Judges Skeptical of FCC Ancillary Authority in Comcast Case

Observers and a participant in the case told us the FCC may have an uphill battle, judging from the skepticism about its ancillary authority. The judges and attorneys discussed during the argument whether a ruling against the FCC would handicap its ability to impose net neutrality rules. “This case underscores the importance of the FCC’s ongoing rulemaking to preserve the free and open Internet,” Chairman Julius Genachowski said in a written statement. “I remain confident the Commission possesses the legal authority it needs."

This court usually doesn’t “like ancillary authority,” said President Andrew Schwartzman of the Media Access Project, counsel to intervenors on the FCC’s side. Judging from recent cases, he said, “one can guess that they're going to be going up against the principle.” The judges “hammered at the absence of statutory authority that the commission identified,” said cable lawyer Dan Brenner of Hogan & Hartson. “If there isn’t some statutory purpose … then the commission is bereft of authority.” Cable and telecom attorney Paul Feldman of Fletcher Heald said “it certainly appears that the court believes that the FCC’s arguments are very weak,” but he warned of the difficulty of predicting outcomes from oral arguments. Among the “telling moments” was when Chief Judge David Sentelle “essentially asked the FCC attorney” whether he preferred to lose on due process or on jurisdiction, Feldman said. He and Brenner aren’t taking part in the case.

Schlick pointed to several decisions by the Supreme Court, including its 2005 Brand X ruling, and of this appeals court as supporting the commission’s authority to act against Comcast. The judges asked him to cite parts of the Communications Act. His references to titles 1 and 6 and Sections 4(i), 230(b) and 706 didn’t seem to persuade them. Schlick also pointed to a 2006 order approving the purchase by Comcast and Time Warner Cable of the bankrupt cable operator Adelphia as allowing the FCC to deal in this case with complaints that Comcast had violated the commission’s 2005 Internet principles. Congress told the FCC to remove barriers to broadband deployment, Schlick said. “The commission was saying that this is a mandate from Congress."

Sentelle said Congress had only “spoken about the ends” and not necessarily the ways to achieve them. Schlick replied that because “Congress has not told us how to do it,” the commission can decide. Section 706 doesn’t seem to give the FCC authority, Judge Raymond Randolph said. “It’s aspirational, not operational.” He seemed frustrated over what he called Schlick’s inability to answer a question. “I'm not getting an answer,” Randolph said. “I want to get an answer. … You can’t regulate on the basis of 706. What independent authority did the commission have to regulate the Internet” besides that section? “Where is the statute of implementation? Can you answer my question?” Schlick then pointed to section 230(b). “That’s just a policy statute,” the judge responded.

Sentelle became frustrated with Schlick when discussing Section 4(i). “You seem to be arguing that 4(i) gave the commission all the authority it needed,” the judge said. “Don’t respond by citing a case. … You tell me, yes or no.” “You don’t get an unbridled roving commission to go about doing good,” Sentelle said. Randolph said he was “confused” by the lawyer’s argument. “Another argument you keep falling back on and repeating: Ancillary jurisdiction, ancillary jurisdiction.” The commission can act in areas that Congress “hasn’t specifically addressed,” Schlick said. “How do you square that?” asked Randolph. “Did you hear my question?” The Supreme Court has allowed regulatory action on matters that Congress hasn’t spoken to specifically, Schlick said. In American Library, the District of Columbia Circuit held that regulation “must be pegged to a specific, operative statute,” Randolph said. “You don’t need ancillary jurisdiction. … You have yet to identify a specific statute that gives you statutory authority.”

The part of the order against Comcast that cited FCC oversight of cable rates -- which the document said could be affected if broadband customers were hindered in watching video online -- gave “no citations” to other statutes, said Judge David Tatel. “It’s just a statement. … We have no idea how many people who are using this file sharing system” could be affected. “It seemed to me that that statement was at least linked to the commission’s authority” over cable, Tatel said. Schlick replied that isn’t an argument Comcast has made. Tatel said “I think it is.” The provision under discussion was paragraph 16 of the order --hraunfoss.fcc.gov/edocs_public/attachmatch/FCC-08-183A1.pdf.

Comcast’s attorney said the FCC hadn’t given the company enough notice that the 2005 statement would be enforced. Helgi Walker of Wiley Rein was pressed by the jurists on the issue of notification given that the commission didn’t fine Comcast. “There was not a single precedent of law. … All that existed was a policy statement. That document quite simply lacked any force or effect.”

Regulators have relied on policy statements in previous actions, Tatel said. “If that was the case here, why would there be any notice problem?” In the Supreme Court’s landmark Pacifica indecency case in 1978, “the FCC put a letter in their file” rather than issuing a fine, an action that was upheld, Randolph said. His question whether Comcast was “properly aggrieved” was answered in the affirmative by Walker. “We've suffered procedural injury” and have borne “major costs of compliance to switch out network equipment.” Walker agreed with Sentelle’s comment that Comcast didn’t need to recall any products because of the FCC ruling.

It’s of “critical” significance that the FCC was “enforcing pure policy,” not a law, Walker said. The commission seemed to “at least implicitly” recognize that “unenforceability” when it issued a net neutrality rulemaking notice in late 2009, Walker said. “That is a proceeding that I will suspect will come before you in the future.”

The outcome of Comcast v. FCC could give the regulator “guidance” in the net neutrality proceeding, Schlick said. “We don’t give guidance,” Randolph replied. “The guidance we would take” is the court’s holding on Walker’s argument, Schlick responded. Sentelle said, “If you lose today, you still get the rulemaking.”

Comcast v. FCC Notebook …

That “the fate of broadband regulation rests on the FCC’s jurisdiction” should be kept in mind, Free Press General Counsel Marvin Ammori told the court. He appeared as an intervenor on behalf of that group, online video company Vuze, Consumers Union, and the Open Internet Coalition, a group whose members include Skype. Under Brand X, “the commission remained free to impose these rules,” he said. “The FCC told the world over and over, ‘We will adjudicate.'” The case is the first “testing the authority of the FCC to protect Network Neutrality,” Policy Director Ben Scott of Free Press said in a written statement. “The critical importance of this case lies in the precedent set by the FCC in its first action to enforce Net Neutrality.”

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The entire cable industry has been affected by the FCC’s ruling against Comcast because it goes to how ISPs can manage their networks, Howard Symons of Mintz Levin said in the oral argument. He represented NBC Universal and the NCTA, intervenors on Comcast’s side. “It subjects the entire industry now to a vague set of standards that did not exist before,” Symons said. There was “no adequate certainty … to determine what conduct is proscribed and what conduct is prohibited,” he added.

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Analysts who watched the oral argument said the court probably will rule in Comcast’s favor. “It appears likely that the court’s final ruling will conclude that the FCC cannot impose net neutrality rules on telcos/cable without some additional legal or political maneuvering, none of which is guaranteed to succeed,” wrote Paul Gallant of the Washington Research Group. “If the court rules against the FCC (as appears likely), it would be a positive development for telecom and cable operators” including AT&T, Cablevision, Comcast and Verizon “by creating new uncertainty about whether the FCC would be able to figure out a new way to impose net neutrality rules -- a key priority of Chairman Genachowski.” The question is the basis that the court will use to rule against the commission, wrote Stifel Nicolaus’ Rebecca Arbogast and David Kaut, who attended the hearing. “If the court overturns the FCC on narrow administrative procedure grounds, it would be helpful to the company in reversing negative findings and precedent, but not a big deal for industry, in our opinion."