GMA Network, Inc. vs. Central CATV, Inc.

The phrase “television and broadcast markets” in Section 2 of Executive Order No. 205, as fleshed out by the must-carry rule under NTC Memorandum Circular No. 4-08-88, refers to the audience or viewer market, not the commercial advertising market; therefore, a CATV operator’s act of soliciting and airing advertisements does not infringe upon those markets and is not prohibited by the law.

Sometime in February 2000, GMA Network, Inc., together with the Kapisanan ng mga Brodkaster ng Pilipinas, Audiovisual Communicators, Incorporated, Filipinas Broadcasting Network, and Rajah Broadcasting Network, Inc., filed a complaint with the National Telecommunications Commission (NTC) against Central CATV, Inc. The complainants sought to halt the respondent’s practice of soliciting and showing advertisements in its cable television system, asserting that this encroached on the “television and broadcast markets” in violation of Section 2 of Executive Order No. 205, a statute issued by then President Corazon Aquino under her legislative powers during the transition to the 1987 Constitution. Central CATV admitted the airing of advertisements but defended its conduct by invoking Executive Order No. 436, which, according to the respondent, expressly permitted CATV operators to carry advertisements subject to the consent of their program providers. The controversy turned on the meaning of the non-infringement clause and the interplay between these executive issuances and the NTC’s implementing regulations.

The Complaint: In February 2000, petitioner GMA Network, Inc., along with other free-to-air broadcasters, filed a complaint with the NTC against respondent Central CATV, Inc. They alleged that Central CATV was soliciting and showing commercial advertisements in its cable television system, an act that they claimed infringed upon the “television and broadcast markets” and thereby violated the limitation imposed by Section 2 of Executive Order No. 205 on the authority to operate a CATV system. The petitioner interpreted “television and broadcast markets” to include the commercial or advertising market.

Respondent’s Defense: Central CATV admitted airing commercial advertisements but argued that its conduct was lawful under Section 3 of Executive Order No. 436, issued by President Fidel V. Ramos on September 9, 1997. That provision allowed CATV operators to carry advertisements and other paid segments provided they obtained the consent of their program providers.

The Demurrer to Evidence: After the petitioner and its co-complainants completed the presentation and formal offer of their evidence, Central CATV filed a motion to dismiss by demurrer to evidence. The motion argued that the complainants’ evidence failed to demonstrate how the respondent’s advertising activities infringed upon the television and broadcast market. Attached to the demurrer were certifications purportedly showing that the respondent had secured the consent of its program providers. The petitioner objected to the consideration of these attachments on the ground that they had not been formally offered as evidence and were therefore inadmissible.

NTC Resolution: The NTC granted the demurrer and dismissed the complaint in its Order of December 10, 2004. It treated EO No. 436 as a statute that clarified or filled in the details of the ambiguous term “infringement” in EO No. 205, holding that CATV operators could show advertisements as long as they had the consent of their program providers. The NTC further considered the certifications attached to the demurrer, reasoning that it was not bound by technical rules of evidence and that the documents formed part of the records. The agency also concluded that the second paragraph of Section 3 of EO No. 436 had the effect of amending the “must-carry rule” under Sections 6.2.1 and 6.4 of NTC Memorandum Circular No. 4-08-88, which required CATV operators to carry free-television broadcast signals in full, without alteration or deletion, within Grade A or B contours.

CA Proceedings: GMA Network appealed to the Court of Appeals, contending that the NTC committed grave procedural and substantive errors. The CA upheld the NTC ruling, holding that: (a) administrative agencies are not bound by strict technical rules of procedure and the NTC did not err in considering the attached documents; (b) EO No. 436 merely filled in the details of EO No. 205 without expanding, modifying, or repealing it; and (c) the NTC correctly modified the must-carry rule as an implementation of EO No. 436. The CA thus affirmed the dismissal.

• Demurrer Based on Insufficiency of Complaint: Petitioner argued that the NTC improperly granted the demurrer to evidence on the ground that the complaint was insufficient, rather than on the insufficiency of the evidence adduced.

