Nate Hardy Interviewed for Law360 Article on Charter-Time Warner Merger


By Margaret Harding

Law360, Washington (September 11, 2015, 6:12 PM ET) — The Federal Communications Commission on Friday officially started the 180-day shot clock on its review of the proposed $55 billion merger of Charter Communications Inc. and Time Warner Cable Inc., releasing an anticipated protective order governing how the agency will treat confidential information.

In a blog post that coincided with the release of the order, FCC General Counsel Jon Sallet said the order responds to an opinion from the D.C. Circuit that called on the agency to clarify its procedures for handling confidential information in transaction reviews. Sallet said the commission has not yet asked for any of the video programming information at issue in the D.C. Circuit case, but claimed the protective order procedures ensure that programmers have the opportunity voice objections if such information is requested for review.

“In adopting that order today, the commission both concluded that the use of this protective order best balances legitimate confidentiality interests with its desire to be informed by diverse opinions, and responded to the U.S. Court of Appeals for the D.C. Circuit’s CBS decision from earlier this year,” Sallet said in the post.

According to the order, third parties may object to specific individuals reviewing their information. The order also provides that when such an objection is made, the individual may not review the confidential information while the objection is pending.

Republican Commissioner Michael O’Rielly dissented from the order and Republican Commissioner Ajit Pai dissented in part and approved in part. O’Rielly said the commission’s order creates “vast exposure” of telecoms’ market sensitive information, including pricing in contracts.

“I am troubled that anyone could so easily conclude that providing access to those who may have a direct interest in using the extremely valuable commercial information for other purposes can be done with minimal risk,” O’Rielly said in his dissent. “In hindsight, this finding will likely come to be viewed as hopelessly naïve, and the ‘safeguards’ proffered in this order will be insufficient to provide any real protection.”

In the order, the commission said its protective orders are sufficient to protect the confidentiality of highly competitive sensitive information. The orders limit disclosure to counsel and outside experts not involved in a business relationship with the submitting party, and limit the use of the information to the proceeding. The commission also warned that the protective orders provide sanctions, including suspension, disbarment of counsel from practice before the agency, forfeitures and other penalties in the event of violations.

“While we recognize that parties have a legitimate concern that their competitively sensitive and other confidential information not be made available to their competitors, those with whom they do business, or the general public, we find that the risk of harm in allowing commenters to review that information pursuant to our protective orders is small,” the FCC order said.

The D.C. Circuit struck down a previous protective order in May, saying that while confidential information such as networks’ programming negotiations and contracts with pay-TV providers would be helpful in weighing whether the mergers would be good for consumers, the agency had failed to show that it was sufficiently “necessary” that it could be disclosed to competing companies.

In the blog post, Sallet said there has not yet been a decision on whether the commission will seek video programming agreement information as it reviews the Charter-Time Warner deal. Pai pointed out in his dissent that the commission approved the AT&T and DirecTV merger without disclosing the programming agreements, and media giants CBS Corp., the Walt Disney Co. and others made similar arguments in the lead-up to the Charter-Time Warner protective order.

CBS was among the parties that challenged the FCC’s previous protection order in the D.C. Circuit case, claiming the order would have disclosed its confidential business information during the agency’s review of the proposed AT&T Inc.-DirecTV and Comcast Corp.-Time Warner mergers.

The Charter-Time Warner order is unlikely to give the challengers from that case much comfort that their agreements will be protected from third-party review, said Nathaniel J. Hardy, of counsel with telecommunications-focused Marashlian & Donahue.

“I don’t think the parties that complained during the Comcast proceeding are going to be relieved by this release,” Hardy said. “I think they’re going to feel the same concerns they had prior to this. I think they would fight the release of the agreements as strenuously as they did before.”

One of the chief complaints in the lead-up to the release of the protective order, voiced by both O’Rielly and Pai, is that the commission was circumventing the notice and comment process necessary for changing policy. The commission said in the order that it is clarifying, not changing, policy.

“Upon finally getting to see what is in this order, the many entities that will be affected now and in the future will certainly have reactions and feedback, but the ship will have already sailed,” O’Rielly said in his dissent.

In the order, the commission concludes that allowing participants in the review proceedings to see competitively sensitive and confidential information in the protective orders will help the agency obtain a “full rounded picture” of the issues at stake in the transaction.

“It’s basically having people experienced in the industry be able to bring that experience to bear,” said William M. Wiltshire, one of the founding partners of Harris Wiltshire & Grannis LLP. “They could make arguments or bring evidence to the commission’s attention that the commission could not, on its own, find.”

The concern from O’Rielly and others is that those involved in reviewing the confidential information will not be able to simply forget it when engaging in future commission proceedings or negotiations.

“The dissent notes that in the real world, you can’t ‘unhear’ or ‘unread’ competitive information that is gleaned from these contracts,” Hardy said. “The theory is the individual who learned the information would compartmentalize that and not use it to the advantage of another client or another entity, and it’s only used in evaluation of this mergers.”

Also on Friday, the commission released the public notice outlining the commenting schedule for the merger review. Comments and petitions are due Oct. 13, responses are due Nov. 2 and replies are due Nov. 12.

Charter’s deal for TWC, announced in late May, came after Comcast abandoned its own bid to buy the company amid intense regulatory and public scrutiny.

The proposed Charter-TWC-Bright House transaction would create the second-largest broadband Internet provider in the country by bringing together 19.4 million broadband subscribers and would have customers in nearly 40 states, the FCC has said.

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