Companies considering the acquisition of, or merger with, another entity typically conduct extensive due diligence examinations of the target entity. Often, however, corporate lawyers neglect to inquire whether the target entity holds any FCC licenses. It simply does not occur to many people that retailers, hotels, golf courses, commercial buildings, manufacturers and numerous other entities hold FCC licenses for devices ranging from rooftop satellite antennas and mobile voice handsets to remote-control sprinkler systems and private wireless data links. Under federal law, these FCC licenses may not be transferred to another entity without the prior approval of the FCC.
A recent FCC enforcement decision highlights the importance of determining whether a corporate deal involves an FCC license. It is a cautionary tale, and a reminder that any due-diligence checklist should routinely contain a provision for examining FCC licenses.
The case, Kenergy Corp., DA 01-181 (released Jan. 31, 2001), involved an electric distribution cooperative in Henderson, Kentucky. Kenergy was established in July 1999, through the consolidation of Henderson Union Electric Cooperative Corp. (Henderson Union) and Green River Electric Corporation (Green River), both of which held various FCC wireless licenses.1 The consolidation resulted in the transfer of control of 56 FCC licenses, and thus required prior Commission consent pursuant to Section 310(d) of the Communications Act of 1934, as amended, 47 U.S.C. § 310(d). Section 310(d) provides:
No construction permit or station license, or any rights thereunder, shall be transferred, assigned, or disposed of in any manner, voluntarily or involuntarily, directly or indirectly, or by transfer of control of any corporation holding such permit or license, to any person except upon application to the Commission and upon finding by the Commission that the public interest, convenience, and necessity will be served thereby.
Henderson Union and Green River failed to file applications for consent to assign the licenses prior to their actual transfer to Kenergy. In fact, they did not file the required applications until November 2000. The applications were subsequently granted, but the FCC's Enforcement Bureau initiated an investigation of the matter.
In a consent decree reached with the FCC earlier this year, Kenergy agreed to make a $7,500.00 voluntary contribution to the United States Treasury. In addition, the company agreed to implement a comprehensive internal compliance program to ensure Kenergy's future compliance with the Communications Act.
For want of a brief investigation, Kenergy cost itself a substantial fine, a public admonishment, and untold legal fees in dealing with the Enforcement Bureau for three months. Had Kenergy filed the required applications at the appropriate time, it would have paid the far more reasonable FCC application fees, currently around $50.00 per call sign for the licenses at issue.
The Kenergy decision is not an isolated one. Since December 1999, the Enforcement Bureau has issued 20 enforcement decisions for unauthorized transfers of control. Recently, as a result of an Enforcement Bureau investigation, Waste Management Holdings, Inc. entered into a $75,000.00 consent decree for violating the transfer rules.2
Even internal reorganizations involving a change in ownership of an FCC license must be approved by the FCC. In many instances, there is no FCC application fee for an internal transfer of control, but the FCC still must be notified and grant prior approval of the transfer.
1The services involved Private Operational-Fixed Microwave and Industrial/Business operations, governed by Parts 90 and 101 of the FCC's rules contained in Title 47 of the Code of Federal Regulations.
2In re Waste Management Holdings, Inc., Memorandum Opinion and Order, DA 01-1040 (rel. Apr. 23, 2001); see also In re Citicasters Co., Forfeiture Order, DA 01-823 (rel. April 4, 2001) (in which Citicasters was issued a $25,000.00 forfeiture for violating the transfer rules).
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