Articles Posted in Corporate Spotlight

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While the FCC gets to have a say in nearly every sale or merger in the communications industry, no matter how small, the Department of Justice and the Federal Trade Commission will also be called upon if a transaction is large enough. The test for when a transaction is large enough to require a filing with the DOJ or the FTC is whether it exceeds the minimum financial thresholds of the Hart-Scott-Rodino (“HSR”) Act.

Because of inflation and other factors, however, the HSR thresholds must be annually adjusted to accurately separate small deals from big deals. This separation is critical because the DOJ and the FTC have limited resources to investigate transactions, and therefore only require advance notification of transactions that involve companies or transactions above a certain minimum size. Transactions that fall below the HSR reporting thresholds, however, are not immune from antitrust scrutiny even after they are consummated if they are likely to have an anticompetitive effect in any relevant market.

On February 27, 2012, the HSR thresholds will increase significantly, with the “minimum size-of-transaction test” threshold increasing from $50 million to $68.2 million. If the value of the proposed transaction is above $68.2 million but below $272.8 million (up from $200 million), reporting is required only if the ultimate parents of the acquiring and acquired entities meet certain “size-of-person” tests, the thresholds for which will also increase on February 27, 2012. Subject to a myriad of exemptions, transactions valued at over $272.8 million under the HSR regulations must generally be reported. If that sounds complicated (and it can be), Pillsbury’s Antitrust lawyers recently published an Advisory with more details on these changes.
While transactions that meet these thresholds must be reported whether or not they are communications-related, the thresholds can be particularly relevant to large broadcasters, since broadcasters that enter into a transaction requiring an HSR filing need to be aware that they may not be able to implement a local marketing agreement or similar cooperative arrangement in conjunction with an anticipated acquisition until the HSR filing has been made and the mandatory post-filing waiting period has either passed without action by the DOJ/FTC, or the DOJ/FTC have agreed to terminate the HSR waiting period early.

With communications transactions starting to heat up again, the increase in the HSR thresholds is welcome, and may simplify transactions that fall above the current HSR thresholds, but below the new ones.

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Pillsbury’s communications lawyers have published FCC Enforcement Monitor monthly since 1999 to inform our clients of notable FCC enforcement actions against FCC license holders and others. This month’s issue includes:

  • Failure to Refresh Tower Paint Garners $8,000 Fine
  • FCC Levies $25,000 Fine for Failure to Respond
  • $85,000 Consent Decree Terminates Investigation Into Unauthorized Transfers of Control

Tower Owners Receive Harsh Reminder Regarding Lighting and Painting Compliance
The FCC, citing air traffic navigation safety, has fined many tower owners for noncompliance with Part 17 of the Commission’s Rules. Part 17 includes regulations pertaining to the registration, maintenance and notification obligations of tower owners. The base fine for violating Part 17 requirements is $10,000.

Part 17 supplements the notification obligations imposed by the Federal Aviation Administration (“FAA”). Section 17.7 of the FCC’s Rules requires that certain tower structures, including most structures over 200 feet in height and those near airports or heliports, be registered with the FCC. Section 17.21 mandates that most towers over 200 feet be lit and painted in accordance with the FAA’s recommendations. These recommendations include the use of orange and white paint (alternating bands) and red or white flashing, strobe or static lights.

With the recent release of two Notices of Apparent Liability (“NAL”), the FCC continued its pursuit of those who fail to comply with its tower rules, including Section 17.50, which mandates that any tower required to be painted in accordance with the FAA’s guidelines or the FCC’s Rules must be cleaned or repainted as often as necessary to maintain good visibility.

In the first of the two NALs, agents from the Dallas Field Office inspected a 402-foot tower located in Quanah, Texas and determined that the existing paint, which was faded, scraped, peeling or missing in certain areas, was insufficient. The NAL indicates that the agents were unable to distinguish between the orange and white bands from a “quarter mile from the [tower]”, thereby “reducing the structure’s visibility.”

