for a portion of the operations.
It talks about applications for certificates of public convenience and necessity being paid for by the person who applied for it.
So that it is our feeling that the legislative history supports the interpretation of the Act, which we are giving and which we feel that the Budget Bureau gave in Circular A-25.
Now, in Aeronautical Radio what was before that court, the Supreme Court and the Seventh Circuit were the questions under specific filing fees, and unless there be any doubt of that, on page 33 of NCTA’s opening brief, we quoted from the Commission’s Report and Order at that time where the Commission was adopting filing fees and stated that they were obtaining to the full extent possible fees for services which bestow special privileges and services upon certain individuals who may apply for those privileges and services.
So certainly what the Commission, the FCC was doing at that time was decidedly limited to the voluntary filing for special privileges.
Then, in the New England Power case, which is the companion case to this one, the court there was faced with a similar interpretation as to what the FCC is attempting to ask this Court to interpret the Budget Bureau Circular and the statute as, and in that case it was rejected and I will get into that one a bit more.
These then are the authorities which are prevailing for the justification of the FCC’s fees, and the limits that we feel are placed on them.
Now, going down in the argument, the criteria in terms of special benefit, we have argued in our brief, and the Government has argued back and forth as to whether the FCC’s regulation of CATV is provided in these special benefits to the CATV Industry.
It is our allegation that the FCC’s regulation has been bad for our industry.
That it has had a very deleterious effect and that in fact in the years under review here from 1968 to 1972 which cover all of the years of the fees that are under review today, there was in fact a freeze on CATV growth.
Up until 1966 or 65 rather, there was a rather unlimited growth on CATV, it was limited by its own constraints and limited by a local law, but not by the FCC.
Starting in 1965, the FCC begun to regulate quite heavily and their 1966 second Report and Order, which was reviewed by this Court in U.S. v. Southwestern.
That particular Report and Order did not work out well, and there is plenty of documentation to that effect in the briefs, and in the FCC’s own Reports and Orders, and Notice of Proposed -- Rulemaking proposing to change their rules.
In December of 1968, all growth of CATV in their larger markets was frozen.
Several attempts to unfreeze this situation went for naught, and finally in February of 1972.
Long after the fees in question were enacted, and long after the appeal from the fee schedule was taken, the FCC adopted some new rules in 1972.
The FCC has attempted to bring these 1972 rules into play in this case.
I very strongly submit that whatever the 1972 rules do or did not do for the CATV Industry, they were not the rules and not the regulations which were in effect at the time that these fees were promulgated, nor were they in effect for the two-and-a-half years in which these fees were collected, and that which covers the period from the promulgation of the fees in 1970 until the new rules in 1972.
Now the Commission has stated that even in 1970 at the time these fees were promulgated, there was much to say for the FCC’s regulation that would give a special benefit to the CATV Industry.
Thus, they state that we had to have authorization, or permission, or they could have stopped us, however, you wish to phrase it for the carriage of signals, especially distant signals.
They also state that the phone company, the General Telephone case, in which they put phone companies out of the CATV retailing business and their service areas, was such as to give us open entry and eliminate a potential anti-competitive threat.
I say to you that the New England Power rationale for this without even arguing about whether this was good or bad for us. the New England Power rationale is the proper rationale.
On page (d) 8 and (d) 9 of the appendix (d) to our petition for certiorari --
Justice William J. Brennan: This is the Court of Appeals decision?
Mr. Stuart F. Feldstein: Yes, that is correct.
This question of economic climate and regulation generally benefiting the entire industry is dealt with at some length in a long paragraph on page (d) 8 and (d) 9 of this opinion, which to repeat is appended as appendix (d) to our petition for a writ of certiorari, where the court states, “The creation of an economic climate is not a special service nor is a particular pipeline or gas company, substitute CATV system, the special beneficiary of such a climate anymore than any other CATV system or the consumer in general.”
Skipping then to the last portion of the paragraph, “The Commission’s inadequate response to the identifiable recipient is the whole industry, assumes that each company receives a benefit directly proportional to revenue, which is the case in our situation where the fee is being collected proportion to revenue because they’re collecting it per subscriber.
