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Exhibitor Focus

Nov 17, 2014

There’s a New Sheriff in Town

FCC Enforcement Bureau Serves Up a New Brand of Justice

Jonathan Marashlian

In recent months, the Federal Communications Commission’s (FCC) Enforcement Bureau (Bureau) has been delivering on new Bureau Chief, Travis LeBlanc’s promise of handing out swift, strict, and forceful penalties for violations of FCC rules and regulations. As evidenced by the multi-million dollar Consent decrees between the FCC and numerous industry players, including Time Warner Cable, AsusTek, and Verizon, the Bureau can no longer be viewed as a threatening but toothless paper tiger; quite the contrary.

A spate of Consent decrees released this past year reflects a dramatic and unprecedented change in FCC enforcement policies. These include: (1) stricter negotiation and settlement guidelines; (2) material increases in penalties (in the range of between 10 to 20 times historic amounts); (3) a change from “voluntary contributions” to civil penalties accompanied by admissions of rule violations; and (4) more clearly defined benefits of “self-reporting” of non-compliance contrasted with the increased pain accompanying offenders that fail to self-report -- all being doled out more swiftly than ever before.

The recent strengthening of enforcement policies began when Tom Wheeler became Chairman in November 2013. In May, Wheeler appointed Travis LeBlanc, a former Assistant Attorney General from California, to serve as the Acting Chief of the Bureau. LeBlanc’s arrival triggered the most significant changes in Bureau policies and practices since the Bureau’s creation over a decade ago.

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Our Firm has observed and experienced multiple indications of a sea change within the FCC with regard to its enforcement policies and procedures. These indications are summarized below:

  • FCC enforcement activity now extends beyond the Bureau; by leveraging its relationships with USAC and Team Telecom (and obtaining facts gathered through the information gathering processes used by these external entities), the Bureau has increased its “investigative” manpower and augmented its capability of identifying malfeasance exponentially. In turn, these changes significantly increase the probability of enforcement.
  • Creation of the USF Enforcement Strike Force manifests the increased “politicization” of a specific regulatory area that broadly impacts all corners of the industry. The dedication of internal resources targeting a specific, but very broad area of enforcement will impact the entire telecommunications and interconnected-VoIP industries, as well as ISPs and other recipients of Universal Service funds.
  • The hiring of several former prosecutors, such as Chief of Staff, Katherine Winfree (a “decorated” prosecutor who previously served as the Chief Deputy Attorney General for the State of Maryland) is symbolic of the new Bureau Chief’s approach to enforcement.
  • Curtailment of meaningful opportunities to negotiate Consent decrees. Through changes in “Bureau policy,” the resolution of investigations and Notices of Apparent Liability (NALs) through Consent decrees has been materially constrained.

The effects of internal staffing and policy changes are visible through a handful of recent Consent decree announcements. Before 2014, you could have asked the Magic 8-Ball the question, “Will our violation of an FCC regulation land us in hot water with the Enforcement Bureau?” and the answer you’d receive probably landed somewhere between “Reply hazy, try again” and “Cannot predict now.” Ask that same question today? Magic 8-Ball responds, “Signs point to yes.”

 

Previous Consent Decree Policies

A Consent decree is a settlement between the entity subject to an enforcement action and the FCC. After the Bureau identifies a violation of its rules, it issues a citation, an NAL, or a Notice of Inquiry (NOI). The wrongdoing company has an opportunity to respond to the initial citation or notice, and can even seek to dismiss the Notice or request a reduction of the forfeiture amount. If the parties do not enter into a Consent decree, the FCC then issues a Forfeiture Order, which makes a final determination of the forfeiture amount.

Until recently, Consent decrees have included an agreement by the violating party to pay a “voluntary monetary contribution” and stipulate to further requirements in exchange for an FCC finding of no wrongdoing. Monetary negotiations have traditionally occurred at this stage, and the forfeiture guidelines have been used as parameters. These widely accepted procedures have been replaced, however, by stricter policies and stingier settlements. Over the past several months, the Bureau has dramatically increased settlement amounts, required admission of wrongdoing, enforced each individual violation of the same rule, and pursued even minor violations of Commission rules. The increased enforcement efforts, combined with less flexible Consent decree negotiations, will demand that industry participants comply with FCC rules or face encumbering consequences.

