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Sorenson Communications, LLC v. Federal Communications Commission

United States Court of Appeals, District of Columbia Circuit

July 24, 2018

Sorenson Communications, LLC, Petitioner
Federal Communications Commission and United States of America, Respondents

          Argued May 7, 2018

          On Petitions for Review of an Order of the Federal Communications Commission

          Donald B. Verrilli Jr. argued the cause for petitioner Sorenson Communications, LLC. With him on the briefs were Michael B. DeSanctis, Ginger D. Anders, Sarah G. Boyce, and Rachel G. Miller-Ziegler.

          Anthony C. Kaye argued the cause for petitioner Video Relay Services Consumer Association. With him on the briefs was Daniel J. Tobin.

          C. Grey Pash Jr., Counsel, Federal Communications Commission, argued the cause for respondents. With him on the brief were Robert B. Nicholson and Robert J. Wiggers, Attorneys, U.S. Department of Justice, Thomas M. Johnson, Jr., General Counsel, Federal Communications Commission, David M. Gossett, Deputy General Counsel, and Jacob M. Lewis, Associate General Counsel. Richard K. Welch, Deputy Associate General Counsel, Federal Communications Commission, entered an appearance.

          Jeffrey T. Rosen, pro hac vice, argued the cause for amici curiae Convo Communications, LLC, et al. With him on the brief was George L. Lyon Jr.

          Before: Griffith, Millett, and Pillard, Circuit Judges.


          Griffith, Circuit Judge.

         Video Relay Service (VRS) enables people with hearing or speech impairments to communicate with people who use standard telephones. The VRS user communicates in sign language with an interpreter through a video connection, and the interpreter speaks with the hearing person using a standard phone. VRS is provided by several private companies who are reimbursed through rates set by the Federal Communications Commission (FCC). Two parties bring different challenges to the rates set by the FCC in 2017: Sorenson Communications, LLC ("Sorenson"), the largest VRS provider, and the Video Relay Services Consumer Association (VRSCA), an unincorporated information forum for VRS users. We dismiss VRSCA's petition for lack of standing and deny Sorenson's petition on the merits.



         The Americans with Disabilities Act directs the FCC to ensure that telecommunications services are available and accessible to people with hearing or speech impairments. See Pub. L. No. 101-336, tit. IV, § 401, 104 Stat. 327, 366 (1990) (codified as amended at 47 U.S.C. § 225). These services are broadly known as telecommunications relay services (TRS), which enable a person who is "deaf, hard of hearing, deaf-blind, or who has a speech disability to engage in communication by wire or radio . . . in a manner that is functionally equivalent to the ability of a hearing individual who does not have a speech disability to communicate using voice communication services by wire or radio." 47 U.S.C. § 225(a)(3) (emphasis added). The FCC must also ensure that TRS is "available, to the extent possible and in the most efficient manner," to people with hearing and speech disabilities. Id. § 225(b)(1) (emphasis added). The dispute in this case ultimately turns on whether the FCC's compensation rates for TRS comply with § 225's mandate to provide functionally equivalent communication services in the most efficient manner.

         There are several types of TRS, but only one is relevant here. VRS "allows people with hearing or speech disabilities who use sign language to communicate with voice telephone users through video equipment." 47 C.F.R. § 64.601(a)(43). VRS video equipment functions somewhat like Skype or Apple's FaceTime by providing a visual connection between the caller and an American Sign Language (ASL) interpreter who is employed by the VRS provider. The interpreter then makes a standard voice call to the hearing recipient and translates between the two, signing with the caller and speaking with the recipient. See generally Sorenson Commc'ns, Inc. v. FCC ("Sorenson I"), 659 F.3d 1035, 1039 (10th Cir. 2011); Sorenson Commc'ns, Inc. v. FCC ("Sorenson II"), 765 F.3d 37, 40 (D.C. Cir. 2014). Ultimately, there are three interacting components: VRS access technologies, such as a videophone; the video communication "platform" that routes calls; and the relay service provided by ASL-fluent communications assistants. Order, Structure & Practices of the Video Relay Serv. Program, 28 FCC Rcd. 8618, 8621 (2013) ("2013 Order").

         Today, the majority of VRS is provided by several private companies, all of which are involved in this case as either petitioner or amicus curiae. Sorenson is the dominant VRS provider, holding approximately 80% of the market since at least 2013. The four other VRS providers, two of which recently merged, share the remaining 20% of the market and are amici in this case.[1]

         The VRS market is not a traditional competitive market. Under § 225, VRS users do not pay any additional costs for VRS beyond what they would pay for standard telephone services. See 47 U.S.C. § 225(d)(1)(D). Instead of charging users for the additional cost of VRS, providers are compensated through the FCC's Interstate TRS Fund ("TRS Fund"), which is supported by fees levied on telecommunications services. See id. § 225(d)(3)(B); 47 C.F.R. § 64.604(c)(5)(iii)(A). The FCC sets a per-minute rate to reimburse VRS providers for their "reasonable costs" and then makes direct payments to the providers from the TRS Fund based on their total number of minutes. 47 C.F.R. § 64.604(c)(5)(iii)(E). Under the current rate structure, Sorenson is also the lowest-cost provider of VRS, meaning that the average VRS call with Sorenson is cheaper for the TRS Fund than the average call with other providers.

         To receive compensation, VRS providers must comply with certain operational and customer-service requirements, called "mandatory minimum standards." Id. § 64.604. These requirements are wide-ranging, for instance specifying the technical types of calls that providers must handle; establishing the process for addressing customer complaints; and requiring ASL interpreters to have "familiarity with hearing and speech disability cultures, languages, and etiquette." Id. The FCC promotes compliance with these standards through various techniques, including competition among VRS providers.



