After court ruling, what happens to net neutrality?

An appeals court ruling puts the FCC's authority on broadband in legal limbo

The U.S. Federal Communications Commission is in legal limbo after a U.S. appellate court ruling Tuesday tossed out the agency's enforcement of network neutrality principles on broadband provider Comcast.

Even as the agency moves forward with a rulemaking proceeding to formalize a set of net neutrality rules, the court's decision raises serious questions about the FCC's ability to create regulations in areas where its authority is not spelled out in law. The U.S. Court of Appeals for the District of Columbia Circuit ruled that the FCC did not have the legal authority under a set of net neutrality principles adopted in 2005 to stop Comcast from throttling BitTorrent peer-to-peer traffic.

There seems to be widespread disagreement among telecom legal experts and FCC analysts about the wider impact of the ruling, but several have said the court's decision raises huge doubts about the FCC's authority to create any rules related to broadband service or to implement large portions of a national broadband plan released last month.

"The ruling clearly prevents the commission's attempt to grant itself vast new powers never authorized by Congress with respect to regulating [broadband] information services," said Phil Kerpen, vice president at Americans for Prosperity, a conservative advocacy group.

Others disagree. The case before the D.C. court dealt with a narrow question of whether the FCC had the authority to enforce a set of net neutrality policy principles, not a broader question whether the agency has authority to make rules affecting the broadband industry, said one person with inside knowledge of the plaintiff's arguments in the case.

The court ruled that the FCC's actions were improper, but "that doesn't mean there is some other action the court wouldn't uphold," the insider said.

The court ruling raises questions about what the FCC will do next. The agency did not respond to a request for comment about the ruling and the FCC's future plans. But the agency has several options, all with potential problems:

-- It could move forward with its net neutrality rulemaking proceeding, and attempt to come up with a legal argument for its authority that would stand up in court.

-- It could go to Congress and ask for new authority or ask lawmakers to pass a net neutrality law.

-- It could reclassify broadband as a service that's subject to broad regulation by the agency and brace itself for a huge legal battle.

-- It could do nothing, punt on net neutrality rules and hope that any future attempts to create rules affecting the broadband industry aren't challenged, or are upheld, in court.

Bartlett Cleland, director of the Center for Technology Freedom at the conservative Institute for Policy Innovation, said he hopes the FCC has gotten the message from the appeals court. One option is that "the FCC understands they can't bootstrap authority," he said. "They could say, 'We understand the bounds of our power.'"

It's important to take a step back to understand how the FCC ended up with this court decision. In 2002, the commission ruled that cable modem broadband service was a lightly regulated information service, described under Title I of the Communications Act, instead of a more regulated common-carrier service like traditional telephone service. In mid-2005, the commission also reclassified DSL broadband service as an information service.

However, the FCC has argued, in a series of court cases, that it has so-called ancillary authority beyond what it is granted in Title I to make rules "necessary in the execution of its functions," to use the words of the Communications Act. In the Comcast case, the FCC argued it used its ancillary authority to protect Comcast customers from an overaggressive network traffic management practice.

The D.C. court has addressed FCC claims of ancillary authority on a case-by-case basis, and that's why some telecom law experts say people shouldn't read too much into Tuesday's decision. But the FCC's recent track record of arguing for ancillary authority isn't good -- the D.C. court ruled against the FCC's use of ancillary authority in 1979 and 2005 cases.

The court ruling casts doubt over the FCC's authority to take action to protect broadband customer privacy, to require broadband providers to offer detailed information about speeds to customers and to redirect money from the Universal Service Fund (USF) from traditional telephone subsidies to broadband, said net neutrality supporters Public Knowledge and Free Press. The USF proposal is a major piece of the FCC's national broadband plan.

"Although the opinion is formally only about network management practices, the court seems to adhere to a very narrow view of ancillary authority, supporting only actions that are very tightly connected to specific duties [outlined in the Communications Act]," said Chris Riley, policy counsel at Free Press, a media reform and digital rights group. "It's possible that multiple provisions of the FCC's broadband plan could be in danger as a result of this case."

The court ruling notes the connection of USF to Title II of the Communications Act, which focuses on highly regulated common carriers, Riley noted. The decision "seems to send a strong signal that using USF for broadband would not be upheld," he said.

So what happens now?

Option 1: Continue with the current net neutrality proceeding

It's unclear how the court ruling affects the FCC's ongoing net neutrality proceeding, although many telecom law experts questioned if the agency now has that authority. The court decision puts the ongoing rulemaking "very much in doubt," said Thomas Lenard, president of the Technology Policy Institute, a free-market think tank.

Others predicted the net neutrality rulemaking will continue, but the FCC may need to find a way to justify the proceeding or it may seek new comments on the jurisdictional questions raised by the court.

