D.C. Circuit Ruling Starts Next Phase in Debate Over 'Net Neutrality'

Comcast Corp.'s courthouse victory over the Federal Communications Commission (FCC) in April might not turn out to be a win for the company after all if it speeds the path for wider regulation of broadband services. A panel of the U.S. Court of Appeals for the D.C. Circuit ruled that the FCC failed to justify its jurisdiction to regulate Internet traffic. Comcast Corp. v. Federal Communications Commission, 08-1291. The unanimous ruling was a short-term affirmation for those who want to rein in the FCC's ability to impose “net neutrality” rules, but major battles loom in at least two venues: the commission and Congress. A loss in either place would mean a lot more uncertainty for companies like Comcast.

In a move that some say would spark the “World War III” of communications law, advocates for consumers and content providers want the FCC to reclassify Internet service providers as telephone-style common carriers. The idea has simmered for years, and the D.C. Circuit's ruling gives proponents a new reason to push. It could mean increased regulation and years of litigation, and it would likely split the FCC along partisan lines, with the three Democrats in favor and two Republicans opposed.

“It would be an incredibly torturous and exhausting route that would take years to solidify,” says former FCC Chairman Michael Powell, who led the push during the George W. Bush administration to ensure that broadband was not treated like the telephone and other telecommunications services. “I think there's nothing worse that we could do than spend the next half a decade tied up in this jurisdictional battle,” says Powell, now a senior adviser to Providence Equity Partners.

Getting Congress Involved

The fight could spill over to Capitol Hill regardless of what the FCC does. If the FCC moves to reclassify broadband or if it finds another route to regulation, the industry is likely to seek refuge in legislation that Sen. John McCain (R-AZ) is sponsoring to strip the FCC of authority over the Internet. If the FCC doesn't act, Rep. Ed Markey (D-MA) is pushing a bill to give the agency explicit authority. Last year, more than 40 interests registered to lobby on the two competing bills. Congressional negotiations would likely take years and attract multimillion-dollar lobbying efforts. Broadband giants such as AT&T Inc., Comcast and Verizon Communications Inc. would butt heads with the likes of Amazon.com Inc., Google Inc. and Netflix Inc.

Net neutrality rules would prohibit Internet service providers from discriminating against almost all content or applications, and are a priority for the Obama administration. FCC Chairman Julius Genachowski, a Harvard Law School classmate of President Obama, was asked during a House committee hearing on March 25 how the agency would proceed if it lost the Comcast case and he refused then to cede any ground. “I believe we have the authority and that we will have the authority,” Genachowski said. [Editor's Note: In April, Genachowski told the U.S. Senate Commerce Committee that, despite the D.C. Circuit ruling, the FCC would continue its bid to exercise authority over high-speed Internet access, though he didn't specify how.]

The FCC could appeal the Comcast Corp. ruling to the full circuit, but communications lawyers say that was unlikely.

FCC General Counsel Austin Schlick primed the pump for some action in an April 7 blog post, writing that the D.C. Circuit decision threatens parts of the FCC's new plan to extend broadband access unless the agency can identify a “sound legal basis” for each part of the plan. Schlick, a former partner at Kellogg Huber Hansen Todd Evans & Figel, wrote that staff is reviewing the decision “to ensure that the Commission has adequate authority.”

Reclassification

The strategy of broadband companies is, for the moment, twofold: warn about the litigation that would result from reclassification and avoid inflaming consumer groups. In statements, the major providers touted their voluntary support for “open Internet principles.”

Jim Cicconi, an AT&T senior executive vice president, says: “No serious voice has suggested that any abuses are occurring today, nor is there any current conduct that has been argued to violate the principles. This is because the FCC's principles have set forth a standard of conduct that all companies strive to meet.”

That's in contrast to the strategy the companies pursued before the D.C. Circuit, where Comcast accused the FCC of violating due process and issuing an “arbitrary and capricious” order. Comcast alone brought in teams from three law firms: Wiley Rein, including partner Helgi Walker; Willkie Farr & Gallagher; and Wilkinson Barker Knauer.

Advocates on the other side are casting reclassification of broadband as inevitable, in part because doing so might be necessary for parts of the FCC's plan to expand access. “The FCC chairman has really staked his chairmanship on implementing a national broadband plan,” says Andrew Schwartzman, president of the Media Access Project.

Though the appeals court chastised the FCC for relying too heavily on its “ancillary authority,” the D.C. Circuit opinion was a narrow ruling, says David Mills, a partner at Dow Lohnes who specializes in communications litigation. “The decision is still important, because it reiterates the principle that the FCC can't rely on a broad assumption that all things Internet are within its jurisdiction,” he says. But Mills adds, “I don't think it means that the commission is foreclosed from imposing regulations.”