• Consideration of Respondent’s Evidence: Petitioner maintained that the NTC committed grave error in considering the respondent’s evidence—the certifications attached to the demurrer—because a demurrer to evidence must be resolved solely on the basis of the plaintiff’s evidence; the act violated petitioner’s due process right to examine and refute the documents.

• Nature of EO No. 205 as a Statute: Petitioner contended that EO No. 205 is a law, having been issued by President Aquino while she exercised legislative power under the transitory provisions of the 1987 Constitution, whereas EO No. 436 is a mere executive issuance. An executive issuance cannot qualify or overturn the clear and unqualified prohibition in a statute.

• Invalid Qualification by EO No. 436: Petitioner asserted that by allowing infringement of the broadcast television market on the condition that program providers consent, EO No. 436 effectively overturned the absolute prohibition in EO No. 205. The Executive thereby arrogated to itself the power of subordinate legislation that Congress expressly delegated to the NTC.

• NTC’s Impermissible Revision of EO No. 205: Petitioner further argued that in granting the demurrer and treating EO No. 436 as an amendment to the must-carry rule, the NTC effectively revised the statute, an act contrary to the principle that a delegate of quasi-legislative power cannot supplant or modify its enabling statute.

• Proper Consideration of Evidence: Respondent countered that the NTC properly considered the certifications attached to the demurrer because petitioner had the opportunity to peruse them during the presentation of its own evidence, and administrative tribunals are not strictly bound by technical rules of evidence.

• Absence of an Express Prohibition: Respondent argued that EO No. 205 does not expressly prohibit CATV operators from soliciting and showing advertisements. The non-infringement limitation, couched in general terms, should not be interpreted to deprive CATV operators of legitimate business opportunities.

• EO No. 436 as Valid Administrative Legislation: Respondent maintained that EO No. 436 is a valid administrative issuance with the force and effect of law and could not be subjected to a collateral attack in the proceedings before the NTC.

• Demurrer to Evidence: Whether the Court of Appeals erred in affirming the NTC order that granted Central CATV’s motion to dismiss by demurrer to evidence, despite the NTC’s consideration of respondent’s evidence and its alleged reliance on the insufficiency of the complaint rather than the insufficiency of the complainants’ evidence.

• Prohibition on Advertisements under EO No. 205: Whether the solicitation and airing of commercial advertisements by a CATV operator constitutes an infringement of the “television and broadcast markets” prohibited under Section 2 of Executive Order No. 205, in light of the provisions of Executive Order No. 436 and the implementing rules and regulations under NTC Memorandum Circular No. 4-08-88.

• Demurrer to Evidence: The dismissal of the complaint suffered no infirmity insofar as the NTC determined that the complainants, based on their own evidence and the applicable law, failed to prove that respondent aired advertisements without the consent of its program providers in a manner prohibited by law. The grant of the demurrer was therefore proper on the basis of the insufficiency of the petitioner’s own evidence and the correct interpretation of the law. However, the NTC committed a procedural error when it extended its consideration to the certifications that respondent attached to its demurrer. Under Rule 33 of the Rules of Court, applicable suppletorily in NTC proceedings, a demurrer to evidence must be resolved based on the plaintiff’s evidence and the facts established through judicial admissions, matters of judicial notice, stipulations, and presumptions—the sole exclusion being the defendant’s evidence. While administrative agencies are not strictly bound by technical rules of procedure, the relaxation of those rules must not transgress fundamental evidentiary rules or violate due process. By considering the respondent’s evidence without giving the petitioner the opportunity to object, examine, or refute it, the NTC proceeded against the very nature of the demurrer and deprived the petitioner of due process. Yet this error did not vitiate the dismissal, because under the proper interpretation of the governing rules—particularly the must-carry rule under MC 4-08-88—the petitioner’s own evidence was insufficient to establish an infringement.

