[00:00:00] Speaker 01:
Case number 24-1296, National Association of Broadcasters Petitioner versus Federal Communications Commission and United States of America.

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Mr. Kinnaird for the petitioner, Mr. Craig Mile for the respondents.

[00:00:16] Speaker 06:
Mr. Kinnaird, good morning.

[00:00:18] Speaker 05:
Good morning.

[00:00:19] Speaker 05:
May it please the court.

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The foreign sponsor rule imposes disclosure requirements on leased programming.

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The FCC violated its notice and comment obligations in two respects, by changing the lease definition and extending the rule to political advertising and paid PSAs.

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The key is for this court to understand the original definition of a lease in the 2021 order, which appears at JA 14.

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Paragraph 28 defines a lease as, quote, any arrangement in which a licensee

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makes a discrete block of time, a broadcast time, available to be programmed by another in return for some form of compensation.

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And that definition does not encompass ordinary 30 or 60 second ad spots for two related reasons.

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First, ads are not programming.

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You can see this in footnote 82, which, reciting a long-standing FCC regulation, emphasizes the distinction.

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It says a lessor purchasing a discrete block of time, quote, supplies the programming to fill that spot and sells the commercial spot announcements in it.

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Footnote 85 and 91 are the same.

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So 60 minutes is a program.

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The bounty commercial appearing within it is not itself a program.

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And second, the advertiser does not contract for a discrete block of time.

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Rather, they will contract to have their ad aired some part of the day, for example, the evening drive time in radio or sometime during a program or rarely during a particular commercial break.

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but it's not like a lease with a lessor as in the words of the commission, paragraph 28, quote, controls and programs a discrete block of time.

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For example, Sunday, nine to 10 a.m.

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And that is why in paragraph 20.

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The ads aren't discrete.

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The ads aren't specific to time.

[00:02:26] Speaker 04:
No, they're not.

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If you buy a Super Bowl ad, you're going to want it on the Super Bowl month.

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Sunday morning at 7 a.m.

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Well, my understanding is that in Super Bowl that they, it's not in the record, but that they actually contract for places.

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What you pay for the ad depends on when it's aired and the program to which it's attached.

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Right.

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That's a very small slice.

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Most of them just say during a part of the day or during the program.

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But even those are not actually contracting for a discrete block of time.

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you know, 7-12 a.m.

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to 7-12-30.

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That's not what you do.

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That is what you do in the lease.

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And that's why when the commission said in paragraph 28 that we're just claiming that traditional short-form advertising constitutes a lease, it wasn't creating an exemption.

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It's just acknowledging the distinction.

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So an ad is not... I mean, what was the understanding of what traditional short-form advertising included?

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Because when I see that term, and I'm not a broadcaster, I think traditional short form advertising means commercials.

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That's the most natural meaning to me.

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But I'm wondering how the industry understood that term.

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Because I think how that is characterized is an essential question for determining whether what the FCC did was lawful.

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I think there is absolutely no question that the 30 to 60 second typical ad is a short form advertising.

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But the question was, what's the boundary of that?

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Because it's not a term of usage.

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And the concern in the industry was, what about infomercials, which are longer and which do contract for a discrete block of time?

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And what happens if they do that, but they constitute entirely advertising?

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And that's what the commission was seeking comment on in the second notice of proposed rulemaking.

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It said, the affiliates said drop the boundary altogether, all advertising, not subject to the rule.

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And they asked comment on that.

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Or alternatively, they asked to say what criteria the commission might adopt to distinguish.

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But to decide whether

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What they've done in the 2024 rule is just criteria, in part, I think, turns on what the original term meant or what was included within it.

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Well, it definitely included the 30 to 60 second ads that have now been swept in.

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There's really no debate about that.

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Again, it was only on the margin.

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And that's why they said, give us the criteria to distinguish between leases and advertising spots so you don't subsume one and the other.

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And that's why the industry was blindsided by the 2024 order that effectively abandoned the lease definition

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and just said, hey, we're going to treat all advertising, even these 30-second spots, as leases, and then we're going to do an exemption regime based on the policy question of susceptibility to foreign manipulation.

