The Supreme Court should promptly deny certiorari in City of Eugene v. FCC, a case that has been pending before the court since November 4, 2021. The cert petition, filed by numerous localities, argues for a non-textual reading of the Communications Act and invents a non-existent preemption issue, all to impose excess fees on information services provided over cable systems. But the text of the Act prohibits such fees.
In City of Eugene, a unanimous Sixth Circuit panel correctly interpreted the Communications Act as expressly preempting imposition of franchise fees by states and local governments on non-cable services provided over cable systems. The lower court upheld most of the FCC's 2019 order that clarified limits on local governments' authority to impose such fees. Free State Foundation Director of Policy Studies Seth Cooper briefed the court's "sensible" opinion shortly after its publication, and also observed that the mostly-affirmed 2019 order stopped localities from imposing fees "beyond the statute's limits, potentially draining cable operator investment in their broadband Internet networks."
To review, Section 541 of the Cable Act of 1984 – which is incorporated into the Communications Act – requires cable providers to receive authorization from a local franchising authority (LFA) before providing cable service in the LFA's jurisdiction. In exchange for granting this franchise, LFAs can subject franchisees to franchise fees, which Section 542(g)(1) defines as "any tax, fee, or assessment of any kind imposed by a franchising authority or other governmental entity on a cable operator or cable subscriber, or both, solely because of their status as such." But Section 542(b) caps franchise fees at "five percent of a cable operator’s gross revenues for cable services for any 12-month period." And critically, Section 544(b)(1) expressly prohibits regulation of non-cable services in franchise agreements: an LFA "in its request for proposals for a franchise… may establish requirements for facilities and equipment, but may not… establish requirements for video programming or other information services[.]"
The Sixth Circuit upheld most of the FCC's 2019 order that preempted the City of Eugene's 7% tax on cable broadband revenues. In an opinion by Judge Raymond Kethledge, the court upheld the FCC's "mixed use rule," which prohibited LFAs from taxing broadband Internet access service in franchise agreements, pursuant to the Section 544(b)(1)'s prohibition on "establish[ing] requirements for video programming or other information services." Because the Restoring Internet Freedom Order classified broadband Internet access service as an information service, it obviously fit under the prohibition. The Sixth Circuit also determined that it didn't matter that Eugene taxed broadband by city ordinance instead of through its franchise authority—either way, it acted as an LFA subject to the Communications Act. Lastly, because Eugene's broadband tax was in direct conflict with the prohibition on LFAs regulating information services, the lower court concluded that the tax was expressly preempted by the Communications Act.
Eugene and numerous localities now argue that the Sixth Circuit decision conflicts with Oregon Supreme Court precedent and presents a novel implied preemption issue. However, as NCTA notes in its Brief in Opposition, the Oregon Supreme Court interpreted the relevant portion of the Communications Act years prior to the FCC's 2019 order, meaning the record considered by the Oregon Supreme Court lacked the Commission's interpretations – unlike the Sixth Circuit's decision that benefited from a full record and the position of the relevant expert agency. And because the Sixth Circuit opinion relied on express preemption, there is no issue regarding implied preemption in this case. These two reasons support denial of Eugene's cert petition.
Policy reasons further support denial. When Congress passed the Cable Act of 1984, it sought to eliminate competitive distortions in the market that arose from excess demands and taxes on cable providers. Cable providers often paid multiple fees for access to a single right-of-way prior to the Cable Act. Cable companies likely passed the cost of these excesses to consumer in the form of higher prices. The FCC's interpretation of the LFA-related statutory provisions, which the Sixth Circuit upheld, serves the law's purpose of "minimiz[ing] unnecessary regulation that would impose an undue economic burden on cable systems."
Free State Foundation Scholars have long supported the FCC's 2019 order precisely because it minimizes unnecessary regulation on cable systems. The Free State Foundation filed reply comments in the proceeding that led to the Commission's order. And blog posts were written in defense of the 2019 order in July 2019, May 2019, and September 2018.
The Supreme Court should deny
Eugene's cert petition. Congress expressly prohibited the sorts of fees on
information services offered over cable systems that Eugene seeks to impose. And
the Sixth Circuit rightly upheld the FCC's rules doing just that.
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