Divided D.C. Circuit upholds FCC 'net neutrality' rule

This morning, a divided three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit rejected challenges to the Federal Communications Commission's so-called "net neutrality" rules. Under these rules, all broadband service providers are required to treat all content or internet traffic identically. The court's 180-plus-page decision in U.S. Telecom Association v. FCC is a major victory for the Obama administration, which had pressed for the rules. The industry and other groups that challenged the rule will surely seek certiorari in the Supreme Court, but high court review is not guaranteed.

There's quite a bit in the decision to unpack and digest. The petitioners had challenged the rule on statutory, procedural and constitutional grounds, but none of their arguments persuaded a majority of the panel. According to the FCC, the rule is necessary to prevent broadband providers from discriminating against specific types of content or content providers. Among other things, it prevents content providers from paying service providers to prioritize their content. According to industry opponents of the rule, groups such as TechFreedom and some economists, these restrictions will discourage investment and innovation in broadband service, ultimately harming consumers.

The panel opinion was written jointly by Judges David Tatel and Sri Srinivasan. It begins:

For the third time in seven years, we confront an effort by the Federal Communications Commission to compel internet openness- commonly known as net neutrality-the principle that broadband providers must treat all internet traffic the same USCA regardless of source. In our first decision, Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010), we held that the Commission had failed to cite any statutory authority that would justify its order compelling a broadband provider to adhere to certain open internet practices. In response, relying on section 706 of the Telecommunications Act of 1996, the Commission issued an order imposing transparency, anti-blocking, and anti-discrimination requirements on broadband providers. In our second opinion, Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014), we held that section 706 gives the Commission authority to enact open internet rules. We nonetheless vacated the anti-blocking and anti-discrimination provisions because the Commission had chosen to classify broadband service as an information service under the Communications Act of 1934, which expressly prohibits the Commission from applying common carrier regulations to such services. The Commission then promulgated the order at issue in this case-the 2015 Open Internet Order-in which it reclassified broadband service as a telecommunications service, subject to common carrier regulation under Title II of the Communications Act. The Commission also exercised its statutory authority to forbear from applying many of Title II's provisions to broadband service and promulgated five rules to promote internet openness. Three separate groups of petitioners, consisting primarily of broadband providers and their associations, challenge the Order, arguing that the Commission lacks statutory authority to reclassify broadband as a telecommunications service, that even if the Commission has such authority its decision was arbitrary and capricious, that the Commission impermissibly classified mobile broadband as a commercial mobile service, that the Commission impermissibly forbore from certain provisions of Title II, and that some of the rules violate the First Amendment. For the reasons set forth in this opinion, we deny the petitions for review.

Senior Circuit Judge Stephen F. Williams would have vacated the FCC rules. His decision dissenting-in-part begins:

I agree with much of the majority opinion but am constrained to dissent. In my view the Commission's Order must be vacated for three reasons:

I. The Commission's justification of its switch in classification of broadband from a Title I information service to a Title II telecommunications service fails for want of reasoned decisionmaking. (a) Its assessment of broadband providers' reliance on the now-abandoned classification disregards the record, in violation of its obligation under F.C.C. v. Fox Television Stations, Inc., 556 U.S. 502, 515 (2009). Furthermore, the Commission relied on explanations contrary to the record before it and failed to consider issues critical to its conclusion. Motor Vehicles Mfrs. Ass'n v. State Farm Mut. Auto. Ins. Co., 463 U.S. 29, 43 (1983). (b) To the extent that the Commission relied on changed factual circumstances, its assertions of change are weak at best and linked to the Commission's change of policy by only the barest of threads. (c) To the extent that the Commission justified the switch on the basis of new policy perceptions, its explanation of the policy is watery thin and self-contradictory.

II. The Commission has erected its regulatory scheme on two statutory sections that would be brought into play by reclassification (if reclassification were supported by reasoned decisionmaking), but the two statutes do not justify the rules the Commission has adopted.

Application of Title II gives the Commission authority to apply § 201(b) of the Communications Act, 47 U.S.C. § 201(b). The Commission invokes a new interpretation of § 201 to sustain its ban on paid prioritization. But it has failed to offer a reasonable basis for that interpretation. Absent such a basis, the ban is not in accordance with law. 5 U.S.C. § 706(2)(A) & (C).

Application of Title II also removes an obstacle to most of the Commission's reliance on § 706 of the Telecommunications Act of 1996, 47 U.S.C. § 1302, namely any rules that have the effect of treating the subject firms as common carriers. See Verizon Communications Inc. v. Federal Communications Commission, 740 F.3d 623, 650 (2014). But the limits of § 706 itself render it inadequate to justify the ban on paid prioritization and kindred rules. . . .

III. The Commission's decision to forbear from enforcing a wide array of Title II's provisions is based on premises inconsistent with its reclassification of broadband. Its explicit refusal to take a stand on whether broadband providers (either as a group or in particular instances) may have market power manifests not only its doubt as to whether it could sustain any such finding but also its pursuit of a "Now you see it, now you don't" strategy. The Commission invokes something very like market power to justify its broad imposition of regulatory burdens, but then finesses the issue of market power in justifying forbearance.

Given that this is a highly complex area (and it's a really, really long opinion) I asked Daniel Lyons, a professor at Boston College Law School who specializes in telecom and administrative law, for some quick thoughts. He offered two observations on today's ruling:

1) If the Supreme Court grants review of this decision, it would have greater latitude to consider some of the arguments made against the FCC's rule than did the D.C. Circuit, particularly that the Commission should not have received Chevron deference because its interpretation implicated the sort of major question for which deference should not be given. (Think King v. Burwell.) Under Brand X, and the D.C. Circuit's prior conclusion that some relevant portions of the Communications Act were ambiguous, it would have been difficult for the lower court to fully embrace the "major questions" argument.

2) Lyons was also somewhat skeptical of the court's treatment on a subset of challenges relating to interconnection. He writes:

I know the bar is pretty low for agencies to survive a "logical outgrowth" challenge, but I'm still a bit surprised that the opinion upheld the agency's treatment of the interconnection issue. Unlike net neutrality, interconnection deals with agreements between different networks in the Internet ecosystem. The [FCC's Notice of Proposed Rulemaking] tentatively disclaimed interest in interconnection but invited comment, which the court accepted as sufficient to constitute notice. The opinion seems to ignore statements in the press by both agency spokespeople and Chairman Wheeler to the effect of "interconnection is off the table" and not a part of this proceeding. The final rule, of course, asserted jurisdiction over interconnection agreements. . . . This raises the larger issue of how courts should treat agency remarks during the comment period.

This is just one reason why this decision is not only significant for telecommunications, but also for administrative law.