DC Circuit Ruling Upholding Net Neutrality Order Doesn't End Legal Fight

The ruling gave the commission broad deference in reclassifying broadband under Title II of the Communications Act. Judges David Tatel and Sri Srinivasan ruled that previous Supreme Court decisions gave the commission considerable latitude to subject broadband to common-carrier regulation. Judge Stephen Williams partially concurred and partially dissented, saying he would have overturned the order because he believed the commission failed to engage in reasoned decision-making. See here.

Tatel and Srinivasan called their review “limited” under the Supreme Court's 1984 Chevron precedent. "Our job is to ensure that an agency has acted 'within the limits of [Congress’] delegation' of authority ... and that its action is not 'arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law,’” they wrote in their 109-page opinion. "Critically, we do not 'inquire as to whether the agency’s decision is wise as a policy matter; indeed, we are forbidden from substituting our judgment for that of the agency.’”

The judges upheld the determination that broadband internet access service (BIAS) is a Title II telecom service. Citing the Supreme Court's 2005 Brand X ruling, they noted FCC reasoning that consumers see BIAS as sufficiently independent of internet applications, content and other information services that it constitutes a separate offering. "The Commission pointed to record evidence demonstrating that consumers use broadband principally to access third-party content, not email and other add-on applications," they wrote. The FCC found the internet service market flourished as consumers gained broadband access, with websites rising in number from about 36 million in 2003 to 900 million in 2015. "By one estimate, two edge providers, Netflix and YouTube, 'account for 50 percent of peak Internet download traffic in North America,’” the judges wrote: The FCC found consumers preferred independent online content and applications to the add-on internet services offered by broadband providers.

The court majority said a telecom system management exception allowed the FCC to find BIAS wasn't an integrated information service. "The Commission focused on two such services," they wrote. "The Commission found that DNS [domain name system] and caching fit within the statute’s telecommunications management exception because both services are ‘simply used to facilitate the transmission of information so that users can access other services.’”

USTelecom Rejected

Tatel and Srinivasan rejected USTelecom arguments that the FCC violated the Administrative Procedure Act because its NPRM proposed relying on Section 706 of the 1996 Telecom Act instead of Title II for broadband authority; didn't explain it would justify its reclassification based on consumer perceptions; and failed to signal its intended reliance on the telecom management exception. The NPRM satisfied a "logical outgrowth test" because it sought comment on related issues, the judges wrote. They rejected other arguments. They wrote that Brand X said whether a carrier provides a telecom service depends on whether it makes an "offering" of telecommunications. "The term 'offering,' the Court held, is ambiguous," Tatel and Srinivasan wrote. They cast aside USTelecom arguments that Brand X was limited to "last mile" transmission, and explained why they were unpersuaded by its further arguments in favor of a mandatory information service finding. They also rejected arguments by intervenor TechFreedom regarding a 2000 high court decision on Food and Drug Administration authority (FDA vs. Brown & Williamson) as ignoring Brand X.

The D.C. Circuit majority rejected arguments the classification was unreasonable because broadband providers offer information services such as email with internet access. The commission concluded BIAS was a separate offering. "US Telecom nowhere challenges that conclusion, and for good reason: the record contains extensive evidence that consumers perceive a standalone offering of transmission, separate from the offering of information services like email and cloud storage," the jurists wrote. Tatel and Srinivasan accepted FCC explanations for why it reclassified broadband from an information service to a telecom service. They noted Tatel's 2014 Verizon ruling upholding some commission broadband authority under Section 706 while reversing certain net neutrality restrictions as prohibited common-carrier regulation. Absent reclassification, the agency said it "could only rely on section 706 to put in place open Internet protections that steered clear of regulating broadband providers as common carriers per se,” they wrote: It's "a perfectly 'good reason' for the Commission’s change in position."

The two upheld regulation of broadband provider interconnection with internet backbone and edge providers. They quickly dispensed with petitioner arguments and said the agency overcame a potential problem by reclassifying broadband -- and its interconnection arrangements -- as a telecom service.

