Third Circuit Reaffirms Rejection of FCC's "Fleeting Images" Policy, Reverses Super Bowl Fine

The Third Circuit Court of Appeals today issued its decision in the case dealing with the FCC's fine for the Janet Jackson "clothing malfunction" Super Bowl incident.  The Court once again rejected the FCC decision - essentially upholding a 2008 decision that had found the FCC's indecency fine to be an arbitrary departure from prior precedent.  The Court found that the Commission had a policy of not finding a "fleeting image" actionable, and the Commission did not explain why it was changing its policy, or even acknowledge that it was in fact changing policy. The 2008 decision had been remanded to the Third Circuit by the Supreme Court after the Court's decision on the Golden Globes case (see our summary here and here), dealing with "fleeting expletives", to determine if the Supreme Court's decision had any impact on this case.  In today's decision, the Court also found that a fine cannot be imposed on a party who did not know that the conduct in which it was engaging could lead to a fine.  Bob Corn-Revere and Ronnie London from our firm litigated this case, and have written a much more detailed explanation of the Court's decision.  That explanation can be found here.  The full Third Circuit decision can be found here

Court of Appeals Throws Out FCC Fines in NYPD Blue Case

The Second Circuit Court of Appeals today issued a Summary Order vacating the $27,500 FCC fines imposed on a number of ABC television network stations in the Central and Mountain time zones which had aired, prior to the 10 PM safe harbor, an episode of the television program NYPD Blue on which a woman's bare buttocks were shown on screen.  We had initially written about this case when the fine was issued in 2008, here.  While this case was on appeal, the Supreme Court issued its decision on the FCC's indecency rules in Federal Communications Commission v. Fox Television Stations, Inc, dealing with "fleeting expletives", upholding the more rigorous enforcement of the FCC's indecency rules begun under FCC Chairman Kevin Martin as being justified under administrative law procedures, but not addressing the constitutional issue as to whether the FCC's indecency policy could be constitutionally justified.  The Supreme Court remanded that case to the Second Circuit, which had initially thrown out the fines as being inconsistent with prior FCC precedent, for consideration of the constitutional issue.  In a decision released this past July following the remand, the Second Circuit determined that the FCC rules were unconstitutional, as they chilled the speech of broadcasters without giving broadcasters sufficient guidance as to what speech was permitted and what speech was prohibited.  Restrictions on speech which are "impermissibly vague" are constitutionally prohibited.  In today's decision, the Court relied on its decision from July and determined that, whether the indecency claim is based on speech or nudity, the FCC rules as to what is prohibited are impermissibly vague, and therefore the Court threw out the fines.

We have likely not heard the end of the indecency story yet.  These decisions may yet end up back in the Supreme Court for consideration of the constitutional issues.  So stay tuned as these issues are sorted out. 

Buyers of Stock of FCC Licensee are not Relieved from Fines for FCC Violations of Former Owners

The FCC last week issued a decision that should make Buyers think twice in determining how sales of broadcast stations are concluded - especially in the days of $325,000 potential fines for indecency violations.  In the case decided last week, the Commission concluded that the licensee of a broadcast station was liable for fines for violations of the public inspection file rules - even though the violations occurred prior to a "long-form" FCC Form 315 application for transfer of control of the station.  In other words, the shareholder who owned the company and been responsible for the violations had, after the violations, sold the stock to new innocent parties who, under the decision, have to bear the costs of the violations.  The Commission did concede that, had the station been sold to a new company via an FCC Form 314 assignment of license, then the fine would not have been borne by the station buyers.

Thus, to fully protect themselves from any prior FCC violations, a sale would have to be conducted through assigning the FCC licenses to a new corporation, rather than by buying the stock of the current licensee.  However, there are often many business reasons that a sale is more advantageous as a transfer of the stock of the company, rather than through a sale of the assets to a new company.  For instance, Sellers of stock in C Corporations often have tax incentives for the sale of stock (e.g. to avoid depreciation recapture).  Thus Sellers often push for the sale of stock rather than the assignment of the license to a new company.  Buyers also have reasons for wanting a stock sale.  For instance, the old company may have certain contractual rights - to tower site leases on advantageous terms, to program contracts or to lines of credit - that are not assignable to a new company, and which buyers may find economically beneficial.  These and other business planning reasons may dictate that the sale be a stock sale, not an asset sale.  But buyers should beware and carefully do careful due diligence to insure that no hidden FCC liability may await when they purchase the stock of a company holding a broadcast station license. 