There is far more to regulation than simply what the FCC was doing and in fact is doing.
They have played down to a considerable extent, the franchising and state regulatory activities which go on.
No matter what the FCC says, there is no CATV system in a town until the community authorizes the operation of that CATV system.
The Commission’s statement that the valuable benefit received from the authorization to carry signals is strange in light of the fact that this court in Fortnightly held that there is no monetary liability for the carriage of signals for a CATV system under the copyright law and thus we submit that not only are the FCC’s regulations, at least those empowered in 1970, those in force in 1970, not of benefit to the entire industry, but that there is far more to the regulation of Cable Television than that which the FCC did in 1970, and if fact that which they do now.
Chief Justice Warren E. Burger: Would you say that if it were some benefit to the Cable Television Industry when telephone companies were taken out of the play, out of the picture as competitors?
Mr. Stuart F. Feldstein: Yes, to a certain extent it was true.
Certainly it wasn’t true for those CATV systems which were owned by telephone companies nor was it true for those areas where the telephone company posed no threat.
But yes, generally speaking, the CATV Industry welcomed it.
Certainly NCTA was an intervener on the side of the Commission in the defense of the rules which put the telephone companies out of the business in their particular area.
However, even assuming going on then to the next argument, even assuming that some of their regulation can be stated to be of some benefit to the entire industry, and I would hope that any regulatory agency’s regulations would at least be of some benefit to the industries which it is regulating.
The statute as interpreted by the Budget Bureau call for an identifiable recipient, thus you call for a special service to a particular company.
The crux of this entire case, I believe is the FCC’s and the Government statement that where you benefit the entire industry, you can recover the regulatory cost for that on a pro rata basis.
The examples given in the Budget Bureau Circular A-25 as I quoted from page 143 of the appendix would not lead you to conclude that.
They talk about receiving a patent, crop insurance, license to carry on a specific business, an airman certificate, etcetera.
In other words, something is gotten by an individual from his government.
He is not simply a member of an industry which is being regulated, and that is the key.
That is the key to this case, and that is the key which the Court of Appeals in the District of Columbia saw in its interpretation of Title V, where it stated that no matter what kind of benefiting you were doing as an agency to the entire industry, that was not sufficient.
That was public interest.
That was consumer in general.
That was entire industry.
That is not what is meant by Title V, and is not what is meant by the Budget Bureau Circular A-25.
Thus, what I am saying is that there is no relation between the fee and services, and this is in two ways.
A particular CATV system may have no dealings with the FCC during the year at all, and still get charged the same fees as the same size CATV system which had considerable dealings with the FCC.
And furthermore, even if both my hypothetical systems had dealings with the FCC, the number of subscribers which is the key to the annual fee is totally unrelated to the work done for that particular system.
Thus, what the Commission is doing here is taxing the entire industry to recoup the entire cost of its regulatory program.
If that were to be the law, there would be no practical limit on the amount of fees that the FCC could collect, so long as they could obtain a higher budget for their CATV regulation.
If there are no further questions, I would like to reserve the remainder of my time for a reply.
Chief Justice Warren E. Burger: Very well Mr. Feldstein.
Argument of Edward R. Korman
Mr. Edward R. Korman: Mr. Chief Justice and may it please the Court.
The Department of Justice appears here today on behalf of the United States and the Federal Communications Commission to urge affirmance of the unanimous decision of the United States Court of Appeals for the Fifth Circuit, which sustained the Federal Communications Commission’s construction of an Act of Congress Title V of the Independent Offices Appropriations Act of 1952.
The issue presented here is whether the activities undertaken by the Commission with regard to the CATV Industry, come within the categories prescribed in Title V of the Act, and therefore, compelled the Commission to impose an annual fee of 30 cents per subscriber per month to be paid by each CATV system in order to reimburse the taxpayers of the United States for the costs incurred in sustaining these activities.
These costs exceeded $1 million in 1970-71, and will exceed $3 million in the coming fiscal year.
The amount of the fee as calculated initially came to something in the neighborhood of one-half of 1% of the gross revenues of the CATV Industry.
A number of cases involving the CATV Industry have come before this Court in recent years, and there is really little need to discuss here the nature of that industry where its phenomenal growth into a $500 million a year business, serving some seven million subscribers.