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So is that just a formalistic distinction, or is it a substantive distinction?

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Because one way to get at the exemptions is to say, here's a category.

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We have leases.

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Leases are defined not to include traditional short-form advertising.

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And now, lease is a broader category, but there are exemptions.

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So is that just a formalistic distinction or is it a substantive?

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Does it matter substantively?

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Well, it matters substantively, but if you're going to draw that distinction, you have to give notice about it.

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It matters substantively because these ads just don't fit the definition, at least for the two reasons I gave you.

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So to create an exemption scheme is brand new.

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And particularly the second part of the notice and comment violation is they gave us no inkling about these laws that they were going to draw between political advertising, candidate and non-candidate advertising.

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You have to understand that issue advertising, in particular for local TV stations, is just their lifeblood.

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So they rely on that infusion of cash in election years.

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So the industry would have been on the ramparts if this was open in the comments.

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And it wasn't because that wasn't the definition of the reason.

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Not a single broadcaster would ever consider a 30-second ad spot to be either a lease or a program.

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And as I mentioned,

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in the 2021 order, neither did the commission.

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So I think that they have violated the notice and comment rules.

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Can I ask you about that?

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Because you said you were blindsided.

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And the joint appendix is full of letters from the NAB.

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And I want to ask you if this is standard operating procedure.

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For instance, the one on JA256 says to the

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FCC were hearing whispers that the original draft order applied the foreign sponsorship identification rules to all advertising except commercial ads for goods and services.

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But that subsequent changes oddly exempt candidate sponsored advertisements as well as ads for goods and services.

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And then there's a footnote that says, according to reports, some of these substantive changes have been added

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Following the draft order that already has three votes registered in favor of approving it.

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How do you know?

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How does NAB know all this?

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Well, there is the ability.

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For you to say you were blindsided, if anything, you're having all these ex parte communications with the FCC.

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Is that standard operating procedure?

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Yes, it is.

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But I would point out that the notice and comment obligation is federal registered notice so that it has to be in there so that we can address it in our comments.

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I'm well aware of that.

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You were not blindsided.

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The NAB was not.

[00:08:36] Speaker 05:
Well, they were at the time.

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You had inside information.

[00:08:41] Speaker 05:
Yes, Your Honor, but nobody else did.

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And that inside it, that is.

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You're not representing anybody else.

[00:08:46] Speaker 05:
I'm sorry?

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You're not representing anybody else.

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I'm kind of dying.

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Go on with your argument.

[00:08:51] Speaker 05:
OK, thank you.

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But I would just point out, at least with the other judges, that there has to be notice in the Federal Register for the entire public to comment on it.

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And there's the fact that we found out by the rumor mill is not notice, doesn't represent the notice.

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Can I ask about the notice?

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Why is this the wrong way of thinking about this, which is the 2021 rule draws a line based on duration.

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And they say short, if it's short, not covered, strong negative implication.

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If it's long, it's covered.

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And then

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The concern is that line is vague, hard to administer, maybe it sweeps in all ads.

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So not a good criterion of distinction.

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And then the commission responding to that puts out a notice and says, we want to explore what is the right line between what's covered and what's not.

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And we're going to explore a duration-based line, and we're going to explore a content-based line, and we're going to explore a line based on terms of contracts.

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And then they end up, they scuttle the duration approach, and they replace it with the content approach.

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But all of that just seems to put on the table when the notice says, should we do duration?

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Should we do content?

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Should we do contract?

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What is the boundary?

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Respectfully, I don't think that is because it never changed the definition.

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So even if you didn't have this express recognition of traditional short-form advertising, these spots just don't meet the lease definition.

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So that was never there.

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But all that they asked for was, is duration?

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This is all in the notice that's all about interpreting what the lease

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term does or doesn't cover.

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It's really about the boundary.

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But the boundary is not, doesn't make, the fact that there's a boundary, what would something was more than two minutes or if it's an infomercial where there's a lease of the contract time, that's a very different question for saying things that are not programming are not leases for contracts for discrete block of time.

[00:11:30] Speaker 05:
Those are not in at all.

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So you have to change your definition and tell us you're changing the definition before you do that.

