Cooper Charges to DBS Carriers Rescue

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WASHINGTON -Because Chuck Cooper is a seasoned Washington litigator, it came as no surprise that direct-broadcast satellite carriers turned to him to take charge of the most important court case in the industry's brief history. Cooper, a Justice Department official in the Reagan Administration, is the lead attorney in the DBS industry's bid to overturn on constitutional grounds a law that effectively mandates satellite carriage of all local TV signals on a market-by-market basis.

Two months ago, the DBS industry filed suit to block the law from taking effect on Jan. 1, 2002. Without court intervention by that date, DBS carriers have to carry every local TV station in any market where they elect to carry even one broadcaster.

The Satellite Broadcasting & Communications Association, joined by DirecTV Inc. and EchoStar Communications Corp., sued less than a year after the law was enacted. During debate on the bill, the DBS industry tried to scuttle must-carry, but the effort collapsed under the lobbying weight of local TV stations that viewed the issue as a matter of survival.

Although the Federal Communications Commission is required to adopt rules implementing DBS must-carry by Nov. 29, the industry plunged ahead with the suit based on the view that the FCC is powerless to soften the blow.

"Our target is that statute. The FCC can't give us the relief that we want, even if they wanted to, and I am not at all certain that they do," Cooper said in an interview in his K Street office, which is stocked with mementos from visits before congressional committees and the Supreme Court.

IMPRESSIVE RESUME

In hoping to escape the must-carry law, the DBS industry has hired a 48-year-old Alabama native who clerked for Chief Justice William Rehnquist and held top Justice Department posts for seven years under attorneys general William French Smith and Edwin Meese.

Rehnquist voted with the one-vote majority that upheld cable must-carry three years ago, but Cooper said his won-loss record before the Supreme Court demonstrates that Rehnquist doesn't let some sort of judge-clerk nostalgia affect his decisions.

"I can tell you he hasn't always agreed with me," Cooper said.

Judge James Cacheris will hear the DBS case in U.S. District Court for the Eastern District of Virginia. The judge's brother, lawyer Plato Cacheris, represented Monica Lewinsky.

The Alexandria, Va., based-court is called the "Rocket Docket" because of its reputation of handling litigation more quickly than other federal courts. With DBS must- carry just 13 months away, the satellite industry needs a quick decision.

Cooper said he did not deliberately file in the "Rocket Docket." Noting that the SBCA is headquartered in Alexandria, Cooper said, "the Eastern District of Virginia is the most obvious place for us to litigate this case. It's the venue in which our client is resident and that's reason enough to have gone there."

At the Justice Department, Cooper dealt with some tough assignments, including negotiations to convince Panamanian dictator Manuel Noriega-then under indictment in Miami for drug trafficking-to leave his country. Cooper offered amnesty from prosecution in exchange for Noreiga's departure.

"We had all that worked out, but he still wouldn't leave," Cooper recalled. He told Noriega's lawyers to "please convince your client that it's only going to get rougher if I get back on that jet" without a deal.

A few years later, President Bush ordered U.S. forces into Panama to nab Noriega and deliver him to the U.S. officials in Miami to stand trial.

"It did get rougher," Cooper whispered in his soft southern accent.

Cooper is now the lead partner at Cooper, Carvin & Rosenthal, a firm he started in 1996. It also represents Verizon Communications in its quest to impose Internet-access requirements on AT & T Broadband in Henrico County, Va.

Cooper's circle of friends include Whitewater independent counsel Kenneth Starr; Harvard law professor Laurence Tribe (who, interestingly, is helping the cable industry combat digital must-carry); and former FCC general counsel Bruce Fein.

"I know Chuck. He's a friend of mine. His reputation in constitutional law is impeccable," Fein said.

Since leaving government in 1988, Cooper has won some big cases with important political and financial consequences.

ITEM-VETO KILLER

On behalf of New York City, he persuaded the Supreme Court to strike down a federal law that gave President Clinton a line-item veto-a vehicle designed to cut fat from spending bills while retaining the muscle.

Cooper's role in the case riled some of his conservative allies. After all, Cooper toiled for a president-Reagan-who implored Congress to give him the line-item veto to restrain runaway government. His friends on the right asked him why he would tarnish the Gipper's legacy.