The court justified mobile broadband reclassification over AT&T and CTIA challenges. Tatel and Srinivasan said there was no dispute that mobile broadband met three of the four parts of the statutory definition of a commercial mobile service: it's a mobile service, is provided for profit and is available to the public. The only question is whether mobile broadband "makes interconnected service available," Tatel and Srinivasan wrote. The statute defined "interconnected service" as "service that is interconnected with the public switched network" as defined by the FCC, they wrote. Previously, the commission defined the "public switched network" as a set of cellular and landline phone networks, and found mobile broadband users couldn't interconnect with that network because mobile broadband used IP addresses not phone numbers. Mobile broadband thus wasn't an "interconnected service" or a "commercial mobile service," the judges wrote.

The commission in 2015 sought to expand its "public switched network" definition in light of the mobile broadband explosion, the jurists noted. "Just as mobile voice (i.e., cellular telephone) service in 1994 provided 'ubiquitous access' for members of the public to communicate with one another 'from anywhere in the nation,' mobile broadband by 2015 had come to provide the same sort of ubiquitous access." The FCC moved to reclassify mobile broadband "in recognition of the similarity of mobile broadband to mobile voice as a universal medium of communication for the general public -- and the dissimilarity of mobile broadband to closed private networks such as those used by taxi companies or local police and fire departments," they wrote. "In mobile petitioners’ view, mobile broadband (or any non-telephone mobile service) -- no matter how universal, widespread, and essential a medium of communication for the public it may become -- must always be considered a 'private mobile service' and can never be considered a 'commercial mobile service.' Nothing in the statute compels attributing to Congress such a wooden, counterintuitive understanding." They spent 20 pages addressing further mobile broadband petitioner arguments.

The majority also rejected other petitioner challenges: to net neutrality rules, including regulations that prohibited paid prioritization and instituted a general conduct standard; Alamo Broadband and Daniel Berninger's First Amendment free-speech challenge; and Full Service Network's challenge to forbearing from applying many Title II telecom provisions to broadband service.

Dissent

Williams said he agreed with much of the majority opinion but had to dissent.

The 69-page dissent said the FCC order should be vacated. Justification for reclassifying broadband "fails for want of reasoned decisionmaking," wrote Williams: "(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 Vehicle 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.”

Williams said the regulator based its standard on two non-justifying statutory sections. "Application of Title II gives the Commission authority to apply § 201(b) of the Communications Act," he wrote. "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." He said Section 706 is "inadequate to justify the ban on paid prioritization and kindred rules.”

The dissenter said forbearing from enforcing many Title II provisions is based on premises that are inconsistent with reclassification. "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," he wrote. "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.” The "best place for examining the Commission’s explanation of the jewel in its crown -- its ban on paid prioritization -- is in discussion of its new interpretation of 47 U.S.C. § 201," Williams wrote. "That explanation is important for understanding the Commission’s failure to meet its obligations under Fox Television, above all the obligation to explain why such a ban promotes the 'virtuous cycle,' which (as the majority observes) is the primary justification for reclassification.”

Williams said he agreed with the majority that broadband reclassification "may not run afoul of any statutory dictate," but the FCC "failed to meet the modest requirements of Fox." Agencies that change policy must show "there are good reasons," but more is required in special circumstances, he said. “An ‘agency need not always provide a more detailed justification than what would suffice for a new policy created on a blank slate. Sometimes it must -- when, for example, its new policy rests upon factual findings that contradict those which underlay its prior policy; or when its prior policy has engendered serious reliance interests that must be taken into account.’”

Further Appeals

Industry parties later asked the full court to review the ruling, as Communications Daily predicted (see 1607270056 and 1607280049). Petitions for rehearing were filed July 29 by Alamo Broadband, AT&T, CTIA, NCTA and American Cable Association, USTelecom and CenturyLink, and TechFreedom and others.

FCC Chairman Tom Wheeler, as he said when initial appeals came, called it "no surprise that the big dogs" (see Part II of this Special Report 1609230009) had challenged the D.C. Circuit. "We are confident that the full court will agree with the panel’s affirmation of the FCC’s clear authority to enact its strong Open Internet rules, the reasoned decision-making upon which they are based, and the adequacy of the record from which they were developed,” his later statement said.