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Because the only question was really, do you drop the traditional short form boundary?

[00:11:43] Speaker 04:
The definition of what?

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The definition of a lease as an arrangement for making a discrete block of time, 9 AM to 10 AM, available for programming.

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I would also point out that the court using

[00:12:02] Speaker 04:
I take your point.

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If you think of this as there's a threshold distinction between lease and other stuff, and this only covers leases, I can see focusing on that threshold definition of lease point.

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But they're using lease.

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Lease is just the shorthand form for things that are covered by SubJ.

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Well, it has a specific definition.

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I would also point out.

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I mean, where is that?

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That's in paragraph 28.

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And they never changed that.

[00:12:46] Speaker 04:
That doesn't have the force and effect of law, though.

[00:12:49] Speaker 05:
Well, it does.

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I mean, the court said environmental integrity.

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If you change the interpretation and broaden it, that's enough.

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But I would also point out that the political advertising is not the kind of content they refer to in paragraph 32 of the notice.

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That was only content to, you know, to distinguish a lease from an advertising.

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And this whole, all of the distinctions they later drew at a minimum, they need notice of that.

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But I would also say the order lacks a rational basis.

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It's irrational because there's no evidence of foreign involvement.

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So just one more question before you get to your substance, which you sort of alluded to, which is why isn't all of the rules that

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we're focused on in the 21 order and all of the rules that we're focused on in the 24 order, none of them have the force and effect of law.

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This is all, they cite something called an order.

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This is just all preamble stuff.

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This is the agency changing its interpretation of a regulation.

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Yes.

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And Perez says no notice and comment when they do that.

[00:14:02] Speaker 04:
It's just an interpretive rule.

[00:14:05] Speaker 04:
Might or might not be valid under Kaiser, but it's not a notice of comment issue.

[00:14:09] Speaker 05:
Well, environmental integrity did say if you change the interpretation, you do have to give notice.

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But I would also point out that on the lacking rational basis, there's no evidence of foreign involvement in these forms of broadcast.

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That was enough to exclude it in 2021, inexplicably not in 2024.

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And just I have to emphasize the sheer senselessness of this regulation

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to apply universal corroboration requirements when virtually no less these are foreign governmental entities.

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And there's no possibility of catching a surreptitious sponsor.

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So if you corroborate, you're not registered, that by definition doesn't capture a

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foreign sponsor and you have no reason if you're surreptitious to make the certification because it's toothless.

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The FCC has said you have no obligation to do it, there are no consequences, it doesn't affect the air of your

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airing of your program.

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So there's no possible benefit, yet you put hundreds of thousands of transactions through meaningless paces.

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So for these reasons, I think I'm seeing out of time.

[00:15:26] Speaker 02:
Did this sort of corroborational permit go through the Paperwork Reduction Act at OMB?

[00:15:32] Speaker 05:
Yeah, it did.

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They put it through.

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And then when the original order, they said only 5,000 leases would be out there, which was an underestimate even for conventional leases.

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But certainly there's many hundreds of thousands of transactions for political issue advertising and paid PSA.

[00:15:48] Speaker 03:
So it wasn't found to be overly burdensome in that process.

[00:15:51] Speaker 05:
That's correct.

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I see I'm out of time.

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We'll give you a couple of minutes of reply.

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Mr. Craig Miles.

[00:16:10] Speaker 07:
Thank you, Your Honor, and may it please the court, Bradley Craig-Mile for the respondents.

[00:16:14] Speaker 07:
I think Judge Katz is thinking about the notice issue exactly the right way.

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And just to quote from my notes, the 2022 notice put the public on notice that the commission was evaluating the line between what's covered and what's not.

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And as Judge Katz has mentioned, the 2022 notice is best read as using the word lease as a short form for what's covered by subsection J.

[00:16:40] Speaker 04:
I mean, that's true, but there are other parts of it that are problematic for you.

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For instance, the statement, it's all about policing lines, but you take as a given that what the concept of advertising is not supposed to subsume lease or vice versa, right?

[00:17:03] Speaker 04:
So whatever lines you draw,

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ads can collapse entirely into leases.