"I was chided in the pages of the
Wall Street Journal

and elsewhere for my views on it," Cooper said with a shrug.

Although he agrees with the line-item veto in theory, Cooper said he believed Congress was enjoined from handing the president such a tool in the absence of a constitutional amendment.

A second big case-and another Supreme Court victory-involved the treatment of some savings-and-loan institutions in federal bailout legislation that wound up costing taxpayers more than $100 billion.

Before the bailout, federal regulators urged strong thrifts to buy the sick ones, promising that the negative impact on their financial statements would not be held against them.

Congress, however, rescinded that deal, causing the thrifts that had done favors for the feds to tumble into insolvency and close. The thrifts called Cooper, who persuaded the Supreme Court that Congress had broken a contract and was liable for damages.

On the day the court ruled, press reports said Cooper's victory would balloon the cost of the savings-and-loan cleanup by $20 billion. Although much of the settlement litigation is pending, Cooper has obtained $100 million in restitution for his thrift clients.

SUPREME RETURN?

In the DBS must-carry case, Cooper could again wind up before the Supreme Court. The high court last tackled must-carry in 1997, when it held that Congress did not violate cable operators'First Amendment rights by mandating carriage of local TV signals.

In deciding the case brought by Turner Broadcasting System Inc., the Supreme Court said that Congress was properly concerned about preserving free, over-the-air television for millions of people who did not subscribe to cable. It also ruled that the government's objective outweighed the burdens on cable's editorial discretion.

Fortunately for broadcasters, the court did not consider cable must-carry to be a content-based law subject to the most exacting standard of review, called strict scrutiny. Had the court so reasoned, cable must-carry would undoubtedly have been struck down.

Instead of relying on the standard adopted in the
Turner

case, Cooper has the DBS industry positioned to challenge DBS must-carry as a content-based law subject to strict scrutiny. If the courts accept that theory, than the direct-to-home industry looks like the easy winner.

Satellite providers claim the law is content-based because Congress dictated that unpopular TV stations in large markets had precedence over network affiliates in secondary markets. Also, Congress said those undesirable TV stations also took precedence over cable networks that would otherwise be carried if DBS channels weren't already filled.

By way of example, the DBS industry noted that EchoStar Communications Corp. and DirecTV Inc. will be forced to carry 23 stations in Los Angeles, 23 in New York and 22 in San Francisco. That would sap up precious channel capacity that could be used to beam local ABC, NBC, CBS and Fox affiliates into new markets.

In a new argument, the DBS suit alleged that must-carry violates the Fifth Amendment in that it takes private property without just compensation. The industry claimed it could seek compensation for the cost of backhauling the local signals it must add to distant uplink facilities.

In its must-carry fight, cable raised the Fifth-Amendment issue, but Daniel Brenner, senior vice president of law and regulatory policy for the National Cable Television Association, said it never received Supreme Court consideration.

CABLE PRECEDENTS

Although the DBS industry's case heads in a new legal direction from the one established the by the Supreme Court in Turner, Cooper said the cable case provides plenty of ammunition for him to fire away at DBS must-carry.

"We are acutely aware of the
Turner

decision and we believe that
Turner

is a strength," Cooper said. "The Cable Act itself, its coverage and in the method of its coverage, was quite distinguishable from the way the satellite act applies."

The DBS industry, for example, pointed out that cable operators are required to allocate no more than one-third of their channels to local TV signals, but under DBS must-carry, no cap applies.

Along those same lines, the DBS industry asserted that Congress imposed cable must-carry at a time when operators represented a bottleneck between millions of subscribers and TV stations, putting operators in a position to drop stations and cripple their ability to compete for local advertising dollars.

In the suit, the DBS industry stated that if its 12 million subscribers are compared to cable's 68 million, satellite carriers can't be classified as bottleneck facilities and can't be viewed as competitors for local advertising. That's because DBS operators do not own programming networks and do not contract for local advertising time.

"Any court looking at this is going to take into account all of the differences, and there are many," Cooper said. "Satellite operators compete with cable operators and they compete with each other in a way that cable operators don't compete among themselves."

