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Cable Operators' Fifth Amendment Claims Applied to Digital Must- Carry

Posted on: Tuesday, 20 June 2006, 06:00 CDT

By Laughner, Nissa; Brown, Justin

I. INTRODUCTION

As we face the widespread transition from analog to digital television, arguments are being made with increasing frequency by organizations such as the National Cable Television Association ("NCTA") that regulations like digital must-carry violate cable operators' Fifth Amendment rights.1 These arguments have been made in the past, although most cases have failed to reach the Fifth Amendment claims by deciding the issues solely on First Amendment grounds.2 And yet, without a clear understanding of the extent of the property rights held by cable operators, and the relationship between such property rights and speech rights, the legal analysis of such claims will remain incomplete.

Although such claims are nascent, they ultimately raise important policy implications for the future of cable regulation, particularly in the broadband era.3 Property rights may form an alternative basis by which to limit must-carry and access regulations because property rights form the basis of takings and due process claims brought under the Fifth and Fourteenth Amendments. The Takings Clause, as incorporated through the Fourteenth Amendment, prohibits both state and federal governments from appropriating private property for public use without just compensation. Similarly, the Due Process Clause prohibits state or federal deprivations of property without due process of law.5 At least theoretically, a taking requires just compensation while a due process violation requires invalidation. Differences between due process and takings analyses, however, have been historically muddled. The process beginning with the 1922 Supreme Court decision in Pennsylvania Coal v. Mahon, in which the majority announced that certain regulations can go too far in their interference with property rights, thus becoming the de facto equivalent of a direct taking.7

With respect to cable regulation, significant free speech implications may be muddying the waters further. Neither speech nor property rights are exclusive of one another. The degree to which cable historically has had autonomy over its facilities-as established through regulation and tradition-influences both speech and property rights. The legal ownership of particular channel space through obligations-such as public, educational, or government ("PEG") channels, leased-access, and mustcarry-influences the degree to which a cable company may have editorial control over those channels.8 The degree to which a franchise creates property rights, and the degree to which those rights and agreements may be modified by local or federal law, may influence how a cable facility is used and who can use the facility. While private property owners, in the traditional sense, may have the right to exclude unwanted and disruptive speakers from their property, cable operators operate under significant regulation, but unlike many regulated businesses, cable operates in a field historically imbued with free speech values. If regulation limits the property-based claims of highly regulated businesses in fields that do not directly implicate free speech concerns,11 then potentially, regulations designed to serve free speech values may significantly constrain the property-based claims of cable providers.

The recent resurgence of legal claims related to digital must- carry offers the opportunity to reconsider our approach to cable autonomy and to address the balance of these rights. Addressing this balance is particularly important given the programming diversity made available through digital innovation, which increases programming streams and scanning formats as well as cable capacity to transmit. The debate over digital must-carry must take into account the administrative and capacity burdens on a cable operator that attend such diversity, the concerns of local broadcasters in their attempt to reach cable subscribers, and the concerns of consumers over access to local broadcast programming. Conceptions of the property and free speech rights of cable operators influence each of these concerns. While it may be easier to decide cable autonomy issues solely on First Amendment grounds, or to attempt to separate the speech and property concerns, a more holistic picture of cable autonomy rights may only be possible with the development of a hybrid analysis that looks at the intersection of speech and cable property rights.

By identifying the legal and policy implications of property rights in the digital must-carry issue, this Article identifies underlying points of confusion associated with cable autonomy-a confusion that arises out of cable's quasi-public, quasi-private status. Absent such analysis, this confusion may create an inconsistent and unpredictable regulatory and legal regime in which ever-expanding notions of property may silently and slowly encroach on prevailing notions of access or, alternatively, buttress speaker rights. Part II of this Article will begin with a review of must- carry regulations, including the recent policy debate over dual and multicast carriage. Part III will present a traditional Fifth Amendment analysis of must-carry. Part IV will address some of the free speech implications of this property-based analysis. Finally, Part V will conclude by showing how these property-based claims may influence future cable regulatory policies.

II. MUST-CARRY AND RETRANSMISSION CONSENT RULES

The Federal Communications Commission ("FCC") faces numerous concerns regarding must-carry and retransmission consent in the digital context,13 most notably the calculation of cable channel capacity,14 the definitions of "primary video"15 and "program- related[ness],"16 and the preservation of digital signal quality (e.g., material degradation).17 Part of the FCC's dilemma in applying the must-carry rules to digital television is that initial rules were written in an analog environment when each station delivered programming in the same signal format18 (NTSC, 525 lines, 4x3 aspect ratio) and in the same amount of channel space (6 MHz).19 In a digital environment, however, each station can transmit in eighteen different scanning formats and may send up to six simultaneous digital streams of programming. As a result, the application of the must-carry rules in the digital environment creates a policy quagmire.

A. Analog Must-Carry

The original must-carry rules are found in the Cable Television Consumer Protection and Competition Act of 1992 ("1992 Cable Act"), which amends the Communications Act of 1934.20 The 1992 Cable Act prohibits cable operators and other multichannel video programming distributors from retransmitting commercial and low-power television signals, as well as radio broadcast signals, without the broadcaster's consent. This permission is commonly referred to as retransmission consent.21 When a broadcast station chooses to negotiate a retransmission consent agreement, the cable operator will compensate the station for the placement of its programming on the cable system.22 Network-affiliated broadcasters are better positioned to negotiate retransmission agreements because of the popularity and ratings of their programs. Without these stations on their cable lineup, the cable system is likely to lose many customers. Estimates demonstrate that about 80% of commercial television broadcasters chose retransmission consent over must- carry in the 1993-96 election cycle.23

Under the 1992 Cable Act, however, a station may elect the mustcarry option when its carriage does not financially benefit the cable system. Section 4 of the 1992 Cable Act requires cable operators to carry "the signals of local commercial television stations and qualified low power stations . . . ."24 If a cable operator has twelve or fewer usable activated channels, the cable operator must carry only three local commercial stations, selected at the cable operator's discretion. Cable operators, however, may not select a low-power station over a local affiliate and, if the cable operator elects to carry a local affiliate of a network, it must carry the affiliate that is nearest to the area served by the cable system. If a cable operator has more than twelve usable activated stations, however, then this operator must carry local commercial stations as requested, up to one-third of all channel capacity.25

