Federal Appeals Court Strikes Down Key Elements of FCC Open Internet Order

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By Bryce Baschuk  

Jan. 14 -- The U.S. Court of Appeals for the District of Columbia Circuit ruled Jan. 14 that the Federal Communications Commission's open Internet rules may not prohibit broadband Internet service providers (ISPs) from blocking or discriminating against Internet content transmitted across their networks (Verizon Commc'ns Inc. v. FCC, D.C. Cir., No. 11-1355, 1/14/14).

The decision deals a significant blow to President Barack Obama's campaign pledge to protect the neutrality of the Internet and creates new challenges for Federal Communications Commission Chairman Tom Wheeler. Wheeler, a Democrat, may now face pressure to reclassify broadband Internet service under Title II of the Communications Act of 1934, which gives the FCC the express and expansive authority to regulate common carrier services. Broadband Internet service is currently categorized under Title I of the Communications Act as “information services” which are subject to less stringent regulations.

The court affirmed that Congress provided the FCC with adequate authority to create rules governing broadband Internet access via section 706 of the Telecommunications Act of 1996 (Pub. L. No. 104-104) (see related story). Section 706 requires the FCC to encourage “the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans.”

“Given that the commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the commission from nonetheless regulating them as such.”  
Judge David Tatel, D.C. Circuit

In the decision, Judge David Tatel wrote: “Even though the commission has general authority to regulate in this arena, it may not impose requirements that contravene express statutory mandates. Given that the commission has chosen to classify broadband providers in a manner that exempts them from treatment as common carriers, the Communications Act expressly prohibits the commission from nonetheless regulating them as such. Because the commission has failed to establish that the anti-discrimination and anti-blocking rules do not impose per se common carrier obligations, we vacate those portions of the open Internet order,” Tatel wrote.

The court remanded the case for further proceedings. Senior Judge Laurence Silberman partially concurred and dissented in the 2-1 decision.

Administration Presses On

White House Assistant Press Secretary Matt Lehrich told Bloomberg BNA in an e-mail that Obama “remains committed to an open Internet, where consumers are free to choose the websites they want to visit and the online services they want to use, and where online innovators are allowed to compete on a level playing field based on the quality of their products.”

“As we continue to review the ruling, we remain committed to working with the FCC, Congress, and the private sector to preserve a free and open Internet,” Lehrich said.

Wheeler said the commission will “consider all available options, including those for appeal, to ensure that these networks on which the Internet depends continue to provide a free and open platform for innovation and expression, and operate in the interest of all Americans,” according to a news release. Wheeler declined to clarify whether he thought it likely that the FCC would appeal the decision to the Supreme Court, telling Bloomberg BNA that “all options are on the table.”

Wheeler was silent on whether he planned to reclassify broadband Internet under Title II of the Communications Act. The commission previously asserted that it had jurisdiction under Title I of the Communications Act to create new regulations regarding interstate and foreign communications, and has used that authority to ensure broadband networks are widely deployed, open, affordable and accessible.

The FCC's two Republican commissioners, Ajit Pai and Michael O'Rielly, urged Wheeler to respect the court's decision and not attempt to rewrite the rules. The FCC's other two Democrats, Mignon Clyburn and Jessica Rosenworcel, stressed the importance of preserving the open Internet and said they planned to work with their colleagues on the commission's next steps.

FCC Authority Intact

Tatel wrote that the court has “little reason given this history to think that Congress could not have delegated some of these decisions to the commission,” Tatel wrote. “We are satisfied that the scope of authority granted to the Commission by section 706(a) is not so boundless as to compel the conclusion that Congress could never have intended the provision to set forth anything other than a general statement of policy.” The court also ruled that it is “quite reasonable to believe that Congress contemplated that the Commission would regulate this industry, as the agency had in the past, and the scope of any authority granted to it by section 706(b) … is not so broad that we might hesitate to think that Congress could have intended such a delegation.”

Helgi Walker, the attorney representing Verizon, had argued that it's unlikely Congress would intend for the FCC to regulate broadband providers' ability to block or discriminate Internet content. Looking at the structure of the 1996 Telecommunications Act, Congress intends for the Internet to remain unfettered by regulation, she told judges during oral argument (Verizon Commc'ns Inc. v. FCC,, D.C. Cir., No. 11-1355, oral argument 9/9/13). “It's not rational that Congress would stash authority, massive authority to regulate an entire industry,” she said.

But Wheeler said in his news release: “The D.C. Circuit has correctly held that 'Section 706 . . . vests [the commission] with affirmative authority to enact measures encouraging the deployment of broadband infrastructure' and therefore may 'promulgate rules governing broadband providers' treatment of Internet traffic.' ”

“I am committed to maintaining our networks as engines for economic growth, test beds for innovative services and products, and channels for all forms of speech protected by the First Amendment,” he said.

The court preserved the order's transparency rule that requires fixed and mobile broadband providers to “disclose the network management practices, performance characteristics, and terms and conditions of their broadband services.” Tatel added that the court has “no need to address Verizon's additional contentions that the order violates the First Amendment.”