[00:17:12] Speaker 07:
Yes, your honor.

[00:17:13] Speaker 07:
And I think that only bolsters our point that the public was on notice of how exactly the commission was thinking about drawing these lines.

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And I think

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But the commission was really evaluating is, you know, what's vulnerable and should be covered by subsection J and what's not vulnerable to undisclosed foreign sponsorship and should not be covered by subsection J. And I think some compelling evidence that that's how the petitioner understood it was that they have 10 pages of their comments in response to the notice that

[00:17:42] Speaker 07:
that that argued to the commission why certain material should not be covered under the definition of lease.

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They asked for local programming to be carved out.

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They asked for religious programming to be carved out.

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I think that shows that they knew that the lines.

[00:17:59] Speaker 04:
No, go ahead.

[00:17:59] Speaker 07:
Sorry.

[00:18:00] Speaker 07:
I think that shows they knew what the commission, the exercise the commission was walking through is deciding what should be subject to the rule and what should not be subject to the rule.

[00:18:09] Speaker 04:
Right.

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But

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This is all in the context of interpreting the word lease, which is the codified term in Sub J. So why, I understand if it's just a question of what should be covered and what should not be covered, I understand

[00:18:36] Speaker 04:
you know, ads versus political candidate ads versus public service.

[00:18:43] Speaker 04:
It makes some sense to me.

[00:18:48] Speaker 04:
But I'm not sure why those lines help you define what's a lease.

[00:18:56] Speaker 07:
I think those lines help us define what's a lease because, as Your Honor mentioned earlier, it's

[00:19:02] Speaker 07:
lease is a shorthand for what's covered by by subsection J and what's not a lease is what's covered by an exception and so like that's the line drawing exercise the commission was walking through here and I mean I guess at the at the end of the day I think as Judge Henderson pointed out.

[00:19:20] Speaker 07:
You know, there's compelling evidence again in the record that they were not blindsided.

[00:19:24] Speaker 07:
So, as we mentioned in our brief, I think, even if there were a notice problem that would be harmless error because that the proposal the commission ultimately adopted, you know,

[00:19:37] Speaker 07:
borrowed terminology from the comments and expressly considered the petitioner's proposal to carve out issue ads and paid PSA's.

[00:19:46] Speaker 07:
It walked through the reasons why it ultimately decided not to do that.

[00:19:50] Speaker 07:
And then I guess just one other point on harmless error.

[00:19:54] Speaker 07:
The idea that there would have been an avalanche of comments had the commission been a little clearer in its notice is a little hard to square with the lack of comments after the 2020

[00:20:04] Speaker 07:
NPRM, which is the NPRM that kicked this proceeding off.

[00:20:08] Speaker 07:
And under that proposed rule, the foreign sponsorship ID rule would have applied to all broadcast matter, and there was no exception for advertising.

[00:20:15] Speaker 07:
So if you were going to see an avalanche of advertiser concerns, I think we would have expected to see those in response to the 2020 NPRM, and we don't.

[00:20:33] Speaker 07:
I'm happy to also address the petitioner's point that there's no evidence of undisclosed foreign sponsorship idea in these particular types of programming, this particular types of content.

[00:20:50] Speaker 07:
And I think the commission explained why

[00:20:53] Speaker 07:
That really misses the forest through the trees.

[00:20:57] Speaker 07:
And I think that, as I mentioned earlier, the exercise the commission was evaluating, the problem the commission was evaluating is what content is vulnerable to undisclosed sponsorship and what content is not.

[00:21:07] Speaker 07:
It then peeled off the content that either makes clear who the sponsor is, and that's the exception for commercial advertising for goods and service, or it peeled off the

[00:21:18] Speaker 03:
Can you speak to that point more specifically to the question about the distinction between the kinds of issue advertising, whether political or political issue ads versus candidate ads?

[00:21:34] Speaker 07:
Sure, Your Honor.

[00:21:35] Speaker 07:
I think issue ads, as it's defined in the rule and it borrows from the statutory language, which is essentially political matter or matter of

[00:21:47] Speaker 07:
public matter relating to a controversial issue of public concern.

