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In Re Complaint by DAILY HERALD-TELEPHONE AND SUNDAY HERALD-TIMES, BLOOMINGTON, IND. Concerning Broadcast Stations Advertising Policy of Sarkes Tarzian, Inc. (WTTV(TV), WTTS and WTTV-FM).

 

FEDERAL COMMUNICATIONS COMMISSION

 

23 F.C.C.2d 221

 

RELEASE-NUMBER: FCC 70-180

 

FEBRUARY 18, 1970

 


OPINION:

 [*221]  SARKES TARZIAN, INC., East Hillside Drive, Bloomington, Ind. 47401

GENTLEMEN: This refers to the Commission's September 18, 1969, letter transmitting the complaint of the Bloomington, Ind., Daily Herald-Telephone and Sunday Herald-Times, and to your response, filed October 14, 1969.  Subsequent correspondence from complainant (hereinafter Herald), filed October 30, 1969, and your reply, filed December 3, 1969, have been considered in connection with Herald's complaint.

The above-mentioned documents established that your wholly owned subsidiary, Lu-Mar Newspapers, Inc. (hereinafter Lu-Mar), publishes a daily newspaper, the Bloomington Courier Tribune, and a weekly newspaper, the Six County Topics.  Under a package rate plan, advertisers in the latter newspaper who purchase a certain quantity of advertising receive a "Certificate of Broadcast Credit" entitling them to a credit applicable to any advertising they may purchase on broadcast stations licensed to Sarkes Tarzian in Bloomington.  The face value of the certificates is equal to one-half the monthly billing for newspaper advertising space, and the certificates are redeemed by Lu-Mar after presentation to any of your three Bloomington broadcast stations, WTTV(TV), WTTS, or WTTV-FM.

Herald's complaint asserted that the above-described package rate plan contravened the antitrust laws, laws relating to unfair competition and "well-established principles of the FCC." The Commission's decision in WFLI, Inc., 13 F.C.C. 2d 846 (1968) was cited in support of Herald's request that the Commission request that you terminate the practice at issue.  Your reply contested the applicability of the WFLI case and was accompanied by letters from your Indianapolis and Washington counsel setting forth their opinions, respectively, that your advertising practices do not contravene the antitrust laws or laws relating to unfair trade practices, and that the package rate plan does not violate any rule, regulation or policy of this Commission.

 [*222]  The Commission does not, of course, enforce the antitrust or other laws relating to unfair trade practices n1 as such.  United States v. Radio Corporation of America, 358 U.S. 334 (1959); NTA Television Broadcasting Corporation (WNTA-TV), 22 R.R. 273 (1961). The Commission does, however, take cognizance of the policies expressed in Federal antitrust and unfair competition laws in its application and definition of the public interest standard of the Communications Act (title 47, U.S.C. secs. 303, 307, 309, 310, 311, 316).  Lorain Journal Company v. United States, 342 U.S. 143 (1951); National Broadcasting Company v. United States, 319 U.S. 190 (1943); Metropolitan Television Company v. Federal Communications Commission, 289 F. 2d 874 (CA DC, 1961); Uniform Policy on Violation of Laws, 1 R.R. 91: 495 (1951).  A licensee's use of his exclusive broadcasting franchise as a trade weapon, or to gain a competitive advantage, contravenes those policies.  Packaged Programs, Inc. v. Westinghouse Broadcasting Company, Inc., 255 F. 2d 522 (CA-3, 1958); Mansfield Journal Company v. Federal Communications Commission, 180 F. 2d 28 (CA DC, 1950); see: United States v. Griffith, 334 U.S. 100 (1947); Philco Corporation v. Federal Communications Commission, 257 F. 2d 656 (CA DC, 1958); WFLI, Inc., supra. Also applicable to the case at hand is the principle pervasive of communications law, that radio broadcast stations must be operated in the public interest and that they may not, therefore, be used to subserve the purely private interests of their licensees.  Television Corporation of Michigan v. Federal Communications Commission, 294 F. 2d 730 (CA DC, 1961); KFKB Broadcasting Association, Inc. v. Federal Radio Commission, 47 F. 2d 670 (1931); WFLI, Inc., supra; Deceptive Practices in the Broadcasting Media, 19 R.R. 1901 (1959).

