D.C. Court of Appeals Invalidates FCC Net Neutrality Rules

On January 14, the US Court of Appeals for the D.C. Circuit invalidated certain rules adopted by  the Federal Communications Commission’s (FCC)  in its Open Internet Order (In re Preserving the Open Internet, 25 F.C.C.R. 17905 (2010)).    The Court concluded that these rules imposed common carrier obligations on broadband internet providers, contrary to express limitations in the  Communications Act,  and were thus invalid.  Verizon v. Federal Communications Commission, Dkt. No. 11-1355 (D.C. Cir. January 14, 2014) (“Verizon”).

The policy debate surrounding the FCC’s rules – also referred to as “net neutrality” -- involves dueling visions of the best way to encourage broadband investment and deployment. Entities like Google and Netflix that provide content over the internet – so-called “edge” providers – advocate regulating the broadband carriers using prophylactic non-discrimination rules typically applied to common carriers. Broadband internet providers like Comcast and Verizon believe that these regulations harm innovation and investment by increasing costs, foreclosing revenue streams and restricting the ability to meet consumers’ evolving needs. While the policy debate is complex, the Court noted at the outset that “our inquiry here is relatively limited. ….our task . . . . is not to assess the wisdom of the Open Internet Order but rather to determine whether the Commission has demonstrated that the regulations fall within the scope of its statutory grant of authority.” Slip op. at 16. The Court concluded that they did not.

By way of background, the FCC had previously determined that broadband internet services are not “telecommunications services” subject to common carrier obligations under Title II of the Communications Act, but are instead “information services” covered only by its general Title I powers This determination was ultimately affirmed by the Supreme Court in the case of National Cable & Telecommunications Ass’n v. Brand X, 545 U.S. 967 (2005). Thus, the legal issue before the Court in Verizon was the scope of the FCC’s authority to regulate providers of these “information service” under its Title I jurisdiction.

The rules contained in the FCC’s Open Internet Order  imposed disclosure,  anti-discrimination and anti-blocking requirements on broadband internet providers,  including both fixed and mobile providers (i.e., those providing broadband services over smartphones and other mobile devices).  The anti-blocking rules prohibited both fixed and mobile broadband providers from  blocking any lawful content, applications or services, subject to reasonable network management.   The anti-discrimination  rules prohibited fixed broadband providers, but not mobile broadband providers, from unreasonable discrimination in transmission of any lawful internet traffic, again subject to any reasonable network management.  The FCC’s rules did not expressly rule against “pay for priority” but cautioned in its decision that such arrangements would not satisfy the “no discrimination rule. “   The FCC also required that the providers disclose information about their network management practices and performance and terms of any commercial arrangements.  Slip op. at 13-17.

The Court concluded that the Sections 706(a) and (b) of the Communications Act  grant the FCC authority to adopt regulations governing broadband providers, rejecting Verizon’s argument that those sections are primarily statements of  general  policy that do not support these types of regulations.   Slip Op. at 19-30. The Court further concluded that the FCC’s rationale underlying these rules --  that the anti-blocking and anti-discrimination provisions would promote broadband deployment – was reasonable, supported by substantial  evidence, and subject to deference.  Slip op. at 31-44.

However, the Court concluded that the anti-discrimination and anti-blocking rules were common carrier regulations and thus could not be imposed on providers of broadband internet service.  The Communications Act states that a service provider “shall be treated as a common carrier under the [Act} only to the extent it is providing telecommunications services.”  Because the FCC had determined that broadband services  constituted “information services,” not telecommunications services,  the Court found that the anti-blocking and ant-discrimination rules could not be imposed on broadband providers.  Slip op. at 45-47.  However, the Court upheld the disclosure rules contained in the Open Internet Order.  Slip op. at 62.

Although the FCC’s authority to regulate broadband internet providers has been severely constrained by this decision, the Court’s ruling left the FCC with a few options.  First, the Court concluded that the FCC has substantive authority under Title I to regulate broadband providers, although the scope of such authority is unclear and likely limited.  Reporting requirements akin to the  disclosure rules that were sustained would presumably be permitted.  However, the kinds of rules imposed on telecommunications providers as common carriers would not be permitted.

Second, the FCC could attempt to reclassify broadband internet service as “telecommunications service” and thus impose the common carrier type rules at issue here.  Since the FCC’s current classification of broadband providers has been endorsed by the US Supreme Court in Brand X, the FCC would undoubtedly need to mount a vigorous justification for such a change, particularly in light of the increased competitiveness of broadband since its initial classification decision in the early 2000s.  This would be a very steep climb.

 

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