 

Time Warner Cable Consent Decree

On August 25, 2014, the Bureau announced that Time Warner Cable, Inc. (TWC) negotiated a Consent decree with the Bureau that resolved an investigation into whether TWC complied with the Commission’s network outage reporting requirements. TWC agreed to pay a “civil penalty” of $1.1 million, and implement a three-year compliance plan to ensure future compliance with the Commission’s network outage reporting rules. The Bureau’s Consent decree with TWC appears to be the first public indication of the more stringent Bureau enforcement policies.

There are several provisions of the Consent decree that indicate a significant change in the FCC’s negotiation policy; however, the staggering civil penalty of $1.1 million is the most significant aspect. First, this amount radically departs from the FCC’s Forfeiture Guidelines which generally prescribe a base forfeiture amount of $3,000 per violation. Second, the amount is, by our firm’s estimates, ten to twenty times the normal amount assessed in recent forfeitures for a provider’s violation of any of its reporting and/or filing obligations with the Commission. For example, in 2012, the Bureau entered into a Consent decree with Verizon in which Verizon agreed to pay only a $90,000 “voluntary contribution” for violating the Commission’s network outage reporting rules. Like the TWC Consent decree, the 2012 Consent decree does not discuss the Commission’s Forfeiture Policy Statement. However, unlike Verizon’s 2012 Consent decree, the forfeiture amount of the TWC Consent decree appears to demonstrate that the guidelines governing forfeiture amounts since 1997 are now obsolete. Compounding this fact, the “voluntary contribution” language appears nowhere in the TWC Consent decree, and the Bureau opts for the harsher tone of imposing of a “civil penalty” for TWC’s filing violations.

The TWC Consent decree may be demonstrative of a new hard line stance by the Enforcement Bureau regarding forfeitures for violations of the Commission’s rules – throwing the Commission’s Forfeiture Guidelines out the window.

 

AsusTek Consent Decree

On August 26, 2014, the Enforcement Bureau released an Order containing a Consent decree with international equipment importer ASUSTeK Computer, Inc. (ASUSTeK), ordering ASUSTek to pay a $240,000 fine for violating the FCC’s rules and a provision of the Communications Act of 1934 (Act) governing the authorization and marketing of radio frequency (RF) equipment. This Order and Consent decree is another prime example of the extremely stringent Bureau enforcement policies.

After a lengthy enforcement proceeding involving meetings and communications between the Bureau and ASUSTeK’s legal counsel, and extensive retesting of the subject devices, the Bureau and ASUSTeK agreed to the Consent decree. In addition to the substantial fine the Bureau levied on ASUSTeK, the Bureau also ordered ASUSTeK to publicly admit liability for violating the Act and FCC rules. ASUSTeK was further ordered to implement a long-term compliance plan, subject to FCC supervision. Any failure by ASUSTeK to abide by the compliance plan could result in the Bureau imposing additional financial penalties, and other sanctions.

The staggering civil penalty of $240,000 is well above the amounts that the Bureau used to impose on RF equipment providers that were found to violate the FCC’s rules. For example, as recently as February 2014, the Bureau negotiated a Consent decree with an RF equipment provider that was alleged to have marketed a non-compliant device in violation of FCC rules that resulted in a small $13,000 fine. Moreover, in that case, there was no requirement that the equipment provider publicly admit that it had violated any rule or law. A similar proceeding that concluded in November 2013 resulted in an $18,500 forfeiture.

 

Verizon Consent Decree

On September 3, 2014, the Bureau released an Order containing a Consent decree with Verizon Communications, Inc. (Verizon), ordering Verizon to pay the largest settlement amount owed in FCC history, $7,400,000 for violating the FCC’s rules and a provision of the Act. Verizon violated rules governing the use of customers’ personal information for marketing purposes. According to the FCC’s Order, Verizon failed to give approximately 2 million new landline customers the opportunity to “opt out” of having their personal information used for marketing purposes. This Order and Consent decree is the most significant example of the extremely stringent Bureau enforcement policies.