n1 Sherman Anti-Trust Act (title 15, U.S.C. secs. 1 and 2), Robinson-Patman Price Discrimination Act (title 15, U.S.C. sec. 13), Clayton Act (title 15, U.S.C. sec. 14), and Federal Trade Commission Act (title 15, U.S.C. sec. 45).

We find, on the basis of the foregoing authorities, that the practices in question are inconsistent with the public interest.  Instead of relying on direct competitive means in the newspaper field (e.g., lower rates; better services; etc.), the licensee is clearly using the leverage of the exclusive broadcasting franchises as a means of gaining an advantage over a competitor in another field (here the newspaper field).  The situation here could be paralleled by other examples (e.g., a station owner who competes also in a manufacturing field and offers broadcast discount certificates to induce potential customers in the manufacturing field to deal with him).  The permit is given for operation in the public interest; it is simply not bestowed upon an applicant to be used as a wedge in other competitive endeavors.  This principle is not rendered inapplicable because the competition in the non-broadcast field is well entrenched with a dominant share of the market.

The Commission has received your counsel's letter dated February 16, 1970, stating that you suspended the package sales practice in September 1969 until the Commission could pass upon the merits of the matter, and that the licensee has decided it will not reinstitute the practice.

 [*223]  The Commission accepts counsel's letter of February 16 as the licensee's statement of future compliance with the policies set forth herein.

Commissioners Burch (Chairman), Bartley, Robert E. Lee and Cox concurred in the result; Commissioner Johnson dissented and issued the attached opinion; Commissioners H. Rex Lee and Wells dissented.

By direction of the Commission. BEN F. WAPLE, Secretary.

 

Sarkes Tarzian, Inc.

 

[Complaint of Daily Herald-Telephone and Sunday Herald-Times, Bloomington, Ind., against Sarkes Tarzian, Inc., licensee of Stations WTTV(TV), WTTS, and WTTV-FM, Bloomington, Ind.]

 


 

DISSENTBY: JOHNSON

 

DISSENT:

DISSENTING OPINION OF COMMISSIONER NICHOLAS JOHNSON

The Commission majority in their letter to Sarkes Tarzian, Inc., licensee of WTTV(TV), WTTS, and WTTV-FM, Bloomington, Ind., concludes that certain practices engaged in by the licensee are "inconsistent with the public interest." His conduct seems to be clearly proscribed by the many cases cited in the majority's letter; and quite possibly he is in violation of the Sherman Act, the Clayton Act, the Robinson-Patman Act, and the Federal Trade Commission Act, although the majority prefers not to reach the issue of these violations relying instead on the violation of the Communications Act's more general "public interest" standard.

These are serious findings by the Commission.  The licensee is judged to be derelict in serving the public interest, and his actions raise serious questions about a possible violation of the antitrust laws.  But the majority elects merely to inquire of the licensee what he intends to do about the continuation of these practices.

I am troubled by the severity of the charges against this licensee, and I am troubled by the weakness of the majority's action.  I think that a hearing is needed to determine exactly what the facts are in these alleged anticompetitive practices.  The Commission's information is unclear as to what the licensee has really done and what the legal effect of his action is.  We are left in the position of forbidding the continuation of something -- but we don't know exactly what or why.

I feel that a hearing is also needed to determine if the licensee has engaged in other practices which can be characterized as anticompetitive or whether this is an isolated incident.  We cannot escape our responsibility toward the public by pretending that we are aware of all illegal practices by our licensees.  We have an obligation to look more closely at those abuses we do find to ascertain the extent of the abuses and to acquaint ourselves more fully with the practices of the industry.

