In 1993, Congress amended the Communications Act of 1934 to authorize the Federal Communications Commission (FCC) to award spectrum licenses through competitive bidding (spectrum licenses provide frequencies or bandwidths for radio, television or cellular broadcasting). Congress further directed the FCC to consider various payment plans or methods.
Bankruptcy and Rights to Maintain Spectrum Licenses
In 1996, a conflict arose when a company called NextWave Telecom Inc. won licenses through an FCC auction, but later filed for bankruptcy and failed to make installation payments. In January 2003, the Supreme Court of the United States was asked to determine whether the FCC had the right to cancel the bankrupt company's licenses due to its failure to pay.
The issue arose when NextWave Telecom made a down payment on the purchase price of the licenses it had won in an FCC auction. Subsequent to winning the auction, NextWave executed an agreement stating that failure to make full and timely payments to the FCC would result in the automatic cancellation of its licenses.
FCC's Attempt to Re-auction NextWave's Spectrum Licenses
In June 1998, NextWave filed for Chapter 11 bankruptcy protection and suspended its payments to the FCC. Upon NextWaves's failure to pay, the FCC invoked the automatic cancellation provision of their agreement and announced that NextWave's licenses were canceled and available for auction. NextWave objected to the FCC's actions and filed suit, asserting that the FCC had violated various provisions of the Bankruptcy Code.
Courts Decide Applicability of Bankruptcy Code Section 525
After receiving conflicting rulings from various courts, NextWave's arguments were ultimately validated by the District of Columbia Circuit. The D.C. Circuit first determined that Section 525 of the Bankruptcy Code applies to the FCC. Essentially, Section 525 prohibits a governmental unit from revoking a license from a debtor solely because the debtor failed to make payments for a debt that was forgiven in bankruptcy. The court then held that the FCC had violated Section 525 when it revoked NextWave's licenses.
Following the D.C. Circuit's ruling, the FCC appealed to the U.S. Supreme Court, but that Court affirmed the D.C. Circuit, holding that Section 525 prohibited the FCC from revoking NextWave's licenses.
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