up

DIRECTV, INC., et a1.,

V.

Plaintiffs-Appellants, On Appeal from theFranklin CountyCourt of Appeals,Tenth Appellate District

3ttt the

eme (tCour

RICIIARD A. LEVIN, Tax Cotmnissioner ofOhio,

Defendant-Appellee.

Court of Appeals CaseNo. 08AP-32

MERIT BR1EF OF DEFENDANT-APPELLEE RICHARD A. LEVIN,TAX COMMISSIONER OF OHIO

E. JOSHUA ROSENKRANTZ (pro hac vice)(NY 2224889)*Counsel of RecordJererny N. Kudon (pro hac vice pending)(NY 3971363)Orriclc, Herrington & Sutcliffe, LLP666 Fifth AvenueNew York, NY 10103'I'cl: (212) 506-5000Fax: (212) 506-5030JRosenkranz@Orrick.com

PETER A. ROSATO (0068026)Calfee, Halter & Griswold LLP1100 Fifth Third Center21 E. State StreetColumbus, OH 43215Tel: (614) 621-1500Fax. (614) 621-0010PRosato@Calfee.com

Counsel for Plaintiffs-Appctlants Directv, Inc.and Echostar Satellite L.L.C.

of QNjio

Case No. 2009-0627

RICI3ARD CORDRAY (0038034)Attorney General of Oliio

LAWRF,NCE D. PRA'I"T (0021870)*Counsel o;FRecordALAN P. SCIIWEPE (0012676)JULIE E. BRIGNER (0066367)DAMION M. CLIFFORD (0077777)BARTON A. HUBBARD (0023141)Assistant Attorneys GeneralTaxatioti Section30 East Broad Street, 25t1i FloorCohmibus, Ohio 43215Tel: (614) 466-5967Fax: (614) 466-8226lawrence.pratt@ohioattorneygeneral.govalan.schwepe@ohioattorneygeneral.govjulie.btigner@ohioattorneygeneral.govdamion. clifibrd^^i),ohioattorneygeneral. govbarton.hubbard@ ohioattorneygeneral.gov

Cotmsel for Defendant-Appellee Richarcl A.^nms^l0 iL i T C ^^ev n, ax o

(-' I

^G'L L RX OF cCIE.Jn '.^ SPUMI ( '1 0UR1 t); '^XIlo

PAN'I'ELLTS MICHALOPOULOS (pro hac

vice) (DC 453179)MARK F. HORNING (pro hac vice)(DC 203323)Steptoe & Johnson LLP1330 Comiecticut Ave., NWWashingtoti, DC 20036"I'cl: (202) 429-3000Fax: (202) 429-3902PMichatopoulos@steptoe.eomMHorning@steptoe.com

Counsel for Plaintiffs-Appellants Direetv, Inc.and Echostar Satellite L.L.C.

2

TABLE OF CONTENTS

Page

'I'ABLF. OF AUTHORITIES .......................................................................................................... iv

INTRODUCTION ...........................................................................................................................1

STATEMENT OF THE CASE AND FACTS ................................................................................6

A. Satellite Companies and Cable Companies operate under distinctly differentbusiness models, employ different technology, are subject to different regulations,provide different levels of community benefit, and are subject to different taxschemes. At the same time Satellite Companies and Cable Companies each havesubstantial in-state and out-of-state presence both in terms of infrastruch.ire andeconomic activity ................................................................................................................. 6

1_ Satellite and Cable Coinpanies use different technological means to provideservices to their subscribers ........................................................................................7

2. Satellite and Cable Companies are interstate businesses providing interstateservices that require significant presence both within and without Ohio,including employees, contractors, cquipinent and facilities, in order toprovide services to their subscribers ...........................................................................8

a. Satellite Companies ........................................................................................... 8

b. Cable Companies............................................................................................. 11

3. Satellite and Cable Companies are subject to different regulations that resultin different taxation mid dit'i'erent levels of community service...............................12

B. In 2003, Ohio added "satellite broadcasting services" as a new taxable serviceunder Ohio's sales and use tax provisions without also subjecting cablebroadcasting services to sales and use tax .........................................................................15

C. The same year it was enacted, the Satellite Companies challenged the tax asunconstitutional in the Franklin County Court of Common Pleas. The trial com'trejected the Satellite Companies' equal protection claim and facial discriminationclaim under the dormant Commerce Clause but, applying a relative presence testnot argued by either party, fomid the tax to be discriniinatory "in practical ef'fect"under the donnant Commerce Clause and granted summary judgrnent to theSatellite Companies . ..........................................................................................................16

Page

D. On appeal, the Tenth District Court of Appeals granted summary judgment to theTax Commissioner. In so doing, the court found that Satellite Companies andCable Companies each have substantial economic presence both within andwithout Ohio, and held that the differential tax treatmetzt between them was notdiscrimination against interstate commerce but merely differentiation betweentwo forms of interstate commerce . ....................................................................................20

AAGUMENT ................................................................................................................................. 21

The Tax Commissioner's First Proposition of Law:

The imposition of Ohio's sales and use tax on satellite broadcasting services andnot on cable broadcasting services does not discriminate against interstatecommerce under the dormant Commerce Clatise of the United States• Constitution. .......21

A. The dormant Cornnierce Clause prohibits discrinrination against intet:stateconnnerce, not alleged diserimination between different forms of interstatecommerce. Ohio's sales and use tax treatment of satellite broadcasting servicesand cable broadcasting services simply differentiates between two fornrs ofinterstate commerce, not between a loeal economic activity and an out-of-stateeconomic activity ............................................................................................................... 23

B. Discrimination under the dornlant Commerce Clause is not preniised on therelative in-state presence of two predominately interstate economic activities. ...............30

C. Ohio's sales and use tax treatnient of satellite broadcasting services and cablebroadcasting services applies imiformly to botli business that crosses stateboundaries attd that which occurs solely witliin the boundaries of the state. Ittherefore does not constitute the type of legislation directed at protecting localeconomic activity or incentivizing businesses to locate infrastructure in a givenstate that has been found to be unlawfully discriminatory under the dormantCommerce Clause ................... ............ .................. ................. ............................................ 34

D. As is the case with Ohio's sales and use tax treatment of satellite broadcastingservices and cable broadcasting services, differential tax treattnent of' twocategories of businesses, resulting from differences between their niodes ofoperation, regardless of geographic location, is not unlawfully discriminatoryunder the donnant Commerce Clause . ..............................................................................37

E. The tax differentiation of satellite broadcasting services and cable broadcastingservices is valid under the Commerce Clause as a"eompensatory tax" because thetax itnposes upon the Satellite Companies a burden "similar to" or "in lieu of' thetax burden already borne by the Cable Companies, who are subjected to locallylevied franchise taxes to which the Satellite Cotnpanies are not ..........................................45

ii

Page

The Tax Commissioner's Second Pronosition of Law:

In Ohio, the use of arguments presented by lobbyists as evidence of the intent behindlegislation is both improper and unreliable .........................................................................48

CONCLUSION ............................................................................................................................. 50

CERTIFICATE OF SERVICE ...................................................................................... unnumbered

APPENDIX Appx. Page

Decision and Entry of the Franklin County Court of Common Pleas (January 14, 2008) ...... ........ I

Decision and Entry of the Franklin County Court of Common Pleas (March 28, 2006) ................5

Order of the Franldin County Court of Cominon Pleas (December 19, 2006) .............................23

47 C.F.R. § 76.56 ............................................................................................................................ 26

47 C.F.R. §76.66 ............................................................................................................................32

47 C.F.R. §76.501 ..........................................................................................................................41

47 U.S.C. §303 ..............................................................................................................................46

47 U.S.C. §3 35 ..............................................................................................................................54

47 U.S.C. §338 ..............................................................................................................................57

47 U.S.C. §531 ..............................................................................................................................64

47 U.S.C. §§533-544 .....................................................................................................................68

Black's Law Dictionary (7m Ed. 1999) ..........................................................................................88

Hartz Mt. Indus., Inc. v. City nfNew Jersey (Tax Ct. N.J. 2004),22 N.J. `I'ax 84, 2004 N.J. Tax LEXIS 29 ............................................................................91

Inter•natl. Dairy Foods Assn. v. Boggs (S.D. Ohio Apr. 2, 2009),Case Nos. 2:08-CV-628, 629, 2009 U.S. Dist. LF.XIS 27074 .............................................97

Pub. L. 104-104, Title VI, §602, 110 Stat. 144 (1996) ................................................................112

m

TABLE OI' AUTfIORITIES

Cases Page(s)

Amerada Hess Corp. v. Director, Div. ofTaxation, New.7ersey (1989),490 U.S. 66 ....................................................................................................................passim

Anz Trucking Assn. v. Michigan, PSC (2005),545 U.S. 429 ...................................................................................................................22, 23

Armco Inc. v. Hardesty (1984),467 U.S. 638 .............................................................................................................34, 15,40

Ar•nold v. Cleveland (1993),67 Ohio St.3d 35 ...................................................................................................................23

A.s.sociatedIndus. ofMissouri v. Lohman (1994),511 U.S.)641 .........................................................................................................................22

Bacchus Imports, Ltd. v. Dias (1984),468 U.S. 263 ...................................................................................................................26, 40

Boston Stock Exch. v. State Tax Comm. (1977),429 U.S. 318 .............................................................................................................23, 30, 44

Brown & Williamson Tobacco Corp. v. Pataki (C.A.2 2003),320 F.3d 200 ...................................................................................................................39, 49

Cas•tle Aviation, Inc. v. Wilkins,109 Ohio St.3d 290, 2006-Ohio-2420 ..................................................................................33

Chamher.s Med 'I'eehs., Inc. v. Bryant (C.A.4 1995),52 F. 3d 1252 ..................................................................................................................48, 49

Chemical Waste Mgt. v. Hirnt (1992),504 U.S. 334 .........................................................................................................................24

Colzitnbia Gas 'I't•ansmission v. Levin,117 Ohio St.3d 122, 2008-Ohio-511, cert denied (2009) 129 S. Ct. 896 ........................ 1,23

Conaplete Auto 7'rans•it, Inc. v. Brady (1977),430 U. S. 274 ......................................................................................................................... 21

D. H. Holmes Co. v. McNamara (1988),486 U.S. 24 ...........................................................................................................................22

Dayton Power & Light v. Lindley (1979),58 Ohio St.2d 465 .................................................................................................................40

iv

Page(s)

Dir. ofRevenue ofMisaouri v. CoBankACB (2001),531 U.S. 316 .........................................................................................................................47

DIRECTV v_ Levin,181 Ohio App.3d 92, 2009-Ohio-636 ............................................................................passim

DIRECTV, Inc. v. N.C. (N.C. App. 2006),632 S.E.2d 543 ..............................................................................................................passirn

DIRECTV, Inc. v. Tolson (E.D.N.C. 2007),498 F.Supp.2d 784, 800, aff d, (C.A.4 2008), 513 F.3d 119 .....................................5, 43, 47

Direciv, Inc. v. Treesh (C.A.6 2007),487 F.3d 471, cert. denied, (2008), 128 S. Ct. 1876, aff'g, (E.D. Ky. 2006), 469F.Supp.2d 425 .... ........................................................................ .................................... passim

DIRECTV, Inc. v. Treesh (E.D. Ky. 2006),469 F.Supp.2d 425 ................................................................................................................26

Eastern Ky. Resources v. Fiscal Ct. (C.A.6 1997),127 F. 3 d 532 ............ .............................. ........................................... ................................... . 49

Exxon Corp. v. Gov. of Maryland (1978),437 U.S. 117 ..................................... ........................ .............................. .............. ......... passim

Fitzgerald v. Racing Assn. of Cent. Iowa (2003),539 iJS. 103 ..........................................................................................................................25

Fulton Corp_ v. Faulkner (1996),516 U.S. 325 .....................................................................................................................4, 45

Gen. Motors Corp. v. Tracy (1997),519 U.S. 278 .........................................................................................................................47

Glick v. Sokol,149 Ohio App.3d 344, 2002-Ohio-4731 ...............................................................................49

Granhohn v. Ileald (2005),544 U.S. 460 ...................................................................................................................35, 40

Gregg Dyeing Co. v. Query (1932),286 U. S. 472 .........................................................................................................................22

Hartz Mt. Indus., Inc, v. City ofNew Jersey (Tax Ct. N.J. 2004),22 N.J. Tax 84, 2004 N.J. "Tax LEXIS 29 ............................................................................29

v

Page(s)

Hughes v. Oklahoma (1979),441 U.S. 322 ......................................................................................................................... 22

Internatl. Dairy Foods Assn. v. Boggs (S.D. Ohio Apr. 2, 2009),Case Nos. 2:08-CV-628, 629, 2009 U.S. Dist. LEXIS 27074 .............................................49

Krnft Gen. Foods v. Iowa Dept. ofRevenue & Fin. (1992),505 U.S. 71 ...................................................................................................................3, 4, 38

Lewis v. BT Inv. tl%tgrs., Inc. (1980),447 U.S. 27 ...............................................................................................................30, 31, 35

Madden v. Kentucky (1940),309 U.S. 83 .......................................................................................................................1, 25

Minn. v. Clover Leaf Creamery Co. (1981),449 U.S. 456 .........................................................................................................................23

Northwestern States Portland Cement Co. v. Minnesota (1959),358 U.S. 450 .....................................................................................................................2, 23

Norandex, Inc. v. Limbach (1994),69 Ohio St.3d 26 ...................................................................................................................22

Ohio v. Smith (1997),80 Ohio St.3d 89 ...................................................................................................................23

Oklahoma Tax Comm. v. Iefferson Lines (1995),514 U.S. 175 .........................................................................................................................24

Oregon Waste Sy,s., Ine. v. Dept, of .F,nv. Quality (1994),511 U.S. 93 ...........................................................................................................1, 22, 23, 24

Park Cotp. v. Brook Par1,102 Ohio St.3d 166, 2004-Ohio-2237 ..................................................................................25

Quill Corp. v. North Dakota (1992),504 U.S. 29 .....................................................................................................................21, 22

Quotron Sy.s., Inc. v. Limbach (1992),62 Ohio St.3d 447 .................................................................................................................22

Regan v. Taxation with Representation of Washington (1983),461 U.S. 540 .....................................................................................................................1, 24

vi

Page(s)

State v. Burnett (2001),93 Ohio St.3d 419 ...............................................................................................................49

State ex rel. Babcock v. Perkins (1956),165 Ohio St 185 ...... ....................... ....................................................................................... 42

State ex rel. Royal v. Columbus (1965),3 Ohio St.2d 154 ...................................................................................................................29

State v. Willianis (1977),51 Ohio St.2d 112 ................................................................................................................. 42

T.B. Harms Co. v. JFMRecords, Inc. (D.N.J. 1987),655 F.Supp. 1575 ..................................................................................................................49

U.S. v. Causby (1946),328 U.S. 256 ......................................................................................................................... 29

Westinghouse v. Tully (1984),466 U.S. 388 .............................................................................................................34, 35, 40

Constitutional Provisions, Statutes, and Rules Page(s)

47 C.F.R. §76.56 ............................................................................................................................14

47 C.F.R. §76.66 ............................................................................................................................14

47 C.F.R. §76.501 ..........................................................................................................................13

47 U.S.C. §301, el seq ...................................................................................................................12

47 U.S.C. §303(v) ....................................................................................................................16, 29

47 U.S.C. §335(b)(1) .....................................................................................................................15

47 U.S.C. §338(a) ..........................................................................................................................14

47 [J.S.C. §521, et seq ...................................................................................................................12

47 11.S.C. §531(a) ..........................................................................................................................14

47 U.S.C. §533(a) ..........................................................................................................................12

47 U.S.C. §534(b) ..........................................................................................................................14

vii

Page(s)

i r535 b47 U SU S C ............................................................( ). §. .. .

47 U.S.C. §541(a)(2) . ..................................................................................................................13

47 U.S.C. §542 ..............................................................................................................................13

47 U. S. C. § 542(a) ..........................................................................................................................13

47 U.S.C. §542(b) ..........................................................................................................................13

47 U.S.C. §543(b)(7) .... .................................................................................................................14

47 U.S.C. §544(g) ..........................................................................................................................14

Am. Sub. H.B. No. 95, 150 Ohio Laws Pt. II, 1,996 .....................................................................15

Pub. L. 104-104, Title VI, §602(a), I10 Stat. 144 (1996) ...................................................4, 13, 17

Pub. L. 104-104, Title VI, §602(b)(1), 110 Stat. 144 (1996) ..................................................16, 29

Pub. L. 104-104, Title VI, §602(c), 110 Stat. 144 (1996) ...........................................13, 45, 46, 47

R.C. 4939.05 ...................... ............................................................................................................46

R.C. 5739.01(13)(3)(P) ..... ..............................................................................................................15

R.C. 5739.01(B)(3)(q) ....... ............................................................................................................15

R.C. 5739.01(AA)(4) .....................................................................................................................15

R.C. 5739.01(XX) ........... ..................................................................................................15, 27, 29

R.C. 5739.02 ..................................................................................................................................15

R.C. 5739.02(B)(32) ............. ......................................................................................................... 33

R.C. 5739.021 ................................................................................................................................15

R.C. 5739.023 .... ............................................................................................................................15

R.C. 5739.026 ................................................................................................................................16

R.C. 5741.02 ............................................................................................................................15, 16

R.C. 5741.021 ................................................................................................................................16

R.C. 5741.022 ...............................................................................................................................16

vui

Page(s)

R. C. 5 741.023 ......... ................................................ ............................................... .................. .....16

U.S. Const. Art. I, §8, cl. 3 ............................................................................................................21

Other Authorities Page(s)

Black's Law Dictioariary (7m Ed. 1999) ..........................................................................................46

ix

INTRODUCTION

The right o1' states to differentiate among taxpayers when developing tax policy, and the

broad latitude given thereto, is one of the core tenets recognized by the U.S. Supreme Court.

Regan v. Taxation with Representation of Washington (1983), 461 U.S. 540, 547; Madden v.

Kentucky (1940), 309 U.S. 83. That right was affirmed by this Court recently in Columbia Gas

Transmission v. Levin, 117 Ohio St.3d 122, 2008-Ohio-511, cert. denied (2009) 129 S. Ct. 896.

Ohio exercised the right to differentiate between satellite broadcasting services and cable

broadcasting services by subjecting the former to state sales tax while the latter is excluded. The

differentiation is justified both as compensation for local franchise taxes imposed only on cable

companies and in recognition of the heightened public service obligations imposed on cable

companies in cornparison to satellite companies.

DIRI;CTV, Inc. and EchoStar Satellite Corporation (collectively, the "Satellite

Companies") initially offered two principal theories for why Ohio's line-drawing is

unconstitutional: equal protectiorn and the dormant Commerce Caause. Flaving lost and

abandoned their equal protection argument at the trial level, the Companies now focus on their

donnant Commerce Clause claim, but that claim is merely a thinly veiled equal protection claim

masquerading as a dormant Cominerce Clause challenge.

"1'o establish that a state tax classificationis unconstitutionally discriminatory under the

dormant Commerce Clansc, the Satellite Compauies must demonstrate discrimination against

interstate commerce in favor of local conimeree. Thus, tax classifications that differentiate

between two interstate activities and businesses are not within the dormant Commerce Clause's

anibit. See, e.g., Oregon Waste Sys., Inc. v. Dept. of Env. Qtsality (1994), 511 U.S. 93, 99

(holding that a successfiil dormant Commerce Clause discrimination challenge show

"differential treatment of in-state and out-of-state economic interest's that bene6ts the former

and burdens the latter"); and Northrvestern States Por-tland Cement Co. v. Minnesota (1959), 358

U.S. 450, 458 (holding tliat the challenged tax classification must be shown to provide "a direct

commercial advantage to local business").

The Satellite Cotnpanies fail to make the requisite showing that Ohio's system of taxation

discriminates in favor of a local economic activity at the expense of its interstate counterpart.

Instead, the Satellite Companies ask this Court to rule that Ohio's differentiation of these two

interstate businesses and activities is discrinlinatorry "in practical effect" under the dormant

Commerce Clause merely because the Satellite and Cable businesses are competitors and, due to

the different technologies thcy employ, have relatively different levels of infrastructure in each

of the states in which they compete. Sat. Br. at 3.1 Specifically, because Ohio's sales tax is

imposed only on those broadcasting services that include transmission of broadcasting signals by

means other than by certain ground-receiving and distribution equipment, the Satellite

Companies argue that the sales taxation of satcllite broadcasting services, without also taxing the

Cable Companies' competing services, is discrimination against "interstate commerce" in favor

of "local commerce" under the dormant Commerce Clause.

As a challenge now limited to discrimination "in practical effect," the issue is intensely fact

driven, one centered on the relationship between these two businesses and the unique

technologies each business uses to transmit its progranm7ing to its custoiners. DIRECTV, Inc. v.

Levin, 181 Ohio App.3d 92, 2009-Ohio-636 (hereafter "Levin"), at 1119. This sets this case miles

aparl from the case law involving the dairy industry, the wine industry, the brokerage industry

and the coal industry, and other decisions involving local businesses upon which the Satellite

L The Satellite Companies also argue that they have preserved an "intentional discrimination"claim that should be remanded to the trial court for trial on the merits. For reasons more fiillyaddressed below in this brief (see First Proposition of Law, Section D at 41-42, and SecondProposition of Law), this argument also is without merit.

2

Companies rely. As the Tenth District concluded "[t]he simple facts of the type of comxneree

involved here must inevitably be distinguisbed from" cases in which discrimination has been

found. Id, at ¶26.

Examination of those facts clearly demonstrates that both the Satellite and Cable

Companies are giant interstate businesses with substantial prescnce both within and without

Ohio. In fact, both operate substantially the same in all states in wliich they do business. Neither

can be considered any more a local business or economic activity than it can be considered an

out-of-state business or economic activity. Contrary to the Satellite Conipanies' argument, the

fact that one business uses in-ground calile to distribute programming to customers, and the other

uses a combination of outer-space/airspace and a local satellite dish to deliver its programmnig,

does not make the former a local economic activity and the latter an out-of-state economic

activity. This is true even if these technological differences result in more relative infrastracture

created in each state by the Cable Companies than by the Satellite Companies. Under such a

siinplistic approach, the Satellite Companies always would remain the only out-of-state player,

even in their home state, and no state could differentiate between the two businesses. By

analogy, this argument would even preclude states from difrerentiating between such well

recognized interstate businesses as railroads and airlines simply because the former uses the

ground to move people and freight while the latter uses the air. Nothing in dormant Commerce

Clause jurisprudence remotely supports such a broad and over-reaching consh-uction.

Moreover, a tax ineasure is not discriminatory under the dormant Commerce Clause unless

it actually differentiates based upon geographical location rather than upon differences in modes

of operation that happen to have a gcographical relationship. Amerada Hess Corp, v. Director,

Div. of '1'axation, New Jersey (1989), 490 U.S. 66, 75; Kraft Gera. Foods v. Iowa Dept, of

3

Revenue & Fin. (1992), 505 U.S. 71, 78; Exxon Corp. v. Gov. of Md. (1978), 437 U.S. M.

I3ere, both Satellite and Cable Companies are huge interstate players, each using their own

different mode of operation in the various jurisdictions in which they compete. It is the

particular mode of operation that differentiates Satellite Companies from Cable Companies in a

tax context, not the geographical location and not any attempt by the State to protect a local

businiess from the very interstate commerce in which both companies are engaged. In other

words, satellite broadcasting services are taxable even if the Satellite Companies locate a

substantial infrastructure in Ohio. Conversely, cable broadcasting services are excluded from

taxation regarclless of which state the Cable Companies choose to locate the equipment from

where they originate their signal to customers.

Further, Ohio's imposition of a state tax on satellite services inerety levels the playing

field, in recognition of the local "franchise fee" taxes unposed on cable services, as contemplated

by Congress when it barred the iniposition of such local francliise taxes on satellite services, but

permitted states to impose state taxes on satellite services. See Pub. L. 104-104, Title VI,

§602(a), 110 Stat. 144 (1996) (contained as note to 47 U.S.C.A. §152). Thus, under the U.S.

Supreme Court's "compensatory tax" doctrine, the Satellite Companies' dormant Commerce

Clause claim fails because the franchise taxes paid by Cable Companies are "similar to" and/or

"in lieu of' the sales taxes imposed on Satellite Compaiiies. Fulton Corp. v. Faulkner• (1996),

516 U.S. 325, 331, fn. 2.

Finally, it should be noted that the Satellite Companies' secondary argument regarding

wliat type of evidence can be presented in support of a claim of intentional discrimination is not

only lacking in substance but constitutes a "red hel-ring" as well. The Satellite Companies

submit that the Court should reject its long-standing position that courts should not consider

4

parol evidence in determining legislative intent, in tavor of a new rule that would allow

lobbyists' positions to be considered in federal constitutional cases. As the Tenth District noted,

a lobbyist's selfish goals add little value to reading a legislator's mind. Levin at T¶32-33. Sut

even if it had any merit, the argument has little to do with the disposition of the Satellite

Companies' dormant Commerce Clause claim. The latter rises or falls independently on the

"ground vs. outer-space" hypothesis regardless of the influence of lobbyists. If there is no

differential treatment of in-state and out-of-state economic interests that benefits the fonner and

burdens the latter, as is the case here, it is irrelevant what motivated the differentiation.

The dormant Commerce Clause arguments presented by the Satellite Conipanies in this

action are not the first time they have asked a court to adopt their rationale. With the sole

exception of the trial court below, that quest has universally resulted in decisions being rendered

against them, including merit rulings by the Ohio Tentli District, North Carolina trial and

appellate courts, the federal Eastern District of Kentucky and the Sixth Circuit Court of Appeals.

See Levin at ¶19; DIRECTV, Inc. v. N.C. (N.C. App. 2006), 632 S.E.2d 543; Directv, Inc. v.

Treesh (C.A.6 2007), 487 F.3d 471, cert. denied, (2008), 128 S. Ct. 1876, aff'g, (E.D. Ky. 2006),

469 F.Supp.2d 425. See also DIRL'CTV, Inc. v. Tolson (E.D.N.C. 2007), 498 F.Supp.2d 784,

800, afPd, (C.A.4 2008), 513 F.3d 119 (dismissing the Satellite Companies' case on comity

grounds, but concluding that even if it had jurisdiction, based on the amended complaint, it

would "ultimately ... side with its brethren that have already ruled against plaintiffs"). As the

Tenth District observed, "the unanimous weight of precedent here lies on the side of taxing

autlrorities." Levin at ¶19. `I'he "I'ax Commissioner respectfully asks the Court to sitnIlarly find

that the Satellite Companies' arguments are meritless and to affirm the decision of the court ot'

appeals.

5

STATEMENT OF TIIE, CASE AND FACTS

A. Satellite Companies and Cable Companies operate under distinctly different businessmodels, e►nploy different technology, are subject to different regulations, providedifferent levels of community benefit, and are subject to different tax schemes. At thesarne time Satellite Companies and Cable Companies each have substantial in-stateand out-of-state presence both in terms of infrastructure and economic activity.

As the Tenth District detailed in its decision below, the Satellite and Cable Companies

represent two distinct modes of operation, each of which has substantial presence both within

and without Ohio and each of which inust engage in local, regional, national and global activities

in order to provide their broadcast programming services to the Ohio consumer. Levin at 111[24-

25. The court of appeals' factual findings are amply supported in the record. The record sliows

that people receiving subscription multichannel television prograimning generally receive it from

one of two sources: Satellite Cornpanies or Cable Companies. S.Supp. 102-105. The record

establishes five significant points related to the similarities of and differences between the

Satellite and Cable Companies: (1) although they are similar in some respects, there are

signi6cant differences in their modes of operation; (2) although.their presence in Ohio may be

relatively different, both Satellite and Cable Companies have significant interstate and in-state

presence; (3 )) Satellite and Cable Companies are subject to different regulations; (4) Cable

Companies provide public service benefits that Satellite Companies do not, and (5) Cable

Companies pay franchise fees to local franchising authorities that Satellite Companies cannot be

reqaired to pay under federal law.

In contrast, the facts of this case are not the same as the hearsay coininents of lobbyists

made during consideration of the legislation. Nonetheless, the Satellite Companies brief

frequently cites, and heavily relies on, lobbyists' statements as the "facts." See, e.g., Sat. Br. at 2,

7-10. Once the cloud oi'this hearsay is removed, it is quite apparent why the Tenth District's

6

conchisions, based on "the simple facts" of this case, are correct, and why the Satellite

Companies' arguments and that of their amici, which are based on the aforestated unreliable

hearsay statements, cannot prevail. Levin at ¶26.

1. Satellite and Cable Companies use different technological means to provideservices to their subscribers.

Satellite and Cable Companies deliver television progrannning but each uses different

technological means to do so. Supp. 351 at ¶3. The Satellite Companies deliver their

programmhig using satellites in fixed orbit more than twenty-two thousand miles above the

earth's equator. Supp. 55 at ¶2. These satellites transmit the programming directly to a small

pizza-sized "satellite dish" antenna mounted on or near the subscriber's house. Id.; Supp. 2-3 at

¶¶2, 7. The signal is then relayed from the "satellite dish" to a receiver/decoder system (the "set-

top box") connected to the subscriber's television, which unscrambles the signal so that the

programming can be viewed on the television. Id.; Supp. 56 at ¶¶3-4.

On the other hand, the Cable Companies deliver their programming to their subscribers

from terrestrial-bascd cable headends via networks of coaxial or fiber optic cable located in

trenches under or alongside roads or hung on utility poles. Supp. 29 at ¶20; Supp. 365 at ¶7.

Coaxial cables then carry the signal to the subscriber's television set. Icl.; Supp. 8-9 at ¶6.

Moreover, the teclmology used by cable companies allows them to carry signals both to

and from their subscribers. S.Supp. 49 at ¶1[8, 9; S.Supp. 77 at ¶¶31-33. As a result, cable

companies are able to provide high-spced data and telephony services and attract subscribers by

`bundlinb' those services vrith tlicir t-raditional video offerings. S.Supp. 49 at ¶¶8, 9; S.Supp. 77

at ¶131-33. In contrast, the technology used by the Satellite Coinpanies is inlierently only onc-

way with signals only being carried to its subscribers. S.Supp. 77 at 11¶31-33; Supp. 353 at ¶7.

7

Finally, while Cable and Satellite Companies both offer interactive programming services

(for example, video on deinand or electronic prograrn guides), eacli accomplishes the task

differently. S.Supp. 78-79 at ¶34. A cable subscriber interacts with programs and data stored in

servers at the cable headend. Id. The cable system's capacity for such programs and data is

essentially imlimited. Id. A satellite subscriber can interact with programs and data that may

have been previously downloaded and stored on the hard drive in the set-top box. Id. The set-

top box's hard drive capacity is limited, and the subscriber can only interact with programming

that has previously been downloaded. Id. This limitation on capacity and availability, which is

not applicable to cable television, influences the kinds of interactive services that the Satellite

Companies can offer. Id.

2. Satellite and Cable Companies are interstate businesses providing interstateservices that require significant presence both within and without Ohio,including employees, contractors, equipment and facilitics, in order to provideservices to their subscribers.

a. Satellite Companies

DIRECTV and EchoStar are the nation's two largest satellite providers of multichannel

video programming and the second and third largest providers of multichannel video

prograinming in the country, respectively. S.Supp. 113. DIRECTV and EchoStar are

headquartered in California and Colorado, respectively. Supp. 26 at ¶117-8. In 2006, DIRECTV

employed approximately 4,000 eniployees natiotiwide, including 2,000 employees who woi-k at

its four owned and operated call centers, which ai-e located in four states outside Oliio. S.Supp.

120. DIRFCTV uses 22 customer service centers employing nearly 15,000 custorner service

representatives nationwide. S.Supp. 67. Third parties, employing approximately 10,500 of these

customer service representatives, operate most of these customer service centers. Id.

8

The DIRECTV Group, Inc.'s Fortn 10-K for year ending December 31, 2005 describes

DIRECTV's nationwide installation and service network as follows:

Installation Network. DIRL;CTV HOME SERVICES® installation and servicenetwork performs inistallation, upgrades and otlier service call work for DIREC"I'VUS. As of December 31, 2005, home service providers performed app•oxiinately85% of all service calls through 11 outsoureed companies with over 14,000technicians around the United States. In addition, DIRECTV US and its retailers alsoutilize employer-based or contract installation providers, which perform theremainder of all new professional subscriber installations. * * *

Id. Thus, in total, DIREC"I'V's operation in 2005 directly or indirectly employed 30,000 to

35,000 people nationwide. S.Supp. 120.

The signals for the Satellite Companies' programming are collected at "uplink centers"

located in six different states outside Ohio, which in turn transmit the signals to the Satellite

Companies' satellites orbiting above the earth. Supp. 2-3 at ¶^6, 7. The satellites then transmit

the signals directly to the "satellite dishes" mounted to or near subscribers' houses, which are

located throughout the country. Id.; Supp. 56 at ¶3. As of June 2005, approximately 26.1

million subscribers nationwide received satellite multichannel video programming services.

S.Supp. 104 at ^ 13.

The Satellite Companies have ernpioyees, contractors, equipnient and facilities in Ohio that

are necessary to deliver theii- programming. As of March 31, 2003, DIRECTV and EchoStar had

678,000 subscribers in Ohio. Supp. 26 at 11117-8. They market their services in Ohio through

local retailers, local television, radio and newspaper advertising, and direct mailings. S.Supp.

131-134, 139; S.Supp. 150, 157. Both DIRECTV and EchoStar have employees located in Ohio.

Supp. 28 at jJ17; S.Supp. 153-154, 156. They also use third parties located in Ohio to sell their

programming and the equipment their subscribers need to receive their programming. S.Supp.

139; S.Supp. 150-153. For example, subscribers can acquire receiving equipment from the

Satellite Companies' national authorized retailers (Best Buy, Circuit City, Wal-Mart, Sears and

Costco), small regional electric stores, regional Bell operating conipanies, or local "mom and

pop" retailers. S.Supp. 61; S.Supp. 128-129; S.Supp. 150-153, 156-157. In addition to having

their own employees install, service and repair their subscribers' equipment in Ohio, the Satellite

Companies use third-party contractors to perform such work in Ohio. S.Supp. 120-121, 130,

139; S.Supp. 152-155.

Additionally, all of the Satellite Cotnpanies' local programmnig originates in Ohio.

DIREC"I'V collects signals from at least 25 broadcast stations located in Ohio. S.Supp. 11-12 at

Ans. to Interr. No. 3. EchoStar collects signals from at least 22 broadcast stations located in

Ohio. S.Supp. 31-32 at Ans, to Interr. No. 3. To collect the signals of these local broadcast

stations, the Satellite Companies lease or own in-state facilities ("local collection facilities") to

collect the signals by commercial grade antennas, or cable or fiber-optic connections fi-om local

broadcast stations. Supp. 3 at 1(10; S.Supp. 122, 124-127, 137-138.

In 2004, DIRECTV leased faeilities for its local collection facilities in three different Ohio

cities. S.Supp. 13 at Ans. to Interr. No. 5; S.Supp. I at ¶3. EchoStar leased facilities for its local

collection facilities in four different Ohio cities. S.Supp. 32-33, BchoStar's Ans. to Interr. No. 5;

S.Supp. 2 at ¶4. DIRI;CTV and EchoStar own and use equipment, including antennas, receivers

and related equipment at each of these local collection facilities. S.Supp. 1-2 at ¶¶3-4. Once the

signals are collected, at the local collection facilities, they are then transrnitted across the state

line via in-state fiber optic lines that the Satellite Companies eitber own or lease from

telecommunications companies to one of the Satellite Companies' out-of-state "uplink" ecnters.

Supp. 28 at ¶17; S.Supp-123-127, 135-136, 139-140; Supp. 57 at ¶8.

'I'he equipment needed for these local collection facilities results in both DIRECTV and

EchoStar havitig significaut personal property located in Ohio. In its 2002 Ohio personal

10

property tax return, DIRECTV listed machinery and equipment used in its direct broadcast

satellite business in Ohio with a value of over $14 million located in 170 taxing districts.

S.Supp. 1 at ¶1. Tn its 2003 Ohio personal property tax return, EchoStar listed machinery and

equipment used in its direct broadcast satellite business in Ohio with a value of over $11 million

located in 320 taxing districts. S.Supp. 1 at ¶2.

The Satellite Conipanies own many of the "satellite dishes" and set-top boxes used by their

Ohio subscribers.2 S.Supp. 139-140; S.Supp. 151-152. Both DIRECTV aiid EchoStar have

programs whereby they own the equipment used to receive the signals from the satellites and

lease it to their subscribers. Id. In fact, over two-tliirds of EchoStar's subscribers, including

those located in Ohio, lease their equipment from EchoStar. S.Supp. 151-152.

Finally, one of DIRECTV's tliird-party call centers is located near Cleveland, Ohio, and

employs approximately 100 people. S.Supp. 130.

b. Cable Companies

Cable Companies, as they do in all states, also have equipment, employees, facilities and

cable lines located throughout Ohio. Supp. 13 at ¶8. However, much of their operations are

interstate in nature. 1'he large cable companies that provide service in Ohio are headquartered

outside of Ohio and provide programming to subscribers in mmmerous states 3"I'hey typically

operate through operating divisions oF the national corporation, not through locally organized

entities. See Supp. 364 at ¶5; Supp. 345-346 at ¶6. The operating divisions are not state

specific. See Supp. 364, 367-368 at 11115, 12; Supp. 345-346 at ¶6. For example, Time Warner's

2 The satellite dishes and set-top boxes that DIREC'1'V owns and leases to its subscribers are notincluded in its 2002 Ohio personal property tax return because it did not start its leasing programunti12006. S.Supp. 99 at 175; S.Supp. 61.3 For example, Charter Cormnunications is headquartered in Missouri with operations in fortystates. S.Supp. 42 at ¶4. See Supp. 364 at ¶5 (Adelphia); Supp. 357 at. ¶5 (Comeast); Supp.

345-346 at ¶¶6, 12 (Time Warner).

11

Western Ohio division is located in Kettering, Ohio, but serves cable subscribers in 28 Ohio

counties, 5 Indiana counties and I Michigan couuty. Supp. 50 at ¶5. Additionally, the Cable

Companies' national corpoaate offices negotiate contracts to obtain much of the interstate

programming that comprises most of cable programming. Supp. 367 at ¶1 l; Supp. 348 at ¶12.

The operating divisions then receive the programming at their respective headends to be supplied

to subscribers_ Id.

Moreover, state boundaries have little significance in the Cable Companies' transmission

of their programming to their subscribers. Except for public access broadcasting and

retransmission oC local over-air programming, the Cable Companies' programming emanates

mostly from outside of Ohio. Supp. 367 at ¶12; Supp. 10 at ¶10. The out-of-state programming

is received by the Cable Companies via satellite tlirough antemias at or near a headend, or at an

antenna farm, which transmits the signals to the headend. Supp. 348 at ¶12; Supp. 52-53 at ¶10.

Headend transmissions do not always stop at state lines. Supp. 53 at ¶11; S.Supp. 44 at ¶10;

Supp. 367 at 1112; Supp. 10 at ¶10; Supp. 46-47 at 1112. For example, Comcast's master headend

located in Pittsburgh, Pennsylvania serves approximately 53,000 subscribers in 63 Ohio

commuiiities and 37,000 subscribers in 20 West Virginia communities. Supp. 360 at ¶1 l.

3. Satellite and Cable Companies Are Subject to Different Regulations that Resultin Different Taxation and Different Levels of Coinmunity Service.

Satellite anct Cable Companies are subject to different fecteral laws and regulations.

Satellite Companies are governed by 47 U.S.C. §301, et seq., while Cable Companies are

governed by 47 U.S.C. §521, et seq. 'I`hcsc differences also result in the two businesses being

treated differently, including operations, taxation and obligations to provide conmiunity services.

For one, pursuant to 47 U.S.C. §533(a), Cable Companies are prohibited from becoming a

12

Satellite Cornpany by offering satellite broadcasting services in any area in which cable is not

subject to effective competition. See 47 C.F.R. 76.501.

For anotller, the two businesses are subject to different tax schemes that results in the two

schemes being compensatory to each other. Congress authorizes the local taxation of Cable

Companies. 47 U.S.C. §542_ However, it specifically prohibits similar local taxation of Satellite

Companies. Pub. L. 104-104, Title VI, §602(a), 110 Stat. 144 (1996) (contained as note to 47

U.S.C.A. § 152). Instead, Congress authorized states to tax Satellite Companies at the state level.

Id. at §602(c).

Before 2003, neither Satellite nor Cable was taxed by the State of Ohio. However, Cable

Companies wanting to provide service to Ohio subscribers are required to enter into a franchise

agreement with a local franchising authority ("LFA"). These franchise agreements authorized

the Cable Company to construct its cable system over public rights-of-way and to service the

public within the LFA for a specified number of years. 47 U.S.C. §541(a)(2).

Under a franchise agreement, the Cable Company is required to pay the LFA a franchise

fee, which is typically a perccntage of the gross revenue from the operation of the cable system.

47 U.S.C. §542(a); Supp. 365-366 at ¶8; Supp. 9 at ¶7. 'fhe amormt of the franchise fee cannot

exceed 5% of the Cable Company's gross revenues derived from the Cable Company's operation

of the cable system to provide cable services. 47 U.S.C. §542(b). The majority of Time Warner

Cable Cincinnati Division's and Northeast Ohio Division's frauchise agreements provide for a

fee of 5%. Supp. 347 at ¶9; Supp. 45 at ¶8.

Despite the rate being capped at 5%, the effective rate is actually much higher. For

pruposes of calculating the franchise fee, gross revenue includes the receipts of service fees from

subscribers within the LFA as well as other receipts derived from the operation of the cable

13

system, such as aclvertising revenues and commissions from home shopping networlcs. See

Supp. 152 at 116A.09, ¶1. A typical franchise agreement def'mes "Gross Receipts" as including

subscriber charges for basic, tier, premiuni, pay-per-view and remote service charges, advertising

sales revenues, installation fees, and home shopping revenue sharing. Supp. 149-150 at 116A.03

1(12. Gross receipts can also include money that the Cable Compaaiies collect from their

subscribers that is allocated by the company to pay the franchise fee. Id. Therefore, the effective

rate of taxation imposed on cable broadcasting services pursuant to the franchise fees may

actually exceed the rate imposed by the sales and use taxation of satellite broadcasting services.

The difference in regulatory schemes also results in Cable Companies performing more

public services than those required of Satellite Companies. Since 2002, Cable Companies have

been subject to a"rnust carry" requirenient whereby they must carry local television stations in

every market they serve as well as the signals of qualified noncommerciai education television

stations requesting carriage. 47 U.S.C. §§534(b), 535(b); 47 C.F.R. 76.56; S.Supp. 86-87 at ¶63.

Moreover, pursuant to 47 U.S.C. §531(a), LFAs can require Cable Cotnpanies to designate a

certain arnount of their channel capacity for public, educational, or governmental ("PEG") use.

Cable Companies must include in their basic service all local television sil,nrals and PEG access

channels. 47 U.S.C. §543(b)(7). Further, Cable Companies are also required to provide viewers

with the emergency information that is afforded by the emergency broadeastnig system. 47

U.S.C. §544(g). See also S.Supp. 81-84 at¶¶46-52.

Satellite Companies, on the other hand, are only subject to a "carry one, carry all"

requirement whereby a Satellite Company is not required to carry any local television stations,

but wliere it chooses to carry local televisions stations, it must carry all stations in that market

that request carriage. 47 U.S.C. §338(a); 47 C.F.R. §76.66; S.Supp. 87 at ¶64. Additionally,

14

Satellite Companies are only required to carry some noncommercial education or information

programming. See 47 U.S.C. §335(b)(1). Additionally, federally iniposed customer service

obligations and equipment and rate regulations applicable to Cable Companies are not applicable

to Satellite Companies. S.Supp. 87-89 at ¶1165-68.

Further, the following public service obligations are typically incorporated into the cable

franchise agreements: (1) free or reduced-cost service to schools, libraries and government

buildings; (2) "institutional" networks for use by government agencies; (3) customer service

standards such as telephone answering responsiveness, installatioti speed, billing, etc.; (4) system

technical standards and testing requirements; (5) provision of production facilities, equipment

and services to produce PEG programming free of charge; and (6) performance guarantees.

S.Supp. 80-81 at ¶43; Supp. 347-348 at ¶¶9-11. Similar obligations are not imposed on Satellite.

B. ln 2003, Oliio added "satellite broadcasting services" as a new taxable service underOhio's sales and use tax provisions without also subjecting cable broadcasting

services to sales and use tax.

Ohio amended R.C.5739.01(B)(3)(q) (now renutnbered R.C. 5739.01(B)(3)(p)),

5739.01(XX), 5739.01(AA)(4), 5739.02 and 5741.02 to subject the retail sales of providers of

"satellite broadcasting service" to a 6% (amended to 5.5% for tax periods on or after July 1,

2005) sales and use tax on each sale. Am. Sub. H.B. No. 95, 150 Ohio Laws Pt. II, 1,996,

effective June 26, 2003- "Satellite broadcasting service" is defined as:

the distribution or broadcasting of programming or scrvices by satellite directly to thesubscriber's receiving equipment without the use of ground receiving or distributionequipment, except the subscriber's receiving equipment or equipment used in theuplink process to t'ae satellite, and includes all service ai-id rental charges, preminmchannels or other special services, installation and repair service charges, and anyother charges having any conneetion with the provision of the satellite broadeastiug

service.

R.C. 5739.01(XX). The Generat Assembly further subjected these services to additional local

and transit authority sales taxes of up to 3% if so eiiacted. See R.C.5739.021, 5739.023,

15

5739.026, 5741.02, 5741.021, 5741.022 and 5741.023. The General Assembly chose not to

subject "cable broadcasting services" to thesc taxes. Unlike the satellite broadcasting services,

the cable broadcasting services were already subject to substantial local franchise fees/taxes.

The language employed in the definition of the taxable service was not new but, in fact,

was borrowed directly from the definition of "direct-to-home satellite service" set forth in the

Telecommunications Act of 1996, which prohibited the states from taxing satellite broadcasting

services at the local level but permitted taxation at the state level:

'The term "direct-to-hotne satellite service" means only programming transmitted orbroadcast by satellite directly to the subscribers' preniises without the use of ground

receiving or distribution equipment, except at the subscribers' own premises or in

the uplink process to the satellite.

Pub. L. 104-104, Title VI, §602(b)(l), 110 Stat. 144 (1996) (set forth as a note to 47 U.S.C.A.

§152) (eniphasis added.) See also 47 U.S.C. §303(v) (enacted in Pub. L. 104-104, Title 11, §205,

110 Stat. 114 (1996)).

C. The same year it was enacted, the Satellite Companies challenged the tax asunconstitufional in the Franldin County Court of Common Pleas. The trial courtrejected the Satellite Companies' equal protection claim and facial discriminationclaim under the dormant Commerce Clause but, applying a relative presence test notargued by either party, found the tax to be discriminatoiy "in practical effect" underthe dormant Commerce Clause and granted summary judgnrent to the Satellite

Companies.

On Junc 26, 2003, the Satellite Companies filed a four-count complaint in the Franldin

County Court of Common Pleas seeking declaratory and injunctive relief. Count I alleges that

the 6% sales and use tax levied on satellite broadcasting services is unconstitutional as both

~yurposely discriminatory and discriminatory in effect under the Commerce Clause of the U.S.

Constitution "by providing a direct commercial advantage to locally franchised cable television

systems that is not provided to satellite television companies..." which "provide service from out-

of-state facilities" and by providing "a significant cost advantage to local businesses not

16

available to businesses providing service through out-of-state facilities." Supp. 36-37 at ¶¶42-

47. Couiit II alleges that the 6% sales and use tax levied on the satellite broadcastnig services

violates the Commerce Clause because it is "not fairly related to the services provided by the

State and localities to satellite TV operators." Supp. 37-38 at ¶1148-51. Count III alleges

discrimination against the Satellite Companies in violation of the Equal Protection Clauses of thc

U.S. and Ohio Constitutions. Supp. 38-39 at 111152-55. Finally, Count IV alleges that the local

and transit authority tax provisions are preempted by Section 602(a) of the Telecomnnmications

Act of 1996 and the Supremacy Clause of the U.S. Constitution. Supp. 39 at ¶¶56-58.

The Tax Commissioner filed his answer denying the allegations. Both parties moved for

summary judgment. On October 21, 2005, the court granted sumnrary judgtnent to the Tax

Conimissioner as to Counts II, ITI and IV. YPilkins 10/21/05 Dec. & Entry, Sat. Appx. at 167,

195-196. With respect to Count II, the equal protection claim, the court found that the

educational, infonnational and cultural benefits unique to Cable were a rational basis for the

diiferenttax treatment of Satellite and Cable Companies. Id. Rejecting the Satellite Companies'

arguinent that the "ground" was per se local and that "outer-space" was per se out-of-state, the

court also partially granted the Tax Commissioner's motion on Count I "to the extent that this

Court finds that there is no facial discrimination." Sat. Appx. 167, 171-174. Both niotions were

denied "on the issues of whether there was purposeful discrimination" (Sat. Appx. 167, 174-181)

and "whether cable television providers and direct broadcast satellite providers are `similarly

situated."' Sat. Appx. 167, 182-195.

IIowever, thc conrt applied a relative local presence test not argued by either party, and

partially granted the Satellite Companies' motion on Count I "to the extcnt that this Court finds

that in their practical operation, the tax provisions at issue benefit in-state economic interests and

17

burden out-of-state economic interests." Sat. Appx. 167. The trial court found that the

differences in local presence of the Satellite and Cable Companies were due almost exclusively

to the differences in technologies. Sat. Appx.. 182 Nevertheless, focusing only on the

distribution phase of the companies' operations and then only on some of the equipment utilized

by the two businesses: specifically some "head-ends" and the network of cable lines utilized by

the Cable Companies in Ohio and two uplink facilities located outside of Ohio utilized by the

Satellite Companies, the court found that the statute favored an in-state economic interest over an

out-of-state interest. Id. The court rationalized that since the Cable Companies had a greater

impact on the local economy because their tecbnology required the presence of more equipment,

investinent and employment and because they were required to pay local franchise fees while

Satellite Companies were not, they were a protected local interest. Sat. Appx. 182-183. The

economic impact of satellite dishes and service personnel employed by the Satellite Coinpanies,

their use of an Ohio cable networlc to gather and upload broadcasting to the satellite, and the

presence of other Satellite infrastructure in the state never factored into the analysis leading the

court to erroneously conclude that "satellite providers have not needed or chosen, to locate any

of their distribution equipment in Ohio" Sat. Appx. 182. Concluding that local francbise fees

were not taxes but instead public right-of-way fees and therefore the equivalent of rent (Sat.

Appx. 184-185), the court also fotmd that "the sales and use taxes as applied to direct

broadcasting television service providers do not qualify as `compensatory taxes' °' Sat. Appx.

167:'

4 The Satellite Companies accurately point out that the trial court relied upon this analysis toalso conclude that, since the franchise fee was not a tax, the taxation of "satellite broadcastingservices" unfairly leveled the playing field against the Satellite Companies. Sat Br. at 13. Byextension, however, if the trial cow-I is wrong on this issue as the Tax Commissioner argues, thenthe trial court's decision actually unfairly leveled the playing field against the Cable Companies.

18

When the Tax Conunissioner subsequently attempted to conduct further discovery to more

completely address the relative presence of the Satellite Companies in response to the new test

introduced by the court, the court granted a protective order prohibiting him from so doing and

ordered the record closed on this issue. Wilkins 12/19/06 Order, TC Appx. 23. Over the next

two years and three additional decisions, Wilkins 3128/06 Dec. & Entry, TC Appx. 5; Wilkins

12/I4/06 Dec. & Entry, Sat. Appx. 148; Wilkins 10/17/07 Dec. and Enlry, Sat. Appx. 24, the

court nevertheless expanded its original determination of in-state/out-of-state relative presence.

In so doing, it rejected decisions from Kentucky and North Carolina state and federal courts

addressing the saine argument. Sat. Appx. 148. Based on such authority as the Declaration of

Independence and the Gettysburg Address, the trial court concluded that the Commerce Clause

was ultimately about securing individual rights to employment. Sat. Appx. 45-48. In the court's

view, because Cable Companies offered more downstream employment opportunities through

the maintenance, installation and construction of cable infrastr-ucture than the Satellite

Companies offered, tax differentiation in their favor constituted a prima facie case of

discrimination under the doimant Commerce Clause. Sat. Appx. at 68-71.

After the trial court also concluded that the Satellite and Cable Companies were "similarly

situated" and that the reasons earlier found to be a rational basis under equal protection analysis

did not constitute a legitimate basis for the discrimination under the Cormne-ce Clause, the trial

court granted summary judgment to the Satellite Companies on Cormt I, concluding that the

statute is discriminatory "in practical effect" and unconstitutional to the extent that it applies to

direct broadcasting satellite services but not to cable television services. It concomitantly denied

the Tax Commissioner's cross motion on that issuc. Sat. Appx. 24. The trial court ordered an

19

injunction against future administration of the tax against the Satellite Companies, but stayed it

pending the resolution of any appeals. Wilkins I/14/08 Dec. & Eniry, TC Appx. 1.

D. On appeal, the Tenth District Court of Appeals granted summary judgment to theTax Conrmissioner. In so doing the court found that Satellite Companies and CableCompanies each have substantial presence both within and without Ohio, and heldthat the differential tax treatment between them was not discrimination againstinterstate commerce but merely differentiation between two forms of interstate

commerce.

The Tax Commissioner then appealed the trial court decision, specifying nine substaiitive

and procedural Assignments of Error (Levin at ¶6). The Satellite Companies cross-appealed only

on issues related to the form of relief and attorney fees, id. at ¶7. "I'hey declined to appeal any of

the other trial court rulings, including those on equal protection and £acial and intentional

discrimination under the dormant Commerce Clause. The Tenth District sustained eight of the

Tax Cominissioner's nine assigmnents of error, reversed and granted complete summaiy

judgment to the Tax Coinmissioner. Id at ¶35. Applying a de novo standard, required on

appellate review of a summary judgment decision, id. at ¶9, the court found, based on its own

review of the record, that both Cable and Satellite Companies have substantial physical presenee

within and without Ohio, and actually rely heavily on the same types of equipment to opcrate.

Id. at ¶24-25. The court therefore concluded that "the two classes of competitors camiot be

segregated into interstate and local enterprise." Id. at ¶25. Moreover, it found they constitute

two different modes of interstate business. Id. at ¶24.

Adopting similar conclusions made by the Sixth Circuit and the North Carolina Courts of

Appeal, and relying on U.S. Supreme Court decisions in .4rnerada aess and Exxon, the Tenth

District eoncluded that the tax treated two kinds of interstate businesses differently based on their

modes of operation, not geography. It therefore found that, "based on the simple facts of the

type oC comrnerce involved here," id. at ¶26, the Satellite Companies "have not demonstrated

20

that Ohio's sales tax provisions discriminate against the interstate market for pay television,

whether delivered by cable or satellite. At best, tliese plaintiffs have persuasively, but to no end,

established that they are more burdened by Ohio's tax provision than comparable interstate cable

providers. Discrinrination between different forms of interstate commerce is not discrimination

against interstate commerce." Id. at ¶27 (emphasis in original).

Having already ruled in favor of the 1'ax Commissioner, the appellate court declined to

address his arguments related to alternative bases upon which differentiation could be sustained,

i.e. the compensatory tax doctrine and the legitimate alternative benefits provided by the favored

business. Id. at ¶28. The Satellite Companies' cross-appeal was overruled as moot. Id. at ¶35.

ARGUMENT

Thc Tax Commi4sioner's First Proposition of Law:

The imposition of Ohio's sales and use tax on satellite broadcasting services and not oncable broadcasting services does not discriminate against interstate commerce under the

dnrmant Cotnmerce Clause of the United States Constitution.

The Commerce Clause provides that: "'1'he Congress shall have the Power.... To regulate

Commerce ... among the several States...." U.S. Const. Art. 1, §8, cl. 3. As noted by the U.S.

Supreme Court, while this clause "expressly authorizes Congress to regulate Comrnerce with

foreign Nations, and among the several States, it says nothing about the protection of uiterstate

commerce in the absence of any action by Congress." Qtsill Coip. v. Nortli Daicota (1992), 504

U.S. 298, 309. Nevertheless, the Supreine Court has carved out a body of case law prohibiting

certain state actions that interfere with interstate commerce based on the premise that the Clause,

by its own force, is more than an affirmative grant of power; it has a negative sweep as well. Id.

'I'he test for evaluating tax measures under the Clause is set forth by the U.S. Suprerne

Court in Consplete Auto Transit, Inc. v. Brady (1977), 430 U.S. 274. '1'he four-prong test

requires the Court to sustain a tax against a Commerce Clause challenge when the tax: 1) is

21

applied to an activity witli a substantial nexus with the taxing state; 2) is fairly apportioned;

3) does not discriininate against interstate coinmerce; and 4) is fairly related to the service

provided by the State. Id. at 279. See also Quill, 504 U.S. at 309; D. H. Holrnes Co. v.

McNamara (1988), 486 U.S. 24; Quotron Sys., Inc. v. Limbach (1992), 62 Ohio St.3d 447;

Norandex, Inc. v. Limbach (1994), 69 Ohio St.3d 26.

The third prong of the test is the ono ehallenged by the Satellite Companies in the instant

case. The U.S. Supreme Court has held that discrimination under that prong may be shown in

three ways: (1) facial discrimination; (2) discriminatory intent; or (3) discrirninatory effect.

Amerada Hess, 490 U.S. at 75. Under this test, the Satellite Companies bear the initial burden of

showing that the challenged tax provision discriminates against interstate commer•ce. Hughes v.

Oklahoma (1979), 441 U.S. 322, 336. If they meet that burden, the state then bears the burden of

establishing that the challenged tax provision "advances a legitimate local purpose that caimot be

adequately served by reasonable nondiscriminatory alternatives." Oregon Waste Sys., 511 U.S.

at 101.

The threshold burden for establishing that a state's tax scheme is discriminatory is higli.

The U.S. Supreme Court has made it clear that the Constitution does not "`unduly curtail[]'

States' power `to lay taxes for the support of state government."' Am. Trucking Assn. v.

Michigan, PSC (2005), 545 U.S. 429, 436, (citing McGoldrick v. Berivind-White Coal Mining

Co. (1940), 309 U.S. 33, 48). Only actual, rather than hypotlietical, discrimination violates the

Commerce Clause. Associatedlridus. of Missourf v. Lohman (1994), 511 U.S. 641, 654; see also

Gregg Dyeing Co. v. Query (1932), 286 U.S. 472, 481, ("[d]iserimination ... is a praetieal

conception. We must deal in this matter ... with substantial distinctions and real injuries.").

Thus, a party is required by "convincing evidence" to "empirically ... demonstrate the existence

22

of a burdensome or discriminatory impact on interstate [commerce]." Am. Trucking Assn., 545

U.S. at 436-437. Commerce Clause analysis is to be approached conservatively. Therefore,

"[the court] must be cautious about applying the domlant Commerce Clause in cases that do not

present the equivalent of a protective tariff." Treesh, 487 F.3d at 481. Finally, this Court has

repeatedly held that challenges to state statutes under the U.S. Constitution must be established

beyond a reasonable doubt. See Columbia Gas Transmission, 2008-Ohio-511 at 1141; Ohio v.

Snaith (1997), 80 Ohio St.3d 89, 99; Arnold v. Cleveland (1993), 67 Ohio St.3d 35, 38. As the

Tenth District properly concluded, the Satellite Companies have not sustained their burden for

the reasons more fully addressed below.

A. The dormant Commerce Clause prohibits discrimination against interstatecommerce, not alleged discrimination between different forms of interstatecommerce. Ohio's sales and use tax treatmcnt of satellite broadcasting services andcable broadcasting services siniply differentiates between two forms of interstatecommerce, not between a local economic activity and an out-of-state economicactivity.