One FCC commissioner, Democratic member Michael Copps, is making a vigorous public push to reclassify Internet providers as “Title II” telecom services, similar to telephone companies. “It is time that we stop doing the 'ancillary authority' dance and instead rely on the statute Congress gave us to stand on solid legal ground in safeguarding the benefits of the Internet for American consumers,” Copps said in an April 6 statement. “We should straighten this broadband classification mess out before the first day of summer.”

The broadband industry has promised an all-out fight in the courts if the FCC does that. In a February 22 letter to Genachowski, five trade associations and four companies, including Time Warner Inc. and Qwest Communications International Inc., wrote that such a decision “would likely be invalidated in court, but only after years of industry-destabilizing regulatory uncertainty.”

Then again, the U.S. Supreme Court could defer to the FCC. An earlier case about how to classify Internet service providers went to the court in 2005. Under Michael Powell, the FCC classified broadband as “information services” under Title I of the Communications Act of 1934. Nonprofit groups and others sued, arguing that broadband should fall under the tougher regulation of Title II “telecommunications services.” In National Cable and Telecommunications Association v. Brand X Internet Services, 545 U.S. 967, the justices ruled 6-3 for the FCC.

Paul Glist, who represented the petitioners in Brand X, says the FCC would need to develop a long record if it decides now to use Title II. “It would be a big and long process,” says Glist, co-chairman of the communications practice at Davis Wright Tremaine. Unless the FCC says otherwise, classification under Title II could include regulating rates, terms and conditions, and even accounting obligations, according to the Internet Freedom Coalition.

In Congress, no hearings were scheduled on the D.C. Circuit decision, and legislation to grant the FCC authority over bandwidth management would need to overcome the 60-vote threshold to avoid a filibuster in the Senate, where most Republicans side with the broadband industry. But the momentum could start to build, aides say, if it becomes clear that the legislative process is the FCC's best or only option.

The groups that lost the Comcast case say they're eager to move forward, because now they have a better idea where the D.C. Circuit stands on an important question of FCC jurisdiction. “Putting this issue to bed and coming up with a solution one way or another,” says S. Derek Turner, research director for Free Press, a media reform group that was an intervenor in the Comcast case, “really is important for consumers and for these companies, so they know where they stand.”

Comcast Corp.'s courthouse victory over the Federal Communications Commission (FCC) in April might not turn out to be a win for the company after all if it speeds the path for wider regulation of broadband services. A panel of the U.S. Court of Appeals for the D.C. Circuit ruled that the FCC failed to justify its jurisdiction to regulate Internet traffic. Comcast Corp. v. Federal Communications Commission, 08-1291. The unanimous ruling was a short-term affirmation for those who want to rein in the FCC's ability to impose “net neutrality” rules, but major battles loom in at least two venues: the commission and Congress. A loss in either place would mean a lot more uncertainty for companies like Comcast.

In a move that some say would spark the “World War III” of communications law, advocates for consumers and content providers want the FCC to reclassify Internet service providers as telephone-style common carriers. The idea has simmered for years, and the D.C. Circuit's ruling gives proponents a new reason to push. It could mean increased regulation and years of litigation, and it would likely split the FCC along partisan lines, with the three Democrats in favor and two Republicans opposed.

“It would be an incredibly torturous and exhausting route that would take years to solidify,” says former FCC Chairman Michael Powell, who led the push during the George W. Bush administration to ensure that broadband was not treated like the telephone and other telecommunications services. “I think there's nothing worse that we could do than spend the next half a decade tied up in this jurisdictional battle,” says Powell, now a senior adviser to Providence Equity Partners.

Getting Congress Involved

The fight could spill over to Capitol Hill regardless of what the FCC does. If the FCC moves to reclassify broadband or if it finds another route to regulation, the industry is likely to seek refuge in legislation that Sen. John McCain (R-AZ) is sponsoring to strip the FCC of authority over the Internet. If the FCC doesn't act, Rep. Ed Markey (D-MA) is pushing a bill to give the agency explicit authority. Last year, more than 40 interests registered to lobby on the two competing bills. Congressional negotiations would likely take years and attract multimillion-dollar lobbying efforts. Broadband giants such as AT&T Inc., Comcast and Verizon Communications Inc. would butt heads with the likes of Amazon.com Inc., Google Inc. and Netflix Inc.

