## Facts

- The FCC adopted financial interest and syndication (“fin-syn”) rules in the 1970s to limit ABC, CBS, and NBC from acquiring financial interests in, and syndication rights to, programs they aired, based on concerns that networks could extend distribution power into program production and reduce program-source diversity.
- By the early 1990s, the television market had materially changed: cable was widely available, independent stations increased, and a fourth network (Fox) competed with the traditional networks; the traditional networks’ share of audience and program purchasing had declined.
- In 1991, after reviewing fin-syn, the FCC modified rather than repealed the rules, including (i) a requirement that networks wait 30 days after initial broadcast-license negotiations before negotiating for syndication rights and (ii) limits on how much programming a network could produce for its own schedule (up to 40%).
- Networks, affiliates, and other broadcasters petitioned for review, arguing the revised rules were commercially unrealistic, impaired financing and risk-sharing for new programming, and could harm independent producers rather than protect them.
- The FCC defended the revisions largely on “diversity” and protection of non-network entities but did not clearly define the asserted diversity objective or directly engage key economic objections grounded in the record.

## Issues

1. Whether the FCC’s 1991 revised fin-syn rules were arbitrary and capricious under the Administrative Procedure Act, 5 U.S.C. § 706(2)(A).
2. Whether the FCC adequately justified retaining and modifying structural limits on network participation in production and syndication given the changed competitive conditions.
3. Whether the FCC provided a reasoned, record-based explanation for the specific features of the revised rules, including the 30-day negotiation delay and the production cap.

## Decision

- The Seventh Circuit held the FCC’s justification for the revised fin-syn rules was arbitrary and capricious under the APA.
- The court vacated the revised rules and remanded to the FCC for further proceedings.
- The court faulted the FCC for relying on outdated assumptions about network power, using “diversity” as an undefined conclusion, and failing to answer significant objections about financing, market structure, and competitive effects.

## Legal Principles

- Under APA arbitrary-and-capricious review, an agency must articulate a satisfactory explanation for its action and show a rational connection between the facts found and the choices made.
- A rule is arbitrary and capricious when the agency fails to consider important aspects of the problem, ignores significant record-based objections, or offers reasoning that does not align with record evidence.
- When an agency continues or revises heavy structural regulation in an industry that has materially changed, it must explain—using analysis tied to current conditions—why the regulation remains necessary and why the selected mechanisms and thresholds are justified.

## Conclusion

The court set aside the FCC’s revised fin-syn rules because the agency did not provide a reasoned, evidence-based explanation for continuing and recalibrating restrictions on network participation in syndication and production in a substantially changed television market, and it failed to address major economic criticisms of the specific rule design.


Schurz Communications, Inc. v. FCC, 982 F.2d 1043 (7th Cir. 1992)