As the U.S. Supreme Court has made clear, unlike an equal protection claim, the dormant

Commerce Clause does not focus on alleged discrimination between two competing businesses

or activities of a predominately interstate character. The Commerce Clause "protects the

interstate marlcet, not particular interstate firms, from prohibitive or burdensome regulations."

Minn. v. Clover Leqf Creamery Co. (1981), 449 U.S. 456, 474. It is directed at prohibiting

individual States from enacting laws that favor local enterprises at the expense of out-of-state

businesses that would have the result of creating a multiplicity of preferential trade areas

destructive of the free trade which the Clause protects. Northwestern States Portland Cement

Co., 358 U.S. at 458; Boston Stock Exch. v. State Tax Cornm. (1977), 429 U.S. 318, 329. Thus, a

dormant Commerce Clause violatiari only occius if tlterc is "differential treatment of in-state

and out-of-state economic interests that benefits the former and burdens the latter." Oregon

23

Waste Sys,, 511 U.S. at 99 (emphasis added). Or, stated another way, a law is discriminatory if it

"tax[es] a transaction or incident more heavily when it crosses state lines than when it occurs

entirely within the State." Chemical Waste Mgt. v. Fhcnt (1992), 504 U.S. 334, 342 (emphasis

added). "We have understood this constmction to serve the Commerce Clause's purpose of

preventing a State from retreating into economic isolation or jeopardizing the welfare of the

Nation as a whole, as it would do if it were free to place burdens on the flow of coinmerce

across its borders that commerce wholly within those borders would not bear." Oklahoma

Tax Comm_ v. Jefferson Lines (1995), 514 U.S. 175, 179-180 (emphasis added).

The Satellite Companies seem to suggest that states caiwot differentiate between "vigorous

competitors in the same market" Sat. Br. at 3. But the U.S. Supreme Court has clearly stated

otherwise. With the sole exception of the trial court's decision in this case, the dormant

Conimerce Clause, as interpreted, has not been applied, without more, to prohibit the disparate

state treatinent of two interstate businesses engaged in interstate economic activity even where

they are competitors. See Exxon, 437 U.S. at 127. "The fact that the burden of a state regulation

falls on some interstate companies does not, by itself; establish a claim of discrimination against

interstate commerce." Id. "[i]izterstate commerce is not subjected to an impermissible burden

simply because an otherwise valid regulation causes some business to shift fi-om one interstate

supplier to another." Id. And even if the disparate treatment of interstate businesses is

unfrierxlly to consumers, these results "relate to the wisdom of the statute, not its burden on

conunerce." Id. at 128. In fact, in the context of equal protection discrimination challenges,

courts have long recognized that states are free to create their own classifiication schemes as to

what entities are subjected to taxation and what entities are not. See Regan, 461 U.S. at 547,

("[L]egislatures have especially broad latitude in creating classifications and distinetions in tax

24

statutes."); Madden, 309 U.S. at 88 ("in taxation more than other fields, legislatures possess the

greater freedom in classification."); Park Corp. v. Br•ook Park, 102 Ohio St.3d 166, 2004-Ohio-

2237, ¶¶19-36 (citing and quoting extensively from Nor•dlinger v. Ilahn (1992), 505 U.S. 1, 11-

12; and Fitzgerald v. Racing Assn. of Cent. Iowa (2003), 539 US. 103, 107-108 in sustaining

differential taxes iniposed against competing classes of parking lot operators within a

municipality).

Thus, the dormant Commerce Clause analysis with respect to the Satellite and Cable

Companies need not go beyond the essential fact that both businesses are interstate businesses

engaged in predominately interstate econoinie activity with respect to their Ohio subscribers.

The Satellite Companies go to great lengths in their brief to trivialize their physical presence in

Ohio and maximize that of the Cable Companies in an effort to portray themselves as an out-of-

state economic interest and the Cable Companies as a local econoniic interest. Bnt the facts do

not support them. Both traiismit programming signals across state lines. Both utilize in-state

and out-of state equipment and facilities to provide service to Ohio subscribers and both own

property within and without the state. Both have eniployees within and without Ohio. Both

clearly engage in the economic activity of selling video programming in Ohio and elsewhere.

Neither business is indigenous to Ohio nor conducts eonnnerce wholly within the borders of

Ohio. Levin at ¶¶24-25. As the Tenth District observed, "[b]efore us are two modes of

iuterstate business." Id. at 1124 (emphasis added).

The North Carolina Court of Appeals reached the same conclusion in DIRECTV, Inc, v.

N.C., which involved the Satellite Companies' dormant Commerce Clause challenge to a North

Carolina statute nearly iclentical to Ohio's. A core component of the appellate court's rejection

of the Satellite Companies' arguments was its factual analysis of the dynamic relationship

25

between satellite broadcasting services and cable broadcasting services. Thus, in distinguishing

the Satellite Cornpanies' reliance on Bacchus InsBorts, Gtd v. Dias (1984), 468 U.S. 263, a case

in which the U.S. Supreine Court struck down a state provision that exempted a locally distilled

brandy from the state's liqi.ior tax, the North Carolina appellate court observed that:

The facts in Bacchus are easily distinguished from the facts in this case. Here,section 105-164.4(a)(6) does not discriminate against Plaintiffs in favor of a localindustry. Contrary to Plaintiffs' assertions, cable companies are no more "local" innature than are satellite eompanies. Indeed, the record reveals that both businesses

are interstate in nature, as they both utilize in-state and out-of-state equipment andfacilities in providing service to North Carolina subscribers and both own propertywithin the State of North Carolina. Thus, unlike the products exempted from

IIawaii's liquor tax in Bacchus, neither satellite companies nor cable companies are

properly characterized as an in-state or out-of-state economic interest.

N.C:., 632 S.E.2d at 548.

"[T]he relevant market is the interstate market for multichannel video programming." Id

at 549 (emphasis added). To the same effect, see DIRECTV, Inc. v. Treesh (E.D. Ky. 2006), 469

F.Supp.2d 425, 437, wherein the Eastern District of Kentucky, in considering the Satellite

Companies dormant Commerce Clause challenge to a Kentucky tax and subsidy scheme that

allegedly favored the cable industry, found that `the Cable Companies[are] no more a"resident",

"local," or "in-state" business than the Satellite Companies and, as a result, there simply was no

local commerce to be preferred both under a facial test and under an "as applied" test. Id.

In liglit of the overwhelming facts and law, the Satellite Companies' attempts to establisli

an in-statelout-of state dynamic, based solely on the Cable Compaiues' use of in-ground cable

and the Satellite Companies' use of satellite in the last leg of delivering the programrning to the

consumer, must fail for several reasons. First, the Satellite Companies' argument constitutes

factual gerrymandering, focusing on only one aspect of what each business does in Ohio and

elsewhere, while ignoring the millions of dollars in infrastructLu-e that the Satellite Companies

have invested in Ohio and that the Cable Companics have invested in other states.

26

Second, the Satellite Companies' argument even ignores the extent of the activity subject to

taxation under the plain language of R.C. 5739.01(XX), defining "satellite broadeasting service"

as:

the distribution or broadcasting of programming or services by satellite directly to

the subscriber's receivnig equipment without the use of ground receiving ordistribution equipment, except the subscriber's receiving equipment or equipmentused in the uplink process to the satellite, and includes all service and rentalcharges, preinium channels or other special services, installation and repairservice charges, and any other charges having any connection with the provisionof the satellite broadcasting service.

(Emphasis added.) Thus, the taxable service is far broader than just the transmission of a signal

to the satellite dish. It includes all charges for gathering and repackaging the broadcasting of the

channels themselves. It includes all charges for installation, repair and lease of the satellite

dishes to the subscribers. It includes "any other charge" having "any connection" with a

"satellite broadcasting service." The definition alone encoxnpasses services that reqrrire the use

of Ohio cable lines to gather and uplink the programming the Satellite Companies sell to their

subscribers. It encompasses the owncrship of Ohio-based satellite dishes leased to the

subscribers to receive the programming. It encompasses the etnployment of a multitude of

employees/agents who install and maintain the satellite dishes. These are all activities that have

an enorinous economic impact in Ohio yet are ignored in the Satellite Companies' attempts to

miniinizo their Ohio p'esence.

Third, even if confined exclusively to the technological means of program distribution, as

the Satellite Companies advocate, their argument fails again. Their strained attempt to

characterize cable broadcasting services as a "local" economic activity simply because cable is

laid in the ground, and satellite broadcasting services as an "out-of-state" economic activity

simply because it broadcasts froin a satellite in outer-space, reaches an illogical level from a

Commerce Clause context that even the trial court rejected. Sat. Appx. 172 ("it would appear to

27

this Court that their argtunent functions just as well to establish that the satellites are also

necessarily outside of every other state. Thus, the location of the satellite in outer space, outside

of every state, does not logically entail that direct broadcast satellite services have an n-ilzerent

connection with interstate commerce.").

As the Tenth District correctly noted, even at the level of distribution, "the two classes of

competitors cannot be segregated into interstate and local enterprises on the sole basis that the

satellite providers place equipment in outer space that necessarily is out of the state of Ohio. ln

fact, the use of orbital satellites cannot be the distinguishing feature ofthe two pay technologies,

because cable providers also receive niuch progranzming via satellite at the headend centers."

Levin at ¶25. Cable companies gather signals from "outer-space" satellites which transmit their

programming to a "head-end", which can be located "out-of-state" for distribution by cable to a

customer's decoder box. Supp. 348 at ¶12; Supp. 52-53 at ¶10. Satellite Companies use Ohio

"ground" cable lines to gather signals which they transniit to a satellite that in turn transmits a

signal through the air to aiiother Ohio ground-based device, the satellite dish, whicll is also often

owned by the Satellite Companies. Supp. 3 at ¶10; S.Supp. 122, 124-127. See also Levin at T24.

1'he Satellite Companies insist that a cable signal has to be local because it has to pass

through the ground of Ohio to get to the subscriber. But the attempt to characterize Cable as

inherently local because its technology requires use of the ground ignores the fact tliat, just like

railroads needing an interstate system of tracks or the trucking industry needing an interstate

system of highways, there is nothing inherently endemic to Ohio with respect to cable lines in

the ground. The salne dynamic is present in all states and indeed the record shows that signals

are transmitted across state boundaries. S.Supp. 44 at ¶10; Supp. 46-47 at 1112; Supp. 367-367 at

¶12. Moreover, iP one were to accept this aigument as the defining clement as to whether an

28

activity is inhcrently local, then it would be equally conipelling to arguc that Satellite is also

inherently local since a Satellite subscriber can't receive his or her signal without a ground-based

satellite dish and without the signal passing through Ohio airspace. (The property rights to

airspace have been well established, at least below the current federally preempted 500/1,000

foot level, US_ v. Causfiy (1946), 328 U.S. 256, 264; State ex rel. Royal v. Colurrabus (1965), 3

Ohio St.2d 154, and may even be taxed, Kartz Mt. Indus., Inc, v. City qf New Jer•sey (Tax Ct.

N.J. 2004), 22 N.J. Tax 84, 2004 N.J. Tax LEXIS 29)) s Thus, at every level of inquiry, Cable

Conspanies are no more local and no less out-of-state than their Satellite Company counterparts.

The Satellite Companies and their atnicus scholars argue that the Tenth District ignored all

of the record except the fact that both businesses are headquartered outside Ohio and that both

businesses are engaged in interstate com nerce and erroncously conchided that "a tax per se

cannot be `discriminatory' when `both [the favored and disfavored companiesI are engaged in

interstate commerce."' (Scholar's Br. at 5, citing to Levin at 1[28). But this is simply a gross

mischaracterization of the decision. Applying a case-specific analysis centered predominately on

"the unique characteristics of the statute at issue and the particular circumstances in each case,"

Levin at ¶14, - the appellate court concluded, just as five other courts who have exainined this

narrow issue have also concluded, there simply is no local economic activity to be preferred.

s The Satellite Companies' argument is so tetliered to the statutory language "without the use ofground ... distribution equipment" set forth in the de6nition of "satellite broadcasting service" inR.C. 5739.01(XX), that the argument looks remarkably like the facial discrimination arguinentraised, rejected and abandoned before the trial court. Moreover, as noted above, the actuaJlanguage employed in the definition is taken directly from the Telcconununications Act of 1996,wliich prohibited the states from taxing satellite broadcasting services at the local level butpermitted taxation at the state level: Pub. L. 104-104, Title VI, §602(b)(1), I10 Stat. 144 (1996)(set forth as a note to 47 U.S.C.A. § 152). See also 47 U.S.C. §303(v) (enacted in Pub. L. 104-104, Title II, §205, 110 Stat. 114 (1996)). 'I'hus, contrary to the Satellite Companies' suggestionthat the definition was unique protectionist language (Sat. Br. at 11), the choice of language wasactually siniply fulfilling congressional authority to impose the tax in qnestion. By extension,the Satellite Companies' argunent would itnpute a protectionist motive to Congress itself.

29

The decision, therefore, rather than representing a drastic deviation from dormant Commerce

Clause jurisprudence is, instead, totally in step with it. See Boston.Stock L'xcla., 429 U.S. 318.

Thus, the Satellite Companies' reliance on Boston Stock Exch. as "evidence" that the

dorn-iant Cormnerce Clause protects against discrimination even among interstate compaiiies is

misplaced both as to the facts and law. On the facts, the New York Stock Exchange plainly was

a "local" enterprise, whose only "interstate commerce" activities were its sales of locally

performed stock services to out-of-state customers. In other words, it was undisputed that the

stock exchange itself was truly a New York local business and that the purchased services were

performed in New York on the premises of the NYSE. On the law, the challenged New York tax

statute was designed to force customers to use the local stock exchange rather than "out-of-state"

stock exchanges. Id. at 328. The case therefore involved a classic example of economie

protectionism. In contrast, there is nothing "local" about a cable industry that operates at the

same relative level and in the same fashion in all states in which it does business. The Satellite

and Cable Companies are both equally situated on the intrastate and interstate planes, and any

clisparate treatment among them siniply does not violate the dormant Commerce Clause.

B. Discrimination under the dormant Commerce Clause is not premised on the relativein-state presence of two predominately interstate economic activities.

Despite its absence from their briefing at the court of appeals, the Satellite Companies

atteinpt to revive a variation of the trial coiut's novel "relative local presence" test. Nainely, the

appellants assert that "[t]he doctrinal rule that controls in this case is that `discrimination based

on the extent of local operations is itself enough to establish the kind of local protectionism that

is prohibited."' Sat. Br. at 20 (citing to Lewis v. BTJnv. Mgrs., Inc. (1980), 447 U.S. 27, 36, fn.

9) (ernphasis added by the Satellite Companies). But the sarne type of problems that plague their

attempt to characterize groand transmission of broadcasting signals as inherently "local"

30

economic activity and satellite transmission as inherently "out-of-state" econoinic activity,

fatally flaw their "relative local presence" argument.

1'he basis for the Satellite Cornpanies' "doctrinal" rule derives exclusively from a lone

sentence out of a footnote in Lewis that they repeatedly quote throughout their brief. Sat. Br. at

16, 20, 28, 38. Remarkably, the Satellite Companies do so without ever discussing the actual

facts of the case, which involved nothing more than classic economic protectionism and which

the Coiutresolved accordingly.

Lewis involved a Florida banking law that provided that:

[no] bank, trust company, or holding company, the operations of which are

principally conducted outside this state, shall acquire, [or] retain, or own, directly

or indirectly, all or substantially all the assets of, or control over, any bank or trust

conipany having a place of business in this state whcre the business of banking or

trust business or functions are conducted, or acquire, [or] retain, or own all, orsubstantially all, of the assets of, or control over, any business organization having aplace of business in this state where or from which it furnishes investment advisoryservices [to trust companies or banks] in this state.

Lewis, 447 U.S. at 31 fn. 2 (emphasis added). The banking law's differentiation between out-of-

state and in-state operations is classic facial economic protectionism and the U.S. Supreme Court

easily recognized it as such. Lewis, 447 U.S. at 42. There was no engagement in a relative

economic presence analysis as the Satellite Companies imply with their frequent citation to the

decision. The statutory distinction at issue was absolute in its geographical referenee and

concomitant constitutional infnmity. In so holding, the Court noted again that "legislation that

visits its ef'fects equally upon botlz interstate and local business may survive constitutional

scrutiny." Lewis, 447 U.S. at 36.

1'he truth is that no decision has ever held that clifferentiation between two predomiisately

interstate activities, ncither of which is centered in the taxing state, is proliibited simply because

the business adversely affected by the tax treatment generates less economic activity in the

31

subject state than the business that received favorable tax treatment. Indeed, such a test would

create a nightmare for legislators and the courts to admniister as no two intcrstate players have

the same relative economic presence in each state in which they do business. Moreover, the

relative in-state presence could literally change by the moment as one business elects to move its

infrastructure around the country, or via its success in rnarketing or lack thereol', another business

increases or decreases its presence in a given state based simply on market driven dynamics. As

applied to the facts of this case, if one factors in the Satellite Companies' dependence on Oliio

cable 1'nies, satellite dishes, service truclcs and equipment, service employees, and other

infrastructure that they ignore in their argmnent, and couple it with the growth of such

infrastructure that has occurred by their successful marketing since the complaint in the instant

case was filed back in 2003, it is easily appreciated how fast the size of their relative presence in

comparison to the Cable Companies can change 6

More fundamentally, the relative presence of these two businesses is principally due to the

mode of operation each employs to deliver its respective product. It is a mode of operation that

has the same relative presence in all states in which the companies do business. Instead of

deterring the Balkanization of states competing for a slice of the economic pie that is at the heart

of the dormaut Commerce Clause, application of the proposition advanced by the Satellite

6 The record would have demonstrated even more in-state economic presence by the SatelliteCompanies had the trial court not prevented the Tax Commissioner from gathering discoveiy onthis issue a year prior to final resolution of the motions for sLunmaiy judgmezt (Wilkins 12/19/06

Order). The Tenth District, rejecting the trial court's "relative presence" rationale, overt -uled theTax Commissioner's Seventh Assignment of Error alleging abuse of discretion in this trial courtdenial (see Tax Commissioner's Tenth District Merit Brief at 41-44, S.Supp. 163-166) by findingthat it was non-prejudicial due to the amount of evidence already in the record demonstrating the

Satellite Compaiiies substantial presence in Ohio (Levin at 1130). Shoutd this Court disagree, the

Tax Commissioner would respectfully request a vacation of the Tenth District's ruling on thisAssignment and a remand to the appellate court in order to resolve the assignment of erfor on the

snerits.

32

Companies would constitute an absolute bar to any state differentiating between the two

businesses because Satellite and Cable Companies would always have roughly the sanie relative

eeonomic presence in each state. The same rationale would prevent legislatures from

differentiating between the railroads with their heavy investment in tracks, and the truclcing and

busing industries which predoniinantly use the public highways rather than their own

infrastructure; and from differentiating between the latter industries and airlines which have even

less of a"footprint" on the ground.7 (Indeed, if a space shuttle is developed as a means of

transportation, the Satellite Compariies would argue that there could be no differentiation

between that mode of operation and airlines.)

In otlier words, the Satellite Companies seek to convert the doimant Commerce Clause

from a ban against discrimination against interstate commerce into a new fortn of Equal

Protection Clause, absolutely barrnlg disparate treatmeiit between two interstate competitors

even when rationally based. The dormant Commerce Clause does not encompass such a purpose

and the case on which the Satellite Companies rely as well as others discussed in their brief as

support for it actually stand for an entirely different proposition as discussed next.

7 In fact, Ohio makes just such a differentiation. This Court recently upheld the deniai of taxexemption for aircraft used by an air charter service to perform its air transportation delivery

scrvices. Castle Aviation, Inc. v. Wilkins, 109 Ohio St.3d 290, 2006-Ohio-2420. Yet, motor

vehicles used for purposes of highway transportation delivery have long becn entitled to salesand use tax exemption. See R.C. 5739.02(B)(32). Throughout R.C. Title 57, the GeneralAssembly's tax classifications impose different tax burdens on direct coinpetitors. Thus, theadverse consequences of the Satellite Companies' rewriting of thc dormant Comnierce Clause

jurisprudence would reach far beyond thc present case.

33

C. Ohio's sales and use tax treatment of satellite broadcasting services and cable

broadcasting se ►-vices applies uniformly to both business that crosses state boundariesand that which occurs solely within the boundaries of the state. It therefore does notconstitute the type of legislation directed at protecting local economic activity or

incentivizing businesses to locate infrastructure in a given state that has been found tobe unlawfally discriminatory under the dorinant Commerce Clause.

To aul,rznent their "relative local presence" theory, the Satellite Companies erroneously rely

on Westinghoaise v. Iully (1984), 466 U.S. 388; and Armco Inc. v_ Hardesty (1984), 467 U.S.

638. Those cases, however, simply recognize that a tax measure that ineentivizes businesses to

locate their infrastructure in the taxing state, at the expense of locating that infrastructure outside

the taxing state, may run afoul of the dormant Commerce Clause. This usually happens, as in

Westinghouse and Armco, where the taxing state is attempting to lure business into the state with

tax credits for property investments in the state and often inivolves franchise taxes that are

directly tied to the amount of infrastructure in the state. But the challenged Ohio tax

classification does not treat more favorably a business that locates infrastructure in Ohio than a

business that elects to operate from outside the state. Thus, the Westinghouse and Armco

decisions provide no help to the Satellite Companies here.

In Westinghouse, the state of New York, "[i]n an attempt to `provide a positive incentive

for increased business activity in New York State,"' allowed a franchise tax credit for gross

rcceipts froni export products "shipped from a regular place of business of the taxpayer within

[New York] :" Wesfinghouse, 466 U.S. at 393-394. Noting that "a State may not oncotinage the

development of local industry by means of taxing measures that `invite a multiplication of

preferential trade areas' within the United States, in contravention of the Comrnerce Cianse'

(quoting Dean Milk C;o. v. Madison (1951), 340 U.S. 349, 356), the Supreme Court found the

provision to be unconstitutional. Id. at 405.

34

Sitnilarly, in Armco, West Virginia imposed a gross receipts tax on businesses selling

tangible property at wholesale but exempted persons engaged in the State in manufacturnig or in

extracting natural resources, and selling their products. Addressing a challenge by an Ohio

manufacturer doing substantial business in the state, the Supreme Court opined that "a State

`niay not discriminate between transactions on the basis of some interstate element."' Armco,

467 U.S. at 642 (citing Boston Stock Exch., 429 U.S. at 332, fn. 12). 1'he Court applied the

established principle that "a State may not tax a transaction or incident more heavily when it

crosses state lines than when it occurs entirely within the State," and then concluded that "[o]n

its face, the gross receipts tax at issue here appears to have just this effect. The tax provides that

two companies selling tangible personal property at wholesale in West Virginia will be treated

differently depending on whether the taxpayer conducts manufacturing in the State or out of it "

Id.

A third case cited by the Satellite Companies, Granholrn v. Ileald (2005), 544 U.S. 460,

though not involving a tax statute, nevertheless involved the sanie type of legislation that was

struck down in Westinghouse and Armco. Michigan and New York's requirement for out-of-

state wineries to use in-state infrastructure in order to sell to in-state custoiners violated the same

fiindamental principle that coinnierce cannot be treated more severely when it crosses state

boandaries than when it occurs entirely within the state. The principle is also applicable to

fundamental economic protectionism of local business. See Lewis, 447 U.S. 27. The Satellite

Companies argue that the samc result should occur in this case, but neither the statute nor its

application is remotely similar to the cases upon which they rely. These cases concerned statutes

designed to force businesses to locate part of their infrastructure in otie state versus auother or to

protect business already located in the state. They were designed to force businesses to make

35

decisions on where they located their business, not on how they eonductecf busniess as the

Satellite Companies candidly acktiowledge. Sat. Br. at 22. In fact, the legislatures in the

respective states did so in sueh an overt way that it constituted facial discrimination.8

In contrast, Ohio's taxation of satellite broadcasting services and exception of cable

broadcasting services provides absolutely no incentive for the Satellite Companies to locate more

infrastructare in Ohio nor does it protect existing business activity in the state. Satellite

broadcasting services are taxable and cable broadcasting services are not taxable based on their

mode of operation. The tax classifications are predicated on how satellite and cable broadcasting

services are performed, not in which state they are performed. Regardless of whether the

Satellite Companies locate more infrastructure and economic activity in Ohio, "satellite

broadcasting services" are still taxable. Conversely, regardless of whether Cable Companies

locate more of their head-ends in other states rather than Ohio, cable broadcasting services are

still excluded from taxation.

As the Tenth District cogently held, "[t]he tax distitzction between satellite and cable

providers does tzot discriminate against interstate cornmerce as a whole, but places a burden

against one form of delivering pay television to consumers, and the burden would fall equally on

a satellite provider headquartered in Ohio, having all program content, satellite up1ink, account

services, and customers in-state," Levin at ¶25. The North Carolina Court of Appeals similarly

concluded in DIREC'TI! Inc. v. N.C., 632 S.E.2d at 550, that:

In the case saib judice, even if Plaintiffs were to establish au in-state distributionsystem for the delivery of satellite prograamning, they would still be subjected to the

tax imposed under section 105-164.4(a)(6) because of the means that they use todeliver its services. Siniilarly, cable companies that have out-of-state distributionsystems for the delivery of cable programuzing are still exempt from the tax imposed

under section 105-164.4(a)(6) because of how they deliver their services. Thus, the

8 A string cite of additional authority at Sat. Br. at 24, fn. 4, is similarly distinguishable.

36

geographical location of the business, whether in-state or out-of-state, hasnothing to do with whether the business is subjected to the tax imposed undersection 105-I64.4(a)(6). Unlike the wineries in Grcanholm, whether a company issubjected to the tax under section 105-164.4(a)(6) depends only upon how companiesdeliver television programming services to its subscribers, and not whether thedelivery of the progratmning services occurs inside or outside the state of NorthCarolina. (Emphasis added.)

Satellite Companies would have to clunge their technical mode of operation, not their location,

and become what they are not - Cable Companies - to achieve their desired end of not collecting

any sales taxes on their satellite broadcastnig services.9 But the dormant Commerce Clause does

not protect one mode of operation from another as to respective tax consequences as more fully

discussed in the next section.10

D. As is the case with Ohio's sales and use tax treatment of satellite broadcasting servicesand cable broadcasting services, differential tax treatment of two categories ofbusinesses, resulting from differences bctween their modes of operation, regardless ofgeographic location, is not unlawfully discriminatory under the dormant CommerceClause.

Mode of operation is, in fact, a key facet of Ohio's taxation of satellite broadcasting

services that demonstrates why it does not discriminate against interstate commerce. 'I'he

Satellite Companies simply cannot overcome the obvious fact that, unlike the case law upon

which they rely, the adverse impact of Ohio's tax differentiation between the Satellite

Companies and the Cable Cornpanies is due solely to their unique and different modes of

operation, and not to a reqrurement that either business must locate operations in Ohio in order to

9 Even the trial court struggled in fmdiiig discrimination in the face of the statute's lack ofincentive for the Satellite Companies to locate more infrastructure in Ohio. Without offering miexplanation as to how it- world change tax consequences, the courl: could only speculate that thestatute might force the business to use a screw or wire in its satellite dishes not otherwisenecessary. Sat. Appx. 163-164.10 The Satellite Companies seek to add more credibility to their argument by suggesting that thisargument is new, and tlierefore other decisions ivling against them offer no precedent withrespect to it. Sat. Br. at 44. But as noted above, regardless of how the Satellite Conipaniespresented their arguments in other cases, from the plain text of the decisions themselves, theissue was clearly considered by the courts, addressed and rejected.

37

receive favorable tax treatment. The U.S. Supreme Court has clearly stated that the dormant

Commeree Clause protects the interstate market for a particular product, but it does not protect

"the particular structure or methods of operation in a retail market" Exxon, 437 U.S. at 127.

Thus, "the Commerce Clause is not violated when the differential tax treatment of two categories

of companies `results solely from differences between the nature of their businesses, not from the

location of their activities."' Kraft Gen. Foods, 505 U.S. at 78.

The Exxon case involved a Maryland law that prohibited oil producers or refiners from

operating retail service stations within the state. The law was designed to address inequities in

the distribution and pricing of gasoline between the big oil producers running gas stations and

inclependent retailers arising during the 1970's oil crisis. Since there were no oil refineries in

Maryland that would cause the big oil producers to be located in that state, the oil producers

argued that the law had the practical effect of favoring in-state rctailes while burdening

interstate retailers that also refined aiid produced gasoline. Nevertheless, the Supreme Court

found the law to be constitutional under the Connnerce Clause because independent dealers were

both local and interstate and, therefore, the "burden" and "benefit" was due solely to differences

in how the two interstate businesses operated, not to their locations. Exxon, 437 U.S. at 125-128.

In Amerada Hess, the Supreme Court reviewed a New Jerscy franchise tax provision that

denied oil producers a state tax deduction for the federal "windfall profit tax" imposed on

producers of crude oil. The Com-t, relying on Exxon, found that the tax provision did not

discriminate against interstate commeree simply because independent dealers, who did not

produce oil and were therefore not adversely impacted by the state tax treatment, happened to be

more local. Noting that each business operated both in New Jersey and outside the state, the

Court concluded that the effect the tax measure `4nay have on these two categories of companies

3x

results solely from the dil7erences between the nature of tllcir businesses, not from the location

of their activities." Amerada Iless, 490 U.S. at 78. The same analysis is present in Brown &

Williamson Tobacco Corp. v. Pataki (C.A.2 2003), 320 F.3d 200, wherein the court formd that a

statute that favored local brick and mortar cigarette retailers over sales from direct shippers (of

which out-of-state businesses were a significant percentage) did not discriminate against

interstate commerce since it was based on mode of operation, not location, and merely burdened

one manner of making interstate sales, not interstate commerce as a whole. See also Levin at ¶16.

If applicable to the local independent dealers in Exxon and Amerada Hess, this principle is

all the more applicable to the two interstate businesses tinder consideration in the uistant case as

the Sixth Circuit, North Carolina Court of Appeals, the Eastern District of North Carolina and

the Tenth District unanimously concluded. It is undisputed that Satellite and Cable Companies

deliver their broadcasting services by significantly different technologies. "Before us are two

modes of interstate business." Levin at 1124. "In this case, however, the two `goods' are distinct,

consisting of two very different means of delivering broadcasts." Treesh, 487 F.3d at 48Q It is

this difference, and not the geographic location of the businesses, that drives whether or not a

particular service is taxable. Whether or not greater physical presence exists in one state versus

another or, more accurately, between the two businesses in all states, is again due to the

differences in mode of operation and not to whether or not one business is local and the other

business is interstate. As noted above, and contrary to the Satellite Companies' continued

assertion that the taxation of broadcasting services is tied to geography, i.e., "the gr•ound,"

satellite broadcasting services are taxable regardless of where the equipment and employees

necessary to run that equipment arc located and cable service is not taxable regardless of where it

locates its equipment and employees. N.C., 632 S.F,.2d at 550; Levin at¶25.

39

In their Second Proposition of Law, the Satellite Companies concede the basic premise of

Exxon and Amerada Iless (Sat. Br. at 34), but then suggest that there are exceptions that apply to

the instant case. For the following reasons, they are in error. As their first exception, the

Satellite Companies repeat their argument that, in their opinion, excluding a mode of operation

tied to the grommd is the same as discrimination based on location. As support they offer Arrnco,

Westinghouse and Granholm, along with Dayton Power & Light v. Lindley (1979), 58 Ohio St.2d

465, and Bacchus, 468 U.S. 263, as decisions narrowing the holdings of Exxon and Amerada

Iless. Sat. Br. at 40-41. But none of these cases involved tax differentiation driven by

differences in modes of operation. As discussed above, the first three concerned statutes that

provided different treatment based on the particular state in which one did business, not, as is the

case here, the technological means employed to carry on the business. Dayton Power & Light

involved a classic protective tariff where Ohio imposed a lower use tax rate on the purchase of

the variety of coal indigenous to Ohio than purchases of a foreign variety in order to protect the

local product. As noted above, the same is true of Bacchus where the state of Hawaii was

protecting a local shrub used in producing alcoholic beverages by exempting such beverages

froni an excise tax imposed on all other alcoholic beverages. Bacchus, 468 U.S. at 265, 269.

In contrast, in the present ease, there is nothing inherently endemic to Ohio regarding cable

lines. 'The Cable Companies use the same type of cable lines and technology to deliver their

progiamming signals to their customers throughout the coimtry. They are clearly not the local

product at issue in these two cases. See also NC., 632 S.E.2d at 548 ("uniike the products

exempted from Hawaii's liquor tax in Bacchus, neither satellite companies nor cable companies

are properly characterized as an in-state or out-of-state economic interest.")

40

The second exception advanced by the Satellite Companies is that Exxon and Amerada

Hess should be applied only to companies who conduct entirely different fonns of business. Sat.

Br. at 34, 40. They do not cite any specific authority for this proposition but, regardless, their

argument that the Cable Companies and the Satellite Companies are substantially the same

business is neither supported by the record nor the Tenth District findings. To conclude

otherwise would be to conclude that businesses as diverse as airlines, trucking, busing and

railroads are the same business because all are engaged in transportation, or that telephone

companies and internet service providers are the same business because both are engaged in

communication, or that, contrary to the holdings of Exxon and Amerada Hess, independent

service stations and petroleuni companies are the sanie business because both sell gasoline. "I'he

trial court's reversed holding notwithstanding, businesses that use different operational structures

and technologies, provide different levels of public service and are regulated under separate

schemes are not the same business even though, as was the case in Exxon and Amerada Hess, the

two businesses are competitors. Levin at ^24; 7'reesh, 487 F.3d at 480.

1'he tliird exception argued by the Satellite Companies is for cases involving intentioual

discrimination. They even go so far as to request a remand for trial on this issue. Sat. Br. at 39-

40. But the application of this argument to this case is again improper. For one, the issue of

intentional discrimination is untimely raised by the Appellants. The trial court deniecl their

motion for summary judgnient in which they raised this basis as a ground for sunimary

judgment. Sat. Appx. 167, 185-195. They did not cross-appeal on this denial. 1'he Tax

Cominissioner did appeal the denial of his own motion for sunimary judginent on this issue via

his Second and Fourth Assignments of Error. Levin at ^6. Despite this, the Satellite Companies

never argued the issue in their briefing before the appellate court nor requested a remand as

41

necessary refief should the Tenth District reverse the grant of summary judgment to them based

on "discrimination in practical effect." See merit briefing of the Satellite Companies below,

S.Supp 169-228. The Tenth District consequently granted full relief to the "lax Commissioner on

these Assignments. As a result of their abandonment of the issue before the court of appeals, it is

etitirely improper for them to ask the Court to adctress it now. State ex rel. Babcock v. Perkins

(1956), 165 Ohio St 185, paragraph three of syllabus; State v- Williams (1977), 51 Ohio St.2d

112, paragraph two of syllabus.

1-Iowever, even if thc Court were to entertain the issue, the Satellite Companies could not

possibly prevail and no remand is otherwise necessary on this point. They reference a footnote

in Amerada Hess, 490 U.S. at 78, fn. 10, as authority for the proposition that difPerentiation

involving different modes of operation cannot survive a dormant Commerce Clause challenge

where the differentiation is intentionally discriminatory. But what they miss in the reference is

the context of the footnote. As the trial court in this case properly observed, "[i]n the context of

the Commerce Clause, `discrimination' sitnply means differential treatment of in-state and out-

of-state economic interests that benefits the fortner and burdens the latter.... Consequently, a

`discriminatory purpose' wotild be one that seeks to benefit in-state economic interests and

burden out-of-state economic interests." Sat. Appx. 175 (citation omitted). Amerada Hess

involved a case where an otherwise local econoniic interest - the independent dealers - was

benefited and an out-of-state economic interest - the oil refiners - was burdened. It was

therefore correct for the Court to note that such a dynamic could have been a setting for having

to resolve the issue of intentional discrimination had that been an issue in the case. In contrast,

in this case, intentional discrimination would only become a germane discussion if the in-

state/out-of-state dynamic present in Arnerada Hess• were also present here. As noted above,

42

neither the Satellite Companies nor the Cable Companies represent either in-state or out-of-state

econotnic activity, and therefore the fundamentals for any case of discrimination, let alone

intentional discrimination, under the Comnleree Clause are absent. Without a reversal of the

Tenth District on this key point, the issue of intentional discrimination is moot.

The principles of Exxon and Ameradca Hess therefore govern this case as well. As the U.S.

Supreme Court has instructed, such differentiation between the particular structure or methods of

operation eniployed in a retail market does not violate the dormant Commerce Clause. The

dormant Commerce Clause prohibits discrimination against the interstate market for

broadcasting services, but does not prohibit different treatment of broadcasters who deliver their

programming by satellite as opposed to cable. See N,C., 632 S.E.2d at 549-550 ("Based on the

United States Supreme Court's reasoning in Amerada Hess and Exxon Corp., we conclude that

the dormant Commerce Clause prohibits discritnination against the interstate marketing for

multichannel video programming, but that it does not necessarily prohibit discrimination against

progranimers in that market who deliver programrning by satellite as opposed to cable.");

Treesh, 487 F.3d at 481, also relying on Amerada Hess and Exxon ("[tjhe dormant Commerce

Clause is intended to protect interstate commeree, and not particular firms engaged in interstate

commerce, or the modes of operation by those frms."); Tols•on, 498 P'.Supp.2d at 800

("[p)laintiffs have twice lost in suits applying the exact same theory, in UIRECTV Inc. v. Treesh

and Dir•ecTV, Inc. v. State. The court finds these opinions correct in their analysis of dor-mant

Commerce C'laaase jurisprudence, and fiirther finds that the changes in the 2006 amendments do

not make this case substantially different from those in Kentucky and North Carolina state court.

Even if comity and standing do not impose insurmountable jurisdictional barriers to plaintiffs'

43

claims, the amended complaint reveals that, ultimately, the court would side with its brethren

that have already ruled against plaintiffs").

The weight of this overwhelmuig authority led the Tenth District to correctly find that:

the above precedent is persuasive when applied to the case before us, as well it shouldbe as the cases were decided on essentially identical pertinent facts... Supreme Court

precedent in Exxon and Arnerada Hess demonstrates that the dormant CommerceClause should not be conceived to protect particular technological or commercialmodels, but to protect interstate connnerce anct interstate access to the markets of agiven state. The plaintilT satellite coinpanies in the present case have notdemonstrated that Ohio's sales tax provisions discriminate against the interstatemarket for pay television, wliether delivered by cable or satellite.... Discrirninationbetween different forms of interstate commerce is not discrimination against

interstate commerce.

Levin at ^11123-27 (emphasis in original). The Satellite Companies attempt to criticize the Tenth

District in relying on the other decisions that have addressed the issue before the Court,

particularly Treesh, because the tax schemes were slightly diPferent. Sat. Br. at 42-44. But that

is a distinetion without a difference. The tax differentiation in all of the statutes in question was

based on the difference in mode of operation of the respective businesses. 1'his difference in

opcrational struchare remains unchanged from state to state, and it was a key component to the

analysis in each decision. Thus, the Tenth District's observatioti that these decisions were

"decided on essentiaily identical pertinent facts," id. at 25, is absolutely correct. Moreover,

given the U.S. Supreme Court's instruction that all dormant Commerce Clause cases are to be

decided based on a case by case approach, Boston Stock F,xch., 429 U.S. at 329, it is entirely

prudent to give great weight to these decisions over decisions affecting entirely different

statutory schemes, industiies and operational structures.

44

E. The tax differentiation of satellite broadcasting services and cable broadcastingservices is valid under the Commerce Clause as a "compensatory tax" because the taximposes upon the Satellite Companies a burden "similar to" or "in lieu oY' the taxburden already borne by the Cable Companies, who are subjected to locally leviedfranchise taxes to which the Satellite Companies are not.

Even if the Court disagrees with the Tenth District's reasons for rejecting the Satellite

Companies' discrimina.tion claim, the Court nevertheless should affirin the appeals court's

judgment utrder the compensatory tax doctrine. Under that doctrine, if a challenged state tax

statute, when viewed in isolation without consideration of other taxes imposed on the allegedly

favored "local" commerce, operates "in practical effect" to discriminate against interstate

commerce, the challenged tax will be properly sustained as "compensatory" or "complementary"

if it imposes a tax on interstate commerce that is "similar to" or "in lieu of' a tax already

imposed on intrastate commerce, Fulton, 516 U.S. at 331, fn.2 (citing Railtivay Express Agency,

Inc. v. Virginia (1959), 358 U.S. 434, 436; and Postal Telegraph Cable Co. v. Adatns (1895),

155 U.S. 688, 700).11

Those principles are applicable to the present case. In Ohio, as in most states, the Cable

Companies are subject to a long standing policy of local govermnents requiring them to pay a

fi-anchise tax designated as a"franchise fee." With the advent of satellite broadcasting services,

Congress prohibited local governments from imposing a similar "franclvse fee" on the Satellite

Companies and thereby be "subjected to the tangled regime of local taxation and franchise fees,

as they certainly could have been absent the special exemption granted to them by the

Telecommunications Act." Treesh, 487 I'.3d at 480-481. But Congress nevertheless permitted

states to tax satellite broadcasting services at the state level. Pub. L. 104-104, Title VI, §602(c),

" As the text of Fulton instructs, if the statute is held to be facially discriminatory, a morestringcnt standard is applied to the compensatoiy tax analysis, not applicable here. As notedabove, the Satellite Companies have conceded their facial discrimination challenge by notappealing the trial court's adverse ruling on the issue.

45

110 Stat. 144 (1996) (set forth as a note to 47 U.S.C.A. §152). Measured against the modest

requirement of constituting "similar" taxes to the Ohio sales tax, or ones "in lieu of' that tax, the

Ohio municipal "franchise fees" imposed on the Cable Companies' privilege of engaging in

cable broadcasthig services qualify as "compensatory taxes" relative to the sales and use tax on

satellite broadcasting services at issue here.

First, both the facts and a long and uniform body of case law establish that the kinds of

revenues generated by the Ohio municipal 17anchise fees are "taxes." As the trial court

recognized below, they have actually been characterized to the General Assembly as part of the

tax base. Sat. Appx. 179. In fact, the word "franchise" denotes "[t]he right conferred by the

government to engage in a specific business or to exercise corporate powers." Black's Law

Dictionary (7"' Ed. 1999) at 668. The authority for Ohio LFAs (local franchising authorities) to

impose "franchise fees" for the privilege of engaging in cable broadcasting services is provided

in R.C. 4939.05. As "franchise fees," the amounts paid by Cable Companies are deposited in the

general operating funds of the municipalities for the benefit of the public generally, rather than

exclusively earmarked for the maintenance and improveinent of cable-service rights-of-way for

the benefit of the cable service franchisees. See, e.g., Supp. 152 at I 16A.09, ¶1 ("revenue [for]

promoting, assisting and financinig publie, educational, governmental access programming."). In

fact, the record contains no evidence of the amounts of franchise fees that are actually used by

the LFAs to maintain or improve the cable service rights-of-way. Moreover, none of the

franchise agreements or niunicipal ordinances in the record contains any requirement that any

specific portion of the fees be used for such purposes.

Under these facts, the "franchise fees" are plainly "taxes" for purposes of dormant

Commerce Clause discrimination analysis. Indeed, the Fourth Circuit Court of Appeals and the

46

North Carolina Corut of Appeals expressly have so held. Tolson, 513 F.3d 119; N.C., 632 S.E.2d

543. As Tolson instnicts, charges levied on Cable Companies by LFAs are taxes, rather than

fees paid in return for value, because the cliarges were imposed by autlrorization of the state

General Assembly, were deposited within the general fiinds of the localities, and were spread

amongst a wide proportion of the population. The same dispositive facts are present here.

Second, Congress realized they were taxes when it preempted any local taxes and fees on

Satellite Companies. See 47 U.S.C.A. §152 note. Equally signi6cant, in the same act, Congress

recognized that taxes at the state level could be levied on Satellite Companies much as they were

levied at the local level on the Cable Companies - in essence a compensatory tax :

(c) Preservation of State Authority-- This section shall not be construed to preventtaxation of a provider of direct-to-home satellite service by a State or to prevent alocal taxing jurisdiction from receiving revenue derived frotn a tax or fee imposed

and collected by a state.

Pub. L. 104-104, Tittc VI, §602(c), 110 Stat. 144 (set forth as a note to 47 U.S.C.A. §152)."

The final criteria -- that the sales and use tax be "similar to" and/or "in lieu of' the local

franchise fee on Cable Companies -- is realized when one considers that a local franchise fee of

5% equates to a state tax rate of 5.5% when the broader base of tlie local tax is talcen into

account: a) Cable Companies are permitted to collect the franchise fee from subscribers but then

pay a franehise fee calculated on a base including that collected franchise fee; and b) the base

also includes revenue derived from advertising and other sources that are not iarcluded in

12 In fact, through this express Congressional language, a strong negative implication arises thatCongress intended that state-imposed taxation of "direct-to-home-satollite service" shall beinnnunized from Commerce Clause challenge. See, e.g., Gen. Motors Corp. v. Tracy (1997),519 U.S. 278, 305 fn.13 (noting that, under a similar negative implication set fortli in the NaturalGas Act of 1938, 15 U.S.C. §717(b), state regulation and taxation of retail natural gas sales wasimmunized from dorniant Commerce Clause challenge (citing to Panhandle-Indiana [Panhandle

li:astern Pipe Line Co.J v. Pubdic Serv. Commn. of Ind (1947), 332 U.S. 507 (1947)); Dir. of

Revenue of Missouri v. CoBank ACB (2001), 531 U.S. 316, 321-322. See also, the extensivediscussion in the Multi-State Tax Commission's amicus brief in support of our brief.

47

calculation of the sales tax. See Supp. 149-150 at 116A.03, ¶12. The local expense may even

exceed the state tax aniount when the additional expenses to the Cable Companies mandated as

part of the franchise - free chamrels for PEG access, free production facilities, equipment and

scivice, and free wiring and monthly services for public schools and public buildings are

factored in. See S.Supp. 80-81 at ¶43.

The tax is therefore consistent with the dormant Commerce Clause on this independent

basis as well.

The Tax Commissioner's Second Proposition of Law:

In Ohio, the use of arguments presented by lobbyists as evidence qf the intent behind

legislation is both improper and unreliable.

As tlieir final proposition of law, the Satellite Coinpanies ask the Court to address the

Tenth District's ruling that lobbyist statements subinitted by the Satellite Companies in support

of a claim of discriminatory intent under the Comnierce Clause "are of little value in resolving

the constitutional challenge" and therefore should not have been relied upon by the trial court.

Levin at ¶¶31-33. '1'heir argiunent for the Court's consideration of the issue is based on an

argutnent that intentional discrimination is still an open issue and should be remanded to the trial

court for trial on the merits. As the 1'ax Commissioner noted above, the ripeness of such a

consideration is dependent on a conclusion that 1) the Satellite Companies preserved the right of

remand during the appellate proceedings, and 2) they suceessfully overturn the Tenth District's

holding that there is no in-statelout-of-state dynamic in the instant case, a necessary predicate for

a claini of intentional discririiination.

Pven assuming they overcome these obstacles, however, the Satellite Companies do not

demonstrate eiTor in the Tenth District's ruling that sucli evidence is unreliable. They rely on a

Fourth Circuit decision, Chambers Med. Techs., Inc. v. Bryant (C.A.4 1995), 52 F. 3d 1252, 159

48

fn. 10, for the proposition that federal law, not Ohio law, governs on evidentiary questions

involving federal constitutional ehallenges. They then argue that, unlike Ohio's judicial disfavor

for consideration of sponsor and interest group statements as evidence of legislative intent, Glick

v. Sokol, 149 Ohio App.3d 344, 2002-Ohio-4731, ¶10, federal law allows the use of such

evidence to show legislative motivation. But, aside from the fact such decisions are, at best, only

persuasive authority in Ohio, State v. Burnett (2001), 93 Ohio St.3d 419, 424, neither Chambers

nor any of the otlier decisions cited by the Satellite Companies hold that the obvious slanted

hearsay content of lobbyist statements is probative of actual legislative intent. A review of these

cases reveals tliat, in most of the cases, the evidence considered was testimony from the

legislative body itself, not that of lobbyists. And in Brown & Williamson Tobacco, 320 F.3d

200, cited by the Satellite Companies in support of their proposition, the lobbyist statement was

actually stricken by the trial court as inadmissible hearsay.

In contrast, federal courts have held that the statements of private interest groups having an

econoniic interest in the legislation being considered by a committee are entitled to little, if any,

weight in interpreting congressional intent. T.B. Harms C'o. v. .IEMRecords, Inc. (D.N.J. 1987),

655 F.Supp. 1575, 1581. See also Internall. Dairy Foods Assn. v. Boggs (S.D. Ohio Apr. 2,

2009), Case Nos. 2:08-CV-628, 629, 2009 U.S. Dist. LEXIS 27074 at 36 ("[p]laintiffs argue that

Ohio's protectionist intent can be determined from the fact that Ohio daiiy producers were

behind the enactment of the Ohio rule, citing coniments from dairy fanners at a public hearing

that they were in support of the rule. But the fact that some Ohio producers testified in favor of

the Ohio rule does not render the rule protectionist when it is not protectionist in effect."). Even

a study cornmissioned by a governor has been found to have little probative value in ascertaining

intent. Fastern Ky. Resources v. Fiscal Ct. (C.A.6 1997), 127 F.3d 532, 542.

49

The same is true in the instant case. In fact, the trial judge, after reviewing the materials in

question, noted that they suggested so many possible motives for the legislation, that he could

not possibly grant sunimary judgment. Sat. Appx. 176-180. This open invitation to speculation

caused by such hearsay is exactly why the Tenth District correctly found that any weight given to

the documents was improper.

CONCLUSION

For all the reasons stated above, the Tax Conimissioner respectfully requests the Court to

affirm the decision of the Tenth District Iinding Ohio's sales and use taxation of satellite

broadcasting services, while excluding cable broadcasting services, to be non-discriminatory

under the dormant Commerce Clause of the United States Constitution and tliereby granting

summary judgment to the 1'ax Commissioner.

RICHARD CORDRAY (0038034)Attorney General of Ohio

^A*RENCE D. PRAT'I' (0021870)ALAN P. SCHWEPE (0012676)JULIE E. BRIGNER (0066367)DAMION M. CLIFFORD (0077777)BAR'1'ON A. HiJB13ARD (0023141)Assistant Attorneys GeneralTaxation Section30 East Broad Street, 25th FloorColumbus, Ohio 43215Tel: (614) 466-5967Fax: (614) 466-8226

Counsel for Defendant-Appellee Richard A.Levin, Tax Commissioner of Ohio

50

CERTIFICATE OF SERVICE

I hereby certify that a copy of the foregoing Merit Brief of Defendant-Appellee Richard A.

Levin, Tax Commissioner of Ohio, was served by regular U.S. Mail, postage prepaid, this 14rn

day of December, 2009 upon:

E. Joshua RosenkrantzJeremy N. K udonOrrick, Herrington & Suteliffe, LLP666 Fifth AvenueNew York, NY 10103

Peter A. RosatoCalfee, Halter & Griswold LLP1100 Fifth'I'hird Center21 East State StreetCohunbus, Ohio 43215

Pantelis MichalopoulosMark F. HorningSteptoe & Johnson LLP1330 Cotmecticut Ave., N.W.Washington, D.C. 20036

Counsel for Plahitiffs/Appellants/Cross-Appellees Direetv, Inc., et al.

I also sent courtesy copies to counsel of record for all known amici curiae on the 14`h day

of Deeember, 2009.

51

APPEN llIXTABLE OF CONTENTS

Appx. Page

Decision and Entry of the Franklin County Court of Common Pleas (January 14, 2008) ........... ...1

Decision and Entry of the Franklin County Court of Common Pleas (March 28, 2006) ................5

Order of the Franklin County Court of Common Pleas (December 19, 2006) .............................23

47 C.F.R. §76.56 ............................................................................................................................26

47 C. F. R. § 76. 66 ..... .................................... ............................ .................................... ............ ....... 32

47 C.F.R. §76.501 .......................................................................................................................... 41

47 U.S.C. §303 ..............................................................................................................................46

47 U.S.C. §335 .............................................................................................................................. 54

47 U.S.C. §338 ..............................................................................................................................57

47 U.S.C. §531 ..............................................................................................................................64

47 U.S.C. §§533-544 .....................................................................................................................68

Black's Law Dictionary (7u, Ed. 1999) ..........................................................................................88

Hartz Mt. Indtis., Inc. v. City ofNew Jersey (Tax Ct. N.J. 2004),22 N.J. Tax 84, 2004 N.J. Tax LEXIS 29 ............................................................................91

Internatl. DairyFoodsr3ssn. v. Boggs (S.D. Ohio Apr. 2, 2009),Case Nos. 2:08-CV-628, 629, 2009 U.S. Dist. LEXIS 27074 .............................................97

Pub. L. 104-104, Title Vi, §602, 110 Stat. 144 (1996) ................................................................112

`- 1 L., v ;D7581 - A25 t%La>,ut !r^ i.u uHlo

IN THE COURT OF COMMON P [{ ( 7 PP( 3^ ^$OHIOUNTY,FRANKLIN C

DiRECTV, Inc. and EchoStar 8atoiiite

Piaintiffs, ))

3CVHd8 071350O ^ . ^.V. ) CASE NJUDGE HOGAN ^ ^ 3iS^

Richard Levin,Tax Commissioner of Ohio,

Defendant.

d)DECISION AND ENTRY GRANTING DEFENDANT'S NEOTION FOR A STA'Yr'

FILED 12-3-2007

Defendant's 12-3-2007 Motion to Stay is GRANTED. This Court hereby STAYS,

until the completion of all appeals pertaining to the Final Judgment Entry previously

issued in this case, execution af that Final Judgment and any proceedings to enforce

that Final Judgment As a condition of this stay, it is ORDERED that, the 'fax

Commissioner, and any successor Tax Commissioner, will work to insure that, as

indicated in his memoranda supporUng his motion, "The entitiement of Plaintifts'

customers to refunds of the tax money coilected will be [promptly] decided after all

appeals in the instant iifigation are complete. No remedy [wifi bej lost to Ptaintiffs" or

Plaintdfs' customers as a resuft of Plaintiffs and Plaintiffs' customers being delayed by

this stay with regard to obtaining tax refunds (Reply at page 4).

It would appear to this Court that to ensure the veracity of his representation, the

Tax Commissioner wii4 need to st-ay the consideration of any relevant, timely refund

requests until °alI appeals in the instant titigation are compiete". Othenuise, Plaintiffs'

customers could lose their remedies if determinations by the Commissioner, or the

a

Appx.

I)7581 - A26

Department of Taxation, that refunds are not appropriate (based on the Commissionet's

and Department's current position, during the pendency of appeals, that the tax is not

unconstitutional), could become final determinations long before the appellate process

in this case is exhausted, thereby depriving Ptainfdfs' customers of their nght to a refund

unless they engage in some long, drawn out, excessively burdensome', process of

appeals reiabng to each of their individual refund requests.

Civil Rule 62(B) and (C) have been determined by the Ohio Supreme Court to

provide a mandatory stay of judgment when requested by the state or an administrative

agency of the state. Hence, the issue here is whether such a stay would violate federal

law when it stays enforcement of an injunction prohibiting the state from engaging in

certain conduct when the court Issuing that injunction has issued a final judgment entry

finding that the prohibited conduct violates the United States Const"on.

This Court is but a small part of the entire government. This Court's

determtnation as to the constitutionality of the Ohio sales and use taxes as applied to

direct broadcast satellite tetevision is but the first detennination of the judicial branch of

government That determination wdl most til<ety not become the final determination of

the judicial branch unless d is ulhmatety afflrmed by the United States Supreme Court

after having been reviewed first by three judges in the Court of Appeats, seven justices

in the Ohio Supreme Court, and nine justices in United States Supreme Court. Thus,

this Court's Final Judgment Entry is s6ll a long way from being a final determination of

the judicial branch of govemment. By way of contrast, the entire Ohio legislative branch

' Such a process involving thousands of individual appeals would tx excessivelyburdensome to the government, the courts, and the individuals, especially in light of therelatively small amount of each individual refund request.

Appx.2

D7581 - A27

has apparently reached a different final conclusion than this Court about the

constitutionality of the sales and use taxes on direct broadcast satellite television as

indicated by the fact that a majorrty of the General Assembly enacted those taxes into

law

This Court is also aware that certain federal courts have Issued decisions that

are edher inconsistent, or arguably inconsistent, with the detemtination of this Court.

That increases the uncertainty as to what the judicial branch will ultimately decide.

If this Court enjoins the state from collecting the taxes, and the appellate courts

ulhmately detennine that this Court was mistaken about the unconstitutiona6ty of the

sales and use taxes, then the state may stand to lose as much as $100 million in taxes

that it was not allowed to coilect. The harm will be irreparable since it wouid not be

practically feasible for the state to coiiect those taxes long after the sales had occurred.

By contrast, if this Court stays the injunction against collection of the taxes until all

appeals have been completed, then, if the sales and use taxes are finally detemtined to

be unconstitutional, the state has provided a reasonable statutory procedure by which

taxpayers can obtain refunds. No evidence has been submitted to this Court

suggesting that the State of Ohio will not pay refunds in accordance with that procedure

Accordingly, there is no reason to require the state to tie up as much as $100 million of

sales and use taxes proceeds in an escrow account as Plaintiffs suggest. The better

strategy is to leave the state free to utilize its own preferred methods to prepare for the

potentiaJdy of owing the refunds at issue.

This Court finds that the possibility of irreparable harm to those who are or would

be involved in the direct broadcast satellRe television industry (if this Court is right about

Appx.3

D7581 - A28

the unconstitutionality of the sales and use taxes at issue and this Court stays the

injunction) is oounterbaianced by the possibihty of irreparable harm to the State of Ohio

(if this Court is wrong about the unconstdutionaFity of the sales and use taxes at issue,

and this Court does not stay the injunction). Accordingly, given that similarly significant

irreparable hann coutd resutt regardless of whether this Coust does or does not issue a

stay, this Court concludes that, out of appropriate respect for the legistafive branch of

govemment, and out of realization that this Court's Final Judgment Entry is not a final

determination of the judicial branch of govemmant as to the unconstrtutionality of the

sales and use taxes at issue, the best attemative for this Court is to impose a stay untit

all appeals have been completed

Copies to:

Betty Jo ChnstianMark F HomingPantelis MichatopoutosLincoin L. t3aviesJames F. tangPeterA. RosatoCounsel for Plainfiff(s)

John K McManusChristine T MesirowCheryt Q PokomySenior Deputy Attomey General and Deputy Attomey GeneralCounsel for Defendant(s)

Appx. 4

IN THE COURT OF COMMON

Direc'fiV, Inc., et ai.,

Plaintiff(s),

-vs-

`^,^{ ^; ry ;3^ta:^^1^<,^A^IF^t.IN COUNTY, OHIO

t}a^,n^^^ ^895GigU4CR'^ OF COUR

Case No. 03CVH06-7135 (Hogan, J.)

William W. Wilkins, Tax Commissioner of Ohio -, o

Defendant(s). ^i

DECISION AND ENTRY PARiIALLY GRANTING PLAINTlFfS' MOTION^R' rTJGUIDANCE ON SUMMARY JUDGMENT EVIDENTIARY STANDARD.,

FILED 1:1-16-20L15 ° -PND -A

DEGISiON AND ENTRY PARTIALLY GRANTfNG DEFENDANT'S MOTION R--'

PART(AL RECONSIDERAT[ON OR CLARfF1CATIQN FILED 11-1fi-2005

Both 11-16-2005 motions are PARTIALLY GRANTED.

On 10-21-2005, this Court issued a Decision and Entry that partially granted

Plaintiffs' summary judgment motion and partially granted Defendant's summary

judgment motion. The parties now seek reconsideration andtor clarification of certain

parts of that Decision and Entry.

Defendant initially asks this Court "to reconsider and reverse that part of the

Decision that prematurely holds that the tax discriminates". That would be somewhat

difficult given that there is no such holding in the decision. To the extent that the

decision may have mislead the parties, this Court apologizes.

