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FCC Enforcement and the Five-Percent Solution

According to the The Sign of Four, Sir Arthur Conan Doyle’s second Sherlock Holmes novel, Holmes preferred a seven-percent solution (a reference that would serve as the basis for another Holmes novel and movie some seventy years later). The FCC, on the other hand, has shown a regulatory fondness for relying on a five-percent solution. For example, a five-percent voting interest triggers application of the FCC’s multiple ownership rules, and when the FCC announced it would conduct random annual EEO audits, it decided that it would audit five percent of radio stations, five percent of TV stations, and five percent of cable systems each year for EEO compliance.

Further evidence of the FCC’s five-percent fondness arose this week in the context of a proceeding we first wrote about in the December FCC Enforcement Monitor. That story discussed a South Carolina AM station which, in an unusual twist, was fined twice for failing to file a license renewal application on time.

Section 73.3539(a) of the FCC’s Rules requires license renewal applications to be filed four months prior to the expiration date of the license. The AM station’s license was set to expire in December 2003, but no license renewal application was filed. The station licensee later explained that it did not file a license renewal application because it did not realize its license had expired. In May of 2011, seven years later, the FCC notified the station that its license had indeed expired, its authority to operate had been terminated, and its call letters had been deleted from the FCC’s database.

After receiving this letter, the station filed a late license renewal application and a subsequent request for Special Temporary Authority to operate the station until the license renewal application was granted. Because so much time had passed since the station failed to timely file its 2003 license renewal application, however, the deadline for the station’s 2011 license renewal application (for the 2011-2019 license term) also passed without the station filing a timely license renewal application. As a result, the FCC found the station liable for an additional violation of its license renewal filing obligations.

The base fine for failing to file required forms is $3,000. Thus, the FCC found the station liable for a total of $6,000 relating to these two violations, and an additional $4,000 for violating Section 301 of the Communications Act by continuing to operate for seven years after license expiration. The base forfeiture for the latter offense is $10,000, but the FCC reduced its proposed forfeiture to $4,000 because the station was not a pirate, and had previously been licensed. Combining all of the various proposed fines, however, still left the station holding a Notice of Apparent Liability for $10,000. On the good news side, the FCC did elect to renew the station’s license, holding that the station’s alleged rule violations did not evidence a “pattern of abuse.”

This week brought an additional chapter to the tale when the FCC released a decision on Valentine’s Day responding to the licensee’s request to have the $10,000 fine reduced or cancelled. The licensee presented two grounds for modifying the FCC’s original order. First, the licensee noted that one of the station’s co-owners had been in very poor health, and it was because of this that the station had missed the license renewal filing deadline (the decision fails to make clear whether it was the first or second license renewal application that the illness caused to be missed). The FCC indicated that it was sympathetic to the co-owner’s health issues, but it made clear that illness does not excuse the failure to timely file a license renewal application, particularly where the person in poor health was not the sole owner of the station.

The second ground presented was that the $10,000 fine was excessive for a small town AM station, particularly given the station’s financial status. As required by the FCC for those pleading financial hardship, the licensee turned over its tax returns for the past three years, showing annual gross revenues of $86,437, $88,947, and $103,707. Applying its five-percent solution, the FCC concluded that the licensee was entitled to a reduction in the fine, stating that “the Bureau has found forfeitures of approximately 5 percent of a licensee’s average gross revenue to be reasonable,” and that the “current proposed forfeiture of $10,000 constitutes approximately 11 percent of Licensee’s average gross revenue from 2008 to 2010.” The FCC therefore reduced the forfeiture to $4,600, stating that it would “align this case with the 5 percent standard used in prior cases.”

While few licensees would be pleased to hand over five percent of their annual gross revenue to the FCC, all should be aware that five percent marks the FCC’s threshold for assessing when a fine moves from being big enough to ensure future rule compliance, to instead causing undue financial hardship. For those facing an FCC fine, that is an important distinction.