On August 28, 2018, the FCC’s Enforcement Bureau announced a Consent Decree with Marriott International, Inc. (“Marriott”) to resolve an investigation into unauthorized transfers of wireless radio licenses in connection with Marriott’s acquisition of Starwood Hotels & Resorts Worldwide Inc. (“Starwood”). The civil payment levied against Marriott and the other conditions set forth in the Consent Decree serve as a reminder to companies that may not normally be subject to the FCC’s jurisdiction to thoroughly review the regulatory implications of mergers, acquisitions, or other corporate transactions as part of any due diligence conducted before a deal is reached.
The Communications Act and FCC rules generally require prior FCC consent for the transfer of control or assignment of FCC licenses or authorizations. This investigation began in February 2017, when Marriott voluntarily disclosed to the FCC that 65 licenses and authorizations that Starwood previously held or controlled had been transferred to Marriott during the acquisition without prior FCC approval. These licenses were used to support security operations at various hotels and resorts across the U.S. Starwood subsequently filed curative applications to secure the FCC’s approval of the transfers. To resolve the investigation, Marriott agreed to admit that the transfers violated the FCC’s rules and pay a civil penalty of $504,000. Marriott further agreed to a number of obligations commonly included in FCC settlements, including the appointment of a compliance officer, development of a compliance plan and training program, and a requirement to submit periodic compliance reports over the next three years to ensure that Marriott abides by the FCC’s license transfer rules going forward.
While generally following boilerplate language, the settlement contained one significant departure from normal practice. Specifically, the FCC agreed in a footnote that any further “isolated” instances of transfer of control violations that occurred prior to the settlement date subsequently discovered by Marriott will not be considered a separate violation of the Consent Decree. Usually, parties must disclose all relevant preexisting violations to the FCC before entering into a settlement. While this may be a one-off departure driven by the facts of the case, there may be an opportunity for companies to request similar provisions in future settlement negotiations.
The settlement illustrates that the FCC’s jurisdiction often stretches far beyond communications providers (indeed, Marriott previously paid a fine to end a FCC investigation into Wi-Fi blocking practices), and that companies that inadvertently fail to comply with FCC rules may be subject to an enforcement action that may involve a significant monetary penalty. Any time a transaction involves a change in the controlling ownership interest of a FCC licensee, a substantial transfer of control occurs requiring prior FCC approval. Consequently, any company engaged in or considering a corporate restructuring transaction should consult competent legal counsel to understand the full scope of its potential regulatory obligations that may arise as a result of such transaction.