Net neutrality rules would prohibit Internet service providers from discriminating against almost all content or applications, and are a priority for the Obama administration. FCC Chairman Julius Genachowski, a Harvard Law School classmate of President Obama, was asked during a House committee hearing on March 25 how the agency would proceed if it lost the Comcast case and he refused then to cede any ground. “I believe we have the authority and that we will have the authority,” Genachowski said. [Editor's Note: In April, Genachowski told the U.S. Senate Commerce Committee that, despite the D.C. Circuit ruling, the FCC would continue its bid to exercise authority over high-speed Internet access, though he didn't specify how.]

The FCC could appeal the Comcast Corp. ruling to the full circuit, but communications lawyers say that was unlikely.

FCC General Counsel Austin Schlick primed the pump for some action in an April 7 blog post, writing that the D.C. Circuit decision threatens parts of the FCC's new plan to extend broadband access unless the agency can identify a “sound legal basis” for each part of the plan. Schlick, a former partner at Kellogg Huber Hansen Todd Evans & Figel, wrote that staff is reviewing the decision “to ensure that the Commission has adequate authority.”

Reclassification

The strategy of broadband companies is, for the moment, twofold: warn about the litigation that would result from reclassification and avoid inflaming consumer groups. In statements, the major providers touted their voluntary support for “open Internet principles.”

Jim Cicconi, an AT&T senior executive vice president, says: “No serious voice has suggested that any abuses are occurring today, nor is there any current conduct that has been argued to violate the principles. This is because the FCC's principles have set forth a standard of conduct that all companies strive to meet.”

That's in contrast to the strategy the companies pursued before the D.C. Circuit, where Comcast accused the FCC of violating due process and issuing an “arbitrary and capricious” order. Comcast alone brought in teams from three law firms: Wiley Rein, including partner Helgi Walker; Willkie Farr & Gallagher; and Wilkinson Barker Knauer.

Advocates on the other side are casting reclassification of broadband as inevitable, in part because doing so might be necessary for parts of the FCC's plan to expand access. “The FCC chairman has really staked his chairmanship on implementing a national broadband plan,” says Andrew Schwartzman, president of the Media Access Project.

Though the appeals court chastised the FCC for relying too heavily on its “ancillary authority,” the D.C. Circuit opinion was a narrow ruling, says David Mills, a partner at Dow Lohnes who specializes in communications litigation. “The decision is still important, because it reiterates the principle that the FCC can't rely on a broad assumption that all things Internet are within its jurisdiction,” he says. But Mills adds, “I don't think it means that the commission is foreclosed from imposing regulations.”

One FCC commissioner, Democratic member Michael Copps, is making a vigorous public push to reclassify Internet providers as “Title II” telecom services, similar to telephone companies. “It is time that we stop doing the 'ancillary authority' dance and instead rely on the statute Congress gave us to stand on solid legal ground in safeguarding the benefits of the Internet for American consumers,” Copps said in an April 6 statement. “We should straighten this broadband classification mess out before the first day of summer.”

The broadband industry has promised an all-out fight in the courts if the FCC does that. In a February 22 letter to Genachowski, five trade associations and four companies, including Time Warner Inc. and Qwest Communications International Inc., wrote that such a decision “would likely be invalidated in court, but only after years of industry-destabilizing regulatory uncertainty.”

Then again, the U.S. Supreme Court could defer to the FCC. An earlier case about how to classify Internet service providers went to the court in 2005. Under Michael Powell, the FCC classified broadband as “information services” under Title I of the Communications Act of 1934. Nonprofit groups and others sued, arguing that broadband should fall under the tougher regulation of Title II “telecommunications services.” In National Cable and Telecommunications Association v. Brand X Internet Services , 545 U.S. 967, the justices ruled 6-3 for the FCC.

Paul Glist, who represented the petitioners in Brand X, says the FCC would need to develop a long record if it decides now to use Title II. “It would be a big and long process,” says Glist, co-chairman of the communications practice at Davis Wright Tremaine. Unless the FCC says otherwise, classification under Title II could include regulating rates, terms and conditions, and even accounting obligations, according to the Internet Freedom Coalition.

In Congress, no hearings were scheduled on the D.C. Circuit decision, and legislation to grant the FCC authority over bandwidth management would need to overcome the 60-vote threshold to avoid a filibuster in the Senate, where most Republicans side with the broadband industry. But the momentum could start to build, aides say, if it becomes clear that the legislative process is the FCC's best or only option.

The groups that lost the Comcast case say they're eager to move forward, because now they have a better idea where the D.C. Circuit stands on an important question of FCC jurisdiction. “Putting this issue to bed and coming up with a solution one way or another,” says S. Derek Turner, research director for Free Press, a media reform group that was an intervenor in the Comcast case, “really is important for consumers and for these companies, so they know where they stand.”