Shortly after the Quanah inspection, agents from the Dallas Field Office also inspected a 419-foot tower located in Durant, Oklahoma. The agents found a similar situation, where the tower’s paint was faded, scraped, peeling or missing in certain areas. The agents were again unable to distinguish between the orange and white bands from “800 feet away from the [tower]”, once again “reducing the structure’s visibility.”

The FCC levied the full base fine of $10,000 against each tower owner. The FCC also mandated that no later than 30 days after the release of the respective NAL, a “written statement pursuant to Section 1.16 of the Rules signed under penalty of perjury by an officer or director of [the tower owner] stating that the [tower] has been painted to maintain good visibility” be delivered to the Dallas Field Office.

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In an uncertain economy, obtaining financing for business transactions can be a challenge. It can be even more challenging for FCC licensees, since FCC rules prohibit granting a security interest in an FCC license. Because lenders want an enforceable lien on all of a borrower’s assets, when those assets include FCC licenses, agreements must be structured carefully to give a lender all of the economic benefits of holding a security interest in the FCC license, without taking a security interest in the license itself.

The standard approach has been to provide the lender with a security interest in the “proceeds” of a license sale. That approach was called into question last October after a decision by the Colorado Bankruptcy Court (In re Tracy), which held that a security interest in the proceeds of an FCC license does not survive bankruptcy. While many communications lawyers saw this decision as an aberration, and the New York Bankruptcy Court (In re Terrestar Networks) rejected it outright in reaching an opposite conclusion last month, just a few days after that New York decision, on appeal, the Colorado U.S. District Court affirmed the reasoning in Tracy, once again opening the issue to debate.

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By Peter M. Gillon, Vince Morgan and James P. Bobotek

9/6/2011

Hurricane Irene has caused immense damage to the East Coast with loss estimates in the billons. Those affected face many challenges as they begin the recovery process, including impaired utility services, water damage, accessibility problems and supply-chain disruptions. Fortunately, many corporate policyholders have insurance coverage available to assist in the aftermath of this tragic event. Taking a few proactive steps will help maximize that coverage.

Insurance claims arising out of natural disasters such as Hurricane Irene can be very complex, both in terms of sheer scope and the legal issues involved. Irene caused not only billions of dollars in property damage through wind, rain, and flooding, but also exacted a heavy toll on commercial business operations as a result of power outages, evacuations, and transportation route closures. To help with the claim process, we have prepared this Advisory to provide a basic outline of some key issues to keep in mind as restoration and recovery efforts continue.

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One of the benefits of practicing law in a multifaceted law firm is the opportunity to work with lawyers in every area of law. It is always a good learning experience, as you get to explore the often hazy areas of law that dwell at the nexus of multiple practice areas. For example, many communications facilities, and particularly towers, create both environmental and communications law issues. Over the years, we have worked on numerous matters involving RF radiation and bird strike issues at transmission tower sites. Issues like that involve multiple governmental agencies and protocols, and it is great to have a mix of lawyers with the right experience to address the various aspects of such a problem.

I therefore read with interest an Advisory published today by Pillsbury Intellectual Property lawyers Jim Gatto, Cydney Tune, and Jenna Leavitt. While not directed specifically at communications companies, it discusses an IP matter that is certainly relevant to such companies. Like most businesses, those in the communications sector use a lot of off the shelf software. However, communications companies also license a lot of specialized software (e.g., traffic systems for ad placement), and often have to hire coders to adapt the software to their specific needs or to create entirely new software for highly specialized tasks. Sometimes, such entities have new software created because they are not satisfied with what is commercially available.

As a general rule, when you hire a contractor to produce a “work for hire”, the copyright in that work remains with you rather than the contractor. However, in their Advisory with the catchy title Work Made for Hire Doctrine Does Not Generally Apply to Computer Software, the authors note that software does not fall under the types of works considered work for hire. As a result, the copyright in the software would remain with the contractor (even if the parties had agreed it would be a “work for hire”) unless proper contracts are put in place to alter that result. The Advisory goes into detail on how this works and what the implications are, but suffice it to say that many communications companies may be surprised to learn that they don’t hold the copyright in their own software.