"I think the staff will need to rethink the basis of its authority since the proposed regulation and its justification were issued in October, before this decision," said Dan Brenner , a partner in the Hogan & Hartson law firm and a former head of regulatory and legal affairs for the National Cable and Telecommunications Association.

Option 2: Ask Congress for new authority or for a net neutrality law

Few people think that Congress will act to give the FCC new authority or pass a net neutrality law in the near future. Net neutrality bills introduced in past sessions of Congress have gone nowhere, and lawmakers only have about four more months in Washington, D.C., this year before November's elections.

Even net neutrality supporters have doubts about congressional action. "It is important to fill the vacuum created by the D.C. Circuit decision and make sure consumers are protected by oversight at the FCC," said Markham Erickson, executive director of the Open Internet Coalition, a group pushing for net neutrality rules. "A clarification of the FCC's authority ... would be the fastest way to ensure that such protections are in place quickly. Nothing would prevent Congress from legislating on this issue, but given the fact this is late in the year, it seems unlikely we could see a bill move in 2010."

Legislation to give the FCC more authority over broadband could develop into a significant rewrite of telecom law and a huge debate, Cleland said. "I don't know if Congress has the stomach for another overhaul of something," he said. "This is nothing short of the health-care bill for the Internet, so I think that'd be a big fight."

Still, the Communications Act is "seriously out of date," Lenard said. "There is no question that the act is poorly suited to the current Internet ecosystem, but it seems unlikely that any major action on such a complicated issue will take place this year," he added.

Option 3: Reclassify broadband as a regulated common-carrier service

Free Press, Public Knowledge, and other groups have called on the FCC to consider reclassifying broadband as a common-carrier type of service. Such a move would be "justifiable," given the appeals court ruling, Riley said.

The FCC could narrowly apply common-carrier rules to broadband carriers, said Gigi Sohn, president of Public Knowledge.

"The commission would not have to impose a heavy regulatory burden on the telephone and cable companies, yet consumers could once again have the benefit of legal protections and the broadband plan could go forward," she said. "The American public deserves no less."

This would not create broad new regulations for the Internet, as some opponents have claimed, she added. "No one is talking about regulating search engines or Web sites," she said. "We are talking about re-applying policies to a telecommunications service that the FCC incorrectly abandoned. That is the most simple solution and it's the correct one."

While the FCC has the authority to, in essence, change its mind, a decision to reclassify would almost certainly be met with a flurry of lawsuits. Case law in this area allows regulatory agencies to reverse decisions, but they have to come up with good reasons for doing so. In other words, it wouldn't be easy.

"The FCC conducted an extensive rulemaking proceeding before it decided to classify Internet access as an information service," said former FCC attorney Charles Zielinski, now with the Bryan Cave law firm. "The FCC would have to conduct a new proceeding to establish changed circumstances that would justify a reclassification of Internet access."

Some opponents of reclassification said an FCC attempt would seem likely, even if they think it's a bad idea. Broadband deployment in the country is going well, and efforts to create new regulations could make broadband providers scale back their investments, Cleland said.

Even if the FCC reclassifies broadband as a common-carrier service only for the purposes of creating a net neutrality rule, that leaves broadband providers open to all kinds of new regulations, he said. "The fact that it sets up future administrations to do what damage they might do, I think people would see as ghastly."

A reclassification would be bad for broadband consumers because it would slow investment and innovation, Lenard said. "It would be a boon for the communications bar, because it lead to virtually endless litigation," he added.

Option 4: Give up on net neutrality rules and continue to assert ancillary jurisdiction on a case-by-case basis

That's the option people like Lenard and Cleland would like the FCC to take. They argue that net neutrality rules aren't needed because there have been few problems and because broadband providers will listen to the demands of their customers.

Americans for Prosperity's Kerpen said his group, involved in the recent Tea Party movement, will fight any attempts to reclassify broadband as a common-carrier service.

"Whether they succeed depends on whether the clear majority of Internet users not clamoring for these regulations can be engaged and create some political pushback on Congress and the White House, which we intend to encourage," he said. "The FCC's pending net neutrality rulemaking ... is a public record that shows the substantive arguments clearly favor the free-market side and we will leverage that advantage in the public debate."

But net neutrality supporters say the need for a rule hasn't gone away. "I think the case makes clear that the FCC has not yet found a hook to which it can base its ancillary jurisdiction on to adopt rules that are broadband related," said Parul Desai, vice president at the Media Access Project, a nonprofit law firm focused on digital rights. "There is still a need for the FCC to determine whether the rules are necessary -- and we think they very much are -- and what those rules look like."

Copyright © 2010 IDG Communications, Inc.

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