Defendant paraphrases the language of the decision, so as to make the decision

appear to say something that this Court intentionally avoided saying. For example, on

Page 3 on his motion, Defendant paraphrases the Court as saying,

... at Page 15, the Court finds that "[s]ummary judgment must begranted to Plaintiffs" because "the differential tax treatment burdens

Appx. 5

out-of-state economic interest and favors in-st^^ ^rrq^riF

interest". 7 5 ta

Defendant's insertion of the word "because" changes the meaning of what this Court

said. It creates the impression that the Court had granted judgment on a more ultimate

issue than whether "the differential tax treatment burdens out-of-state economic interest

and favors in-state economic interest". But, if one reads what the Court actually said,

the Court did not issue summary judgment on any more ultimate issue such as whether

there was discrimination.

Since discrimination is defined in the Commerce Clause context asdifferential treatment of in-state and out-of-state economic interestsby favoring the former and burdening the latter, the issues arewhether, in practical effect, the differential tax treatment of satelliteand cable providers (1) favors in-state economic interest, and (2)burdens out-of-state economic interest.

Summary judgment must be granted to Plaintiffs on both issues.Reasonable minds can reach but one conclusion that thedifferential tax treatment burdens out-of-state economic interestsand favors in-state economic interests.

This Court intentionally avoided saying that it was granting summary judgment on the

issue of whether there was discrimination.

Pursuant to Civil Rule 56(D), this Court has the power, and the obligation if

practicable, to determine if there are issues upon which it can render summary

judgment when it cannot issue summary judgment upon the whole case. This Court

rendered summary judgment upon the issue of whether the often cited "definition" of

discrimination had been satisfied. The reason why satisfying that definition does not

amount to a determination that there was discrimination is given in the partially quoted

sentence on page 19 of the decision. Inexplicably, Defendant doesn't quote, and

apparently ignores, the second half of the sentence and the sentence that follows.

2

Appx. 6

Even though this Court has granted summary judgment on theissue of whether the differential tax treatment of s5t@l^i^f^eoperators satisfies, in practical operation, the de inition ofdiscrimination, there remains another issue that must be decided

before it can be found that the statute discriminates against thesatellite providers. Differential treatment of in-state and out-of-stateeconomic interests is "discrimination" for purposes of theCommerce Clause only if the differently treated entities are"similarly situated".

(Emphasis added). This Court was acting within an anomalous situation. The

anomalous nature of the law on the issue of discrimination as stated by the binding

authorities which this Court must follow was, and is, that there is an often-repeated

"definition" of discrimination, and then, beyond that, a few cases have added, as an

additional criterion for determining whether discrimination exists, that differentially

treated businesses or lndustries must be "similarly situated" before the differential

treatment can be found to be discrimination. This Court determined that summary

judgment could be granted on the issue of whether the often-cited definition was

satisfied, but could not grant summary judgment upon the issue of whether the

additional criterion had been satisfied. Specifically, this Court determined that there

remains a genuine issue of material fact as to whether cable operators and direct

broadcast satellite operators are "similarly situated". It was, and remains the position of

this Court, that there can be no finding of "discrimination" unless there is a finding that

the cable industry and the direct broadcast satellite industry are "similarly situated".

This Court apologizes that it was not more explicit with regard to the fact that it was

merely applying the law in accordance with the anomalous way in which the binding

authorities had stated the law.

3

Appx. 7

We now turn to the question of burden of proof. fnitiafly, this Court believed it

8889SNocwould have to resolve an implicit contradiction in the case law regarding who will have

the burden of proof at trial.

However, while preparing the current decision, this Court noticed something in

General Motors Corp v. Tracy (1997), 519 U.S. 278, that has altered this Court's

analysis of the issue of whether the satellite broadcast and cable industries are

"similarly situated".

In the 10-21-2005 decision, this Court relied heavily upon the following statement

in General Motors:

We have consistently recognized the legitimate state pursuit ofsuch interests as compatible with the Commerce Clause, whichwas "'never intended to cut the States off from legislating on allsubjects relating to the health, life, and safety of their citizens,though the legislation might indirectly affect the commerce of thecountry. Huron Portland Cement Co. v. Detroit, 362 U.S. 440, 443-444, 4 L. Ed. 2d 852, 80 S. Ct. 813 (1960) (quoting Sherlock v.

Ailing, 93 U.S. 99, 103, 23 L. Ed. 819 (1876)). Just so may healthand safety considerations be weighed in the process of decidingthe threshold question whether the conditions entailing applicationof the dormant Commerce Clause are present.

This Court took this passage as indicating that it is generally appropriate to consider

health and safety (and, based on Maine v. Taylor, (1986), 477 U.S. 131, any other

"legitimate local concern") when determining whether two competing categories of

businesses are "similarly situated". However, that now appears to be an overly broad

reading of the passage. Prior to that passage, the General Motors court had narrowed

the issue it was considering from whether the relevant businesses were "similarly

situated" to the question of which market should be accorded "controlling significance"

when determining whether the businesses are similarly situated: a market in which the

4

Appx. 8

quotedbusinesses compete, or a market in which they do not compe^e^ 8Th^u^,^h^e2

passage does not imply that the Supreme Court would have endorsed the practice,

suggested in the 10/21/2005 decision, of (1) weighing the local benefit against the harm

to interstate commerce and considering the availability of less burdensome aitematives

in order to determine whether the differential treatment is justified, and then, (2)

concluding that the businesses are or are not "similarly situated" depending upon

whether differential treatment is or is not justified.

The Genera! Motors court initiated its discussion on whether the two categories

of businesses at issue in that case (regulated sellers of natural gas and unregulated

sellers of natural gas) were "similarly situated" by discussing the significance of whether

they compete with one another.

Conceptually, of course, any notion of discrimination assumes acomparison of substantially similar entities. Although this centralassumption has more often than not itself remained dormant in thisCourt's opinions on state discrimination subject to review under thedormant Commerce Clause, when the allegedly competing entitiesprovide different products, as here, there is a threshold questionwhether the companies are indeed similarly situated forconstitutional purposes. This is so for the simple reason that thedifference in products may mean that the different entities servedifferent markets, and would continue to do so even if thesupposedly discriminatory burden were removed. If in fact thatshould be the case, eliminating the tax or other regulatorydifferential would not serve the dormant Commerce Clause'sfundamental objective of preserving a national market forcompetition undisturbed by preferentiat advantages conferred by aState upon its residents or resident competitors.

Thus, in the absence of actual or prospective competition betweenthe supposedly favored and disfavored entities in a single marketthere can be no local preference, whether by express discriminationagainst interstate commerce or undue burden upon it, to which thedormant Commerce Clause may apply.

5

Appx. 9

(Emphasis added). Since the purpose of the commerce CWW$Xserve a

national market for competition undisturbed by preferential advantages" favoring in-state

economic Interests and disfavoring out-of state economic interests, any such

preferential treatment as between those who compete In the same Interstate market

necessarily works to defeat the purpose of the commerce clause. Accordingly, if the

analysis were limited to considering only the purpose of the Commerce Clause,

businesses would be "simi{arly situated" if they compete in any market. But that is not

the position the court adopted.

Alternatively, the General Motors court could have said (1) businesses are not

°similarly situated" if there is at least one market in which one participates and the other

does not, or (2) businesses are "similarly situated" if, after weighing all legitimate

statutory benefits against the harm to interstate commerce, differential treatment is not

justified. The court did not adopt either of these alternatives.

The court pointed out that the businesses at issue in that case, compete in some

markets, but not in others. The court stated that regulated and unregulated suppliers of

natural gas, at least prospectively compete In the market involving sale of natural gas to

large and mid-size, non-residential purchasers who can purchase natural gas in large

quantities and who do not need the protections associated with the regulated market.

The court also pointed out that non-regulated suppliers did not compete with the

regulated suppliers, either actualiy or prospectively, in the reguiated market for

residential purchasers. Then the court narrowed the issue before it as follows:

In sum, the [regulated local] LDCs' bundled product reflects thedemand of a market neither susceptible to competition by the [non-

6

Appx. 10

regulated] interstate sellers nor likely to be serve exce t b theregulated natural monopolies that have histor^^^ 9314itsneeds, So far as this market is concerned, competition would notbe served by eliminating any tax differential as between sellers, andthe dormant Commerce Clause has no job to do. There is,however, a further market where the respective sellers of thebundled and unbundled products apparently do compete and maycompete further. Thus, the question raised by this case is whetherthe opportunities for competition between marketers and LDC's inthe noncaptive market requires treating marketers and utilities asalike for dormant Commerce Clause purposes. Shoutd we accondcontrolling significance to the noncaptive market in which theycompete, or to the noncompetitive, captive market in which thelocal utilities alone operate?

(Emphasis added). That the court asked this question shows that the court intended

that the issue of whether two businesses are "similarly situated" for Commerce Clause

purposes should be determined by considering whether the two businesses compete,

and that competing businesses can be found to be not "similarly situated" only in the

case where (1) at least one of them participated in at least one market in which the

other did not compete and (2), that the "controliing significance" should be accorded to

that market in which they do not compete.

It was only after this passage In which the court had narrowed the issue that the

court then said,

[H]ealth and safety considerations [may] be weighed in the processof deciding the threshold question whether the conditions entailingapplication of the dormant Commerce Clause are present.

It is clear from this statement that the court intended that such legitimate state or local

concerns could be weighed when determining whether "controlling significance" would

be accorded to the markets in which the businesses at issue compete, or to the markets

in which they do not compete. The fact that the court formulated the determinative

issue as being which market should be accorded "controlling significance" shows that

7

Appx. 11

the court did not take the view that local benefits should be wei hed a ainst the harm toi":^8s^^^iosinterstate commerce in order to directly determine whether the businesses are "similarly

situated" based upon whether differential treatment is justified.

Accordingly, this Court finds that General Motors suggests the following four step

analysis for purposes of determining whether two types of businesses are "similariy

situated": (1) Do the two types of businesses actually or prospectively compete with

one another in any market? If not, they are not similarly situated. (2) If they do

compete in some market, does either also participate in some market(s) in which they

do not actually or prospectively compete? If not, then, since they do compete in some

market, they are "similarly situated". (3) If they do compete in some markets, but not in

others in which at least one of them participates, then, as between the markets in which

they do compete and the markets in which they do not compete, which market(s) should

be accorded "controlling significance" for purposes of determining whether the two

industries are "similarly situated"? General Motors indicates that a Court may consider

health and safety when making this determination. (4) If the two kinds of businesses

actually or prospectively compete in the market(s) that has been accorded "controlling

significance", then they are "similarly situated". If they do not actually or prospectively

compete in those market, then they are not "similarly situated".

Generat Motors does not give a lot of guidance as to how a court should proceed

in deciding which market should be accorded "controlling significance". Nor has this

Court's research uncovered any discussion of the issue. Accordingly, here are some

guidelines as to how this Court believes the determination should be made. Since

differential treatment favoring local economic interests over competing out-of-state

8

Appx. 12

economic interests harms interstate commerce, "controlling significance" should8B895Has

generally be accorded to the market in which the businesses compete unless there is

some overriding reason for doing otherwise.' To determine whether there is such an

overriding reason, a court may consider health, safety, and other legitimate local, state,

and interstate interests (except for peculiarly state or local economic interests). In

determining whether such interests provide an overriding reason for according

controlling significance to the markets in which the businesses do not compete, a court

should consider all factors that are relevant to whether such interests provide an

overriding reason. Accordingly, the court should weigh the benefits to be gained

against the harm to interstate commerce and determine whether the relevant interest

could be protected without according controlling significance to the market in which the

businesses do not compete. A court should also consider the extent to which the

relevant businesses actually or prospectively participate in particular markets in which

they compete or do not compete: The fact that two kinds of businesses both do the vast

majority of their business in markets in which they compete with each other should

weigh very heavily in favor of finding that the markets in which they compete should be

accorded "controlling significance". Only In the rarest of circumstances, if ever, should a

market in which the businesses do not prospectively or actually compete be given

' Generally, considerable significance must be given to the amount of participation In the markets in whichthere is or is not competition. If It were otherwise, the issue of whether the differential treatment wasjustified would almost always have to be resolved while the plaintiff still had the burden of proof. But thefact that the Supreme Court and other courts have repeatedly said that, once discrimination has beenproven, the burden shifts to the state or local govemment to prove that the discrimination was justifled,implies that those courts intend that, generally, the issue of whether the differential treatment is justifiedwould still be an open question after discrimination has been proven.

Atso, it would seem unreasonable that a huge difference in Plaintiffs burden should depend uponwhether one of the businesses had no participation in a market or only very slight participation in themarket.

9

Appx. 13

"controlling significance" when prospective or actual participation in that market is only a

minor aspect of the business that participates in that marketa. "AP4, Q'dbntrolling

significance" should not be accorded to a market that is not relevant to the legitimate

legislative purposes of the statute at issue.

Other cases in which competing businesses have been found to be not similarly

situated fit within this four step method of analyzing the issue. For example, in

Lenscrafters v. Robinson (6`h Cir. 2005), 403 F.3d 798, the Court considered whether

optical stores that wished to lease space to optometrists were "similarly situated" with

optometrists who sell eyewear. There was no dispute that the two compete in the

eyewear market. However, only the optometrists participated in the market for the

services that, by law, can only be provided by licensed optometrists. Thus, pursuant to

General Motors, the issue in Lenscrafters became whether "controlling significance"

should be accorded to the eyewear market or the optometric services market. The

Lenscrafters Court was permitted to weigh health and safety (General Motors) and other

legitimate state and local interests (Maine v. Taylor) against the harm to interstate

commerce in order to decide which market should be "accorded significance". The

court determined that retail optical stores and licensed optometrists are not "similarly

situated" because,

Unlike retail optical stores, licensed optometrists are healthcareproviders and, as such, have unique responsibilities and obligationsto their patients that are not shared by optometric stores.

In other words, optical retafi stores do not participato in the heatthcare market. Given

the importance of healthcare, that market should be accorded "controlling significance"

when determining whether the licensed optometrists and retail optical stores are

10

Appx. 14

"similarly situated". Note that the market given controlling significance would be a

significant portion of the business of licensed optometrists. T^^R&hfiQhfio ciearly

relevant to the rationale of the legislation at issue. Since optical retail outlets and

licensed optometrists do not compete in the market which has been accorded

controlling significance, they are not "similarly situated".

In Ford Motor Company v. Texas DOT (5"' Cir. 2001), 264 F.3d 493, and Exxon

Corp. v. Gov. of Maryland (1978), 437 U.S. 117, the courts in both cases appear to

have assumed that companies who participate in both the wholesale and retail markets

for a product are not "similarly situated" with companies that participate only in the retail

market even though the two kinds of companies actually or prospectively compete in the

retail market. That assumption is consistent with the method of analysis identified

above for determining whether two types of businesses are similarly situated. Since

wholesale markets tend to have fewer participants and since wholesale markets

determine the conditions under which the retail markets receive their supply,

participants in the wholesale market for a product generally have a greater opportunity

to use monopolistic practices to prevent vigorous competition in the retail market for that

product. Accordingly, it is reasonable to accord "controlling significance" to the

wholesale market when determining whether the vertically integrated businesses are

"similarly situated" with the purely retail businesses. It is also noteworthy that the

wholesale market is generally a significant portion of the vertically integrated

businesses, and is also relevant to the rationale of the legislation at issue. Since that

market should be accorded "controlling significance" and is a market in which purely

11

Appx. 15

businesses and vertically integrated businesses do not compete, it follows that those

two kinds of businesses are generally not "similarly situated" . P 8 8 9 5 H 0 9

For the reasons stated, this Court hereby adopts the four-step procedure

identified above for the purpose of determining whether the cable and satellite

broadcast industries are "similarly situated" for commerce clause purposes.

Summary Judgment is hereby granted to Plaintiffs on the issue of whether there

is a market in which the cable and satellite broadcast industries compete. It is

undisputed that they are competitors in the market for multi-channel television

broadcast services.

Summary judgment is not granted to either party with regard to the second, third,

and fourth issues posed by the method this Court has adopted today. Neither party

approached the issue of whether the cable and satellite industry are "similarly situated"

from the perspective of the test this Court has adopted. Accordingly, it would be

premature to grant summary judgment on those issues that were not the focus of the

briefs submitted by the parties.

In accordance with the many cases which have held that plaintiffs have the

burden of proving discrimination, this Court finds that Plaintiffs have the burden of proof

on the issue of whether the cable and satellite broadcast industries are "similarly

situated". Since Plaintiffs can prove discrimination without proving that the differential

tax treatment of cable and satellite broadcast industries was unjustified, assigning the

burden of proof to Plaintiffs on whethor the industries are "similarly situated" does not

foreclose the possibility that the burden of proof will shift to the state to prove that

discrimination was justified by a legitimate local non-economic interest, and that there

12

Appx. 16

are no adequate non-discriminatory means for securing the local benefit. For example,

the Plaintiffs might satisfy their burden of proving that the two i^^7stfi^s^^ ^"smi(arly

situated" (1) by proving that there are no markets in which either industry participates

while the other does not, or (2) by showing that the markets in which they do not

compete are not a sufficiently significant portion of either industry's business. In either

case, the question of whether the, discrimination could be justified would still be an

unresolved issue with regard to which the state would have the burden of proof.

Defendant argues that the Court must not find the statute unconstitutional unless

Plaintiff proves it to be so beyond a reasonable doubt. Defendant cites Ohio case law

applying Ohio standards for determining constitutionality. But this case involves a

question of constitutionality under the U.S. Constitution. The United States Supreme

Court has determined that "[when] discrimination agairist commerce . . . is

demonstrated, the burden falls on the State to justify it both in terms of the local benefits

flowing from the statute and the unavailability of nondiscriminatory alternatives

adequate to preserve the local interests at stake." Hughes v. Oklahoma (1979), 441

U.S. 322, 336. The State's attempt to justify the discrimination is subject to the "strictest

scrutiny". Id. The U.S. Supreme Court has held that "the standards for such

justification are high." New Energy Company of Indiana v. Limbach (1988), 486 U.S.

269, 278. This Court must follow these binding United States Supreme Court

precedents.

Defendant argues that the legislative rationale behind a statute is not a relevant

factor in determining whether the statute discriminates in practical effect. While the

legislative purpose is generally irrelevant to whether a statute, in its practical operation,

13

Appx. 17

has a differential effect, it does not necessarily follow that tk^t "Ihvg [ationale is

irrelevant to determining whether two kinds of businesses are "similarly situated".

When the two kinds of businesses compete in some markets and not in others, the

court must decide which markets should be accorded "controlling significance" and, in

doing so, may weigh state and local non-economic interests against the harm to

interstate commerce. The deference that is due to the General Assembly can affect the

degree of significance that a court would attribute to the various state or local interests.

Accordingly, this Court cannot agree with Defendant that the legislative rationale is

completely irrelevant to proving discrimination in practical effect.

Dayton Power and Light Co. v. Lindley (1970), 58 Ohio St.2d 465, the case cited

by Defendant, does not appear to suggest otherwise. The passages cited by Defendant

are concerned with whether a particular legislative purpose was relevant for purposes of

establishing the differential treatment element of discrimination. The case said nothing

about the relevance of legislative purposes in general or about the relevance of such

purposes to the "similarly situated" element of discrimination.

Defendant asks this Court "to clarify the scope of examination with respect to an

alleged purpose to discriminate against interstate commerce." This Court is not anxious

to prematurely define the limits of the discovery process before it knows what is at issue

with regard to any particular attempt at discovery.

Defendant cites Nichols v. Villareal (4th dist. 1996), 113 Ohio App.3d 343, and

State v. Toney (1909), 81 Ohio St. 130 for the proposition that the subjective thoughts

and the statements of individual legislators are irrelevant to determining the intent of the

14

Appx.l8

legislature.2 But those cases involved an attempt to rely upon the words of individual

legislators to support a particular interpretatlon of a statute rAa%95rW4r; upon the

words of the statute itself. It makes sense that when the interpretation of a statute is at

issue, a court should generally look to the words of the statute and other relevant legal

authorities to determine the proper interpretation. However, where, as here, the

constitutionality of a statute under the Commerce Clause may depend upon the force of

the statute's rationale, a court may look beyond the text of the statute to determine what

the legislative rationale actually was. In fact, the Defendant admits that this Court may

look beyond the text of the bill to the Legislative Service Commission reports and similar

materials and other objective circumstances of the legislation. Is it not clear that the

statements of Individual legislators are included in the relevant "similar materials" and

"objective circumstances" that throw light on the General Assembly's intentions?

Furthermore, while it is true that the Individual intentions of any single legislator cannot

necessarily be identified with the "intention" of the General Assembly "as a whole" when

enacting legislation, it is absurd to suggest that there is no relation between the

"legislative purpose", "the rationale of the legislation", or "the intention of the General

Assembly as a whole when enacting a bill" and the intentions and purposes of the

individual legislators whose votes were necessary for the enactment of the legislation.

It would seem to this Court that under the ordinary understanding of the words

"legislative purpose", "the rationale of the legislation", or "the intention of the General

Assernbiy when er,acting a bill", those and similar phrases refer (11) in the nar rowest

2 The Court would note that the cited cases are concerned with state law, not with defining what counts aslegislative purpose for purposes of evaluating a statute's constitutionality under the United StatesConstitution.

15

Appx. 19

sense to the purpose or purposes that were shared by those AG9eft%VtUbill, (2) in

a secondary sense, to the purpose or conglomeration of purposes that at least together,

were adequate to motivate enough legislators to vote for the bill so that it would be

enacted, and (3) in the broadest sense, to all of the purposes that served to motivate

legislators who voted for the bill. Accordingly, this Court cannot find that the statements

or intentions of individual legislators are irrelevant. Defendant has not pointed to, and

this Court is not aware of, any alternative technical definition of those phrases, that (1)

would apply when evaluating the constitutionality of a statute under the U.S.

Constitution, and (2) would make the intentions and statements of individual legislators

irrelevant to determining what the legislative rationale of some legislation was.

This does not mean, however, that legislators or their staff can necessarily be

compelled to provide discovery or testimony regarding such intentions or statements.

This Court will not tolerate any infringement upon the legislative privilege. Generally,

the Speech and Debate Privilege found in the Ohio Constitution bars any compelled

discovery from, or compelled testimony of, legislators. Any discovery from legislators

that is not subject to the privilege, if any, must be by the least burdensome means and

should be acquired from other sources whenever possible. See, City of Dublin v. State

(Franklin 2000) 138 Ohio App. 3d 753, and the underlying Decision and Entry by this

Court, City of Dublin v. State (5-5-2000), Franklin Common Pleas No. 99CVH08-7007,

unreported.

The parties ask this Court to determine whether the inquiries regarding the state

or local non-econornic interests used to justify the legislation should be limited to state

or local non-economic interests which the General Assembly was actually intending to

16

Appx.20

further, or whether any non-economic state or local interest can be considered. This88895N ► ++

Court believes that the answer to this question should depend upon the sort of

discrimination at issue.

Since the Supreme Court allows proof of discrimination by proving discriminatory

purpose, that court appears to have adopted the notion that the General Assembly's

intentions or purposes must conform to the Commerce Clause's prohibition of

discrimination against Interstate commerce. If the legislation enacted with a

discriminatory purpose could be justified post-hoc by appeal to local non-economic

interests which the General Assembly had not intended to further, then that would

defeat the policy of requiring that legislators intend to act within the scope of their

constitutionally limited authority. Therefore, unintended statutory benefits cannot be

relied upon to overcome a claim that legislation was enacted with a purpose of

discriminating against interstate commerce. Logically, this limitation should apply to

both stages of the anatysis in which state and local non-economic interests are relevant:

(1) the determination as to which market should be given "controlling significance", and

(2) the determination of whether the discrimination can be justified.3

However, the same limitation should not apply to the State's attempt to defend a

statute against a claim of discrimination In practical effect. That kind of claim does not

implicate the policy of requiring legislators to intend to act within the scope of their

constitutionally limited authority. Thus, when the Plaintiff alleges that regardless of what

This Court has already issued summary judgment in favor of the state on the facial discrimination claimin this case. Thus, the question of whether unintended local non•economic interests can be relied upon indefending a facial discrimination claim is not before this Court. In an appropriate case, it might beappropriate to treat facial discrimination the same as purposeful discrimination since it would seem that,when there is "facial discrimination", a discriminatory purpose appears on the face of the statute.

17

Appx. 21

the legislature intended, a statute discriminates against interstate commerce In practical

effect, the State should have the same latitude that the f^l 1 fiffhas^ to5consider all

practical effects of the statute. Accordingly, the State should be able to rely upon any"

and all permissible benefits that flow from the statute in order to defend against a ciaim

of discrimination in practical effect. This is true in both stages of the analysis in which

consideration of permissible benefits is relevant: (1) the determination as to which

market should be given "controlling significance", and (2) the determination of whether

the discrimination can be justified.

This Court has already spent an extraordinary amount of time reviewing,

researching, and deciding the motions submitted in this case. Given that fact and the

age of the case, the Court would expect that the parties can now prepare for trial

without any further dispositive motions or motions for reconsideration/clarification.

ANIEL T. k1CiGAN, JUDGE

Copies to:

Betty Jo ChristianMark F. HorningJames F. LangPeter A. RosatoCounsel for Plaintiff(s)

Richard C. FarrinRobert C. MaierSenior Deputy Attorney General and Deputy Attorney GeneraiCounsel for Defendant(s)

18

Appx. 22

DiKEC,'TV, tnc , et af,

@j^ W. V ^

nv C

:

C58^16l^t ^_

< <,w' rt, -, ^p

Platntffs, ) CASENO 03CVH()6-07135 3 cc- --„r

IN TEI$ COn ►2'i' CW,1969NION PLEASFRANKLIN COUNTY, 01110

v ) JUDGE HOGAN

Wtlham W Wtlkins,Tax Comnusstoner of Ohio,

providers are, respectively, in-state and out-of-state econcm c interests for purposes o

Fefcndant

OI2DER

^P ^ O i •^''

o9"40wpum= #2i°

On Novetnber 29, 2006, at 9 00 a m, the Court eommenced a telephonic conference in

this matter on the sub,ieot of Platntiffs AIRi?CTV, Inc and EchoStar Satellite L L C's November

9, 2006 Motion for Protective Order The Court, iiaving considered Plamtt:ffs' motion, the

November 22, 2006 opposition submitted thereto by Defendant Wlham W Wilkins, Tax

Commissmner of Olno, and the arguments and representattons made lry both Plamtiffs and

Defendar8 durtng the telephonic conference, hereby rules and ord(as as follows

t Plaintiffs seek an order quashing the deposttion subpoenas tssued on October 31,

2006 by Defendant pursuant to Olno Rule of Civil Prceedure 30(B)(5) (collectively,

"Defendant's 30(B)(5) subpoenas")

2 Defendant's 30(B)(5) subpoenas seek discoverr solely on issues that the Court

ha', already ruled upon and fully resolved in its previous dec sions on the parties' motions for

summary }udgment, reconsiderat on, and clanficanou, namely, whether the dtstributtan of

televrsion serv;ce by cable compar.ies and the d:str!bution of televaszon serv)ce hy satellite

(PARZ193 O0C 31

/

A

/

Commercc Clause Dcfendant's 30(B)(5) subpoenas do not seek 1D6c$o&&HtIie8umued issues

that remain to be dectded in this case as specified in the Court's prevtons decisions on motions

for summary )udgment, reconsideration, and clanftcatron The Comt therefore finds that

Defendant's 30(B)(5) subpoenas seek mformatron that is rlot relevant to he subject matter of the

pending action and that would not reasonably lead to the discovery of reb,vant evidence

3 Defendant's 30(B)(5) subpoenas also impose an undue burden on Plaintrffs

4 Accordingly, Plaintiffs' November 9, 2006 Notion for Pcotectlve Order is hereby

granted, and Defendant's 30(B)(5) subpoenas are hereby quashed

5 Defendant shall not further pursue any discovery in this pl oceedtng on any subject

matter or issue that has already been resolved by this Court's pnor decisions in this case,

mcludtng, but not lnnrted to, questions related to wirether the provision of televts>.on service by

cable comptuues and by satelhte providers are in-state or out-of-stati econom3c lnterests for

purposes of the Commerce Clause

(PAR2193 DOC 3) 2

Appx. 24

i

I

IT IS SO OB:DERFD'

HOGAN

C5EI06H 19

tz-r9 -a^

etty Jo Chrutian C# 304865)Mark F Homang (DC# 203323)Lincoln L Davies (DC# 479511)STEPTOE & JOFINSON LLP1330 Connecitcut Avenue, NWWashington, DC 20036Phone 202-429-3000Fax 202-429-3902

James F Lang (0059668)Peter A Rosato (0068026)CALFEF,,IIA,LTER & GRISWOLD LLP1100 Frtih Thrrd Center21 E State StreetColumbus, Ohro 43215Phone 614-621-1500Fax 614-621 0010

Counsel for Platnt,fl's DIRBCTV, Incand EchoStar Satellite L L C

{PAR2193 DOC,3)

DATE

^^^ ^: U^t^tur]tn K McManus (0037140)

Senior Deputy Attorr ey GeneCheryl D Pokomy ((029797)Deputy Attorney Ger eralChnstine Mesirow (0015590)Assistant Attomey G:neralTaxation Section30 East Broad Street, 16th FloorColumbus, Ohio 43215Phone 614-466-5961Fax 614-466-8226

Counsel forDeFend:uit Wrlltam W Wilkins,Tax Conunissioner of Ohio

3

Appx. 25

47Parts 70 to 79Revised as of October 1, 2008

Telecommunication

Containing a codification of documents

of general applicability and future effect

As of October 1, 2008

With Ancillaries

Published byOffice of the Federal Register

National Archives and Records

Administration

A Special Edition of the Federal Register

Appx. 26

U.S. GOVERNMENT OFFICIAL EDITION NOTICE

Legal Sfafus and Use of Seals and LogosThe seal of the National Archives and Records Administration

(NARA) authenticates the Code of Federal Regulations (CFR) asthe official codification of Federal reguiations established underthe Federal Register Act. Under the provisions of 44 U.S.C. 1507, thecontents of the CFR, a special edition of the Federal Register, shallbe judicially noticed. The CFR is prima facie evidence of the origi-nal documents published in the Federal Register (44 U.S.C. 1610).

It is prohibited to use NARA'sofficial seal and the stylized Codeof Federal Regulations logo on any republication of this materialwithout the express, written permission of the Archivist of theUnited States or the Archivist's designee. Any person usingNARA's official seals and logos in a manner inconsistent with theprovisions of 36 CFR part 1200 is subject to the penalties specifiedin 18 U.S.C. 506, 701, and 1017.

Use of ISBN PtefixThis is the Official U.S. Government edition of this publication

and is herein identified to certify its authenticity. Use of the 0-16ISBN prefix is for U.S. Government Printing Office Official Edi-tions only. The Superintendent of Documents of the U.S. Govern-ment Printing Office requests that any reprinted edition clearly belabeled as a copy of the authentic work with a new ISBN.

G&K _

_-Y U.S. GOVERNMENT PRINTING OFFICE

U.S. Superintendent of Documents • Washington, DC 20402-0001

http:/Ibookstore.gpo.gov

Phone: toll-free (866) 512-1800; DC area (202) 512-1800

Appx. 27

Federal CommunicaHons Commission

US Television Household Estimates orany successor publications.

(i) For the 1999 election pursuant to§76.64(f), which becomes effective onJanuary 1, 2000, DMA assignmentsspecified in the 1997-98 Nielsen StationIndex Directory and September 1997Nielsen Station Index US 'relevisionHousehold Estimates, available fromNielsen Media Research, 770 Broadway,New York, NY, shall be used.

(ii) The applicable DMA list for the2002 election pursuant to §76.64(f) willbe the DMA assignments specified inthe 2006-2001 list, and so forth for eachtriennial election pursuant to §76.64(f).

(3) In addition, the county in which astation's community of license is lo-cated will be considered within itsmarket.

(4) A cable system's television mar-ket(s) shall be the one or more ADImarkets in which the communities itserves are located until January 1, 2000,and the one or more DMA markets inwhich the communities it serves are lo-cated thereafter.

(5) In the absence of any mandatorycarriage complaint or market lnodi-fication petition, cable operators incommunities that shift from one mar-ket to another, due to the change in1999-2000 from ADI to DMA, will be per-mitted to treat their systems as eitherin the new DMA market, or with re-spect to the specific stations carriedprior to the market change from ADIto DMA, as in both the old ADI marketand the new DMA market.

(6) If the change from the ADI mar-ket definition to the DMA market defi-nition in 1999-2000 results in the filingof a mandatory carriage complaint,any affected party may respond to thatcomplaint by filing a market modifica-tion request pursuant to § 76.59, andthese two actions may be jointly de-cided by the Commission.

NOTE 'rO PARAGRAPH (e): FOr the 1996 m11St-carrylretransimission consent election, theADI assignments specified in the 1991-1992Teleuision ADI Market Guide, available fromthe Arbitron Ratings Co., 9705 PatuxentWoods Drive, Celumbia, MI), will apply. Forthe 1999 election, which becomes effective onJanuary 1, 2000, DMA assignments specifiedin the 199748 DMA Market and Demographicftank Report, available from Nielsen MediaResearch, 299 Park Avenue, New York, NY,shall be used. The applicable DMA list for

§ 76.66

the 2002 election will be the 2000-2001 list,etc.

(f) Network. For purposes of the must-carry rules, a commercial televisionnetwork is an entity that offers pro-gramming on a regular basis for 15 ormore hours per week to at least 25 af-filiates in 10 or more states.

[58 FR 17359, Apr. 2, 1993, as amended at 58FR 44951, Aug. 25, 1993; 59 FR 62344, Dec. 5,1994; 61 FR 29313, June 10, 1996; 64 FR 42617,Aug. 5, 1999; 66 FR 17312, Apr. 9, 2003; 73 FR5685, Jan. 30, 2008)

§ 76.56 Signal carriage obligations.

(a) Carriage of qualified noncommercialeducational stations. A cable televisionsystem shall carry qualified NCE tele-vision stations in accordance with thefollowing provisions:

(1) Each cable operator shall carry onits cable television system any quali-fied local NCE television station re-questing calTiage,except that

(i) Systems with 12 or fewer usableactivated channels, as defined in§76.6(oo), shall be required to carry thesignal of one such station;

(ii) Systems with 13 to 36 usable acti-vated channels, as defined in §76.5(oo),shall be required to carry at least onequalified local NCE station, but notmore than three such stations; and

(iii) Systems with more than 36 usa-ble activated channels shall be re-quired to carry the signals of all quali-fied local NCE television stations re-questing carriage, but in any event atleast three such signais; however acable system with more than 36 chan-nels shall not be required to carry anadditional qualified local NCE stationwhose programming substantially du-plicates the programming of anotherqualified local NCE station being car-ried on the system.

NOTE: For purposes of this paragrapb, astation will be deemed to "substantially du-plicate" the programming of another stationif it broadcasts the same programming, si-multaneous or non-simultaneous, for morethan 50 percent of prime time, as defined in§76.5(n), and more than 50 percent outside ofprime time over a three-month period.

(2)(i) In the case of a cable systemwith 12 or fewer channels that operatesbeyond the presence of any qualifiedlocal NCE stations, the cable operator

555

Appx.28

§ 76.56

shall import one qualified NCE tele-vision station.

(ii) A cable system with between 13and 36channels that operates beyondthe presence of any qualified local NCEstations, the cable operator shall im-port at least one qualified NCE tele-vision station.(3) A cable system with 12 or fewer

usable activated channels shall not berequired to remove any programmingservice provided to subscribers as ofMarch 29, 1990, to satisfy these require-ments, except that the first availablechannel must be used to satisfy theserequirements.

(4) A cable system with 13 to 36 usa-ble activated ehannels which carriesthe signal of a qualified local NCE sta-tion affiliated with a State public tele-vision network shall not be required tocarry more than one qualified localNCE station affiliated with such net-work, if the programming of such addi-tional stations substantially dupli-cates, as defined in the note in para-graph (a)(1) of this section, the pro-gramming of a qualified local NCE tel-evision station receiving carriage.

(5) Notwithstanding the requirementsof paragraph (a)(1) of this section, allcable operators shall continue to pro-vide carriage to all qualified local NCEtelevision stations whose signals werecarried on their systems as of March29, 1990. In the case of a cable systemthat is required to import a distancequalified NCE signal, and such systemimported the signal of a qualified NCEstation as of March 29, 1990, such cablesystem shall continue to import suchsignal until such time as a qualifiedloeal NCE signal is available to thecable system. This requirements maybe waived with respect to a particularcable operator and a particular NCEstation, upon the written consent ofthe cable operator and the station.

(b) Carriage of local commercial tele-

vision stations. Effective June 2, 1993, acable television system sball carrylocal commercial broadcast televisionstations in accordance with the fol-lowing provisions:

(1) A cable system with 12 or fewerusable activated channels, as defined in§76.5(oo), shall carry the signals of atleast three qualified local commercialtelevision stations, except that if such

47 CFR Ch. 1 (10-1-08 Edition)

system serves 300 or fewer subscribersit shall not be subject to these require-ments as long as it does not deletefrom carriage the signal of a broadoasttelevision station which was carried onthat system on October 5, 1992.

(2) A cable system with more than 12usable activated channels, as defined in§76.5(oo); shall carry local commercialtelevision stations up to one-third ofthe aggregate number of usable acti-vated channels of such system.

(3) If there are not eaongh local eom-mercial television stations to fill thechannels set aside under paragraphs(b)(1) and (b)(2) of this section, a cableoperator of a system with 35 or fewerusable activated channels, as defined in§76.5(oo), shall, if such stations exist,carry one qualified low power tele-vision station and a cable system withmore than 35 usable activated channelsshall carry two qualified low power sta-tions.(4) Whenever the number of local

commercial television stations exceedsthe maximum number of signals acable system is required to carry underparagraph (b)(1) or (b)(2) of this sec-tion, the cable operator shall have dis-cretion in selecting which such sta-tions shall be carried on its cable sys-tem, except that

(i) Under no circumstances shall acable operator carry a qualified lowpower station in lieu of a local com-mercial television station; and

(ii) If the cable operator elects tocarry an affiliate of a broadcast net-work, as defined in §76.55(f), such cableoperator shall carry the affiliate ofsuch broadcast network whose commu-nity of license reference point, as de-fined in §76.53, is closest to the prin-cipal headend, as defined in §76.5(pp),of the cable system.(5) A cable operator is not required to

carry the signal of any local commer-cial television station that substan-tially duplicates the signal of anotherlocal commercial television stationthat is carried on its cable system, orto carry the signals of more than onelocal commercial television station af-filiated with a particular broadcastnetwork, as defined in §76.55(f). How-ever, if a cable operator declines tocarry duplicating signals, such cableoperator shall carry the station whose

556

Appx.29

Federal Communications Commission

community of license reference point,as defined in §76.53, is closest to theprincipal headend of the cable system.For purposes of this paragraph, sub-stantially duplicates means that a sta-tion regularly simultaneously broad-casts the identical programming as an-other station for more than 50 percentof the broadcast week. For purposes ofthis definition, only identical episodesof a television series are considered du-plicative and commercial inserts areexcluded from the comparison. Whenthe stations being compared are li-censed to communities in differenttime zones, programming aired by astation within one hour of the identicalprogram being broadcast by anotherstation will be considered duplicative.

(6) [R.eserved](7) A local commercial television sta-

tion carried to fulfill the requirementsof this paragraph, which subsequentlyeleets retransmission consent pursuantto §76.64, shall continue to be carriedby the cable system until the effectivedate of such retransmission consentelection.(c) Use of public, educational, or gov-

ernmental (PEG) channels. A cable oper-

ator required to carry rnore than onesignal of a qualified low power stationor to add qualified local NCE stationsin fulfillment of these must-carry obli-gations may do so, subject to approvalby the franchising authority Pursuantto Section 611 of the CommunicationsAct of 1934, as amended, by placingsuch additional station on public, edu-cational, or governmental channels notin use for their designated purposes.

(d) Availabilityi of signals. (1) Local

commercial television stations carriedin fulfillment of the requirements ofthis section shall be provided to everysubscriber of a cable system. Such sig-nals shall be viewable via cable on all

television receivers of a subscriberwhich are connected to a cable systemby a cable operator or for which a oableoperator provides a connection.(2) Qualified local NCE television sta-

tions carried in fulfillment of the car-riage obligations of a cable operatorunder this section shall be available toevery subscriber as part of the cablesystem's lowest priced service tier thatincludes the retransmission of local

§76.56

commercial television broadeast sig-nals.(3) The viewability and availability

requirements of this section requirethat, after the broadcast televisiontransition from analog to digital serv-ice for full power television stationscable operators must either:(i) Carry the signals of commercial

and non-commercial must-carry sta-tions in analog format to all analogeable subscribers, or(ii) For all-digital systems, carry

those signals in digital format, pro-vided that all subscribers, includingthose with analog television sets, thatare connected to a cable system by acable operator or for which the cableoperator provides a connection havethe necessary equipment to view thebroadcast content.

(4) Any eosts incurred by a cable op-erator in downconverting or carryingalternative-format versions of signalsunder §76.56(d)(3)(i) or (ii) shall be theresponsibility of the cable operator.

(5) The requirements set forth inparagraph (d)(3) of this section shallcease to be effective three years fromthe date on which all full-power tele-vision stations cease broadcasting ana-log signals, unless the Commission ex-tends the requirements in a proceedingto be conducted during the year pre-ceding such date.(e) Carriage of additional broadcast

television signals on such system shallbe at the discretion of the cable oper-ator, subject to the retransmissionconsent rules, §76.64. A cable systemmay also carry any ancillary or othertransmission contained in the broad-cast television signal.

(f) Calculation of broadcast signals car-

ried. When calculating the portion of acable system devoted to carriage oflocal commercial television stationsunder paragraph (b) of this section, acable operator may eount the primaryvideo and program-related signals ofall such stations, and any alternative-format versions of those signals, thatthey carry.

NOTE 1To §76.66: Section 76.1620 providesnotification requirements for a cable oper-ator who authorizes suhscribers to install ad-ditional receiver connections, but does not

557

Appx. 30

§76.57

provide the subscriber with such connec-tions, or with the equipment and materialsfor such connections.

NOTE 2 TO §76.56: Section 76.1614 providesresponse requirements for a cable operatorwho receives a written request to identify itsmust-carry signals.

No'rs 3To §76.56: Section 76.1709 providesrecordkeeping requirements with regard to acable operator's list of must-carry signals.

[58 FR 17360, Apr. 2, 1993, as amended at 58FR 3.9161, July 22, 1993; 58 FR 40368, July 28,1993; 59 FR 62344, Dec. 5, 1994; 65 FR 53614,Sept. 5, 2000; 66 FR 16553, Mar. 26, 2001; 73 FR6054, Feb. 1, 200B7

§ 76.57 Channel positioning.(a) At the election of the licensee of

a local commercial broadcast tele-vision station, and for the purpose ofthis section, a qualified low power tele-vision station, carried in fulfillment ofthe must-carry obligations, a cable op-erator shall carry such signal on thecable system channel number on whichthe local commercial television stationis broadcast over the air, or on thechannel on which it was carried onJuly 19, 1985, or on the channel onwhich it was carried on January 1, 1992.

(b) At the election of the licensee ofa qualified local NCE broadcast tele-vision station carried in fulfillment ofthe must-carry obligations, a cable op-erator shall carry such signal on thecable system channel number on whichthe qualified NCE television station isbroadcast over the air, or on the chan-nel on which it was carried on July 19,1985.

(e) With respect to digital signals ofa television station carried in fulfill-ment of the must-carry obligations, acable operator shall carry the informa-tion necessary to identify and tune tothe broadcast television signal.(d) Any signal carried in fulfillment

of the must-carry obligations may becarried on such other channel numberas is mutually agreed upon by the sta-tion and the cable operator.

(e) At the time a local commercialstation elects must-carry status pursu-ant to §76.64, such station shall notifythe cable system of its choice of chan-nel position as specified in paragraphs(a), (b), and (d) of this section. A quali-fied NCE stations shall notify the cablesystem of its choice of channel positionwhen it requests carriage. Channel pa-

47 CFR Ch. 1 (10-1-08 Edition)

sitioning requests from local commer-cial stations shall be fulfilled by thecable operator no later than October 6,1993.

(f) Pursuant to §76.64(f)(3), a localcommercial broadcast television sta-tion that fails to make an election isdeemed a must-carry station. A cableoperator shall carry such a televisionstation on the cable system channelnumber on which the local commercialtelevision station is broadcast over theair, or on the channel on which it wascarried on July 19, 1985, or on the chan-nel on which it was carried on January1, 1992. In the event that none of thesespecified channel positions is availabledue to a channel positioning requestfrom a commercial television stationaffirmatively asserting its must-carryrights or such a request from a quali-fied local noncommercial educationalstation, the cable operator shall placethe signal of such a television stationon a channel of the cable system'schoice, so long as that channel is in-cluded on the basic service tier.

NoTF'ro §76.57: Any existing agreement forehannel position between a local commercialstation entitled to must-carry status and acable operator entered into prior to June 26,1990, may continue through the expiration ofsuch agreement.

[58 FR 17361, Apr. 2, 1993, as amended at 58FR 40368, July 28, 1993; 59 FR 62345, Dec. 5,1994; 66 FR 16553, Mar. 26, 20011

§ 76.59 Modification of television mar-kets.

(a)'rhe Commission, following a writ-ten request from a broadcast station ora cable system, may deem that the tel-evision market of a particular colnmer-cial television broadcast station shouldinclude additional communities withinits television market or exclude com-munities from such station's televisionmarket. In this respect, communitiesmay be considered part of more thanone television market.

(b) Such requests for modification ofa television market shall be submittedin accordance with §76.7, petitions forspecial relief, and shall include the fol-lowing evidence:

(1) A map or maps illustrating therelevant community locations and geo-graphic features, station transmittersites, cable system headend locations,

558

Appx-31

47Parts 70 to 79Revised as of October 1, 2008

Telecommunication

Containing a codification of documents

of general applicability and future effect

As of October 1, 2008

With Ancillarie.r

Published byOffice of the Federal Register

National Archives and Records

Administration

A Special Edition of the Federal Register

Appx. 32

U.S. GOVERNMENT OFFICIAL EDITION NOTICE

Legal Status and Use of Seats and LogosThe seal of the National Archivesand Records Administration

(NARA) authenticates the Code of Federal Regulations (CFR) asthe official codification of Federal regulations established underthe Federal Register Act. Under the provisions of 44 U.S.C. 1507, thecontents of the OFR, a special edition of the Federal Register, shallbe judicially noticed. The CFR is prima facie evidenee of the origi-nal documents published in the Federal Register (44 U.S.C. 1510).

It is prohibited to use NARA's official seal and the stylized Codeof Federal Regulations logo on any republication of this materialwithout the express, written permission of the Archivist of theUnited States or the Archivist's designee. Any Person usingNARA's official seals and logos in a manner inconsistent with theprovisions of 36 CFR part 1200 is subject to the penalties specified

in 18 U.S.C. 506, 701, and 1017.

Use of ISBN PrefixThis is the Official U.S. Government edition of this pubiication

and is herein identified to certify its authenticity. Use of the 0-16ISBN prefix is for U.S. Government Printing Office Official Edi-tions only. Tlte Superintendent of Documents of the U.S. Govern-

ment Printing Office requests that any reprinted edition clearly belabeled as a copy of the authentic work with a new ISBN.

G9 _^" U.S. GOVERNMENT PRINTING OFFICE

U.S. Superintendent of Documents • Washington, DC 20402-0001

http:!/bookstore.gpo.gov

Phone: toll-free (866) 512-1800; DC area (202) 512-1800

Appx. 33

Federal Communicafions Commission

(2) A television broadcast station ormultichannel video programming dis-tributor engages in retransmission con-sent negotiations with a complainantthat the complainant alleges to violateone or more of the rules contained inthis subpart, and such negotiation isunrelated to any existing contract be-tween the complainant and the tele-vision broadcast station or multi-channel video programming dis-tributor; or(3) The complainant has notified the

television broadcast station or multi-channel video programming distributorthat it intends to file a complaint withthe Commission based on a request tonegotiate retransmission consent thathas been denied, unreasonably delayed,or unacknowledged in violation of oneor more of the rules contained in thissubpart.

(f) Termination of rules. This sectionshall terminate at midnight on Decem-ber 31, 2009.[70 FR 40224, July 13, 20051

§ 76.66 Satellite broadcast signal car-riage.

(a) Definitions-(1) Satellite carrier. Asatellite carrier is an entity that usesthe faeilities of a satellite or satelliteservice licensed by the Federal Com-munications Commission, and operatesin the Fixed-Satellite Service underpart 25 of title 47 of the Code of FederalRegulations or the Direct BroadcastSatellite Service under part 100 of title47 of the Code of Federal Regulations,to establish and operate a channel ofcommunications for point-to-multipoint distribution of televisionstation signals, and that owns or leasesa capacity or a service on a satellite inorder to provide such point-to-multipoint distribution, except to theextent that sach entity provides suchdistribution pursuant to tariff underthe Communications Act of 1934, otherthan for private home viewing.

(2) Secondary transmission. A sec-ondarytransmission is the furthertransmitting of a primary transmissionsimultaneously with the primarytransmission.

(3) Subscriber. A subscriber is a personwho receives a secondary transmissionservice from a satellite carrier andpays a fee for the service, directly or

§ 76.66

indirectly, to the satellite carrier or toa distributor.

(4) Television broadcast station. A tele-vision broadcast station is an over-the-air coinmercial or noncommercial tele-vision broadcast station licensed bythe Commission under subpart E ofpart 73 of title 47, Code of Federal Reg-ulations, except that such term doesnot include a low-power or translatortelevision station.

(5) Television network. For purposes ofthis section, a television network is anentity which offers an interconnectedprogram service on a regular basis for15 or more hours per week to at least 25affiliated broadcast stations in 10 ormore States.

(6) Local-into-local television service. Asatellite carrier is providing local-into-local service when it retransmits alocal television station signal backinto the local market of that televisionstation for reception by subscribers.

(b) Signal carriage obligations. (1) Each

satellite carrier providing, under sec-tion 122 of title 17, United States Code,secondary transmissions to subscriberslocated within the local market of atelevision broadcast station of a pri-mary transmission made by that sta-tion, shall carry upon request the sig-nals of all television broadcast stationslocated within that).ocal market, sub-ject to section 325(b) of title 47, UnitedStates Code, and other paragraphs inthis section. satellite carriers are re-quired to carry digital-only stationsupon request in markets in which thesatellite carrier is providing any loeal-into-local service pursuant to the stat-utory copyright license.

(2) A satellite carrier that offers mul-tichannel video programming distribu-tion service in the United States tomore than 5,000,000 subscribers shall,no later than December 8, 2005, carryupon request the signal originating asan analog signal of each televisionbroadcast station that is focated in alocal market in Alaska or Hawaii; andshall, no later than June 8, 2007, carryupon request the signals originating asdigital signals of each television broad-cast station that is located in a localmarket in Alaska or Hawaii. Such sat-ellite carrier is not required to carrythe signal originating as analog aftercommencing carriage of digital signals

565

Appx. 34

y 76,66 47 CFR Ch. 1 ( 10-1-08 EdiBon)

on June 8, 2007. Carriage of signals nates as a digital signal for carriageoriginating as digital signals of each commencing on June 8, 2007 and endingtelevision broadcast station that is lo- on December 31, 2008. For analog andcated in a local market in Alaska or digital signal carriage cycles com-Hawaii shall include the entire free mencing after December 31, 2008, suchover-the-air signal,including multieast stations shall follow the election cycleand high definition digital signals. in paragraphs (c)(2) and (4). A non-

(c) Election cycle. In television mar- commercial television broadcast sta-kets where a satellite carrier is pro- tion located in a local market in Alas-viding local-into-local service, a com- ka or Hawaii must request carriage bymercial television broadcast station October 1, 2005, for carriage of its sig-may elect either retransmission con- nal that originates as an analog signalsent, pursuant to section 325 of title 47 for carriage commencing on DecemberUnited States Code, or mandatory car- 8, 2005, and by April 1, 2007, for its sig-riage, pursuant to section 338, title 47 nal that originates as a digital signalUnited States Code. for carriage commencing on June 8,

(1) The first retransmission consent- 2007 and ending on December 31, 2008.mandatory carriage election cycle (d) Carriage proeedures-(1) Carriageshall be for a four-year period com- requests. (i) An election for mandatorymencing on January 1, 2002 and ending carriage made by a television broad-December 31, 2005. cast station shall be treated as a re-

(2) The second retransmission con- quest for carriage. For purposes of thissent-mandatory oarriage election paragraph concerning carriage proce-cycle, and all cycles thereafter, shall dures, the term election request in-be for a period of three years (e.g. the cludes an election of retransmissionseoond election cycle commences on consent or mandatory carriage.January 1, 2006 and ends at midnighton December 31, 2008) (ii) An election request made by a.

(3) A commercial television station television station must be in writing

must notify a satellite carrier, by July and sent to the satellite carrier's prin-

1, 2001, of its retransmissian consent- cipal place of business, by certifiedmandatory carriage election for the mail, return receipt requested.first election cycle commencing Janu- (iii) A television station's written no-ary 1, 2002. tification shall include the:(4) Except as provided in paragraphs (A) Station's call sign;

(c)(6), (d)(2) and (d)(3) of this section, (B) Name of the appropriate stationlocal commercial television broadcast contact person;stations shall make their retrans- (C) Station's address for purposes ofmission consenti-mandatory carriage receiving official correspondence;election by October 1st of the year pre- (D) Station's community of license;ceding the new cycle for all election (E) Station's DMA assignment; andcycles after the first election cycle. (F) For commercial television sta-(5) A noncommercial television sta- tions, its election of mandatory car-

tion must request carriage by July 1, riage or retransmission consent.2001 for the first election cycle and (iv) Within 30 days of receiving a tel-must renew its carriage request at the evision station's carriage request, asame time a commercial television sta-Lion must make its retransmission con- satellite carrier shall notify in writing:

those local television stations Itsent-manda.tory carriage election for (A)µ,ill not carry, along with the reasons

all subsequent cycles.(6) A commercial television broad- for suoh a decision; and

cast station located in a local market (B) those local television stations itin Alaska or Hawaii shall make its re- Intends to carry.transmission consent-mandatory car- (v) A satellite carrier is not rcquiredriage election by October 1, 2005, for to carry a television station, for thecarriage of its signal that originates as duration of the election cycle, if thean analog signal for carriage com- station fails to assert its carriagemencing on December 8, 2005, and by rights by the deadlines established inApril 1, 2007, for its signal that origi- this section.

566

Appx. 35

Federal Communications Commission §76•66

(2) New iocal-into-locai service. (i) A it will not carry, along with the rea-new satellite carrier or a satellite car- sons for such decision, and those localrier providing local service in a market television stations it intends to carry.for the first time after July 1, 2001, (vi) Satellite carriers shall notify allshall inform each television broadcast local stations in a market of their in-station licensee within any local mar- tent to launch AD carry-one, carry-allket in which a satellite carrier pro- in that market at least 60 days before

poses to commence carriage of signalsof stations from that market, not laterthan 60 days prior to the commence-ment of such carriage

(A) Of the carrier's intention tolaunch Socal-into-local service underthis section in a local market, theidentity of that local market, and theSocation of the carrier's proposed localreceive facility for that local market;(B) of the right of such licensee to

elect carriage under this section orgrant retransmission consent under

seotion 325(b);(C) That such licensee has 30 days

from the date of the receipt of such no-tice to make such election; and(D) That failure to make such elec-

tion will result in the loss of the rightto demand carriage under this sectionfor the remainder of the 3-year cycle ofcarriage under section 325.

(ii) Satellite carriers shall transmitthe notices required by paragraph(d)(2)(i) of this section via certifiedmail to the address for such televisionstation licensee listed in the consoli-dated database system maintained bythe Commission.(iii) A satellite carrier with more

than five million subscribers shall pro-vide the notice as required by para-graphs (d)(2)(i) and (ii) of this sectionto each television broadcast station lo-cated in a local market in Alaska orHawaii, not later than March 1, 2007with respect to carriage of digital sig-

nals; provided, further, that the noticeshall also describe the carriage require-ments pursuant to 47 U.S.C. 338(a)(4),and paragraph (b)(2) of this section.

(iv) A satellite carrier shall com-mence carriage of a local station bythe later of 90 days from receipt of anelection of mandatory carriage or uponcommencing local-into-locai service inthe new television market.

(v) Within 30 days of receiving a localtelevision station's election of manda-tory carriage in a new television mar-ket, a satellite carrier shall notify inwriting: Those local television stations

commencing such carriage.(3) New television stations. (i) A tele-

vision station providing over-the-airservice in a market for the first timeon or after July 1, 2001, shall be consid-ered a new television station for sat-ellite carriage purposes.

(ii) A new television station shallmake its election request, in writing,sent to the satellite carrier's principalplace of business by certified mail, re-turn receipt requested, between 60 daysprior to commencing broadcasting and30 days after commencing broad-casting. This written notification ahallinclude the information required byparagraph (d)(1)(iii) of this section.(iii) A satellite carrier shall com-

mence carriage within 90 days of re-ceiving the request for carriage fromthe television broadcast station orwhenever the new television stationprovides over-the-air service.

(iv) Within 30 days of receiving a newtelevision station's election of manda-tory carriage, a satellite carrier shallnotify the station in writing that itwill not carry the station, along withthe reasons for such decision, or that itintends to carry the station.

(4) Television broadcast stationsmust send election requests as providedin paragraphs (d)(1), (2), and (3) of thissection on or before the relevant dead-line.

(5) Elections in markets in which sig-

nificantIy viewed signals are carried. (i)Beginning with the election cycle de-scribed in §76.66(c)(2), the retrans-mission of significantly viewed signalspursuant to §76.54 by a satellite cariierthat provides local-into-local service issubject to providing the notificationsto stations in the market pursuant toparagraphs (d)(5)(i)(A) and (B) of thissection, unless the satellite carrier wasretransmitting such signals as of thedate these notifications were due.(A) In any local market in which a

satellite carrier provided local-into-local service on December 8, 2004, atleast 60 days prior to any date on which

567

Appx. 36

§ 76.66

a station must make an election underparagraph (c) of this section, identifyeach affiliate of the same televisionnetwork that the carrier reserves theright to retransmit into that station'slocal market during the next electioncycle and the communities into whichthe satellite carrier reserves the rightto make such retransmissions;(B) In any local market in which a

satellite carrier commences local-into-local service after December 9, 2004, atleast 60 days prior to the commence-ment of service in that market, andthereafter at least 60 days prior to anydate on which the station must there-after make an election under §76.66(c)or (d)(2), identify each affiliate of thesame television network that the car-rier reserves the right to retransmitinto that station's local market duringthe next election cycle.(ii) A television broadcast station lo-

cated in a market in which a satellitecarrier provides local-into-local tele-vision service may elect either retrans-mission consent or mandatory carriagefor each county within the station'slocal market if the satellite carrierprovided notice to the station, pursu-ant to paragraph (d)(5)(i) of this sec-tion, that it intends to carry duringthe next election cycle, or has beencarrying on the date notification wasdue, in the station's local market an-other affiliate of the same network asa significantly viewed signal pursuantto §76.54.(iii) A television broadcast station

that elects mandatory carriage for oneor more counties in its market andelects retransmission consent for oneor more other counties In its marketpursuant to paragraph (d)(5)(ii) of thissection shall conduct a unified negotia-tion for the entire portion of its localmarket for which retransmission con-sent is elected.(iv) A television broadcast station

that receives a notification from a sat-ellite carrier pursuant to paragraph(d)(5)(i) of this section with respeot toan upcoming eiection cycle inay chouseeither retransmission consent or man-datory carriage for any portion of the3-year election cycle that is not cov-ered by an existing retransmission con-sent agreement.