Now, $500 million a year figure is almost doubled that of only four years ago.
Essentially, as the Chief Justice stated in his concurring opinion in the Midwest Video case, CATV systems exploit existing broadcast signals to which they make no contribution by plucking them from the air, and transmitting them over cables, generally strung over telephone poles to subscribers who are hooked in to the system, and who pay generally speaking a monthly fee in the neighborhood of $5 to $6 a month.
Now, the implications of such a rapidly growing system through the carriage of broadcast signals place the CATV’s activities clearly within the ambit of the regulatory jurisdiction of the Commission, which is charged by Congress in Section 151 of Title 47 to make available to all the people of the United States, a rapid, efficient, nationwide, and worldwide radio communication service with adequate facilities at reasonable charges.
Petitioner here charges -- challenges the annual fees imposed by the Commission on several grounds, and before getting into them, I would like to speak for a moment to the Bureau of the Budget Circular that has been referred to by petitioner.
First, that is not and does not purport to be “an interpretation” of Title V.
It simply is what it says it is, namely some general policies for developing an equitable and uniform system of charges.
The Bureau of the Budget Circular was adopted pursuant to the statement in Title V of the Act which says that in cases -- in the case of agencies in the Executive Branch, the fee shall be uniform as practicable subject to policies, such policies as the president may prescribe for agencies in the Executive Branch which the Federal Communications Commission clearly is not.
And as a matter of fact, the Bureau of Circular itself is addressed to heads of executive agencies and establishments.
Moreover, it’s quite true as the Chief Justice pointed out that the Bureau of the Budget does have extensive leverage which it can use even with respect to an independent regulatory agency, but it should also be pointed out that the Bureau of the Budget is fully aware of what the Communications Commission has done every year.
It’s been advised that the end of every year precisely what the Commission is doing.
Indeed it was at the urging in part of the Bureau of the Budget, now the Office of Management Budget, that the Commission acted to substantially increase its fees schedule so that the Commission is not bound by the particular language of the Budget Bureau Circular.
If it was bound by it, it would seem that the determination of the Executive Branch which I represent here as well, that the Commission has complied with those guidelines, should be sufficient.
This is not a regulation, it doesn’t have the force and effect of statute, it’s merely policy guidelines.
Justice Potter Stewart: Was this Circular A-25 in fact addressed to the Federal Communications Commission, was the Commission in other words, one of the addressees?
Mr. Edward R. Korman: Well, the address of the notice as it appears in the appendix --
Justice Potter Stewart: Is to the heads of executive departments and establishments, and I wonder if that --
Mr. Edward R. Korman: It may very well have been, I’m not certain of that.
Justice Potter Stewart: I wonder if that did or did not include the Federal Communications Commission?
Mr. Edward R. Korman: I’m not certain of whether they were actually on the mailing list.
I would think that they’d probably should be, even though they’re not technically bound simply because it’s not a bad idea for them to try and formulate their policies consistently with other agencies of the Executive Branch if they feel they can do so consistent with their obligations under the statute.
I mean we’re not and the Commission of course looked at these guidelines and attempted to follow them, and we believe they have been formulating the annual fee.
Justice Potter Stewart: Well, I thought that your point or a point that you made is that the Commission is not an executive department, and or establishment?
Mr. Edward R. Korman: That’s correct, but nevertheless --
Justice Potter Stewart: And further that the statute Title V, requires uniformity to the extent practicable only with respect to agencies in the Executive Branch?
Mr. Edward R. Korman: That’s correct, but nevertheless, as a matter of policy, I’m not suggesting that it would be undesirable.
Justice Potter Stewart: Why?
Mr. Edward R. Korman: Well, I think it’s generally it’s a good thing to have a uniform set of schedules.
Justice Potter Stewart: Is symmetry just good for its own sake?
Mr. Edward R. Korman: Well --
Justice Potter Stewart: Should you treat things alike that are different?
Is that wise and desirable?
Mr. Edward R. Korman: No I mean, the Federal Communications Commission as far as the general public is concerned, and as far as the industry is subject to regulation, it’s a small matter to them whether technically the Federal Communications Commission is viewed as part of the Executive Branch, or whether it's viewed as a creature of Congress and an independent regulatory agency.
