In an important test case for the broadcast industry, the Utah Supreme Court ruled Tuesday that radio stations are subject to state antitrust provisions.
The unanimous decision stemmed from a petition by four Uintah Basin radio stations to quash state antitrust civil investigative demands - known as CIDs - on grounds radio stations are exempt from state investigation and on grounds of insufficient evidence.The investigation began after a merchant complained of possible collusion in the pricing of radio advertising in the Vernal and Roosevelt market. The merchant also alleged that he was offered a discount to advertise in both cities.
The two stations in Roosevelt, KNEU and KFIX, are owned by Joseph Evans' Evans Broadcasting. The Vernal stations, KVEL and KLCY, are owned by James Davis' Ashley Communications and managed by Evans' son, Steven Evans. Also, the Vernal stations are based in a building co-owned by the Davis and Evans families.
In December 1996, the attorney general's antitrust division issued CIDs requesting testimony and documents relating to advertising prices and collusion among the four stations. With the support of the Utah Radio Broadcasters Association, the station owners filed a petition to quash.
"We thought the issue had much broader implications for the industry, so we participated and helped follow it through," said association spokesman Dale Zabriskie. "Basically, we believed that federal pre-emption would prevail."
And it did prevail in its initial test in 3rd District Court, where Judge David S. Young concluded the state hadn't shown "probable cause" for an investigation and that radio stations are exempt from state investigation because they are regulated by the Federal Communication Commission.
The state appealed to the Utah Supreme Court, arguing Young had applied too high a standard of evidence for the investigative stage of an antitrust action. The state also contended that Utah's antitrust law encompasses those activities not regulated by the FCC, including advertising rates.
Charlene Barlow, chief of the attorney general's Consumer Rights Division, said, "There are areas in which the FCC has exclusive oversight, but in pricing, they (the FCC) do not. And if the state had no power to investigate possible antitrust violations in this area, it would fall between the cracks."
Equally important to the division was Young's application of the "probable cause" standard instead of the lesser "reasonable cause" standard, Barlow said. Investigations by their very nature begin with very little evidence, she explained.
The Supreme Court agreed with the state on both points. Writing for the court, Justice Leonard Rus-son said the state Antitrust Act authorizes the attorney general to issue CIDs when there is reasonable cause to believe that someone may have information relevant to an antitrust investigation.
While agreeing with the radio station owners that the state must have some objective evidence of a violation to support an investigation, Russon said, "The higher protections afforded by higher stan-dards are not necessary because CIDs are part of an investigation rather than an enforcement action."
On the question of federal pre-emption that attracted the attention of the broadcast industry, the justices said statutory language "clearly indicates the Legislature's intent that corporations and persons operating radio stations must comply with the Utah Antitrust Act."
However, Russon said the act must be narrowly construed to exempt those activities regulated by the FCC. For example, political advertising rates may be exempt from the state law because they are regulated by the FCC, the court said.
"Therefore, the state may enforce the Utah Antitrust Act to the extent that no conflict exists between the state and federal law and to the extent that the state is not pre-empted from doing so by the federal government," Russon said.
Joseph Evans said the legal battle was essentially a test case for the broadcast industry rather than a dispute over the conduct of his radio stations.
"I had already provided the state with everything they requested even before we went to court," Evans said. "We have cooperated fully with the state. We have done nothing wrong and have nothing to hide."
According to Evans, the issue of antitrust application has become more important to the state and to the broadcast industry because of the massive consolidation occurring in radio ownership, where more and more stations are being bought up by large conglomerates.