47 CFR Ch. 1 ( 10-1-08 EdiHon)

(e) Market dejinitions. (1) A local mar-ket, in the case of both commercial andnoncommercial television broadcaststations, is the designated market areain which a station is located, and

(i) In the case of a commercial tele-vision broadcast station, all commer-cial television broadcast stations li-censed to a community within thesame designated market area withinthe same local market; and(ii) In the case of a noncommercial

educational television broadcast sta-tion, the market includes any stationthat is licensed to a community withinthe same designated market area asthe noncommercial educational tele-vision broadcast station.(2) A designated market area is the

market area, as determined by NielsenMedia Research and published in the1999-2000 Nielsen Station Index Direc-tcry and Nielsen Station Index UnitedStates Television Household Estimatesor any successor publication. In thecase of areas outside of any designatedmarket area, any census area, borough,or other area in the State of Alaskathat is outside of a designated marketarea, as determined by Nielsen MediaResearch, shall be deemed to be part ofone of the local markets in the State ofAlaska.(3) A satellite carrier shall use the

1999-2000 Nielsen Station Index Direc-tory and Nielsen Station Index UnitedStates Television Household Estimatesto define television markets for thefirst retransmission consent-manda-tory carriage election cycle ooin-mencing on January 1, 2002 and endingon December 31, 2005. The 2003-2004Nielsen Station Index Directory andNielsen Station Index United StatesTelevision Household Estimates shallbe used for the second retransmissionconsent-mandatory carriage electioncycle commencing January 1, 2006 andending December 31, 2008, and so forthfor each triennial election pursuant tothis section. Provided, however, that acounty deleted from a market byNielseu need nut be subtracted fror., amarket in which a satellite carrier pro-vides local-into-local service, if thatcounty is assigned to that market inthe 1999-2000 Nielsen Station Index Di-rectory or any subsequent issue of that

568

Appx.37

Federal Communications Commission

publication. A satellite carrier may de-termine which local market in theState of Alaska will be deemed to bethe relevant local market in connec-tion with each subscriber in an area inthe State of Alaska that is outside of adesignated market, as described inparagraph (e)(2) of this section.(4) A local market includes all coun-

ties to which stations assigned to thatmarket are licensed.

(f) Receive facilities. (1) A local receivefacility is the reception point in eachlocal market which a satellite carrierdesignates for delivery of the signal ofthe station for purposes of retrans-mission.

(2) A satellite carrier may establishanother receive facility to serve a mar-ket if the location of such a facility isacceptable to at least one-half the sta-tions with carriage rights in that mar-ket.(3) Except as provided in 76.66(d)(2), a

satellite carrier providing local-into-local service must notify local tele-vision stations of the location of thereceive facility by June 1, 2001 for thefirst election cycle and at least 120days prior to the commencement of allelection cycles thereafter.(4) A satellite carrier may relocate

its local receive facility at the com-mencement of each election cycle. Asatellite carrier is also permitted to re-locate its local receive facility duringthe course of an election cycle, if itbears the signal delivery costs of thetelevision stations affected by such amove. A satellite carrier relocating itslocal receive facility must provide 60days notice to all local television sta-tions carried in the affected televisionmarket.(g) Good quality signal, (1) A tele-

vision station asserting its right tocarriage shall be required to bear thecosts associated with delivering a goodquality signal to the designated localreceive facility of the satellite carrieror to another facility that is accept-able to at least one-half the stationsasserting the right to carriage in thelocal market.

(2) To be considered a good qualitysignalfor satellite carriage purposes, atelevision station shall deliver to thelocal receive facility of a satellite car-rier either a signal level of -45dBm for

§ 76.66

UHF signals or -49dBm for VHF signalsat the input terminals of the signalprocessing equipment_

(3) A satellite carrier is not requiredto carry a television station that doesnot agree to be responsible for thecosts of delivering a good quality sig-nal to the receive facility.

(h) Duplicating signals. (1) A satellitecarrier shall not be required to carryupon request the signal of any localtelevision broadcast station that sub-stantially duplicates the signal of an-other local television broadcast stationwhich is secondarily transmitted bythe satellite carrier within the samelocal market, or the signals of morethan one local commercial televisionbroadcast station in a single local mar-ket that is affiliated with a particulartelevision network unless such stationsare licensed to communities in dif-ferent States.

(2) A satellite carrier may selectwhich duplicating signal in a market itshall carry.

(3) A satellite carrier may selectwhich network affiliate in a market itshall carry.

(4) A satellite carrier is permitted todrop a local television station when-ever that station meets the substantialduplication criteria set forth in thisparagraph. A satellite carrier must adda television station to its channel line-up if such station no longer duplicatesthe progrannning of another local tele-vision station.(5) A satellite carrier shall provide

notice to its subscribers, and to the af-fected television station, whenever itadds or deletes a station's signal in aparticular local market pursuant tothis paragraph.

(6) A commercial television stationsubstantially duplicates the program-ming of another commercial televisionstation if it simultaneously broadcaststhe identical programming of anotherstation for more than 50 percent of thebroadcast week.

(7) A noncommercial television sta-tion substantially duplicates the pro-gramming of anotlier noncominereialstation if it simultaneously broadcaststhe same programming as another non-commercial station for more than 50percent of prime time, as defined by

569

Appx. 38

§ 76.66

§ 76.5(n), and more than 50 percent out-side of prime time over a three monthperiod, Provided, however, that afterthree noncommercial television sta-tions are carried, the test of duplica-tion shall be whether more than 50 per-cent of prime time programming andmore than 50 percent outside of primetime programming is duplicative on anon-simultaneous basis.

(i) Channel positioning. (1) No satellitecarrier shall be required to provide thesignal of a local television broadcaststation to subscribers in that station'slocal market on any particular channelnumber or to provide the signals in anyparticular order, except that the sat-ellite carrier shall retransmit the sig-nal of the local television broadcaststations to subscribers in the stations'local market on contiguous channels.

(2) The television stations subject tothis paragraph include those carriedunder retransmission consent.

(3) All local television stations car-ried under mandatory carriage in aparticular television market must beoffered to subscribers at rates com-parable to local television stations car-ried under retransmission consent inthat same market.(4) Within a market, no satellite car-

rier shall provide local-into-local serv-ice in a manner that requires sub-scribers to obtain additional equip-ment at their own expense or for an ad-ditional carrier charge in order to ob-tain one or more local television broad-cast signals if such equipment is notrequired for the receipt of other localtelevision broadcast signals.

(5) All television stations carriedunder mandatory carriage, in a par-ticular market, shall be presented tosubscribers in the same manner as tele-vision stations that elected retrans-mission consent, in that same market,on any navigational device, on-screenprogram guide, or menu provided bythe satellite cairier.

(j) Manner oJ carriage. (1) Each tele-vision station carried by a satellitecarrier, pursuant to this section, shallinclude in its entirety the primaryvideo, accompanying audio, and closedcaptioning data contained in line 21 ofthe vertical blanking interval and, tothe extent technically feasible, pro-gram-related material carried in the

47 CFR Ch. I(10-1-08 Edition)

vertical blanking interval or on subcar-riers. For noncommercial educationaltelevision stations, a satellite carriermust also carry any program-relatedmaterial that may be necessary for re-ceipt of programming by persons withdisabilities or for educational or lau-guage purposes. Secondary audio pro-gramming must also be carried. Whereappropriate and feasible, satellite car-riers may delete signal enhancements,such as ghost-canceling, from thebroadcast signal and employ such en-hancements at the local receive facil-ity.

(2) A satellite carrier, at its discre-tion, may carry any ancillary servicetransmission on the vertical blankinginterval or the aural baseband of anytelevision broadcast signal, including,but not limited to, multichannel tele-vision sound and teletext.(k) Materiat degradation. (1) Each

local television station whose signal iscarried under mandatory carriageshall, to the extent teahnically feasibleand consistent with good engineeringpractice, be provided with the samequality of signal processing provided totelevision stations electing retrans-mission consent, including carriage ofIID signals in HD if any local station inthe same market is carried in IID. Asatellite carrier is permitted to usereasonable digital compression tech-niques in the carriage of local tele-vision stations.

(2) Satellite carriers must providecarriage of local stations' HD signals ifany local station in the same market iscarried in HD, pursuant to the fol-lowing schedule:

(i) In at least 15% of the markets inwhich they carry any station pursuantto the statutory copyright license inHD by February 17, 2010;

(ii) In at least 30% of the markets inwhich they carry any station pursuantto the statutory copyright license inFID no later than February 17, 2011;

(iii) In at least 60% of the markets inwhich they carry any station pursuantto the statutory copyright lir..ense inIID no later than February 17, 2012; and

(iv) In 100% of the markets in whichthey carry any station pursuant to thestatutory copyright license in HD byFebruary 17,2013.

570

Appx. 39

Federal Communications Commission

(1) Compensation for carriage. (1) A sat-ellite carrier shall not accept or re-quest monetary payment or other valu-able consideration in exchange eitherfor carriage of local television broad-cast stations infulfillment of the man-datory carriage requirements of thissection or for channel positioningrights provided to such stations underthis section, except that any such sta-tion may be required to bear the costsassociated with delivering a good qual-ity signal to the receive facility of the

satellite carrier.(2) A satellite carrier may accept

payments from a station pursuant to aretransmission. consent agreement.

(m) Remedies. (1) Whenever a localtelevision broadcast station believesthat a satellite carrier has failed tomeet its obligations under this section,such station shall notify the carrier, inwriting, of the alleged failure and iden-tify its reasons for believing that thesatellite carrier failed to comply withsuch obligations.

(2) The satellite carrier shall, within30 days after such written notification,respond in writing to such notificationand comply with such obligations orstate its reasons for believing that it isin compliance with such obligations.

(3) A local television broadcast sta-tion that disputes a response by a sat-ellite carrier that it is in compliancewith such obligations may obtain re-view of such denial or response by f'i1-ing a complaint with the Commission,in accordance with §76.7 of title 47,Code of Federal Regulations. Suchcomplaint shall allege the manner inwhich such satellite carrier has failedto meet its obligations and the basisfor such allegations.(4) The satellite carrier against

which a complaint is filed is permittedto present data and arguments to es-tablish that there has been no failureto meet its obligations under this sec-tion.

(5) The Commission shall determinewhether the satellite carrier has metits obligations under this section. Ifthe Commission determines that thesatellite carrier has failed to meet suchobligations, the Commission shallorder the satellite carrier to take ap-propriate remedial action. If the Com-mission determines that the satellite

§ 76.70

carrier has fully met the requirementsof this section, it shall dismiss thecomplaint.(6) The Commission will not accept

any complaint filed later than 60 daysafter a satellite carrier, either implic-itly or explicitly, denies a televisionstation's carriage request.

168 FR 7430, Jan. 23, 2007, as amended at 66FR 49135, Sept. 26, 2001; 70 FR 21670, Apr. 27,2005; 70 FR 51666, Aug. 21, 2005; 70 FR 53079,Sept. 7, 2005; 73 FR 24508, May 5, 20081

§76.70 Fsemption from input selectorswitch rules.

(a) In any case of cable systems seiv-ing communities where no portion ofthe community is covered by the pre-dicted Grade B contour of at least onefull service broadcast television sta-tion, or non-commercial educationaltelevision translator station operatingwith 5 or more watts output power andwhere the signals of no such broadcaststations are "significantly viewed" inthe county where such a cable systemis located, the cable system shall be ex-empt from the provisions of §76.66.Cable systems may be eligible for thisexemption where they demonstratewith engineering studies prepared inaccordance with §73.686 of this Chapteror other showings that broadcast sig-nals meeting the above criteria are notactually viewable within the commu-nity.(b) Where a new full service broad-

cast television station, or new non-commercial educational televisiontranslator station with 5 or morewatts, or an existing such station of ei-ther type with newly upgraded facili-ties provides predicted Grade B serviceto a community served by a cable sys-tem previously exempt under para-graph (a) of this section, or the signalof any such broadcast station is newlydetermined to be "signif"icantlyviewed" in the county where such acable system is located, the cable sys-tem at that time is required to complyfully with the provisions of §76.66.Cable systems may retain their exemp-tion under paragraph (a) of this sectionwhere they demonstrate with engineer-ing studies prepared in accordance with§73.686 of this ehapter or other

571

Appx. 40

47Parts 70 to 79Revised as of October 1, 2008

Telecom.munication

Containing a codification of documents

of general applicability and future effecr

As of October 1, 2008

With Ancillaries

Published byOffice of the Federal Register

National Archives and Records

Administration

A Special Edition of the Federal Register

Appx. 41

U.S. GOVERNMENT OFFICIAL EDITION NOTICE

G -ux D"' •

legal Status and Use of Seals and LogosThe seal of the National Archives and Records Administration

(NARA) authenticates the Code of Federal Regulations (CFR) asthe official codification of Federal regulations established underthe Federal Register Act. Under the provisions of 44 U.S.C. 1507, thecontents of the CFR, a special edition of the Federal Register, shallbe judicially noticed. The CFR is prima facie evidence of the origi-nal documents published in the Federal Register (44 U.S.C. 1510).

It is prohibited to use NAIIA's official seal and the stylized Codeof Federal Regulations logo on any republication of this materialwithout the express, written permission of the Archivist of theUnited States or the Archivist's designee. Any person usingNARA's official seals and logoa in a manner inconsistent with theprovisions of 36 CFR part 1200 is subject to the penalties specified

in 18 U.S.C. 506, 701, and 1017.

Use of ISBN PrefixThis is the Official U.S. Government edition of this publication

and is herein identified to certify its authenticity. Use of the 0-16

ISBN prefix is for U.S. Government Printing Office Official Edi-

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Phone: toll-free (866) 512-1800; DC area (202) 512-1800

Appx.42

§ 76.403

Subpart I-Forms and Reports

§ 76.403 Cable television system re-ports.

The operator of every operationalcable television system that serves20,000 or more subscribers shall filewith the Commission a Form 325 solic-iting general information and fre-quency and signal distribution infor-mation on a Physical System Identi-fication Number ("PSID") basis. Theseforms shall be completed and filed with(returned to) the Commission within 60days after the Commission notifies theoperator that the form is due.

Nars: The Commission retains its author-ity to require Form 325 to be filed by a sam-pling of cable operators with less than 20,000subscribers.

[64 FR 28108, May 25, 1999, as amended at 68FR 27003, May 19, 2003]

Subpart J-Ownership of CableSystems

§76.501 Cross-ownership.

(a)-(c)[Reserved](d) No cable operator shall offer sat-

ellite master antenna television serv-ice ("SMATV"), as that service is de-fined in §76.5(a)(2), separate and apartfrom any franchised cable service inany portion of the franchise areaserved by that cable operator's cablesystem, either directly or indirectlythrough an affiliate owned, operated,controlled, or under common controlwith the cable operator.(e)(l) A cable operator may directly

or indirectly, through an affiliateowned, operated, controlled by, orunder common control with the cableoperator, offer SMATV service withinits franchise area if the cable opera-tor's SMATV system was owned, oper-ated, controlled by or under commoncontrol with the cable operator as ofOctober 5, 1992.(2) A cable operator may directly or

- indirectly, through an affiliate owned,operated, controlled by, or under com-mon control with the cable operator,offer service within Its franchise areathrough SMATV facilities, providedsuch service is offered in accordancewith the terms and conditions of acable franchise agreement.

47 CFR Ch. 1(10-1-08 Edition)

(f) The restrictions in paragraphs (d)and (e) of this section shall not applyto any cable operator in any franchisearea in which a cable operator is sub-ject to effective competition as deter-mined under section 623(1) of the Com-munications Act.

NoTE I TO §76.501: Actual working control,in whatever manner exercised, shall bedeemed a cognizable Interest.

NOTE 2'ro §76.501: in applying the provi-sions of this section, ownership and other in-terests in an entity or entities covered bythis rule will be attributed to their holdersand deemed cognizable pursuant to the fol-lowing criteria:

(a) Except an otherwise provided herein,partnership and direct ownership interestsand any voting stock interest amounting to5% or more of the outstanding voting stockof a corporation will be cognizable;

(b) Investment companies, as defined In 15U.S.C. 80a4, insurance companies and banksholding stock through their trust dspart-ments in trust accounts will be considered tohave a cognizable interest only if they hold20% or more of the outstanding voting stockof a corporation, or if any of the officers ordirectors of the corporation are representa-tives of the investment company, insurancecompany or bank concerned. Iioldings by abank or insurance company will be aggre-gated if the bank or insurance company hasany right to determine how the stoek will bevoted. Holdings by investment companieswill be aggregated if under common manage-ment.

(c) Attribution of ownership interests in anentity covered by this rule that are held in-directly by any party through one or moreintervening corporations will be determinedby successive multiplication of the owner-ship percentages for each link in the vertioalownership chain and application of the rel-evant attribution benchmark to the result-ing product, except that wherever the owner-ship percentage for any link in the chain ex-ceeds 50%, it shall not bo included for pur-poses of this multiplication. [For example, ifA owns 10% of company X. which owns 60%of company Y, which owns 25% of "Li-censee," then X's interest in "Licensee"would be 25% (the same as Y's interest since%'s interest in Y excee(is 50%), and A's inter-est in "Licensee" would be 2.5% (0.1 x 0.25).Under the 5% attribution bsnchmark, X's in-terest in "Licensee" would be cognizable,while A's interest would not be cognizable.](d) Voting stock interests held in trust

shali be attributed to any person who holdsor shares the power to vote such stock, to

any person who has the sole power to sellsuch stock, and to any person who bas theright to revoke the trust at will or to replace

594

Appx. 43

Federal Communicptions Commission

the trustee at wiil. If the trustee has a famil-ial, personal or extra-trust business relation-ship to the grantor or the beneficiary, thegrantor or beneficiary, as appropriate, willbe attributed with the stock intereats held intrust. An otherwise qualified trust will be in-effective to insulate the grantor or bene-ficiary from attribution with the trust'a as-sets unless all voting stock interests held bythe grantor or beneficiary in the relevant en-tity covered by this rule are aubject to saidtrust.

(e) Subject to paragraph (i) of this Note,holders of non-voting stock Shall not be at-tributed an interest in the issuing entity.Subject to paragraph (i) of this Note, holdersof debt and instruments such as warrants,convertible debentures, options or other non-voting interests with rights of conversion tovoting interests Shall not be attributed un-less and until converslon is effected.

(f)(1) Subject to paragraph (i) of this Note,a limited partnership interest Shall be at-tributed to a limited partner unless thatpartner is not materially involved, directlyor Indirectly. in the management or oper-ation of the media-related activities of thepartnership and the relevant entity so cer-tifies. An interest in a Limited LiabilityCompany ("LLC") or Registered Limited Li-ability Partnership ("RLLP") shall be at-tributed to the interest holder unless thatinterest holder is not materially involved,directly or indirectly, in the management oroperation of the media-related activities ofthe partnership and the relevant entity socertifies.

(2) In the case of a limited partnership, inorder for an entity to make the Certificationset forth in paragraph (g)(1) of this section,it must, verify that the partnership agree-ment or certificate of limited partnership.with respect to the particular limited part-ner exempt from attribution, establishesthat the exempt limited partner has no ma-terial involvement, directly or indirectly, inthe management or operation of themediaactivities of thepartnership. In the case ofan LLC or RLLP, in order for an entity tomake the certification set forth in paragraph(g)(i) of this section, it must verify that theorganizational document, with respect to theparticular interest holder exempt from attri-bution, establishes that the exempt interestholder has no material involvement, directlyor indirectly, in the management or oper-ation of the media activities of the LLC orRLLP. The criteria which would assume ade-quate insulation for purposes of these certifi-cations are described in the MemorandumOpinion and Order in MM Docket No. 83-46,FCC 85-2.52 (released June 24, 1985), as modi-fied on reoonsideration in the MemorandumOpinion and Order in MM Docket No. 93-46,FCC 86-410 (released November 28, 1986), Irre-spective of the terms of the certificate oflimited partnership or partnership agree-

§ 76.501

ment, or other organizational document inthe case of an LLC or RLLP, however, nosuch certification Shall be made if the indi-vidual or entity making the certification hasactual knowledge of any material involve-ment of the limited partners, or other inter-est holders in the case of an LLC or RLLP,in the management or operation of themedia businesses of the partnership or LLCor RLLP.

(3) ln the case of an LLC or RLLP, the en-tity seeking insulation shall certify, in addi-tion, that the relevant state statute author-izing LLCa permits an LLC member to insu-late itself as required by our criteria.

(g) Officers and directors of an entity cov-ered by this rule are considered to have acognizable interest in the entity with whichthey are so associated. If any such entity en-gages in businesses in addition to its pri-mary media business, it may request theCommission to waive attribution for any of-ficer or director whose duties and respon-sibilities are wholly unrelated to its primarybusiness. The officers and directors of a par-ent company of a media entity, with an at-tributable interest in any such subsidiaryentity, shall be deemed to have a cognizableinterest in the subsidiary unless the dutiesand responsibilities of the officer or directorinvolved are wholly unrelated to the mediasubsidiary, and a certification properiy docu-menting this fact is submitted to the Com-mission. The officers and directors of a sistercorporation of a media entity shall not be at-tributed with ownership of that entity byvirtue of such status.

(h) Discrete ownership interests held bythe same individual or entity will be aggre-gated in determining whether or not an in-terest is cognizable under this section. Anindividual or entity will be deomed to have acognizable investment if:

(1) The sum of the interests held by orthrough "passive investors" is equal to orexceeds 20 percent; or

(2) The smn of the interests other thanthose held by or tbrough "passive investors"is equal to or exceeds 5 percent; or

(3) The sum of the interests coniputedunder paragraph (f)(1) of this section plus thesum of the interests computed under para-graph (i)(2) of tbia section is equal to or ex-ceeds 20 percent.

(t) Notwithstanding paragrapbs (e) and (f)of this Note, the holder of an equity or debtinterest or interests in an entity covered bythis rule shall have that interest attributedif the equity (including all stockholdings,whether voting or nonvoting, convnon orpreferred, and partnership interests) anddebt interest or interests, in the aggregate,exceed 33 percent of the total asset value (allequity plus all debt) of that entity, providedhowever that:(1) in applying the provisions of paragraph

(i) of this note to §§ 76.501, 76.505 and

595

Appx. 4 4

§ 76.502

76.905(b)(2), the holder of an equity or debtinterest or intereats in a broadcast station,cable system, SMATV or multiple video dis-tribution provider subject to §§76.501, 76.505,or 76.905(b)(2) ("interest holder") shall havethat interest attributed if the equity (includ-ing all stockholdings, whether voting or non-voting, common or preferred, and partner-ship interests) and debt interest or interests,fn the aggregate, exceed 33 percent of thetotal asset value (defined as the aggregate ofall equity plus all debt) of that entity; and

(i) the interest holder also holds an inter-est in a broadcast station, cable system,SMATV, or multiple video distribution pro-vider that operates in the aame market, issubject to §§76.501, 76.505, or 76.905(b)(2) andis attributable without reference to thisparagraph (i); or

(ii) the interest holder supplies over fifteenpercent of the total weekly broadeast pro-gramming hours of the station in wbich theinterest is held.

(2) For purposes of applying subparagraph(1)(1), the term "market" will be defined asit is defined under the rule that is being ap-

plied.No'rc 3To §76.501: In cases where record

and beneficial ownership of voting stock isnot identical (e.g., bank nominees holdingstock as record ownars for the benefit of mu-tual funds, brokerage bouses holding stockin street names for benefit of customers, in-vestment advisors holding stock in their ownnames for the benefit of clients, and insur-ance companies holding stock), the partyhaving the right to determine how the stockwill be voted will be considered to own it forpurposes of this subpart.

NOTE 4 TO §76.501: Paragraph (a) of this sec-tion will not be applied so as to require thedivestiture of ownership interests prosertibedherein solely because of the transfer of suchinterests to heirs or legatees by will or intes-tacy, provided that the degree or extent ofthe proscribed cross-ownership is not in-creased by such transfer.

No're 5 sro §76.501: Certifications pursnantto t,bis section and these notes shall be sentto the attention of the Media Bureau, Fed-eral Communications Comniission, 445 12thStreet, SW., Washington, DC 20554.

No're 6•ro § 76.501: In applying paragraph (a)of §76.501, for purposes of paragraph note 2(i)of this section, attribution of ownership in-terests in an entity covered by this rnie thatare held indirectly by any party through oneor more intervening organizations will be de-termined by successive multiplication of theownerehip percentages for each link in thevertical ownersbip chain and application ofthe relevant attribution benchmark to theresulting product. The ownership percentagefor any link in the chafn that exceeds 50%shall be included. (For example, if A owns10% of company X, which owns 60% of com-pany Y, which owns 25% of "Licensee," then

47 CFR Ch. f(10-1-08 Ediflon)

X's interest in "Licensee" would 15%(0.6x0.25), and A's interest in "l.icensee"would be 1.5% (0.1x0.6x0.25).7

[58 FR 27677, May 11, 1993, ae amended at 60FR 37834, July 24, 1995; 61 FR 15389, Apr. 8,1996; 64 FR 50646, Sept. 17, 1999; 64 FR 67194,Dec. 1, 1999; 66 FR 9973, Feb. 13, 2001; 67 FR13234, Mar. 21, 2002; 68 FR 13237, Mar. 19, 20031

§ 76.502 Time limits applicable to fran-chise authority consideration oftransfer applications.

(a) A franchise authority shall have120 days from the date of submission ofa completed FCC Form 394, togetherwith all exhibits, and any additionalinformation required by the terms ofthe franchise agreement or applicablestate or local law to act upon an appli-cation tosell, assign, or otherwisetransfer controlling ownership of a

cable system.(b) A franchise authority that ques-

tions the accuracy of the informationprovided under paragraph (a) must no-tify the cable operator within 30 daysof the filing of such information, orsuch information shall be deemed ac-cepted, unless the cable operator hasfailed to provide any additional infor-mation reasonably requested by thefranchise authority within 10 days of

such request.(c) If the franchise authority fails to

act upon such transfer request within120 days, such request shall be deemedgranted unless the franchise authorityand the requesting party otherwiseagree to an extension of time.

[61 FR 15388, Apr. 8, 19961

§ 76.503 National subscriber limits.

(a) No cable operator shall serve

more than 30 percent of all multi-channel-video programming sub-scribers nationwide through multi-channel video programming distribu-tors owned by such operator or inwhich such cable operator bolds an at-

tributable interest.(b}{d)[Reservedl(e) "Multichannel video-program-

ming subscribers" means subscriberswho receive multichannel video-pro-gramming from cable systems, directbroadcast satellite services, direct-to-home satellite services, BRS/EBS, local

596

Appx. 45

UNITED STATES CODE2006 EDITION

CONTAINING THE GENERAL AND PERMANENT LAWS

OF THE UNITED STATES ENACTED THROUGH THE

109TH CONGRESS

(ending January 3, 2007, the last law of whieii was signed on Jannary 15, 2007)

Prepared and published under authority of Title 2, U.S. Code, Section 285h,

hv the Of6ce of the Law 12evision Counsel of the tiouse of Representatives

VOLUME TWENTY-NINE

TITLE 47-TELEGRAPHS, TELEPI-iONES, AND

RADIOTELEGRAPHS

TO

TITLE 49-TRANSPOH'I`ATION

§§ 101-33118

UNITED STATES

GOVERN3IEivTT PRINTING OFFICE

WASHINGTON : 2008

Appx. 46ao-^zs o s^-i

'I'his book has been digitally archived to maintainthe quality of the original work for future generationsof legal researchers by William S. Hein & Co., Inc.

This volume printed on acid-free paperby William S. Hein & Co., Inc.

Printed in the United States of America.

For esle by the Sapertntendent o[ Documenta. U.S. Goverament Printing OfnceInterneG: booko[ore.gpo.gov Phone:(208)512-18U6 Fax:(202)51L'CL50

Mail: $toD 5S0P. Wavb(ngton. DC 2U402-0001

Appx. 47

§ 303 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS Page 108

(7) The enforcement of a statute or ordinanceby a State or local government under paragraph(1) with regard to citizens band radio equipmenton board a"commercial motor vehicle", as de-fined in section 31101 of title 49, shall requireprobable cause to find that the commercialmotor vehicle or the individual operating thevehicle is in violation of the regulations de-scribed in paragraph (1).

(June 19, 1934, cb. 652, title III, §302, as addedPub. L. 90-379, July 5, 1968, 82 Stat. 290; amendedPub. L. 97-259, title I, § 106(a), Sept. 13, 1982, 96Stat. 1091; Pub. L. 102-556, title IV, §403(a), Oct.28, 1992, 106 Stat. 4195; Pub. L. 104-104, title 1V,§403(f), Feb. 8, 1996, 110 Stat. 131; Pub. L. 106-521,§1, Nov. 22, 2000, 114 Stat. 2438.)

AME'NDMFiNTS

2000-Subsec. (q. Pub. L. 100-521 added subsec. (f).1996--Subsee. (e). Pub. L. 104-104 added subsee. (e).1992-Subsec. (d). Pub. L. 102-556 added subsee. (d).1982-Subsee. (a). Pub. L. 97-259, $108(a)(1), (2), in-

serted °(1)" after "regulations" and "; and (2) estab-lishing minimum performance standards for home eleo-tronic equipment and systems to reduce their suscepti-bility to interference from radio frequency energy"

after "radio communications", and substituted "orshipment of such devices and home electronie equip-ment and systems, and to the use of such devices" for`•shipment, or use of such devices".

Subsec. (b). Pub. L. 97-259, §308(a)(3), substituted "orship devices or home electronic equipment and ays-tems, or use devices," for °ship, or use devices".

Subsec. (c). Pub. L. 97-159, §108(a)(4), inserted "orhome electronic equipment and systems" after "de-vices" wherever appearing, inserted "and bome elec-tronie equipment and systems" after "Devices", sub-stituted "objectives" for "common objective", and in-serted "and to home electronic equipment and sys-tems" after "reception".

EFFECT ON OTHER LAWS

Section 403(c) of Pub. L. 102-556 provided that: "Thissection [amending this section] sball not affect section2512(2) of title 18, United States Code."

MINIMUM PERFORMANCE STANDARDS; HOME ELECPRONIC

EQUIPMENT AND SYSTEMS MANIIFACPURED BEFORE

SEP'1'EMHER 13, 1982

Section 108(b) of Pub. L. 97-259 provided that: °Anyminimum performance standard established by theFederai Communications Commission under section302(a)(2) of the Communications Act of 1934 [subsec.(a)(2) of this section7, as added by the amendment madein subsection (a)(1), shall not apply to any home elec-tronic equipment or systems manufactured before thedate of the enactment of this Act [Sept. 13, ]982)."

§ 303. Powers and duties of Comntission

Except as otherwise provided in this chapter,the Commission from time to time, as publicconvenience, interest, or necessity requires,shall-(a) Classify radio stations;(b) Prescribe the nature of the service to be

rendered by eaeh class of licensed stations andeaeh station within any class;

(c) Assign bands of frequencies to the variousclasses of stations, and assign frequencies foreach individual station and determine the powerwhich each station shall use and the time duringwhich it may operate;(d) Determine the location of classes of sta-

tions or individual stations;

(e) Regulate the kind of apparatus to be usedwith respect to its external effects and the pu-rity and sharpness of the emissions from eachstation and from the apparatus therein;

(f) Make such regulations not inconsistentwith law as it may deem necessary to preventinterference between stations and to carry outthe provisions of this chapter: Provided, however,That changes in the frequencies, authorizedpower, or in the times of operation of any sta-tion, shall not be made without the consent ofthe station licensee unless the Commission shalldetermine that such changes will promote pub-lic convenience or interest or will serve publicnecessity, or the provisions of this chapter willbe more fully complied with;(g) Study new uses for radio, provide for

experimental uses of frequencies, and generallyencourage the larger and more effective use ofradio in the public interest;

(h) Have authority to establish areas or zonesto be served by any station;(i) Have authority to make special regulations

applicable to radio stations engaged in chainbroadcasting;(j) Have authority to make general rules and

regulations requiring stations to keep suchrecords of programs, transmissions of energy,communications, or signals as it may deem de-sirable;(k) Have authority to exclude from the re-

quirements of any regulations in whole or inpart any radio station upon railroad rollingstock, or to modify such regulations in its dis-cretion;

(2)(1) Have authority to prescribe the qualifica-tions of station operators, to classify them ac-cording to the duties to be performed, to fix theforms of such licenses, and to issue them to per-sons who are found to be qualified by the Com-mission and who otherwise are legally eligiblefor employment in the United States, exceptthat such requirement relating to eligibility foremployment In the United States shall notapply in the case of licenses issued by the Com-mission to (A) persons holding United Statespilot certificates; or (B) persons holding foreignaircraft pilot certificates which are valid in theUnited States, if the foreign government in-volved has entered into a reciprocal agreementunder which sach foreign government does notimpose any similar requirement relating to eli-gibility for employment upon citizens of theUnited States;

(2) Notwithstanding paragraph (1) of this sub-section, an individual to whom a radio station islicensed under the provisions of this chaptermay be issued an operator's license to operatethat `JtatlOn.

(3) In addition to amateur operator licenseswhich the Commission may issue to aliens pur-suant to paragraph (2) of this subsection, andnotwithstanding section 301 of this title andparagraph (1) of this subsection, the Commissionmay issue authorizations, under such conditionsand terms as it may prescribe, to pernlit analien licensed by his government as an amateurradio operator to operate his amateur radio sta-tion licensed by his government in the UnitedStates, its possessions, and the Commonwealthof Puerto Rico provided there is in effect a

Appx. 48

Page 109 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS §303

multilateral or bilateral agreement, to whichthe United States and the alien's governmentare parties, for such operation on a reciprocalbasis by United States amateur radio operators.Other provisions of this chapter and of sub-chapter H of chapter 5, and chapter 7, of title 5shall not be applicable to any request or applica-tion for or modification, suspension, or cancella-tion of any such authorization.

(m)(1) Have authority to suspend the license ofany operator upon proof sufficient to satisfy theCommission that the licensee-

(A) has violated, or caused, aided, or abettedthe violation of, any provision of any Act,treaty, or convention binding on the UnitedStates, which the Commission is authorized toadminister, or any regulation made by theCommission under any such Act, treaty, orconvention; or

(B) has failed to carry out a lawful order ofthe master or person lawfully in charge of theship or aircraft on which he is employed; or

(C) has willfully damaged or permitted radioapparatus or installations to be damaged; or

(D) has transmitted superfluous radio com-munications or signals or communicationscontaining profane or obscene words, lan-guage, or meaning, or has knowingly trans-mitted-

(1) false or deceptive signals or commu-nications, or(2) a call signal or letter which has not

been assigned by proper authority to the sta-tion he is operating; or

(E) has willfully or maliciously interferedwith any other radio conrmunications or sig-nals; or(F) has obtained or attempted to obtain, or

has assisted anotber to obtain or attempt toobtain, an operator's license by fraudulentmeans.

(2) No order of suspension of any operator's li-cense shall take effect until fifteen days' noticein writing thereof, stating the cause for the pro-posed suspension, has been given to the operatorlicensee who may make written application tothe Commission at any time within said fifteendays for a hearing upon such order. The noticeto the operator licensee shall not be effectiveuntil actually received by him, and from thattime he shall have fifteen days in which to mailthe said application. In the event that physicaiconditions prevent mailing of the application atthe expiration of the fifteen-day period, the ap-plication shall then be mailed as soon as pos-sible thereafter, accompanied by a satisfactoryexplanation of the delay. Upon receipt by theCommission of sueh application for hearing, saidorder of suspension shall be held in abeyanceuntil the conclusion of the hearing which shallbe conducted under such rules as the Commis-sion may prescribe- Upon the conclusion of saidhearing the Commission may affirm, modify, orrevoke said order of suspension.(n) Have authority to inspect all radio instal-

lations associated with stations required to belicensed by any Act, or which the Commissionby rule has authorized to operate without a li-cense under section 307(e)(1) of this title, orwhich are subject to the provisions of any Act,

treaty, or convention binding on the UnitedStates, to ascertain whether in construction, in-stallation, and operation they conform to therequirements of the rules and regulations of theCommission, the provisions of any Act, theterms of any treaty or convention binding onthe United States, and the conditions of the li-cense or other instrument of authorizationunder which they are constructed, installed, oroperated.(o) Have authority to designate call letters of

all stations;(p) Have authority to cause to be published

such call letters and such otber announcementsand data as in the judgment of the Commissionmay be required for the efficient operation ofradio stations subject to the jurisdiction of theUnited States and for the proper enforcement ofthis chapter;

(q) Have authority to require the painting and/or illumination of radio towers if and when inits judgment such towers constitute, or there isa reasonable possibility that they may con-stitute, a menace to air navigation. The permit-tee or licensee, and the tower owner in any casein whicb the owner is not the permittee or li-censee, shall maintain the painting andlor illu-mination of the tower as prescribed by the Com-mission pursuant to this section. In the eventthat the tower ceases to be licensed by the Com-mission for the transmission of radio energy,the owner of the tower shall maintain the pre-scribed painting and/or illumination of suchtower until it is dismantled, and the Commis-sion may require the owner to dismantle and re-move the tower when the Administrator of theFederal Aviation Agency determines that thereis a reasonable possibility that it may con-stitute a menace to air navigation.(r) Make such rules and regulations and pre-

scribe such restrictions and conditions, not in-consistent with law, as may be necessary tocarry out the provisions of this chapter, or anyinternational radio or wire communicationstreaty or convention, or regulations annexedthereto, including any treaty or convention in-sofar as it relates to the use of radio, to whichthe United States is or may hereafter become aparty.(s) Have authority to require that apparatus

designed to receive television pictures broadcastsimultaneously with sound be capable of ade-quately receiving all frequencies allocated bythe Commission to television broadcasting whensuch apparatus is shipped in interstate com-merce, or is imported from any foreign countryinto the United States, for sale or resale to thepublic.

(t) Notwithstanding the provisions of section301(e) of this title, have authority, in any case inwhich an aircraft registered in the UnitedStates is operated (pursuant to a lease, charter,or similar arrangement) by an aircraft operatorwho is subject to regulation by the governmentof a foreign nation, to enter into an agreementwith such government under which the Commis-sion shali recognize and accept any radio stationlicenses and radio operator licenses issued bysuch govermnent with respect to such aircraft.(u) Require that apparatus designed to receive

television pictures broadcast simultaneously

Appx.49

§ 303 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS Page 110

with sound be equipped with built-in decodercircuitry designed to display closed-captionedtelevision transmissions when such apparatus ismanufactured in the United States or importedfor use in the United States, and its televisionpicture screen is 13 inches or greater in size.

(v) Have exclusive jurisdiction to regulate theprovision of direct-to-home satellite services. Asused in this subsection, the term "direct-to-home satellite services" means the distributionor broadcasting of programming or services bysatellite directly to the subscriber's premiseswithout the use of ground receiving or distribu-tion equipment, except at the subscriber's prem-ises or in the uplink process to the satellite.

(w) Omitted.(x) Require, in the case of an apparatus de-

signed to receive television signals that areshipped in interstate commerce or manufacturedin the United States and that have a picturescreen 13 inches or greater in size (measured di-agonally), that such apparatus be equipped witha feature designed to enable viewers to blockdisplay of all programs with a common rating,except as otherwise permitted by regulationspursuant to section 330(c)(4) of this title.

(y) Have authority to allocate electromagneticspectrum so as to provide flexibility of use, if-

(1) such use is consistent with internationalagreements to which the United States is aparty; and

(2) the Commission finds, after notice and anopportunity for public comment, that-

(A) such an allocation would be in the pub-lieinterest;

(B) such use would not deter investment incommunications services and systems, ortechnology development; and(C) such uso would not result in harmful

interference among users.

(June 19, 1934, ch, 652, title III, § 303, 48 Stat. 1082;May 20, 1937, ch. 229, §§5, 6, 50 Stat. 190, 191; Pub.L. 85-817, §1, Aug. 28, 1958, 72 Stat. 981; Pub. L.87-445, Apr. 27, 1962, 76 Stat. 64; Pub. L. 87-529, §1,July10, 1962, 76 Stat. 150; Pub. L. 88-313, § 1, May28, 1964, 78 Stat. 202; Pub. L. 88-187, §2, Aug. 22,1964, 78 Stat. 602; Pub. L. 89-268, Oct. 19, 1965, 79Stat. 990; Pub. L. 92-81, §1, Aug. 10, 1971, 85 Stat.302; Pub. L. 93-505, § 1, Nov. 30, 1974, 88 Stat. 1576;Pub. L. 97-259, title I, §§109-111(a), 113(b), Sept.13, 1982, 96 Stat. 1092, 1093; Pub. L. 101-396, § 8(a),Sept. 28, 1990, 104 Stat. 850; Pub. L. 101-431, §3,Oct. 15, 1990, 104 Stat. 960; Pub. L. 102-538, titleII, §210(a), Oct. 27, 1992, 106 Stat. 3544; Pub. L.104-104, title II, §205(b), title IV, §403(g), title V,§551(b)(1), (c), Feb. B. 1996, 110 Stat. 114, 131, 140,141; Pub. L. 105-33, title III, §3005, Aug. 5, 1997,111 Stat. 268.)

CODIFICATION

Enactment of subsec. (w) by Pub. L. 104-104,§551(b)(1), did not become effective pursuant to Pub. L.104-104, §551(e)(i), because the Federal CommunicationsCommission on Mar. 12, 1996, adopted an order findingacceptable the video prograrnming rating system cur-rently in voluntary use. See 1996 Amendment note andEffective Date of 1996 Amendment note below.

In subsec. (1)(3), "subchapter II of ebapter 5, and chap-ter 7, of title 5" substituted for "the AdlninistrativeProcedure Act" on authority of Pub. L. 89-554, §7(b),Sept. 6, 1966, 80 Stat. 631, the firat section of which en-acted Title 5, Government Organization and Employ-ees.

AMENDMENTS

1997-Subsec. (y). Pub. L. 105-33 added subsec. (y).1996--Subsec. (f). Pub. L. 104-104, §403(g), struck outafter a public hearing," after "unless".

Subsec. (v). Pub. L. 104-104, §205(b), added subsec. (v).Subsec. (w). Pub. L. 104-104, §551(b)(1), which did not

become effective, directed the insertion of subsec. (w)reading as follows: "Prescribe-

"(1) on the basis of recommendations from an advi-sory committee established by the Commission in ac-cordance with section 551(b)(2) of the Telecommuni-cations Act of 1996, guidelines and recommended pro-cedures for the identification and rating of video pre-gramming that contains sexual, violent, or other in-decont material about which parents should be in-formed before it is displayed to children: Provided,That nothing in thia paragraph shall be construed toauthorize any rating of video programming on thebasis of its political or religious content; and"(2) with respect to any video programming that

has been rated, and in consultation with the tele-vision industry, rules requiring distributors of suchvideo programming to transmit such rating to permitparents to block the display of video programmingthat they have determined is inappropriate for their

children."Sec Codification note above and Effective Date of 1996Amendment note below.

Subseo. (x). Pub. L. 104-104, §551(c), added subsec. (x).1992-Subsec. (q). Pub. L. 102-538 inserted ", and the

tower owner in any case in which the owner is not thepermittee or licensee," after "permittee or licensee".

1990-Subsec. (1)(3). Pub. L. 101-396 substituted"multilateral or bilateral agreement, to which theUnited States and the alien's government are parties,"for •'bilateral agreement between the United States andthe alien's government".

Subsec. (u). Pub. L. 101-431 added subsec. (u).1962-Subsec. (1)(1). Pub. L. 97-259, §109, substituted

"persons who are found to be qualified by the commis-sion and who otherwise are legally eligible for employ-ment in the United States" for "such citizens or na-tionals of the United States, or citizens of the TrustTerritory of the Pacific Islands presenting valid iden-tity certificates issued by the High Commissioner ofsuch Territory, as the Commission finds qualified", andsubstituted provision that the requirement relating toeligibility for employment in the United States shallnot apply in the case of licenses issued by the Commis-sion to (A) persons holding United States pilot certifi-cates; or (B) persons boiding foreign aircraft pilot cer-tificates which are valid in the United States, if theforeign government involved has entered into a recip-rocal agreement under which such foreign governmentdoes not impose any similar requirement rolating toeligibility for employment upon citizens of the UnitedStates for provision that in issuing licenses for the op-eration of radio stations on aircraft the Commission, ifit found that the public interest would be served there-by, could waive the requirement of citizenship in thecase of persons holding United States pilot certificatesor in the case of persons holding foreign aircraft pilotcertificates which were valid in the United States onthe basis of reciprocal agreements entered into withforeign governments.

Subsee. (m)(1)(A). Pub. L. 97-259, §110, inserted ", orcaused, aided, oe abetted the violation of," after "vio-lated".

Subsec. (n). Pub. L. 97-259, §113(b), inserted ", orwhicb the Conunission by rule has authorized to oper-ate without a license under section 307(e)(1) of thistitle," after "licensed by any Act".

Subsee. (t). Pub. L. 97-259, §111(a), added subsec. (t).1974-Subsec. (1)(2). Pub. L. 93-05 substituted provi-

sions relating to issuance, notwithstanding par. (1) ofthis subsection, to an individual to whom a radio sta-tion is licensed under this chapter of an operator's li-cense to operate that station, for provisiens relating toIssuance by the Commission of authorizations. Imder

Appx. 50

Page 111 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS §303

terms and conditions, for aliens licensed as amateurradio operators by their governments to operate in theUnited States, possessions, and Puerto Rico upon meet-ing specified preconditions.

Subsec. (1)(3). Pub. L. 93-505 substituted provisions re-lating to issuance of authorizations for aliens licensedby their governments as amateur radio operators to op-erate their radio stations in the United States, posses-sions, and Puerto ltico, Imder terms and conditions pre-scribed by the Commission and upon meeting specifiedpreconditions, for provisions relating to issuance of li-censes by the Commission, notwithstanding par. (1) ofthis subsection, to aliens admitted to the United Statesas permanent residents.

1971-Subsec. (I)(3). Pub. L. 9241 added par. (3).1965--Subsec. (q). Pub- L. &Ck_268 required abandoned

or unused radio towers to continue to meet the samepainting and lighting requirements that would be appli-cable if such towers were being used in connection withtransmission of radio energy pursuant to a license is-sued by the Commission and authorized the Commis-sion to direct dismantlement of such towers when theAdministrator of the Federal Aviation Agency deter-mines that there is a reasonable possibility that theymay constitute a menace to air navigation.

1964--Subaec. (1). Pub. L. 88-487 inserted "or citizensof the Trust Territory of the Pacific Islands presentingvalid identity certificates issued by the High Commis-sioner of such Territory".Pub. L. 88-313 designated existing provisions of sub-

sec. (t) as par. (1), and added par- (2).1962-Subsec. (1). Pub. L. 87-445 inserted "or nation-

als" after "citizens".Subsec. (s). Pub. L. 87-529 added subsec. (s).1958-Subsec. (i). Pub. L. 85-817 authorized Conunis-

sion to waive citizenship requirement in issuing li-censes for operation of radio stations on aircraft.

1937-.-. Subseos. (m), (n). Act May 20, 1937, §§5, 8(a),amended subsees. (m) and (n) generally-

Subsec. (r). Act May 20, 1937, §6(b), added subsec. (r).

EFFECTIVE DATE OF 1996 AMENDMENT

Section 551(e) of Pub. L. 104-104 provided that:°(1) APPLICABILPPY OFRATINC PROvisION.-The amend-

meat made by subsection (b) of this section (amendingthis section] shall take effect 1 year after the date ofenactment of this Act [Feb. 8, 1996), but only if theColnmiasion determines [see Codification note above),in consultation with appropriate public interest groupsand interested individuals from the private sector, thatdistributors of video programming have not, by suc:hdate-

"(A) established voluntary rules for rating videoprogranuning that contains sexual, violent, or otherindecent material about which parents should be in-formed before it is displayed to children, and suchrules are aoceptable to the Commission; and"(B) agreed voluntarily to broadcast signals that

contain ratings of such programining."(2) EFFECTIVE DATE OF MANUFACYPORIN6 PROVISION.-

In prescribing regulations to implement the amend-ment made by subsection (c) [ameudiqg this section7,the Federal Communications Commission shall, afterconsultation with the television manufacturing indus-try, specify the effective date for the applicability ofthe requirement to the apparatus. covered by suchamendment, which date shall not be less than twoyears after the date of enactment of this Act (Feb. 8,1996]." [On Mar. 12, 1998, the Federal CommunicationaCommission adopted technical rules that require cer-tain television receivers to be equipped witb features toblock display of programs with a common rating. Thisfeature was to be phased in, with half of subject tele-vision receivers to have it by July 1, 1999, and all suchmodels to have it by Jan. 1, 200D.]

EFFECTIVE DATE OF 1992 AMENDMENT

Section 210(c) of Pub. L. 102v38 provided that: "Theamendments nlade by subsection (a) Lamending this

section] shall take effect 30 days after the date of en-actment of this Act [Oct. 27, 1992)."

EFFECTIVE DA1'E OF 1990 AMENDMENT

Section 5 of Pub. L. 101-431 provided that: "Sections3 and 4 of this Act [amending this section and section330 of this title] shall take effect on July 1, 1993.°

REGULATIONS

Section 6 of Pub. L. 101-431 provided that: "The Fed-eral Communications Commission shall promulgaterules to implement this Act [amending this section andsection 330 of this title and enacting provisions set outas notes under this section and section 609 of this title]within 180 days after the date of its enactment (Oct. 15,1990) "

Pub, L. 1901159, title VI, §608, Oct. 1, 1988, 102 Stat,2228, directed Federal Communications Commission topromulgate, by Jan. 31, 1989, regulations in accordancewith section 1464 of Title 18, Crimes and^Criminal Pro-cedure, to enforce the provisions of such section on a 24hour per day basis, prior to repeal by Pnb. L. 10245B.§16(b), Aug. 26, 1992, 106 Stat. 954.

BROADCAST OWNERSnIP

Pub. L. 104-104, title II, §202, Feb. 8, 1996, 110 Stat. 110,as amended by Pub. L. 108-199, div. B, title VI, §629,Jan. 23, 2004, 118 Stat. 99, provided that:

°(a) NATIONAL RADIO STATION OWNERSIIIP RULECuANGEs REQulaEU -The Commiasion shall modify sec-tion 73.3555 of its regulations (47 C.F.R. 73.3555) byeliminating any provisions limiting the number of AMor FM broadcast stationa which may be owned or con-trolled by one entity nationally.

"(b) LOCAL RADIO DIVERSITY.-"(1) APPLIDARLE CAPs:-The Commission shall re-

vise section 73.3555(a) of its regulations (47 C.F.R.73.3555) to provide that-

"(A) in a radio Inarket with 45 or more comnler-cial radio stations, a party may own, operate, orcontrol up to 8 commercial radio atations, not morethan 5 of which are in the same service (AM or FM);

"(B) in a radio market with between 30 and 44 (in-clusive) commerciai radio stations, a party mayown, operate, or control up to 7 commercial radiostations, not more than 4 of which are in the sameservice (AM or FM);

"(C) in a radio market with between 15 and 29 (in-clusive) commercial radio stations, a Party ma.yown, operate, or control up to 6 commercial radiostations, not more than 4 of which are in the sameservice (AM or FM): and

"(D) in a radio market with 14 or fewer cornmer-cial radio stations, a party may own, operate, orcontrol up to 5 commercial radio stations, not morethan 3 of which are in the same service (AM or FM),except that a party may not own, operate, or con-trol more than 50 percent of the stations in aucbmarket."(2) EXCEPTION.-Notwithstanding any limitation

authorized by this subsection, the Commission maypermit a person or entity to own, operate, or control,or have a cognizable interest in, radio broadcast sta-tions if the Commission determines that such owner-ship, operation, control, or interest will result in anincrease in the rmrnber of radio broadcast stations inoperation.°(c) TELEVISION OWNERSIIIP LIMITAITONS.-

°(1) NATIONAI. OWNERSHIF LIMTTATIONS.-The Com-mission shall modify its rules for multiple ownershipset forth in section 73.3555 of its regulations (47 C.F.R.73.3555)-

"(A) by eliminating the restrictions on the num-ber of television stations that a person or entitymay directly or indirectly own, operate, or control,or have a cognizable interest in, nationwide; and

"(B) by increasing the national audience reachlimitation for television stations to 39 percent."(2) LOCAL OWNERSHIP LIMrrAT1ON8 -The CDIltrtiis-

sion ahall conduct a rulemaking proceeding to deter-

Appx. 51

§ 303 7'ITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS Page 112

mine whether to retain, modify. or eliminate its limi-tations on the number of television stations that aperson or entity may own, operate, or control, orhave a cognizable interest in, within the same tele-vision market.

"(3) DIVESTITURE.-A peraon or entity that exceedsthe 39 percent national audience reach limitation fortelevision stations in paragraph (1)(B) through grant,transfer, or assignment of an additional license for acommercial television broadcast station ehall havenot more than 2 years after exceeding such limitationto colne into compliance with such limitation. Thisdivestiture requirement shall not apply to persons orentities that exceed the 39 percent national audiencereach limitation tbrough population growth.

1(4) FOItaEARANGF.-Section 10 of the Communica-tions Act of 1934 (47 U.S.C. 160) shall not apply to anyperson or entity that exceeds the 39 percent nationalaudience reach limitation for television stations inparagraph (1)(B);[.]°(d) RPLAXATION OF ONF TO-A-MARKET.-With respect

to its enforcement of its one-to-a-market ownershiprules under section 73.3555 of its regulations, the Corn-mission shall extend its waiver policy to any of the top50 markets, consistent with the public interest, conven-ience, and necessity.

°(e) DUAL NB'rwORx CRANCES -The Commission shailrevise section 73.658(g) of its regulations (47 C.F.R.658(g)) to permit a television broadcast station to affili-ate with a person or entity that maintains 2 or morenetworks of television broadcast stations unless suchdual or multiple networks are composed of-

"(1) two or more persons or entities that, on thedate of enactment of the Teleeommunications Act of1996 [Feb. 8. 19961, are 'networks' as defined in section73.3613(a)(1) of the Commission's regulations (47C.F.R. 73.3613(a)(1)); or

"(2) any network described in paragraph (1) and anEnglish language program distribution service that,on such date, provides 4 or more hours of program-ming per week on a national basis pursuant to net-work affiliation arrangements with local televisionbroadcast stations in markets reaching more than 75percent of television homes (as measured by a na-tional ratings service)."(f) CABLE CROSS OWNERSHIP.-"(1) ELIMINATION OF RESTRICTIONS.-The Commis-

sion shall revise section 76.501 of its regulations (47

C.F.R. 76.501) to permit a person or entity to own or

control a network of broadcast stations and a cable

system.°(2) SAFF,GUARDS AGAINST DISCRIMINATION.-The

Commission shall revise suoh reguiations if necessaryto ensure carriage, channel positioning, and non-discriminatory treatment of nonaffiliated broadcaststations by a cabie system described in paragraph (1)."(g) LOCAL MARKETING AGREEMENPS.-Nothing in this

seetion shall be construed to prohibit the origination,continuation, or renewal of any television local mar-keting agreement that is in compliance with the regu-lations of the Commission.

"(h) FURTHER COMMISSION REVIEw.-The Commissionshall review its rules adopted pursuant to this sectionand all of its ownelship rules quadrennially as part ofits regulatory reform review under section 11 of theCornmunications Act of 1934 [47 U.S.C. 1611 and shall de-termine whether any of such rules are necessary in thepublic interest as the result of competition. The Com-mission ahall repeal or modify any regulation it deter-mines to be no longer in the public interest. This sub-section does not apply to any rules relating to the 39percent national audience reach limitation in sub-section (a)(1)(B).

"(i) ELIMINA'fION OF STATIPI'ORY RESTRICTION.-.(Amended section 533(a) of this title.)"

RESTRICTIONS ON OVER-TIE-AIR RECEPTION DEVICES

Section 207 of Pub. L. 104-104 provided that: "Within180 days after the date of enactment of this Act [Feb.8, 1996], the Comndssion shall, pursuant to section 303

of the Communications Act of 1934 [47 U.S.C. 303), pro-mulgate regulations to prohibit restrictions that im-pair.a viewer's ability to receive video programmingservices through devioes designed for over-the-air re-ception of television broadcast signals, nlultichannelmultipoint distribution service, or direct broadcast sat-ellite services."

PARENTAL Ci4oICE IN TELEVISION PROGRAMMING

Section 551(a) of Pub. L. 104-104 provided that: '°PhcCongress makes the following findings:

"(1) Television influences children's perception ofthe values and behavior that are common and accept-able in society."(2) Television station operators, cable television

system operators, and video programmers should fol-low practices in connection with video programmingthat take into consideration that television broad-cast and cable programming has established a unique-ly pervasive presence in the lives of American chil-dren.

"(3) The average Americwl child is exposed to 25hours of television each week and some children areexposed to as much as 11 hours of television a day."(4) Studies have ehown that children exposed to

violent video programming at a young age have ahigher tendency fnr violent and aggressive bebaviorlater in life than chiltlren not so exposed, and thatchildren exposed to violent video programming areprone to assume that acts of violenee are acceptable

behavior."(5) Children in the United States are, on average,

exposed to an estimated 8,000 murders and 1e0,000 actsof violence on television by the time the child com-pletes elelnentary school."(6) Studies indicate that children are affected by

the pervasiveness and casual treatment of sexual ma-terial on television, eroding the ability of parents todevelop responsible attitudes and behavior in theirchildren.

"(7) Parents express grave concern over violent andeexual video programming and strongly support tech-nology that would give them greater control to blockvideo programming in the home that they considerharmful to their children.

°(8) There is a compelling governmental interest inempowering parents to limit the negative iniluencesof video programming that is harmful to children.

"(9) Providing parents with timely informationabout the nature of upcoming video progranlming andwith the technological tools that allow them easilyto block violent, sexual, or otlier progralnming thatthey believe harmful to their chiidren is a nonintru-sive and narrowly tailored means of achieving thatcompelling governmental interest."

ADVISORY COMMITTF.E REQUIREMENTS

Section 551(b)(2) of Pub. L. 104-104 provided that: "Inestablishing an advisory committee for purposes of theamendment made by paragraph(1) of this subseetion[amending this section], the Commission shall-

"(A) ensure that sueh committee is composed ofparents, televisibn broadcasters, television program-ming producers, cable operators, appropriate publicinterest groupa, and other interested individuals fromthe private sector and is fairly balanced in terms ofpolitical affiliation, the points of view represented,and the functions to be performed by the committee;"(B) provide to the colnmittee such staff and re-

sourees as may bo necessary to permit it to performits functions efficiently and promptly; and

"(C) require the committee to submit a frnal reportof its recommendations within one year after thedate of the appointment of the initial members."

TECHNOLOGY FUND

Section 552 of Pub. 1,. 104-104 provided that: "It is thepolicy of the United States to encourage broadcasttelevision, cable, satellite, syudication, other video

Appx. 52

Page 113 I'I'PLE 47---TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS §303a

programming distributors, and relevant related indus-tries (in consultation with appropriate public interestgroups and interested individuals from the private sec-tor) to-

"(1) establish a technology fund to encourage tele-vision and electronics equipment manufaetnrers tofaoilitate the development of technology which wouldempower parents to block programming they deeminappropriate for their children and to encourage theavailability thereof to low income parents;"(2) report to the vlewing public on the status of

the development of affordable, easy to use blockingtechnology; and

"(3) establish and promote effective procedures,standards, systems, advisories, or other mechanismsfor ensuring that users have easy and complete accessto the information necessary to effectively utilizeblocking technology and to encourage the availabil-ity thereof to low income parents."

AM RAOIO IMPROVEMENT STANDARD

Section 214 of Pub. L. 102-538 provided that: °'1'heFederal Communications Commission shall-

"(1) within 60 days after the date of enactment ofthis Act [Oct. 27, 1992], initiate a rulemaking to adopta single AM radio stereophonic transmitting equip-ment standard that specifies ths composition of thetransmitted stereophonic signal; and

"(2) within one year after such,date of enactment,adopt such standard."