And it would seem desirable that where you have, at least in the eyes of the public, a view that it's simply part of the government, that agencies which appear to be part of the government act in a matter that’s consistent, provided that the particular agency feels that it can act that way and still adhere to the mandate which Congress has given it.
Now, petitioner challenges the annual fee on two grounds.
First it contends -- let me say one more thing, we’re not suggesting that we’re in anyway conceding that we haven’t complied with this Bureau of the Budget Circular.
I just want to put our position in proper perspective, in that many of the words and standards that have been suggested by the petitioners applying here, words like identifiable, beneficiary, measurable unit of government service, all of those things do not appear on the statute.
And as petitioner conceded in response to Mr. Justice Blackmun’s question, the question presented here and as presented in the first question in the petition for certiorari turns on the construction of the Act, and not the Bureau of the Budget Circular.
Now, first it’s petitioner’s contention that the Commission’s function is to serve the public interest and that they do not receive any benefits from regulation.
Indeed they claim that the overall effect of the Commission's regulation has affirmatively hindered their economic growth.
Second, they claim that even if the CATV Industry does receive benefits, the Commission erred in the manner in which it applied the criteria in Title V in calculating the fee.
We submit that both of these claims were properly rejected by the Court of Appeals.
First, with respect to the petitioner’s initial claim, we believe that the issue here does not depend on whether the CATV Industry as a whole benefited or was harmed because or as a result of Commission regulation.
It seems to us that everyone who enters a business which is effective with the public interest must of necessity expect to be regulated.
And regulation means being told to do things that you don’t like as well as things that you would like to undertake.
They must expect to be told that all of their activities must be conducted in a manner subordinate for the public interest whether they like it or not.
Yet the language of Title V clearly suggests that those subject to regulation pay the costs of that regulation in at least several instances which are relevant to this particular case.
This is clearly surely shown by the references to charges for the cost of issuing licenses, permits, certificates, or similar things of value.
Now, the only reason when these are licensed to do anything is because there’s a regulatory program which requires you to get the license, and yet Congress said that to the fullest extent possible, the agency should recover the cost of issuing that license, permit, certificate, or other thing of value.
Moreover, it is equally clear that Congress intended that regulatory agencies not only be reimbursed “to the fullest extent possible” for the cost of issuing these license, but that they also recover costs incurred in activities which confer benefits which are special, that is benefits which the regulated industry would not receive, but for the fact that they were being regulated by the Commission.
And it’s our submission that the Commission’s regulation of the CATV Industry implicates both aspects of this act.
In the first place, since 1972, Commission regulations have required all CATV stations to obtain certificates of compliance.
That is the Commission has adopted regulations with respect to the franchising of CATV stations which divide responsibility between the local community and the Federal Communications Commission.
Essentially what the Commission does is set out broad guidelines which have to be followed by the local agency, local authority in issuing its certificates.
Justice Potter Stewart: How true if a franchise, it’s not a license in any sense of the word, is it?
Mr. Edward R. Korman: Well, in the sense --
Justice Potter Stewart: I mean it’s not equivalent in other words, to a radio or television broadcasting?
Mr. Edward R. Korman: Well, it couldn’t operate without it.
No I don’t know --
Justice Potter Stewart: Well, that doesn’t answer the question, does it?
Mr. Edward R. Korman: Well, the statute uses words which are not limited to license.
It says license, certificate, permit, or other things of value.
Justice Potter Stewart: Well, that doesn’t answer the question either.
Mr. Edward R. Korman: Well, it certainly not the same as the broadcast license.
Justice Potter Stewart: Not a license, is it?
Mr. Edward R. Korman: Well it’s not.
Justice Potter Stewart: It’s not called the license and it isn't a license and there’s no authority is there to license?
Mr. Edward R. Korman: Well, it’s called the certificate of compliance without which they couldn’t engage in this activity.
Now whether that comes within a dictionary definition of a license, it certainly equivalent of it, and I think the language of the statute is so worded as to indicate that Congress intended that that ought to be covered.