Section 5 of the 1992 Cable Act also gives noncommercial (i.e., public) television stations authority to demand carriage.26 Cable systems consisting of 12 or fewer channels are required to carry the signal of one qualified local noncommercial educational station.27 Systems with thirteen to thirty-six channels are required to carry at least one but not more than three stations, and cable systems with more than thirty-six channels are required to carry the signal of three noncommercial, educational stations.29 In order to be considered a qualified noncommercial station, a station either must be licensed as such and "owned and operated by a public agency, nonprofit foundation, corporation, or association[,]"30 or be owned and operated by \a municipality transmitting "predominantly noncommercial programs for educational purposes." Noncommercial stations rely exclusively on must-carry and, unlike their commercial counterparts, are not able to seek compensation under the retransmission consent provisions.32

In the findings section of the 1992 Cable Act, Congress cited many justifications for the must-carry and retransmission rules. Congress found the cable industry to be highly concentrated and worried that this concentration could lead to barrier-of-entry problems for new programmers and a reduction of media outlets (i.e., diversity) available to consumers. Congress also contended the cable industry is increasingly vertically integrated consisting of common ownership among cable operators and cable programmers, and thus, operators favor affiliated programmers.34 This integration made it "more difficult for noncable-affiliated programmers to secure carriage on cable systems."35 Most importantly, Congress found there was "substantial governmental and First Amendment interest in promoting a diversity of views provided through multiple technology media."36 As laid out in section 307(b) of the 1934 Communications Act, Congress articulated an important governmental interest in the carriage of local stations because such carriage was necessary to provide a "fair, efficient, and equitable distribution of broadcast services."37 Local origination of programming was seen as a "primary objective" of must-carry regulation because local broadcast stations are an "important source of local news and public affairs programming" vital to "an informed electorate."38

Given all the praise for local broadcasting, Congress found it necessary to promote the availability of free, over-the-air television to the public. Realizing the shift in audiences from broadcast to cable programming, Congress acknowledged that some advertising revenues would be reallocated to cable. In effect, cable systems carrying local broadcast stations were competing for advertising revenues on their own systems, and theoretically, cable operators had an economic incentive to terminate the retransmission of broadcast signals. Congress contended that absent must-carry, there was a strong likelihood that "additional local broadcast signals will be deleted, repositioned, or not carried."39

B. Analog Must-Carry Rules Are Constitutional

In 1997, by a five-to-four vote, the Supreme Court ruled the mustcarry rules to be constitutionally valid under intermediate scrutiny as specified by the O'Brien test.40 The Court examined the two inquiries left open during its prior review in Turner I: first, whether the factual record developed by the three-judge district court "supports Congress' predictive judgment that the must-carry provisions further important governmental interests[,]"41 and second, whether the rules did "not burden substantially more speech than necessary to further those interests."42

In answering its first question, the Court reasserted that the rules furthered three important, interrelated governmental interests: (1) preserving the benefits of free, over-the-air local broadcast television, (2) promoting the widespread dissemination of information from a multiplicity of sources, and (3) promoting fair competition in the market for television programming.43

Combining these elements, the Court determined the must-carry rules aided in preserving a multiplicity of broadcast outlets, a substantial governmental objective. In reaching this conclusion, the Court exhaustively elaborated on predicted threats that existed absent any must-carry requirements. The increasing trends of vertical and horizontal integration in cable provided operators with the incentive and ability to give preferential treatment to their affiliated-programming services.44 Moreover, when cable subscription percentages leveled off, cable operators were expected to compete more aggressively with broadcasters for advertising revenue. The Court also demonstrated that a significant number of broadcasting stations had been dropped during periods without must-carry rules,46 placing some stations in financial disarray. Accordingly, the Court found the provisions to be consistent with the first prong of O'Brien.48

Next, the Court examined the additional prong of O'Brien-namely whether the must-carry rules were broader than necessary to accomplish Congress's objective. Upon reviewing the evidence adduced on remand, the Court found "cable operators have not been affected in a significant manner by must-carry."49 The Court cited many statistics to support its finding: 87% of the time cable operators had been able to meet must-carry requirements through previously unused channel capacity, 94.5% of cable systems nationwide did not drop any programming to fulfill their obligations, and cable operators carry an average of 99.8% of the programming they carried before enactment of must-carry.50 The Court conceded that a majority of stations continue to be carried without mustcarry. The Court also noted that the 5,880 broadcast channels, which appellants contended would be dropped absent any legal obligations, only placed a small burden on cable systems. In turn, "[b]ecause the burden imposed by must-carry is congruent to the benefits it affords,"51 the Court concluded the provisions are narrowly tailored to meet its objective of preserving "a multiplicity of broadcast stations for the 40 percent of American households without cable."52

C. Digital Must-Carry

Provisions in the Telecommunications Act of 1996 address advanced television,53 a new system of broadcast television commonly referred to as digital television. In the legislative history, Congress stated that it did not intend to "confer must carry status on advanced television or other video services offered on designated frequencies" and added that the "issue is to be the subject of a Commission proceeding under section 614(b)(4)(B) of the Communications Act."54 Furthermore, according to the House Conference Report's interpretation of the 1992 Cable Act, when the FCC adopts new standards for broadcast television signals, such as the authorization to broadcast in high definition, the FCC must conduct a proceeding to make any changes to signal carriage requirements.55 Thus, the must-carry laws seem to be flexible enough to cover technological improvements,56 and the FCC has authority to conduct a proceeding to determine in what way these laws should apply.

