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Court Overrules FCC License Seizure

The Supreme Court ruled Monday that the government wrongly seized more than 200 lucrative wireless licenses from a bankrupt telecommunications company.

The ruling was a victory for NextWave Telecom Inc., a young company that won the licenses at a 1996 auction but filed for bankruptcy protection before paying for them.

The justices also ruled that toymaker Mattel cannot sue over a 1997 mocking pop song that called the iconic fashion doll Barbie a "blonde bimbo."

The high court did not comment in turning down Mattel's request to reopen a trademark fight over the dance hit "Barbie Girl." Mattel claims the preteen girls who buy Barbie dolls were duped into thinking the song was an advertisement for the doll or part of Mattel's official line of Barbie products.

In the wireless case, the airwaves slices have been unused during the protracted fight between NextWave and the Federal Communications Commission, which confiscated the licenses and resold them at a huge profit to larger telecommunications companies.

Now NextWave can finish building a network or sell the licenses to other companies. It will free up wireless spectrum in dozens of crowded markets, including Chicago, Los Angeles, New York, Philadelphia, San Francisco, Seattle and Washington.

"This is a hands-off-corporate America ruling by the Supreme Court and one that is likely to make federal regulators think twice before interjecting themselves into this sort of dispute down the road," says Legal Analyst Andrew Cohen. "And the ruling might even prompt some Congressional action designed to give the FCC broader power to get after these sorts of assets."

The Barbie song, by a Danish group called Aqua, includes the lyrics, "I'm a blonde bimbo in a fantasy world/Dress me up, make it tight, I'm your dolly."

Mattel Inc., which gets $1.5 billion or more annually in Barbie sales, complained that an advertisement for the song ran during Saturday morning cartoons and that MCA Records Inc. even wanted to sell the recording at toy stores.

Ad materials for the song used the same electric pink that Mattel has used to package Barbie dolls for decades, lawyers for Mattel claimed.

MCA sold an estimated 1.4 million copies of the recording. The music company calls the song a parody protected by the First Amendment.

Mattel lost in lower courts, and the five-year tussle has gotten ugly. MCA sued Mattel for defamation after the toymaker likened the record firm to a bank robber.

The court, on an 8-1 vote in the wireless case, rejected arguments that the FCC had a regulatory interest in taking licenses from a company that is reorganizing its finances.

"The Court's majority ruled that the government cannot intervene in a bankruptcy proceeding to repossess assets it had granted to the company — namely the licenses," says Cohen. "Justice Breyer, the lone dissenter, said the ruling puts the government in a worse position than average creditors who want to get back their property from a failed company but clearly he couldn't convince four other Justices to see things his way."

The Hawthorne, N.Y.-based NextWave's $4.7 billion bid for the frequencies was the highest in 1996. After taking them back, the FCC sold the licenses in 2001 to Verizon Wireless, VoiceStream Wireless and other companies at a second auction for nearly $16 billion.

An appeals court nullified the second sale, and the Supreme Court affirmed that decision.

Justice Antonin Scalia, writing for the court, said the government could not justify intervening in the bankruptcy proceeding by claiming a "valid regulatory motive."

"In our view, that factor is irrelevant," he wrote.

It's unclear how much the licenses are worth now, with the decline in the telecommunications industry.

"This is a defeat for the government as a legal matter but I'm not sure it's a monumental blow to the FCC on a practical basis," says Cohen. "NextWave never actually paid for these licenses and the government was never able to re-sell them after the company went into bankruptcy, as part of a larger bust in the telecom industry which probably reduces the value of the licenses anyway."

The FCC decided last year to let companies cancel licenses purchased at the second auction. The government had been holding about $490 million as a deposit.

NextWave was formed in 1995 and promoted a nationwide cellular calling plan and 10-cents-a-minute service, far cheaper than what was offered by large wireless companies at the time.

At one point the company reached a settlement with the FCC, but Congress refused to endorse it and the legal fight continued.

The ruling will affect other companies that seek shelter in bankruptcy court.

The cases are FCC v. NextWave Personal Communications, 01-653, Arctic Slope Corp. v. NextWave, 01-657, and Mattel Inc. v. MCA Records Inc., 01-633.

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