Violations of the "public interest" standard, and probably infringements of the antitrust laws, should not be excused by a simple warning against doing again whatever was done.  The public is entitled to have the facts developed in a hearing, and the licensee is entitled to  [*224]  have the opportunity to clear his record and establish why his actions were in the public interest.  If he cannot, the Commission is obliged to consider the possible revocation of his license.

The conduct involved appears to be relatively straightforward: Sarkes Tarzian, Inc., is the licensee of the only broadcast stations in Bloomington, Ind., a town with a population of 42,000.  Sarkes Tarzian's wholly owned subsidiary, Lu-Mar Newspapers, Inc., publishes two newspapers in the Bloomington area.  A competing newspaper -- the dominant medium in Bloomington based on advertising revenues -- alleged that advertisers in the Sarkes Tarzian newspapers were issued certificates equal in value to one-half the cost of their advertising in those newspapers.  The certificates were used to pay for advertising on the Sarkes Tarzian broadcast stations.

I.  Licensee Misconduct

 

A.  The antitrust laws

This practice, admitted by Sarkes Tarzian, Inc., may be in violation of the antitrust laws, although the licensee concludes that it is not.  He bases his conclusion that he is not engaged in an illegal "tying" operation under section 3 of the Clayton Act upon the fact that the section deals only with tying arrangements involving commodities, not services.  He concludes -- probably correctly -- that advertising is a service rather than a commodity.  And he correctly recognizes that tying arrangements of services can only be dealt with under sections 1 and 2 of the Sherman Act.  For a tying to be per se illegal (not requiring an inquiry into the actual effect of the tie-in) under the Sherman Act, the licensee, relying on Times-Picayune v. U.S., 345 U.S. 594 (1953), feels that two tests must be met: The seller must have "a monopolistic position in the market for the 'tying' product" and "a substantial volume of commerce in the 'tied' product" must be "restrained." Id. at 608-09. Since the licensee has only 15 percent of the newspaper market, he concludes that there was no per se violation and that a full inquiry into the effects of the tie-in would show that it was not anticompetitive.

The licensee is correct as far as his reasoning goes.  But he has neglected to consider a case decided by the Supreme Court on April 7, 1969, Fortner Enterprises, Inc. v. United States Steel Corp., 394 U.S. 495 (1969). In that decision the Supreme Court departed from the test established in Times-Picayune, returning to its reasoning in an earlier case, International Salt Co. v. U.S., 332 U.S. 392 (1947). In dealing with whether a substantial amount of commerce is restrained, the Court in Fortner said that the consideration is not the market shares of the firms in the industry but only whether the amount restrained is "substantial enough in terms of dollar-volume so as not to be merely de minimis * * *" 394 U.S. at 501. The Court concluded that the $200,000 involved in that case was "substantial." As to the need for monopoly power over the tying product, the Court stated that: This standard does not "require that the defendant have a monopoly or even a dominant position throughout the market for the tying product.  Our tie-in cases have made unmistakably clear that the economic  [*225]  power over the tying product can be sufficient even though the power falls far short of dominance and even though the power exists only with respect to some of the buyers in the market." 394 U.S. at 503.

I conclude then that there would be no difficulty in finding that an established tying arrangement involving the market situation before us was per se illegal.  I am not, however, convinced that the facts show a tying arrangement in the classical sense.  It may rather be simply a situation where discounts are given to certain people.  If so, the conduct could be a violation of the Robinson-Patman Act, but it would depend on a number of facts and factual interpretations: Whether "commodities" are involved, whether the discounts are "cost-related," whether the discounts are reasonable and pro-competitive, and so forth.  My point is that I have not definitely concluded that an antitrust violation exists, and that without a hearing it is impossible for anyone to conclude one way or the other.