If Cooper prevails, the DBS industry would likely gain a regulatory advantage over cable. As Bear Stearns analyst Robert Peck noted, the absence of must-carry would allow EchoStar and DirecTV to avoid launching special satellites for local TV signals.

"I think it would be huge for them, because there is no longer need to deploy these satellites.to do spot beam capacity to meet must-carry," Peck said. It costs about $250 million to build, launch and insure a DBS satellite, EchoStar spokesman Marc Lumpkin said.

Peck projects that EchoStar and DirecTV will sign up 30 million subscribers by 2005 and the provision of local signals is a key variable in his growth projections. He said in the past year, about 50 percent of new DBS subscribers have signed for a local signal package that largely consists of affiliates of the four major networks.

When Congress debated DBS must-carry, NCTA voiced support for a law that spread the pain equally between both industries to preserve regulatory parity.

But NCTA is not planning to enforce its position in court. When the DBS suit was announced Sept. 20, NCTA issued a statement saying must-carry was wrong in any context and wishing the DBS industry well in court.

LIFE OR DEATH

Broadcasters aren't backing down, and view DBS must-carry as a life-or-death matter for the hundreds of local TV stations that satellite providers would likely refuse to carry. Last month, the NAB asked for permission to enter the case to help the Justice Department defend the law.

In establishing DBS must-carry, Congress created a scheme that varied from cable must-carry in a manner that broadcasters say is critical to their side of the case.

Although cable operators are required to provide local TV signals as a prerequisite to the sale of any other programming, DBS carriers are not required to carry any local TV signals.

To the extent DBS carriers provide any local TV stations, they have to carry all of the stations in a market. They may do so by relying on a royalty-free compulsory copyright license.

Yet, must-carry does not apply if DBS carriers elect to negotiate copyright clearances for the stations they want to carry.

Broadcasters view the relationship between must-carry and the compulsory license as one of the most potent arguments in their favor-namely, that if DBS carriers want to avail themselves of a government-granted free compulsory license, they must accept government-imposed must-carry obligations.

"We think that is a critical difference," said Jeff Baumann, NAB's executive vice president of law and regulatory policy.

Cooper said he doubted a court would agree that conditioning access to a compulsory license on a must-carry requirement automatically means that must-carry will withstand First Amendment review.

"There is a rich body of law called unconstitutional conditions that we think is relevant in this context," Cooper said. "We don't think that those considerations are adequate to defeat the First Amendment concerns that we are advancing."

Broadcasters are also planning to argue that the bottleneck theory that helped sustain cable must-carry is applicable in the DBS context. DBS subscribers, broadcasters said, will not install an A/B switch or hoist an antenna to capture local TV stations denied satellite carriage.

"The public would certainly be deprived of the whole panoply of local signals if the satellite operator were allowed to cherry pick and still enjoy the compulsory license," NAB's Baumann said.

While staying out of the case, Northpoint Technology Ltd. took a shot at SBCA for filing suit. Northpoint, which is seeking FCC permission to share DBS spectrum, said the satellite industry made a deal with Congress to abide by must-carry in exchange for the right to provide local-TV signals.

"I do believe that they are breaking their promise to Congress," said Northpoint executive vice president Toni Bush said. "They sought this legislation giving them the right to carry local broadcast signals and now they don't want to live up to that obligation."

If it gains access to DBS spectrum, Northpoint claims it intends to voluntarily carry every local-TV station in every market.

"Their decision to oppose must-carry just highlights the need for the Northpoint service," Bush said.

The DBS industry could face a quandary if it wins in district court and later in the U.S. Court of Appeals for the Fourth Circuit in Richmond, Va.

Do EchoStar and DirecTV invade secondary markets, even though their victory might be overturned by the Supreme Court after Jan. 1, 2002-in which case the only options are complying with must-carry or abandoning markets?

DirecTV executive vice president David Baylor said his company would act conservatively until the litigation is resolved.

Yet, Bear Stearns analysts Peck said he expects the industry to hit as many new markets as possible and to clean up any problems that arise from court decisions.

"I would expect them to keep building out, and if must-carry does pass, then at that point I would see them just having to just pull out of some of the markets they had built out into," Peck said.

Cooper suggested a way out.

"The Supreme Court might not think it sufficiently controversial or inconsistent with prior precedent to warrant review," he said.

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