In 2001 the FCC established must-carry for digital-only television stations by providing for carriage of a digital station that returns its analog spectrum.57 The FCC found that the 1992 Cable Act "neither mandates nor precludes the mandatory simultaneous carriage of both a television station's digital and analog signals ('dual-carriage')."58 The FCC also ruled that Congress intended the term "primary video" in the digital context to "mean[] a single programming stream and other program-related content"59 and not the multicast streams that local broadcasters may offer.60 As a result, the digital-only station must elect which programming stream is its primary video, and the cable operator must provide mandatory carriage to the broadcaster's primary video stream.61 The FCC allowed stations flexibility to negotiate for full or partial carriage of its digital TV signal. In addition, the FCC also allowed a commercial station that negotiates retransmission consent of its analog signal to tie carriage of its digital signal to carriage of its analog signal.63

Despite acknowledging the substantial governmental interests in preserving free television, a multiplicity of information sources, and fair competition in the programming market,64 the FCC tentatively concluded that dual carriage places an undue burden on cable operators and therefore violates their First Amendment rights.65 Presently, cable operators are "required to carry local television stations on a tier of service provided to every subscriber and on certain channel positions designated in the [1992 Cable] Act."66 However, under the 1992 Cable Act, cable operators "are not required to carry duplicative signals or video that is not considered primary."67 During the temporary transition from analog to digital broadcasting, an "increasing redundancy of basic content between the analog and digital signals as the Commission's simulcasting requirements are phased in."68 If the FCC imposed a dual-carriage requirement, cable operators would be required to carry identical digital and analog television signals, and because of lessened channel capacity, cable operators could be forced to drop other programming services.69 To make a final determination on dual-carriage, the FCC raised numerous questions regarding the seven DTV proposals70 and requested further comment on other digital must- carry concerns, including evaluating digital carriage agreements, retransmission consent, and market forces; calculating cable system channel capacity; and identifying and applying program- relatedness.73

In February 2005, the FCC reaffirmed its earlier decisions in its Second Report and Order and First Order on Reconsideration.74 Specifically, the FCC reconsidered and ruled against the dual must- carry requirement.75 The FCC also reconsidered and ruled primary video only constitutes one programming stream, not the full bit stream of a local digital broadcast station's combined multicast signals.76 The FCC refuted that a number of governmental interests would not be met absent a dual-carriage requirement during the digital television transition. In light of the Turner I and Turner II decisions and the application of intermediate scrutiny, the FCC examined whether or not dual carriage would preserve free over-the- air television and promote "widespread dissemination of information from a multiplicity of sources."77 The FCC concluded that the interests of viewers who wish to s\ee local, over-the-air broadcast stations are not clearly threatened without dual must-carry. Cable carriage is not needed to ensure that noncable households have access to a digital broadcast station, and nearly all local analog stations are carried under retransmission consent or must-carry. In addition, "[t]he absence of a dual carriage requirement might in fact encourage broadcasters to produce a 'rich mix of over-the-air programming' in order to convince cable operators to voluntarily carry their digital signal."78 Dual carriage also promotes duplicative programming-the same program in both analog and digital- and therefore does not promote the widespread dissemination of information from a multiplicity of sources.79

After striking down dual carriage, the FCC examined what the must- carry policy should be after the digital television transition is completed for local stations who engage in multicasting. Even though the Congressional intent is unclear regarding the meaning of what constitutes primary video in the digital context,80 the FCC examined whether an alternative interpretation would further the important governmental interests of free over-air-television-"widespread dissemination of information from a multiplicity of sources"81 and facilitation of the digital television transition.82 According to the FCC, Congress and the broadcast industry have failed to demonstrate that free local broadcasting would be jeopardized without multicast carriage. With the single program stream carriage requirement, a local broadcaster will still have a presence on the local cable system and requiring additional broadcast streams from the same broadcaster "would not promote diversity of information sources" and "arguably diminish the ability of other, independent voices to be carried on the cable system."83 The FCC believes that high quality digital programming will best facilitate the transition, including cable operators' desire to carry local HDTV broadcast content, a scenario still possible under the single program stream carriage requirement.84

Currently, the only viable regulatory alternative that exists for the industry is to work within the parameters set forth by the FCC's DTV MustCarry Report and Order and Further Notice of Proposed Rulemaking and the FCC's Second Report and Order and First Order on Reconsideration. Until the digital transition is complete, or until a local station returns its analog spectrum voluntarily ahead of schedule, a local broadcaster may only elect must-carry for its analog signal. When a station returns its analog spectrum, then a station may invoke must-carry for the single, primary video program- whether in HDTV or standard-definition-that they elect. Unless otherwise specified in the future,86 the plan only provides a mandatory right for a station's single, primary video signal. As a result, retransmission consent bargaining and market forces are undoubtedly key variables to examining viable policy alternatives, both during and after the digital broadcast transition. Because more than sixty percent of all households receive their local television broadcast signals through cable systems,87 significant progress needs to take place in reaching additional retransmission consent agreements if the public at large is to reap the potential benefits of digital broadcasting.

III. CABLE FIFTH AMENDMENT CLAIMS

Because the FCC ruled against dual and multicast carriage, the FCC declined to explore and reach any conclusions on the merits of the Fifth Amendment Takings Clause arguments brought by cable operators.88 Because of the FCC's most recent Order,89 cable operators may no longer face the prospect of significant must-carry burdens in the form of dual or multicast carriage of multiple channel streams.90 Rather, as noted earlier, the FCC ruled that "primary video" in the digital context meant only "a single programming stream and other program-related content"91 Nevertheless, broadcasters are likely to challenge the FCC's most recent order on constitutional grounds or urge Congress to pass specific digital must-carry legislation.92 Furthermore, the FCC has extended a basic, single program must-carry regime into the digital era.93 Cable operators may view the transition as an opportunity to gain more control over their facilities by challenging any carriage and advocating for a regime based primarily on retransmission consent.