BROADCASTING OF INDECENT PROGRAMMING; FCC

REGULATIONS

Pub. L. 10"56, § 16(a), Aug. 26, 1992, 106 Stat. 964, pro-

vided that: "The Federal Communications Commissionshall promulgate regulations to prohibit the broadeast-ing of Indecent programming-

"(1) between 6 a.m. and 10 P.M. on any day by anypublic radio atation or public television station thatgoes off the air at or before 12 midnight; and

"(2) between 6 a.m. and 12 midnight on any day forany radio or television broadcasting station not de-scribed in paragraph (1).

The regulations required under this subsection shall bepromulgated in accordance with section 553 of title 5,United States Code, and shall become final not laterthan 180 days after the date of enactment of this Act

(Aug. 26, 1992] "

CONGREssIONAL FINDINGs REGARDING ACCESs BYHEARING-IMPAIRED PEOPLE TO TELEVISION MEDIUM

Section 2 of Pub. L. 101-431 provided that: "The Con-

gress finds that-"(1) to the fullest extent made possible by tech-

nology, deaf and hearing-impaired people should haveequal aceess to the television medium;"(2) closed-captioned television transmissions have

made it possible for thousands of deaf and hearing-impaired people to gain access to the television me-dium, thus significantly improving the quality oftheir lives;

"(3) closed-captioned television will provide accessto information, entertainment, and a greater under-standing of our Nation and the world to over24,000,000 people in ths United States who are deaf orhearing-impaired:

"(4) closed-captioned television will provide bene-fits for the nearly 38 percent of older Americans whohave some loss of hearing;"(5) closed-captioned television can assist both

bearing and hearing-impaired children with readingand other learning skills, and improve literacy skillsamong adults;"(6) closed-captioned television can assist those

among our Nation's large irnmigrant population whoare learning English as a second language with lan-

guage comprehension;"(7) currently, a consumer must buy a TeleCaption

decoder and connect the decoder to a television set in

order to display the closed-captioned television

transmissions;"(8) technology is now available to enable that

closed-caption decoding capability to be built intonew television sets during manufacture at a nominalcost by 1991; and

°(0) the availability of decoder-equipped television

sets will significantly increase the audience that canbe served by closed-captioned television, and such in-creased market will be an incentive to the televisionmedium to provide more captioned programming."

DIRECTION ON USE OP FUNDS RECARDiNG SPECTRUM

ALLOCATION AND ASSIGNMENTB FOR PUBLIC SAFETY

PURPOSES

Pub. L. 98-214, §9, Dec. 8, 1983, 97 Stat. 1470, providedthat:

"(a) Funds authorized to be appropriated under sec-tion 2 of this Act (amending section 156 of this title)shall be used by the Federal Communications Commis-sion to establish a plan which adequately ensures thatthe needs of State and local public safety authoritieswould be taken into account in making allocations ofthe electromagnetic spectrum. In establisbing such aplan the Commission shall (1) review the current andfature needs of such public safety autborities in lightof suitable and commercially available equipment and(2) consider the need for a nationwide contiguous fre-quency allocation for public safety purposes.

"(b) Pending adoption of a plan, the Commission,while making assignments and allocations, shall dulyrecognize the needs of State and local public safety au-thorities."

§303a, Standards for children's television pro-gra+++m g

(a) EstablishmentThe Commission shall, within 30 days after Oc-

tober 18, 1990, initiate a rulemaking proceedingto prescribe standards applicable to commercialtelevision broadcast licensees with respect tothe time devoted to commercial matter in con-junction with children's television program-ming. The Commission shall, within 180 daysafter October 18, 1990, complete the ruleniakingproceeding and prescribe final standards thatmeet the requirements of subsection (b) of thissection.(b) Advertising duration limitationsExcept as provided in subsection (c) of this

section, the standards prescribed uDder sub-seetion (a) of this section shali include the re-quirement that each commercial televisionbroadcast licensee shall limit the duration of ad-vertising in children's television programmingto not more than 10.5 rninutes per hour on week-ends and not more than 12 minutes per hour onweekdays.(c) Review of advertising duration limitations;

modificationAfter January 1, 1993, the Commission-(1) may review and evaluate the advertising

duration limitations required by subsection(b) of this section; and

(2) may, after notice and public commentand a demonstration of the need for modifica-tion of such limitations, modify such limita-tions in accordance with the public interest.

(d) "Commercial television broadcast licensee"defined

As used in this section, the term "commercialtelevision broadcast licensee" includes a cableoperator, as defined in section 522 of this title.

Appx. 53

I7NITED STATES CODE2006 EDITION

CONTAINING THE GENERAL AND PERMANENT LAWS

OF THE UNITED STATES ENACTED TITROUGII THE

109TH CONGRESS

(ending January 3, 2007, the last law of whieh was signed on January 15, 2007)

1' epared and published under authority of Title 2, U.S. Code, Section 285h,

by the Office of the Law Revision Counsel of the House of Representatives

VOLUME TWENTY-NINE

TITLE 47-TELEGRAPHS, TELEPHONES, AND

RADIOTELEGRAPIiS

TO

TITLE 49-TRANSPORTATION

§§1u1-33118

UNITED STATES

GOVL+RN.IIENTT PRINTING OFFICE

WASHIi\GTGi\' : 2008

Appx. 5440-129 D SW

This book has been digitally archived to maintainthe quality of the original work for future generationsof legal researchers by William S. Hein & Co., Inc.

"I'his volulne printed on acid-free paperby William S. I-lein & Co., Inc.

Printed in the United States of America.

Far eale by the Snperlntendent of Docom¢nta. UB. Covernment Printnu[ Ofnceinternet: boolceture.gpo.gov Phone: (203) 512-180D Fax: (202) 512-7150

Mail: SCOV SSOP, Waehington. DC 20402-0001

Appx. 55

Page 157 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS §336

W. Direct broadcast satellite service obliga-tions

(a) Proceeding required to review DBS respon-sibilities

The Commission shall, within 180 days afterOctober 5,1992,initiate a rulemaking proceedingto impose, on providers of direct broadcast sat-ellite service, public interest or other require-ments for providing video programming. Anyregulations prescribed pursuant to such rule-making shall, at a minimum, apply the access tobroadcast time requirement of section 312(a)(7)of this title and the use of facilities require-ments of section 315 of this title to providers ofdirect broadcast satellite service providingvideo programming. Such proceeding also shallexamine the opportunities that the establish-ment of direct broadcast satellite service pro-vides for the principle of localism under thischapter, and the methods by which such prin-ciple may be served through technological andother developments in, or regulation of, suchservice.

(b) Carriage obligations for noncommercial, edu-cational, and informational programming

(1) Channel capacity required

The Commission shall require, as a condi-tion of any provision, initial authorization, orauthorization renewal for a provider of directbroadcast satellite service providing video pro-gramming, that the provider of such servicereserve a portion of its channel capacity,equal to not less than 4 percent nor more than7 percent, exclusively for noncommercial pro-gramming of an educational or informationalnature.(2) Use of unused channel capacity

A provider of such service may utilize forany purpose any unused channel capacity re-quired to be reserved under this subsectionpending the actual use of such channel capac-ity for noncommercial programming of aneducational or informational nature.

(3) Prices, terms, and conditions; editorial con-trol

A provider of direct broadcast satellite serv-ice shall meet the requirements of this sub-section by making channel capacity availableto national educational programming suppli-ers, upon reasonable prices, terms, and condi-tions, as determined by the Commission underparagraph (4). The provider of direct broadcastsatellite service shall not exercise any edi-torial control over any video programmingprovided pursuant to this subsection.

(4) LimitationsIn determining reasonable prices under para-

graph (3)-(A) the Commission shall take into ac-

count the nonprofit character of the. pro-gramming provider and any Federal fundsused to support such programming;

(B) the Commission shall not permit suchprices to exceed, for any channel made avail-able under this subsection, 50 percent of thetotal direct costs of making such channelavailable; and

(C) in the calculation of total direct costs,the Commission shall exclude-

(i) marketing costs, general administra-tive costs, and similar overhead costs ofthe provider of direct broadcast satelliteservice; and

(ii.) the revenue that such provider mighthave obtained by making such channelavailable to a commercial provider ofvideo programming.

(b) Definitions

For purposes of this subsection-(A) The telm "provider of direct broadcast

satellite service" means-(i) a licensee for a Ku-band satellite sys-

tem under part 100 of title 47 of the Codeof Federal Regulations; or

(ii) any distributor who controls a mini-mum number of channels (as specified byCommission regulation) using a Ku-bandfixed service satellite system for the provi-sion of video programming directly to thehome and licensed under part 25 of title 47of the Code of Federal Regulations.

(B) The term "national educational pro-gramming supplier" includes any qualifiednoncommercial educational television sta-tion, other public telecommunications enti-ties, and public or private educational insti-tutions.

(June 19, 1934, ch. 652, title III, §335, as addedPub. L. 102-385, §25(a), Oct. 5, 1992, 106 Stat.1501.)

EFFECr1VE DATE

Section effective 60 days after Oct. 5, 1992, see section28 of Pub. L. 102-385, set out aa an Effective Date of 1992Amendment note under section 325 of this title.

§ 336. Broadcast spectrum flexibility

(a) Commission action

If the Commission determines to issue addi-tional licenses for advanced television services,the Commission-

(1) should limit the initial eligibility forsuch licenses to persons that, as of the date ofsuch issuance, are licensed to operate a tele-vision broadcast station or hold a permit toconstruct such a station (or both); and

(2) shall adopt regulations that allow theholders of such licenses to offer such ancillaryor supplementary services on designated fre-quencies as may be consistent with the publicinterest,convenienee,and necessity.

(b) Contents of regulations

In prescribing the regulations required by sub-sectiun (a) of this section, the Commissionshall-

(1) only permit sucb licensee or permittee tooffer anciilary or supplementary services ifthe use of a designated frequency for suchservices is consistent with the technology ormethod designated by the Commission for theprovision of advanced television services;(2) limit the broadcasting of ancillary or

supplementary services on designated fre-quencies so as to avoid derogation of any ad-vanced television selvices,including high defi-

Appx. 56

UNITED STATES CODE2006 EDITION

CONTAINING THE GENERAL AND PERMANENT I.AWS

OF THE UNITED -STATES ENACTED THROUGH TI3E

109TH CONGRESS

(ending January 3, 2007, ttle last law of whiail was signed on January 15, 2007)

Prepared and published under authority of Title 2, U.S. Code, Section 285b,

by the Office of the Lavv Revision Coimse! of the House of Representatives

VOLUME TW ENTY-NINE

TITLE 47-TELEGRAPIIS, TELEPIIONES, AND

RADIOTELEGRAPHS

TO

TITLE 49-TRANSPORTATION

§§ 1f3J-33118

U\TITED STATES

GOVF.'RN3iENT PRINTING OFFICE

WASHIiNGTON :2008

Appx. 5740-129 e Sip'1

This book has been digitally archived to maintainthe quality of the originaf work for future generationsof legal researchers by William S. Hein & Co., Inc.

This volume printed on acid-free paperby William S. Hein & Co., Inc.

00

Printed in ttle United States of America.

For eale by the Supertntendent of Documents, U.S. Government Printing OfnceInternet:bookstore.gpo.gov Phoue: (202) 512-1800 Fo-x: (202) 512-22M

Meil: Stop SSOP, Wavh{ngtun. DC 2D102-0001

Appx. 58

Page 165 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPIIS §338

fortb under paragraph (1)(A), an explanation for suchdeviations from the schedule."(4) Each report required by this subsection shall be

prepared by the agency concerned without influence ofany otber Federal department or agency."(5) In this subsection, the term "appropriate con-

gressional committees" means the following:"(A) The Committees on Appropriations, the Budg-

et, and Commerce, Science, and Transportation of theSenate.

°(B) The Committees on Appropriations, the Budg-et, and Commerce of the House of Representatives."(o) CowsTRucTioN.-Nothing in this section shail be

construed to supersede the requirements placed on theFederal Communieations Commission by section337(d)(4) of the Communications Aot of 1934 (47 U.S.C.337(d)(4)).

"(d) REPEAL OF SUPERBEDED PROVIs1ONS.-Section8124 of the Department of Defense Appropriations Act,2000 [Pub. L. 10Cr79, amending this section and enactingprovisions formerly set out under this section] is re-pealed."

Pub. L. 106-79, title VIII, §8124, Oct. 25, 1999, 113 Stat.1202, related to the establishment of a competitive bid-ding process for commercial licenses and required re-ports to Congressional committees, prior to repeal byPub. L. 106-113, div. B, §1000(a)(5) [title lI, §213(d)]. Nov.

29, 1999, 113 Stat, 1536, 1501A-297.

$338. Carriage of loeal television signals by sat-ellite carriers

(a) Carriage obligations(1) In general

Each satellite carrier providing, under sec-tion 122 of title 17, secondary transmissions tosubscribers located within the local market ofa television broadcast station of a primarytransmission made by that station shall carryupon request the signals of all televisionbroadcast stations located within that localmarket, subject, to section 325(b) of this title.

(2) Remedies for failnre to carryIn addition to the remedies available to tele-

vision broadcast stations under section 501(f)of title 17, the Commission may use the Com-mission's authority under this chapter to as-sure compliance with the obligations of thissubsection, but in no instance shall a Commis-sion enforcement proceeding be required as apredicate to the pursuit of a remedy availableunder such section 501(f).(3)1 Low power station carriage optional

No low power television station whose sig-nals are provided under section 119(a)(14) oftitle 17 shall be entitled to insist on carriageunder this section, regardless of whether thesatellite carrier provides secondary trans-missions.of the primary transmissions of othe.rstations in the same local market pursuant tosection 122 of such title, nor shall any suchcarriage be considered in connection with therequirements of subsection (c) of this section.

(3) 1 Effective date

No satellite carrier shall. be required tocarry local television broadcast stations underparagraph (1) until January 1, 2002.(4) Carriage of signals of local stations in cer-

tain marketsA satellite carrier that offers multichannel

video programming distribution service in the

'So in original. Two para. (3) have been enacted.

United States to more than 5,000,000 subscrib-ers shall (A) within 1 year after December 8,2004, retransmit the signals originating as ana-log signals of each television broadcast stationlocated in any local market within a Statethat is not part of the contiguous UnitedStates, and (I3) within 30 months after Decem-ber 8, 2004, retransmit the signals originatingas digital signals of each such station. The re-transmissions of such stations shall be madeavailable to substantially all of the satellitecarrier's subscribers in each station's localmarket, and the retransmissions of the sta-tions in at least one market in the State shallbe made available to substantially all of thesatellite carrier's subscribers in areas of theState that are not within a designated marketarea. The cost to subscribers of such retrans-missions shall not exceed the cost of retrans-missions of local television stations in otherStates. Within 1 year after December 8, 2004,the Commission shall promulgate regulationsconcerning elections by television stations insuch State between mandatory carriage pursu-ant to this section and retransmission consentpursuant to section 325(b) of this title, whichshall take into account the schedule on whichlocal television stations are made available toviewers in such State.

(b) Good signal required(1) CostsA television broadcast station asserting its

right to carriage under subsection (a) of thissection shall be required to bear the costs as-sociated with delivering a good quality signalto the designated local receive facility of thesatellite carrier or to another facility that isacceptable to at 4east one-half the stations as-serting the right to carriage in the local mar-ket.

(2) R.egulationsThe regulations issued under subsection (g)

of this section shall set forth the obligationsnecessary to carry out this subsection.

(c) Duplication not required

(1) Commercial stations

Notwithstianding subsection (a)(1) of thissection, a satellite carrier shall not be re-quired to carry upon request the signal of anylocal commercial television broadcast stationthat substantially duplicates the signal of an-other local commercial television broadcaststation which is secondarily transmitted bythe satellite carrier within the same localmarket, or to carry upon request the signals ofmore than one local commercial televisionbroadcast station in a single local market thatis affiliated with a particular television net-work unless such stations are licensed to com-munities in different States.

(2) Noncommercial etations

The Commission shall prescribe regulationslimiting the carriage reqnirements under sub-section (a) of this section of satellite carrierswith respect to the carriage of multiple localnoncommercial television broadcast stations.To the extent possible, such regulations shallprovide the same degree of carriage by sat-

Appx. 5 9

§ 338 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEOItAPHS Page 166

ellite carriers of such multiple stations as is priate remedial action. If the Commission de-provided by cable systems under section 535 of termines that the satellite carrier has fullythis title, met the requirenients of such subsections, the

(d) Channel positioning Commission shall dismiss the complaint.(g) Carriage of local stations on a single dish

i d to pro-reNo satellite carrier shall be requvide the signal of a local television broadcast (1) Single dish

station to subscribers in that station's localmarket on any particular channel number or toprovide the signals in any particular order, ex-cept that the satellite carrier shali retransmitthe signal of the local television broadcast sta-tions to subscribers in the stations' local mar-ket on contiguous channels and provide accessto such station's signals at a nondiscriminatoryprice and in a nondiscriminatory manner on anynavigational device, on-screen program guide, ormenu.

(e) Compensation for carriageA satellite carrier shall not accept or request

monetary payment.or other valuable consider-ation in exchange either for carriage of localtelevision broadcast stations in fulfillment ofthe requirements of this section or for channelpositioning rights provided to such stationsunder this section, except that any such stationmay be required to bear the costs associatedwith delivering a good quality signal to thelocal receive facility of the satellite carrier.

(f) Remedies(1) Complaints by broadcast stations

Whenever a local television broadcast sta-tion believes that a satellite carrier has failedto meet its obligations under subsections (b)through (e) of this section, such station shallnotify the carrier, in writing, of the allegedfailure and identify its reasons for believingthat the satellite carrier failed to comply withsuch obligations. The satellite carrier shall,within 30 days after such written notification,respond in writing to such notification andcomply with such obligations or state its rea-sons for believing that it is in compliance withsuch obligations. A local television broadcaststation that disputes a response by a satellitecarrier that it is in compliance with such obli-gations may obtain review of such denial orresponse by filing a complaint with the Com-mission. Such complaint shall allege the man-ner in which such satellite carrier has failedto meet its obligations and the basis for suchallegations.

(2) Opportunity to respond

The Commission shall afford the satellitecarrier against which a complaint is filedunder paragraph (1) an opportunity to presentdata and arguments to establish that therehas been no failure to meet its obligationsunder this section.

(3) Remedial actions; dismissalWithin 120 days after the date a complaint is

filed under paragraph (1), the Commissionshall determine whether the satellite carrierhas met its obligations under subsections (b)through (e) of this section- If the Commissiondetermines that the satellite carrier has failedto meet such obligations, the Commissionshall order the satellite carrier to take appro-

Each satellite carrier that retransmits theanalog signals of local television broadcaststations in a local market shall retransinitsuch analog signals in such market by meansof a single reception antenna and associatedequipment.(2) Exception

If the carrier retransmits signals in the digi-tal television service, the carrier shall re-transmit such digital signals in such marketby means of a single reception antenna and as-sociated equipment, but such antenna and as-sociated equipment may be separate from thesingle reception antenna and associated equip-ment used for analog television service sig-nals.

(3) Effective date

The requirements of paragraphs (1) and (2) ofthis subsection shall apply on and after 18months after December 8, 2004.(4) Notice of disruptions

A carrier that is providing signals of a localtelevision broadcast station in a local marketunder this section on December 8, 2004, shall,not later than 15 months after December 8,2004, provide to the licensees for such stationsand the carrier's subscribers in such localmarket a notice that displays prominentlyand eonspicuously a clear statement of-

(A) any reallocation of signals between dif-ferent reception antennas and associatedequipment that the carrier intends to makein order to comply with the requirements ofthis subsection;

(B) the need, if any, for subscribers to ob-tain an additional reception antenna and as-sociated equipment to receive such signals;and(C) any cessation of carriage or other ma-

terial change in the carriage of signals as aconsequence of the requirements of thisparagrapli.

(h) Additional notices to subscribers, networks,and stations concerning signal carriage

(1) Notices to and elections by subscribers con-cerning grandfathered signals

Any carrier that provides a distant signal ofa network station to a subscriber pursuant'section 339(a)(2)(A) of this title shall-

(A) within 60 days after the local signal ofa network station of the same televisionnetwork is available pursuant to section 338of this title, or within 60 days after Decem-ber 8, 2004, whichever is later, send a noticeto the subscriber-

(i) offering to substitute the local net-work signal for the duplicating distantnetwork signal; and(ii) informing the subscriber that, if the

subscriber fails to respond in 60 days, the

'So in odginal. Probably should be follawMt by "to".

Appx.60

Page 167 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS 6338

subscriber will lose the distant networksignal but will be permitted to subscribeto the local network signal; and

(B) if the subscriber-(i) elects to substitute such local net-

work signal within such 60 days, switchsuch subscriber to such local network sig-nal within 10 days after the end of such 60-day period; or(ii) fails to respond within such 60 days,

terminate the distant network signal with-in 10 days after the end of such 60-day pe-riod.

(2) Notice to station licensees of commence-ment of local-into-local service

(A) Notice requiredWithin 180 days after December 8, 2004, the

Commission shall revise the regulationsunder this section relating to notice tobroadcast station licensees to comply withthe requirements of this paragraph.

(B) Contents of commencement noticeThe notice required by such regulations

shall inform each television broadcast sta-tion licensee within any local market inwbich a satellite carrier proposes to com-mence carriage of signals of stations fromthat market, not later than 60 days prior tothe commencement of such carriage-

(i) of the carrier's intention to launchlocal-into-local service under this sectionin a local market, the identity of thatlocal market, and the location of the car-rier's proposed local receive facility forthat local market;

(ii) of the right of such licensee to electcarriage under this section or grant re-transmission consent under section 325(b)of this title;

(iii) that such licensee has 30 days fromthe date of the receipt of such notice tomake such election; and(iv) that failure to make such election

will result in the loss of the right to de-mand carriage under this section for theremainder of the 3-year cycle of carriageunder section 325 of this title.

(C) ltansmission of notices

Such regulations shall require that eachsatellite carrier shall transmit the noticesrequired by such regulation via certifiedmail to the address for such television sta-tion licensee listed in the consolidated data-base system maintained by the Commission.

(i) Privacy rights of satellite subscribers

(1) NoticeAt the time of entering into an agreement to

provide any satellite service or other serviceto a subscriber and at least once a year there-after, a satellite carrier shall provide notice inthe form of a separate, written statement tosuch subscriber which clearly and conspicu-ously informs the subscriber of-

(A) the nature of personally identifiableinformation collected or to be collected withrespect to the subscriber and the nature ofthe use of such information;

(B) the nature, frequency, and purpose ofany disclosure which may be made of suchinformation, including an identification ofthe types of persons to whom the disclosuremay be made;(C) the period during which such informa-

tion will be maintained by the satellite car-rier;

(D) the times and place at which the sub-scriber may have access to such informationin accordance with paragraph (5); and(E) the limitations provided by this sec-

tion with respect to the collection and dis-closure of inforniation by a satellite carrierand the right of the subscriber under para-graphs (7) and (9) to enforce such limita-tions.

In the case of subscribers who have enteredinto such an agreement before the effectivedate of this subsection, such notice shall beprovided within 180 days of such date and atleast once a year thereafter.

(2) Definitions

For purposes of this subsection, other thanparagraph (9)-

(A) the term "personally identifiable infor-mation" does not include any record of ag-gregate data which does not identify par-ticular persons;

(B) the term "other service" includes anywire or radio communications service pro-vided using any of the facilities of a satellitecarrier that are used in the provision of sat-ellite service; and(C) the term "satellite carrier" includes,

in addition to persons within the definitionof satellite carrier, any person who-

(i) is owned or controlled by, or undercommon ownership or control with, a sat-ellite carrier; and(ii) provides any wire or radio commu-

nications service.

(3) Prohibitions .(A) Consent to collectionExcept as provided in subparagraph (B), a

satellite carrier shall not use any facilitiesused by the satellite carrier to collect per-sonally identifiable information concerningany subscriber without the prior written orelectronic consent of the subscriber con-cerned.

(B) ExceptionsA satellite carrier may use such facilities

to collect such information in order to-(i) obtain information necessary to

render a satellite service or other serviceprovided by the satellite carrier to thesubscriber; or(ii) detect unauthorized reception of sat-

ellite communications_

(4) Disclosure(A) Consent to disclosure

Except as provided in subparagraph (B), asatellite carrier shall not disclose personallyidentifiable information concerning any sub-scriber without the prior written or elec-tronic consent of the subscriber concerned

Appx. 61

§338 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTEhEGRAPHS Page 16B

and shall take such actions as are necessaryto prevent unauthorized access to such infor-mation by a person other than the sub-scriber or satellite carrier.(R) ExceptionsA satellite carrier may disclose such infor-

mation if the disclosure is-(i) necessary to render, or conduct a le-

gitimate business activity related to, asatellite service or other service providedby the satellite carrier to the subscriber;(ii) subjeet to paragraph (9), made pursu-

ant to a court order authorizing such dis-closure, if the subscriber is notified of suchorder by the person to whom the order isdirected;

(iii) a disclosure of the names and ad-dresses of subscribers to any satellite serv-ice or other service, if-

(I) the satellite carrier has providedthe subscriber the opportunity to pro-hibit or limit such disclosure; and

(II) the disclosure does not reveal, di-rectly or indirectly,the-

(aa) extent of any viewing or otheruse by the subscriber of a satelliteservice or other service provided bythe satellite carrier; or

(bb) the nature of any transactionmade by the subscriber over any facili-ties used by the satellite carrier; or

(iv) to a government entity as authorizedunder chapter 119, 121, or 206 of title 18, ex-cept that such disclosure shall not includerecords revealing satellite subscriber se-lection of video programming from a sat-ellite carrier.

(5) Access by subscriberA satellite subscriber shall be provided ac-

cess to all personally identifiable informationregarding that subscriber which is collectedand maintained by a satellite carrier. Such in-formation shall be made available to the sub-scriber at reasonable times and at a conven-ient place designated by such satellite carrier.A satellite subscriber shall be provided reason-able opportunity to correct any error in suchinformation.(6) Destruction of information

A satellite carrier shall destroy personallyidentifiable information if the information isno longer necessary for the purpose for whichit was collected and there are no pending re-quests or orders for access to such informationunder paragraph (5) or pursuant to a courtorder.

(7) Penalties

Any person aggrieved by any act of a sat-ellite carrier in violation of this section maybring a civil action in a United States districtcourt. The court may award-

(A) actual damages but not less than liq-uidated damages computed at the rate of$100 a day for each day of violation or $1,000,whichever is higher;

(B) punitive damages; and(C) reasonable attorneys' fees and other

. litigation costs reasonably incurred.

The remedy provided by this subsection shallbe in addition to any other lawful remedyavailable to a satellite subscriber.

(8) Rule of constructionNothing in this subehapter shall be con-

strued to prohibit any State from enacting orenforcing laws consistent with this section forthe protection of subscriber privacy.

(9) Court ordersExcept as provided in paragraph (4)(13)(iv), a

governmental entity may obtain personallyidentifiable information concerning a satellitesubscriber pursuant to a court order only if, inthe court proceeding relevant to sucb courtorder-

(A) such entity offers clear and convincingevidence that the subject of the informationis reasonably suspected of engaging in crimi-nal activity and that the information soughtwould be material evidence in the case; and(B) the subject of the information is af-

forded the opportunity to appear and contestsuch entity's claim.

(j) Regulations by Commission

Within 1 year after November 29, 1999, theCommission shall issue regulations implement-ing this section following a rulemaking proceed-ing. The regulations prescribed under this sec-tion ahall include requirements on satellite car-riers that are comparable to the requirementson cable operators under sections 534(b)(3) and(4) and 535(g)(1) and (2) of this title.(k) Definitions

As used in this section: -(1) DistributorThe term "distributor" means an entity

which contracts to distribute secondary trans-missions frorn a satellite carrier and, either asa single channel or in a package with otherprogramming, provides the secondary trans-mission either directly to individual subscrib-ers or indirectly through other program dis-tribution entities.

(2) Local receive facility

The term "local receive facility" means thereception point in each local market which asatellite carrier designates for delivery of thesignal of the station for purposes of retrans-mission.(3) Local market

The term "local market" bas the meaninggiven that term under section 122(j) of title 17.

(4) Low power television station

The term "low power television station"means a low power television station as de-fined under section 74.761(f) of title 47, Code ofFederal Regulations, as in effect on June 1,2004. For purposes of this paragraph, the term"low power television station" includes a lowpower television station that has been ac-corded primary status as a Class A televisionlicensee under section 73.6001(a) of title 47,Code of Federal Regulations.(5) Satellite carrierThe term "satellite carrier" has the mean-

ing given such term under section 119(d) oftitle 17.

Appx.62

Page 169 TPPLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS § 339

(6) Secondary transmissioa

The term "secondary transmission" has themeaning given such term in section 119(d) oftitle 17.

(7) Subscriber

The term "subscriber" has the meaninggiven that term under section 122(j) of title 17.

(8) Television broadcast station

The term "television broadcast station" hasthe meaning given such term in section325(b)(7) of this title.

(June 19, 1934, ch. 652, title III, §338, as addedPub. L. 106-113, div. B, §1000(a)(9) [title I,§1008(a)], Nov. 29, 1999, 113 Stat. 1536, 1501A-531;amended Pub. L. 108-447, div. J, title IX [title II,§§203, 205, 206(a), 2101, Dec. 8, 2004, 118 Stat. 3414,3424, 3425, 3429.)

REFERFNCEs IN TEXT

For the effective date of this subsection, referred toin subsec. (1)(1), as 60 days after Dec. 8, 2004, see section206(b) of Pub. L. 100-447, set out as an Effective Date of2004 Amendment note below.

AMENDMBNTS

2001--Subsec. (a)(1) to (3). Pub. L. 108-447, §203(b)(1),added pars. (1) and (2) and the par. (3) relating to lowpower station carriage and struek out former pars. (1)and (2) which requfred each satellite carrier providingsecondary transmissions within the local market of atelevision broadcast station of a primary transmissionmade by that station to carry upon request the signalsof all television broadeast stations within that localmarket and pravided for remedies for failure to carry.

Subsec. (a)(4). Pub. L. 106-447, §210, added par. (4).Subsec. (c)(1). Pub. L. 10a-447, §203(b)(2), substituted

"subsection (a)(1)" for "subsection (a)".Subsecs. (g), (h). Pub. L. 108-447, §§203(a)(2), 205, added

subsecs. (g) and (h). Former subsecs. (g) and (h) redesig-nated (j) and (k), respectively.

Subsec. W. Pub. L. 108-447, §206(a), added subsee. (1).Subsec. (j). Pub. L. 108-447, §203(a)(1), redesignated

subsec. (g) as (j).Subsec. (k). Pub. L. 10"7, §203(a)(1), redesignated

subsec. (h) as (k).Subsec. (k)(4) to (8). Pub. L. 108-447, §203(b)(3), added

par. (4) and redesignated former pars. (4) to (7) as (5) to(8). respectively.

EFFECTIVE DATE oF 2004 AMF.NDMENr

Pub. L. f06-447, div. J, title IX [title II, §206(b)), Dec.8, 2004. 118Btat. 3428, provided that: "Section 338(i) ofthe Communicatfons Act of 1934 (47 U.S.C. 338(1)) asamended by subsection (a) of this section Nhall be effec-tive 60 days after the date of enaetment of this Act[Dec. 8, 20041."

RURAL LOCAL TELEVISION SIGNALS

Pub. L. 106-113, div. B. §1000(a)(9) [title M. Nov. 29,1999, 113 Stat. 1536, 1501A-544, provided that:

"SEC. 2001. SHORT TI'i`-LE."This title may be cited as the `Rural Local Broad-

cast Signal Act'.

"SEC. 2002. LOCAL TELEVISION SERVICE IN UN-SERVED AND UNDERSERVED MARKETS.

"(a) IN GENEItAI..-Not later than 1 year after thedate of the enactment of this Act [Nov. 29, 1999], theFederal Communications Cominission (`the Commis-sion') shall take all aetions necessary to make a deter-mination regarding licenses or other authorizations forfacilities that will utilize, for delivering local broad-cast television station signals to satellite televisionsubscribers in unserved and underserved local tele-

vision markets, spectrum otherwise allocated to com-mercial use.

"(b) RULEs.-"(1) FOaM OF BUSINESS.-To the extent not incon-

sistent with the Communications Act of 1934 [47U.S.C. 151 et seq.j and the Commission's rules, theCommission shall pernvt applicants under subsection(a) to engage in partnerships, joint ventures, andsimilar operating arrangements for the purpose ofcarrying out subsection (a).

"(2) HARMFUL INTFRFERENCE.-The Commissionshali ensure that no facility licensed or authorizedunder subsection (a) causes harmful interference tothe primary users of that spectram or to public safe-ty spectrum use.

"(3) LIMrrA'rION ON COMMISSION.-Except as providedin paragraphs (1) and (2), the Commission may not re-strict any entity granted a license or other author-ization under subsection (a) from using any reason-able compression, reformatting, or other teehnology."(<:) REroRT.-Not later than January 1, 2001, the

Commission shall report to the Agriculture, Appropria-tions, and the Judiciary Committees of the Senate andthe House of Representatives, the Senate Committee onCommerce, Science, and Transportation, and the Houseof Representatives Committee on Commerce (now Com-mittee on Energy and Commeice), on the extent towbich licenses and other authorisations under sub-section (a) have facilitated the delivery of local signalsto satellite television subscribers in unserved and un-derserved local television markets. The report shall in-clude-

"(1) an analysis of the extent to which local signalsare being provided by direct-to-home satellite tele-vision providers and by other multichannel video pro-gram distributors;

"(2) an enumeration of the technical, eeonomic, andother impediments each type of multichannel videoprogramming distributor has encountered;and

"(3) recommendations for specific measures to fa-cilitate the provision of local eignals to subscribersin unserved and underserved markets by direct-to-home satellite teievision providers and by other dis-tributore of multicbannel video programming serv-ice."

§339. Carriage of distant television stations bysatellite carriers

(a) Provisions relating to carriage of distant sig-nals

(1) Carriage permitted(A) In general

Subject to section 119 of title 17, any sat-ellite carrier shall be permitted to providethe signals of no more than two network sta-tions in a single day for each television net-work to any household not located withinthe local markets of those network stations.(B) Additional serviceIn addition to signals provided under sub-

paragraph (A), any satellite carrier may alsoprovide service under the statutory licenseof section 122 of title 17, to the local marketwithin which such household is located. Theserviceprovided under section 122 of suchtitle may be in addition to the two signalsprovided under section 119 of such title.

Such two network stations may be comprisedof both the analog signal and digital signal ofnot more than two network stations.(2) Replacement of distant signalsesith local

signalsNotwithstanding any other provision of

paragraph (1), the following rules shall applyafter December 8, 2004:

Appx. 63

UNITED STATES CODE2006 EDITION

CONTA.INING THE GENERAL AND PERMANENT LAWS

OF THF. UNITED -STATES ENACTED THROUGH THE

109THCONGRESS

(ending January 3, 2007, the last law of tvhich was signed on January 15, 2007)

Prepared and published under authority of Title 2, U.S. Code, Section 285b,

by the Office of the Law Revision Counsel of the Ilouse of Representatives

VOLUME TWENTY-NINE

TITLE 47-TELEGRAPHS, TELEPHONES, AND

RADIOTELEGRAPHS

TO

TITLE 49-TRAi^TSPORTATION

§§10i-33118

UNITED STATES

GOVI:RIIlLFNT PRINTING OFFIC$

lVASHINGTO\' : 2008

Appx. 6440-129 0 8N3-1

This book has been digitally archived to maintainthe quality of the original work for future generationsof legal researchers by William S. Hein & Co., Inc.

This volume printed on acid-free paperby William S. Hein & Co., Inc.

Printed in the IJnited States of America.

For eale by the Superintendent of Daeamence, U.S. Covernment Printing OfficeInternet: bookawre.gpo.gov Phone; (272) 513-1800 Fax: (202) 512-2250

Mail: SLOD 550P. Washington, DC 20902--0OU1

Appx. 65

Page 229 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS §531

(A) channel capacity designated for public,educational, or governmental use; and

(B) facilities and equipment for the use ofsuch channel capacity;

(17) the telin"service tier" means a cat-egory of cable service or other services pro-vided by a cable operator and for which a sepa-rate rate is charged by the cable operator;(18) the term "State" means any State, or

political subdivision, or agency thereof;(19) the term "usable activated channels"

means activated channels of a cable system,except those.channels whose usc for the dis-tribution of broadcast signals would conflictwith technical and safety regulations as deter-mined by the Commission; and(20) the term "video programming" means

programming provided by, or generally consid-ered comparable to programming provided by,a television broadcast station.

(June 19, 1934, ch. 652, title VI, §602, as addedPub. L. 9B-549, §2, Oct. 30, 1984, 98 Stat. 2780;amended Pub. L. 102-385, §2(c),Oct. 5, 1992, 106Stat. 1463; Pub. L: 104-104, title III, §§301(a),302(b)(2), Feb. 8, 1996, 110 Stat. 114, 124.)

AhfF.NDMF,NTS

1996-Par. (6)(B). Pub, L. 104-109, §301(a)(1), inserted"or use" after "the selection".

Par. (7)(B). Pub. L. 104-104, §301(a}('l), added snbpar.(B) and struck out former subpar. (B) which read as fol-iows: "a facility that serves only subscribers in 1 ormore multiple unit dwellings under common owner-ship, control, or management, unless such facility orfacilities uses any public right-of-way;".

Par. (7)(C) to (E). Pub. L. 104-104, §302(b)(2)(A), whichdirected substitution of ", unless the extent of such useis solely to provide interactive on-demand services; (D)an open video system that complies with section 573 ofthis title; or (E)" for ", or (D)", was executed by mak-ing the substitution for "; or (D)" to reflect the prob-able intent of Congross.

Pars. (12) to (20). Pub. L. 104-104, §302(b)(2)(B), (C),added par_ (12) and redesignated former pars. (12) to (19)as (13) to (20), respectively.

1992-Pub. L. 102485 added pars. (1). (12), and (18) andredesignated former pars. (1) to (10) as (2) to (11), re-spectively, former pare. (11) to (15) as (13) to (17), re-spectively, and former par. (16) as (19).

EFFECTTVF, DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-385 effective 60 days afterOct. 5, 1992, see section 28 of Pub. L. 102-385, set out asa note under section 325 of this title-

EFFECPNE DATE

Section effective 60 days after Oct- 30, 1984, exceptwhere otherwise expressly provided, see, section 9(a) ofPub. L. 98-549, set out as a note under section 521 ofthis title.

PAR.T II-USE OF CABLE CHANNELS AND CABLE

OWNERSHIP RESTRICTIONS

§531. Cable channels for public, educational, orgovernmental use

(a) Authority to establish requirements with re-spect to designation or use of channel capac-ity

A franchising authority may establish require-ments in a franchise with respect to the designa-tion or use of channel eapacity for public, edu-cational, or governmental use only to the extentprovided in this section,

(b) Authority to require designation for public,educational, or governmental use

A franchising authority may in its request forproposals require as part of a franchise, and mayrequire as part of a cable operator's proposal fora franchise renewal, subject to section 546 ofthis title, that channel capacity be designatedfor public, educationai, or governmental use,and channel capacity on institutional networksbe designated for educational or governmentaluse, and may require rules and procedures forthe use of the channel capacity designated pur-sua.nt to this section.

(e) Enforcement authority

A franchising authority may enforce any re-quirement in any franchise regarding the pro-viding or use of such channel capacity. Such en-forcement authority includes the authority toenforce any provisions of the franchise for serv-ices, facilities, or equipment proposed by thecable operator which relate to public, edu-cational, or governmental use of channel capac-ity, whether or not required by the franchisingauthority pursuant to subsection (b) of this sec-tion.

(d) Promulgation of rules and procedures

Tn the case of any franchise under which chan-nel capacity is designated under subsection (b)of this section, the franchising authority shallprescribe-

(1) rules and procedures under which thecable operator is permitted to use such chan-nel capacity for the provision of other servicesif such channel capacity is not being used forthe purposes designated, and(2) rules and procedures under which such

permitted use shall cease.

(e) Editorial control by cable operator

Subject to section 544(d) of this title, a cableoperator shall not exercise any editorial controlover any public, educational, or governmentaluse of channel capacity provided pursuant tothis section, except a cable operator may refuseto transmit any public access program or por-tion of a public access program which containsobaeenity, indecenc,y, or nudity.

(f) "Institutional network" de6ned

For purposes of this section, the term "insti-tutional network" means a communication net-work which is constructed or operated by thecable operator and which is generally availableonly to subscribers who are not residential sub-scribers.

(June 19, 1934, ch. 652, title VI, §611, as addedPub. L. 98-549, § 2, Oct. 30, 1984, 98 Stat. 2782; Pub.L. 104-104, title V, §506(a), Feb. 8, 1996, 110 Stat.136.)

AMSNDMENTS

1996-Subsec. (e). Pub. L. 104-104 inserted before pe-

riod at end ". except a cable operator may refuse totransmit any public access program or portion of a pub-lic access program which contains obscenity, inde-

cency, or nudity".

EFFECTrvE DATR

Section effective 60 days after Oct. 30, 1984, exceptwhere otherwise expressly provided, see section 9(a) of

Appx.66

§ 532 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS Page 230

Pub. L. 98-549, set out as a note under section 521 ofthis title.

12EGULATIONS

Pub. L. 102-385, § 10(c), Oct. 5, 1992, 106 Stat. 1486, pro-vided that: "Within 180 days following the date of theenactment of this Act (Oct. 5, 19927, the Federal Com-munications Commission shall promulgate such regula-tions as may be necessary to enable a cable operator ofa cable system to prohibit the use, on such system, ofany channel capacity of any public, educational, orgovernmental access facility for any programmingwhich contains obscene material, sexually explicit con-duct, or material soliciting or promoting unlawful con-duct."

§ 532. Cable channels for commercial use

(a) Purpose

The purpose of this section is to promote com-petition in the delivery of diverse sources ofvideo programming and to assure that thewidest possible diversity of information sourcesare made available to the public from cable sys-tems in a manner consistent with growth anddevelopment of cable systems.(b) Designation of channel capacity for commer-

cial use

(1) A cable operator shall designate channelcapacity for commercial use by persons unaffili-ated with the operator in accordance with thefollowing requirements:

(A) An operator of any cable system with 36or more (but not more than 54) activated chan-nels shall designate 10 percent of such chan-nels which are not otherwise required for use(or the use of which is not prohibited) by Fed-eral law or regulation.(B) An operator of any cable system with 55

or more (but not more than 100) activatedchannels shall designate 15 percent of suchchannels which are not otherwise required foruse (or the use of which is not prohibited) byFederal law or regulation.(C) An operator of any cable system with

more than 100 activated channels shall des-ignate 15 percent of all such channels.(D) An operator of any cable system with

fewer than 36 activated channels shall not berequired to designate channel capacity forcommercial use by persons unaffiliated withthe operator, unless the cable system is re-quired to provide such channel capacity underthe terms of a franchise in effect on October

30, 1984.(E) An operator of any cable system in oper-

ation on October 30, 1984, shall not be requiredto remove any service actually being providedon July 1, 1984, in order to comply with thissection, but shall make channel capaeityavailable for commercial use as such capacitybecomes available until such time as the cableoperator is in full compliance with this sec-

tion.

(2) Any Federal agency, State, or franchisingauthority may not require any cable system todesignate channel capacity for commercial useby unaffiliated persons in excess of the capacityspecified in paragraph (1), except as otherwiseprovided in this section.(3) A cable operator may not be required, as

part of a request for proposals or as part of a

proposal for renewal, subject to section 546 ofthis title, to designate channel capacity for anyuse (other than commercial use by unaffiliatedpersons under this section) except as provided insections 531 and 557 of this title, but a cable op-erator may offer in a franchise, or proposal forrenewal thereof, to provide, consistent with ap-plicable law, such capacity for other than com-mercial use by such persons.

(4) A cable operator may use any unused chan-nel capacity designated pursuant to this sectionuntil the use of such channel capacity is ob-tained, pursuant to a written agreement, by aperson unaffiliated with the operator.(5) For the purposes of this section, the term

"commercial use" means the provision of videoprogramming, whether or not for profit.(6) Any channel capacity which has been des-

ignated for public, educational, or governmentaluse may not be considered as designated underthis section for commercial use for purpose ofthis section.(c) Use of channel capacity by unaffiliated per-

sons; editorial control; restriction on service;rules on rates, terms, and conditions

(1) If a person unaffiliated with the cable oper-ator seeks to use channel capacity designatedpursuant to subsection (b) of this section forcommercial use, the cable operator shall estab-lish, consistent with the purpose of this sectionand with rules prescribed by the Commissionunder paragraph (4), the price, terms, and condi-tions of such use which are at least sufficient toassure that such use will not adversely affectthe operation, financial condition, or market de-velopment of the cable system.

(2) A cable operator shall not exercise any edi-torial control over any video programming pro-vided pursuant to this section, or in any otherway consider the content of such programming,except that a cable operator may refuse totransmit any leased access program or portionof a leased acoess program which contains ob-scenity, indecency, or nudity and may considersueh content to the minimum extent necessaryto establish a reasonable price for the commer-cial use of designated channel capacity by anunaffiliated person.

(3) Any cable system channel designated in ac-cordance with this section shall not be used toprovide a cable service that is being providedover such system on October 30, 1984, if the pro-vision of such programming is intended to avoidthe purpose of this section.

(4)(A) The Commission shall have the author-ity to-

(i) determine the maximum reasonable ratesthat a cable operator may establish pursuantto paragraph (1) for commercial use of des-ignated channel capacity, including the ratecharged for the billing of rates to subscribersand for the collection of revenue from sub-scribers by the cable operator for such use;

(ii) establish reasonable terms and condi-tions for such use, including those for billingand collection; and(iii) establish procedures for the expedited

resolution of disputes concerning rates or car-riage under this section.

(B) Within 180 days after October 5, 1992, theCommission shall establish rules for determin-

Appx. 6 7

UNITED STATES CODE2006 EDITION

CON'1'AINING THE GENERAL AND PERMANENT LAWS

OF THE UNITED STATES ENACTED THROUGH THE

109TH CONGRESS

(ending January 3, 2007, the last lasv of which was signed on Jannary 15, 2007)

Prepared and published under authority of Title 2, U.S. Code, Section 285b,

by ttie Office of the Law Revision Counsel of the Iiouse of Representatives

VOLUME TWENTY-NINE

TITLE 47-TELEGRAPHS, TELEPHONES, AiVD

RADIOTELEGRAPHS

mo

TITLE 49-TRANSPORTATION

§§ 301-33118

UNITED STATES

GOVERNJIENT PR.INTING OFFICE

WASHINGTON : 2008

Appx. 6840 12'J o Sigl

This book has been digitally archived to niaintainthe quality of the original work for future generationsof legal researchers by William S. Ilein & Co., Inc.

This volume printed on acid-free paperby William S. Hein & Co., Inc.

Printed in the United States of America.

For sale by the Superintendent of Documente. U.S. Government Printing OtttcetncerneG hoakstoro.gpn.gov Phone: (202) 512-1800 Fax: (202) 512-2256

Mnll: StoD SSOP. Washington. DC 20*2-0001

Appx.69

§ 533 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS Page 232

documented annual expenditure on program-ming exceeding $15,000,000. The annual expendi-ture on programming means all annual costs in-curred by the programming source to produce oracquire programs which are scheduled to be tele-vised, and specifically excludes marketing, pro-motion, satellite transmission and operationalcosts, and general administrative costs.

(4) Nothing in this subsection shall substitutefor the requirements to carry qualified non-commercial educational television stations asspecified under section 535 of this title.(j) Single channel access to indecent program-

ming

(1) Within 120 days following October 5, 1992,the Commission shall promulgate regulationsdesigned to limit the access of children to inde-cent programming, as defined by Commissionregulations, and which cable operators have notvoluntarily prohibited under subsection (h) ofthis section by-

(A) requiring cable operators to place on asingle channel all indecent programs, as iden-tified by program providers, intended for car-riage on channels designated for commercialuse under this section;

(I3) requiring cable operators to block suchsingle channel unless the subscriber requestsaccess to such channel in writing; and(C) requiring programmers to inform cable

operators if the program would be indecent asdefined by Commission regulations.

(2) Cable operators shall comply with the regu-lations promulgated pursuant to paragraph (1).

(June 19, 1934, ch. 652, title VI, §612, as addedPub. L. 98-549, §2, Oct. 30, 1984, 98 Stat. 2782;amended Pub. L. 102-385, §§9, 10(a), (b), Oct. 5,1992, 106 Stat. 1484, 1486; Pub. L. 104-104, title V,§ 506(b), Feb. 8, 1996, 110 Stat. 137.)

AMENDMENTS

1996-Subsec. (c)(2). Pub. L. 104-104 substituted "acable operator may refuse to transmit any leased ac-cess program or portion of a leased access programwhich contains obscenity, indecency, or nudity and'•for "an operator".

1992-Subsec. (a)_ Pub. L. 102-Z85, §9(a), inserted "topromote competition in the delivery of diverse sourcesof video programming and" after "purpose of this sec-tion is".

Bubsec. (b)(5). Pub. L. 102-385, §9(d), amended par. (5)generally. Prior to amendment, par. (5) read as follows:"For the purposes of this section-

^(A) the term 'activated channels' means thosechannels engineered at the headend of the cable sys-tem for the provision of services generally availableto residential subscribers of the cable system, regard-less of whether such services actually are provided,including any channel designated for public, edu-cational, or governmental use; and

°(B) the term 'commercial use' means the provisionof video programming, whether or not for profit."Subsee. (c)(1). Pub. L. 102-385, §9(b)(1), inserted "and

with rules prescribed by the Conunission upder para-graph (4)" after "purpose of this section".

Subsec. (c)(4). Pub. L. 102-385. §9(b)(2), added par. (4).Subsec. (h). Pub. L. 102-385, §10(a). inserted "or the

cable operator" after "franchising authority" and in-serted at end "This subsection shall permit a cable op-erator to enforce prospectively a written and publishedpolicy of prohibiting programming that the cable oper-ator reasonably believes describes or depicts sexual erexcretory activities or organs in a patently offensive

Inanner as mLiasured by contelnporary communitystandards.^

Subsec. (i)_ Pub. L. 102-385, §9(c), added subsee. M.8ubsec. (j). Pub. L. 10Z-385, §10(b), added subsec. (j).

EFPECTIVF. DATR oP 1992 AMENDMENT

Alnendment by Pub. L. 102-385 effective 60 days afterOct. 5, 1992, see section 28 of Pub. L. 102-385, set out asa note under section 325 of this title.

EFFECTIVE DATE

Section effective 60 days after Oct. 30, 1984, exceptwhere otherwise expressly provided, see section 9(a) ofPub. L. 98-549, set out as a note under section 521 ofthis title.

§ 533. Ownership restrictions

(a) Cable operator holding license for multi-channel distribution or offering satelliteservice

It shall be unlawful for a cable operator tohold a license for multichannel multipoint dis-tribution service, or to offer satellite master an-tenna television service separate and apart fromany franchised cable service, in any portion ofthe franchise area served by that cable opera-tor's cable system. The Commission-

(1) shall waive the requirements of this para-graph for all existing multichannel multipointdistribution services and satellite master an-tenna television services which are owned by acable operator on October 5, 1992;

(2) may waive the requirements of this para-graph to the extent the Commission deter-mines is necessary to ensure that all signifi-cant portions of a franchise area are able toobtain video programming; and(3) shall not apply the requirements of this

subsection to any cable operator in any fran-chise area in which a cable operator is subjectto effective competition as determined undersection 543(i) of this title.

(b) Repealed. Pub. L. 104-104, title III, § 302(b)(1),Feb. 8, 1996, 110 Stat, 124

(c) Promulgation of rulesThe Cornniission may prescribe rules with re-

spect to the ownership or control of cable sys-tems by persons who own or control other mediaof mass communications which serve the samecommunity served by a cable system.

(d) Regulation of ownership by States or fran-chising autborities

Any State or franchising authority may notprohibit the ownership or control of a cable sys-tem by any person because of such person's own-ership or control of any other media of masscommunications or other media interests. Noth-ing in this section shall be construed to preventany State or franchising authority from prohib-iting the ownership or control of a cable systemin a jurisdiction by any person (1) because ofsuch person's ownership or control of any othercable system in such jurisdiction; or (2) in cir-cumstances in which the State or franchisingauthority determines that the acquisition ofsuch a cable system may eliminate or reducecompetition in the delivery of cable service insuch jurisdiction.

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Page 233 TITLE 47-TELEGRAPHS, TELEPHONES, AND It.ADIOTELEGRAPIIS § 534

(e) Holding of ownership interests or exercise ofeditorial control by States or franchising au-thorities

(1) Subject to paragraph (2), a State or fran-chising authority may hold any ownership inter-est in any cable system.(2) Any State or franchising authority shall

not exercise any editorial control regarding thecontent of any cable service on a cable systemin which such governmental entity holds owner-ship interest (other than programming on anychannel designated for educational or govern-mental use), unless such control is exercisedthrough an entity separate from the franchisingauthority.(f) Enhancement of effective competition

(1) In order to enhance effective competition,the Commission shall, within one year after Oc-tober 5, 1992, conduct a proceeding-

(A) to prescribe rules and regulations estab-lishing reasonable limits on the number ofcable subscribers a person is authorized toreach through cable systems owned by suchperson, or in which such person has an attrib-utable interest;(B) to prescribe rules and regulations estab-

lishing reasonable limits on the number ofchannels on a cable system that can be occu-pied by a video programmer in which a cableoperator has an attributable interest; and(C) to consider the necessity and appro-

priateness of imposing limitations on the de-gree to which multichannel video program-ming distributors may engage in the creationor production of video programming.

(2) In prescribing rules and regulations underparagraph (1), the Commission shall, amongother public interest objectives-

(A) ensure that no cable operator or group ofcable operators can unfairly impede, either be-cause of the size of any individual operator orbecause of joint actions by a group of opera-tors of sufficient size, the flow of video pro-gramming from the video programmer to theconsumer;

(B) ensure that cable operators affiliatedwith video programmers do not favor such pro-grammers in determining carriage on theircable systems or do not unreasonably restrictthe flow of the video programming of such pro-grammers to other video distributors;(C) take particular account of the market

structure, ownership patterns, and other rela-tionships of the cable television industry, in-cluding the nature and market power of thelocal fY'ancbise, the joint ownership of cablesystems and video programmers, and the var-ious types of non-cquity eontrolling interests;

(D) account for any efficieneies and otherbenefits that might be gained through in-creased ownership or control;

(E) make such rules and regulations reflectthe dynainic nature of the communicationsmarketplace;

(F) not impose limitations which would barcable operators from serving previously un-served rural areas; and

(G) not impose limitations which would im-pair the development of diverse and high qual-ity video programming.

(g) Combination of interests under prior law

This section shall not apply to prohibit anycombination of any interests held by any personon July 1, 1984, to the extent of the interests soheld as of such date, if the holding of such inter-ests was not inconsistent with any applicableFederal or State law or regulations in effect onthat date.

(h) "Media of mass communications" definedFor purposes of this section, the term "media

of mass communications" shail have the mean-ing given such term under section 309(i)(3)(C)(i)of this title.

(June 19, 1934, ch. 652, title VI, §613, as addedPub. L. 98-549, §2, Oct. 30, 1984, 98 Stat. 2785;amended Pub. L. 102-385, §11, Oct. 5, 1992, 106Stat. 1486; Pub. L. 103-414, title III, §303(a)(22),Oct. 25, 1994, 108 Stat. 4295; Pub. L. 104-104, titleII, §202(i), title fII, §§302(b)(1), Feb. 8, 1996, 110Stat. 112, 124.)

AMENDMENTS

1996-Subsec. (a). Pub. L. 104-104, §202(i), redesignatedpar. (2) as subsec. (a) and subpars. (A) and (B) of par- (2)as pars. (1) and (2) of subsec. (a), respectively, addedpar. (3), and struck out former par. (1) which read asfollows: "It shall be unlawful for any person to be acable operator if such person, directly or through 1 ormore affiliates, owns or controls, the licensee of a tele-vision broadcast station and the predicted grade B con-tour of such station covers any portion of the commu-nity served by such operator's cable aystem."

Subsec. (b). Pub. L. 104-104, §302(b)(1), struck out sub-sec. (b), which related to common carriers, direct videoprogramming, an exception for rural areas, and waiver.

1994-Subsec. (b)(2). Pub. L. 103-414 substituted "pole,line, conduit space" for "pole line conduit apace".

1992-Subsec. (a). Pub. L. 102-385, §11(a), designatedexisting provisions as par. (1) and added par. (2).

Subsec. (d). Pub. L. 102385, §11(b), substituted "anyother media" for "any media" and inserted at end"Nothing in this section shall be construed to preventany State or franchising authority from prohibitingthe ownership or control of a cable systcrn in a jurisdic-tion by any person (1) because of such person's owner-ship or control of any other cable system in such juris-diction; or (2) in circumstances in which the State orfranehising authority dotermines that the acquisitionof such a cable system inay eliminate or reduce com-petition in the delivery of cable service in such juris-diction."

8ubsecs. (f) to (h). Pub. L. 102-Z85, §11(o), added sub-sec. (f) and redesignated former subsecs. (f) and (g) as(g) and (h), respeetively.

EFFECTrJE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-385 effective 60 days afterOct. 5, 1992, see section 28 of Pub. L. 102-86.5, set out asa note under aection 325 of this title.

EFFE(TIVF DATE

Section effective 60 days after Oct. 30, 1984, exceptwhere otherwise expressly provided, see section 9(a) ofPnb. L. 9"9, set out as a note under section 521 ofthis title.

§534. Carriage of local commercial television sig-nals

(a) Carriage obligations

Each cable operator shall carry, on the cablesystem of that operator, the signals of localcommercial television stations and qualified lowpower stations as provided by this section. Car-

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§ 534 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADTOTELEGRAPHS Page 234

riage of additional broadcast television signalson such system shall be at the discretion of suchoperator, subject to section 325(b) of this title.

(b) Signals required(1) In general

(A) A cable operator of'a cable system with12 or fewer usable activated channels shallcarry the signals of at least three local com-mercial television stations, except that if sucha system has 300 or fewer subscribers, it shallnot be subject to any requirements under thissection so long as such system does not deletefrom carriage by that system any signal of abroadcast television station.(B) A cable operator of a cable system with

more than 12 usable activated channels shallcarry the signals of local commercial tele-vision stations, up to one-third of the aggre-gate number of usable activated channels of

such system.

(2) Selection of signalsWhenever the number of local commercial

television stations exceeds the maximumnumber of signals a cable systern is requiredto carry under paragraph (1), the cable opera-tor shall have discretion in selecting whichsuch stations shall be carried on its cable sys-

tem, except that-(A) under no circumstances shall a cable

operator carry a qualified low power stationin lieu of a local commercial television sta-tion; and

(B) if the cable operator elects to carry anaffiliate of a broadcast network (as suchterm is defined by the Commission by regu-lation), such cable operator shall carry theaffiliate of such broadcast network whosecity of license reference point, as defined insection 76.53 of title 47, Code of Federal Reg-ulations (in effect on January 1, 1991), or anysuccessor regulation thereto, is closest tothe principal headend of the cable system.

(3) Content to be carried

(A) A cable operator shall carry in its en-tirety, on the cable system of that operator,the primary video, accompanying audio, andline 21 closed caption transmission of each ofthe local commercial television stations car-ried on the cable system and, to the extenttechnically feasible, program-related materialcarried in the, vertical blanking interval or onsubcarriers. Retransmission of other materialin the vertical blanking internal or otlier non-program-related material (including teletextand other subscription and advertiser-sup-ported information services) shall be at thediscretion of tYie cable operator. Where appre-priate and feasible, operators may delete sig-nal enhancements, such as ghost-canceling,from the broadcast signal and employ such en-hancements at the system headend or head-ends.(B) The cable operator shall carry the en-

tirety of the program schedule of any tele-vision station carried on the cable system un-less carriage of specific programming is pro-hibited, and other programming authorized tobe substituted, under section 76.67 or subpartF of part 76 of title 47, Code of Federal Regula-

tions (as in effect on January 1, 1991), or anysuccessor regulations thereto.

