What is a “Regulatory Backstop?”


A fun aspect of this FCC’s modus operandi of announcing new rules and rule changes by op-ed and “fact-sheet” is all the hours one can spend speculating on what the upcoming rule will say. In my case, that mostly involves not having enough information to facilitate useful discussion and epic confusion about how to evaluate proposals that aren’t actually proposals. Last week, for example, I fretted about the potential issues raised by the “standard license” the fact sheet discussed.

This week, my confusion regarding the standard license continues, spurred by the fact sheet’s claim that the FCC will be a “regulatory backstop.” Let’s review the standard license paragraph:

Standard License: The proposed final rules require the development of a standard license governing the process for placing an app on a device or platform. A standard license will give device manufacturers the certainty required to bring innovative products to market. Programmers will have a seat at the table to ensure that content remains protected. The license will not affect the underlying contracts between programmers and pay-TV providers. The FCC will serve as a backstop to ensure that nothing in the standard license will harm the marketplace for competitive devices. [Emphasis added].

What is the FCC backstopping and what does that mean? Perhaps the FCC intends to give itself veto power over the creation of the standard license that is to be designed by some group that remains undefined but for programmers who “will have a seat at the table.”

If that is the case, then the next question regards the nature of this veto power. One possibility is that the FCC intends to pre-emptively dictate the types of arrangements that would and would not be allowed by the standard license. That would raise the question of whether the FCC would conduct some kind of economic analysis before defining those arrangements, perhaps drawing lessons from the Department of Justice Antitrust Division history of considering details of per se and rule of reason violations.

Another possibility is that the FCC intends to backstop indefinitely[1] if an interested party thinks some aspect of the standard license is unfair. That could mean the FCC takes an enforcement role based on the assumption implied in the fact sheet that nothing should “harm the marketplace for competitive devices” regardless of offsetting benefits. Alternatively, the FCC could behave more like the courts, arbitrating disputes. If akin to the courts, however, it is not clear what advantage the FCC would have in a licensing dispute since the courts are already the ultimate backstop.

Then the question would become under what circumstances a firm would turn to the FCC rather than to the courts in the case of a license conflict. If the firm feels it can make a convincing argument that it faces anticompetitive behavior, it would probably turn to the courts, as they routinely handle these kinds of disputes. In that case, the FCC’s backstop role would be superfluous. And if a firm is likely to turn to the FCC when its argument is not based in economics that would imply that the standard license rules were also not based in economics. Instead, it would suggest that the FCC had set rules that the standard license must follow.

Someday we’ll know what the FCC means to include in a standard license and the back of what, exactly the FCC intends to stop. When that happens some people will breathe a sigh of relief and others will protest loudly. We just don’t know which groups will be doing which yet.

[1] I’m assuming “backstop” can be used as a verb. Generally, verbing nouns is not a great idea, but in this case I’m permissioning it in keeping with the free-flowing nature of the piece.