Cable operators and their advocates are developing their Fifth Amendment arguments. Lawrence Tribe, a law professor at Harvard Law School, for example, was commissioned by the National Cable Television Association ("NCTA") to write a report about digital must- carry in 2003. In this report, he argued that multichannel must- carry violated the Fifth Amendment.94 More specifically, he argued that multichannel must-carry is a form of actual, physical invasion that takes advantage of the substantial investments made by cable operators in upgrading their facilities for digital transmission, a per se violation of the Takings Clause.95 Legal representatives for public broadcasting have responded to Tribe's arguments by emphasizing that since must-carry was upheld by the Supreme Court in the Turner litigation, the issue of multichannel carriage does not raise Fifth Amendment implications.96

But because neither Turner decision directly addressed the Fifth Amendment implications of must-carry,97 such claims remain open as an alternative basis for relief. The Fifth Amendment implications of digital must-carry will likely be complex-more so than outlined in the debate thus far. Following a typical Fifth Amendment analysis, this Part looks first to whether must-carry qualifies as a per se taking, an actual physical invasion, and then proceeds with an analysis of whether must-carry is a regulation that goes too far in its interference with property rights, thus giving rise to just compensation under a traditional regulatory takings analysis.

A. Physical Appropriation

Must-carry may be characterized as a physical taking because the provision authorizes local broadcasters to physically invade cable channel capacity.98 State action that authorizes a permanent physical invasion constitutes a per se taking, automatically giving rise to just compensation, even if the economic impact of the regulation on the property owner is negligible. This rule, formed from a long line of precedent,99 was summarized and succinctly announced in the 1982 decision of Loretta v. Teleprompter Manhattan CATV Corp.,100 when the Court invalidated a state statute that authorized the attachment of cable boxes to tenant housing.101 Ignoring the de minimis nature of the space occupied by the cable box,102 the Court emphasized that any state-compelled, permanent occupation gives rise to "a historically rooted expectation of compensation."103

However, the Court cautioned that the per se rule did not extend to "restrictions upon the owner's use of his property."104 Had the statute, for example, simply required the landlord to provide cable service to requesting tenants, the landlord would have retained sufficient control over cable installation and the per se rule would have been inapplicable.105 Indeed, the right to exclude, as used in the Loretta decision, seems closely related to trespass.106 The state statute in Loretta allowed individual cable installers to enter the landowner's property at will.107 The Loretta Court noted that "an owner suffers a special kind of injury when a stranger directly invades and occupies the owner's property."108 Thus, a regulation that did not completely and permanently divest an owner of this right to exclude would not be a per se taking.109 It would be a restriction on use, a restriction more appropriately analyzed under a traditional regulatory takings analysis.

Determining how and when a regulation governs a use of a property and when a regulation authorizes an actual, physical occupation may be a bit tricky in the must-carry context. Does must-carry authorize an actual, physical invasion of channel space, or does must-carry require cable operators to offer local broadcast channels to subscribers in a convenient manner? Many cable operators face pre- existing limitations on their use of channel space per their historical development as a quasi-public, quasiprivate entity subject to limited public interest obligations.110 Is must-carry a permanent invasion in the same way that the attachment of a cable box is permanent, or is it more analogous to the temporary invasion of speakers in a mall environment? Does must-carry compel a physical invasion in physical space by taking cable bandwidth, or does must- carry merely modify a use of a property by mandating limited relationships with local broadcasters?

Loretta suggests that per se analysis only applies in situations involving a pre-existing, historically-based right to exclude.111 The Court has traditionally protected real property interests with great zeal because of the certain historical expectations associated with the development and use of real property.112 Property-based protections for business interests fell into disfavor after the demise of Lochner-era substantive due process review in the 1930s because such protections tended to equate laissez-faire economics with constitutional protection.113 While the Fifth Amendment continues to protect business interests and equipment against regulations that go too far, less of a historical basis exists on which to base reasonable expectations. As a result, the right to exclude and the per se test may not extend to all forms of tangible and intangible property.

If this were so, claimants could require compensation by simply couching their claims in terms of an actual, physical invasion. For instance, a bank might allege that a regulation requiring a bank to divest for fraudulent practices was a compelled, physical invasion of their shareholders' pro\fits.114 A company might allege that a settlement deduction for the use of a governmental tribunal was a compelled, physical occupation of the settlement.115 However, to borrow a term from the Supreme Court, these examples show an "extravagant extension of Loretto."116 In such circumstances, the Loretto rule would usurp contract remedies and other forms of relief; any person who faced economic harm from a regulation would be able to claim an actual, physical invasion and entitlement to just compensation. The cost of regulation would be prohibitive.117 In essence, a deregulatory mandate would be encrypted into the Constitution.

As a result, in those few cases that have looked at access to telecommunication facilities from a property-based perspective, the courts have avoided a direct application of the per se rule.118 For example, in Qwest Corp. v. United States,119 a federal claims court determined there was no permanent physical invasion when a law required incumbent local telephone services to carry the signals of competing local telephone service providers on an unbundled, nondiscriminatory basis.120 The Qwest court distinguished Loretto by emphasizing that the statute gave cable operators control over the installation process itself,121 but the telephone interconnection law gave incumbent phone companies power over installation and service of equipment as well as the interconnection process.122 Qwest argued that physical occupation of the telephone wires existed in terms of "flow of electrons."123 The court rejected this argument, emphasizing that Loretta applied to invasion by physical objects that invade physical space,124 that the regulation governed not real property but closely regulated equipment,125 and that interconnection regulated the use of property by mandating a lessor/ lessee relationship.126

In the context of highly regulated equipment-particularly when no direct, physical, and tangible attachment is made-regulations may almost always be construed as constituting property use rather than a physical invasion. While Loretto stressed that the de minimis nature of the cable box did not alter the nature of the invasion, a de minimis exception does seem to exist for intangible property and functional equipment. A fundamental difference can be seen between digital and analog signals passing to and fro along the cable lines and actual individuals passing to and fro on a person's land. The latter instance is "qualitatively more intrusive," thus justifying the application of a per se rule.128 To refuse a distinction would be to create a constitutional matrix that prioritized property rights to such an extent that many other rights would be crippled. The exception would subsume the rule, traditional takings analysis, and even, as will be discussed infra, First Amendment analysis.