Without it they couldn’t operate.
Of course without in a sense there’s a joint franchising authority here because without local authority of the FCC, the CATV station couldn’t string up its cables.
But all that authority is to string up its cables.
They still have to get the Commission’s approval to carry the signals over the wire.
Now, I’m not going to say that technically under some definition of license that this is clearly a license, but this is one of those statutes that’s worded in a way in which Congress used every conceivable synonym.
Justice Potter Stewart: You mean Title V?
Mr. Edward R. Korman: Yes, that could possibly think of to indicate the breadth.
Justice Potter Stewart: Well, in any event the filing fees, the so-called filing fees as such are not an issue here, are they?
Mr. Edward R. Korman: No, but they’re not really begin to recover to the fullest extent possible the real costs of these proceedings and I think the filing fee for a certificate of compliance is $35 which really covers the mechanics of issuance, the real cost of the hearings, to maintaining staff, in carefully reviewing the certificates, and constantly monitoring the industry.
Justice Potter Stewart: What do you consider that the phrase to the full extent possible, does that mean the same thing as the fullest extent possible?
Mr. Edward R. Korman: Yes, and --
Justice Potter Stewart: You never heard the phrase “to the full extent possible” have you before, anywhere else?
Mr. Edward R. Korman: I haven’t thought about whether I heard it before.
I don’t have any recollection of ever hearing it.
Chief Justice Warren E. Burger: Are you suggesting that the certificate of compliance is to be equated with the certificate of public convenience and necessity for example?
Mr. Edward R. Korman: Yes and there are substantial benefits let me say, that accrue as a result of the issuance of the certificates.
Justice William H. Rehnquist: Mr. Korman, would the Commission turn down an application from a proposed CATV applicant by reason of the fact that he duplicated the area covered by someone already having a certificate, or would it leave that up to the local franchiser decision?
Mr. Edward R. Korman: I think it would leave that up to the local franchising authority.
Let me say that one of the reasons there isn’t a kind of monopoly protection in the sense that televisions get it is because as a practical matter, local CATV system has a natural monopoly.
That is, once it’s established and has gone through stringing up the wire, it generally has an agreement with the telephone company for use of the cables.
It charges $5 a month and it has its subscribers in the start up course for going into the CATV business that are very substantial.
And it’s not generally the fact that there are more than one CATV system operating in an individual area.
Nevertheless, the Commission has undertaken action to limit competition for the benefit of the CATV Industry at the request of the CATV Industry.
It’s gotten telephone companies for example, out of the CATV business at the request of the CATV Industry, at the request of this particular petitioner here who told the Court of Appeals in asking to intervene in support of the Commission’s regulation that the regulation was essential to the existence of an independent CATV Industry.
Justice Potter Stewart: Did the action of the Commission getting telephone companies out of the business occurred during this period that we’re talking about, this four-year period?
Mr. Edward R. Korman: Yes, it did.
Justice Potter Stewart: And are you charging the telephone companies for that service putting them out of business?
Mr. Edward R. Korman: No, we’re not charging them for putting them out of business.
Justice Potter Stewart: Well, does -- these charges would be levied against, wouldn’t they, the telephone companies for so long as they were in business during this period?
Mr. Edward R. Korman: Well --
Justice Potter Stewart: For the service you gave on putting them out of business?
Mr. Edward R. Korman: For an interim period, but these petitioners here purport not to represent those companies.
Justice Potter Stewart: Well they have to represent the industry, don’t they?
Mr. Edward R. Korman: Well no, they represent the independent CATV Industry.
They weren’t representing the telephone --
Justice Potter Stewart: Well in any event, those fees are an issue here, aren’t they?
The fees charged against everybody?
That’s what’s before us here, isn’t it?
Mr. Edward R. Korman: Well, we haven’t raised any kind of standing issues, but of course they have standing to raise the claims of their members.
Now, if the telephone companies want to come in here and complain about the fee, I suppose they are probably free to do so.
Justice Potter Stewart: That these fees are charged to those companies?
Mr. Edward R. Korman: Yes.
Justice Potter Stewart: Whom you put out of business?
Mr. Edward R. Korman: Who will be going out of business, but since they are in business for the years in which they are paying the fee, they’re still benefiting from Commission regulation.
