On Jan. 15, 2013, the United States Court of Appeals for the D.C. Circuit decided
that the FCC lacked the statutory authority to adopt its 2003 encoding rules, which limit the output and copy restrictions that can be applied to multichannel video programming. As a result, the court vacated the entire FCC Plug and Play Order as applied to all multichannel video programming distributors (MVPDs), including all of the encoding rules and the rule against selectable outputs; the rules governing the labeling and testing of retail unidirectional set-top boxes (also known as UDCPs); technical standards requiring digital cable systems to pass along data such as channel names; and rules requiring high-definition set-top boxes to offer certain connectors. The court did not eliminate older rules requiring cable operators to provide separable security (like CableCARDs) to compatible retail set-top boxes or the ban on including integrated security in most leased set-tops. But the court’s jurisdictional rulings raise a number of questions about the scope of the Commission’s authority to adopt new rules.
Section 629 of the Communications Act seeks to promote a commercial market in retail set-top boxes. The encoding rules were developed as part of a complex 2002 Memorandum of Understanding negotiated by the consumer electronics and cable industries to facilitate such a market. Part of the MOU, and the regulations eventually adopted by the Commission in the 2003 Plug and Play Order, required “digital cable ready” retail set-top boxes to respect certain content-protection codes. These codes are included in some cable programming pursuant to the contract requirements imposed by the content owners who license distribution of the programming. CE manufacturers were only willing to include such copy protection tools if there were rules limiting their exercise, and the cable industry was only willing to agree to limits that were applied throughout the MVPD industry. The FCC encoding rules broke the impasse by providing regulatory ceilings on the use of copy protection tools. Those ceilings provide, for example, that free over-the-air broadcasting must not be coded to prohibit home copying; but that, at the other extreme, earlier release video-on-demand programming may be so encoded.
DISH appealed, arguing that the FCC lacked statutory authority under Section 629 of the Communications Act to impose the encoding rules on satellite MVPDs. The majority opinion agreed, in part because the Commission has long been treating satellite as already supporting a commercial market in retail set-top boxes. (Satellite’s support for a retail set-top market has long since changed, but the change has not yet been reflected in FCC rules.) Judge Edwards’ concurrence argues that the FCC might have the authority to impose the encoding rules on all MVPDs, but had not sufficiently explained its argument. The majority decision suggests that the Commission might have authority under older statutes like Section 624A to apply some rules just to cable, but does not resolve the issue. Because the court agreed that the encoding rules were an essential, non-severable part of the entire Plug and Play Order, it vacated the Order and the Reconsideration Order adopted in 2003. (Likewise, the underlying MOU provides that the encoding rules are non-severable, and that “should any part of this MOU not be implemented as proposed … each of the Parties reserves its right to withdraw support for any implementation.”) The court’s mandate is withheld until seven days after disposition of any petition for rehearing.
By vacating the Plug and Play Order, the court also vacated a large number of rules governing labeling, testing, support, and output rules. It may also call into question more recent rules adopted in the FCC’s 2010 “CableCARD Fix” Order
because that decision (as amended by a later reconsideration order) applied additional rules to MVPDs that are subject to the (now vacated) Plug and Play rule 76.640. These include rules for a home networking output, self-installation, Multistream-CableCARDs, switched digital video solutions, uniform CableCARD fees, and bring-your-own-box discounts.
The decision raises significant questions about the scope of the Commission’s authority to promote a commercial market in retail set-top boxes. It rejected the Commission’s request for wide-ranging direct and ancillary authority under Section 629, a request it characterized throughout the majority opinion as “capacious,” “unbridled,” “omnibus” and “effectively plenary.” It specifically noted the limiting language in Section 629(f) that “Nothing in this section shall be construed as expanding or limiting any authority that the Commission may have under law in effect before February 8, 1996.”
The court wrote: “we refuse to interpret ancillary authority as a proxy for omnibus powers limited only by the FCC’s creativity in linking its regulatory actions to the goal of commercial availability of navigation devices.” The court’s reading of Section 629 may impose some disciplining constraints on the Commission’s efforts to stretch its authority, although greater clarity is likely to emerge from other tests of the Commission’s authority, such as the net neutrality appeal pending in the D.C. Circuit that has been briefed and is awaiting an argument date.