By Rosemary C. Harold, a Partner with Wilkinson Barker Knauer LLP who previously served as a Legal Advisor to Federal Communications Commissioner Robert McDowell and as Deputy Chief of the FCC’s Media Bureau.
In a victory for business civil liberties, an appellate court has ruled that a federal agency may not disclose private contracts—or the negotiating postures leading to them—to third parties merely because their analysis of the documents might assist merger review proceedings. The decision of the U.S. Court of Appeals for the D.C. Circuit in CBS Corporation et al. v. Federal Communications Commission1 arose from two high-profile media mergers, the AT&T/DirecTV deal and the Comcast/Time Warner Cable/Charter transaction.2
The FCC in both proceedings significantly expanded the scope of its data collection compared to earlier media merger proceedings, and much of the new material concerned programming agreements between each applicant and major programming suppliers such as CBS, Viacom, and Disney.3 The FCC’s own review of the data set was not at issue; the dispute centered on the agency’s desire to allow third-party commenters to scrutinize the competitively sensitive material. The court concluded that the Trade Secrets Act, buttressed by the FCC’s rules and policies concerning trade secrets, requires more than just the desire for analytical “assistance” from third-party commenters. Rather, “disclosure is proper only if the information disclosed is absolutely necessary to the process,” yet the FCC had “made no effort to explain how disclosure … to any and every qualifying entity that might file a comment” would satisfy that standard.
Grasping the import of the CBS decision requires some understanding of the FCC’s historic approach to merger reviews. Transactions involving large communications providers undergo concurrent analyses: The FCC assesses whether the deal is consistent with the “public interest,” which incorporates a competitive analysis with additional scrutiny of other FCC-specific issues, while one of the federal antitrust agencies (the Federal Trade Commission or, in this instance, the Department of Justice) undertakes its own review focused squarely on competition issues.
The intellectual mechanics of each agency’s competitive analysis are quite similar, but the openness of the two review processes to third parties is distinctly different. A DOJ review is conducted behind closed doors, so merging parties—and any competitors, suppliers, or customers DOJ may wish to consult—submit responsive material under wraps, with no disclosure beyond a fairly circumscribed group of government attorneys and analysts. In contrast, the FCC handles merger reviews by opening a public docket and calling for input from any interested entity on the applicants’ written justification for their proposed combination. Merger opponents and supporters alike may file arguments during a formal pleading cycle, which often is followed by many more submissions until the FCC acts.
The FCC does afford confidentiality protection to competitively sensitive data that merger applicants are required to submit—but it is not airtight. To help inform the analysis and criticisms submitted by third-party commenters, the FCC traditionally permits these parties limited access to the sensitive data (often via outside counsel not involved in day-to-day business transactions) under protective orders. On very rare occasions, a confidential document has been improperly disclosed; the petitoners in CBS noted that one inadvertently released document still was available on the Internet, notwithstanding efforts to retrieve it. Beyond that risk, however, the FCC merger proceedings at issue in CBS presented another kind of risk: The sheer volume of confidential documents—known as “video programming confidential information” or “VPCI”—that outside parties might analyze was unprecedented. Review of those documents, especially if computer-assisted, could reveal not just the specifics of a particular programming deal but also broader industry trends. This particular concern had never arisen before, petitioners noted in their briefs.
Until 2014, when the AT&T/DirecTV and Comcast/Time Warner Cable/Charter proceedings began, the FCC had not required media merger applicants to directly submit hundreds of thousands of documents in response to the agency’s often wide-ranging data requests. Instead, FCC staff attorneys in past proceedings worked with their counterparts at DOJ or the FTC, who sought much the same material and who could, pursuant to their own agencies’ governing laws and procedures, keep the data confidential. FCC staff attorneys typically reviewed the data held by the antitrust authorities, pinpointed documents that appeared most relevant to the FCC’s inquiry, and then directed the applicants to submit only that smaller set of confidential data for both FCC and third-party review.
Against that backdrop, the petitioners in CBS objected strongly at the agency level to broad disclosure of their deal terms and negotiating strategies to third parties, some of whom were their customers. The FCC, watching its self-imposed clock ticking in the merger proceedings, responded with a revised protective order that cut the programmers’ opportunity to seek agency or court review of any disputed disclosure to just five days—after which, if no decision issued, the disputed documents would be released to third parties that requested them. The petitioners then sped to court and won an emergency stay pending review.
On appeal, the D.C. Circuit opened its substantive analysis by looking to the FCC’s 1998 Confidential Information Policy, which comports with the Trade Secrets Act by generally protecting sensitive business information from unnecessary disclosure.4 Under that policy, the court determined, the FCC must make a “persuasive showing” that disclosure of the documents to third parties would (1) serve a “compelling public interest,” (2) result in benefits to the FCC’s decision-making outweighing the costs to the petitioners, and (3) serve a “necessary link in a chain of evidence that will resolve a public interest issue.”
The court found that the FCC prevailed on the first two prongs: Disclosure of VPCI to industry-veteran third-party commenters could help the FCC analyze the data, and limiting disclosures to outside counsel not involved in business negotiations would sufficiently protect the petitioners’ competitive interests. But the FCC fell short, the D.C. Circuit declared, in demonstrating that third-party comment on VPCI was “necessary” in the sense of being either “absolutely needed” or “required.” Construing the term strictly best comported with the goals of the Trade Secrets Act, the court said, while the FCC’s more relaxed definition—equating “necessary” to simply “relevant” or “central”—likely would result in routine disclosure of confidential documents to third-party commenters in any merger proceeding. The FCC offered no argument to “make the jump from useful or relevant or central to necessary.”
The court also found fault with the FCC’s truncated time for appeal of an agency bureau-level disclosure decision. The five-day period was a sharp departure from the agency’s precedent, which allowed the full Commission or a court to rule before any data actually was released to third parties. The FCC failed to explain the new need for speed, the D.C. Circuit said. “We share petitioners’ apprehension about a process that puts tremendous pressure on the Commission, the parties, and this court to get their ducks in a row in a short time.” If the FCC still seeks to retain the five-day rule, it “must explain why speed is so important as to justify limiting one of the fundamental principles of administrative law—judicial review.”
The full impact of the CBS case on the FCC’s merger review process remains to be seen. As of this writing, the agency has just announced its approval of the AT&T/DirecTV transaction, and the FCC did not seek to re-justify a release of confidential documents for third-party review and comment before acting on the merger. Whether that approach sets a broader precedent should become clear fairly soon: Charter recently filed its own application to acquire Time Warner Cable and hopes to close on the transaction by year end.
Rosemary C. Harold is a Partner with Wilkinson Barker Knauer LLP, a former Legal Advisor to Federal Communications Commissioner Robert McDowell, and a former Deputy Chief of the FCC’s Media Bureau.
Notes
- 785 F.3d 699 (D.C. Cir. 2015).
- Comcast withdrew its application to acquire Time Warner Cable before the D.C. Circuit issued its opinion, leaving only the AT&T/DirecTV transaction as a live case in controversy.
- These programmers—not the merger applicants—were the petitioners in CBS.
- Current Policy Concerning Treatment of Confidential Information Submitted to the Commission, 13 FCC Rcd 24816 (1998).