Justice Potter Stewart: Quite a benefit.
Chief Justice Warren E. Burger: Are you suggesting that it’s inherent in any regulatory agency that it giveth and it taketh away, but at either act as a part of the regulatory process, is it not?
Mr. Edward R. Korman: Well, that’s correct.
What we’re saying is that regulation, when you’re go into a business that’s affected with a public interest you have to expect to be told to do things you don’t like.
What we’re charging for in a sense is for giving benefits that you wouldn’t get, but for the fact that you were regulated.
And they wouldn’t be able to get for example, an order from an agency of the Government putting the television broadcast industry out of the CATV business, getting newspapers out of the CATV business, getting telephone companies out of the CATV business.
It’s impossible to say that the members of the CATV Industry that this petitioner represents have not benefited substantially and do not continue to benefit substantially from that kind of activity and there’s more.
For example, and this might have some relevance with respect to the telephone companies, the Commission’s rules with the regard to franchising place a limit on the fees that can be charged by the local municipalities.
That fee has averaged according to one study, an average of 8% of the gross receipts.
What the Commission has said is you can’t charge that kind of a fee.
The only thing you can charge is within the guidelines is a fee between 3%.
If you want to go over that you have to show that it’s necessary to sustain the cost of regulations so that in effect or the Commission is said as the localities can only charge fees which can reimburse them for regulation.
So here, we have in return for a fee of one-half of 1% of their gross revenues, where cutting down the average that paid to municipalities and localities from 8% a year average to something around to 3% to 4% which is a substantial benefit, and was done also at the suggestion of the CATV Industry.
Justice Potter Stewart: Congress I suppose could’ve passed a legislation, specific legislation, requiring exactly the same thing, and that is imposing maximum fees on franchises?
Mr. Edward R. Korman: That’s true, Congress could have.
Justice Potter Stewart: Could Congress send the beneficiaries of that legislation a bill, do you suppose, for each service to them?
Mr. Edward R. Korman: Well, Congress sends all of us a bill for the services that --
Justice Potter Stewart: Well, specifically.
Specifically, say we benefited you specifically by seeing to it that no municipality, or county, or local government charges more than “X” percent for its franchise.
Now, they send, and every Congressman or to the Congress $10,000 a piece.
Mr. Edward R. Korman: I must say that standing up here I find it difficult to think of a provision of the Constitution that it would violate.
I suppose with some more thought, I might be able to think of a problem that would provide.
That’s not the situation here.
What Congress is here saying and --
Justice Potter Stewart: There’s all sorts of special legislation in Congress.
In fact there’s hardly a law that Congress passes that doesn’t benefit an identifiable group, isn’t that correct?
Mr. Edward R. Korman: Well that’s true, and of course every program undertaken pursuant to any act of Congress is intended to benefit the public generally.
Justice Potter Stewart: And it’s all in the public interest by hypothesis.
Mr. Edward R. Korman: That’s right, but if you accept that reasoning and now is the reasoning of the Court of Appeals and Title V means nothing.
Justice Potter Stewart: I know.
Mr. Edward R. Korman: Because there isn’t a single program that is enacted principally to serve the public --
Justice Potter Stewart: By hypothesis, by definition?
Mr. Edward R. Korman: That’s right.
And as a matter of fact, although there’s been substantial reliance on the Court of Appeals' holding on the New England case, in which the court without really citing any specific reference or scriptures found that it was something fundamentally wrong with charging a fee where the purpose of the program is to benefit the public.
Justice William H. Rehnquist: Mr. Korman, how far do you carry your line of argument?
Can a Department of Agriculture if it raises crop support prices, bill the farmers for the increased benefit they get from the added crop support pricing?
Mr. Edward R. Korman: Well, I would think that to the extent that there is a substantial benefit that accrues to the farmer, and to the extent that there is a cost in administering the program that it probably could.
I don’t know that Congress really enacted that legislation with that particular executive program in mind, although it’s quite clear that they enacted Title V with the Federal Communications Commission precisely in its mind in recognizing the benefits that accrue to those who are subject to the jurisdiction of the Federal Communications Commission as a result of the regulation which is afforded by the Commission.