• Prohibition on Advertisements: The airing of advertisements by Central CATV does not constitute infringement of the “television and broadcast markets” within the meaning of Section 2 of EO No. 205. The phrase refers to the audience or viewer market, not the commercial advertising market. This conclusion is drawn from NTC Memorandum Circular No. 4-08-88, issued pursuant to the delegated legislative authority granted to the NTC under Section 6 of EO No. 205. Section 6.1 of the circular identifies major television markets as specific geographic areas—audience concentrations rather than advertising segments. The must-carry rule, embodied in Sections 6.2, 6.2.1, 6.4(a)(1), and 6.4(b), requires CATV operators within the Grade A or B contours of a free-television station to carry the station’s broadcast signals in full, without material degradation, alteration, or deletion. This regime levels the playing field between CATV systems and free-to-air broadcasters: it ensures that the improved signals provided by CATV do not encroach upon the audience share of free television, while simultaneously benefiting broadcasters by expanding their viewership, which in turn attracts advertisers. Because the prohibition is designed to protect the audience market—not the advertising market itself—the mere act of soliciting or airing advertisements by a CATV operator is not a prohibited infringement. The NTC and the Court of Appeals erred in treating EO No. 436 as a law that amended the must-carry rule, but that error is immaterial; MC 4-08-88 independently establishes that the respondent’s advertising activities are lawful. The validity of EO No. 436 need not be reached.

• Scope of Evidence on Demurrer to Evidence — Under Rule 33 of the Rules of Court, a motion to dismiss by demurrer to evidence is resolved based on “the facts and the law.” The “facts” encompass the plaintiff’s evidence, judicial admissions, matters of judicial notice, stipulations made during pre-trial and trial, admissions, and presumptions. The defendant’s evidence is categorically excluded. A court or tribunal that considers the defendant’s evidence on demurrer violates the very nature of the remedy and may offend due process if the adverse party is deprived of the opportunity to contest the evidence. (Applied to find error in NTC’s consideration of respondent’s certifications, although the error was harmless in light of the substantive ruling.)

• The Must-Carry Rule Protects Audience Market, Not Advertising Market — The must-carry rule under NTC Memorandum Circular No. 4-08-88 implements the non-infringement clause of Executive Order No. 205. It requires CATV operators to carry free-to-air television broadcast signals in full, without alteration or deletion, within specified geographic contours. The rule protects the audience or viewer market of free-television stations—i.e., their share of viewers in a given geographic area—not their commercial advertising market. Because CATV’s improved signal delivery could otherwise encroach on that audience base, the rule ensures that broadcasters retain and expand their viewership, which in turn sustains their advertising revenue. On this rationale, a CATV operator’s airing of advertisements does not violate the non-infringement provision.

• Binding Force of Administrative Implementing Rules — Rules and regulations issued by an administrative agency pursuant to delegated legislative authority “partake of the nature of a statute and are just as binding as if they have been written in the statute itself.” Such regulations enjoy the presumption of constitutionality and legality until set aside with finality by a competent court. (Invoked to affirm the controlling force of NTC MC 4-08-88.)

• Presidential Legislative Power under Transitory Provisions — Under Section 6, Article XVIII of the 1987 Constitution, the incumbent President continued to exercise legislative powers until the first Congress was convened on July 27, 1987. Executive Order No. 205, issued by President Corazon Aquino on June 30, 1987, was therefore an exercise of legislative power and has the character of a statute. (Applied to distinguish EO No. 205 from EO No. 436, which was a purely executive issuance.)

• “What should be resolved in a motion to dismiss based on a demurrer to evidence is whether the plaintiff is entitled to the relief based on the facts and the law. … The ‘facts’ referred to in Section 8 should include all the means sanctioned by the Rules of Court in ascertaining matters in judicial proceedings. These include judicial admissions, matters of judicial notice, stipulations made during the pre-trial and trial, admissions, and presumptions, the only exclusion being the defendant’s evidence.” — Casent Realty Development Corp. v. Philbanking Corp., affirmed here to define the limits of a demurrer to evidence.