(4) Signal quality(A) Nondegradation; technical specifications

The signals of local commercial televisionstations that a cable operator carries shallbe carried without material degradation.The Commission shall adopt carriage stand-ards to ensure that, to the extent tech-nically feasible, the quality of signal proc-essing and carriage provided by a cable sys-tem for the carriage of local commercialtelevision stations will be no less than thatprovided by the system for carriage of anyother type of signal.

(B) Advanced television

At such time as the Commission prescribesmodifications of the standards for televisionbroadcast signals, the Commission shall ini-tiate a proceeding to establish any changesin the signal carriage requirements of cabletelevision systems necessary to ensure cablecarriage of such broadcast signals of localcommercial television stations which havebeen changed to conform with such modifiedstandards.

(5) Duplication not required

Notwithstanding paragraph (1), a cable oper-ator shall not be required to carry the signalof any local commercial television stationthat substantially duplicates the signal of an-other local commercial television stationwhich is carried on its cable system, or tocarry the signals of more than one local com-mercial television station affiliated with aparticular broadcast network (as such term isdefined by regulation). If a cable operatoreleets to carry on its cable system a signalwhich substantially duplicates the signal ofanother local commercial television stationcarried on the cable system, or to carry on itssystem the signals of more than one localcommercial television station affiliated with aparticular broadcast network, all such signalsshall be counted toward the number of signalsthe operator is required to carry under para-graph (1).

(6) Channel positioning

Each signal carried in fulfillment of the car-riage obligatfons of a cable operator underthis section shall be carried on the cable sys-tem channel number on which the local com-mercial television station is broadcast overthe air, or on the channel on which it was car-ried on July 19, 1985, or on the channel onwhich it was carried on January 1, 1992, at theelection of the station, or on such other chan-nel number as is mutually agreed upon by thestation and the cable operator. Any dispute re-garding the positioning of a local commercialtelevision station shall be resolved by theCommission.

(7) Signal availabilitySignals carried in fulfillment of the require-

ments of this section shall be provided toevery subscriber of a cable system. Such sig-nals shall be viewable via cable on all tele-

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Page 235 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS §534

vision receivers of a subscriber which are con-nected to a cable system by a cable operatoror for which a cable operator provides a con-nection. If a cable operator authorizes sub-scribers to install additional receiver connec-tions, but does not provide the subscriber withsuch connections, or with the equipment andmaterials for such connections, the operatorshall notify such subscribers of all broadcaststations carried on the cable system whichcannot be viewed via cable without a con-verter box and shall offer to sell or lease sucha converter box to such subscribers at rates inaccordance with section 543(b)(3) of this title.

(8) Identification of signals carried

A cable operator shall identify, upon requestby any person, the signals carried on its sys-tem in fulfillment of the requirements of thissection.(9) NotificationA cable operator shall provide written notice

to a local commercial television station atleast 30 days prior to either deleting from car-riage or repositioning that station. No dele-tion or repositioning of a local commercialtelevision station shall occur during a periodin which major television ratings servicesmeasure the size of audiences of local tele-vision stations. The notification provisions ofthis paragraph shall not be used to undermineor evade the channel positioning or carriagerequirements imposed upon cable operatorsunder this section.(10) Compensation for carriageA cable operator shall not accept or request

monetary payment or other valuable consider-ation in exchange either for carriage of localcommercial television stations in fulfillmentof the requirements of this section or for thechannel positioning rigbts provided to suchstations under this section, except that-

(A) any such station may be required tobear the costs associated with delivering agood quality signal or a baseband video sig-nal to the principal headend of the cable sys-tem;

(B) a cable operator may accept paymentsfrom stations which would be considered dis-tant signals under section 111 of title 17 asindemnification for any increased copyrightliability resulting from carriage of such sig-nal; and(C) a cable operator may continue to ac-

cept monetary payment or other valuableconsideration in exchange for carriage orchannel positioning of the signal of anylocal commercial television station carriedin fulfillment of the requirejnents of thissection, through, but not beyond, the date ofexpiration of an agreement thereon betweena cable operator and a local eommercialtelevision station entered into prior to June

26, 1990.(c) Low power station carriage obligation

(1) RequirementIf there are not sufficient signals of full

power local commercial television stations tofill the channels set aside under subsection (b)of this section-

(A) a cable operator of a cable system witha capacity of 35 or fewer usable activatedchannels shall be required to carry onequalified low power station; and

(B) a cable operator of a cable system witha capacity of more than 35 usable activatedchannels shall be required to earry twoqualified low power stations.

(2) Use of public, educational, or governmentalchannels

A cable operator required to carry morethan one signal of a qualified low power sta-tion under this subsection may do so, subjectto approval by the franchising authority pur-suant to section 531 of this title, by placingsuch additional station on public, educational,or governmental channels not in use for theirdesignated purposes.

(d) Remedies(1) Complaints by broadcast stations

Whenever a local commercial television sta-tion believes that a cable operator has failedto meet its obligations under this section,such station shall notify the operator, in writ-ing, of the alleged failure and identify its rea-sons for believing that the cable operator isobligated to carry the signal of such station orhas otherwise failed to comply with the chan-nel positioning or repositioning or other re-quirements of this section. The cable operatorshall, within 30 days of such written notifica-tion, respond in writing to such notificationand either commence to carry the signal ofsuch station in accordance with the terms re-quested or state its reasons for believing thatit is not obligated to carry such signal or is incompliance with the channel positioning andrepositioning and other requirements of thissection. A local commercial television stationthat is denied carriage or channel positioningor repositioning in aceordance with this sec-tion by a cable operator may obtain review ofsuch denial by filing a complaint with theCommission. Such complaint shall allege themanner in which such cable operator hasfailed to meet its obligations and the basis forsuch allegations.

(2) Opportunity to respond

The Commission shall afford such cable op-erator an opportunity to present data and ar-guments to establish that there has been nofailure to meet its obligations under this sec-tion.

(3) Remedial aetions; dismissal

Within 120 days after the date a complaint isfiled,'the Commission shall determine whetherthe cable operator has met its obligationsunder this section. If the Commission deter-mines that the cable operator has failed tomeet such obligations, the Commission shallorder the cable operator to reposition thecomplaining station or, in the case of an obli-gation to carry a station, to commence car-riage of the station and to continue such car-riage for at least 12 months. If the Commissiondetermines that the cable operator has fullymet the requirements of this section, it shalldismiss the complaint.

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§534 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS Page 236

(e) Input selector switch rules abolished (h) Definitions

No cable operator shall be required- ( 1) Local commercial television station

(1) to provide or make available any input (A)In generalselector switch as defined in section 76.5(mm) For purposes of this section, the termof title 47, Code of Federal Regulations, or any "local commercial television station" meanscomparable device; or any full power television broadcast station,

(2) to provide information to subscribers other than a qualified noncommercial edu-about input selector switches or comparable cational television station within the mean-devices. ing of section 535(t)(1) of this title, licensed

(f) Regulations by Commission and operating on a channel regularly as-

Within 180 days after October 5, 1992, the Com- signed to its community by the Commissionmission shall, following a rulemaking proceed- that, with respect to a particular cable sys-ing, issue regulations implementing the require- tem, is within the same television market asments imposed by this section. Such implement- the cable system.ing regulations shall include necessary revisions (B) Exclusions

to update section 76.51 of title 47 of the Code of The tei7n "local commercial televisionFederal Regulations. station" shall not include-

(g) Sales presentations and program length com- stations, e

mercialsvision translator stations, and passive re-

(1) Carriage pending proceedingpeaters which operate pursuant to part 74of title 47, Code of Federal Regulations, or

Pending the outcome of the proceeding any successor regulations thereto;under paragraph (2), nothing in this chapter (fi) a television broadcast station thatshall require a cable operator to carry on any would be considered a distant signal undertier, or prohibit a cable operator from carry- section 111 of title 17, if such station doesing on any tier, the signal of any commercial not agree to indemnify the cable operatortelevision station or video programming serv- for any increased copyright liability re-ice that is predominantly utilized for the sulting from carriage on the cable system;transmission of sales presentations or pro- orgram length commercials. (iii) a television broadcast station that

(2) Proceeding concerning certain stations does not deliver to the principal headend

Within 270 days after October 5, 1992, the of a cable system either a signal level ofCommission, notwithstanding prior proceed- -45dBm for UHF signals or -49dBm forings to determine whether broadcast tele- VTiF signals at the input terminals of thesignal processingvision stations that are predominantly uti- equipment, if such sta-lized for the transmission of sales presen- tion does not agree to be responsible fortations or program length commercials are the costs of delivering to the cable systemserving the public interest, convenience, and a signal of good quality or a basebandnecessity, shall complete a proceeding in ac-cordance video signal.

with this paragraph to determine (C) Market determinations

whether broadcast television stations that are (i) For purposes of this section, a broad-predominantly utilized for the transmission of casting station's market shall be determinedsales presentations or program length com- by the Commission by regulation or ordermercials are serving the public interest, con- using, where available, commercial publica-venience, and necessity. In conducting such tions which delineate television marketsproceeding, the Commission shall provide ap- based on viewing patterns, except that, fol-propriate notice and opportunity for public lowing a written request, the Commissioncomment. The Commission shall consider the may, with respect to a particular televisionviewing of such stations, the level of compet- broadcast station, include additional com-ing demands for the spectrum allocated to munities within its television market or ex-such stations, and the role of such stations in clude communities from such station's tele-providing competition to nonbroadcast serv- vision market to better effectuate the pur-ices offering similar programming. In the poses of this section.In considering such re-event that the Commission concludes that one quests, the Commission may determine thator more of such stations are serving the public particular communities are part of moreinterest, convenience, and necessity, the Com- than one television market.mission shall qualify such stations as local (ii) :n considering requests filed pursuantcommercial television stations for purposes of to clause (i), the Commission shall affordsubsection (a) of this section. In the event that particular attention to the value of localismthe Commission concludes that one or more of by taking into account such factors as-such stations are not serving the public inter- (I) whether the station, or other stationsest, convenience, and necessity, the Commis- located in the same area, have been his-sion shall allow the licensees of such stations torically carried on the cable system ora rcasonable period within which to provide systems within such community;different programming, and shall not deny (H) whether the television station pro-such stations a renewal expectancy solely be- vides coverage or other local service tocause their programming consisted predomi- such community;nantly of sales presentations or program (III) whether any otber television stationlength commercials. that is eligible to be caiTied by a cable sys-

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Page 237 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS §535

tem in such community in fulfillment ofthe requirements of this section providesnews coverage of issues of concern to suchcommunity or provides carriage or cov-erage of sporting and other events of inter-est to the community; and(IV) evidence of viewing patterns in

cable and noncable households within theareas served by the cable system or sys-tems in such community.

(iii) A cable operator shall not delete fromcarriage the signal of a commercial tele-vision station during the pendency of anyproceeding pursuant to this subparagraph.

(iv) Within 120 days after the date onwhich a request is filed under this subpara-graph (or 120 days after February 8, 1996, iflater), the Commission shall grant or denythe request.

(2) Qualified low power stationThe term "qualified low power station"

means any television broadcast station con-forming to the rules established for LowPower Television Stations contained in part 74of title 47, Code of Federal Regulations, onlyif-

(A) such station broadcasts for at least theminimum number of hours of operation re-quired by the Commission for televisionbroadcast stations under part 73 of title 47,Code of Federal Regulations;

(B) such station meets all obligations andrequirements applicable to television broad-cast stations under part 73 of title 47, Codeof Federal Regulations, with respect to thebroadcast of nonentertainment program-ming; programming and rates involving po-litical candidates, election issues, controver-sial issues of public importance, editorials,and personal attacks; programming for chil-dren; and equal employment opportunity;and the Commission determines that theprovision of such programming by such sta-tion would address local news and informa-tional needs which are not being adequatelyserved by full power television broadcaststations because of the geographic distanceof such full power stations from the lowpower station's community of license;

(C) such station complies with interferenceregulations consistent with its secondarystatus pursuant to part 74 of title 47, Code ofFederal Regulations;

(D) such station ia located no more than 35miles from the cable system's headend, anddelivers to the principal headend of the cablesystem an over-the-air signal of good qual-ity, as determined by the Com.mission;

(E) the community of license of such sta-tion and the franchise area of the cable sys-tem are both located outside of the largest160 Metropolitan Statistical Areas, rankedby population, as determined by the Office ofManagement and Budget on June 30, 1990,and the population of such community of li-cense on such date did not exceed 35,000; and(F) there is no full power television broad-

cast station licensed to any communitywithin the county or other political subdivi-sion (of a State) served by the ea.ble system.

Nothing in this paragraph shall be construedto change the secondary status of any lowpower station as provided in part 74 of title 47,Code of Federal Regulations, as in effect on

October 5, 1992.

(June 19, 1934, ch. 652, title VI, §614, as addedPub. L. 102-385, §4, Oct. 5, 1992, 106 Stat. 1471;amended Pub. L. 104-104, title III, §391(d)(1), Feb.8, 1996, 110 Stat. 116.)

REFERENCES nJ TEXT

This chapter, referred to in subsec. (g)(1), was in the

original "this Act", meaning act June 19, 1934, ch. fx52,48 Stat. 1064, as amended, known as the Communica-tions Act of 1934, which is classified principally to thischapter. For complete classification of this Act to theCode, see section 609 of this title and Tables.

AMENDMENTS

1996-Subsec. (h)(I)(C)(i). Pub. L. 104-104, §301(d)(1)(A),substituted "by the Commission by regulation or orderusing, where available, commercial publications whichdelineate television markets based on viewing pat-terns," for "in the manner provided in section73.3555(d)(3)(i) of title 47, Code of Federal Regulations,as in effect on May 1, 1991,".

Subsec. (h)(1)(C)(iv). Pub. L. 104-104, §301(d)(1)(B),added cl. (iv) and struck out former cl. (iv) which readas follows: "In the rulemaking proceeding required bysubsection (f) of this section, the Commission shail pro-vide for expedited consideration of requests filed underthis subparagraph."

EFFECTIVL DATE

Section effective 60 days after Oct. 5, 1992, see section28 of Pub. L. 102-385, set out as an Effective Date of 1992Amendment note under section 325 of this title.

APPLICATION TO PENDING BEQUBSTS

Section 301(d)(2) of Pub. L. 104-104 provided that:"The amendment made by paragraph (1) [amending thissection] shall apply to-

°(A) any request pending ander section 614(h)(1)(C)of the Communications Act of 1934 (47 U.S.C.534(h)(1)(C)) on the date of enactment of this Act[Feb. 8, 19961; and

"(B) any requeat filed under that section after thatdate."

§535. Carriage of noncommercial educationaltelevision

(a) Carriage obligationsIn addition to the carriage requirements set

forth in section 534 of this title, each cable oper-ator of a cable system shall carry the signals ofqualified noncommercial educational televisionstations in accordance with the provisions ofthis section,(b) Requirements to carry qualified stations(1) CGeneral requirement to carry each quali-

fied station

Subject to paragraphs (2) and (3) and sub-section (e) of this section, each cable operatorshall carry, on the cable system of that cableoperator, any qualified local noncommercialeducational television station requesting car-riage.(2) Systems with 12 or fewer channels

(A) Notwithstanding paragraph (1), a cableoperator of a cable system with 12 or fewerusable activated channels shall be required tocarry the signal of one qualified local non-

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§ 535 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS Page 238

commercial educational television station; ex- provide carriage to all qualified local non-

cept that a cable operator of such a system commercial educational television stations

shall comply with subsection (c) of this sec- whose signals were carried on their systems astion and may, in its discretion, carry the sig- of March 29, 1990. The requirements of this sub-

articu-t to ahinals of other qualified noncommercial edu-cational television stations.

(B) In the case of a cable system described insubparagraph (A) which operates beyond thepresence of any qualified local noncommercialeducational television station-

(i) the cable operator shall import andearry on that system the signal of one quali-fied noncommercial educational televisionstation-

(ii) the selection for carriage of such a sig-nal shall be at the election of the cable oper-ator; and

(iii) in order to satisfy the requirementsfor carriage specified in this subsection, thecable operator of the system shall not be re-quired to remove any other programmingservice actually provided to subscribers onMarch 29, 1990; except that such cable opera-tor shall use the first channel available tosatisfy the requirements of this subpara-graph.

(3) Systems with 13 to 36 channels(A) Subjeet to subsection (c) of this section,

a cable operator of a cable system with 13 to36 usable activated channels-

(i) shall carry the signal of at least onequalified local noncommereial educationaltelevision station but shall not be requiredto carry the signals of more than three suchstations, and

(fi) may, in its discretion, carry additionalsuch stations.(B) In the case of a cable system described in

this paragraph which operates beyond thepresence of any qualified local noncommercialeducational television station, the cable oper-ator shall import and carry on that system thesignal of at least one qualified noncommercialeducational television station to comply withsubparagraph (A)(i).

(C) The cable operator of a cable system de-scribed in this paragraph which carries thesignal of a qualified local noncommereial edu-cational station affiliated with a State publictelevision network shall not be required tocarry the signal of any additional qualifiedlocal noncommercial educational televisionstations affiliated with the same network ifthe programming of such additional stationsis substantially duplicated by the program-ming of the qualified local noncommercialeducational television station receiving car-iago.(D) A cable operator of a system described in

this paragraph which increases the usable ac-tivated channel capacity of the system tomore than 36 channels on or after March 29,1990, shall, in accordance with the other provi-sions of this section, carry the signal of eachqualified local noncommercial educationaltelevision station requesting carriage, subjectto subsection (e) of this section.

(c) Continued carriage of existing stations

Notwithstanding any other provision of thissection, all cable operators shall continue to

prespectsection may be waived wlar cable operator and a particular such station,upon the written consent of the cable operatorand the station.(d) Placement of additional signals

A cable operator required to add the signals ofqualified local noncommercial educational tele-vision stations to a cable system under this sec-tion may do so, subject to approval by the fran-chising authority pursuant to section 531 of thistitle, by placing such additional stations on pub-lic, educational, or governmental channels notin use for their designated purposes.(e) Systems with more than 36 channels

A cable operator of a cable system with a ca-pacity of more than 36 usable activated channelswhich is required to carry the signals of threequalified local noncommercial educational tele-vision stations shall not be required to carry thesignals of additional such stations the program-ming of which substantially duplicates the pro-gramming broadcast by another qualified localnoncommercial educational television stationrequesting carriage. Substantial duplicationsball be defined by the Commission in a mannerthat promotes access to distinctive noncommer-cial educational television scrvices.(f) Waiver of nonduplication rights

A qualified local noncommercial educationaltelevision station whose signal is carried by acable operator shall not assert any network non-duplication rights it may have pursuant to sec-tion 76.92 of title 47, Code of Federal Regula-tions, to require the deletion of programs airedon other qualified local noncommercial edu-cational television stations whose signals arecarried by that cable operator.(g) Conditions of carriage

(1) Content to be carriedA cable operator shall retransmit in its en-

tirety the primary video, accompanying audio,and line 21 closed caption transmission of eachqualified local noncommercial educationaltelevision station whose signal is carried onthe cable system, and, to the extent tech-nically feasible, program-related material ear-ried in the vertical blanking interval, or onsubearriers, that may be necessary for receiptof programming by handicapped persons or foreducational or language purposes. Retrans-mission of other material in the verticalblanking interval or on subcarriers shall bewithin the discretion of'the cable operator.

(2) Bandwidth and technical qualityA cable operator shall provide each qualified

local noncommereial educational televisionstation whose signal is carried in accordancewith this section with bandwidth and tech-nieal capacity equivalent to that provided tocommercial television broadcast stations car-ried on the cable system and shall carry thesignal of each qualified local noncommercialeducational television station without mate-

rial degradation.

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Page 239 TITLE 47-TELEGRAPHS, TELEPHONES, AND &ADIOTELEGItAPHS § 535

(3) Changes in carriage carried under thE provision of subsection (c) ofThe signal of a qualified local noncommer- this section, where such signal would be con-

cial educational television station shall not be sidered a distant signal for copyright purposesrepositioned by a cable operator unless the unless such station indemnifies the cable oper-cable operator, at least 30 days in advance of ator for any increased copyright costs result-

such repositioning, has provided written no- ing from carriage of such signal.tice to the station and all subscribers of the (7) Remediescable, system. For purposes of this paragraph, ( 1) Complaintrepositioning includes (A) assignment of aqualified local noncommercial educationaltelevision station to a cable system channelnumber different from the cable system chan-nel number to which the station was assignedas of March 29, 1990, and (B) deletion of thestation from the cable system. The notifica-tion provisions of this paragraph shall not beused to undermine or evade the channel posi-tioning or carriage requirements imposedupon cable operators under this section.

(4) Good quality signal required

Notwithstanding the other provisions of thissection, a cable operator shall not be requiredto carry the signal of any qualified local non-commerciai educational television stationwhich does not deliver to the cable system'sprincipal headend a signal of good quality or abaseband video signal, as may be defined bythe Commission.(5) Channel positioning

Each signal carried in fulfillment of the car-riage obligations of a cable operator underthis section shall be carried on the cabl.e sys-tem channel number on which the qualifiedlocal noncommercial educational televisionstation is broadcast over the air, or on thechannel on which it was carried on July 19,1985, at the election of the station, or on suchother channel number as is mutually agreedupon by the station and the cable operator.Any dispute regarding the positioning of aqualified local noncommercial educationaltelevision station shall be resolved by theCommission.

(h) Availability of signalsSignals carried in fulfillment of the carriage

obligations of a cable operator under this sec-tion shall be available to every subscriber aspart of the cable system's lowest priced servicetier that includes the retransmission of localcommercial television broadcast signals.

(i) Payment for carriage prohibited

(1) In generalA cable operator shall not accept monetary

payment or other valuable consideration inexchange for carriage of the signal of anyqualified local noncommercial educationaltelevision station carried in fulfillment of therequirements of this section, except that sucha station may be required to bear the cost as-sociated with delivering a good quality signalor a baseband video signal to the principalheadend of the cable system.

(2) Distant signal exceptionNotwithstanding the provisions of this sec-

tion, a cable operator shall not be required toadd the signal of a qualified local noncommer-cial educational television station not already

Whenever a qualified local noncommerciaieducational television station believes that acable operator of a cable system has failed tocomply with the signal carriage requirementsof this section, the station may file a com-plaint with the Commission. Such complaintshall allege the manner in which such cableoperator has failed to comply with such re-quirements and state the basis for such allega-tions.(2) Opportunity to respondThe Commission shall afford such cable op-

erator an opportunity to present data, views,and arguments to establish that the cable op-erator has complied with the signal carriagerequirements of this section.

(3) Remedial actions; dismissalWithin 120 days after the date a complaint is

filed under this subsection, the Commissionshall determine whether the cable operatorhas complied with the requirements of thissection. If the Commission determines thatthe cable operator has failed to comply withsuch requirements, the Cornmission shall statewith particularity the basis for such findingsand order the cable operator to take such re-medial action as is necessary to meet such re-quirements. If the Commission determinesthat the cable operator has fully compliedwith such requirements, the Commission shalldismiss the complaint.

(k) Identification of signalsA cable operator shall identify, upon request

by any person, those signals carried in fulfill-ment of the requirements of this section.(1) Definitions

For purposes of this section-(1) Qualified noncommercial educational tele-

vision stationThe term "qualified noncommercial edu-

cational television station" means any tele-vision broadcast station which-

(A)(i) under tbe rules and regulations ofthe Commission in effect on Maroh 29, 1990,is licensed by the Commission as a non-commercial educational television broadcaststation and which is owned and operated bya public agency, nonprofit foundation, cor-poration, or association; and

(ii) has as its licensee an entity which iseligible to receive a community servicegrant, or any successor grant thereto, fromthe Corporation for Public Broadcasting, orany successor organization thereto, on thebasis of the formula set forth in section396(k)(6)(B) of this title; or

(B) is owned and operated by a municipal-ity and transmits predominantly non-commercial programs for educational pur-poses.

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§536 TITLE 47-TELEGRAPHS, TEL.EPHONES, AND RADIOTELEGRAPHS Page 240

Such term includes (1) the tranalator of anynoncornmercial educational television stationwith five watts or higher power serving thefranchise area, (II) a full-service station ortranslator if such station or translator is li-censed to a channel reserved for noncommer-cial educational use pursuant to section 73.606of title 47, Code of Federal Regulations, or anysuccessor regnlations thereto, and (111) suchstations and translators operating on channelsnot so reserved as the Commission determinesare qualified as noncommercial educational

stations.(2) Qualified local noncommercial educational

television stationThe term "qualified local noncommercial

educational television station" means a quali-fied noncommercial educational televisionstation-

(A) which is licensed to a principal com-munity whose reference point, as defined Insection 76.53 of title 47, Code of Federal Reg-ulations (as in effect on March 29, 1990), orany successor regulations thereto, is within50 miles of the principal headend of the cablesystem; or

(B) whose Grade B service contour, as de-fined in section 73.683(a) of such title (as ineffect on March 29, 1990), or any successorregulations thereto, encompasses the prin-cipal headend of the cable system.

(June 19, 1934, ch. 652, title VI, §615, as addedPub. L. 102-385, §5, Oct. 5, 1992, 106 Stat. 1477.)

EFFEOTIVE DATE

Section effective 60 days after Oct. 5, 1992, see section

28 of Pub. L. 102-385, set out as an Effective Date of 1992Amendment note under section 325 of this title.

§ 536. Regulation of carriage agreements

(a) Regnlations

Within one year after October 5, 1992, the Com-mission shall establish regulations governingprogram carriage agreements and related prac-tices between cable operators or other multi-channel video programming distributors andvideo programming vendors. Such regulationsshall-

(1) include provisions designed to prevent acable operator or other multichannel videoprogramming distributor from requiring a fi-nancial interestin a program service as a con-dition for carriage on one or more of such op-

erator's systems;(2) include provisions designed to prohibit a

cable operator or other multichannel videoprogramming distributor from coercing avideo programming vendor to provide, andfrom retaliating against such a vendor for fail-ing to provide, exclusive rights against othermultichannel video programming distributorsas a condition of carriage on a system;

(3) contain provisions designed to prevent amultichannel video programming distributorfrom engaging in conduct the effect of whichis to unreasonably restrain the ability of anunaffiliated video programming vendor tocompete fairly by discriminating in video pro-gramming distribution on the basis of affili-ation or nonaffiliation of vendors in the selec-

tion, terms, or conditions for carriage of videoprogramming provided by such vendors;(4) provide for expedited review of any com-

plaints made by a video programming vendorpnrsuant to this section;

(5) provide for appropriate penalties andremedies for violations of this subsection, in-cluding carriage; and(6) provide penalties to be assessed against

any person filing a frivolous complaint pursu-ant to this section.

(b) "Video programming vendor" definedAs used in this section, the term "video pro-

grarnming vendor" means a person engaged inthe production, creation, or wholesale distribu-tion of video programming for sale.

(June 19, 1934, ch. 652, title VI, §616, as addedPub. L. 102485, §12, Oct. 5, 1992, 106 Stat. 1488.)

EFFECTIvE DATE

Section effective 60 days after Oct. 5, 1992, see ssotion28 of Pub. L. 102-385, set out as an Effective Date of 1992Amendment note under section 325 of this title.

§ 537. Sales of cable systems

A franchising authority shall, if the franchiserequires franehising authority approval of a saleor transfer, have 120 days to act upon any re-quest for approval of such sale or transfer thatcontains or is accompanied by sucll informationas is required in accordance with Commissionregulations and by the franchising authority. Ifthe franchising authority fails to render a finaldecision on the request within 120 days, such re-quest shall be deemed granted unless the re-questing party and the franchising authorityagree to an extension of time.

(June 19, 1934, ch. 652, title VI, §617, as addedPub. L. 102-385, § 13, Oct. 5, 1992, 106 Stat. 1489;amended Pub. L. 104-104, title III, §301(i), Feb. 8,1996, 110 Stat. 117.)

AMENDMENTS

1996-Pub. L. 109-104 redesignated subsec. (e) as entiresection, substituted "A franchising authority" for"LIMtrATION ON DURATION OF FRANCHISING AUTHORiTYPOWER TO DISAPPROVE TRANSFERS:-III the case of anysale or transfer of ownerahip of any cable system afterthe 36-month period following acquisition of such sys-tem, a franchising authority", and atruck out subsecs.(a) to (d) which related to three-year holding period. re-quirement, treatment of multiple transfers, excoptionsto holding requirement, and waiver authority.

EFFECrIVE DATE

Section effective 60 days after Oct. 5, 1992, see section28 of Pub. L. 102-38.5, set out as an Effective Date of 1992Amendment note under section 325 of this title.

PAR'1' III-FRANCHISING AND REGULATION

§ 541. General franchise requirements

(a) Authority to award franchises; public rights-of-way and easements; equal access to serv-ice; time for provision of service; assurances

(1) A franchising authority may award, in ac-cordance with the provisions of this subchapter,1 or more franchises within its jurisdiction; ex-cept that a franchising authority may not grantan exclusive franchise and may not unreason-

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Page 241 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIO'PELEGRAPHS §541

ably refuse to award an additional competitivefranchise. Any applicant whose application for asecond franchise has been denied by a final deci-sion of the franchising authority may appealsuch final decision pursuant to the provisions ofsection 555 of this title for failure to complywith this subsection.

(2) Any franchise shall be construed to author-ize the construction of a cable system over pub-lic rights-of-way, and through easements, whichis within the area to be served by the cable sys-tem and which have been dedicated for compat-ible uses, except that in using such easementsthe cable operator shall ensure-

(A) that the safety, functioning, and appear-ance of the property and the aonvenience andsafety of other persons not be adversely af-fected by the installation or construction offacilities necessary for a cable system;

(B) that the cost of the installation, con-struction, operation, or removal of such facili-ties be borne by the cable operator or sub-scriber, or a combination of both; and

(C) that the owner of the property be justlycompensated by the cable operator for anydamages caused by the installation, construc-tion, operation, or removal of such facilitiesby the cabie operator.

(3) In awarding a franchise or franchises, afranchising authority shall assure that access tocable service is not denied to any group of po-tential residential cable subscribers because ofthe income of the residents of the local area inwhich such group resides.

(4) In awarding a franchise, the franchising au-thority-

(A) shall allow the applicant's cable systema reasonable period of time to become capableof providing cable service to all households inthe franchise area;

(B) may require adequate assurance that thecable operator will provide adequate pnblic,educational, and governmental access channelcapacity, facilities, or financial support; and

(C) may require adequate assurance that thecable operator has the financial, technical, orlegal qualifications to provide cable service.

(b) No cable service without franchise; exceptionunder prior law

(1) Except to the extent provided in paragraph(2) and subsection (f) of this section, a cable op-erator may not provide cable service without afranchise.

(2) Paragraph (1) shall not require any personlawfully providing cable service without a fran-chise on July 1, 1984, to obtain a francbise unlessthe franchising authority so requires.(3)(A) H a cable operator or affiliate thereof is

engaged in the provision of telecommunicationsservices-

(i) such cable operator or affiliate shall notbe required to obtain a franchise under thissubchapter for the provision of telecommuni-cations services; and(ii) the provisions of this subchapter shall

not apply to such cable operator or affiliatefor the provision of telecommunications serv-ices.

(B) A franchising authority may not imposeany requirement under this subchapter that has

the purpose or effect of prohibiting, limiting, re-stricting, or conditioning the provision of a tele-communications service by a cable operator oran affiliate thereof.(C) A franchising authority may not order a

cable operator or affiliate thereof-(i) to discontinue the provision of a tele-

communications service, or(ii) to discontinue the operation of a cable

system, to the extent such cable system isused for the provision of a telecommunica-tions service, by reason of the failure of suchcable operator or affiliate thereof to obtain afranchise or franchise renewal under this sub-chapter with respect to the provision of suchtelecommunications service.

(D) Except as otherwise permitted by sections531 and 532 of this title, a franchising authoritymay not require a cable operator to provide anytelecoinmunieations service or facilities, otherthan institutional networks, as a condition ofthe initial grant of a franchise, a franchise re-newal, or a transfer of a franchise.

(c) Status of cable system as common carrier orutility

Any cable system shall not be subject to regu-lation as a common carrier or utility by reasonof providing any cable service.(d) Informational tariffs; regulation by States;

"State" defined(1) A State or the Commission may require the

filing of informational tariffs for any intrastatecommunications service provided by a cable sys-tem, other than cable service, that would besubject to regulation by the Commission or anyState if offered by a common carrier subject, inwhole or in part, to subchapter II of this chap-ter. Such informational tariffs shall specify therates, terms, and conditions for the provision ofsuch service, including whether it is made avail-able to all subscribers generally, and shall takeeffect on the date specified therein.(2) Nothing in this subchapter shall be con-

strued to affect the authority of any State toregulate any cable operator to thc extent thatsuch operator provides any communication serv-ice other than cable service, whether offered ona common carrier or private contract basis.(3) For purposes of this subsection, the term

"State" has the meaning given it in section 153of this title,(e) State regulation of facilities serving subscrib-

ers in multiple dwelling units

Nothing in this subchapter shall be construedto affect the authority of any State to license orotherwise regulate any facility or combinationof facilities which serves only subscribers in oneor more multiple unit dwellings under commonownership, controi,or management and whichdoes not use any public right-of-way.

(f) Local or municipal authority as mul.tichannelvideo programming distributor

No provision of this chapter shall be construedto-

(1) prohibit a local or municipal authoritythat is also, or is affiliated with, a franchisingauthority from operating as a multichannelvideo programming distributor in the fran-

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§ 542 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS Page 242

chise area, notwithstanding the granting ofone or more franchises by such franchising au-thority; or(2) require such local or municipal authority

to secure a franchise to operate as a multi-channel video programming distributor.

(June 19, 1934, ch. 652, title VI, §621, as addedPub. L. 98-549, §2, Oct. 30, 1984, 98 Stat. 2786;amended Pub. L. 102-385, §§7(a)(1), (b), (c), Oct. 5,1992, 106 Stat. 1483; Pub. L_ 104-104, §3(d)(3), titleIII, §303(a), Feb. 8, 1996, 110 Stat- 61, 124.)

AMENDMENTS

1996-Subsec. (b)(3). Pub. L. 104-104, §303(a), addedpar. (3).

Subsec. (d)(3). Pub- L. 104-104, §3(d)(3), substituted"section 153" for °section 153(v)".

1992-Subsec. (a)(1). Pub. L. 102-385, §7(a)(1), insertedbefore period at end "; except that a franchising au-thority may not grant an exclusive franchise and maynot unreasonably refuse to award an additional com-petitive franchise. Any applicant whose application fora second franchise has been denied by a final decisionof the franchising authority may appeal such final de-cision pursuant to the provisions of section 555 of thistitle for failure to comply with this subsection".

Subsec. (a)(4). Pub. L. 102-385, § 7(b), added par- (4).Subsee. (b)(1). Pub. L. 102-385, §7(c)(1), Inserted "and

subsection (f) of this section" after "paragraph (2)".Subsec. (f). Pub. L. 102-385, §7(c)(2), added subsee. (f).

EFFECTPJF. DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-385 effective 60 days afterOct. 5, 1992, see section 28 of Pub. L. 102-385, set out asa note under section 325 of this title.

EFFF,OTIVE DATE .

Section effective 60 days after Oct. 30, 1984, exceptwhere otherwise expressly provided, see seotion 9(a) ofPub. 7,. 98-549, set out as a note under section 521 ofthis title.

§542. Franchise fees

(a) Payment under terms of franchiseSubject to the limitation of subsection (b) of

this section, any cable operator may be requiredunder the terms of any franchise to pay a fran-chise fee.

(b) Amount of fees per annum

For any twelve-month period, the franchisefees paid by a cable operator with respect to anycable system shall not exceed 5 percent of suchcable operator`s gross revenues derived in suchperiod from the operation of the cable system toprovide cable services. For purposes of this sec-tion, the 12-month period shall be the 12-monthperiod applicable under the franchise for ac-counting purposes. Nothing in this subsectionshall prohibit a franchising authority and acable operator from agreeing that franchise feeswhich lawfully could be collected for any such12-month period shall be paid on a prepaid or de-ferred basis; except that the sum of the fees paidduring the term of the franchise may not exceedthe amount, including the time value of money,which would have lawfully been collected if suchfees had been paid per annum.

(c) Itemization of subscriber biAsEach cable operator may identify, consistent

with the regulations prescribed by the Commis-sion pursuant to section 543 of this title, as a

separate line item on each regular bill of eachsubscriber, each of the following:

(1) The amount of the total bill assessed asa franchise fee and the identity of the fran-chising authority to whicll the fee is paid.

(2) The amount of the total bill assessed tosatisfy any requirements imposed on the cableoperator by the franchise agreement to sup-port public, educational, or governmentalchannels or the use of such channels.

(3) The amount of any other fee, tax, assess-ment, or charge of any kind imposed by anygovernmental autholtity on the transaction be-tween the operator and the subscriber.

(d) Court actions; reflection of costs in ratestructures

In any court action under subsection (c) ofthis section, the franchising authority shalldemonstrate that the rate structure reflects allcosts of the franchise fees.

(e) Decreases passed through to subscribers

Any cable operator shall pass through to sub-scribers the amount of any decrease in a fran-chiaefee.(f) Itemization of franchise fee in bill

A cable operator ma,y designate that portionof a subscriber's bill attributable to the fran-chise fee as a separate item on the bill.

(g) "Franchise fee" definedFor the purposes of this section-(1) the term "franehise fee" includes any

tax, fee, or assessment of any kind imposed bya franchising authority or other governmentaientity on a cable operator or cable subscriber,or both, solely because of their status as such;(2) the term "franchise fee" does not in-

clude-(A) any tax, fee, or assessment of general

applicability Qncluding any such tax, fee, orassessment imposed on both utilities andcable operators or their services but not in-cluding a tax, fee, or assessment which is un-duly discriminatory against cable operatorsor cable subscribers);

(B) in the case of any franchise in effect onOctober 30, 1984, payments which are re-quired by the franchise to be made by thecable operator dm•ing the term of such fran-chise for, or in support of the use of, public,educational, or governmental access facili-ties;

(C) in the case of any franchise grantedafter October 30, 1984, capital costs which arerequired by the franchise to be incurred bythe cable operator for public, educational, orgovernmental access facilities;

(D) requirements or charges incidental tothe awarding or enforcing of the franchise,including payments for bonds, securityfunds, letters of credit, insurance, indem-nification, penalties, or liquidated damages;or

(E) any fee imposed under title 17.(h) Uncompensated services; tases, fees and

other assessments; limitation on fees

(1) Nothing in this chapter shall be construedto limit any authority of a franchising author-ity to impose a tax, fee, or other assessment of

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Page 243 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPES §543

any kind on any person (other than a cable oper-ator) with respect to cable service or other com-munications service provided by such personover a cable system for which charges are as-sessed to subscribers but not received by thecable operator.

(2) For any 12-month period, the fees paid bysuch person with respect to any such cable serv-ice or other communications service shall notexceed 5 percent of such person's gross revenuesderived in such period from the provision of suchservice over the cable system.(i) Regulatory authority of Federal agencies

Any Federal agency may not regulate theamount of the franchise fees paid by a cable op-erator, or regulate the use of funds derived fromsuch fees, except as provided in this section.

(June 19, 1934, ch. 652, title VI, §622, as addedPub. L. 98-549, §2, Oct. 30, 1984, 98 Stat. 2787;amended Pub. L. 102-385, §14, Oct. 5, 1992, 106Stat. 1489; Pub. L. 104-104, title III, §303(b), Feb.8, 1996, 110 Stat. 125.)

AMENDMENTS

1990-Subsec. (b). Pub.L. 104-104 inserted "to providecable services" before period at end of firat sentence.

1992-Subsee. (c). Pub. L. 102-385 amended subsec. (c)generally. Prior to amendment, subsec. (c) read as fol-lows: "A cable operator may pass through to subscrib-ers the amount of any increase in a franchise fee, un-less the franchising authority demonstrates that therate structure specified in the franchise reflects allcosts of franchise fees and so notifies the cable operatorin writing."

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-385 effective 60 days afterOct. 5, 1992, see section 28 of Pub. L. 102-385, set out asa note under section 32u of this title.

EFFEGTIVE DATR

Section effective 60 days after Oct. 30, 1984, exceptwhere otherwise expressly provided, see section 9(a) ofPub. L. 98-549, set out as a note under section 521 ofthis title.

§ 543. Regulation of rates

(a) Competition preference; local and Federalregulation

(1)Ia general

No Federal agency or State may regulatethe rates for the provision of cable service ex-cept to the extent provided under this sectionand section 532 of this title. Any franchisingauthority may regulate the rates for the pro-vision of cable service, or any other commu-nications service provided over a cable systemto cable subscribers, but only to the extentprovided under this section. No Federal agen-cy, State, or franchising authority may regu-late the rates for cable service of a cable sys-tem that is owned or operated by a local gov-ernment or franchising authority withinwhose jurisdiction that cable system is lo-cated and that is the only cable system lo-cated within such jurisdiction.

(2) Preference for competitionIf the Commission finds that a cable system

is subject to effective competition, the ratesfor the provision of cable service by such sys-

tem shall not be subject to regulation by theCommission or by a State or franchising au-thority under this section. If the CommissionfYnds that a cable system is not subject to ef-fective competition-

(A) the rates for the provision of basiccable service shall be subject to regulationby a franchising authority, or by the Com-mission if the Commission exercises juris-diction pursuant to paragraph (6),in accord-ance with the regulations prescribed by theCommission under subsection (b) of this sec-tion; and(B) the rates for cable programming serv-

ices shall be subject to regulation by theCommission under subsection (c) of this sec-tion.

(3) Qualification of franchising authorityA franchising authority that seeks to exer-

cise the regulatory jurisdiction permittedunder paragraph (2)(A) shall file with the Com-mission a written certification that-

(A) the franchising authority will adoptand administer regulations with respect tothe rates subject to regulation under thissection that are consistent with the regula-tions prescribed by the Commission undersubsection (b) of this section;

(B) the franchising authority has the legalauthority to adopt, and the personnel to ad-minister, such regulations; and(C) procedural laws and regulations appli-

cable to rate regulation proceedings by suchauthority provide a reasonable opportunityfor consideration of the views of interested

parties.(4) Approval by Commission

A certification filed by a franchising author-ity under paragraph (3) shall be effective 30days after the date on which it is filed unlessthe Commission finds, after notice to the au-thority and a reasonable opportunity for theauthority to comment, that--

(A) the franchising authority has adoptedor is administering regulations with respectto the rates subject to regulation under thissection that are not consistent with the reg-ulations prescribed by the Commissionunder subsection (b) of this section;(B) the franchising authority does not

have the legal authority to adopt, or the per-sonnel to administer, such regulations; or(C) procedural laws and regulations appli-

cable to rate regulation proceedings by suchauthority do not provide a reasonable oppor-tunity for consideration of the views of in-terested parties.

If the Commission disapproves a franchisingauthority's certification, the Commissionshall notify the franchising authority of anyrevisions or modifications necessary to obtainapproval.(5) Revocation of jurisdictionUpon petition by a cable operator or other

interested party, the Commission shall reviewthe regulation of cable system rates by a fran-chising authority under this subsection. Acopy of the petition shall be provided to thefranchising authority by the person filing the

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§ 543 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS Page 244

petition. If the Commission finds that thefranchising authority bas acted inconsistentlywith the requirements of this subsection, theCommission shall grant appropriate relief. Ifthe Commission, after the franchising author-ity has had a reasonable opportunity to com-ment, determines that the State and locallaws and regulations are not in conformancewith the regulations prescribed by the Com-mission under subsection (b) of this section,the Commission shall revoke the jurisdictionof such authority.(6) Exereise of jurisdiction by Commissionif the Commission disapproves a franchising

authority's certification under paragraph (4),or revokes such authority's jurisdiction underparagraph (5), the Commission shall exercisethe franchising authority's regulatory juris-diction under paragraph (2)(A) until the fran-chising authority has qualified to exercisethat jurisdiction by filing a new certificationthat meets the requirements of paragraph (3).

Such new certification shall be effective uponapproval by the Commission. The Commissionshall act to approve or disapprove any suchnew certification within 90 days after the date

it is filed.(7) Aggregation of equipment costs

(A) In generalThe Commission shall allow cable opera-

tors, pursuant to any rules promulgatedunder subsection (b)(3) of this section, to ag-gregate, on a franchise, system, regional, orcompany level, their equipment costs intobroad categories, such as converter boxes,regardless of the varying levels of function-ality of the equipment within each suchbroad category. Such aggregation shall notbe permitted with respect to equipment usedby subscribers who receive only a rate regu-lated basic service tier.(B) Revision to Commission rules; forms

Within 120 days of February 8, 1996, theCommission shall issue revisions to the ap-propriate rules and forms necessary to im-plement subparagraph (A).

(b) Establishment of basic service tier rate regu-lations

(1) Commission obSgation to subscribersThe Commission shall, by regulation, ensure

that the rates for the basic service tier arereasonable. Such regulations shall be designedto achieve the goal of protecting subscribers ofany cable system that is not subject to effec-tive competition from rates for the basic serv-ice tier that exceed the rates that would becharged for the basic serviee tier if such cablesystem were subject to effective competition.

(2) Commission regolations

Within 180 days after October 5, 1992, theCommission shall prescribe, and periodicallythereafter revise, regulations to carry out itsobligations under paragraph (1). In prescribingsuch regulations, the Commission-

(A) shall seek to reduce the administrativeburdens on subscribers, cable operators,franchising authorities, and the Commis-sion;

(B) may adopt formulas or other mecha-nisms and procedures in complying with therequirements of subparagraph (A); and

(C) shall take into account the followingfactors:

(i) the rates for cable systems, if any,that are subject to effective competition;

(ii) the direct costs (if any) of obtaining,transmitting, and otherwise providing sig-nals carried on the basic service tier, in-cluding signals and services carried on thebasic service tier pursuant to paragraph(7)(13), and changes in such costs;(iii) only such portion of the joint and

common costs (if any) of obtaining, trans-mitting, and otherwise providing such sig-nals as is determined, in accordance withregulations prescribed by the Commission,to be reasonably and properly allocable tothe basic service tier, and changes in suchcosts;(iv) the revenues (if any) received by a

cable operator from advertising from pro-gramming that is carried as part of thebasic service tier or from other consider-ation obtained in connection with thebasic service tier;(v) the reasonably and properly allocable

portion of any amount assessed as a fran-chise fee, tax, or charge of any kind im-posed by any State or local authority onthe transactions between cable operatorsand cable subscrlbers or any other fee, tax,or assessment of general applicability im-posed by a governmental entity appliedagainst cable operators or cable subscrib-

ers;(vi) any amount required, in accordance

with paragraph (4), to satisfy franchise re-quirements to support public, educational,or governmental channels or the use ofsuch channels or any other services re-quired under the franchise; and

(vii) a reasonable profit, as defined bythe Commission consistent with the Com-mission's obligations to subscribers underparagraph (1).

(3) Equipment

The regulations prescribed by the Commis-sion under this subsection shall include stand-ards to establish, on the basis of actual cost,the price or rate for-

(A) installation and lease of the equipmentused by subscribers to receive the basic serv-ice tier, including a converter box and a re-mote control unit and, if requested by thesubscriber, such addressable converter boxor other equipment as is required to accessprogramming described in paragraph (8); and(B) installation and monthly use of con-

nections for additional television receivers.

(4) Costs of franchise requirements

The regulations prescribed by the Commis-sion under this subsection shall include stand-ards to identify costs attributable to satisfy-ing franchise requirements to support public,educational, and governmental channels orthe use of such channels or any other servicesrequired nnder the franchise.

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Page 245 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS §543

(5) Implementation and enforcement (8) Buy-through of other tiers prohibited

The regulations prescribed by the Commis- (A) Prohibition

sion under this subsection shall include addi-tional standards, guidelines, and proceduresconcerning the implementation and enforce-ment of such regulations, which shall in-clude-

(A) procedures by which cable operatorsmay implement and franchising authoritiesmay enforce the regulations prescribed bythe Commission under this subsection;(B) procedures for the expeditious resolu-

tion of disputes between cable operators andfranchising authorities concerning the ad-ministration of such regulations;(C) standards and procedures to prevent

unreasonable charges for changes in the sub-scriber's selection of services or equipmentsubject to regulation under this section,whieh standards shall require that chargesfor changing the service tier selected shallbe based on the cost of such change and shallnot exceed nominal amounts when the sys-tem's configuration permits changes in serv-ice tier selection to be effected solely bycoded entry on a computer terminal or byother similarly simple method; and

(D) standards and procedures to assurethat subscribers receive notice of the avaii-ability of the basic service tier requiredunder this section.

(6) Notice -The procedures prescribed by the Commis-

sion pursuant to paragraph (5)(A) shall requirea cable operator to provide 30 days' advancenotice to a franchising authority of any in-crease proposed in the price to be charged forthe basic service tier.

(7) Components of basic tier subject to rateregulation

(A)1VYinimum contents

A cable operator may not require the sub-scription to any tier other than the basicservice tier required by paragraph (7) as acondition of access to video programming of-fered on a per channel or per program basis.A cable operator may not discriminate be-tween subscribers to the basic service tierand other subscribers with regard to therates charged for video programming offeredon a per channel or per program basis.

(B) Exception; timitation

The prohibition in subparagraph (A) shallnot apply to a cable system that, by reasonof the lack of addressable converter boxes orother technological limitations, does notpermit the operator to offer programming ona per channel or per program basis in thesame manner required by subparagraph (A).This subparagraph shall not be available toany oable operator after-

(i) the technology utilized by the cablesystem is modified or improved in a waythat eliminates such technological limita-tion; or

(ii) 10 years after October 5, 1992, subjectto subparagraph (C).

(C) Waiver

If, in any proceeding initiated at the re-quest of any cable operator, the Commissiondetermines that compliance with the re-quirements of subparagraph (A) would re-quire the cable operator to increase itsrates, the Commission may, to the extentconsistent with the public interest, grantsuch cable operator a waiver from such re-quirements for such specified period as theCommission determines reasonable and ap-propriate.

(c) Regulation of unreasonable ratesEach cable operator of a cable system (1) Commission regulations

shall provide its subscribers a separately Within 180 days after October 5, 1992, theavailable basic service tier to which sub- Commission shall, by regulation, establish thescription is required for access to any other following:tier of service. Such basic service tier shall,at a minimum, consist of the following: (A) criteria prescribed in accordance with

(i) All signals earried in fulfillment of paragraph (2) for identifying, in individualthe requirements of sections 534 and 535 of cases, rates for cable programming servicesthis title. that are unreasonable;(ii) Any public, educational, and govern- (B) fair and expeditious procedures for the

mental access programming required by receipt, consideration, and resolution ofthe franchise of the cable system to be complaints from any franchising authorityprovided to subscribers. (in accordance with paragraph (3)) alleging(iii) Any signal of any television broad- that a rate for cable programming services

is provided by the cable charged by a cable operator violates the cri-castoperator to

stationanythatsubscriber, except a signal teria prescribed under subparagraph (A),

a sat- which procedures shall include the minimumwhich Is secondarily transmitted by showingellite carrier beyond the local service area that shall be required for a com-of such station. plaint to obtain Commission consideration

and resolution of whether the rate in ques-(B) Permitted additions to basic tier tion is unreasonable; andA cable operator may add additional video

programming signals or services to the basic

service tier. Any such additional signals orservices provided on the basic service tiershall be provided to subscribers at rates de-termined under the regulations prescribedby the Commission under this subsection.

(C) the procedures to be used to reducerates for cable programming services thatare determined by the Commission to be un-reasonable and to refund such portion of therates or charges that were paid by subscrib-ers after the filing of the first complaintfiled with the franchising authority under

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§543 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS Page 246

paragraph (3) and that are determined to beunreasonable.

(2) Factors to be consideredIn establishing the criteria for determining

in individual cases whether rates for cable pro-gramming services are unreasonable underparagraph (1)(A), the Commission shall con-sider, among other factors-

(A) the rates for similarly situated cablesystems offering comparable cable program-ming services, taking into account similar-ities in faeilities, regulatory and govern-mental costs, the number of subscribers, andother relevant factors;

(B) the rates for cable systems, if any, thatare subject to effective competition;(C) the history of the rates for cable pro-

gramming services of the system, includingthe relationship of such rates to changes ingeneral consumer prices;(D) the rates, as a whole, for all the cable

programming, cable equipment, and cableservices provided by the system, other thanprogramming provided on a per channel orper program basis;

(E) capital and operating costs of the cablesystem, including the quality and costs ofthe customer service provided by the cablesystem; and(F) the revenues (if any) received bya

cable operator from advertising from pro-gramming that is carried as part of the serv-ice for which a rate is being established, andchanges in such revenues, or from other con-sideration obtained in connection with thecable programming services concerned.

(3) Review of rate changesThe Commission shall review any complaint

submitted by afranchising authority afterFebruary 8, 1996, concerning an increase inrates for cable programming services and issuea final order within 90 days after it receives

such a complaint, unless the parties agree toextend the period for such review. A franchis-ing authority may not file a complaint underthis paragraph unless, within 90 days aftersuch increase becomes effective it receivessubscriber complaints.

(4) Sunset of upper tier rate regulation

This subsection shall not apply to cable pro-gramming services provided after March 31,1999.

(d) Uniform rate stracture required

A cable operator shall have a rate structure,for the provision of cable service, that is uni-form throughout the geographic area in whichcable service is provided over its cable system.This subsection does not apply to (1) a cable op-erator with respect to the provision of cableservice over its cable system in any geographicarea in wliich the video programming servicesoffered by the operator in that area are subjectto effective competition, or (2) any video pro-gramming offered on a per channel or per pro-gram basis. Bulk discounts to multiple dwellingunits shall not be subject to this subsection, ex-cept that a cable operator of a cable system thatis not subject to effective competition may not

charge predatory prices to a multiple dwellingunit. Upon a prima facie showing by a complain-ant that there are reasonable grounds to believethat the discounted price is predatory, the cablesystem shall have the burden of showing that itsdiscounted price is not predatory.

(e) Discrimination; services for the hearing im-

paired

Nothing in this subchapter shall be construedas prohibiting any Federal agency, State, or afranchising autbority from-

(1) prohibiting discrimination among sub-scribers and potential subscribers to cableservice, except that no Federal agency, State,or franchising authority may prohibit a cableoperator from offering reasonable discounts tosenior citizens or other economically dis-advantaged group discounts; or

(2) requiring and regulating the installationor rental of equipment which facilitates thereception of cable service by hearing impairedindividuals.

(f) Negative option billing prohibited

A cable operator shall not charge a subscriberfor any service or equipment that the subscriberhas not affirmatively requested by name. Forpurposes of this subsection, a subscriber's fail-ure to refuse a cable operator's proposal to pro-vide such service or equipment shall not bedeemed to be an affirmative request for suchservice or equipment.

(g) Collection of information

The Commission shall, by regulation, requirecable operators to file with the Commission or afranchising authority, as appropriate, withinone year after October 5, 1992, and annuallythereafter, such financial information as may beneeded for purposes of administering and enforc-ing this section.

(b) Prevention of evasionsWithin 180 days after October 5, 1992, the Com-

mission shall, by regulation, establish stand-ards, guidelines, and procedures to prevent eva-sions, including evasions that result fromretiering, of the requirements of this sectionand shall, thereafter, periodically review and re-vise such standards, guidelines, an.d procedures.

(i) Small system burdens

In developing and prescribing regulations pur-suant to this section, the Commission shall de-sign such regulations to reduce the administra-tive burdens and cost of compliance for cablesystems that have 1,000 or fewer subscribers.

(j) Rate regulation agreements

During the term of an agreement made beforeJuly 1, 1990, by a franchising authority and acable operator providing for the regulation ofbasic cable service rates, where there was not ef-fective competition under Commission rules ineffect on that date, nothing in this section (orthe regulations thereunder) shall abridge theability of such franchising authority to regulaterates in accordance with such an agreement.

(k) Reports on average prices

The Commission shall annually publish statis-tical reports on the average rates for basic cable

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Page 247 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS § 543

service and other cable programming, and forconverter boxes, remote control units, and otherequipment, of-

(1) cable systems that the Commission hasfound are subject to effective competitionunder subsection (a)(2) of this section, com-pared with(2) cable systems that the Cominission has

found are not subject to such effective com-petition.

(1) DefinitionsAs used in this section-

(1) The term "effective competition" meansthat-

(A) fewer than 30 percent of the householdsin the franchise area subscribe to the cableservice of a cable system;

(B) the franchise area is-(i) served by at least two unaffiliated

multichannel video programming distribu-tors each of which offers comparable videoprogranuning to at least 50 percent of thehouseholds in the franchise area; and(ii) the number of households subscribing

to programming services offered by multi-channel video programming distributorsother than the largest multichannel videoprogramming distributor exceeds 15 per-cent of the households in the franchisearea;

(C) a multichannel video programming dis-tributor operated by the franchising author-ity for that franchise area offers video pro-grarnming to at least 50 percent of thehouseholds in that franchise area; or

(D) a local exchange carrier or its affiliate(or any multichannel video programmingdistributor using the facilities of such car-rier or its affiliate) offers video program-ming services directly to subscribers by anymeans (other than direct-to-home satelliteservices) in the franchise area of an unaffili-ated cable operator which is providing cableservice in that franchise area, but only if thevideo programming services so offered inthat area are comparable to the video pro-gramming services provided by the unaffili-ated cable operator in that area.

(2) The term "cable programming service"means any video programming provided over acable system, regardless of service tier, includ-Sng installation or rental of equipment usedfor the receipt of such video programming,other than (A) video programming carried onthe basic service tier, and (B) video program-ming offered on a per channel or per programbasis.

(m) Special rules for small companies(1) In general

Subsections (a), (b), and (c) of this section donot apply to a small cable operator with re-spect to-

(A) cable programming services, or(13) a basic service tier that was the only

service tier subject to regulation as of De-cember 31, 1994,

in any franchise area in which that operatorservices 50,000 or fewer subsm•ibers.

(2) "Small cable operator" defined

For purposes of this subsection, the term"small cable operator" means a cable operatorthat, directly or through an affiliate, serves inthe aggregate fewer than 1 percent of all sub-scribers in the United States and is not affili-ated with any entity or entities whose grossannual revenues in the aggregate exceed$250,000,000. ,

(n) Treatment of prior year losses

Notwithstanding any other provision of thissection or of section 532 of this title, losses asso-ciated with a cable system (including losses as-sociated with the grant or award of a franchise)that were incurred prior to September 4, 1992,with respect to a cable system that is owned andoperated by the original franchisee of such sys-tem shall not be disallowed, in whole or in part,in the determination of whether the rates forany tier of service or any type of equipmentthat is subject to regulation under this sectionare lawful.

(June 19, 1934, ch. 652, title VI, §623, as addedPub. L. 98-549, §2, Oct. 30, 1984, 98 Stat. 2788;amended Pub. L. 102-385, §3(a), Oct. 5, 1992, 106Stat. 1464; Pub. L. 104-104, title III, § 301(b), (c),(j), (k)(1), Feb. 8, 1996, 110 Stat. 114, 116, 118.)

Avn)NDMENTS

1996-Subseo. (a)(7). Pub. L. 104-104, §301(j), added par.(7) .

Subsec. (c)(1)(B). Pub. L. 104-104, §301(b)(1)(A), sub-stituted "franchising authority (in accordance withparagraph (3))" for °subscriber, franchising authority,or other relevant State or local government entitp".

Subsec. (c)(1)(C). Pub. L. 104-104, §301(b)(1)(B), sub-stituted "the first complaint filed with the franchisingauthority under paragraph (3)" for "such complaint".

Subsec. (c)(3), M. Pub. L. 104-104, §301(b)(1)(C), addedpars. (3) and (4) and struck out heading and text offormer par. (3). Text read as follows: "Except duringthe 180-day period following the effective date of theregulations proscribed by the Commission under para-graph (1), the procedures established under subpara-graph (B) of such paragraph shall be available onlywith respect to complaints filed within a reasonable pe-riod of time following a change in rates that is initi-ated after that effective date, including a change inrates that results from a ohange in that system's serv-ice tiers."