It was quite clear that Representative Yates specifically mentioned the Federal Communications Commission as did others because it’s the most obvious one in which the regulated industries derives substantial benefit as a result of the franchises and permits that they get.
Now, there’s been some reference to the regulation before 1972 and post 1972.
Now, I don’t understand that the petition challenges nor do I understand that the action of the Court of Appeals really was related only to two years.
The Commission’s rule and fee applies in 1970, 71, 72, 73, 74 and it’s not really relevant as we view it what year particular Commission activities are undertaken.
And as a matter of fact, although we’re accused of going outside the record, and improperly bringing in post 1972 activities, the petitioner at page 23 of his brief states that he was the first one to do it.
He says “NCTA recited to the Fifth Circuit the adverse effects of the Commission CATV regulation prior to, during, and subsequent to the promulgation of the annual fees schedule at issue here.”
Now, petitioners also challenge the method by which the Commission calculated the fees.
Now they don’t challenge per se the concept of an annual fee.
What they seem to be saying is that this annual fee does not really reflect value to the recipient, which is one of the categories which the Commission must take into account along with the public interest to be served, and the amount of the cost to the public in furnishing the benefit, that this couldn’t possibly reflect value to the recipient because in any one year, a number of CATV Industries don’t actually come to the Commission for anything specifically.
And it seems to us that this argument ignores the fact that the value to the recipient for example, of a FCC rule or regulation does not simply benefit him in the single year that’s issued.
A license is not limited to the year in which it’s issued and the other substantial benefits which have arisen, such as the elimination of competition have value which go beyond the year that it’s issued.
On the other hand, the Commission can operate on an ad hoc basis putting out an act for lawyers every time an application for a certificate comes in, or anytime the NCTA comes running to it for help from competition which it can’t cope with on its own.
Full time staff is required to develop the expertise necessary, and to be available to those who come to it for assistance.
And so that the mere fact that in any given year, a CATV company doesn’t come to the Commission for anything, does not necessarily mean that the Commission has failed to take into account value to the recipient in formulating an annual fee.
Moreover, since the entire industry benefits from that regulation, and since it’s clear for example, and I don’t think it would be disputed that the Commission could calculate one filing fee which would really be substantial not $35 and charge it as against one company.
What the Commission has done here is it's decided it would be more equitable to spread the cost a bit, particularly for smaller CATV companies by making the amount contingent on gross revenues, which reflects more equitably the real value that is derived from engaging in this particular business.
And the Court of Appeals unanimously affirmed the Commission’s determination that these fees were fair and equitable, and as we view it, that simply almost a discretionary determination which even before the Court of Appeals the Commission’s evaluation was entitled to great weight.
And for these reasons, if there are no further questions, we would ask that the judgment of the Court of Appeals be affirmed.
Chief Justice Warren E. Burger: Thank you Mr. Korman.
Mr. Feldstein, do you have anything further?
Rebuttal of Stuart F. Feldstein
Mr. Stuart F. Feldstein: First, I wanted to state that in terms of the Budget Bureau Circular A-25, not only do I feel that the legislative history, specifically Representative Yates’ remarks placed the FCC under it, but the FCC has assumed that it is under it because it named its reliance on Budget Bureau Circular A-25 in its notice of proposed Rulemaking in docket 18-802 which are the fees under consideration here, in the report and order, and in the 1972 notice in docket 19-658 which is the proposal to raise the fees, so I believe --
Justice Byron R. White: But you still have the question of whether or not the Commission must observe the Circular, or whether its regulation should be judged not under the Circular, but under the statute, exactly under the statute?
Mr. Stuart F. Feldstein: All right I --
Justice Byron R. White: Let’s assume for a moment that there never had been a Circular?
Mr. Stuart F. Feldstein: Alright, then we can go right then to the statute and allege that equally under the statute, the same is true.
Thus, under the statute it talks about and it lists a whole bunch of things, top of the statute, it must be to or for any person and then in parenthesis it gives examples of persons, partnership, corporation, group, association, but never does it say industry.
And in so interpreting that, the Bureau of the Budget and other agencies, until this time, had likewise interpreted it as meaning a specific service given to a particular individual.