USTelecom and CenturyLink said the regulator delegated to itself the power to "micromanage" the internet. Reclassification gives the FCC sweeping authority, becoming the "Department of the Internet," their petition said, citing a description in Commissioner Ajit Pai's dissent. The panel "disregarded extensive evidence -- including the FCC’s own contemporaneous recognition -- that, in passing the 1996 Act, Congress codified pre-1996 regulatory and judicial decisions that barred public-utility regulation of Internet access," USTelecom and CenturyLink said. The panel "misread" Brand X as authorizing the FCC "to treat internet access service as nothing more than pure transmission," they said. "En banc review is necessary to ensure that a largely unaccountable agency does not obtain significant legislative and judicial power that Congress never delegated to it."

NCTA and ACA said the FCC "flouts bedrock administrative law requirements." The commission for years "correctly" declined to regulate broadband internet access providers as common carriers, then "abruptly abandoned that policy," their petition said. "The FCC’s decision transgressed fundamental boundaries on agency action," they said, citing various Supreme Court decisions, including the recent Encino Motorcars ruling (see 1606200054). "The FCC never identified any real, relevant change, offering only demonstrably false assertions of new facts. The FCC admitted, moreover, that new facts did not matter, 'clarify[ing] that,' even if the facts 'had not changed,' it would have reclassified anyway." The D.C. Circuit "eviscerates" core Administrative Procedure Act requirements, they said. "This dilution of the APA’s standards by the Court that reviews more agency action than any other will embolden this agency and others to ignore these constraints."

The court was especially wrong on mobile broadband, petitioned CTIA. Congress forbade the FCC from imposing common-carrier status on mobile broadband in Section 332, it said: "A bare majority of the FCC cast aside this longstanding and correct interpretation of Section 332, claiming vast authority to regulate every wireless device with an Internet Protocol" address. The association said the rules essentially said “tens of billions of IP-enabled devices, with tens of billions more to come in the next few decades,” from connected cars to TVs to smart thermostats, “all supposedly exist on the same, single, unified network that also services wired and wireless telephones.” AT&T also challenged the mobile broadband decision. "In the majority’s view, further classifying mobile broadband as a 'commercial mobile service' under Title III, subject to common carrier regulation, 'assures consistent regulatory treatment' for fixed and mobile broadband services. But if such 'regulatory consistency' is relevant in construing provisions in different Communications Act titles, it supports excluding both fixed and mobile services from common carrier regulation because Title III expressly precludes such regulation for the latter," said the carrier (in Pacer).

Alamo Broadband disputed on First Amendment grounds the decision upholding the order. The panel "erred because the rules strip broadband providers of their First Amendment right to exercise discretion about whether and how to carry internet traffic over their networks," it said (in Pacer). The "rationale would allow the government to not only order the blocking of internet content it deems objectionable, but could also be used to try to strip other media -- cable operators, broadcasters, and new media conduits -- of First Amendment protection by declaring them to be common carriers." Alamo also challenged the panel decision affirming FCC broadband regulatory authority under Section 706.

TechFreedom and others said the two judges' ruling "runs squarely contrary" to King v. Burwell, "in which the Supreme Court said courts mustn't give Chevron deference to an agency on 'a question of deep ‘economic and political significance’ that is central to [a] statutory scheme' unless Congress expressly directed it to do so." Jeff Pulver, Scott Banister, Charles Giancarlo and David Frankel joined the petition.

Defenders File

In the fall, defenders of the FCC order filed their court briefs (see 1610030029 and 1610040032).

The FCC and DOJ said that court should deny industry appeals. The three-judge panel carefully examined industry objections to the regulations and "rejected them in their entirety," said the FCC/DOJ response (in Pacer). The ruling was "entirely correct" and consistent with Brand X and D.C. Circuit precedent in two previous net neutrality decisions, Comcast v. FCC in 2010 and Verizon v. FCC in 2014, the government said.

The top court said the Communications Act "fails unambiguously to classify" broadband service as either a Title I information service or a Title II telecom service, leaving federal policy "in this technical and complex area to be set by the commission," the FCC/DOJ wrote. Even Williams, who partially dissented, "agreed the FCC 'has statutory authority to classify broadband as a telecommunications service,'" the government response said. It said the panel appropriately affirmed the "decision to classify mobile broadband as a commercial mobile service subject to common carrier treatment.”