Subsec. (d). Pub_ L. 104-104, §301(b)(2), inserted at end"This subsection does not apply to (1) a cable oporatorwith respect to the provision of cable service over itscable system in any geographic area in whioh the videoprogrumming services offered by the operator in thatarea are subject to effective competition, or (2) anyvideo programming offered on a per channel or per pro-gram basis. Bulk discounts to multiple dwelling unitsshall not be subject to this subsection, except that acable operator of a cable system that is not subject toeffective competition may not charge predatory pricesto a multiple dwelling unit. Upon a prima facie showingby a complainant that there are reasonable grounds tobelieve that the discounted price is predatory, thecable system shall have the burden of showing that itsdiscounted price is not predatory."

Subsec. (I)(1)(D). Pub. L. 104-104, §301(b)(3), added sub-par. (D).

Subsec. (m). Pub- L. 104-104, §301(c), added subsec.(m).

Subsec. (n). Pub. L. 104-104, §301(k)(1), added subsec.(n).

1992--Pub. L. 102-395 amended section generally, sub-stituting present provisions for former provisionswhich related in subsec. (a) to limitation on regulatory

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§ 544 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS Page 248

power of Federal agencies, States, or franchising au-thorities, in subsec. (b) to promulgation, scope, con-tent, periodic review, and amendment of regutations. in8ubsee.(c) to regulation by franchising authority dur-ing initial 2-year Period, in subsec. (d) to autolnaticgranting ofrateincreaserequests upon agency inactionwithin 180-day period, in subsec. (e) to additional in-creases in rates and to reduction by amount of increaseunder franchise provisions, in subsec- (f) to non-discrimination and facilitation of reception by hearing-impaired individuals, in subsee. (g) to continued effec-tiveness of limitation or the preemption of regulationunder prior State law, and in subsec. (h) to reports andrecommendations to Congress.

EFFECTNE DATE OF 1996 AMENDMENT

Section 301(k)(2) of Pub. L. 104-104 provided that:"The amendment made by paragraph (1) [amending thissection] shall take effect on the date of enactment ofthis Act [Feb. 8, 1996] and shall be applicable to anyrate proposal filed on or after September 4, 1993, uponwbich no final action has been taken by Decernber 1,

1995."

EFFECTIVF. DATE OF 1992 AMENDMENT

Section 3(b) of Pub. L. 102-385 provided that: "Theamendment made by subsection (a) [amending this sec-tion] shall take effect 180 days'after the date of enact-ment of this Act [Oct. 5, 1992], except that the author-ity of the Federal Communications Commission to pre-scribe regulations is effective on such date of enact-ment."

EFFECTIVE DATE

Section effective 60 days after Oct. 30, 1984, exceptwhere otherwise expressly provided, see section 9(a) ofPub. L. 98-549, set out as a note under section 521 ofthis title.

RESTORATION, RETIERMENT AND REPRICING OF SERVICE

PREVIOUSLY ELIMINATED, RETIERED, oR REPRICED

Section 9(b) of Pub. L. 9&-549 provided that: "Nothingin section 623 or 67A of the Communications Act of 1934[sections 543 and 544 of thia title], as added by this Act,shall be construed to aiiow a fTanchising authority, ora State or any political subdivision of a State, to re-quire a cable operator to restore, retier, or reprice anycable servicc which was lawfully eliminated, retiered,or repriced as of September 26, 1984."

§544. Regulation of services, facilities, and

equipment

(a) Regulation by franchising authority

Any franchising authority may not regulatethe services, facilities, and equipment providedby a cable operator except to the extent consist-ont with this subehapter.(b) Requests for proposals; establishment and en-

forcement of requirementsIn the case of any franchise granted after the

effective date of this subchaptei•, the franchisingauthority,to the extent related to the establish-ment or operation of a cable system-

(1) in its request for proposals for a franchise(including requests for renewal proposals, sub-ject to section 546 of this title), may estabiishrequirements for facilities and equipment, butmay not, except as provided in subsection (h)of this section, establish requirements forvideo programming or other information serv-ices; and

(2) subject to section 545 of this title, mayenforce any requirements contained withinthe franchise-

(A) for facilities and equipment; and(B) for broad categories of video program-

ming or other services.(c) Enforcement authority respecting franchises

effective under prior law

In the case of any franchise in effect on the ef-fective date of this subchapter, the franchisingauthority may, subject to section 545 of thistitle, enforce requirements contained within thefranchise for the provision of services,facilities,and equipment, whether or not related to the es-tablishment or operation of a cable system.(d) Cable service unprotected by Constitution;

blockage of premium channei upon request(1) Nothing in this subchapter ahall be con-

strued as prohibiting a franchising authorityand a cable operator from specifying,in a fran-chise or renewal thereof, that certain cable serv-ices shall not be provided or shall be providedsubject to conditions, if such cable services areobscene or are otherwise unprotected by theConstitution of the United States.

(2) In order to restrict the vieiving of of ofprogramming which is obscene or indecent, uponthe request of a subscriber, a cable operatorshall provide (by sale or lease) a device by whichthe subscriber can prohibit viewing of a particu-lar cable service during periods selected by thatsubscriber.

(3)(A) If a cable oporator provides a premiumchannel without charge to cable subscribers whodo not subscribe to such premium channel, thecable operator shall, not later than 30 days be-fore such premium channel is provided without

charge-(i) notify all cable subscribers that the cable

operator plans to provide a premium channelwithout charge;

(ii) notify all cable subscribers when thecable operator plans to offer a premium chan-nel without charge;

(iii) notify all cable subscribers that theyhave a right to request that the channel carry-ing the premium channel be blocked; and

(iv) block the channel carrying the premiumchannel upon the request of a subscriber.

(B) For the purpose of this section, the term"premium channel" shall mean any pay serviceoffered on a per channel or per prograin basis,which offers movies rated by the Motion PictureAssociation of America as X, NC-17, or R.

(e) Technical standardsWithin one year after October 5, 1992, the Com-

mission shall prescribe regulations which estab-lish minimum technical standards relating tocable systems' technical operation and signalquality. The Commission shall update suchstandards periodieally to reflect improvementsin technology. No State or franchising alithoritymay prohibit, condition, or restrict a cable sys-tem's use of any type of subscriber equipment orany transmission technology.(fl Limitation on regulatory powers of Federal

agencies, States, or franchising authorities;

exceptions

(1) Any Federal agency, State, or franchisingauthority may not impose requirements regard-

^ S. in original.

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Page 249 TITLE 47-TELEGRAPHS, TELEPHONES, AND RADIOTELEGRAPHS § 644a

ing the provision or content of cable services,except as expressly provided in this subchapter.(2) Paragraph (1) shall not apply to-

(A) any rule, regulation, or order issuedunder any Federal law, as such rule, regula-tion, or order (i) was in effect on September 21,1983, or (ii) may be amended after such date ifthe rule, regulation, or order as amended isnot inconsistent with the express provisions ofthis subcbapter; and

(B) any rule, regulation, or order under title17.

(g) Access to emergency information

Notwithstanding any such rule, regulation, ororder, each cable operator shall comply withsuch standards as the Commission shall pre-scribe to ensure that viewers of video program-ming on cable systems are afforded the sameemergency information as is afforded by theemergency broadcasting system pursuant toCommission regulations in subpart G of part 73,title 47, Code of Federal Regulations.

(h) Notice of changes in and comments on serv-ices

A franchising authority may require a cableoperator to do any one or more of the following:

(1) Provide 30 days' advance written noticeof any change in channel assignment or in thevideo programming service provided over anysuch channel.(2) Inform subscribers, via written notice,

that comments on programming and channelposition changes are being recorded by a des-ignated office of the franchising authority.

(i) Disposition of cable upon termination of sera-ice

Within 120 days after October 5, 1992, the Com-mission shall prescribe rules concerning the dis-position, after a subscriber to a cable systemterminates service, of any cable installed by thecable operator within the premises of such sub-scriber.

(June 19, 1934, ch. 652, title VI, §624, as addedPub. L. 98-549, §2, Oct. 30, 1984, 98 Stat. 2789;amended Pub. L. 102-385, §§ 15, 16, Oct. 5, 1992, 106Stat. 1490; Pub. L. 103-414, title nI, §§303(a)(23),304(a)(12), Oct. 25, 1994, 108 Stat. 4295, 4297; Pub.L. 104-104, title III, §301(e), Feb. 8, 1996, 110 Stat.116.)

REFERF.NCF,S IN TEXT

For "the effective date of this subchapter", referredto in subsecs. (b) and (c), as 60 days after Oct. 30, 1984,except where otherwise expressly provided, see section9(a) of Pub. L. 98-549, set out as an Effective Date noteunder section 521 of this title.

AMENDMENTS

1996-Subsec. (e). Pub. L. 104-104 substituted °NoState or franchising authority may prohibit, condition,or restrict a cable system's use of any type of sub-scriber equipment or any transmission technology." for"A franchising authority may require as part of a fran-chise (including a modification, renewal, or transferthereof) provisions for the enforcement of the stand-ards prescribed under this subsection. A francbising au-thority may apply to the Commission for a waiver toimpose standards that are moro stringent than thestandards prescribed by the Commission under this sub-

section."

1994-Subsec. (d)(2). Pub. L. 1031i14, $304(a)(12), struckout designation "(A)", inserted "of' after ^restrict theviewing", and struck out subpar. (B) which read as fol-lows: "Subparagraph (A) shall take effect 180 days after

the effective date of tbis subchapter."Pub. L. 103-414, §303(a)(23), inserted "oF' after "re-

strict the viewing" in subpar. (A).199&--Subsec. (b)(1). Pub. L. 102-385. §16(c)(1), insertedexcept as provided in subsection (h) of this section,"

after "but may not".Subsec. (d)(3). Pub. L. 102-85, § 15, added par. (3).Subsec. (e). Pub. L. 102-385, §16(a), amended eubsec.

(e) generally. Prior to amendment, subsec. (e) read as

follows: "The Commission may establisb technicalstandards relating to the facilities and equipment ofeable systems which a franchising authority lnay re-quire in the franchise."

Subsec. (g). Pub. L. 102-365. §16(b), added subsec. (g)-Subsec. (h). Pub. L. 102-385, §16(c)(2), added subsec.

(h).Subsec. (i). Pub. L. 102-385. §16(d), added subsec. (i).

EFFECTIVE DATE OF 1992 AMENDMENT

Amendment by Pub. L. 102-385 effective 60 days afterOct. 5, 1992, see section 2B of Pub. L. 162-385, set out asa note under section 325 of this title.

EFFECTtvE DATE

Section effective 60 days after Oct. 30. 1984, exceptwhere otherwise expressly provided, see section 9(a) ofPub. L. 98-549, set out as a note under section 521 of

this title.

RESTORATION, RETIERMENT AND REPRICING OF SERVICE

PREVIOUSLY ELIMINATED, R.ETIERED, OR REPRICED

Section not to be construed to allow a franchising au-

thority, or a State or political subdivision thereof, torequire a cable operator to restore, retier or repricecable service previously eiiminated, retiered, or re-priced as of Sept. 26, 1984, see section 9(b) of Pub. L.9&549, set out as a note under section 543 of this title.

§544a. Consumer electronics equipment compat-

ibiiity

(a) Findings

The Congress finds that-(1) new and recent models of television re-

ceivers and video cassette recorders often con-tain premium features and functions that aredisabled or inbibited because of cable scram-bling, encoding, or encryption technologiesand devices, including converter boxes and re-mote control devices required by cable opera-tors to receive programming;

(2) if these problems are allowed to persist,consumers will be less likely to purchase, andelectronics equipment manufacturers will beless likely to develop, manufacture, or offerfor sale, television receivers and video cassetterecorders with new and innovative featuresand functions;(3) cable operators should use technologies

that will prevent signal thefts while permit-ting consumers to benefit from such featuresand functions in such receivers and recorders;

and(4) compatibility among televisions, video

cassette recorders, and cable systems can beassured with narrow technical standards thatmandate a minimum degree of common designand operation, leaving all features, functions,protocols, and other product and service op-tions for selection throngh open competition

in the market.

Appx.87

I

Black's Law Dicti®nary®

Seventh Edition

Bryan A. GarnerEditor in Chief

®

V-

WESTGROUP

ST. PAUL, MINN., 1999

Appx. 88

"BLACK'S LAW DICTIONARY" is a registered trademark of WestGroup. Registered in U.S. Patent and Trademark Office.

COPYRIGHT (D 1891, 1910, 1933, 1951, 1957, 1968, 1979, 1990 WEST PUBLISHING CO.

COPYRIGHT © 1999 By WEST GROUP610OppermanDriveP.O. Box 64526St. Paul, MN 55164-05261-800-328-9352

All rights reservedPrintetl in the United States of America

ISBN 0-314-22864-0ISBN 0-314-24130-2-deluxe

TEXT IS PRINTEOON r0%POSTCONSOMERRECYCLEOPAPER (0J

Appx. 89

fragmented literal similarity

fragmented literal similarity. See sossmlw-TIAI. SIMILARITY.

frame, eb. 1. To plan, shape, or constntct; esp.,to draft or otherwise draw up (a document). 2.To incriminate (an innocent person) with falseevidence, esp. fabricated. - framable, frame-able, adj.

frame-up, n. A plot to make an innocent personappear guilty.

francbordus. Ser. FREE-BORD.

franchise (fran-chiz), n. 1. The right to vote, -Also tertned elective franchise. 2. The rightconferred by the government to engage in aspecific business or to exercise corporate pow-ers. - Also termed corporate fi-anchise; generalfranclaise.,

"When referring to government grants (other tlran pat-ents, trademarks, and copyrights), the term `franchise' isoften used to connote more substantial rights, whereastho term `license' connotes lesser rights. Thus, the rightsnecessary for pubHe utility eompanies to carry on theiroperations are generally designated as franchise rigl,ts.On the other hand, the rights to oonstsuct or to repair,the rights to practice certain professions, and the rightsto use or to operate automobiles are generally reterred toas linenses." 1 Eekstrom's Licensing in Foreign andDomestic Operations § 1.02(13), at 1-10 to 1-11 (David M-Epstein ed., 1998).

"In a violent conceptual collision, some franehisorsmaintain that a franchise is cnerely an embellished li-cense med therefore revoeable at will. Franehisoos con-tend that a franchise is a license coupled with an inter-est, not subject to unlimited contrul by franchisors. As aresult of this disagreement, legislat3ve draftsinen havehad difficulty defining 'franchise.' " I llarold Brown,Franchi.ring Realities and Remedies § 1.03[1], at 1-17(1999),

franchise appurtenant to land. Rare. Afranchise that is used in conneetion with realproperty and thus is sometilnes characterizedas real property.

general franehise. A corporation's charter.

special franchise.A right conferred by thegovernment, esp. to a public utility, to useproperty for a public use but for private prof-it.

3. The sole right granted by the owner of atrademark or tradename to engage in businessor to sell a good or service in a certain area. 4.The business or territory controlled by theperson or entity that has been granted such aright.

conzmercial franchise. A franchise usinglocal capital and management by contractingwith third parties to operate a facility identi-

fied as offering a particular brand of (y,- l.services.

sports franchise. A fraftchise grant.cd 1^=,professional sports league to field a tenw )«.that league; the team itself.

trial fi•anchise. A franchise having :oh utial term of limited duration, such n.: e.. r,year.

franchise, ab. To grant (to another) tht^ =,.iI,,right of engaging in a certain business ur in .tbusiness using a particular trademark in a e^ertain area.

franchise agreement. The contract betwtnui nfranchisor and franchisee establishing Ihatertns and conditions of the franchise relatlonship. • State and federal laws regulate 1riutchise agreements.

franchise appurtenant to land. Sec FenrvCHISE (2).

franchise clause. Insurance. A provision io acasualty insurance policy stating that the insurer will pay a claim ornly if it is more than ttstated amount, and that the insured is responsible for all damages if the claim is under thniamount. • Unlike a deductible, which the insured always has to pay, with a franchianclause, once the claim exceeds the statedamount, the insurer pays the eutire claun.

franclxise court. Ilist. A privately held courlthat (usu.) exists by virtue of a royal graul,with jurisdiction over a variety of matters, de.pending on the grant and whatever powers thccourt acquires over time. • In 1274, Edward Iabolished many of these feudal courts by foming the nobility to demonstrate by what authority (quo warranto) they held court. If a lordcould not produce a charter reflecting the fran-chise, the court was abolished. - Also termadcourts of the franchise.

"Dispensing justice was profitable. Much revenue coulrlcome from the fees and dues, fines and anrercements-This explaius the growth of the second class of feudalcourts, the Franchise Comrts. They too were privat.ecourts held by feudal lords. Sometimes their claim tojurisdiction was based on old pre-Conquest grants.-..But many of thenr were, in reality, only wrongful usurpa,tions of private jurisdiction by pawerful lords. Theso.were put down after the famous Qao Wrnranto enquiryin the reigii of Edward I." W.J.V. Windeyer, Lectures o.eLegal Ilistory 5E-57 (2d ed. 1949).

franchisee. One who ie granted a franchise.

franchise fee. See FEE (1).

Appx. 90

Page 1

& LexIs^exK

HARTZ MT. INDUSTRIES, INC., PLAINTIFF, v. CITY OF JERSEY CITY, DE-FENDANT.

DOCKET NO. 005430-2002

TAX COURT OF NEW JERSEY

22 N.J. Tax 84; 2004 N.J. Tae LEXIS 29

February 17,2004, Decided

SUBSEQUENT IIISTORY: [**11 Approved forPublication Februaty 17, 2004.Affirmed by Hartz Mt. Indus. v. City of Jersey City, 22N:J Tax 634, 2005N.J TaxLEXIS35 (App.Div., 2005)

CASE SUMMARY:

the court grauted the municipatity's motion foi- summaryjudgment.

OUTCOME: The court denied the taxpayer's motion forsummary judgment is denied, and granted the municipal-ity's cross-motion for summary judgment.

PROCEDURAL POSTURE: Plaintiff corporate tax-payer sought to strike the 2002 tax assessntent of certainairspace. Defendant utunicipality sought to distniss thetaxpayer's complaint. Both parties filed motions for

summaty judgment.

OVERVIEW: The taxpayer objected to the municipali-ties' tax assesstnent of certain airspace. The court foundthat "air riglrts" constituted land wlien they were appro-priately described and consequently, may have beenblighted; thus, it followed that "air rights" were similarlysubject to local property tax assessment when they wereappropriately described. In the instant case, the airspacewas appropriately described in three d'unettsions withrefereuce to a specific locus. Therefore, the municipalitycould properly assess the airspace. Additionally, thecourt found that the "air rights" were to be constnted asan interest in land, pursuant to N.J. Stat. Ann. § 46 3-19through 21, and consequently, subject to the same bur-dens and responsibilities as land, incltiding local propertytax assessment. Furthermore, ttie comt found that be-cause the airspace was divorced from the nnderlyingland, had separate ownership, and was not being used forrailroad putposes, it was not covered by the Railroad TaxLaw of 1948, N.J. .Stat. Ann. § 54.29A-I to -77, and wassubject to local property tax assessment. Accordingly,

COUNSEL: Charles J. Harringtor, III, for plaintiff

(Schuntann, Ilanlon, Doherty, McCrossin & Paolirm,

attorneys).

Michael Kremen for defendant (Alexander W. Booth,

Corporation Counsel, attorney).

JUDGES: KAHN, J.T.C.

OPINION BY: KAHN

OPINION

[*86] KAHN, J.T.C.

'I'his is the court's determination witlt respect tocross-motions for smnmary judgment. The assessmentfor tax year 2002, wlrich is the subject of these motions,involves certain airspace. Plaintiff (taxpayer) moves tostrike the assessment as void, and the defendant munici-pality cross-moves to dismiss the first count of taxpayer'scoinplaint'.

I'['he first count of taxpayer s complaint seeks adctennination voiding locat property assesstnentof taxpayer's "air rights." The second count al-leges in the alternative that taxpayer's "air rights"are over-assessed.

Appx. 91

22 N.J. Tax 84, *; 2004 N.J. fax LLX1S 29, "*

The subject airspace is located above Block 586.5,Lots A.2, B, and C.2, as shown on the tax tnap of theCity of Jersey City, situated between Tonnelle Avenueattd [**2] John F_ Kennedy Boulevard. At all relevanttinres, the land, above which the subject airspace is lo-cated, was owned by the Port Authority Trans-HudsonCorporation (PATHJConrail). 7'he airspace is more spe-cifically described as beginning at a point sixty-eigltt(68) feet above the top rail of the highest track over ttteaforementioned block and lots.

In 1990, taxpayer purchased the "air rights" fi-omPATHJCom'ail. The purchase was initially memorializedby a conditional agreement of sale dated June 29, 1988,wberein the consideration set forth is $ 900,000. Pursu-ant to tttat agreement, "possession of the premises shallbe delivered at closing by customary form of bargain andsale deed without any covenants or warranties of title,express or implied." The agreement fitrther provided thata more specific description of the airspace would be setforth in the deed. Thereafter, on Jatntary 9, 1990, thedeed between Poit Authority Trans-Hudson Corporationand Hartz Mountain Industries, Inc. was executed con-taining the following description:

ALL THOSE CERTAIN air rights con-sistiug of all that volume of space begin-nutg at a point in southeasterly line of'fonnelle Avenue distant southwesterly[**3] 84.35 feet as measured along thesoutheasterly line of Tonnelte Avenuefroni the corner [*87] formed by the in-tersection of the southeasterly line ofTotmelle Avenue with the southerly lineof Newark Avenue attd ntnning the fol-lowing ten (10) cotuses and distancesalong the northerly line of lands conveyedto the Port Authority 1'rans-Hudson Cor-poration by deed fi'om the ConsolidatedRail Cotporation dated June 30, 1987 andrecorded in the Hudson County Register'sOffce on July 6, 1987 in Deed Book 3772at page 27.

Beginning in 1992, the municipality assessed theairspace for $ 1,032,000. The taxpayer filed appeals in1992 and 1993 challeuging the assessment, resulting in asettlement reducing the assessntent to $ 780,000. Nofurther cltallenges were made as to the sttbject assess-ment until the current appeal by the taxpayer of the 2002assessment of $ 780,000. 'Chere is no dispute that theunderlying land, over which the airspace exists, is ownedby the Port Authority Trans-Hudson Corporation, is op-erated for railroad purposes, and is exempt irom property

Page 2

taxation pursuant to the Railroad Tax Law of 1948,N..I.S.A_ 54:29A-1 to -77 (hereinafter referred to as ttte"Railroad Act").

The [**4] taxpayer's argument has tlrree majorpoints. First, the taxpaycr urges that no stattttory author-ity exists to permit the assessrnent of air rights. It doesacktrowledge that if and when improvements are placedwithin the airspace, the intprovements may be subject tolocal property taxation. Since no improvements havebeen made as of the relevant assessment date, the tax-payer contends that the municipality can make no as-sessment on the airspace. Second, the taxpayer contendsthat in any event, what was conveyed was similar to aneasement, rather than a fee sitnple conveyance. As a re-sult, it asserts that an easement camtot be the subject oflocal property taxation. The taxpayer's third contention isthat the Railroad Act preeinpts local property tax as-sesstnent. The taxpayer suggests that since the underly-ing land is owned by the "railroad," it is tlterefore notsubject to local property tax assessntent. Consequently,the taxpayer urges that the airspace above it sltould simi-larly uot be subject to local property taxation.

This court finds that the taxpayer's arguments areunpersuasive. Accordingly, for the reasons hercinafterstated, the taxpayer's motion for summary judgment isdenied and [**5] the municipality's [*88] cross-motionfor partial summary judgn7ent, distnissing the first countof taxpayer's con plaint is granted.

I. LAW AND ANALYSIS

A. Summary Judgment Standard

Summary judgment should be granted where "theplcadings, depositions, answers to interrogatories andadmissions on file, together witlt affidavits, if any, showthat there is no genuine issue as to any tnaterial fact chal-lenged and that the moving party is entitled to a judg-rnent or order as a matter of law." R. 4:46-2(c). Therebehtg no issue of material fact in dispute, the matter isripe for sumtnary judgnsent.

B. Taxable Status

1. The Airspace is Subject to Local Pr•operty Y'ax As-

sessnzent

The taxpayer contends that there is uo statutory orcase law that supports a finding that airspace is taxableas land. However, there is aruple statutory language stat-ing that estates and interests in real property may be cre-ated in areas above the surface. Specifically, N.J.S.A.46:3-19 through 21 provides:

Estates, riglits and interests in areasabove the stu'face of the ground, whether

Appx. 92

22 N.J. Tax 84, *; 2004 N.J. Tax LEXIS 29, **

or not contiguous tttoreto, may be validlycreated in persons or corporations otherthan the owner of the land [**6] belowsuch areas and shall be deented to be es-tates, rights and interests in land.

[N..I.S.A 46:3-19]

[Such estates] may be Ireld, enjoyed,possessed, aliened, conveyed, exchartged,transferred, assigned, den ised, released,charged, mortgaged or ottterwise encum-bercd, devised and bequeathed in thesame manner, upon the same conditionsand for the satne uses and purposes as es-tates, rights and interests in land.

[NJS.A. 46:3-20]

All of the riglits, privileges, incidents,powers, remedies, burdens, duties, liabili-ties and restrictions pertaining to estates,rights and interests in land shall appertainand be applicable to such estates, rightsand interests in areas above the surface ofthe ground.

[N..I S.A. 46: 3-21 ].

As a result, if estates and interests may be created in thearea above the surface, then it ntust follow that thoseestates and interests should be subject to the same bur-dens, duties and liabilities as estates and interest in land,including local propetty [*89] tax assessntent. Thiscourt finds that N.J.S.A. 46:3-19 through 21, inclusive,pcrmits the creation of estates and interests in airspace,and that one of those [**7] interests may be owuershipof airspace. Consequently, local property tax assessmentof such an ownership interest in airspace logically fol-

lows from the aforementioned statutory language_'

2 New Jersey is not alone in finding that estatesand interests may be created in airspace. For ex-ample, under Pennsylvania law, '°[e]states, rightsand interests in air space above the surface of theground' are to be'dealt with for all purposes andin all respects as estates, rights and interests inrea] propcrty."' In re. Bigman, 110 Pa.Commw.539, 533 A.2d 778, 781 (1987) (quoting 68 Pa.S.

§ 802). In Bigman, the court found that air rightsare the proper subject of local property tax as-

sessment. Bigrnan, suprrr, 533 A.2d at 781. Spe-

cifically, the Bigrnan court held that "[t]he statutemandates that air rights are in all cases, and par-ticular with regard to taxation, to be treated asreal properly." Ibid Consequently, the BigmancomY concludcd that so long as the airspace is

Page 3

"owned by an entity other than the owner of theland," the airspace is subject to taxation regard-less of the presence of buildings within. Id at782. Additional support for the proposition thatair riglits are properly taxable, may be fouttd intlre jurisdiction of Maryland. See Macht v. De-partment of Assessments of Baltirnore Cify, 266Md. 602, 296 A.2d 162 (1972). In Macht, the

court recognized airspace as "'an independent unitof real properTy' the owner of w[iich is entitled toall the rights associated with land ownership." Id.

at 168 (citations ornitted). The court held that solong as owners of airspace over their propertymake no use of the airspace, it cannot be the sub-ject of an assessment. Ibid. Ilowever, the courtconcluded that once the property owners "[deny]themselves the use of the [airspace] for a price, it[takes] on value for the ptu'poses of assessment."Iliid.

[**8] The taxpayer argues that N.J.A.C. 18:12-I0.2defines real property without including airspace, andconcludes from that regulation that air rights are outsidethe realm of local propetty taxation. The taxpayer's reli-ance on NJA.C. 18:12-10.2 is misplaced. N..1 S.A. 46:3-

19 through 21 mandate that air rights and/or airspace beconstnted as interests h land and subject to the "burdens,duties aud liabilities pertaining to estates, rights, andinterests in land." In fact, N.J.A.C. 18:23A-1.31 provides

as follows:

(a) When subject to assessment andtaxation, air rights must be shown on taxmaps in accordance with the following:

1. '1'he area included in the air rightsshould be circumscribed by dashed linesand inscribed with the words "Ah'Rights."

2. The lot number of the parcel sub-ject to air rights shall also be the numberassigned to the air rights witli a decimaladded comntencing with ".01."

[*90] Example: Lot 15 is subject toair rights in favor of an independentlyowned parking lot atop a buildurg. Theparking lot will appear as lot 15.01 ...

3. The clevation above ground to be

shown when available.. . .

Although the tax maps flil [**9] to show dual own-etship of the subject property ', that is (a)PATHICorn'aIl's retained ownership in the underlying

Appx.93

22 N.J. Tax 84, *; 2004 N.J. 'I'ax LEXIS 29, *"

land, and (b) taxpayer's ownersbip in the airspace above,taxpayer's interest was clearly indicated when the deedwas filed in the Hudson County Register's Office, andthere is no question that the underlyiag land was notconveyed. 1'he taxpayer argues that because the tax mapdoes not differentiate between the underlying land andthe airspace, that it is exentpt fiom assessment. However,this court cannot conclude that a mere technicalityshonld deprive the City of its rigltt to make a property taxassessment on thc airspace. Specifically, in Hull Junction

Holding Corp, v. Princeton Bor., 16 N.J.Tax 68 (Tax

1996), the comt held that a mistake made by the assessor"'does not deprive the municipality of the right to enforceits tax lien against real estate."' Id. at 124, quotingBecker v. Little Ferry Bor., 725 N.JL. 141, 144, 14 A.2d493 (Sup.Ct.1940). Consequently, this court finds thatthe technical failure of the tax map to specifically de-scribe the underlying land is not sufficient to void theassessment ( ** 10) appealed from_

3 The Assessor's Office intends to document thedual ownership of the subject property for its2004 Tax Duplicate.

Additional support for the notion that airspace canbe the subject of a local property tax assessment may befound in the New Jersey Supreme Court's opinion hi Jer-sey City Chapter of the Property Owner's ProtectiveAss'n. v. City Council of Jersey City, 55 N.L 86, 259A.2d 698 (1969), in whiclr the issue before the cotut waswhether airspace could be bligltted. While that case dealtwith a different issue than the one before this court, theanalysis entployed by the Conrt in Jersey City Chapter isnevertheless relevant to the issue at ltand and is helpfulhi resolving the present matter. In Jersey City Chapter,the Court held that airspace is included in the definitionof land, and therefore, could also be blighted. The couttstated:

[*91 ] Since tlte early thirties there havebeen instances in which the space aboverailroad tracks has been separately [**11]conveyed for highly productive develop-ment. The conveyed space has been gen-erally viewed as real propetty. "The air it-self is uot real property and is not con-veyed; airspace, however, is real propettywhen described in tln-ee dimensions withreference to a specific locus." ... When in1938 the Legislature expressly recognizedthat separate interests in the space aboveland may be validly created, it appropri-ately declared that such separate interests,shall be deemed to be "interests in land."

L. 1938, c. 370--now N.J.S.A 46:3-19 to

22inclusive. Surely, in light of all of the

Page 4

above, it cannot fairly be said that whenthe Legislatme used the general term"land" without more, it evinced the short-sighted purposes of exchtding the spaceabove railroad tracks and the like as aproper subject of a bligltt or renewal de-termination. (Emphasis added) (Citationsomitted).

[Id at 98-99, 259 A.2d 698]_

The taxpayer argues that even though airspace tnaybe blighted, it nevettheless cannot be assessed. Thiscourt disagrees. 13mploying an analysis similar to that ofJersey City Chapter to the presettt set of facts, it is evi-dent that the "air rights" and/or airspace that [**12] thetaxpayer purehased are analogous to land. Specitieally,while the air itself caunot be included in the definition ofland, the airspace that the taxpayer purchased is includedwithin this definition, because it is described in threedimensions with reference to a specific locus. For exanrple, the deed transferring ownership betweenPATH/Comail and the taxpayer states that the taxpayer"is to receive all that air space sixty-eight (68) feet aboveBlock 586.5, Lots A.2, B, and C.2, as shown on the taxmap of the City of Jersey City, situated between 'fon-nelle Avenue and John F. Kennedy Boulevard." 1"here-fore, if "air rights" constitute land when they are appro-priately described, and eonsequently, may be blighted assuch, then it must follow that "air rights" are sitnilarlysubject to local property tax assessment when they areappropriately described. In the instant case, the airspaceis appropriately described in three dimensions with refer-enee to a specific locus. Therefore, this court finds thatthe municipality may properly assess the airspace.

2. The Airspace Hereirt Does Not Atnount to an Ease-rnent

Next, taxpayer contends that the air rights receivedfronr PATH/Comail [**13] merely anlount to ease-ments, and are, therefore, not subject to local propertytax assessment. The Appraisal [*92] Institute, The Ap-

praisal of Real Estate 71 (12 ed.2001), defines an ease-ment as an "interest in real property that transfers use butnot ownership of a porticn of au owner's property." Con-versely, the Institute defines ownership of real propertyas:

Real Property includes ttte interests,benefits, and rights inherent in the owner-ship of physical real estate. Real propertyincludes the "btmdle of rights" that is in-herent in the ownersltip of real estate.

Appx. 94

22 N.J. Tax 84, *; 2004 N.J. Tax LEXIS 29, **

In the bundle of rights theory, owner-ship of real property is compared to abundle of sticks. Each stick represents adistinct and separate right, which may bethe right to use real estate, to sell it, toease it, to enter it, to give it away, or tochoose to exercise ntore than one or noneof these rights.

/t is possible to own all of the rightsin a parcel of real estate or only a portionof them_ A person owning all of the rightsis said to have a fee sinsple title. Fee sim-ple title is regarded as an estate withoutlimitations or restrictions. Less than com-plete estates restdt from partial intereststhat are created [** 14] by selling, leasing,or otherwise limiting the bundle of rightsin the fee estate.

[Lidell v. Mirnosa Lakes Association, 6NJTax 417, 423 (Tax 1984) (quotingAmerican Institute of Real Estate Ap-praisers, The Appraisal of Real &state (8ed.1983)).]

There is no language in the conditional agreement ofsale or the deed that speaks of other than a full and cont-plete h-ansfer of ownership. Whether or not the interestconveyed is a fee sintple utterest or other interest in realproperty, the statutes cited herein clearly establish theinterest as the type of estate subject to real property taxa-tion. Specifically, while there may be obstacles in theway of fiittire use of the property, taxpayer is not pre-vented front liolding or selling the airspace for a consid-eration_ Furtliermore, obstacles in the way of future useof the property inerely go to show that perlraps the tax-payer overvalued the "air rights" it purchased. Unfortu-nately for the taxpayer, its airspace has remained idle forseveral years, a fact that has no bearing on the municipal-ity's ability to assess the airspace but, ratlier, goes to theissue of valuation_ Valuation is raised in the secondcount [** 151 of taxpayer's complaint and is not the sub-ject of the within motions.

3. The Subject Airspace is Not Exempt Pursuant tothe Railroad '1'ac Law of 1948, NJS.A. 54:29A-1 et seq.,

(Railroad Act)

Lastly, taxpayer contends that even if the airspacewere subject to taxation, only the Railroad Act wouldapply, preempting [*93] any local assessment. Undcrthe Railroad Act, the State Tax Cotnmissioner ' is theonly person who has ttte aathority to assess land used forrailroad purposes. N.J..S.A. 54.29A-7. The pmpose of the

Page 5

act was to avoid discrepancies caused by the "varyingmethods and standards of valuation by the differetit tnu-nicipalities in wliieh the property is located, and to se-cure unifotm assessment." Jersey City v. Armed RealtyCorp., 45 N.ZSuper. 49, 55, 131 A.2d 549(App.Div.1957). In the present case, the taxpayer con-tends that if the airspace has any additional value, saidvalue is derived from the underlying land. The underly-ing land is subject to the Raih-oad Act, and therefore, it isexetnpt from local property assessntent. This court dis-

agrees.

4 Now known as the Director of the Division ofTaxation.

[**16] In Jersey City v. Armed Realty Corp., thecourt found that a lease granting the right to erect abuilding over the rooftop of the Jountal Square rail sta-tion in Jersey City, was covered under the Railroad Actand exempt from local taxation. Id. at 52, 131 A.2d 549.

The Armed Realty comt reasoned that because the build-iug would be superintposed on the old existing stivcture,and becausc the railroad conipany retained owriership ofthe leased airspace, tlte "over-all railroad use continuesunabated." Id. at 53, 131 A.2d 549. Therefore, the courtconcluded that even though the building erected in theairspace was not being used for railroad purposes, it mustbe characterized as such, because the railroad retaincd anownership interest in the property. Consequently, ttteArnted Realty court stated, "[I]and in raih-oad use maynot be assessed locally even though a portion of thebuilding on it is put to non-catrier purposes." Id at 61,

131 A.2d 549. In fact, "[o]nly property which is not usedat all for [raih-oad] purposes shall be taxed by the localauthorities.° Id. at 60, 131 A.2d 549.

In the instant case, the taxpayer contends that the"air rights" it [**171 purclrased fronl PATHlConrail aresimilar to the airspace leased in Arrned Recrlty, and there-fore, the auspace should be exempt fi-om local assess-tneut. IIowever, the present case is distinguishable fromArmed Realty, becanse PATH/Coiirail did not retain att[*94] ownership intcrest in the subject airspace, as didthe railroad company in Armed Realty, which tnerely

leased the airspace. Here, PA'1'HlComail sold the air-space to the taxpayer in fee simple, and a deed memorial-izing the sale was filed with the Camty Register ofDeeds. Additionally, it is undisputed that the airspacehere is not being used for any railroad purposes '. As aresult, because the airspace is divorced tiom the underly-ing land, has separate ownership, and because it is notbeit g used for railroad purposes, it is not covered by theRailroad Act and is subject to local property tax assess-ment.

Appx. 95

Page 6

22 N.J. Tax 84, *; 2004 N.J. Tax LEXIS 29, **

5 Evidence that PATH/Conrail considered howmuch airspace it could afford to sell without dis-rupting its railroad operations is subsntntiated bythe change in the dimensions of airspace sold tothe taxpayer and the airspace retained by the rail-road. Specifically, between the time when thetaxpayer and PATIUConrail entered into theConditional Sale Agreement and the date thedeed was filed, the amount of airspace retainedwas altered from twenty-three (23) feet above thetop rail of the highest nack ... to sixty-eight (68)feet above the top rail oftlte ltighest track.

[** 18] LI. CONCLUSION

For the reasons hereinabove set forth, this courtfinds that the "air rights" the taxpayer purchased are notanalogous to an easement of rigltt. Additionally, thiscourt finds that the "air rights" are to be construed as aninterest in land, pursuant to N.J.S.A. 46:3-19 through 21,and consequently, subject to the same burdens and re-sponsibilities as land, including local property tax as-sessment. Furthennore, this court finds that the RailroadTax Law of 1948, NJS.A. 54:29A-1 to -77, is not appli-cable to the present set of facts, and as a result, the "airrights" are not exempt from local assessment. Accord-ingly, the taxpayer's motion for summary judgment isdenied, and the municipality's cross-nzotion for summaryjudgment, dismissing tlie first count of taxpayer's coni-plaint, is granted_

Appx.96

Page 1

_exisNexK

INTERNA'IIONAL DAIRY FOODS ASSOCIATION, and ORGANIC TRADE AS-

SOCIATION, Plainfiffs, v. ROBERT.1. BOCGS, Director, Oltio Departinent of Ag-riculture, Defendant.

Case No. 2:08-CV-628consolidated withCase No. 2:08-CV-629

UNITED STATES DISTRICT COURT FOR TIIE SOUTHERN DISTRICT OF01110, EASTERN DIVISION

2009 U.S. Dist. LEXIb'27074

April 2, 2009, DecidedApri12, 2009, Filed

COUNSEL: [*1] For International Dairy Foods Asso-ciation, Plaintiff: Jolut Cooper McDonald, LEAD AT-TORNEY, Schottenstein Zox & Dutm - 2, Columbus,OH; Charles M English, Jr., PRO HAC VICE, OberKaler Grimes & Shriver, PC, Washington, DC; ClaytottHough, PRO 1-IAC VICE, Intemational Dairy Foods As-sociation, Washington, DC; John Patrick Gilligan, Schot-tenstein Zox & Duun Co_, L.P.A., Columbus, OH;Wendy M Yoviene, PRO HAC VICE, Ober KalerGrimes & Slu-iver PC, Washington, DC.

For Robert J Boggs, Solely in his official capacity asOhio Director of Agriculhire, Defendant: Jatnes RobertPattetson, LEAD ATTORNEY, Reynoldsburg, OH; Wil-

liam J Cole, Ohio Attomey General - 2, Executive Agen-

cies Section, Colnmbus, OH.

For The Center for Food Safety, Amicus: David G Cox,LEAD ATTORNEY, Columbus, OH; Joseph Mendel-

son, IB, PRO HAC VICE, National Wildlife Federation,

Washington, DC; Kevin S(iolden, PRO HAC VICE,

San Francisco, CA.

For Food and Water Watch, Ohio Ecological Food andFartn Association, Physicians for Social Responsibility,Oregon Chapter, Amicus: David G Cox, LEAD AT-

TORNEY, Coluntbus, OH; Joseph Mendelson, III, PRO

IIAC VICE, National Wildlife Federation, Washington,

DC.

For Ohio Fann Bureau Federation, Ohio [*2] Dairy Pro-ducers Association, Amicns: Gregory R Flax, LEADATTORNEY, Baker & Hostetler, Columbus, OH.

JUDGES:.IAMES L. GRAHAM, United States District

Judge. MAGISTRATE JUDGE KING.

OPINION BY: JAMES L. GRAHAM

OPINION

OPINION AND ORDER

1. INTRODUCTION

Plaintiffs, two food associations whose members areengaged in ttte processitig of dairy products, seek a de-claratory judgment and prelintinaty and permanent in-junction to prevent the Director of the Ohio Departmentof Agriculture ("ODA") from enforcing Ohio Adminis-trative Code provision 901:11-8-01, which regulates thelabeling of dahy products in Ohio. The matter is beforethe coutt for decision on all parties' tnotions for summaryJndginent. '

1 Two briefs of Anrici Curiae, one in support ofplaintiffs and one in suppott of defendant, werealso filed and considered.

iI. STATEMENT OF FACTS

]n 1993, the United States Food and Drug Adrnini-stration ("FDA") approved ttie use of the hormone re-

Appx. 9 7

2009 U.S. Dist. LEXIS 27074, *

combinant bovine somatotropin, or rbST, in dahy cows.The hormone is also known as recombinant bovinegrowth ]tortnone, or rbGH. When used in dahy cows,rbST combines with naturally occurring bovine growtlthormone, or bGH, to increase cows' nzilk production byup to ten percent. The FDA determined [*31 that the useof rbST is safe, that there is "no significant differencebetween milk from treated and untreated cows .." and"there is currently no way to differentiate analyticallybetween naturally occuiTing bST and reconibinant bST inmilk, nor are there any nieasurable compositional differ-ences between mitk frotn cows that receive sttpplementalbST and rnilk from cows that do not_" 59 Fed. Reg. 6279,

6280.

Despite the FDA finding, consumers, dairy produc-ers and retailers continue to have differing opiniottsabout the use of rbST. Due to increased demand forproducts frorn cows not treated witlt rbST, some dairyprocessors have begun to label their products with state-mcnts such as "rbST free" or "artificial hotmone free"Dairy producers that use rbST have objected to theselabels, arguing that these phrases are misleading because,despite FDA findings to the contrary, they imply thatmilk from cows suppletnented with rbST is differentfrorn or inferior to tnilk from cows not supplemented

with rbS'1'_

On February 10, 1994 the FDA published interim

guidattce on the labeling of milk and milk products fi-omcows that have not been treated with rbST. 59 Fed. Reg.

6279. Thc FDA guidance provides that [*4] food com-panies that do not use milk front cows supplentetitedwith rbST can voluutarily inforrn coustmters of that factin their product labels, provided that such statements aretruthflil and not misleading. The FDA determincd thatthe tenn "rbS7' free" "may imply a compositional differ-ence between milk front treated and tmtreated cowsrather than a differcnce in the way the rnilk is produced.Instead, the concept would be better fi>rnmlated as 'fromcows not treated with rbST' or in other sirnilar ways." 59

Fed. Reg. 6279. Thus, the FDA guidance suggests that itis preferable to discuss Ilow the milk is produced, ratlierthan the compositiorr of the milk.

The FDA also found that even such a statement,whielt asserts that rbST has not been used in milk pro-duction, has the potential to be rrrsunderstood by con-sumers without proper context because such unqualifiedstatements may intply that milk from untreated cows issafer or of Fhigher quality than milk from treated cows.According to the FDA, "[s]uch an intplication would befalse and misleading." Id. Thus, the FDA guidance statesthat these misleading itnplications catt be best avoided byuse of accompanying contextual information, such asaccompanying [*5] the production claim "frorn cows nottreated witli rbST" with a disclaimer such as "no signift-

Page 2

cant difference has been sltown between milk derivedfrom rbST-treated and nnn-rbST-n'eated cows." Id.

The FDA noted that given the traditional role of theStates in overseeing tnilk production, it intended to relyprhnarily on the States to ensure that rbST labelingclaints were truthful and not tnisleading. Because there isno way to differcntiate analytically between uatorallyoccurring bST and synthetic rbST in milk, the FDAfound that to ensure claitns that milk comes from un-treated cows are valid, States could require frtns usingsuch claims establish a plan and maintain records to stib-stantiate ttte claims and make those records available forhrspection.

In a letter dated July 27, 1994 from the FDA to theDirector, Division of Milk Control for the State of NewYork, the FDA indicated that hiterim guidance was de-veloped to "provide all states with the same starting pointfor their efforts in this area" andthe intent was to "assureas much uniforniity as possible among state regulations."IDFA App. 0003. However, tlte letter pointed out that theFDA guidance is not a regulation and therefore does[*6] not by itself legally bind states or manufactttrers, butsimply gives guidance to what tlte agency migltt deter-mine is "truthful and not misteading" in accordance withthe FDA's statute_

On February 7, 2008, Ohio Governor Ted Stricklattdissued Executive Order 2008-03S. The Order autttorizedODA to immediately adopt a rule on what constitutesfalse and mislcading labels on dairy prodttcts, requiredaiiy producers who claim they do not use rbST to sub-mit appropriate documentation for ODA review, andcreate labels consistant with the FDA's findings on rbST.

In response to this executive order, the Director so-licited comments frotn consumers, prodttcers, scientistsand otlrer interested parties. He convened a listening ses-siou to discuss dairy labeling, appointed an advisorycotmnittee on dairy label'nig, conducted a pnblic hearingto receive public comments on the eniergency rule, nradecettaut changes to the proposed rule and sttbmltted it tothe Ohio Joint Committee on Agency Rtde Review("JCARR"). IIe then conducted a second public hearingfor comments on the proposed rule and after revision, theDirector sent the tnodified rule to JCARR for review.When arguing for the rule in front of JCARR, Director1*71 Boggs stated the rule does not try to favor the use ofrbST in dairy production or to oppose it, but simply triesto provide the consutner with accurate ittformation.IDFA App. 11583. The Director also obtained estimatesfrorn large, medium-sized, and small dairy processors ofthe anticipated costs they would 'utcur in comptyiug withthe rnle. Ttte Director issued a final, revised version ofthe rulc that was adopted on May 12, 2008 and became

Appx. 98

2009 U.S. Dist. LEXIS 27074, *

effective May 22, 2008. The final rule is published atOhio ddmin. Code 901:11-8-01.

The tall text of the rule is as follows:

(A) Pursuant to sections 917.05 and

3715.60 of the Revised Code, daity prod-ucts will be deemed to be tnisbranded ifthey contain a statement whictt is false ormisleading.

(B) A dairy label which contains aproduction claim that "tltis milk is fromcows not supplemented with rbST" (or asubstantially equivalent claim) may beconsidered misleading on the basissuch language, unless:

(1) The labeliug entityhas verified that the claitnis accurate, and properdocuments, iucluding, butnot litnited to, producersigned affidavits, fartnweight tickets and plantaudit trails, to support theclaim, are made readilyavailable to ODA for [*8]inspection; and

(2)'flte label contains,in the same label panel, inexactly the satne font,style, case, and color and atleast half the size (but nostualler than seven pointfont) as the foregoing rep-resetttation, the followingcontiguous additionalstatemertt (ot' a substan-tially equivalent state-ment): "1'lie FDA has de-termined that no significantdifference has been shownbetween milk derived fl'omrbST-supplemented andnon-rbST-supplementedcows."

(C) Making claims regarding thecomposition of milk with respect to hor-mones, such as "No Hormones", "Hor-mone Frec"- "rbST Free", "rbCiH Free","No Artificial Hormones" and "bSTFree", is false and misleading. ODA will

not permit such statements on any dahyprodnct labels.

(D) Statements may be considered tobe false or misleading if they indicate theabsence of a compound not permitted bythe United States food and drug admini-stration to be present in any dairy product,including, but not limitcd to antibiotics orpesticides. Except as otherwise providedin this tvle, accurate production claitnswill not be deemed false or misleading.

(E) All dairy product labels mustmeet the requirements of this rule no laterthau one hundred tweuty days after [*91its effective date.

(F) The provisions of this rule shallnot be eonstrned to prohibit seals or marksreferenced in and speci8cally authorizedby a federal law or Ohio statute.

of

Page 3

All parties to this case have filed ntotions for sum-mary judgment which are now ripe for decision. Plain-tiffs bring this case against Robert J. Boggs, the Directorof the ODA ("Director"). Plaintiff International DairyFoods Association ("IDFA") is a trade association whosemetnbers represent rnore than 85 percent of the milk,culaired products, cheese and frozen desserts producedin the United States. Plaintiff Organic Trade Association("O1-A") is a membership-based business association forthe organic industty hr North America. According toOTA's website, orgauic products are those produced

based on a system of farming that maiu-tains and replenishes soil fertility withoutthe use of toxic and persistent pesticidesand fertilizers. Organically producedfoods also must be produced without theuse of antibiotics, synthetic hormones,genetic engineering and other excludedpractices, sewage sludge, or irradiation.Cloning animals or using their productswould be considered inconsistent witlt or-ganic practices. Organic [*10] foods areminimally processed witlsout artificial in-gredient.s, preservatives, or itradiation tontaintahi the integrity of the food. '

2 OTA.com, Quick Overview Orgatric Agricul-ture and Production,

Appx. 99

2009 U.S. Dist. LEXIS 27074, *

http://www.ota.com/definition/quickoverview.html (last visited Apri1 1, 2009).

Plaintiffs argue that the Ohio rule is unconstittttionalbecause it infringes ott their First Arnendment right of

8ee speecti and violates the dorniant Commerce Clause.'OTA's motion also argues the rule is preempted by theOrganic Foods Production Act (OFPA) and is void forvagueness. For the reasons discussed below in this opin-ion, this comt grants in part and denies in part the Direc-tor's motion for sutnuraty judgment and denies the plaut-tiffs' tnotions for summary judgment.

3 IDFA has ittcluded in its complaint a Four-

teenth Arnendment Equal Protection claim, but noparty has moved for sutnmary judgntent on thatclaim or argued they are entitled to a preliminaryinjtmction on that claim and thus, it remains

pending.

111. DISCUSSION

A. Standard of Review

Under Fed. R. Civ. P. 56(c), summaty judgnient isproper "if the pleadings, the discovery and disclosurematerials on file, and any affidavits show that there is nogenuine issne [*11] as to any material fact and that themovant is entitlcd to judgment as a matter of law." SeeDaugherty v. Sajar Plastics, Inc., 544 F.3d 696, 702 (6thCir. 2008); LaPointe v. United Autoworkers Local 600, 8

F.3d 376, 378 (6th Cir. 1993). The party that moves forsum nary judgment has the burden of showing that thereare no genuine issues of material fact in the case at issue,

LaPointe, 8 F.3d at 378, which may be accomplished bydemonshating that the nonmovutg patty lacks evidenceto support an essential element of its case on whieh itwould bear the burden of proof at trial. Walton v. Ford

tYlotor Co., 424 F.3d 481, 485 (6th Cir. 2005); Barnhartv. Pickrel, Sehaeff'er & Ebeling Co., L.P.A., 12 F3d1382, 1389 (6th Cir. 1993). In response, the nonmovingpatty must present "significant probative evidence" todemonstrate that "there is [more than] some metaphysicaldoubt as to the material f-<icts." Moore v. Philip Morris

Cos., Inc., 8 F.3d 335, 340 (6th Cir. 1993). "[T]he mere

existence of some alleged facmal disputc between theparties will not defeat an otherwise properly snpportedmotion for sutnntaty judgment; the requirement is that

there be no genuine issue of materiat fact." Anderson v.

Liberty Lobby, Inc., 477 U.S. 242, 247-48, 106 S. Ct.

2505, 91 L. Ed. 2d 202 (1986) [*12] (entphasis hz origi-

nal); see generally Booker v. Brown & Willianison To-bacco Co., Inc., 879 F.2d 1304, 1310 (6th Ctr. 1989).Thus, "[o]nly disputed material facts, those `that mightaffect the outcotne of the suit under the governing law,'will preclude summary judgment." Daugherty, 544 P'.3d

at 702 (quoting Anderson, 477 U.S. at 248).

Pagc 4

A district court considering a motion for sumtnai-yjudgment may not weigh evidence or make credibility

determinations. Daugherty, 544 F.3d at 702; tldatns v.Nletiva, 31 F 3d 375, 379 (6th Cir. 1994). Rather, in re-

viewing a motion for summary judgment, a court nn stdeternime whether "tlte evidence present.v a sufficientdisagreenient to reqtitre submission to a jury or whetlierit is so one-sided that one party ntust prevail as a tnatter

of law." Anderson, 477 U& at 257-52_ 'I'lte evidence, allfacts, and any inferences that may permissibly be drawnfrom the facts must be viewed in the light most favorableto the nonmoving party. Matsushita Elec. Indus. Co. v.

Zenith Radio Corp., 475 ILS. 574, 587, 106 S. Ct. 1348,89 L. Ed. 2d 538 (1986); Eastman Kodak Co. v. ImageTechnical Servs., Inc., 504 U.S. 451, 456, 112 S. Ct.2072, 119 L. Ed. 2d 265 (1992). However, "[t]he mereexistence of a scintilla of evidence in support of theplaintifl's [*131 position will be htsufficient; there mustbe evidence on which the jury cottld reasonably find for

the plaintiff." Anderson, 477 U.S. at 252; see Dominguez

v. Corr. Med. Servs., 555 R3d 543, 549 (6th Cir. 2009).

B. FirstAmendment Freedom of Speech

The parties do not dispute the FDA's findings thatthere is "no significaut difference between milk fromtreated and nntreated cows ..." and "there is currently noway to differentiate analytically between naturally oceur-ring bST and recombinant bST in milk, nor are thero anymeasurable cotnpositional differences betweeu milk fromcows that receive supplemental bST and milk from cowsthat do not." 59 Fed Reg. 6279, 6280. At the inception

of this case, the cotut held a initial preliminary injmtctionconference with all parties. (See Transcript for case no.2:08-cv-628, Doc_ 19). The court inquired what evidencethe parties intended to rely on in making their cases. Inresponse, the Director indicated that lie believed theymay need an expert on the science behind rbST and whyit has the clear potential to tnislead consutners. In re-sponse, both plaintiffs asstu'ed the court that such testi-tnony would likely not be necessary. ' Plaintiffs do not[* 14] attack or dispute the science behind the FDA find-ings in their tnotions for summary judynent. Thus, forpurposes of this case, the FDA findings are not in dis-

pute.

4 At the conference, counsel for the Director in-dicated "I believe that tliere probably will be theneed for at least one expett witness ... to dealwith so ne of the science issues related to rbST,what it means or doesn't tnean in the productionof milk and why, from a scientific standpoint, ithas the clear potential to mislead consutners."(Case no. 2:08-cv-628, Doe. 19, p. 32). In re-sponse, Counsel for IDFA stated he thought thcissues were largely legal and there may be some

Appx.100

2009 U.S. Dist. LEXIS 27074, *

"factual red herrings about wliat the science is.We think that's irrelevant." (Id. at 33). Likewise,counsel for OTA stated "I don't think we are tak-ing on the science issue directly as [the Director'scounsel] seemed to indicate." (Id. at 34).

'To resolve this case under the First Amendment pro-

tection for free speeclt, this court must apply Fir'st

Amendment law to two separate parts of the Ohio rule' -composition claims and p'oduction claims. "Composi-tion" claitns concem the content of the final dairy prod-uct itself and certain composition claims are [*151 sub-ject to a prophylactfc ban by the Ohio rule. Ohio Admin.

Code § 901:11-8-0](C) and (D). "Prodttction" claimsconceni the tnanner in which the milk was produced,inclttding products given, or not given, to the daity cowswhich produced the milk and, while pennitted by theOhio rule, are subject to certain restrictions such as ac-coinpanying the production claim with a disclaimer thatmust be in a specific location, font, style, case, color, andsize. Ohio Admin. Code,¢941:11-8-01 (B).

5 First Amendment applies to the states througlr

the Due Process Clause of the 14th amendntent.

Virginia State Bd of Pharmacy v. Virginia Citi-

zens Consumer Council, 425 U.S. 748, 749 n. 1,96 S_ Ct. 1817, 48 L. Ed. 2d 346 (1976).

1. The Prophylactic Ban On Certain Composition Claims

The Ohio mle bans certain composition claims, suchas "rbST" free" and other similar tenns. Both partiesconcede that the speech at issue here is commercial

speeclt and under the First Amendment, connnercial

speech is entitled to protection Utat is somewltat less ex-tensive than that afforded noncontmercial speech. Zaud-

erer v. Offiee of Disciplinary Counsel of Sasprene Court,471 U.S. 626, 637, 105 S. Ct. 2265, 85 L. Ed. 2d 652, 17

Ohio B. 315 (1985). "The States and the Federal Gov-emment are fi'ee to prevent the dissemination [*16] ofcon mercial speech that is false, deceptive, or misleading

..." ld at 638. Misleading commercial speech may be

prohibited entirely. Peel v. Att y Registration & Discipli-nary Cornni'n, 496 U.S 91, 100, 110 S Ct. 2281, 110 L.

Ed. 2d83 (1990).

When evaluating a prophylactic ban, where coin-mercial speech is not false, deceptive, or misleading itmay be restricted only in the service of a substantial gov-ermnent interest and only through means that directlyadvance that state interest. Zauderer, 471 US. at 638.Cent. Hudson Gas & Etec. Corp. v. Public Serv. Carn-m'rt, 447 U.S. 557, 100 S. Ct. 2343, 65 L Ed. 2d 341

(1980) lays out a fonr-part analysis applied to commer-cial speech to detertnine whether a prophylactic ban vio-

lates the First Amendment. Step one of the test is to de-terinine whether speech is false, (leceptive, or mislead-

Page 5

ing. Central Hudson, 447 U.S. at 566. If it is, the analysis

en(is at the first step and the speech is not eutitled to

First Anrendment protection.

In order to ban tetms as misleading, the SupremeCourt has stated that the tei-ms ntust be either 1) inher-

ently tnisleading or 2) have been shown to be misleadhigbased on a history of deception. In re R. M. J.., 455 U.S.

191, 202, 102 S. Ct. 929, 71 L. Ed. 2d 64 (1982). Inher-

ently misleading phrases are those "inherently [*171likely to deceive.."Jd Even if hutttful, speech can stillbe misteading if its irnplication is misleading. in Zaud-erer, the Coutt found speech restrictions justtfied wherean attorney advettised that all "fees" would be reim-bursed but failed to niention that the client was responsi-

ble for costs. Zauderer, 471 US. at 652. '1'he Court held

that such an advettisement would suggest that employingthe attomey would be entirely fi'ee of charge. Id. Giventhat members of the public are usually unaware of theteclntical nicanings of tertns such as "fees" and "costs"and that in ordinary usage, those terms might be per-ceived as interchangeable, the Cotut found the adver-tisenteut was deceptive and the possibility of deception

was "self-evident." Id. 6

6 In Zauderer, this hnplicatiott was resolveclwith contextual language. As discussed below,contextual language will not resolve the mislead-ing implication of the language at issue here.

