On August 24, 2010, the U.S. Court of Appeals for the Third Circuit struck down two Federal Communications Commission (“FCC”) rules relating to spectrum auctions that have severely limited business plans and impeded access to investment capital by small, minority-owned and woman-owned businesses (known collectively as “Designated Entities” or “DEs”). The decision in Council Tree Communications v. FCC, No. 08-2036, vacated both the FCC rule that required DE wireless licensees to make at least 50% of their capacity available on a retail, direct-to-end-user basis, and the FCC rule that mandated unjust enrichment penalties when DE licensees that received bidding credits at auction transfer or assign licenses within the first ten years after licensing. Both rules were found seriously deficient because, prior to adopting them in 2006, the FCC had failed to provide adequate public notice that rule changes of this nature were being considered.
The court remanded the case to the FCC for further proceedings, requiring the FCC to revert to its prior rules, under which DE licenses may lease or resell on a wholesale basis up to 100% of their spectrum capacity, and bidding credit “unjust enrichment” repayment requirements apply to DEs during only the first five years following issuance of a license. While the rules were struck down because the FCC did not provide adequate opportunity for notice and comment, the court also noted several instances, highlighted in Lerman Senter’s court filings, in which the Commission either failed to consider key aspects of the issues before it or relied on highly questionable grounds in adopting the defective rules. The court specifically commended “to the FCC’s attention on remand” issues relating to the importance of adequate access to capital for DEs and wholesaling within the wireless industry generally.
The court’s decision left in place a rule limiting to 25% the portion of a DE licensee’s spectrum capacity that may be leased or resold to a single entity without that entity’s revenues becoming attributable to the DE for purposes of determining continued eligibility for DE status. Nonetheless, with the reduction of the unjust enrichment repayment period to five years, the duration of this restriction has been halved by the court, with restrictions on many DE licenses issued in the initial auction under the defective rules now to expire in less than 18 months. The court also decided, despite finding that “the deficiencies in the challenged rulemaking” were “serious,” not to overturn the results of several auctions conducted using these defective rules, including the Advanced Wireless and 700 MHz auctions.
Lerman Senter members S. Jenell Trigg and Dennis Corbett (who argued the case before the Third Circuit in Philadelphia) have led a firm team also including members David Keir and Philip Bonomo and associates Scott Pippin and Rebecca Neumann in representing Council Tree Communications, Inc., Bethel Native Corporation and The Minority Media and Telecommunications Council, the petitioners in this litigation, since the initiation of the original appeal in 2006. Paralegals Jeffrey Mooradian and Julie Read, and Administrative Assistant Rebecca Cunningham have also provided significant research and other critical support during the course of these appeals.