Conflict Could Be Concern for Law Firms in Incentive Auction

An analogy for the situation is “representing both husband and wife in a divorce,” said Georgetown University Ethics Counsel Michael Frisch. A similar issue could arise for firms that represent multiple wireless or broadcast clients, the attorneys said. What constitutes a conflict will be determined internally by law firms and their clients, based on state bar association rules and the FCC, with definitive decisions still being worked out, said attorneys at a variety of telecom firms. Most law firms have a lawyer whose job it is to identify such conflicts, said Michael Green, a legal ethics professor at College of William & Mary Law School. The FCBA Professional Responsibility Committee plans an Oct. 16 continuing legal education event on the issue (http://bit.ly/1DxC5f7). The FCC and some members of the FCBA committee wouldn’t comment.

The FCC has anti-collusion rules for spectrum auctions designed to prevent law firms from becoming conduits for prohibited communication between competitors for the same spectrum, said the lawyers. The incentive auction is a special case because of its extreme complexity, said Herman and Whiteaker wireless attorney Donald Herman. While FCC anti-collusion rules are likely to resemble those used in past auctions, it’s hard to say how the commission will treat the incentive auction because of its size and intricacy, he said. “This is the most complicated spectrum auction in world history,” said former Commissioner Robert McDowell, now with Wiley Rein. “The FCC is entering an unknown land as a result."

Attorneys expect the commission to issue formal guidance on conflict and collusion guidelines specific to the incentive auction. The incentive auction framework issued in June touched on the issue. “To promote a fair and competitive auction, the prohibition against communicating information regarding incentive auction applicants’ bids and bidding strategies will apply across the reverse and forward auctions,” the order said. When the FCC issues guidance on possible conflicts, law firms use that information to decide internally whether they need to take steps to address conflict, said Mintz Levin wireless attorney Russell Fox.

State Bar Associations

FCC rules are only half of the equation for determining how auction conflicts will be handled, said Frisch and other communications attorneys. State bar associations also weigh in on what constitutes a conflict of interest for their member lawyers, and rules can vary, Frisch said.

While many of the lawyers who would act for companies in the incentive auction are licensed in Virginia and Washington, D.C., the national character of the incentive auction means not all of them are, and different firms could be bound by different definitions of what is a conflict of interest, Frisch said. Some lawyers with FCC expertise also work in Maryland. Some bar associations permit a firm to represent multiple clients in the same auction or similar process, with client consent and procedures to “wall off” competing individual attorneys from each other. The incentive auction with its forward and reverse portions is so complex that it’s not immediately clear how individual bar association rules will be applied, said a communications attorney researching the matter. The D.C. and Virginia Bar associations had no comment.

Conflicts among clients can be waivable and nonwaivable, said Fletcher Heald wireless attorney Mitchell Lazarus. Attorneys can’t represent two sides on opposite ends of a conflict even if the clients give its permission, he said. If wireless and broadcast auction participants are seen in that light, it could affect which law firms represent whom, attorneys said.

Even if representing multiple clients on the same side of the incentive auction is seen as a conflict that can be waived, some clients may be uncomfortable with the idea because of “the optics,” said Fox. Though Frisch and Green said bar association legal ethics committees may issue guidance on the issue, getting such guidance can take a prohibitively long time, and most law firms are unlikely to request it, a communications attorney said.

Multiple Clients

Some law firms have long represented broadcast and wireless clients.

Law firms also represent multiple industry clients in the same spectrum auction, as a common practice, said Cary Mitchell, wireless attorney at Blooston Mordkofsky. Conflicts of interest are generally dealt with by segregating the attorneys involved, “and it doesn’t cause a problem,” Mitchell said. Firms are proactive in addressing the issue, he said. Other firms, such as Mintz Levin, tend to avoid representing multiple clients in the same auction, Fox said.

Existing FCC anti-collusion rules focus on location, banning communication between bidders for spectrum “in any of the same geographic areas.” That’s similar to how Herman and other attorneys expect the FCC to eventually treat conflicts among the wireless companies bidding for spectrum in the forward portion where bidders seek frequencies in the incentive auction, which is most similar to previous FCC auctions. It isn’t likely the FCC will view a firm representing multiple wireless carriers in the incentive auction as having a conflict as long as the spectrum involved is in separate geographic areas, said Herman.

The auction order (http://bit.ly/1DxCkqt) indicated the commission could be treating the incentive auction as a national proceeding rather than a series of individual local transactions. For incentive auction participants, an FCC ban on communicating bid information “applies regardless of the geographic license areas where forward auction applicants intend to bid,” said the order. The reverse auction participants are specifically viewed as in competition, the order said. “All participants in the reverse auction will compete to receive incentive payments from the same limited source -- the aggregate proceeds of the forward auction.” One broadcaster requesting more money means less money for the others, said the order. If all broadcasters are seen as in competition, law firms that represent multiple broadcasters in the auction could be seen as having a conflict issue, attorneys said.

Although some lawyers warned us that a strict conflict of interest policy on the auction could mean that there aren’t enough law firms to go around, others don’t see it as a serious problem. On the wireless side, large auction participants such as AT&T are much more likely to use in-house counsel than turn to outside firms, said a communications lawyer at a large telecom firm. Many participants on both sides of the auction are also likely to look to auction and game-theory strategists to handle the bidding process rather than communications attorneys, the attorney said. Many communications attorneys handle only the application process for clients participating in spectrum auctions, and not the actual bid process, Mitchell said: “If you're only doing the application work, I don’t see a conflict.” Mitchell conceded that the incentive auction is unique: “It’s unprecedented, so the rules haven’t been defined yet.”