[00:21:50] Speaker 07:
So that would I think cover ads that... Sorry, I guess I should be more clear.

[00:21:56] Speaker 03:
I guess my question is why are political issue ads not more like candidate ads?

[00:22:01] Speaker 03:
Because they're similarly regulated under the FEC and for some of the reasons that political ads are excluded.

[00:22:09] Speaker 03:
Why wouldn't political issue ads be excluded?

[00:22:14] Speaker 07:
So the commission carved out candidate ads for two reasons.

[00:22:18] Speaker 07:
One was foreign nationals cannot donate to candidates.

[00:22:23] Speaker 07:
So the chance that there would be a disclosure of a foreign sponsored candidate ad are very low because foreign nationals cannot donate to the candidates.

[00:22:32] Speaker 07:
And in certain candidate political ads have an additional layer of transparency under Section 315 of the Communications Act to stand by your ad.

[00:22:39] Speaker 07:
And we don't have those safeguards for issue ads.

[00:22:43] Speaker 07:
Now, to be sure, foreign nationals cannot sponsor certain types of political ads, but issue ads covers political ads and non-political ads.

[00:22:54] Speaker 07:
And trying to draw the lines in a way that distinguish between those two would create additional burden for the regulated industry and also create loopholes that bad actors could exploit.

[00:23:07] Speaker 03:
I guess that doesn't answer my question of why political issue ads are not more like candidate ads.

[00:23:14] Speaker 07:
I think they're not.

[00:23:15] Speaker 03:
Rather than like general issue ads.

[00:23:18] Speaker 07:
They're not more like candidate political ads because we don't have a ban on foreign national sponsorship the way that we do for candidate ads.

[00:23:30] Speaker 07:
So it's missing that piece of it.

[00:23:32] Speaker 07:
And it's also missing the additional transparency that we get from

[00:23:36] Speaker 07:
Section 315.

[00:23:43] Speaker 07:
I'll make just a couple of quick points on burden.

[00:23:48] Speaker 07:
the commission took several steps to reduce the burden here and we're dealing with a certification form that's only a half page which the commission slims down a lot from the half page checkbox form that the commission slimmed down from what it proposed.

[00:24:03] Speaker 07:
It allows entities to use its own certification language if it already has language.

[00:24:09] Speaker 07:
If they don't want to use that option they can use the additional screenshot option.

[00:24:15] Speaker 07:
It reduced the burden for occurring leases if there are

[00:24:18] Speaker 07:
short form leases between the same sponsor and broadcaster for the same content.

[00:24:25] Speaker 07:
They only have to discharge these duties once a year.

[00:24:27] Speaker 07:
So I think the commission really did what it could to reduce the burden while also drawing the lines in a way that focused on the material that it thinks is most vulnerable to undisclosed foreign sponsorship.

[00:24:42] Speaker 07:
Happy to address any other questions the court has, if not.

[00:24:47] Speaker 04:
Can I ask you the same question I asked your friend about my defuddlement over the framing here?

[00:24:59] Speaker 04:
All of the rules that we're talking about are just in preambles.

[00:25:09] Speaker 04:
None of them seems to have the force and effect of law.

[00:25:13] Speaker 04:
You could have put the

[00:25:17] Speaker 04:
Short form, traditional ad, not covered rule into the CFR.

[00:25:22] Speaker 04:
You didn't.

[00:25:22] Speaker 04:
You could have put the new rules of ads if covered by F, not covered by J rule.

[00:25:31] Speaker 04:
It's all in a preamble, which leads me to think, I don't know, this is all just interpretive rules addressing what the word lease means.

[00:25:47] Speaker 04:
That helps you on notice and comment, because I think this case is a lot like a lot like, you know, paralyzed veterans is no longer no longer good law, but it hurts you.

[00:26:05] Speaker 04:
It's just hard to

[00:26:09] Speaker 04:
Hard to imagine all these very specific granular rules as just flowing from the interpretation of the word lease.

[00:26:18] Speaker 04:
And I don't know what to make of it.

[00:26:20] Speaker 04:
Can I just accept the party's framing that you're a bunch of legislative rules, even though none of them is in the CFR?

