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Court Rejects Rules On Media Ownership
Appeals Panel Deals FCC Harsh Defeat

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Court to FCC: Try Again Yesterday, the U.S. Court of Appeals for the 3rd Circuit in Philadelphia told the FCC to rewrite several media ownership rules, adopted last June and stayed by the court in September.
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By Frank Ahrens
Washington Post Staff Writer
Friday, June 25, 2004; Page E01

The Federal Communications Commission's attempt to limit media ownership was scuttled yesterday by a federal appeals court that ruled the agency used faulty reasoning to determine how many newspapers, television stations and radio stations companies can own.

The decision was a significant setback for the FCC, the White House and Republican congressional leadership, all of which backed the ownership rules. The FCC began writing the regulations in 2002 and must now either write new ones or appeal yesterday's the decision to the Supreme Court.

In the meantime media acquisitions brought before the FCC will be subject to existing rules. But there is no FCC rule limiting the purchase of local television stations, and radio companies are free again to buy more stations. The rules sent back yesterday would have limited both.

"Today's decision perversely may make it dramatically more difficult for the commission to protect against greater media consolidation," FCC Chairman Michael K. Powell said in a written statement.

Critics of the proposed FCC rules said some were too lax and would allow media giants such as Viacom Inc. and NBC Universal to grow too large and wield too much influence. The FCC argued that the new rules set reasonable, contemporary caps on ownership in an era when the public has access to more forms of communications, including the Internet and cable and satellite television, than when the existing regulations were drawn up decades ago.

Yesterday, the U.S. Court of Appeals for the 3rd Circuit, in Philadelphia, agreed with many of the FCC's premises but said the agency "falls short of its obligation to justify its decisions to retain, repeal, or modify its media ownership regulations with reasoned analysis."

At issue was the FCC's reliance on something called the "diversity index," which sought to ascribe values to the impact various forms of media -- newspapers, radio and television stations, cable channels and the Internet -- have on consumers. But the court said the decisions made in setting the various values were "not rational."

As a result, the court sent back proposed FCC rules determining how many newspapers, local television and radio stations a company can own and ordered that they be rewritten. Media mergers brought before the FCC in the interim may be subject to existing rules or the FCC may choose not to act on them, forcing companies to ask the courts to rule on proposed purchases because they involve the transfer of broadcast licenses.

The ruling is a particularly harsh blow to Powell, who had seen past media ownership rules tossed out by courts for being based on flimsy data and reasoning. Powell, a former Justice Department antitrust lawyer, argued that his rules were backed up by empirical data and thorough analysis.

"This is the second time a court has put aside exhaustive efforts by the expert agency to set numerical limits," said Powell, who, working with FCC media bureau chief W. Kenneth Ferree, was the chief architect of the new rules. "This has created a clouded and confused state of media law."

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