L.A. Cable TV Auction System Ruled Invalid : Appeals Court Unit Cites Free Speech Violations in Decision That Could Have Nationwide Impact

Los Angeles is violating Constitutional free speech rights with its auction system that permits only one cable television franchise holder in each area of the city, a federal appeals court panel said Friday in a decision both sides said could affect the cable TV industry nationwide.

But although a cable television attorney saw the ruling as a legal breakthrough on behalf of free enterprise and freedom of expression, one of the city’s lawyers claimed that Los Angeles and other city governments won a “major victory” because the appellate judges found that the city was not violating federal antitrust law.

The cable TV industry “should not applaud yet,” said Deputy City Atty. Ed Perez. He indicated that the city probably will appeal the First Amendment issue--all the way to the U.S. Supreme Court, if necessary.

The three U.S. 9th Circuit Court of Appeals judges in San Francisco concluded that as long as an area has the power poles and other facilities to accommodate more than one cable company, it is unconstitutional under the First Amendment to limit access only to the highest bidder.

“Allowing a procedure such as the city’s would be akin to allowing the government discretion to grant a permit for the operation of newspaper vending machines located on public streets only to that newspaper that the government believes ‘best’ serves the community,” Judge Joseph Sneed wrote in the opinion shared by his colleagues.

Preferred Communications Inc. sued the city on First Amendment and antitrust grounds because it was denied a license to set up a cable TV operation in South-Central Los Angeles after it refused to participate in the city’s bidding process.

In turning the firm down on the antitrust issue, the panel noted that the city’s franchising system is permitted by state legislation and that the state is immune from the federal Sherman Antitrust Act.

Oakland attorney Harold Farrow, who represented the cable firm in its lawsuit against the city, said he was “a little disappointed” by the antitrust finding, but he called the overall ruling “a very significant” one that could affect hundreds of similar cases throughout the country. He said it was, to his knowledge, “the first clear and direct attack by the courts on the use of the franchising process by municipalities to displace competition.”

He called it “probably the most definitive decision in the country now affecting cable licensing.”

Perez agreed that the decision is momentous, but he claimed that by reversing the Los Angeles federal district court on the antitrust issue, “the court is saying the city now has a right to grant exclusive franchises if we so desire.”

Presumably, that would mean a change in the city’s auction method.

No License Ordered

Perez pointed out that the appellate panel did not order the city to grant the firm a license. It simply upheld the plaintiff on one legal point, refused to do so on the other and sent the lawsuit back to Los Angeles federal district court for trial on the facts.

“Once we take evidence,” he added, “we might even change the appellate court’s mind.”

The city (and presumably other cities) also won, in Perez’s view, by being upheld on the antitrust issue because the company was suing for damages in not being allowed to string its cables on Pacific Telephone or Department of Water and Power poles unless it got a license.

“Under the antitrust law,” he pointed out, “we could be liable for treble damages.”

Attorney Charles Firestone, chairman of Los Angeles’ new Telecommunications Commission, said he believes that the appeals panel’s analogy to newspapers (and to over-the-air broadcasting stations) failed to take into account that cable “is a unique medium.”

All areas, he contended, should have equal access to cable TV. Allowing cable companies to operate where they wish, he suggested, would leave many poor neighborhoods without cable service.

‘Negative ... Implications’

“To knock out a part of the city has very negative First Amendment implications to me,” he said.

Bernie Evans, chief deputy to City Councilwoman Joan Milke Flores, who chairs the Industry and Economic Development Committee, agreed.

He said the cable firm’s lawsuit “really challenges the rights of cities to franchise cable television. If you don’t have franchising, companies will bypass the poor areas. . . . “

Farrow called that argument “a myth” unsupported by the evidence. “What little experience there is in this field would indicate just the opposite,” the attorney maintained. “Cable TV as a source of news and entertainment is one of the world’s biggest bargains.”

He said residents of poor neighborhoods are as willing as anybody to sign up.

Similar Cases Pending

Similar cases are pending in many cities across the country. Farrow is representing cable companies in several California cities as well as others elsewhere. Perez claimed that the appellate ruling does not necessarily affect the other cases, “only ours,” because other cities do not use precisely the same system used by Los Angeles.

Remarkably, the City of Los Angeles has yet to enact an ordinance pertaining specifically to cable television; it operates its one company-per-area auction system under a 1927 law that deals with all franchising.

The city requires a company wishing to participate in the selection or screening process to put up a $10,000 filing fee, a $500 good-faith deposit and an agreement to pay $60,000 more to reimburse the city for the auction costs.

Bidders must also agree to make two channels available for government programming, two for educational purposes and two for public use.

Los Angeles also was controlling pricing for the winning operators, but that practice has been precluded by new federal rules that will lead to deregulation of the cable television industry in two years.

Bidders must also prove to the city that they have sound financial bases, proper character and “demonstrated business experience.”

Ordinance Drafted

A proposed ordinance governing cable television has been drafted by a task force, including consultant Howard Gann, and is being worked over by the city attorney’s office for probable submission to the City Council soon. As it stands now, it would not basically change the present auction system.

Under that procedure, the city grants a “non-exclusive” franchise in each particular area but in reality does not select any other operators.