Furthermore, even in situations involving tangible, real property invasions, it is unclear whether a pre-existing right to exclude continues to exist regardless of the property's current use. In 1980, just two years before Loretto, the Supreme Court in PruneYard Shopping Center v. Robins129 determined that California could, pursuant to its state constitution, require mall owners to allow peaceful public speech on the premises.130 The Court had previously stated that the First Amendment did not limit private property rights by extending public speech rights on private property.131 Nevertheless, the Court held that state legislatures could extend greater speech protection than that afforded by the First Amendment by limiting state-created property rights.132 The Court thus suggested that the invasion in PruneYard was not egregious because the mall owner profited by creating a sense of public space.133

In Loretto, the Court distinguished PruneYard by emphasizing that the invasion in Loretto was permanent, while the invasion in PruneYard was only temporary and limited.134 It is unclear, however, whether the Court would continue to view a right of access for speech purposes as a temporary invasion. For example, in dicta from Nollan v. California Coastal Comm'n the Court explained that when "individuals are given a permanent and continuous right to pass to and fro" on private property by an act of government, a violation of Loretta is likely.135 How do we distinguish between a right of access to pass to and fro and a right of access to speak, as with must-carry?

The initial decision to open the property to the public in PruneYard made the speech access right qualitatively less intrusive.136 The Court further developed this distinction in Yee v. City of Escondido,137 upholding a rent control law against an allegation of invasion because the landowner made the initial decision to enter the rental market. Determining how regulations that give access to particular channels modify historical expectations, and whether cable operators, like landlords, make the initial decision to open their properties creates imperfect analogies.

Such imperfection is reflected in the fractured Denver Area decision138 in which the Court was asked to determine the extent of cable control over leased and PEG channels. Some Justices, for example, determined that PEG access channels were a historical and pre-existing limitation on cable franchises,139 while other Justices would have required a consistent and formal property-like demand of PEG channels by local authorities in order to find such a pre- existing limitation.140 With respect to leased access channels, Justices in Denver Area argued that the leased grant did not guarantee freedom from cable editorial control,141 and with respect to both leased and PEG channels, three Justices argued that cable operators were the original owners in much the same way booksellers own and control bookstores and the materials sold therein.142

Analogizing must-carry to either PEG or leased channels is also imperfect. Historically, early cable television systems did carry broadcast channels almost exclusively until the FCC, through the origination rules, required cable to produce original programming.143 Unlike PEG channels, however, which were negotiated by local authorities in exchange for franchise rights to use local rights-of-way, must-carry is not the result of negotiation, but of a government mandate to carry when negotiation, in the form of retransmission consent, fails.144 While the initial decision of cable operators to offer cable communications may historically have included an expectation of carriage,145 the primary purpose of cable operators is to offer their own programming and to offer channel space on a competitive basis to nonaffiliated programmers.146 Additionally, must-carry does not mandate a lessor/lessee relationship because broadcasters are not required to pay for connection to the cable facility.147

Nevertheless, it is unlikely that the actual, physical invasion rule would protect a cable company's ability to offer channel space on a competitive basis to nonaffiliated programmers completely, particularly since cable has historically been subject to public interest obligations. Indeed, cable operators are limited in assuming a historically-based right to exclude because they serve a uniquely public function and because of particularly technological characteristics. In Turner I, the Court reasoned that while cable operators were speakers for First Amendment purposes, they may be subject to limited, viewpoint-neutral regulations like must-carry because of their detrimental impact on free over-the-air programming.148 The Court was concerned with the ability of cable operators to "restrict, through the physical control of a critical pathway of communication, the free flow of information and ideas."149 Unlike other forms of mass communication like newspapers, cable operators were uniquely positioned to prevent other speakers from reaching cable subscribers-unless such speakers were able to contract for space on the cable facility.150 In the property context, such gatekeeping might suggest that a physical takings analysis is inappropriate.151

In sum, the utility of the per se permanent, physical occupation test in the context of digital must-carry is doubtful. Access for speech purposes is considered a limitation on the right to exclude that is constitutionally valid unless, as the Court in the later decision of Dolan explained, such restriction unqualifiedly and unreasonably impairs the primary value or use of the property.152 An actual, physical invasion requires that there be an actual, historical right to exclude based on both the nature and the function of the property. Thus, even though the Loretta test, as a per se analysis, is based on a lower evidentiary standard than that used in traditional regulatory takings analysis, the application of this per se rule is limited. Even if the Loretta rule does not apply, must-carry may certainly be viewed as a regulation on the use of the property and thus may be analyzed under a traditional regulatory takings analysis.

B. Regulatory Takings

The traditional test for regulatory takings emerged in Penn Central Transp. Co. v. New York ("Penn Central").154 Penn Central involved a claim against the designation of the Penn Central Station as a state historic landmark, thus prohibiting its owners from developing the air space above the monument. The Court utilized a three-prong, ad-hoc analysis that considered the following: (1) the character of the governmental action; (2) the economic impact of the action; and (3) the extent to which such action interferes with the claimant's reasonable investment backed expectations.155 In general, the more intrusive the governmental action, the greater the negative economic impact of the regulation on the plaintiff, and the more reasonable the plaintiffs reasonable investment backed expectations, the more likely a regulatory taking has occurred.156

Based upon the three-part test articulatedabove, Penn Central could not prevail on its regulatory takings claim. First, the character of governmental action in Penn Central-the historical landmark designation-was not a direct physical invasion or motivated by a "uniquely public function[]."157 Second, in terms of economic impact of the historic landmark designation, Penn Central gained transfer development rights and still had the ability to use the airspace above the terminal.158 Third, because the regulation did not interfere directly with the use of the station as a station, Penn Central still retained investment-backed expectation interests.159

Particularly egregious violations of any one of the Penn Central factors may cause a court to award just compensation. For instance, an actual, physical invasion may be a particularly egregious form of government action because permanent, physical occupations interfere with several property rights concurrently. Similarly, the Supreme Court has determined that denial of economically viable use of a property is a taking.160 Absent these two limited circumstances, one of the most determinative factors in regulatory takings analysis is the reasonableness of the investment. Such reasonableness is measured in terms of historical protection of the uses affected by the regulation162 as well as in terms of the regulatory regime under which the owner does business.163 The Court has repeatedly stated that "mere unilateral expectations" and "abstract need" do not translate into reasonable expectations.164