         Before 2007, the FCC set a single per-minute compensation rate based on all VRS providers' projections of their costs for the upcoming year. See Telecomms. Relay Servs. & Speech-to-Speech Servs. for Individuals with Hearing & Speech Disabilities, 22 FCC Rcd. 20, 140, 20, 144-45 (2007) ("2007 Order"). That approach proved problematic, however, so the FCC established a three-tiered rate structure in 2007. Id. at 20, 163, 20, 168. This structure compensated VRS providers based on the total number of monthly minutes they projected they would provide. As a provider's volume increased, the per- minute rate decreased to account for the provider's lower marginal costs as it benefited from economies of scale. Id. at 20, 163, 20, 168.[2] Thus smaller providers largely received Tier I compensation, which compensates at the highest rate; more established providers mostly received compensation under Tiers I and II; and dominant providers (today, only Sorenson) received compensation under all three tiers, earning relatively less for the minutes provided in Tier III.

         In 2010, the FCC established an interim three-tiered rate structure for one year. See Order, Telecomms. Relay Servs. and Speech-to-Speech Servs. for Individuals with Hearing and Speech Disabilities, 25 FCC Rcd. 8689 (2010) ("2010 Interim Rate Order"). The rates were designed as a placeholder until the FCC completed a review of the VRS program, which was experiencing several challenges. Id. at 8693. In particular, the FCC determined that VRS providers were being "significantly overcompensated," id. at 8698, because their "projections consistently overstate[d] their costs," id. at 8694-95. To address this problem, the FCC based the interim rates on a blend of providers' actual historical costs and the TRS Fund administrator's analysis of providers' projected costs. Id.

         Sorenson sought judicial review of the 2010 Interim Rate Order in the Tenth Circuit, and that court affirmed the FCC's order in its entirety. Sorenson I, 659 F.3d 1035. The court rejected Sorenson's various challenges to the VRS rates, the FCC's ratemaking methodology, and the three-tiered rate structure. Id. at 1050. As relevant here, the court also upheld the FCC's decision to exclude the cost of providing VRS video equipment from providers' compensable expenses. Id. at 1045.

         On the same day that the FCC adopted the 2010 Interim Rate Order, the agency also issued a notice that it would "take a fresh look" at VRS rates because of its concern that the VRS program was "fraught with inefficiencies (at best) and opportunities for fraud and abuse (at worst)." Notice of Inquiry, 25 FCC Rcd. 8597, 8598, 8606 (2010). In 2011, the FCC issued an additional notice that discussed possible options for improving the VRS program and solicited comments and proposals from the public and VRS industry. See Further Notice of Proposed Rulemaking, 26 FCC Rcd. 17, 367 (2011) ("2011 FNPRM"). In particular, the FCC sought comments on whether the agency should replace the tiered-rate structure with a single rate. See id. at 17, 418.


         In 2013, the FCC issued an order that adopted a number of structural reforms for the VRS market. See 2013 Order, 28 FCC Rcd. 8618. These reforms were designed to remove barriers to effective competition among VRS market participants. One structural reform sought to improve VRS "interoperability." Interoperability ensures that VRS users can make calls with other VRS users regardless of their respective VRS providers. See id. at 8639. Another structural reform sought to improve "equipment portability," which refers to a VRS user's ability to switch between default VRS providers without changing their videophones. See id. The agency further adopted a rule to establish a neutral video communications platform ("Neutral VRS Platform"), which would provide technical video capabilities for companies who might want to provide only ASL translation services instead of an entire VRS operation. See id. at 8656-63.

         The 2013 Order also updated the tiered-rate structure with new rates. The FCC designed the new tiers in light of its finding that Sorenson's average cost per minute still fell below the average per-minute cost of its smaller competitors. See id. at 8700. The calls were cheaper on average because, for one thing, Sorenson was able to spread its overhead costs over many more minutes of service. Due to this cost difference, the agency stated that it hoped to transition the VRS market away from the tiered-rate structure and toward a single, low rate in the future. Id. at 8698-706. The FCC expected that its new structural reforms would make such a transition possible without "unnecessarily constricting the service choices available to VRS consumers" by driving smaller providers out of the market. Id. at 8699; see also id. at 9698 ("We also believe that our structural reforms, once implemented, will eliminate any residual need for tiered rates.").

         To advance the transition to a single rate, the agency planned to narrow the gap between rate tiers over the course of four years. Id. at 8699. By using this "glide path," the agency hoped to eliminate the inefficiencies of the tiers while still protecting the long-term competitiveness and efficiency of the market. See id. at 8704. Even though immediately adopting a single, low rate might have brought some immediate savings to the TRS Fund, the FCC found that it was "worth tolerating some degree of additional inefficiency in the short term, in order to maximize the opportunity for successful participation of multiple efficient providers in the future, in the more competition-friendly environment that [it] expect[ed] to result from [its] structural reforms." Id. at 8699. And finally, the 2013 Order rejected once again Sorenson's request to include video equipment as an allowable cost in determining VRS rates. Id. at 8696-97.

         Sorenson petitioned our court to review the 2013 Order. We largely upheld the order, remanding only one issue that is not relevant today. See Sorenson II, 765 F.3d at 52. We first found that several of Sorenson's challenges essentially repeated arguments it had already made before the Tenth Circuit in Sorenson I and were thus barred by issue preclusion. These included its claim that the FCC was required to adopt rates that reimbursed VRS providers for equipment costs. See id. at 45. We otherwise concluded that the tiered-rate structure, the applicable rules, and the rates themselves were consistent with § 225 and were not arbitrary and capricious. See id. at 45-52. Despite Sorenson's protests that the FCC had already determined the tiered-rate structure to be inefficient, we concluded that "the decision to retain the tiers while transitioning to a competitive bidding scheme [was] not ...

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