For example, assume, as the licensee seems to, that the facts establish a tying arrangement.  Relying upon what I believe to be overruled authority, he concludes that there is no per se violation of the Sherman Act.  Even assuming that he is right -- that his conduct is not per se illegal -- a hearing is still needed to inquire into the reasonableness of the arrangement.  The court-established doctrine of a per se violation is to allow a court to avoid an unnecessary hearing by issuing a summary judgment against the defendant.  But the absence of a per se violation does not excuse further inquiry; rather it compels further inquiry.  For a violation of the antitrust laws may well be established after a full hearing, even though it has been determined that a per se violation does not exist.  See Fortner Enterprises v. United States Steel Corp., 394 U.S. 495, 499-500 (1969).

Therefore, even if the facts and law were as the licensee claims, a hearing would still be needed to decide the legality of his conduct under the Sherman Act.  And a determination of whether other antitrust laws have been violated requires the development of the facts and law much more fully.  I know of no other way for this Commission to get the information it needs to make an intelligent decision than through a hearing.  The hearing need not be a punitive measure -- although I recognize that most licensees have come to interpret it as such.  With the cooperation of all parties, the hearing need not be burdensome or expensive.  Rather, through the development of reasonable, summary procedures, it can become solely a means for this Commission to get the information necessary to understand the operations of its licensees.

 

B.  The "public interest" standard

Of course, this Commission technically need not concern itself with establishing a violation of a specific antitrust statute.  Using the rationale of the antitrust laws, and analogizing to a Government-issued patent, we can decide that this behavior is wrong under the "public interest" standard of the Communications Act.  The essence of any illegal conduct of this licensee is the extension of monopoly power in one field (broadcasting) into a related field (newspapers).  This conduct  [*226]  is analogous to the illegal activity of the holder of a patent in seeking to restrain competition in an industry related to his patent.  WFLI, 13 F.C.C. 2d 846 (1968). For example, the holder of a patent for a light bulb filament might seek to monopolize the light bulb industry, through the licensing of only those companies controlled by him.

The determination has been made that the public interest will best be served in the broadcast industry by the granting of Government franchises to operate broadcasting outlets.  These franchises guarantee some degree of monopoly power in the holder.  Most everyone would agree that this monopoly power is not desirable, but it was thought to be technologically necessary for the development of broadcasting.  Until promised technological developments can be effectively realized, there is probably no alternative to some Government-protected monopoly power.  But that does not mean that we cannot, and should not, take every step possible to prohibit the extension of this power from broadcasting into related fields.

If the licensee in this case had given "discounts" to the advertising customers in his newspapers by reducing the prices charged to them for advertising space, the action would be purely competitive and desirable.  But what he seems to have done was to give discounts to his newspaper advertisers by reducing the monopoly profits of his broadcast outlets -- monopoly profits given to him and protected by a Government franchise.  Such a system of discounts could easily develop into a scheme of cross-subsidization, where a monopoly in one market is used to destroy competition in another market.  When the Government has established the monopoly in the first market, it carries a special responsibility for assuring that competition is not weakened in the second.

The Commission majority has decided not to reach some of the specific antitrust issues in this case, by concluding that the behavior is wrong under the "public interest" standard.  To me the enforcement of this standard is equally as essential to the health of this Nation as the enforcement of the antitrust laws, and should be enforced with equal vigor.  If I believed that my colleagues agreed with me, I would feel no need to argue for additional statutory standards.  But it seems apparent to me that the majority of this Commission simply uses the "public interest" standard as an escape from the rigorous thinking and exhaustive fact-finding required to establish an antitrust violation.  As a general rule, therefore, I think that it is useful to determine whether a licensee is in violation of the antitrust laws rather than merely relying on the Communications Act.  Such an inquiry is clearly contemplated as a part of FCC regulation.