This is not just an issue for large companies with complex computer systems and extensive programming. It applies just as readily to a small market radio station that asks a college student to design its website. Without the proper agreements in place, the copyright would remain with the student rather than the radio station. Now might be a good time to consider what software you have had contractors produce for your operation, and whether you know who actually owns it.

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Like many other FCC license holders, broadcast stations constantly navigate numerous laws and regulations while filing a multitude of reports and applications by required deadlines. Many of these are required quarterly, but some are annual, biennial, quadrennial, or octennial (once every eight years, and the only time I’ll get to use that word this year). While stations are usually very good about completing their quarterly reports, the less frequent reports require a special level of attention or they can be forgotten in the rush of business.

In the past few months, I have noticed a surge in calls from stations wanting to talk to a lawyer because they have belatedly discovered that they failed to create multiple reports over the past few years. I’ve received these types of calls regularly for more than two decades, but the accelerated pace of these calls definitely caught my attention. When a station calls the lawyer in a panic after making this discovery, the lawyer’s first job is to talk them down off the ledge. In the case of small station groups, you are often talking directly to the owner, who is rightly concerned about the direct financial impact of fines and license renewal challenges. With larger groups, it is often a GM worried about his or her future employment if the problem spins out of control. Fortunately, if addressed promptly, the damage can be greatly limited or avoided.

What is interesting, however, is that the common thread in nearly every one of these calls was the downsizing of the station employee “who did all that” before the problem commenced. While the recent “mega-recession” resulted in downsizing in nearly every industry, the precipitous drop in advertising revenues caused tremendous downsizing in the media industry. As downsizing usually requires that one person do the work formerly handled by multiple people, it is not surprising that a report that is required to be filed once a year, or only during odd-numbered years, gets lost in the mix. Of course, the loss of institutional memory is always a problem when an employee departs. However, the problem is intensified in a downsizing, where the departing employee is not too happy with the soon-to-be-former employer, and is probably not feeling very enthusiastic about training their successor.

As a result, while it is always wise to vigilantly monitor regulatory due dates and keep them on a multi-year calendar, it is equally important to ensure after a downsizing that there remains one employee who is clearly charged with ensuring that the required reports/filings are timely completed. You also need to ensure that employee has not just the responsibility of getting the job done, but the training and resources to make it happen. A top-notch conscientious employee who has no idea what an EEO Midterm Report is, and when that particular station’s report is due, is of little use.

Focusing a little bit of attention on that issue now will save you loads of distraction later when you try to undo the damage. Keep in mind that where a missed report may result in a fine, a missed license renewal application (the “once in eight years” filing for broadcasters) has caused the FCC to delete the station from its database and charge the licensee with illegal operation for the time it operated the station after its license expired. It’s best not to find that out firsthand.

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TVNewsDay
3/4/2009
To say that current economic conditions are challenging for broadcasters is akin to noting that the Ice Age was chilly.

Like many industries, consolidation and growth was fueled by the easy availability of capital, and now broadcasters struggling under the weight of reduced advertising sales and large debt payments must also struggle to meet their loan covenants.

For those of us involved in both the regulatory and transactional sides of the industry, 2009 threatens to be the year that bankruptcies, loan workouts and alternative financing arrangements exceed all other major transactions.

In working with both broadcasters and their creditors seeking to navigate these dark waters, we have crafted some basic “rules of the road” that make it easier to both assess and preserve your options going forward.

At the outset, the most obvious piece of advice — and advice that is too often ignored — is that in today’s difficult financial environment, broadcasters need to continually focus on their relationships with their lenders.

Rather than avoiding such conversations as the risk of violating a loan covenant grows, broadcasters should actively engage their lenders, even if they find such discussions uncomfortable.

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