Conversely, in Peel, the Court found that an iniplica-tion was not sufficient to render a statement inherentlyntisleading wttere that statement was "tnie and verifi-

able." Peel, 496 U.S. at 100. In Peel, a trial attorneysought to hold himself out as a"Certified Civil [*18]"t`rial Specialist" and the Illinois Supreme Court foundthat such a claim was inherently ntisleading because itimplied the attomey's skills were superior to those not sodesignated. Id. at 101. The Supreme Court disagreed,stating that "[a] lawycr's certification by NBTA is a veri-fiable fact, as are the predicate requiretnents for that cer-tification." Id. In Peet, the court noted that had the certi-fication been issued by an organization that made noinquiry into the petitioner's fittiess, or one that issuedccttificates indiscriminately for a price, the statement,even iftnte, could be misleading. Id. at 102.

Sn this case, tho Director argues that the ternis "rbSTFree", "rbGH Free", and "No Artificial Hormones," areinherently misleading because they are not verifiable andbecause they imply that there is a conspositional differ-cnce between milk so labeled atid other milk not so la-bcled, which is untnte. ' The plaintiffs argae that the

terms are only potentiallv misleading and that this poteu-tial can be resolved by using contextual luiguage. Peel,

496 US. at 110.

Appx. 101

2009 U.S. Dist. LEXIS 27074, *

7 Plaiuitiffs argue that the Director did not havethe purpose of preventing misleading informa-tion, but instead stated in a press [*19] releasethat the purpose was to give "balanced informa-tion" and in a separate letter to give "only themost accurate" informatiou. IDFA App. 105, 438.The Director Itas attached an affidavit to his mo-tion that specifically states that the rule is "in-tended to enstve that Ohio consunrers receivetruthful and non-misleading label information .." The fact that the Director did not use specificlegal tenninology in his prior statenients is notdeterminative. 'rhose statements were equivalentto the Director stating the aim of the rule was toprevent dissemination of misleading infbnnation.

The court agrees that the phrases "rbST Free","rbGH Free", and "No Artificial IIonnones" are inher-ently tnisleading. They are inherently likely to deceivebecause they all imply that the product is "free" of rbSTor other honnones. In other words, they imply a coinpo-sitional difference between those products that are pro-duced with rbGH and those that are not. But in fact thereis "no significant difference between milk from treatedand untreated cows .." and "there is currently no way todifferentiate analytically between naturally occurringbS'1 and recombinant bST in milk, nor are there anymeasurable [*20] compositional differences betweenmilk from cows that receive supplemental bST and rnilk

froni cows that do not." 59 Fed. Reg. 6279, 6280. Thus,

any implication that thcre is a difference between the twoproducts is a misleading iinplication.

Plaintiffs argue that the terms "rbST Free", "No Ar-tificial Hotmones", aud "rbGH Free" are not mislead'utgbecause they can be verified based on fanner and proces-sor production certifications because milk not producedwith rbST could not possibly contain rbST. But suchverification would not work to verify the compositionclaitn, that the product is "fiee" of a particular substance,bnt instead would verify only an accurate productionclaim, that the product is not produced witlt rbST. Suchan acetnatc production claim is expressly perntitted bythe mle. Even if milk labeled "rbST Free" does not con-tain rbST, the pltrase is misleading because it itnpliesthat otlter products not so labeled do conlain the hornroncand are cornpo.sitionally differcnt.

Here, the sitaation is akin to the hypothetical de-

scribed in Peel. 496 U.S. at 102. There the court said thata statement claiming that an attorney was certified by anorganization would be nrisleading, even if true, [*21] iftlte organization made no inquiry into his fitness or is-sued certificates indiscritninately for a price because itwould imply that the attorney had different or additionalskills when in fact he did not. Id. Similarly, here, claimsthat a dairy product is "free" of a particular substance

Pagc 6

implies that the composition of the product is differentthan other products wheu in fact, the composition of thatdaiiy product is no different than any other dauy producton the shelves.

Plaintiffs argue that the terms bamted by the Oltiorule are at tnost only potentially misleading and that po-tential can be resolved by simply requiring the use of

contextual language. Id at 109 (where iitformation is

only potentially tnisleading, thcre is a presumption favor-ing disclosure over concealment). Plaintiffs' have offereda variety of contextual language that amounts to simplyadding a production claim, such as "produced from cowsnot snpplemented with rbST" alongside a tertn such as"rbS1' Free." But simply adding language that milk wasproduced from cows not treated witlt rbST does not curethe misleading nature of a term such as "rbST Free" be-cause it still implies some cotnpositional difference inthe milk, [*22] regardless of how the milk is produced.Similarly, adding the "no significant difference ._." lan-guage from the rule would also not serve to dispel anymisleading implications. Adding such a statement wonldonly serve to confuse a consumer because the labelwould contain contradictory infomzatiou- it would say aproduct is "free" of rbST, but at the same time state thatthere is no rbST in other products, wlrich defeats the pur-pose of niaking the claim in the first place.

In addition to the prophylactic ban on terms regard-ing the absence of horn-iones, the Ohio rule also places aprophylactic ban on tenns that indicate the absence of acompound not pertnitted by the FDA to be present in anydairy product, including, but not limited to antibiotics or

pesticides. Ohio Adinin. Code 901:11-8-01(D). These

statements, like composition claims regarding hormonessuch as "rbST Free," are also inherently misleading be-cause of their implication. These terms likewise imply acompositional difference between products so labeledand those not so labeled. 7'hese statements iniply thatotlrer products have antibiotics or pesticides in themwhen they do not because such compounds are prohib-

ited by the FDA. [*23]"

8 The parties do not dispuce that dairy productsare not permitted to have antibiotics or pesticides

in them.

Finally, the Ohio rulc bans tenns such as "No Hor-ntones", "bST free", or "Horrnone Free." These phrasesare false becausc all dairy products contain some naturalhorntones. Because the prophylactic ban at issue in thestatute bans terms that are inherently misleading or false,those tcrms are not entitled to First Amendment protec-

tion and this court need not address the remaining Cen-

tral I-Iudson factors.

2. Disclainter Imposed on Production Claims

Appx. 102

2009 t1.S. Dist. LLXIS 27074, *

In addition to an outright prophylactic ban on certainterms, the Ohio rule also requires that production claimsbe accompanied by a disclaimer. Specifically, the Ohiontle requires that when a processor makes a productionclaim on its label, such as "this milk is fi'om cows notsupplemented with rbST," v that claim may be consideredtnisleading nnless the labeling entity has verified theclaim is accurate with proper documentation and the la-bel contains the statement: "The FDA has determinedthat no significant difference ltas been shown betweenmilk derived from rbST-supplemented and non-rbST-suppletnented cows." Ohio Admin. Code § 901:11-8-

01(B)(2). [*241 The disclaimer must be on the samelabel panel as, and contignious to, the production claitnand must be in exactly the same font, style, case, andcolor and at least half the size (but no smalter than sevenpoint fout).

9 tJnder the Ohio rule, substantially equivalentclaints are also pennitted.

Although the four part Central Hudson test is used toevaluate bans on speech, a tnore lenient approach istaken when evaluating a state's requirement that a disclo-sore be ntade. Zauderer, 471 U.S. at 650-651. " Disclo-

sure requirements, unlike propttylactic bans, do not at-tetnpt to prevent a speaker from conveying informationto the public, but ratlter require them to provide moreinforntation than they might otherwise be inclined topresent. Id. Because disclosure requirements are uot asintrusive ou First Amendrnent rights as are prohibitions,the Supreme Court has held tttat an advertiscr's rights areadequately protected as long as disclosure requirementsare "reasonably related to the State's iuterest in prevent-ing deception of consumers." Id at 651. To demonstratethat use of a disclaimer is an appropriately-tailored checkagainst deception or confttsion, the State must show thatit seeks to prevent [*25] a hann that is "poteutially real,not purely hypothetical." Ibanez v. Fla_ Dep't of Bus. &Profl Regulation, 512 U.S. 136, 146, 114 S. Ct. 2084,129 L. Ed. 2d 118 (1994). ]lowever, disclosure require-

ments still implicate First Amendment rights, and thus,unjustified or unduly burdensome disclosure require-ments might offend the First Amendment by chilling

protected conmtercial speectt. Zauderer, 471 U.S. at 651.

10 "7'his court finds the Secoitd Circuit's reason-ing in Nat'1 Elec. t14Jrs. As.s'n v. S'orrell, 272 F.3d104, 115 (2d Cir. 2001) (holding the Central

Hudson test was not applicable in disclosurecases) a inore persuasive reading and applicationof Zauderer than the Eleventh Circuit's reasoningin Borgner v. Brooks, 284 F.3d 1204, 1214 (11thCir. 2002) and Mason v. Fla. Bar, 208 F.3d 952,958 (11 th Cir. 2000).

Page 7

a. Reasonably Related to State's Interest

Here, the Director's interest in requiring the dis-claimer is to prevent the dissemination of potentiallymisleading htformation. Just like the composition claimsdiscussed above, the accurate production claim at issuehere ha,s a misleadiug implication because it hnplies thatthose processors that do use rbS'1' have an inferior orunsafe product or that it is eompositiottally different.[*26] Therefore, in order to prevent consumer confttsion,tlie "no significant difference..." disclaimer is reasonable." See Zauderer, 471 U.S. at 651 (holding that wamingsor disclahners may be appropriately required in order todissipate the possibility of eonsmner confusion or decep-tion).

ll Plaintiffs' attempt to relate this case to Int'lDairy Foods Assn v. Amestoy, 92 F.3d 67 (2dCir. 1996) is not persuasive. The Veniiont regula-tion at issue in Amestoy had nothing to do witltpreventing consutner deception and was later lim-ited to "cases in which a state disclosure require-mont is supported by no interest other than thegratification of 'consumer curiosity."' See Nat'1Efee. Mfrs. Ass'n v. Sorrell, 272 R3d 104, 114

(2dCir. 2001).

Plaintiffs argue that the rule is mtjtistified becausethe Director has not shown the deception is "potentiallyreal, not purely hypotltetical." Ibanez, 512 US. at 146-147. But the Director is not required to produce exhaus-tive evidence to justify its nde. As stated in Zauderer"when the possibility of deception is as self-evident as itis in this case, we need not require the state to conduct asurvey of the public before it may detennine that ttteadvertisement [*271 had a tendency to mislead." Zaud-

erer, 471 U.S. at 652-653 (internal quotations omitted).

Plaintiffs argue that language firom Ibanez effec-tively ovemiles this part of the Court's ruling in Zaudererso that the Director is required to provide evidence ofactual deception. Plaintiffs read Ibanez too broadly. InIbanez, the Florida board of accountancy issued a coen-plaint against lbanez, an attomey, charging her with vio-lating the board's administrative regulations prohibitingfalse, deceptive, or misleading advertising because shcappended the CFP designation (Certified Financial Plan-ner) after her name, when such designation had not beenapproved by the board as a specialty designation. TheCourt held that, absent evidence of consumer confitsion,there was no reason to believe that such a designation, iftruthlnl, was misleading, particularly in light of Peel. TheCourt speci fically stated ttiat they expressed "no opinionwhether, in other sftuations or on a different record, theBoard's insistenec on a disclaimer might serve as an ap-propriately tailored check against deception or confu-sion." Ibanez, 512 U.S. at 146 (emphasis added)_

Appx.103

2009 U.S. Dist, LEXIS 27074, *

The Ohio Supreme Court also declined to readlbanez as [*28] broadly as plaintiffs suggest. In In reComplaint Against Harper, the court stated that they didnot read Ibanez "as requiring the state to offer evidenceof public opinion polls, nor do we believe that the statemust offfer testimony from witnesses who claim to have

been misled." 77 Ohio St. 3d 211, 673 N.E.2d 1253, 1259

(Ohio 1996). Evidence of instances of actual consumerconfusion or deception is not required where "the lan-guage used is readily susceptible of interpretation by anobjective observer without resort to proof from nrembers

of the public." Id.

Ohio's conclusion that production claims without adisclaimer are potentially misleading or confusing hasthe suppott of the FDA as well as a namber of otherstates. The FDA guidance specifically states:

[E]ven such a statement, whiclr assertsthat rbST has not been used in the produc-tiou of the subject ntilk, has ttte potentialto be niisunderstood by consuiners. With-out proper context, such statements couldbe tnisleading. Such unquali6ed state-ments tnay imply that inilk fi-om untreatedcows is safer or of higher quality thanmilk from treated cows. Such an implica-tion would be false and misleading. ...[A]ccompanying the statement "fi-omcows not treated [*29] with rbST" withthe statement that "No significant differ-ence has been shown between milk de-rived fronr rbST-trcated and nonrbS'f-treated cows" would put the claim inproper context.

59 Fed Reg. 6279. Alaska, Wisconsin, Illinois, andPennsylvania have also issued standards reqttiring thatthe "no significant difference" language accompany pro-duction claitns. See Alaska Stat. § 17.20.013; Wis.

Admin. Code ATCP § 83.02; Illinois Dep't of PublicHealth, 7'echttical Information Bulletin/Dairy # 2(No-ventber 2, 2007); Pennsylvania Dep't of Agriculture,Milk Labeling Standards 2.0.1.17.08 (January 17, 2008).

'1'{is court finds that the Ottio nile, using the FDAguidance as a roadmap, strikes the right balance betweenpreventing tnisleading information and providing enoughinfonnation for consumers to make an informed choice.The Ohio rule appropriately prohibits misleading infor-tnation by banning misleading con.position claiins, andencourages disseniination of accurate non-misleadingproduction claims. '1'hc rule accommodates the interestsof processors who want to appeal to the organic marketand consurners who want to avoid milk from cows

Page 8

treated with artificial horntones wttile at the same tinieprotectittg [*30] producers of milk from eows treatedwith artificial horniones from consumer confusion_

b_ Unduly Burderrsatne

Plaintiffs argue that even if the disclaimer require-ment is reasonably related to the State's interest in pre-venting deception of consutners, it still violates the F'frst

Atnenc6nent because it is unduly burdensonre. Plaintiffsassert two grounds for their argument- tirst, that the costof compliance with the Ohio rule renders it unduly bur-densome, and second, that the forntatting restrictions inthe Ohio rule render it unduly burdensome, particularlyon small containers. The court finds no merit in plain-tiffs' first argument and concludes that it cannot decidethe issues surrounding the second argument on summary

judgnrent.

In suppott of their argunient, plaintiffs have subtnit-ted affidavits from various processors that contain esti-mates of how much it would cost for each processor tochange their labels. Ben & Jerry's, for cxainple, estimatesit could cost up to $ 250,000 in order to comply with theOhio rule. But the affidavit fails to demonstrate how thisestimate relates to their total production costs or whatpercentage it is of their regular marketing budget. It is amatter of common [*31] knowledge that product labelsare often changed in the regular course of business.Plaintiffs have given this court no context by which itcan decide wlrether the cost of con pliance is an undueburden. Because plaintiffs have failed to produce anyevidence from which it could conclude that the Ohio rulecauses a financial burden so undue as to chill titeir riglrtto inake an accurate production claim, they have failed toraise a genuine issue of material fact on this issue_

Analysis of plaintiffs' second argument, that theOhio rule's forutatting requirements arc unduly burden-some, is less straightforward. Plaintiffs argue that therule is unduly burdensome because it requires the dis-clnnner language to be contiguous to and in exactly thesatne font, style, case, and color vrd at least half the size(but no smaller than seven point font) as the productionclainr. In response to plaintiffs' argunrent, the Directorbas snbntitted a number of labels front processors whohave complied with the rule, demonstrating its case ofcompliance. But ptaintiffs claim this evidence is insuffi-cient because it does not take into account tlte actual sizeof the container. According to plaintiff, in instances in-volving [*32] stnall containers, suclt as yogurt, it is im-possible to comply with the Ohio tule.

In Ibanez, the Court found that where the disclaitnerrequired so much detail ttrat it effectively ntled out theprotected speech entirely, it was unduly burdensome.

lhanez, 512 U.S. at 146-147. Here, if plaintiffs can detn-onstrate that the Ohio rule effectively rules out their abil-

Appx.104

Page 9

2009 U.S. Dist. LEXIS 27074, *

ity to make an aectu'ate production claim, then the rule

would be unduly burdensome. However, based on theevidence submitted with the parties' motions it is ilnpos-sible for this court to determine whetlrer or not the re-quired disclosure can fit on a"sntall" dairy container orwhat particular label attd design qualifies as "small."Because this court finds that it is not possible to deter-mine, based on the submitted evidence, whether the dis-claimer reqtiirement is unduly burdensorne due to itsformatting requiretnents on "small" containers, sumnaryjude nent on this issue is denied to all partics.

C. Commerce Ciau.se

Plaintiffs offer two theories of why the Ohio ruleviolates the dormant Commerce Clause of the US. Con-stitution. US. Const., Art. I, § 8, cl. 3. First, they arguethat the nile is "per se" invalid as eitlter a "direct" local[*33] regulation of interstate commerce or a discrimina-tory regulation. Second, they argue that under the balanc-

ing test of Pike v. Bruce Church, 397 U..4. 137, 142, 90S. Ct 844, 25 L. Ed. 2d 174 (1970), the burdens that theOhio rule imposes on interstate commerce "clearly ex-ceed [its] putative local benefits." Neither theory is per-

suasive.

1, The "Direct Regulation" T1 eory

As recently noted by the Sixth Cireuit "[w]hatcounts as a 'direct' burden on interstate contmerce haslong been a matter of difficulty for courts, and, presuina-bly due to its questionable value as an analytical device,the 'direct/inci.dental' distinction has fallen out of use in

dotmant commerce clause analysis." Tenn. Serap Recy-

clers Ass'n v. Bredesen, 556 F.3d 442, 448-49, 2009 U S.App. LEXIS 2744, at *9-10 (6th Cir. February 13, 2009)

citing Ark. Elec. Coop. Corp. v. Ark. Pub. Serv. Connn'n,

461 U.S. 375, 390, 103 S. Ct. 1905, 76 L. Ed 2d 1(1983)("[I]t is difficult to squarc the tnechanical line ... basedon a supposedly precise division between 'direct' attd'indirect' effects on interstate comnterce, with the general

trend in our moderni Commerce Claarse jurisprudence tolook in every case to 'the nature of the state regulationinvolved, the objective of the state, and the effcct of[*34] the regulation npon the national interest in thecommcrce."') (citations otnitted). Thus, the Sixth Circuithas concluded that the direct tngulation doctrine "appearsto have been repudiated" nnd that Suprerne Court prece-dent dictates analyzing ttte dotmant Commerce Clause

under two separate prongs. Tenn. Scrap Recyclers Ass'n,

556 F'3d 442, 2009 U.S. App. LEXIS 2744, at *10. First,

if the law is protectionist, one that beuefits in-state inter-ests and burdens out-of-state interests, the law will be

strttck down. Id. at *12; Oranholnt v. Heald, 544 U.S.460, 487, 125 S. Ct. 1885, 161 L. Ed. 2d 796 (2005). If,however, the Court deterntines that the law is not "pro-

tectionist," it should then apply the deferential Pike bal-

ancing test. Tenn. Scrap Recyclers Ass'n, 556 R3d 442,2009 U. S. App. LEXIS 2744, at *12.

2. Protectionist Putpose '1 heoty

Plaintiffs have failed to show Itow the Ohio tule dis-criminates against out-of-state interests. In order to showthat a law discrhninates in practical effect, plaintiffs mnstshow "both how local ecottomic actors are favored by thelegislation, and how out-of-state actors are burdened bythe legislation." Cherry fllll Vineyard.ss. LLC v. Lilly, 553

F.3d 423, 432 (6th Cir. 2008) (quoting Eastern Ky. Re-

sources v. Fiscal Court, 127 F.3d 532, 543 (6th Cir.

1997)).

Plaintifts ["35] have failed to show how local eco-notnic actors are favored by the Oltio rule. " 'Phe Ohionile is not discriminatory because it does not treat Ohiodairy producers more favorably than otlter dairy produc-ers throughout the country. The plaintiffs argue that tlterule is discritninatory because it imposes greater burdenson out-of-state national labels, but any Ohio producerwho wants to make a nou-use of rbST claim is equallyaffected by this law. All dairy producers, in Oliio andelsewhere, are sttbject to the Ohio labeling requirementsattd there is no evidence that such labeling requirementswork to the benefit of Ohio dairy producers at the detri-tnent of out-of-state dairy producers. Plamti ffs' argumentis niore akin to stating that the law discriminates againstdairy producers that do not use rbST as opposed to dairyproducers that do use rbST. But the Commerce Clause"protects the uttet'state market, not particu(ar interstatcfirtns, from proltibitive or burdensome regulations."Minn. v. Clover Leaf Creamery Co., 449 U.S. 456, 474,101 S. Ct 715, 66 L_ Ed. 2d 659 (1981). "The fact that

the burden of a state regulation falls on some interstatecompanies does not, by itself, establish a clairn of dis-crimination against interstate [*36] conmterce." L'xxon

Corp. v. Governor of Maryland, 437 U.S. 117, 126, 98S:Ct. 2207, 57 L. Ed. 2d 91 (1978).

12 This fact distinguishes this case from Hunt v.

Washington Apple Advertising Comm'n, 432 U.S.333, 97 S. Ct. 2434, 53 L. Ed. 2d 383 (1977),wtiere the Court fotmd that the law, though neu-tral on its face, benc6tted the state of Notth Caro-insa to thc detriment of tlte state of Washington.

Plaintiffs argue that Ohio's protectionist intent canbe determincd frotn the fact that Ohio dairy producerswere behind the enactment of the Ohio rule, citing com-ments froni dairy farmers at a public hearing that theywere in support of the rnle. But the fact that sonic Oltioproducers testified in favor of the Ohio rule does notrender the ntle protectionist when it is not protectionist in

effect.

Appx. 105

2009 U.S. Dist. LHXIS 27074, *

3.1'he "Undue Burden" T7teory

Because the Ohio rule is not protectionist, it must beanalyzed under the second prong of the modern test, the

Pike balancing test. Tenn.Scrap Recyclers A.ss'n, 556F.3d 442, 2009 U S. App. LEXIS 2744, at *12. Under thedeferential Pike test, the court will uphold the Olrio ruleunless the burden it itnposes upon interstate connnerce is"clearly excessive in relation to the putative local bene-fits." Pike, 397 U.S. at 142. "[T]he extent of the burdenthat will [*37] be tolerated will of course depend ou thenature of the local interest involved, and on wttether itcould be pronioted as well with a lesser impact on inter-state cormuerce." Td_

a. Burden On Interstate Commerce

The Commerce Claacse protects only interstate mar-kets, not particular interstate fnnis, from prohibitive orburdensotne regulations. Exxon Corp., 437 U.S. at 127-

128; See also Tenn. Scrap Recyclers Ass'n, 556 F.3d 442,2009 US. App. LEXIS 2744, at *15-17 (holding that a"tag and hold" ordinance was a local law with local ef-fect that imposed only a temporary burden on the ship-nient of scrap metal by Memphis dealers and as such, thelaw did not regulate the national scrap metal industry butonly the snrall part of that industry that operated inMemphis). The Ohio nde's effect on the individual fitmsmaking up IDFA or OTA is relevant for commerce

clause purposes only to the extent that it burdens thenational market. See Tenn_ Scrap Recyclers Ass'n, 556F.3d 442, 2009 US. App. LEXIS 2744 at *16. "Absent a

showing of harm to the national ... market, the [plain-tiffs'] dormant conrmerce clause claim tnast fail." Id. at

*16-17. "Although evidence regarding a particular cotn-pany may be suggestive, the benefit-to-burden [*38]calcula6on is based on the overall benefits and burdetsthat the statutory provision tnay create, not on the bene-fits and burdens with respect to a particular company ortransaction." Quik Payday, Inc. v. Stork, 549 F.3d 1302,1309 (10th Cir. 2008).

When discussing the applicable markets at issue inthis case, IDFA's brief refers to "dairy proclttcts" whileO"I'A's brief refers to "organic dairy products." Plaintiffshave failed to demonstrate that the Ohio rule places aburden on either market. Although IDFA says that itsmembers produce over 85 percent of the milk, culturedproducts, cheese and frozen desserts produced in theUnited States, it has provided no evidence detailing whatpercentage of its menibership wishes to label their prod-ucts as produced witliout rbST. Nor has it provided anyevidence that those processors would withdraw from themarket given the restrictions of the Ohio rule. Similarly,OTA has not demonstrated what percentage of its metn-

Page 10

bership, if any, would withdraw fiotn the market whenfaced with compliance with the Ohio rule.

Plaintiffs' evidence supporting their theory of undueburden consists of affidavits from some of their meinbersanalyzing the effect they believe [*39] the Ohio rule willhave on their individual finns. " Those affidavits statethat due to distibution limitations, the processors areunable to re-label their products for Ohio only and thus,they are left with two choices: change all their labelsnationally to comply with the Ohio mle or withdrawfrotn the Ohio market altogether. But neither plaintiffpresented evidence that, in fact, any of these processorswould withdraw from the niarket rather than re-labeltheir products.

13 Altltouglt not properly attthenticated evi-dence, IDh'A sttbmitted a power point entitled"rbGH Labeling" produced by the Ohio Ecologi-cal Food and Farm Association, wliiclt states thatnationwide only 15.2 percent of dairy operationsuse rbGH. IDFA App. II p. 609-622. However,this document only purports to tell the court thenumber of dairy operations that use rbGH withoutstating liow this translates to the number of dahyprocessors that want to label their products ascoming from dairy cows not treated with rbGH orwhat pereettage of these processors will with-draw from the tnar'ket because of the Ohio rule.

7'o the extent the Ohio rule may be said to "force"dairy processors to create one label for all states, it isonly [*40] because those processors will not nlodifytlteit' production and distribution systems to differentiatebetween Ohio bound and non-Ohio bound dairy prod-acts. " See e.g. tVatl Elec. Mfrs. Ass'n v. Sorrell, 272F'.3d 104, 110 (2d Cir. 2001). But the Court has rejected

the notion that the Commerce Claiese protects particularstructtve w, methods of operation in the retail market.Exxon Corp., 437 US. at 127.

14 Plahttiffs have failed to raise a gemtine dis-pute of fact regai-ding whether the cost of compli-ance to cltange their labels is an undue burden oncommerce. PlahitifPs' have subniltted cost esti-mates from individual firrns ranging between $27,000 for smaller processors to $ 250,000 for thelargest processors. But again, plaintiffs ltave pro-duced no context for the court on how thesenutnbers will impact the market, rather than indi-vidual firms, and no processor has indicated thesecosts to be so high they will withdraw from thetnarket. The Ohio rule's effect on the individualfirtns making up IDFA or O'1 A is relevant for

commerce clause purposes only to the extettt thatit burdens the national market. See Tenn. Scrap

Appx.106

2009 U.S. Dist. LL'XIS 27074, *

Recyclers Ass'n, 556 F.3d 442, 2009 U.S. App.LCXIS 2744 at * 16.

Even if some processors choose [*41] to withdrawfrorn the market, that inforniation would not be sufficientto raise a genuine issue of matcrial fact without knowingliow niany would make this choice or how widespreadthe impact would be. See Exxon Corp., 437 U.S. at 727

(holding that even if some refiners stop selling in Mary-land, that does not necessitate a finding that the statuteiinpermissibly burdens interstate cominerce). Plaintiffshave essentially provided the court with no evidence ofthe impact on the market, rather than on indiviclual ftrms.

Plaintiffs' argue the Ohio rule has the "practical ef-fect" of regulating condnct beyond Ohio's borders, citingEdgar v. Mite Corp., 457 US. 624, 102 S. Ct. 2629, 73L. Ed. 2d 269 (1982), Healv v. Beer Inst., 491 US. 324,

109 S. Ct. 2491, 105 L. Ed. 2d 275 (1989) and Brown-

Forman Distillers Corp. v. N.Y. State Liquor Auth., 476U.S. 573, 106 S Ct. 2080, 90 L. F,d. 2d 552 (1986). ButBrown-Forman and Healy involved price affnmationstatutes that directly tied their labeling laws to productssold out of state and Edgar iuvolved an Illinois law thatregulated transactions whicii took place across statelines. Here, the Ohio rule only regulates labels on prod-ucts sold in Ohio. The fact that the Oliio rule has someeffect outside Ohio's borders is not detenninative. "Everystate police [*42] statnte necessarily will afTect interstatecommerce in some degree, but such a statute does notrun counter to the grant of Congressional power merelybecause it incidentally or indirectly involves or burdensinterstate commerce." Milk Control Bd. v. EisenbergFarrn Prods., 306 U.S. 346, 351, 59 S. Ct. 528, 83 L. Ed.

752 (1939). The Ohio rule does not regulate thc nationaldairy market nor the national organic market, but simplyregulates wliat labels can be used in Ohio.

Plaintiffs also argue that if Ohio can i npose such astrict labeling rule, so could otliet' states, thereby stiflinginterstate commerce. While it is true that ottter stateshave regulated labeling of dairy products that come from

cows not treated with rbST, plaintiffs have not denton-strated that any of these other laws conflict with the Ohiorule. In fact, plaintiffs do not dispute Ohio's law is thestrictest and that compliance with Ohio's labeling restric-tions would keep them in compliatice with the laws inother states. Wnile piaintiffs argue that there is uo guar-antee Ohio law will be the strictest for long, this is noth-ing more than speculation. See Sorrell, 272 F.3d at 112(hold'urg there ntust be an actual cotrflict, rather than justa risk, between [*43] the challenged regulation andregulations in other states in order to violate ttic Com-

merce Clause). "The idea that there is a general interestin [regulatory] uniformity is inconsistent with our [soci-ety's] decision to have separate states with separate legis-lative competencies, including separate competencies to

Page I I

regulate commerce." Id. at 113 quotitig Donald H.

Regan, Siamese Essays: (1) CTS Corp. v. DynamicsCorp. of America and Dormant Commerce Doctritre; (II)Lktratenitorial State Legislation, 85 Mich. L. Rev. 1865,

1883 (1987),

b. The Putative Local Beneftts of the Ohio Rule

As discussed in more detail in the First Arnendment

portion of this opinion, the Ohio nlle has an importantlocal benefit-preventing the dissemination of misleadinglabeling on dairy products. The Cotut has recognized thatthe States have always possessed a legitimate interest in"'the protection of ...[their] people agahist fraud anddeception in the sale of food products' at retail markets

within their borders." Flnrida Lime & Avocado Growers,

373 U.S. at 144 (quoting Plutnley v. Massachusetts, 155U.S. 461, 472, 15 S. Ct. 154, 39 L. Ed. 223 (1894)).

c. Balancing of the Pike Factors

Because this court finds that plaintiffs Irave failed to[*44] show that the Ohio rnle burdetis interstate com-tnerce and because it is a valuable tool to prevent dis-semination of misleading infortnation, " ttie burden itinrposes on interstate commerce is not "clearly excessivein relation to its putative local benefits." Pike, 397 U.S.

at 142. 16 Accordingly, this court grants summary judg-merit to the Director on plaintiffs' Connnerce Clause

claims.

15 In Lever Brns. Co. Y. Maurer, 712 F. Supp.

645 (S.D. Ohio 1989), this court was confi'ontedwith arn Ohio law that precluded the use of theword "butter" in labeling or advertising any prod-uct made to itnitate or substitute for butter. InLever Brottters, the statute prevented consutnersfrom knowing that butter was in plaintiffs' butterproduct. 7'his court held there is nothing iiilter-ently misleading about the use of the word "but-ter." Thus, Lever Brothers is clearly distinguish-

able from the instatrt case.16 The extent of the burden ttiat will be toler-atcd will of course depend whether a nile can bepromoted as well with a lesser impact on inter-state activities. Minn. v. Clover Leaf CreameryCo., 449 U.S. 456, 471, 101 S. Ct. 715, 66 L. Ed.

2d 659 (1981). Because plaintiffs have failed toshow any inipact the Ohio rule has on interstatecotnmerce, [*45] this court cannot deterininewltether a different rule would have a lesser im-pact.

D. Preemption

OTA asserts that the Ohio nile is preempted by theOrganic Foods Production Act (OFPA), 7 U.S.C. § 6501

et seq., and attendant National Organic Program regula-

Appx. 107

2009 U.S. Dist. LEXIS 27074, *

tions (NOP), 7 C.F.R. § 205 et seq. OTA argues that the

OFPA occupies the field of organic labeling or alterna-tively that the Oltio rule stands as an obstacle to the pur-poses of the OFPA. The cotirt finds neithcr argumentpersuasive.

The OFPA and NOP establish national standards forproduction and handling of foods labeled "organic." TheOFPA sets forth its purposes, which are:

(1) to establish national standards gov-etning the marketing of certain agricul-tural products as organically producedproducts; (2) to assure consmners that or-ganically prodnced products meet a con-sistent standard; and (3) to facilitate hrter-state comrnerce in fresh and processedfood that is organically produced.

7 US.C. § 6501. The OFPA prohibits a person from sell-ing or labeling an agricultural product as "organicallyproduced" unless the product was produced and handledin accordance witli the Act 7 US.C. § 6505.

The OFPA autttorizes the Secretary of Agriculture to[*46] pronutlgate regulations to carry out the OFPA andto establish a National List of approved and prohibitedsubstances for use in products to be sold or labeled as"organically produced." 7 U.S.C. ,¢ 6521;7 U.S.C. §

6517. Recombinant DNA technology, such as rbST, isnot permitted to be used in organic dairy. 7 C.F.R §

205.2 (listing recombinant DNA tectmology as an ex-

chtded metlrod); 7 C.l:R. 205.10.5(e). Subpart D of theNOP specifically regulates labels, labeling and marketingurformatiou for use of the term "organic" ou labels. 7C.F.R. §§ 205.300-205.311.

The OFPA allows states to create a plan for the es-tablistunent of a State organic program ouly if the plan issubmitted to and approved by the Secretaty of Agricul-

tm-e. 7 U.S.C. § 6507. Such a plan ntay contain morerestrictive requirements governing the organic certifica-tion of farms and handling operations and the productionand handling of agricultural products that are to be soldor labeled as organically produced and must fiuther theptuposes of the Act, not be inconsistent witlt the Act, andnot be discritninatory towards agricuitural commoditiesorganically prodttced in other States. 7 U.S.C. § 6507;

See also 7 C.F. R. § 205.620.

The [*47] Supreme Court has held tttat under Arti-cle VI of ttte United States Constitution state laws thatconflict with federal laws are without effect. Altria

Grroup, Inc. v. Good, US. , 129 S. Ct. 538, 543, 172

L. Ed 2d 398 (2008). Absent express preemption in thestatute, the Supreme Court has rewgnized two other

Page 12

types of preemption: "field pre-emption, where thescheme of federal regulation is so pervasive as to tttakereasonable the iuference that Congress left no room forthe States to supplement it, and conflict pre-entption,where compliance with both federal and state regulationsis a physical impossibility or where state law stands as anobstacle to the acconiplishment and execution of the fullputposes and objectives of Congress." Gade v. National

Solid Wastes Managenaent A.ss'n, 505 US. 88, 98, 112 S

Ct. 2374, 120 L. Ed. 2d 73 (1992)(citations omitted).When addressing questions of preemption, the analysisbegins witli the assumption that "the historic police pow-ers of the States [are] not to be superseded by the FederalAct unless that was the clear and manifest purpose ofCongress." Altria Group, Inc., 129 S. Ct. at 543 quotittg

Rice v. Santa Fe Elevcrtor Corp., 331 U S. 218, 230, 67 S.Ct. 1146, 91 L. Ed 1447 (1947). "That assumption ap-

plies with particular force [*48] when Cony'ess has leg-islated in a field traditionally occupied by the States_"Altria Group, Inc., 129 S. Ct. at 543.

1. Field Preemption

Where a law is so "pervasive that there is a reason-able inference that Congress left no rooin for the Statesto supplement it" that law will preempt tlre entire field.

Gade, 505 U.S. at 98. The Court will look to the purposeof Congress in the legislative history and text of the stat-ute to determine if Congress intended a comprehensive

congressional design. See Florida Litne & AvocadoGrowers, Inc. v. Pau( 373 US. 132, 147-148, 83 S. Ct.1210, 10 L. Ed 2d 248 (1963).

OTA argnes the OFPA preempts the field of organiclabeling and prevents Ohio and otlrer states frotn unilat-erally imposutg labeling requirements on organic dairyoperations because the OFPA provides a comprehensivestatutory and regulatory scheane that governs the produc-tion, distribution, and marketing of organic food productsand is made up of over 20 statutes and over 600 regda-tions.

While it is true that the OFPA's purpose is to "estab-lish national standards governing the marketing of cer-tain agricultural products as organically produced prod-ucts" and to have a "consistent standard" (7 USC §6501), this purpose only [*49] illustrates Congress'sintent to regulate the field of marketing products thathold tttentselves out to be "organic," not to regulate thefield of organic products that have misleading informa-tion on their labels. The Ohio rule does not govenr thelabeling or marketing of organic products, but govemsall dairy products that make misleading claims on theirlabels. The purpose of the OFPA is to ensure that organicfoods are properly labeled as organic and does not gov-em the contents of the entire label.

Appx.108

2009 U.S. Dist. LEXIS 27074, *

In Gade, the Court analyzed whetlter or not an Illi-nois statute was preempted by the Occupational Safetyand Health Act (OSH Act). 505 U.S. at 107. The Courtheld that only those regulations that directly, snbstan-tially, and specifically regulated occupational safety andhealth were occupational safety and health standardswithin the nieaning of the Act. Id. In its discussion, theCourt stated that while some safety laws of general ap-plicability may have a "direct and substantial" effcct onworker safety, they could not fairly be characterized as"occupational" and therefore preempted by OSHA be-cause they regulated workers sitnply as members of thcgeneral public. Gade, 505 U.S. at 107. Here, [*50] theOhio rule is tnore likc a law of general applicability, thatjust happens to have an effect on organic products inaddition to other types of dairy products. Not all dairyproducts that do not contain artificial hormones are or-ganic. The Ohio rule does not change the way a productis certified or labeled as being organic. It only affects thelabel on an organic product if it is a dahy label that con-tains misleading information regard'utg artificial hor-mones or other misleading information.

Here, OFPA points this court to legislative historyfrom the Act that "organic certification standards shouldbe trational in scope, tough and fully enforced" (135Cong. Rec. 29411 (1989)) and "the orgauic industry isencouraged to inform consumers about all material usedin organic production" (S. Rep. No. 101-357, at 300(1990)). ° However, this only establishes a legislativeintent that certification of organic products be national, apru-pose uot related to whetlter or not a dairy label thathappens to be for an organic product will be pennitted tocotttain misleading informatiou. Moreover, the Ohio ruledoes not prevent organic producers from informing con-suniers about the materials used in organic [*51] pro-duction. Rather, the Ohio rule specifically perniits pro-duction clairns as long as they are not misleading.

17 By unopposed motion, OTA has moved thiscourt to take judicial notice of the CongressionalReoord and Senate Repott of the 101st Congress,2d session, which cotttauis some of the legislativehistory of the OFPA and the document titled "Or-ganic Dairy and the Role of Pasture" by the Natu-ral Marketing Institute, conunissioned by theUnited States Department of Agriculture, judicialnotice, under Fed R. Evrd 201, may be takenwhen a fact is not subject to reasonable dispute inthat it is either generally laiown within the tcrrito-rial jurisdiction of the trial court or capable of ac-curate and ready determination by resort tosources whose accuracy cannot reasonably bequestiotted. Excerpts from the legislative historyof the OFPA are facts that are not subject to rea-sonable dispute and thus, judicial notice of the

Page 13

legislative histoty of the OFPA is granted. IIow-ever, the.finctitgs by the Natural Marketing htsti-tute are not facts which are either "generallyknown" or "capable of accut-ate and ready deter-mination by resott to sources whose accuracycamot reasonably be qttestioned" and [*52]therefore, judicial notice of this doeument is de-nied.

The Court has recogttized that the States have al-ways possessed a legitimate interest in "'ttte protection of._.[their] people against fraud and deception in the saleof food products' at retail markets within their borders."Florida Lime & Avocado Growers, 373 U.S. at 144(quothig Plumley v. Ma.ssachusetts, 155 U.S. 461, 472,15 S. Ct. 154, 39 L. Ed. 223 (1894)). While OFPA pro-hibits the use of certain hormones and chemicals in or-ganic production, OTA does uot cite anything in theOFPA or its regulations detnonstratiug that there is noroom for states to exercise their traditional police powersto regnlate false and misleading labellug when refen-ingto these ltormones or chemicals. "I'hus, this court fuidsthat the OFPA did not preempt the field of labeling on allorganic products.

2. Conflict Preetnption

OTA also argues that the Ohio rule "stands as an ob-stacle" to the full itnplementation of the OFPA. In orderto be an obstacle to a federal law, it is not enouglt thatthe goal of both federal and state law are the same.Rather a state law is preempted "if it interferes with theniethods by which the federal statute was designeci toreaclt that goal." Gade, 505 U.S at 103.

As [*53] previously noted, the OFPA's purpose wasto establish national standards governing the marketingof organically produced products, to assure cotrsurnersthat organically produced products meet a consistentstandard, and to facilitate interstate commerce in organi-cally produced food. 7 U.S.C. § 6501. But the Ohio ruledoes not stand as an obstacle to these purposes. The Ohionile does not hinder the national marlceting of productslabeled "orgauic," does not change the consistent stan-dard of organic products established by the OFPA, anddoes not ittterfere with interstate commerce of organicproducts.

Citing Gade, OTA argues that because the OFPAcontains a provision for a Secretary-approved state plan,then the Ohio rule is impliedly preempted. In Gade, theCourt found that the state of Illinois' interim occupationalsafety artd heattli regalations were preempted by theOSH Act because those regulations were prornulgatedwithout receiving the approval of the Secretary of Laborfor a state plan as required by the OSH Act. The Courtfound it significant that the OS}-i Act specifically re-

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2009 U.S. Dist. LEXIS 27074, *

quired ttte state to subtnit a plan if it wished to "assumeresponsibility" for the "devclopment and enforcemcnt[*54] ... of occupational safety and health standardsrelating to any occupational safety or health issue withrespect to which a Federal Standard has been promul-gated." Id, at 99. The Coutt held tttat such a provisiouimplied that the state first had to get approval for a stateplan before regulating the occupational healtlt and safetywithin the state. Id. at 103. Because the state regulationat issue was not approved and had the purpose of regulat-ing occupatiotul safety and health, that state law waspreempted. "To allow a State selectively to 'supplement'certain federal regulations with ostensibly nonconflictingstandards would be inconsistent with this federal schemeof establishiug uniforns federal standards, on the onehand, and encouraging States to assume full responsibil-ity for development and enforcetnent of their own OSHprograms, on the otlter." Id.

O'PA argues that the OFPA preempts the Ohio rulebecause, as in Gade, states are only allowed to regulateorganic production to the exteut that such a regulatory

plan is approved by the Secretary of Agriculture in ac-cordance with the provisions of the Act. 7 U.S.C. § 6507.Only then can the states impose requirements that arernore restrictive [*551 than the Act. 7 US.C. § 6507. ButOhio is not required under the OFPA to obtain approvalof the Ohio rule because the rule regulates false or mis-leading dahy labeling and does not regulate organic pro-duction or labeling prodncts as "organic." Tlnts, thesituation here is different from that in Gade because Ohiois not attempting to regulate an area for which the OFPA

specifically requires an approved state plan.

O'PA atgues the Ohio rule is an obstacle to the pur-poses of the OFPA because it prevents orgauic foodprocessors froni notifying consutners that ttte processorsare in compliance with organic regulations, such as theprohibition on the use of antibiotics, synthetic hormones,nnd pesticides. Bat the Ohio rule specifically makes ex-ception for accurate production claitns and does not pre-vent OTA's members from comtnunicating their messageto consumers. Nothiug in the Ohio rule would pi-event aproducer from labeling the product as "organic."

Thus, the Ohio rule is not preenipted by the OPPAunder either the theory of field preemption or obstaclepreemption and the Director's motion 'ior summatyjudgment is granted on OTA's preemption claim. "

18 IDFA argued that if the Ohio rule was pre-ernpted, ['56] it was not severable and the eutireOhio rule failed. Because this court finds theOhio rule was not preempted, it need not reachIDFA's argument regarding severability.

E. Vagueness

Page 14

OTA has argued that the Ohio rule is void forvagueness because its use of the word "may" necessarilygives the Director the ability to enforce the statute in adiscriminatory and arbitrary manner. The court dis-agrees.

Because the Ohio rule has yet to be enforced in anymanner, OTA is essentially bringing a facial challenge tothe regulation on vagueness grounds. A plaintiff is per-mitted to make a facial challenge to a law on vaguenessgrounds when that law implicates plaintiffs First

Amendment rights. See Belle Maer Harbor v. Charter

7ivp. of flarrison, 170 1,13d 553, 557 (6th Cir. 1999).Here, plaintiff challenges the use of the word "may" insections (B) and (D) of the Ohio ntle. Although this couttultimately concludes that in large patt section (B) of theOhio rule does not violate plaitttiffs' First Amendmentrights, it still implicates those rigltts because it requiresplaintiffs to speak when they ratlter would not. Section(D), on the ottter Itand, does not implicate plaintiffs' First

Amendrnent rigltts because [*57] section (D) prohibitscotnposition clairns that are inherently mislead'urg and assuch that speech is not entitled to any First Ainendment

protection whatsoeve[. Cent. Hudson Gas & Elec. Corp.,

447 US. at 566 (holding that in order for commercialspeech to be protected by the First Amendment it must atleast concent lawful activity and not be misleading). Be-cause Section (D) docs not even implicate plaintiffs'First Amendment rights, OTA cannot bring a facial chal-lenge to ttrat sectiott of the rule and this cotnt will onlyconsider OTA's facial attack on seetiort (B) of the regula-tions.

An ordinance is void-for-vagueness under the Due

Process Clauses of the Frfth and Fourteenth Amendrnenisif it fails, (1) to define the offense with stifficient defi-niteness that ordittuy people can understand prohibitedconduct, and (2) to establish standards to permit law en-forcement to enforce the law in a non-arbitmy, tmn-discrintinatory manner. See Kolender v. Lawson, 461U.S. 352, 357, 103 S. Ct. 1855, 75 L. Ed. 2d 903 (1983).Where a statute reaches expression sheltered by the First

Amendrnent, the doctrine demands a greater degree ofspecificity than in other contexts. See Village of HoffmanEstates v. Flipside, Hoffrnrue Estates, Ine., 455 U.S 489,498-99, 102 S. Ct. 1186, 71 L. G'd. 2d 362 (1982); [*58]

Belle 1Y1aer llarbor, 170 F.3d at 559 (6th Cir. 1999).IIowever, courts do not require "mathematical certainty"8-om the language of a statute (Grayned v. City of Rock-

ford, 408 U.S. 104, 110, 92 S Ct. 2294, 33 L. Ed. 2d 222

(1972)) attd perfect clarity and precise guidance hasnever been required (United States v. Williams, U.S.

128 5' Ct 1830, 1845, 170 L. Ed. 2d 650 (2008)1,)_

"A vague law irnpermissibly delegates basic policymatters to policemen, judges, and juries for resolution onan ad hoc and subjective basis, with the attendant dan-

Appx.110

2009 U.S. Dist. LEXIS 27074, *

gers of arbitrary and discriminatory application."Grayne7 408 U.S. at 108-109 (1972). Where statutorylanguage imposes a "standardless sweep" that allows"policemen, prosecutors, and juries to pursue their per-sonal predilections" the law will be considered imper-tnissibly vague. See Srnith v. Goguen, 415 U.S. 566, 575,

94 S. Ct. 1242, 39 L. Ed. 2d 605 (1974). "Legislaturesmay not so abdicate their respousibilities for setting thestandards of the criminal law." See Srnith, 415 US'. at

575.

OTA argues that Section (B) of the Ohio rule is un-constitutionally vague because of its use of the word"may." The rule states: "a dauy label whieh contains aproduction clahn that 'this milk is from cows not sup-pleniented with rbST' (or a substantially [*59] equiva-

lent claim) may be considered misleading on the basis ofsuch language" if the verification requirentents are notsatisfied and the disclaimer language not used, Ohio

Adinin. Code 901:11-8-01(6)(emphasis added). OTAargues that the use of "may" gives the Director unfettereddiscretion to enforce the rule in an arbitraiy manner audtherefore violates the vagueness doctrine.

The Court finds that section (B) of the Ohio rule isnot vague_ It states that production claims may be mis-leadittg, but then creates a safe harbor, giving processorsclear guidance on what they can do to avoid violatiug the

rule. The rule specifically states that ^a production claim

may be misleading "unless" the processor satisfies theverification requirements and includes a proper dis-claimer on the label. Thus, Section (B) provides notice ofttte standards to which processors niust conform wbenthey wish to make a production claim on their labels. Atthe same time, it establishes a guideline to govem en-forcernent of the law. The Court has rccognized thatthere are sonic "areas of human conduct where, by thenature of the problems presented, legislatures simplycannot establish standards with great precision." Smith,

415 US. at 581. [*60] Obviously, here, the Ohio rulecould not provide an example of every seinantic con-struction rettder9ng a label misleadiug. If it attempted todo so, the regulation would run on indefinitely. Instead,

Page 15

they have provided a clear iustntction as to what is not

misleading.

OTA argues in this context whether or not a stste-rnent "may be misleading" refers to whetlier the Directorfinds the statement misleading. In fact, the term "may bemisleading" t'efers to wliether or not consttmers will fmdthe statement misleading. Obviously, not everyone willfind the statenrent misleading, particularly depending ontheir knowledge of the scientific data behind rbST. Butbecause it is likely niany people will be misled, the Di-rector has promulgated a rule to protect those eonsumers_

'fhus, the use of the term "may" in the statute doesnot impose a "standardless sweep" that allows arbitraryenforcement, but rather seeks to give additional guidancewhen a dairy processor seeks to make a production claitnabout rbST. It specifically defines what is not mislead-

ing_ 'fhus, the Director's motion for sumtuary judgmentis granted as to the OTA's claims ofvagueness.

IV. Conclnsion

For the reasons set fortli above, plaintiffs' [*61] mo-tions for summary judgment are DENIED (Doc. 21 incase 2:08-cv-628, Doc. 18 hi casc 2:08-cv-629) and theDirector's motiou for summary judgment is GRAN'I'EDin part and DENIED in part (Doc. 36 in case 2:08-cv-628, Doc. 25 in case 2:08-cv-629). The plaintiffs havenot shown a strong likelihood of success on the meritssuch that granting a preliminary injunction would beappropriate and the comt therefore DLNIES botlt plain-tiffs' motions for preliminary injunction (Doc. 5 in case2:08-cv-628, Doc. 5 in case 2:08-ev-629).

It is so ORDBRLD.

!s! James L. Graham

JAMES L. GRAIIAM

United States District Judge

DATE: Apri12, 2009

Appx. 111

UNITED STATES

STATUTES AT LARGECONTAINING THE

LAWS AND CONCURRENT RESOLUTIONS

ENACTED DURING THE SECOND SESSION OF TI IE

ONE HUNDRED FOURTH CONGRESS

OF THE UNITED STATES OF AMERICA

1996AND

PROCLAMATIONS

VOLUME IXa

IN SIX PARTS

PART I

PUBLIC LAWS I94-96 THROUGH 104-128

UNITT..I) STATES

GOVEIL'dMENT PRINTING OFFICE

WASHINGTON : 1997

Appx. 112

PUBI_ISHED BY AUTHORITY OF IAW UN6FR THE IIIRECPION OF TI-IE ARCHI-

VIST OF THE UNITEI) STATES BY THE OFFICE OF 1'[IE FF.DFRAL REGISTER,

NATIONAI. ARCHIVES AND RECORDS ADMINISTRATION

"The United States Statutes at Large shalI be legal evidence of laws,

concurrent resofutions,... proclatnations by the President and pro-

posed nr ratified amendments to the t'nnstitution of the United States

therein contained, in all the courts of the United States, the several

States, and the Territories and insular possessions of the United

States." (I USC 112).

For sale by the

Superintendent of Documents

U.S. Government Printing Office

Washington, DC 20402-9328

(frpan set; sold in sets onty)

Appx. 113

110 STAT. 56

Feb. 8, 1996

[S. 652I

Telecommuni-cations Act of1996.Intergovern-mental relations.47 USC 609 note.

PUBLIC LAW 104-104-FEB. 8, 1996

Public Law 104-104104th Congress

An ActTo promote competition and reduce regulation in order to secure lower prices and

higher quality services for American telecommunications consumers and encouragethe rapid deployment uf new telecommunications technologies.

Be it enacted by tlae Senate and House of Representatives ofthe United States of America in Congress assembled,

SECTION 1. SHORT TITLE; REFERENCES.

(a) SHoRT TITLE.-This Act may be cited as the "Telecommuni-cations Act of 1996".

(b) REFERENCES.-Except as otherwise expressly provided,whenever in this Act an amendment or repeal is expressed interms of an amendment to, or repeal of, a section or other provision,the reference shall be considered to be made to a section or otherprovision of the Communications Act of 1934 (47 U.S.C. 151 etseq.).SEC. 2. TABLE OF CO1V'I'E'NTS.

The table of contents for this Act is as follows:

Sec. 1. Short title; references.Sec. 2. Table of contents.Sec. 3. Definitions.

TITLE I-TELECOMMUVICATION SERVICES

Subtitle A-Telecommanications Services

Sec. 101. Establishment of part II of title 11.

"PART II-DEVELOPAIENT OF COMPG'fPt3vE 1'IARKETS

"Sec. 251. Intercon nection."Sec. 252. Procedures for negotiation, arbitration, and approval of agreements."Sec. 253. Removal of barriers to entry."Sec. 254. Universal service."Sec. 255. Access by yersons with disabilities."Sec. 256. Coordination for interconnectivity."Sec. 257. Market entry barriers proceeding."See. 258, Illegal changes in subscriber carrier selections."Sec. 259. Infrastructure sharing."Sec. 260. Provisiori of telemessaging service."Sec. 261. Effect on other requirements."

Sec. 102. Eligible telecommunications carriers.Sec. 103. Exempt telecommunications companies.Sec. 104. Nondiscrimination principle.

Subtitle B-Specia3 Provisions Concerning Bell Operating Companies

Sec. 151. Bell operating company provisions.

"PART III--SPECIAL PROVISIONS COVC'~'RNINC BELL OPERATINGCOMPANIES

"Sec. 271. Bell operating company entry into interLATA services."Sec. 272. Separate affiliate; safeguards.

Appx. 114

7,70 STAT. 144 PUBLIC LAW 104--104-FEB. 8, 1996

in sections 622 and 653(c) of the Communications Act of 1.934and section 602 of this Act-(d) COtiIMERCIAL MOBILE SF,RVICE JOINT MARKETING.-Notwith-

standing section 22.903 of the Commission's regulations (47 C.F.R.22.903) or any other Commission regulation, a Bell operating com-pany or any other company may, except as provided in sections271(e)(1) and 272 of the Communications Act of 1934 as amendedby this Act as they relate to wireline service, jointly market andsell commercial mobile services in conjunction with telephoneexchange service, exchange access, intraLATA telecommunicationsservice, interLATA telecommunications service, and informationservices.

(e) DEFINITIONS.-As used in this section:(1) AT&T CONSENT DECREE -The term "AT&T Consent

Decree" means the order entered August 24, 1982, in the anti-trust action styled United States v. Western Electric, CivilAction No. 82-0192, in the United States District Court forthe District of Columbia, and includes any judgment or orderwith respect to such action entered on or after August 24,1982.

(2) GTE CONSF.\-r DECREE.-The term "GTE ConsentDecree" means the order entered December 21, 1984, asrestated January 11, 1985, in the action styled United Statesv. GTE Corp., Civil Action No. 83-1298, in the United StatesDistrict Court for the District of Columbia, and any judgnientor order with respect to such action entered on or after Decem-ber 21, 1984.

(3) MCCAW CONSENT DECREE.-The term "McCaw ConsentDecree" means the proposed consent decree filed on July 15,1994, in the antitrust action styled United States v. AT&TCorp. and McCaw Cellular Communications, Inc., Civil ActionNo. 94-01555, in the United States District Court for the Dis-trict of Columbia. Such term includes any stipulation thatthe parties will abide by the terms of such proposed consentdecree until it is entered and any order entering such proposedconsent decree.

(4) ANTITRUST I.Awe.-The term "antitrust laws" has themeaning given it in subsection (a) of the first section of theClayton Act (15 U.S.C. 12(a)), except that such term includesthe Act of June 19, 1936 (49 Stat. 1526; 15 U.S.C. 13 etseq.), commonly known as the Robinson-Patman Act, and sec-tion 5 of the Federal Trade Commission Act (15 U.S.C. 45)to the extent that such section 5 applies to unfair methodsof competition.

SEC. 602. PREEMPTION OF LOCAI. TAXATION WITH RESPECT TODIRECT•TO-HOME SERVICES.

(a) PREEMPTION.-A provider of direct-to-home satellite serviceshall be exempt from the collection or remittance, or both, of anytax or fee imposed by any local taxing jurisdiction on direct-to-hoine satellite service.

(b) DEFINrrioNs.-For the purposes of this section-(1) DIRECT-TO-HOME SATELLITE SERViCE.-•The term "direct-

to-home satellite service" means only programming transmittedor broadcast by satellite directly to the subscribers' premiseswithout the use of ground receiving or distribution equipment,

Appx.115

PUBLIC LAW 104-104-FEB. 8, 1996 110 STAT. 145

except at the subscribers' premises or in the uplink processto the satellite.

(2) PROVIDER OF DIRECT-TO-HOIv1E SATELLITE SERVICE.-Forpurposes of this section, a "provider of direct-to-home satelliteservice" means a person who transmits, broadcasts, sells, ordistributes direct-to-home satellite service.

(3) LoCAI. TAXING JURISDICTION.-The term "local taxingjurisdiction" means any municipality, city, county, township,parish, transportation district, or assessment jurisdiction, orany other local jurisdiction in the territorial jurisdiction ofthe United States with the authority to impose a tax or fee,but does not include a State.

(4) STATB.-The term "State" means any of the severalStates, the District of Columbia, or any territory or possessionof the United States.

(5) TAx OR FEE.-The terms "tax" and "fee" mean anylocal sales tax, local use tax, local intangible tax, local incometax, business license tax, utility tax, privilege tax, gross receiptstax, excise tax, franchise fees, local telecommunications tax,or any other tax, license, or fee that is imposed for the privilegeof doing business, regulating, or raising revenue for a localtaxing jurisdiction.(c) PRESERVATION OF STATE AUTHORITY".-This section shall

not be construed to prevent taxation of a provider of direct-to-honle satellite service by a State or to prevent a local taxingjurisdiction from receiving revenue derived from a tax or feeimposed and collected by a State.

TITLE VII-MISCELLANEOUSPROVISIONS

SEC. 701. PREVENTION OF UNFAIR BILLING PRACTICES FOR INFORMA-TION OR SERVICES PROVIDED OVER TOLL-FREE TELF.-

PHONE CALLS.

(a) PREVENTION OF UNFAIR BILLING PRACTICES.-(1) IN GENERAL.-Section 228(c) (47 U.S_C. 228(c)) is

amended-(A) by striking out subparagraph (C) of paragraph

(7) and inserting in lieu thereof the following:°(C) the calling party being charged for information

conveyed during the call unless-"(i) the calling party has a written agreement

(including an agreement transmitted through elec-tronic medium) that meets the requirements of para-graph (8); or

"(ii) the calling party is charged for the informationin accordance with paragraph (9); or";(B)(i) by striking "or" at the end of subparagraph (C)

of such paragraph;(ii) by striking the period at the end of subparagraph

(D) of such paragraph and inserting a semicolon and "or";and

(iii) by adding at the end thereof the follovring:"(E) the calling party being assessed, by virtue of' being

asked to connect or otherwise transfer to a pay-per-callservice, a charge for the call."; and

}3einOnline -- i 10 Stat. 145 1996Appx.116