2009-09-01

COURT OF APPEALS UPHOLDS FCC BAN ON EXCLUSIVE CONTRACTS

By Jennifer C. Toohey, Esq.

In October 2007 the Federal Communications Commission ("FCC") banned the use of exclusivity clauses for the provision of cable companies to multiple dwelling units ("MDUs") or other real estate developments.  The FCC's ban applies to apartment buildings, condominium buildings, cooperatives, and other centrally managed residential real estate developments, including gated communities and townhouse associations.  In 2007 the FCC estimated that 30% of Americans lived in MDUs. 

The National Cable & Television Association ("NCTA") appealed the FCC's order.  The NCTA asserted that the FCC exceeded its authority in regulating exclusive deals, that the FCC had not justified the change in policy, and that the FCC had not considered the consequences of applying the decision retroactively to existing contracts.  On May 26, 2009, the United States Court of Appeals for the District of Columbia upheld the FCC's order that banned the use of exclusivity clauses.  This decision does not change the status quo; therefore, all cable operators must continue to cease entering into and enforcing contracts that violate the FCC's 2007 order.  The Court of Appeals determined that the FCC was "well within the bounds" to institute the ban.  By enacting this ban in 2007 the FCC sought to bolster greater competition in the market for delivery of multichannel video programming.  The FCC's ban increased choice and competition for consumers residing in MDUs and other real estate developments.  The FCC determined that existing exclusivity agreements were unfair competition.  The FCC asserted that, "Exclusivity clauses deny MDU residents the benefits of increased competition, including lower prices and the availability of more channels and more diverse content." 

The ruling should be considered a "win" for consumers living in MDUs and other real estate developments who will be able to reap the benefits of video competition.  This ruling is also considered to be a victory for other telecommunications companies like AT&T and Verizon which have been attempting to get into the video business to compete with cable companies for viewership.  Without the FCC’s ban it would be possible for cable companies to restrict the programming that is received by subscribers and consumers.

If your Association has a contract with a cable company or is contemplating entering into an agreement with a cable company, you may want to have your attorney review it. 

Stay tuned for additional updates.