Net neutrality and the changing of the guard on the D.C. Circuit—guest post by Daniel Lyons

This week, a divided three-judge panel of the U.S. Court of Appeals for the D.C. Circuit upheld the Federal Communications Commission's Open Internet Order (a.k.a. "net neutrality"). As I noted in an earlier post, this decision handed the Commission and the Obama administration a significant victory after a string of losses. In my prior post, I quoted Boston College law professor Daniel Lyons on the decision. I since asked him for some additional thoughts. What follows is Lyons' additional analysis of the decision.

Jonathan was kind enough to invite me to expand upon my initial thoughts on the 184-page behemoth opinion. In the interests of full disclosure, I should note that I filed comments in the agency proceeding (which were cited in the dissenting opinion) and I joined an amicus brief urging that the order be vacated.

The decision is the latest milestone in the FCC's multi-year effort to enact binding net neutrality rules. Net neutrality is the idea that broadband providers should treat all Internet traffic the same regardless of source or content. To implement this doctrine, the FCC passed regulations preventing broadband providers from blocking or throttling Internet content and prohibiting paid prioritization—agreements that would allow companies like Netflix to pay for priority delivery over broadband networks in the event of network congestion. Over the past several years, scholars and activists have spilled much ink discussing whether these rules are good or bad for consumers and innovation.

Of course, yesterday's decision focused not on net neutrality policy, but rather on the agency's statutory authority and administrative process. The court's opinion is chock-full of staple admin law doctrines, including the logical outgrowth test (whether the agency gave sufficient notice of its final rule to allow for meaningful comment), the standard for an agency to depart from a prior policy, arbitrary and capricious review of agency decisionmaking, the "hard look" doctrine (whether the agency adequately supported its position and responded to critical comments), and, naturally, statutory interpretation under Chevron.

The majority opinion is dripping with agency deference. The court began with two "important" caveats, the first being that it will not "inquire whether the agency's decision is wise." The Court then deferred under Chevron to the agency's reclassification of broadband Internet access as a "telecommunications service" under the Communications Act, which was an essential prerequisite to the paid prioritization ban. This was unsurprising—anyone who has tried to teach the battle in Brand X between Justice Thomas's Internet-as-car-dealership and Justice Scalia's Internet-as-pizza-delivery metaphors knows how poorly the telephone-era statute captures modern Internet architecture. But the reclassification is a reversal of the agency's decade-long policy of classifying Internet access as an unregulated "information service," a decision the agency defended all the way to the Supreme Court in Brand X. The court excused this reversal because, well, it was necessary to enact the paid prioritization ban. The D.C. Circuit opinion then gave "particularly deferential review" to the agency's prediction that the ban would spur additional broadband investment and accepted uncritically the agency's predictions about the effect reclassification would have on the industry.

Procedurally, the final net neutrality rule differed significantly from the agency's proposed rule, leading petitioners to argue the agency failed to provide sufficient notice to allow for meaningful comment on key issues. But the court repeatedly rejected these arguments, finding that a passing reference to an issue was sufficient to notify the parties that a topic was in play. For example, while the proposed rule "tentatively concluded" that it should not regulate interconnection, it also sought "comment on whether to change that conclusion." The court held this was sufficient to notify the parties that the final rule might regulate interconnection, despite the additional fact that Chairman Tom Wheeler stated during the comment period that "interconnection is not a net neutrality issue" and an agency spokesman told the press that "[p]eering and interconnection are not under consideration in the Open Internet proceeding." Elsewhere, the court found the agency's failure to flag an issue was harmless in part because it was raised by one of the commenters, thus putting others on notice—a conclusion that seems difficult to swallow given that over 4 million comments were filed in the proceeding.

Unlike the majority, Judge Williams was unafraid to dive deeply into the details of the agency's rulemaking proceeding. His forceful dissent stressed the lack of support in the record for the agency's conclusions, particularly with regard to the paid prioritization ban. He noted that the four economic studies upon which the FCC relies did not actually support the agency's conclusion, and the author of three such studies instead filed comments opposing the rule—one of three former FCC chief economists whose comments opposing the ban were not discussed in the final rule. As a result, the dissent would have vacated the decision as arbitrary and capricious.

The majority responded that the parties waived this substantive challenge, which brings me to the second "important" caveat at the beginning of the opinion: The court explained that it sits "to resolve only legal questions presented and argued by the parties" and has no duty consider "novel arguments a party could have made but did not." Hindsight is often 20/20, but the forceful dissent, coupled with the majority's cryptic allusion to waiver, suggests that perhaps the petitioners erred by stressing statutory and procedural arguments rather than directly attacking the substance of the agency's decision.

Alternatively, the two opinions may evince a changing of the guard at the D.C. Circuit. Historically, the court has been unafraid to perform the type of close, critical review of the record that Judge Williams undertook—and the FCC in particular has long been the D.C. Circuit's whipping boy in such cases, suffering a higher reversal rate than most agencies. The majority opinion, co-authored by Democratic appointees over the dissent of a senior Reagan nominee, suggests that the court may finally be losing its appetite for more intrusive judicial review.

I'm not convinced this is a good thing. Admittedly, none of the majority's many findings is controversial under existing administrative law, which grants wide latitude to agency decisionmaking. But taken together, it is remarkable how easily the agency reversed course on broadband regulation and cast aside a half-century of well-developed law on common carriage, all in pursuit of its paid prioritization ban. Judge Williams' dissent raises alarming questions about the thinness of the reed supporting this about-face. Perhaps from discomfort with the ease with which agencies can reshape law, some academics and Supreme Court justices have begun to push back against the wisdom of our three-decade experiment with agency deference.

The parties are likely to request en banc review, and AT&T has already indicated that it will seek certiorari. Of course, the chances of a cert grant are always small, particularly absent a circuit split. But if the court were interested, this would be an interesting case to expound upon the "major questions" exception to Chevron that the Court identified in last year's King v. Burwell opinion. The D.C. Circuit punted on this issue, suggesting (probably correctly) that it was bound by the Chevron analysis in Brand X. But that case predates Burwell, and the Supreme Court would not be so constrained. The case seems to fit the Burwell criteria: It involves a major question of economic and political significance, and reflects an attempt to assert jurisdiction over a significant portion of the American economy. Given the poor statutory language, the court may conclude using traditional tools of statutory construction that the agency correctly classified broadband as a "telecommunications service." This was, after all, Justice Scalia's conclusion in his Brand X dissent. But if the court wishes to add some clarity to the amorphous doctrine it announced last year, this case would be a good vehicle to so do.