Travis LeBlanc, Chief of the Enforcement Bureau, made it clear that he intends to use the Verizon Consent decree to deliver a threatening message to telephone companies. LeBlanc states, “it is plainly unacceptable for telephone companies to use its customers’ personal information for thousands of marketing campaigns without even giving them the choice to opt out.” Because Verizon self-reported the opt-out failure, and provided notice to the FCC slightly longer than the five days required by the rules, the company now owes the FCC $7.4 million. Verizon also agrees to include a written opt-out notice on every invoice to its customers.

 

Important Takeaway

The Enforcement Bureau’s actions over the past several months manifest far more than a desire to simply increase administrative efficiency. The new policies, recent hirings, Consent decrees, and behind the scenes communications and negotiations with staff demonstrate that the Acting Bureau Chief’s goal is to fundamentally transform the Bureau. Not to say that all industry participants have been either ignorant or dismissive of the Enforcement Bureau’s power, authority and reach, but it is safe to say the Bureau has not been universally feared. Travis LeBlanc, the new sheriff in town, is intent on leaving an indelible mark on the Bureau and the industry it oversees. In short, his message to the public is simple: “Say goodbye to the paper tiger. Say hello to an aggressive, unrelenting prosecutorial watchdog. If you violate a Commission rule, don’t think you can hide forever. If we find you, expect to pay a steep price!” •

Jonathan S. Marashlian is the Managing Partner at Marashlian & Donahue, LLC, The CommLaw Group, a Washington, DC-area law firm specializing in federal and state telecom and technology matters. Marashlian is the winner of two 2013 Lexology/International Law Office (ILO) Client Choice Awards, named overall winner in the Telecommunications Law-US category; his firm was named Leading Customer Service Law Firm of the Year and Best Communications Law Firm in the US by ACQ Awards. Marashlian was assisted by Lauren King in the preparation of this article.

Disclaimer: This article is intended for informational purposes only and is not for the purpose of providing legal advice. You should not act upon the information in this article without seeking professional counsel.

 

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Comments:

06/29/2015 - By Aemon Targaryan
The flaws in this approach to enfarcement are appearing everywhere...

FCC Commissioner Ajit Pai: June 18, 2015 -- A government "rule" suddenly revised, yet retroactive. Inconvenient facts ignored. A practice sanctioned after years of implied approval. A penalty conjured from the executioner's imagination. These and more Kafkaesque badges adorn this Notice of Apparent Liability (NAL)... Because the Commission simply ignores many of the disclosures made; because it refuses to grapple with the few disclosures it does acknowledge; because it essentially rewrites the rule ex post; because it disregards specific language in that order and related precedents that condone conduct; because the penalty assessed is drawn out of thin air; in short, because the justice dispensed here condemns a private actor not only in innocence but also in ignorance, I dissent.

FCC Commissioner Michael O'Rielly: "My central premise is that the Commission's overall approach to enforcement has gone astray over the last many months. In fact, let me go a step further to report that it has entered a territory that can only be described as dangerously misguided."

"As we examine the recent activities of the Enforcement Bureau, it is clear that these time-tested functions are now secondary to other goals. Specifically, the Commission seems more intent on obtaining newspaper headlines trumpeting accusations and eye-popping fines. In other words, self-aggrandizing fanfare is a major objective and often appears to be more important than case foundation, correcting the violation or establishing a reasonable deterrent. I like to refer to this as sizzle over substance."

July 9, 2014 - Katherine Winfree has joined the Bureau as Chief of Staff. "She brings solid prosecutorial leadership to our enforcement team ..."

January 22, 2015 - Katherine Winfree joins Manatt, Phelps & Phillips. Katherine Winfree, previously Chief of Staff for the Federal Communications Commission's Enforcement Bureau, has joined Manatt, Phelps & Phillips as Partner in the firm's State Attorneys General practice group. Ms. Winfree provides strategic counseling and defense to clients facing individual state, multistate and federal investigations and legal actions, as well as internal corporate investigations.

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