Schurz Communications, Inc. v. Federal Communications Commission

In the 1970s, the Federal Communications Commission (FCC) (defendant) implemented the financial interest and syndication rule preventing network television stations from acquiring syndication rights in the programs the stations showed on their networks. Syndication involves licensing a hit television show to other networks to air as reruns. When the rule was implemented, there were only three major networks, ABC, CBS, and NBC, and these networks distributed shows to nearly 90 percent of the primetime viewing audience. Fearing that the networks would leverage their monopoly in one market, distribution, into a monopoly in another market, production of television programming, the FCC took action and implemented rules meant to protect smaller independent stations and to increase diversity. In the decades that followed, the situation changed dramatically. By 1992, the three major networks each purchased only 7 percent of available film programming, far less than in 1970. The networks were reaching only 62 percent of the primetime audience and Fox Broadcasting, a fourth network added to the fierce competition. In addition, there were five times as many independent stations as had existed in 1970. When the FCC took the rules under review and modified the syndication rule rather than repealing it altogether, Schurz Communication, Inc. (plaintiff) and other broadcasters sued the FCC. The new rules permitted networks to negotiate with producers for syndication rights but only 30 days after negotiating for the first run, which the networks argued was useless because negotiating the syndication rights up front was how financing was secured to produce a new program. The networks argued that the new rules decreased their market access to programs and actually harmed independent producers by limiting their market for the sale of their shows and by preventing them from sharing the risk of developing a new television show, which might not even be successful, with networks. The networks could only produce up to 40 percent of programs for their own networks, further hindering competition. The FCC did not address any of these arguments in its decision. It did not indicate how these arguments were not valid, or served its interest in promoting diversity, which it did not define, among producers, television stations, and programs.