Pay for Priority Now OK

The ruling now provides ISPs--like Comcast Corp., AT&T Inc., and Verizon Communications Inc.--greater legal certainty to enter into paid-prioritization agreements with content providers--like Netflix Inc., Google Inc., and Amazon.com Inc. The order's anti-discrimination rule prevented ISPs from charging content providers for improved access and creating a two-sided marketplace. The rules as currently written say: “Fixed broadband providers may not unreasonably discriminate in transmitting lawful network traffic.”

The court also vacated the FCC's no-blocking rule that prohibits mobile and fixed broadband providers from blocking “lawful content, applications, services, or non-harmful devices, subject to reasonable network management.” This decision means that ISPs could potentially charge content providers for basic access as well as charging for premium delivery service.

The decision bolsters AT&T's proposal to permit online content companies to pay for premium delivery service to its wireless customers and opens the door for fixed broadband network prioritization. On Jan. 6 AT&T unveiled its sponsored data program to encourage Web companies like Google to pay for its traffic so that the data aren't counted against AT&T consumers' monthly data caps. At least one member of Congress and several consumer interest groups have criticized the company's plan because they said it would threaten open Internet principles.

The court acknowledged the validity of the FCC's argument that ISPs could threaten the openness of the Internet.  

The court acknowledged the validity of the FCC's argument that ISPs could threaten the openness of the Internet in a way that could prevent future deployment of broadband networks in the U.S. Tatel noted that open Internet advocates fear that “a broadband provider like Comcast might limit its end-user subscribers' ability to access the New York Times website if it wanted to spike traffic to its own news website, or it might degrade the quality of the connection to a search website like Bing if a competitor like Google paid for prioritized access.”

ISPs Pleased, Endorse Open Internet

In a prepared statement from the company's Executive Vice President of Public Policy Randal Milch, Verizon said the decision “will not change consumers' ability to access and use the Internet as they do now.”

“The court's decision will allow more room for innovation, and consumers will have more choices to determine for themselves how they access and experience the Internet. Verizon has been and remains committed to the open Internet,” he said. “This will not change in light of the court's decision.”

AT&T's Senior Executive Vice President of External and Legislative Affairs Jim Cicconi said the company can “assure all of our customers and stakeholders that our commitment to protect and maintain an open Internet will not change,” according to a news release.

Comcast remains bound to its agreement to adhere to open Internet conditions as a part of its 2011 merger with NBC Universal, Inc. The FCC's approval of that deal required the merged entity to abide by the commission's net neutrality rules until 2018 even if a court overturned them. Comcast Executive Vice President David Cohen said a prepared statement that the company plans to keep its commitment with the commission “because we have not--and will not--block our customers' ability to access lawful Internet content, applications, or services.”

Partisan Split in Congress

Some congressional Democrats said they plan to introduce legislation that will restore the FCC's net neutrality rules. Such efforts are unlikely to pass the legislative branch this session given the combination of deep partisan divisions in Congress and election year posturing, Hill aides told Bloomberg BNA in separate interviews.

Sen. Ed Markey (D-Mass.) said the Communications Act gives the FCC “clear authority to oversee the operation of broadband networks, and [it] has the power to intervene in its effort to preserve competition and safeguard consumers,” according to a news release. Markey said he will soon introduce legislation “that makes this crystal clear, and look[s] forward to working with the Commission to ensure consumers are protected.”

“Although I am disappointed that the court did not unequivocally uphold the FCC's net neutrality protections, I am pleased that the court recognized that the FCC has the authority to issue necessary consumer protection rules for broadband networks,” said Sen. John D. Rockefeller IV, (D-W. Va.) the chairman of the Senate Committee on Commerce, Science, and Transportation.

Sen. John McCain (R-Ariz.) said the court decision is a “win for consumers and broadband innovation,” according to a news release. “This decision also sends a strong message to federal agencies that may attempt to direct by regulation that which is not authorized by Congress,” he said.

“In the Internet's infancy, the commission made the right decision to leave it free from the interference of government regulators,” said House Energy and Commerce Committee Chairman Fred Upton (R-Mich.) and Rep. Greg Walden (R-Ore.) in a joint statement. “Today's ruling vacates the commission's attempt to go back on this policy and to smother the Internet with rules designed for the monopoly telephone network.”

“Today the D.C. Circuit affirmed what never should have been in question--the FCC can protect consumers, innovation, and competition online,” said Rep. Henry Waxman (D-Calif.) Energy and Commerce Committee ranking member. “Now the commission must act expeditiously to exercise the authority the court has recognized,” he said in a news release.

To contact the reporter on this story: Bryce Baschuk in Washington at bbaschuk@bna.com

To contact the editor responsible for this story: Heather Rothman at hrothman@bna.com

The court ruling is available at http://op.bna.com/der.nsf/r?Open=palo-9fcvhe.

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