The ruling "does not conflict with any decision of the Supreme Court, this Court, or any other court of appeals," the response said: The decision "turned on a careful and considered evaluation of the record and the FCC’s predictive judgment regarding the effects of its Order on the internet marketplace." The three jurists "thoroughly analyzed and properly rejected every one of petitioners’ challenges to the FCC’s Order adopting open internet rules," the agencies wrote. "Petitioners have provided no reason to reconsider.”

Intervenors defended the commission order against petitions for rehearing. The appeals court twice before disagreed with FCC net neutrality decisions and provided "valuable guidance" the agency "faithfully and correctly applied," said a joint response (in Pacer) from Cogent Communications, Dish Network, Free Press, Incompas, Netflix, New America's Open Technology Institute, Public Knowledge and other intervenors. Industry petitioners again attacked the order even though the panel ruling doesn't conflict "with precedent or any issue of exceptional importance," they wrote. "As far as Intervenors can determine, this Court has not, in recent memory, ever granted rehearing to address such fact-bound and case-specific complaints."

Next Steps

One venue unlikely to hear challenges to the net neutrality order is the nation's highest court, many told Communications Daily (see 1606140040). University of Pennsylvania Law School professor Christopher Yoo continues (see 1510280052) to believe the court is unlikely to take the case, he said, especially since there's no split in the federal circuits and the Supreme Court takes fewer cases than in the past. The net neutrality skeptic said the court doesn’t hear a case just because it has major implications.

Daniel Lyons, associate professor at Boston College Law School, agreed odds are against such review. One issue that could be of interest is the scope of the "major questions" exception to Chevron, said the net neutrality skeptic. “In the 2015 Affordable Care Act opinion, the Supreme Court seemed to announce that the Chevron doctrine, which requires courts to defer to agency interpretations of ambiguous statutes, does not apply to so-called major questions,” he told us. “The petitioners and amici raised the issue at the D.C. Circuit, but the court punted on the issue, explaining that it was bound by the Supreme Court's 2005 decision in Brand X that granted Chevron deference to the FCC on this very issue.”

Computer and Communications Industry Association President Ed Black also doubts the high court will hear the case. It’s significant that the majority D.C. Circuit opinion was “very strong” and the partial dissent “focused on factual issues” while agreeing with other parts of the order, Black said in an interview. CCIA has been supportive of net neutrality.

Net neutrality supporters face an “uphill climb,” at the highest court, said net neutrality proponent and participant in the D.C. Circuit case Kevin Russell of Goldstein & Russell, a former high-court clerk who has argued nine cases there. “The opinion raises few questions of general applicability, and as others have observed, I’m not aware of the panel weighing in on any question upon which the circuits are divided,” Russell told us. “The challengers will have to convince the Supreme Court that the net neutrality ruling is not only important, but likely wrong in the view of a majority of the court. ... That strikes me as a tall order.”

Most doubted the full D.C. Circuit will decide to hear oral argument (see 1608020045). Such en banc review is "rarely granted," said Gus Hurwitz, a University of Nebraska law professor and critic of the rules. There's a better chance than usual here due to some "really cool administrative law data," but rehearing is still "unlikely," he told a summer panel. TechFreedom President Berin Szoka acknowledged the difficulty of winning rehearing, particularly given the D.C. Circuit shift from right to left under President Barack Obama, who has made several appointments there. Szoka noted petitioners, including TechFreedom and other intervenors, must convince six out of 10 "active judges" reviewing cases for rehearing to be granted, and six of those judges are Democratic appointees, including Srinivasan and Tatel.

Appeal paths at both the D.C. Circuit and Supreme Court are "narrow," said Open Technology Institute Senior Counsel Sarah Morris. The net neutrality ally said it's "highly unlikely" either court would hear the case, and petitioners also would have to convince the D.C. Circuit or Supreme Court to overturn the panel ruling. In all likelihood, she said, net neutrality policy had effectively been settled by the panel ruling.

With the Nov. 8 election of Donald Trump as the next president, some are eyeing the FCC as the next venue for action on broadband net neutrality and the resulting ISP privacy rules. They expect that the commission with a Trump-appointed chairman may seek to roll back those mandates (see 1611090034), though Congress and the courts could also act (see 1611100041).