Thus, even though it says, it lists particular benefits at the top of the statute, and then it says to or for any person is likewise instructing an agency to deal on the fee matter in that same regard as the Bureau of the Budget has given guidelines as to how it carry that out.
Now, in talking about what benefits we get, the Government has again talked about all of the 1972 and post 1972 regulations which it has bestowed upon the CATV Industry.
I submit that the fees in the appeal that are under consideration here predate the 1972 rules.
I would reserve my opportunity to argue in another appeal with the 1972 rules likewise do not benefit the CATV Industry in the manner in which is alleged that they do so.
However, these are not the rules which we must apply these fees to.
Now, in terms of the statute where it talks about taking into consideration value to the recipient as one of the three statutory criteria, there again the Commission has absolutely failed.
It is a pure cost allocation, absolutely a pure cost allocation.
The Commission talked about all kinds of documents that it had, and this is why we brought our freedom of information suit to this Court’s attention.
The Commission said it had all the kinds of documents and things on value to the recipient, one of the three statutory criteria.
Chief Justice Warren E. Burger: But you’ve already conceded quite a few benefits to the industry and to individual members of the industry in terms of being spared the competition of telephone companies who could’ve taken over the entire industry lock, stock, and barrel, and several other items?
Mr. Stuart F. Feldstein: What I’m stating in that regard is that let us assume that that is a benefit which the entire industry enjoys.
A benefit of a regulation to the entire industry and not an identifiable CATV system is not sufficient, because what the Government can do in that case then is to equate regulation with benefit and then equate the cost of regulation with the fees that it can recover, lock, stock, and barrel from the CATV Industry.
And I do not think that Title V authorizes that kind of an equation.
Justice Thurgood Marshall: How much value would -- do the CATV to get the phone company out of business?
Mr. Stuart F. Feldstein: Well the value --
Justice Thurgood Marshall: In dollars and cents.
You don’t know, do you?
Mr. Stuart F. Feldstein: No, I do not.
They were about at the time of that regulation, they were about perhaps 2000 or a little more CATV systems in operation.
There were approximately 35 or 40, maybe a bit more.
Justice Thurgood Marshall: And they were increased in everyday, weren’t there?
If there weren’t why do you run into mean of this suit, if there weren’t hurting? They weren't hurting, weren’t they?
Mr. Stuart F. Feldstein: To an extent they were hurting, but certainly some people did not.
Justice Thurgood Marshall: And this agency got rid of your hurt?
Mr. Stuart F. Feldstein: That’s right, but if we want to equate that, we can say that we can put on one side of the ledger those things which helped us with those things that hurt us.
And I don’t think that that kind of equating is what Title V had in mind.
Justice Thurgood Marshall: And I don’t think that apply to anything else, that in mind.
I think Title V says where you set up something that is for your benefit, would you use when you want to use it, and is there so that it’d be ready for broad to use when you want to use, you pay for it, isn't that what Title V says?
Mr. Stuart F. Feldstein: I disagree, and I do not feel that Title V enables a federal agency to collect its entire cost of regulation of an industry just because it feels that that regulation is needed.
Whether or not the industry desires that particular piece of regulation, because --
Justice Potter Stewart: And whether or not the industry on that balance, benefits?
Mr. Stuart F. Feldstein: That is correct.
Justice Potter Stewart: That’s not really essentially your argument either.
You could’ve concede a benefit to the industry --
Mr. Stuart F. Feldstein: Yes.
Justice Potter Stewart: -- but your basic point is that the charge can’t be based upon industry wide benefit?
Mr. Stuart F. Feldstein: Precisely.
Justice Potter Stewart: It’s the question is whether this sets up kind of a Blue Cross system or not?
Whether or not you can pay every year even though you don’t go to the hospital and what you pay for is the existence of the hospital facilities that are there available to you when you do get sick.
Mr. Stuart F. Feldstein: It is my feeling that this Title then only enables an agency to promulgate fees that relate to services which particular payer of fees receives in a given year.
Chief Justice Warren E. Burger: Thank you Mr. Feldstein.
Thank you Mr. Korman.
The case is submitted.