Old Court Defeat Could Help Cable Now

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Several decades ago, New York state law forced apartment landlords to allow the cable company to attach lines and other service-related equipment. The compensation, however, was a paltry $1.

In 1971, Jean Loretto purchased 303 W. 105th St., a five-story apartment building on Manhattan’s Upper West Side. After the sale, the new property owner discovered the attachments and sued the cable company, Teleprompter Manhattan CATV Corp. Her claim was that state law on which the company relied on the taking of private property without just compensation in violation of the 5th Amendment.

After losing twice in lower court, Loretto appealed to the U.S. Supreme Court. In June 1982, the high court returned with a 6-3 victory for Loretto over her cable-industry and New York state opponents.

“Teleprompter’s cable installation on appellant’s building constitutes a taking. … The installation involved a direct physical attachment of plates, boxes, wires, bolts and screws to the building, completely occupying space immediately above and upon the roof and along the building’s exterior wall,” Justice Thurgood Marshall said in the court’s opinion.

The court, however, did not rule on whether Loretto had received just compensation.

Twenty-five year later, some of cable’s sharpest legal minds no longer see the outcome in the Loretto case as the defeat it was once taken to be.

With the Federal Communications Commission under Republican chairman Kevin Martin considering new cable-carriage handouts for local TV stations, the cable industry is warning the FCC that it will challenge the rules on both First and Fifth Amendment grounds.

“This would expose the Federal Treasury to suits by cable companies for just compensation in the Court of Federal Claims,” according to a cable-funded analysis by the law firm Cooper & Kirk.

In 1997, the Supreme Court upheld analog must carry in a 5-4 vote under a First Amendment analysis. Fifth Amendment issues were not part of the close outcome.

FCC consideration of new cable carriage rules is tied to the congressionally mandated conversion to all-digital broadcasting.

On Feb. 17, 2009, all full-power local TV stations must stop broadcasting in analog and rely exclusively on their digital signals. Cable homes without digital reception equipment won’t be able to view the digital TV signals unless cable operators convert the digital signals back to analog at the headend.

With regard to TV stations that demand cable carriage after the transition, Martin wants cable operators to deliver the signals in analog and digital to all cable homes. The few cable systems that are all-digital — presumably meaning all customers have digital reception on all TV sets — would be exempt from the dual carriage mandate.

Martin has said his plan derives from cable’s legal responsibility to ensure that must-carry signals are viewable in cable homes. For its part, the cable industry has said it will carry the digital must-carry signals and that those signals will be “viewable” for analog customers who lease digital set-tops.

“All programming that cable operators deliver — whether in analog or digital — is 'viewable’ by cable customers. If it weren’t, cable wouldn’t have a business,” Comcast told the FCC in an Aug. 28 filing.

The FCC’s Fifth Amendment problem with regard to dual carriage is that federal law bans cable operators from receiving payment from must-carry stations.

“A dual-carriage rule would, absent the payment of just compensation to the cable companies, violate the Takings Clause of the Fifth Amendment,” Cooper & Kirk said, adding that “the controlling case for analyzing must-carry rules is Loretto.”

James Goodale, a cable attorney at Debevoise & Plimpton, which represents Cablevision Systems Corp., said cable had a better chance of winning under the First Amendment because the market conditions that persuaded the Supreme Court to uphold must-carry in 1997 no longer exist, as cable operators face much more pay TV competition.

“Frankly, I think the First Amendment argument is pretty damn good,” Goodale said. “For me, the Fifth Amendment looks like a stretch. The problem with Fifth Amendment arguments is that they don’t go very far. The courts don’t like them.”

But a Fifth Amendment victory for cable could prove expensive for the federal government.

The National Cable & Telecommunications Association has told the FCC that a dual must-carry regime would impose a burden on cable channel capacity larger than another Martin-backed idea called multicast must-carry. Dual must-carry would involve at least 7 Megahertz of bandwidth per station, while multicasting wouldn’t use up more than 6 MHz, the NCTA said.

An NCTA-funded study in September 2005 by Kane Reece Associates determined that cable’s Fifth Amendment just compensation due under multicast must-carry ranged from $4.2 billion to $115.6 billion, depending on the analysis used.

The National Association of Broadcasters, a proxy for the many local TV-station interests supporting Martin’s interventionist policy, hasn’t dwelled on cable’s Fifth Amendment arguments. Instead, NAB has been saying that cable has no case under the First Amendment’s free-speech protections.

“[Martin’s] proposal [would] allow cable operators to choose between going all-digital and providing converters to subscribers with analog receivers, or providing must-carry signals in analog and digital format,” the NAB said in an Aug. 16 filing. “The [FCC’s] well-considered voluntary choice raises no constitutional problem.”

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