Doing business in a highly regulated field raises the bar for cable operators hoping to show reasonable expectations.165 In highly regulated industries, the reasonableness of any expectation is significantly curtailed. In Ruckelshaus v. Monsanto Co.,166 for example, the Court identified a traditional property interest in trade secrets-a taking would not occur when disclosure of that trade secret is not prohibited by law.167 Two years later, the Court in Connolly v. Pension Benefit Guaranty Corp.168 emphasized that federal law could disregard or destroy existing contract rights in highly regulated fields without violating either the Due Process or Takings Clause.169 As a result, when a property owner does business in a highly regulated field, the owner may only have a viable Fifth Amendment claim against federal law affecting the final use, and only when there is an explicit federal guarantee protecting such a use.170

The statutory framework governing cable operators has never included an express guarantee that regulators will not impinge on the cable company's use of its franchise, but preserved the right to encourage competition and protect the public interest.171 In United States v. Midwest Video, the Court held that the FCC had ancillary jurisdiction over cable for the purpose of enhancing television services.172 Historically, cable has been subject to a dual regulatory regime, where local authorities issue franchises, the terms of which are curtailed by both federal legislation and the First Amendment.173 As a result of this history, cable operators have difficulty arguing that they have reasonable expectations in any given regulatory regime.174 Furthermore, cable operators may be hard pressed to find an explicit federal guarantee protecting expectancies against must-carry. One such guarantee may come in the form of a federal prohibition that prevents the regulation of cable as a common carrier.175 Common carriers are federally required to carry the speech of others on a nondiscriminatory basis.176 While the issue was raised in first Turner decision by dissenting Justice O'Connor,177 in neither Turner decision did the Court hold that must- carry contravened the federal prohibition against regulating cable as a common carrier.178

Furthermore, the Telecommunications Act of 1996 authorizes the FCC to hold a hearing to determine whether the extension of must- carry to digital technologies is appropriate.179 As in Monsanto, it would seem that protecting property rights in this instance would have the result of interfering with federal flexibility in instituting a regulatory plan.180 Absent interference with a fundamental property right, or an outright appropriation of the entire cable facility, cable seemingly has limited reasonable expectancies in control over certain channels. Admittedly, however, Monsanto involved the protection of trade secrets as a property right,181 and intellectual property may not receive the same degree of protection as more tangible property and equipment, such as the channel space commandeered for must-carry channels.

Nevertheless, given the extensive regulatory treatment of cable, it appears unlikely that cable would be able to prove reasonable investment-backed expectations to be free from access regulations, such as digital must-carry. If the FCC had imposed a dual or multicast must-carry regime, or if such a regime were to come into effect in the future, the added burdens associated with digital must- carry-including the added administrative costs-would make cable claims to reasonable investment stronger. Under the current history in which reasonable expectations are limited, however, cable operators may not be able to sustain a regulatory takings claim because of Penn Central.182

If, however, a court did find reasonable expectancies, it would balance such expectancies against the nature of the governmental action and the economic impact of the regulation. The central goal of this balancing is to determine whether the regulation is merely adjusting benefits and burdens of social welfare183 or "forcing some people to bear public burdens which, in all fairness and justice, should be borne by the public as a whole."184 The central goal of evaluating the "character of government action" is to "prevent unfair forms of redistributions [of wealth]."185 An egregious government action, like an actual, physical invasion, favors the property owner,186 while preventative measures, such as those prohibiting a nuisance, favor the regulator.187

The Penn Central Court further distinguished situations in which the government is "acting in an enterprise capacity, has appropriated part of . . . [a] property for some strictly governmental purpose" and situations in which the government is regulating in favor of public welfare.188 When public welfare concerns arise, the government action is better justified-even when regulations substantially interfere with the value or use of a property.189 If an entire property interest or an essential right190 is destroyed, the government action, regardless of its public welfare purpose, is constitutionally suspect.

In the case of cable operators, regulation is usually limited to actions designed to serve the public interest and, as Turner emphasized, to balance unequal technological and economic advantages that cable operators possess.191 The cable industry is controlled by several large companies and faces little competition in a given market area.192 A competing cable company would likely be dissuaded from overbuilding by the high cost of entry and the economies of scale.193 Furthermore, cable has the ability to gatekeep through its physical control over the first and last mile.194 Because of this physical control, information is funneled through a cable bottleneck, and thus, cable can prevent broadcasters and other programmers from reaching cable subscribers.195 These concerns, if reasonable, would seem to be sufficient to end any inquiry into the social-welfare purpose of the government regulation.

Nevertheless, if certain regulations interfere with a substantial property right to a significant degree, such interference, regardless of its overarching social-welfare purpose, violates fundamental property protection. Thus, the character of government action in the context of must-carry may favor the cable company if a cable company can show that a fundamental or entire property right is taken. This question raises a common problem in takings jurisprudence: the characterization of the relevant property interest. Such a problem would not arise if, for example, the government completely and directly appropriated a fundamental property interest or an entire parcel.196 Regulations, however, are seldom so sweeping.

Courts measure the governmental action and the economic impact of a regulation, not only in terms of the extent to which property rights are modified, but also in terms of how much of the property is affected.197 For this reason, claimants attempt to make regulations appear more egregious by narrowly characterizing the affected property-limiting it to a particular property interest that is directly regulated.198 Cable operators, for instance, may claim that access or must-carry regulations essentially condemn the affected bandwidth rather than merely a portion of their entire capacity to transmit.199 In this way, the character of the governmental action and the economic impact of the regulation appear more intrusive.

In order to determine the relevant property right, courts often look to the substantiality of the alleged taking-both in qualitative and quantitative terms.200 The Loretta Court, for example, determined that the actual, physical invasion was more significant than the minimal size of the property affected because the regulation had a permanent impact on a fundamental property right- the right to exclude.201 Permanence, however, may not be required to invoke Fifth Amendment protection.