 

Second Circuit Throws Out FCC Indecency Fines

Just as the FCC issued its order to implement the statutory increase in the amount of indecency fines, raising them to $325,000 per violation (see our comment, here), its enforcement of its indecency policy may be dead in its tracks.  A three judge panel of the US Court of Appeals for the Second Circuit, in a 2 to 1 decision released today, rejected the FCC's actions against a number of television networks for broadcast indecency.  The FCC actions were in the context of "fleeting utterances," i.e. the use of specific words that the FCC determined were indecent whenever they were used.  The Court rejected the FCC decision as being arbitrary and capricious, as the FCC decisions overturned without sufficient rational explanation years of FCC precedent that had had held that the isolated use of these words was not actionable.  The FCC actions were sent back to the FCC for further consideration to see if the Commission could craft a decision that provided a rational explanation for this departure from precedent.

However, this may prove to be impossible.  While the Court's decision was based on the FCC's failure to provide a rational basis for its departure from precedent, the Court also said that it was difficult to imagine how the FCC could constitutionally justify its actions.  The Court pointed to the inconsistent decisions of the FCC - fining stations for the use of the "F-word" and the "S-word" in isolated utterances during awards shows, and when used in the context of a program like PBS'  The Blues, but finding that the same words were not actionable when used in Saving Private Ryan or when used by a Survivor contestant interviewed on CBS' morning show.  In the Survivor case, the Court indicated particular confusion, as the Commission went out of its way to say that there was no blanket exclusion of news programming from the application of its indecency rules, but then it proceeded to find the softest of news - the Survivor cast-away interview - as being of sufficient importance to merit exclusion from any fine.  The Court felt that these decisions were so conflicting that a licensee would not be able to decide whether a use was permissible or not - and that such confusion, leaving so much arbitrary discretion in the hands of government decision-makers as to where to draw lines between the permissible and impermissible, would not withstand constitutional scrutiny.  It would have a chilling effect on free speech - and could be enforced in an arbitrary manner that could favor one point of view over another.

This reasoning, that the lines between the permissible and impermissible were impossible to predict, may well cause problems across the board in the FCC's enforcement of its indecency policies.  This decision determined that the prohibited words were, in and of themselves so "vulgar' and so suggestive of excretory and sexual functions that whenever they were used in any form, they were indecent.  But, as recognized above, there were exceptions where the FCC determined that the use, while perhaps indecent was, in context, permissible.  But because there was no clear line drawn , the government could be in a position to abuse its discretion when enforcing its policies, and perhaps make decisions on when to enforce the policy based on content of the programs, and not just the particular words being used.  These same criticisms could be leveled against much of the FCC's other enforcement in the indecency area.  Still to be decided are, for instance, the Janet Jackson case and the proceedings involving Without A Trace and Married By America, all cases where the allegedly indecent activity was not so blatant that it would be apparent to anyone (like the Seven Dirty Words routine where the Supreme Court approved limited indecency regulation).  In some of the pending cases, the FCC found innuendo and pixillated images to be indecent as they suggested the underlying sexual or excretory activity that was going on.  The fact that suggested activity alone could subject a broadcaster to a fine seems to be one of those areas where the line between the permissible and that which is prohibited cannot be discerned, and thus should cause concern in the courts.

The decision was interesting in one other respect - in that it suggested that one day soon broadcasting may not be subject to indecency regulation at all.  The Court looked at technological change, and recognized that broadcasting was not as all-pervasive as it once was, as there are so many other competitors for the attention of the public.  Plus advances such as the V-Chip, which allow parents to take control and block offensive content, are less-intrusive means of achieving the same ends that the FCC seeks, without treading on First Amendment concerns.

This decision is not final.  It could be reconsidered by the full Second Circuit Court of Appeals or appealed to the Supreme Court (as some supporters of the regulations have already urged).  Together with the other pending cases on indecency, we have not heard the last of this issue.  As attorneys from our firm have been involved in these cases, watch for more on these decisions.   

The Cost of Talking Dirty Has Just Gone Up - Fines For Indecency Officially Raised By the FCC

It's been almost a year since President Bush signed legislation raising the fines for broadcast indecency to $325,000 per occurrence.  Even though the legislation was effective on June 15, 2006, the higher fines have not yet gone into effect as the FCC had never adopted rules to officially implement them - until today.  Today, the FCC issued an order adopting a rule to implement the statutory mandate - and the new higher fines will go into effect 30 days after this order is published in the Federal Register, which will presumably be quite soon.

There was no explanation for the Commission's delay in adopting the new rule.  As the change was mandated by statute, the adoption of the new rule did not require public notice and comment.  All the Commission needed to do was to put out the Order that was released today.  Perhaps the Commission was concerned about the pending Court cases to resolve whether their enforcement of the rules is constitutional (see our comment here).  In fact, in opposing the expedited consideration of one of the appeals of a Commission indecency fine, the Commission specifically made the point that there was no need to for prompt consideration as the chilling effect of the Commission policies was limited as the new fines had not yet gone in to effect.  But, for whatever reason, the Commission has finally decided to act, and the new fines will soon be effective.  Now we just need to watch for the Court decisions to see if the enforcement of those fines will be permitted.