[00:26:29] Speaker 07:
A couple of responses to that, Your Honor.

[00:26:31] Speaker 07:
The exception for political ads, I believe it would be codified in the amended version of the rule.

[00:26:40] Speaker 07:
So I guess that's one point.

[00:26:43] Speaker 07:
The other point is, I mean, I think this does, as you alluded to, go to notice.

[00:26:47] Speaker 07:
So any concerns that we would have about notice, and to the extent that Your Honor thinks this is an interpretive rule, I think that sort of drives down any potential concerns about notice.

[00:26:58] Speaker 07:
And I guess lastly, I don't see any reason why the court couldn't accept this framing and if there were a later argument that

[00:27:09] Speaker 07:
that popped up in the context of an enforcement proceeding, like perhaps that would be another venue to air these arguments.

[00:27:16] Speaker 07:
But as the case is presented here as facial attack before any enforcement proceedings, I don't see a reason why the court couldn't go ahead and accept the framing.

[00:27:26] Speaker 04:
Does the commission view the rules as having the force and effect of law?

[00:27:33] Speaker 07:
I believe so, yes, your honor.

[00:27:35] Speaker 04:
And with the commission, I assume you would not apply them retroactively to ads undertaken before the rule was announced.

[00:27:46] Speaker 07:
That's correct, your honor.

[00:27:47] Speaker 07:
One of the measures the commission took to reduce the burden was to grandfather and existing leases.

[00:27:52] Speaker 07:
This will only apply to new leases after the rules go into effect or leases that are re-upped after the effective date.

[00:28:03] Speaker 03:
Since we haven't had any briefing or letters about this, I assume the FCC is not currently reconsidering this rule.

[00:28:11] Speaker 07:
That is correct, Your Honor.

[00:28:12] Speaker 07:
There is a pending Paperwork Reduction Act request with OMB right now.

[00:28:21] Speaker 07:
So that's the state of play.

[00:28:22] Speaker 07:
If and when OMB ultimately approves it, there would be a notice that the new rule had gone into effect.

[00:28:31] Speaker 07:
Thank you.

[00:28:32] Speaker 07:
We'd ask the court to deny the petition.

[00:28:33] Speaker 07:
Thanks.

[00:28:47] Speaker 05:
Your honor, briefly, five points.

[00:28:49] Speaker 05:
First, even environmental integrity does say, at least within a substantive rule with the preamble.

[00:28:59] Speaker 05:
Well, if that's so, if you find it not to be binding, then I think the court needs to declare that and then we would proceed under the definition of leases in any enforcement proceeding.

[00:29:11] Speaker 05:
On the blindsiding point, I would just point out that the

[00:29:16] Speaker 05:
Rumors of these were of draft orders that could issue at any time.

[00:29:21] Speaker 05:
So we were prejudiced because we didn't have time to compile all the evidence.

[00:29:25] Speaker 05:
Political advertising distinctions came in on a second draft order that we heard about.

[00:29:30] Speaker 05:
So there is a prejudice point there.

[00:29:32] Speaker 05:
The point on religious programming, those are conventional leases, not advertising.

[00:29:37] Speaker 05:
The lack of comments on the 2020 NPRM, that was such an incredibly broad ruling.

[00:29:45] Speaker 05:
It basically made any footage that you show, you have to disclose whether or not it came from a foreign entity.

[00:29:53] Speaker 05:
So advertising, even though there was an objection to it, was a very secondary concern at that time.

[00:29:58] Speaker 05:
With regard to Section 315, that's a very small slice of federal candidates when they seek

[00:30:06] Speaker 05:
A particular lowest unit rate only happens in a small run up to the election.

[00:30:11] Speaker 05:
It doesn't justify these categorical lines.

[00:30:14] Speaker 05:
And finally, I would just point out, they are really saying that there was always this broad definition of lease unless it was exempted.

[00:30:25] Speaker 05:
That's just erasing the actual definition from the 2021 order, which was not put up for reconsideration.

[00:30:33] Speaker 05:
So I see I'm out of time unless the court has further questions.

[00:30:36] Speaker 06:
All right, thank you.