The Court in First English Evangelical Lutheran Church of Glendale v. County of Los Angeles202 held that a temporary regulation could constitute a taking just as in older cases where temporary wartime appropriation of businesses, such as steel plants, were takings.203 In these cases, the temporary nature of the invasion did not mitigate the Fifth Amendment implications of the invasion.204 In the must-carry context, cable operators ma\y argue by analogy that the cable company's decision to enter the cable business cannot be conditioned on the occupation of channel space by broadcasters and other competitors.205

Wartime appropriation, however, took over the entire business and thus today might be a denial of all economically viable use206 and a direct interference with historical protections for the right to exclude207-both constitute per se takings.208 More importantly, to read First English209 consistently with PruneYard,210 Yee,211 and other access cases, it seems that the importance of the permanence of the invasion is indirectly proportional to the size of the entire property interest affected. Thus, the relative permanence of the invasion seems somewhat dependent on the definition of the relevant property interest in quantitative terms.

Courts use federal and state laws to define the relevant property interest212 unless, of course, a per se violation is implicated.213 Franchise agreements set the terms of cable service. Such agreements are modifiable by federal regulation and local ordinance.214 Thus, while must-carry provisions do take bandwidth,215 it is unlikely that the court would find the particularly affected bandwidth to be the relevant property interest. As the physical appropriation discussion makes clear, it is also doubtful that the court would find must-carry to be a permanent invasion because only a relatively small portion of the bandwidth is taken, much like a temporary easement.216 Even if multicast must-carry is ultimately implemented, the anticipated six-fold increase in carriage burdens that result from multiple broadcast streams is relatively small in comparison to the overall channel capacity of a cable provider, and the six-fold increase will not change the overall amount of bandwidth occupied.217 Thus, must-carry may not be a particularly egregious form of governmental action since cable operators retain significant editorial control over a majority of their facility.218

The final factor in the traditional Penn Central regulatory takings analysis looks at the "economic impact of the regulation."219 Just as the character of government action becomes more egregious when it substantially affects the entire property interest, so too does the economic impact become more egregious when economic loss "relative to the particularly affected property" is proportionally greater.220 In Penn Central, the Court noted that mere diminution in property value did not tip the balance in favor of the claimant, particularly with respect to speculative land uses.221 Instead, the Court looked exclusively at the regulation's impact on the present use of the property, not on the prospective use of airspace above the station.222 Just as there is no constitutional guarantee preventing the passage of regulations that would ultimately and incidentally diminish the value of corporate stock, there is likewise no guarantee embedded in the Fifth and Fourteenth Amendments that would guarantee property against regulations that might harm resale value.223 To the extent the cable operators allege the government is appropriating their future profits and market share, it is unlikely they would fair any better than Penn Central did when alleging that a historic preservation statute appropriated airspace.224

This is particularly true with respect to access-type cable regulations like must-carry. As one lower court has noted, Fifth Amendment protections do not include "eternal monopolistic, industry- wide protection from competition."225 Must-carry, however, differs from leased-access in that carriage is mandated and no money changes hands.226 Cable operators may be able to argue that they no longer have the channel space to carry independent public interest programming, such as C-SPAN, PEG channels, or local public television stations because of must-carry burdens to carry local broadcast stations.227 While the FCC's denial of multicasting obligations may lessen these costs and burdens, cable operators may experience a loss in revenue represented by the channel space now occupied by must-carry channels that would otherwise be open to independent programmers.

In summary, cable operators face an uphill battle in making a traditional regulatory takings claim against the current digital must-carry requirements. However, if multicast obligations are legislatively imposed, or if broadcasters successfully challenge the limited must-carry order, then cable operators may be in a slightly stronger position to show that digital must-carry infringes on their reasonable investment-backed expectations. Further, digital must- carry has a greater economic impact on cable operators, particularly if dual and multicast carriage requires them to abandon independent and cable network programming. Even if greater digital must-carry burdens were imposed, the ultimate fate of a regulatory takings claim would depend on the characterization of cable's regulatory history, cable's ability to anticipate heavier must-carry burdens in light of digital technology, and the relative amount of channel space occupied by any digital must-carry burdens. In light of these concerns, one may argue that the cable industry could anticipate some increased must-carry burden because of the technological innovation associated with digital broadcasting (e.g., efficiency of bandwidth) and changing expectations of the public with respect to free over-the-air broadcasting.228

But even if the bottleneck argument is no longer as persuasive because of increased competition and innovation of digital broadcast television and direct-broadcast satellite ("DBS"), it nevertheless could be established that retransmission consent is more consistent with cable property rights than mandatory carriage-a point thoroughly discussed in Part IV.

IV. COMPELLED SPEECH AND PROPERTY IN THE CABLE CONTEXT

As mentioned previously, cable is a quasi-public entity that is protected as a speaker under the First Amendment229 and, yet, subject to limited public-interest regulations because of its ancillary effect on broadcasting.230 When discussing the gatekeeping control inherent to the cable industry, the Turner Court emphasized that cable subscribers could be denied access to a certain type of programming. 31 At the time Turner I was decided, cable service may have been the only service available in certain areas.232 Now, alternatives like DBS are more prevalent.223 Nevertheless, concern over gatekeeping was not focused on the ability of cable to reach consumers when other television providers could not. Rather, the Court focused on the ability of cable to block access to cable subscribers.235 Because of this ability to drown out other speakers, the Turner I Court distinguished must-carry regulations from situations involving compelled speech-when a state actively forces individuals to advocate for, or associate with, a particular speaker or viewpoint.236

Gatekeeping control can also influence a property-based analysis. For example, when the government compelled a utility service to include a competitor's views in its billing statements, there was a question as to whether the law interfered with the public utility's property right in its envelopes.237 The Court in Pacific Gas and Electric Company v. Public Utilities Commission of California found that First Amendment rights were not contingent on ownership, though the envelopes were property of Pacific Gas.238 Applying a First Amendment analysis, the PG&E Court held that the regulation was content-based because it prioritized the speech of a particular point of view-a difference the Court used to distinguish PruneYard.239

How might the space in a billing envelope and space on channel capacity compare? Per the common description, property describes a series of rights associated with ownership, such as the right to exclude, the right to alienate, and the right to develop. If property encompasses a series of rights, is there a way to draw a practical distinction between the right to exclude unwanted speakers from space on a letter and to exclude unwanted speakers from space on a channel? The Court has increasingly extended property based protections for more nebulous economic and contractual rights,240 and a significant possibility remains that a regulatory takings analysis might raise constitutional implications with respect to access-type regulations like must-carry.