• “While an administrative agency is not strictly bound by technical rules of procedure in the conduct of its administrative proceedings, the relaxation of the rules should not result in violating fundamental evidentiary rules, including due process.” — The Court’s admonition against the NTC’s consideration of respondent’s unoffered evidence on demurrer.

• “The must-carry rule is actually advantageous to the broadcasting networks because it provides them with increased viewership which attracts commercial advertisers and producers.” — ABS-CBN Broadcasting Corporation v. Philippine Multi-Media System, Inc., quoted to explain the economic logic of the must-carry rule.

• “The implementing rules and regulations embodied in this circular, whose validity is undisputed by the parties, ‘partake of the nature of a statute and are just as binding as if they have been written in the statute itself.’” — The controlling principle that MC 4-08-88 itself supplies the rule of decision independently of EO No. 436.

• Casent Realty Development Corp. v. Philbanking Corp., 559 Phil. 793 (2007) — Followed as the controlling authority on the scope of evidence that a court may consider in resolving a demurrer to evidence; reaffirmed the exclusion of the defendant’s evidence.

• ABS-CBN Broadcasting Corporation v. Philippine Multi-Media System, Inc., G.R. Nos. 175769-70, January 19, 2009 — Relied upon for the explanation of the must-carry rule’s purpose and its protection of the audience share of free-to-air broadcasters.

• E.Y. Industrial Sales, Inc. v. Shen Dar Electricity and Machinery Co., Ltd., G.R. No. 184850, October 20, 2010 — Cited for the principle that administrative relaxation of procedural rules cannot transgress due process guarantees.

• Batangas CATV, Inc. v. Court of Appeals, 482 Phil. 544 (2004) — Referred to for the legislative history of EO No. 205, which was enacted to dismantle the monopoly granted under Presidential Decree No. 1512 and to encourage competition in the CATV industry.

• Philippine Association of Service Exporters, Inc. v. Torres, G.R. No. 98472, August 19, 1993 — Used to establish that President Aquino was exercising legislative power when she issued EO No. 205 before the convening of the first Congress.

• ABAKADA GURO Party List v. Purisima, 584 Phil. 246 (2008) — Invoked for the doctrine that administrative regulations issued pursuant to delegated legislative authority have the force and effect of law.

• Section 2, Executive Order No. 205 (1987) — The authority to operate a CATV system “shall not infringe on the television and broadcast markets.” Construed to protect audience/viewer markets, not advertising markets.

• Section 6, Executive Order No. 205 (1987) — Expressly authorized the NTC to issue necessary rules and regulations to implement the executive order; the statutory basis for MC 4-08-88.

• Sections 6.1, 6.2, 6.2.1, 6.4(a)(1), and 6.4(b), NTC Memorandum Circular No. 4-08-88 — Defined major television markets as geographic areas and established the must-carry rule requiring full, unaltered carriage of free-television broadcast signals; these provisions supplied the operative definition of infringement and were held to independently support the legality of respondent’s advertisements.

• Section 3, Executive Order No. 436 (1997) — Allowed CATV operators to carry advertisements with the consent of their program providers; its validity was not passed upon because MC 4-08-88 already resolved the controversy.

• Rule 33, Rules of Court — Governs demurrer to evidence; applied suppletorily through Section 1, Rule 9, Part 9 of the NTC Rules of Practice and Procedure.

• Section 6, Article XVIII, 1987 Constitution — Vested legislative power in the incumbent President until the first Congress convened, thus giving EO No. 205 the character of a statute.

• Act No. 3846 — Cited as a basis for MC 4-08-88, together with EO No. 205.

Associate Justices Antonio T. Carpio (Chairperson), Mariano C. Del Castillo, Jose Portugal Perez, and Marvic Mario Victor F. Leonen (designated as additional member in lieu of Associate Justice Estela M. Perlas-Bernabe).