The FCC in administering its public interest standard must be cognizant of the antitrust laws.  Although the FCC itself does not, and could not, actually "administer" the antitrust laws, it must take these laws into consideration in performing its regulatory functions.  The FCC "should administer its regulatory powers with respect to broadcasting in the light of the purposes which the [antitrust laws were] designed to achieve." National Broadcasting Co. v. U.S., 319 U.S. 190, 223 (1943). "[Once] an antitrust violation is established,  [*227]  this alone will normally constitute substantial evidence that the agreement is 'contrary to the public interest,' unless other evidence in the record fairly detracts from the weight of this factor." Federal Maritime Comm. v. Aktiebolaget Svenska Amerika Linien, 390 U.S. 238, 245-46 (1968).

II.  Necessity of the Inquiry

The courts of this Nation have for years been aware of the necessity of a competitive media.  The Supreme Court in 1953 said: "A vigorous and dauntless press is a chief source feeding the flow of democratic expression and controversy which maintains the institutions of a free society." Times-Picayune v. U.S., 345 U.S. 594, 602 (1953), citing Associated Press v. U.S., 326 U.S. 1, 20 (1945). The Court of Appeals for the District of Columbia has placed an affirmative duty upon the FCC to encourage competition.  In Joseph v. FCC, 404 F. 2d 207, 211 (D.C. Cir. 1968), the court said: "The public welfare requires the Commission to provide the 'widest possible dissemination of information from diverse and antagonistic sources' * * *."

In an important recent decision, Judge Edward A. Tamm, after discussing the necessity of a free and competitive press, and the FCC's responsibility for its maintenance, went on to write: "It is also becoming increasingly obvious that application of antitrust doctrines in regulating the mass media is not solely a question of sound economic policy; it is also an important means of achieving the goals posited by the first amendment." Hale v. FCC,     F. 2d     (D.C. Cir., Feb. 16, 1970) (concurring opinion).  He quoted Judge Learned Hand who wrote, in rejecting a claim that the first amendment provided protection for anticompetitive practices of a news service:

[Neither] exclusively, not even primarily, are the interests of the newspaper industry conclusive; for that industry serves one of the most vital of all general interests: the dissemination of news from as many different sources, and with as many different facets and colors as is possible.  That interest is closely akin to, if indeed it is not the same as, the interest protected by the First Amendment; it presupposes that right conclusions are more likely to be gathered out of a multitude of tongues, than through any kind of authoritative selection.  To many this is, and always will be, folly; but we have staked upon it our all.  ( U.S. v. Associated Press, 52 F. Supp. 362, 372 (S.D.N.Y. 1943), aff'd.  326 U.S. 1 (1945).)

The enforcement of the antitrust laws is not a trivial matter.  In their application to the mass media, vigorous enforcement is needed to promote the competition which is absolutely essential to our system of government.  For a democracy can only survive when supported by an informed electorate.  Without information the people cannot exercise their right of participation, and the Government becomes remote and seemingly unresponsive.  Democracy will have failed, if ever the people, as Judge Tamm wrote, "feel that they are being cheated out of the vigorous marketplace of ideas promised by the first amendment."     F. 2d    .

To some, this case may seem like a minor matter, hardly deserving of the time I have given it.  But I do not agree.  The application of antitrust principles to the structure of the broadcast industry, and the prohibition of anticompetitive practices in the broadcast media,  [*228]  must be among the primary responsibilities of this Commission.  The courts have seen the absolute necessity of a competitive media, and no other Government agency seems to have the time or inclination to devote substantial resources to the study and regulation of the media industries.  Congress has given this Commission the mandate to act.  If we balk or refuse, the Congress and the people have the right to be told.

The allegations in this case are serious.  The facts are unclear.  Their relationship to the conflicting law is even more confusing.  The conduct of this licensee may have been perfectly legal.  Or it may have been a flagrant flaunting of the antitrust laws requiring a more severe sanction than a simple warning against continuing violations.  The point is: We don't know.  I dissent to the refusal of the majority to order a hearing to determine the best action for this Commission to take.


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