On the surface it would seem that where compelled speech and property intersects, a due process analysis may be the appropriate framework. Under such a lens, the issue becomes whether the government is illegally overstepping its bounds by interfering with a fundamental constitutional right like property. To analyze space in an envelope as a form of property subject to Takings, however, would import such an expansive reading of property rights into the Takings and Due Process clauses that it would be difficult to envision a social welfare regulation that would be able to pass Fifth Amendment scrutiny in the absence of just compensation. Such a broad reading of property would essentially have the same effect that the Lochner era substantive due process review had on social welfare legislation.241 In essence, it would tie the hands of regulators and legislators hoping to promote the public interest by defining public interest to mean laissez-faire economic policies and private interests superseding public rights.242

Despite problems associated with defining how to set limits on property, however, property rights help establish the degree of association between the speaker and the allegedly compelled message. In the presence of strong, traditional property rights-such as real property interestscompelled speech and property strengthen one another in terms of the association between the property owner and the speaker. In the absence of private property rights, such an association is d\ifficult to establish. With respect to PEG access channels, for example, courts have considered a limited public fora analysis, which would prevent cable operators and the local governments from claiming that mandatory carriage of broadcast signals via must-carry requirements compel speech.243 Such an analysis also limits any assertion of a property-based right to exclude because the property owner benefits from making his or her property publicly available.244

Both rights also are modified by necessity when balancing multiple constitutional rights. A landowner cannot prevent workers from gathering information about their legal rights by alleging that the transmission of information across the property is a form of invasion or trespass.245 The rights of the individual on the property to receive information in these circumstances are paramount to the property rights of the landowner.246 Similarly, in the compelled speech cases, nonviewpoint specific regulations that prevent businesses from walling off subscribers and listeners do not violate the First Amendment rights of the provider. In Red Lion Broadcasting v. FCC, the right of the public to a variety of information on a public medium was paramount to the broadcasters' right of editorial control.247 In Turner 1, the right of the cable subscriber to receive broadcast television without having to change his or her home technology configuration through a broadcast switch was effectively paramount to the cable operators' right to be free from broadcasters' views. In Miami Herald v. Tornillo, the Court upheld the right of newspapers to exclude unwanted speakers because of historical protections associated with a free and vibrant press.249 As explained in Turner I, because newspapers cannot prevent delivery of alternative views in a separate publication, newspapers have no control over the mailbox or the public.250

With respect to Fifth Amendment takings claims to must-carry, such challenges must account for the technological changes that may make gatekeeping a less-than-persuasive argument. In light of the anticipated success of local digital broadcasting multicast services and robust DBS competition, cable may no longer be a technological gatekeeper. Absent gatekeeping control, and in light of the Supreme Court's recognition of cable as speakers, must-carry may violate the First Amendment because cable subscriber rights to receive information would not be directly implicated. Concurrently, property rights in such channels would be strengthened.

To the degree that gatekeeping concerns continue to focus on the right of cable subscribers to receive local broadcast programming, neither the digital broadcast transition nor increased competition from DBS are particularly persuasive. Instead, the analysis would depend on whether gatekeeping concerns are reconceptualized from focusing narrowly on cable subscribers and broadly on a general video audience. The question remains whether the government could show a continued substantial interest-that is, whether must-carry is necessary to preserve broadcasting and whether, as emphasized in Turner II, must-carry continues to pose a proportionally limited burden on cable operators.251 Therefore, the ultimate question with respect to must-carry and gatekeeping concerns, whether from a First or a Fifth Amendment perspective, hinges on whether limiting cable autonomy rights is necessary to preserve access to the information and diversity that local broadcast stations provide to the public.

V. CONCLUSION

The idea that the First Amendment protects against compelled speech but does not protect those that would drown out others is not a novel concept. Such a view was expressed by the Supreme Court in Associated Press v. United States252 when it stated that "[f]reedom of the press from governmental interference under the First Amendment does not sanction repression of that freedom by private interests."253 The idea that the Fifth Amendment does not protect against easements by necessity and against rights of access for legal counseling is also not new. 54 And yet, pressure to allow such drowning in favor of private rights seems to be mounting. Furthermore, when private interests seek to repress alternative voices, reliance on property rights and Fifth Amendment claims seems to be growing, particularly as private property protections expand.255

Fifth Amendment claims against digital must-carry represent only one of many takings challenges in today's telecommunications landscape, each of which has its own set of permutations. Admittedly, this analysis only begins to explore property implications associated with telecommunications policy issues. For example, it also may be anticipated that property-based claims may be used in the future to influence regulatory policies concerning Interactive Television Services ("ITV"). Digital technology allows for the development and use of new interactive television services that will provide subscribers with the ability to select and input information related to, or in addition to, the video programming available. Currently, however, questions exist as to whether a nondiscrimination rule should prevent cable from discriminating in favor of the ITV enhancements of affiliated programmers and from discriminating against the enhancements of independent programmers and local broadcasters. Such a nondiscrimination rule would likely raise similar First Amendment and Fifth Amendment concerns expressed here with respect to digital mustcarry.

The possibility remains that public rights may be paramount when necessary to receive information and may modify the historical and reasonable expectations of the property owner. This possibility is influenced on those factors emphasized by the Supreme Court in its approach to the First Amendment rights of cable, newspapers, and broadcasters: technology, particularly gatekeeping control and historical public use and tradition, as argued in this analysis.

In all of the cases mentioned herein, and as this must-carry property analysis demonstrates, competing and overlapping First and Fifth Amendment concerns create ambiguities. In the context of cable and property rights, Fifth Amendment doctrine and takings law seems to be isolated from First Amendment doc

Source: Federal Communications Law Journal

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