United States: The Open Road Ahead For The FCC's Open Internet Rules

Last Updated: August 13 2015
Article by Bryan N. Tramont and Brian Murray

This past year has seen intense debate about "open Internet" or "net neutrality" regulation. Issues such as whether prescriptive rules are needed to preserve the Internet as an open platform and whether the Federal Communications Commission ("FCC") can lawfully adopt them have consumed considerable ink—and more appropriately for this context, innumerable pixels—in the press (both popular and trade), scholarly articles, filings with the FCC, and ultimately, the agency's own 400-page order. There, three Democratic commissioners answered these and other questions in a manner that subjects Internet service providers ("ISPs") to a "modernized" form of common carrier regulation, consisting of many of the obligations that traditionally applied to public utilities as well as additional requirements intended to protect Internet openness.

The release of the FCC's order on March 12 did not mark the end of the matter; it merely shifted the action to other forums. In the coming weeks, months, and years, the substance and fate of the FCC's rules will be decided in several arenas, with plenty of room for participation by industry and other stakeholders. The following discussion provides an overview of the FCC's order and some of its history, and then describes the next battlefields in the ongoing war over the proper regulatory treatment of the Internet.

The FCC's Order

The FCC's recent order is the agency's third attempt at net neutrality regulation—and its third trip to the D.C. Circuit on the subject. In 2008, the FCC relied on its ancillary authority to penalize Comcast for its practices in connection with peer-to-peer file sharing; in 2010, the D.C. Circuit rejected that effort, finding that the agency's ancillary authority did not extend far enough to support that enforcement action.1 In December 2010, the FCC tried again but swept more broadly, citing the directive in Section 706 of the Telecommunications Act of 1996 that it act to encourage broadband deployment to justify rules that prohibited ISPs from blocking lawful traffic online and from engaging in unreasonable discrimination, and required them to disclose certain information about their network management practices, service performance, and terms of service. In 2014, the D.C. Circuit upheld the disclosure rule but rejected the others, finding that the FCC essentially had sought to impose common carrier regulations on ISPs despite long ago declining to treat them as common carriers2—an approach that the Supreme Court previously endorsed.3

Shortly thereafter, the FCC initiated the rulemaking that ultimately produced the recent order. Given the recurring disputes about the agency's authority to act in this area, a central issue of contention in that proceeding was whether the FCC should again proceed based on Section 706 (but with a rationale that hewed more closely to the D.C. Circuit's decision), or whether it should go further and classify ISPs as common carriers subject to all of the regulations that apply to "telecommunications services" under Title II of the Communications Act of 1934 and to new open Internet rules. There was no shortage of opinion on the subject. The FCC later reported that it received over 4 million public comments in response to its notice of proposed rulemaking. One of the more momentous opinions expressed was that of President Obama, who in November 2014 took the unusual step of producing an online video that called for the FCC to reclassify broadband as a telecommunications service and to impose open Internet protections on that basis.

That is the option the FCC ultimately chose. In its order, the FCC reversed several decades of deregulatory precedent and classified ISPs' broadband Internet access services as "telecommunications services," triggering the Title II provisions and the FCC's implementing rules—some of which the FCC then decided it would forbear from enforcing. As a result, ISPs must now comply with a variety of obligations that previously only applied to telephone companies, ranging from basic filing requirements to privacy safeguards to disability access requirements to many other areas. Then, relying on the authority conferred by that classification decision, the FCC proceeded to also subject ISPs to a series of open Internet protections, consisting of: (i) bright-line prohibitions on blocking or throttling (i.e., impairing or degrading) lawful online traffic and on so-called "paid prioritization" arrangements (i.e., those favoring certain traffic in exchange for compensation or some other benefit); (ii) a general "Internet conduct standard," by which the FCC will assess, on a case-by-case basis, whether ISP practices unreasonably interfere with or disadvantage the ability of consumers to conduct their activities online or of "edge providers" (e.g., Netflix, Google, and similar online entities) to make their services and content available; and (iii) "enhanced" transparency requirements that require ISPs to disclose additional information about their services (supplementing the disclosure obligations that survived the D.C. Circuit's last review). The FCC also stated that it would, for the first time, scrutinize ISPs' interconnection arrangements.4

The controversial nature of these rulings was underscored by the strong dissents of the two Republican FCC commissioners, who argued that the classification reversal and the new open Internet safeguards were unnecessary (because there is no evidence of any actual problem to be fixed), unlawful (because the departure from longstanding precedent and the Supreme Court's affirmance of it was unjustifiable), harmful (because the burdens of the rules would impede innovation and investment), and procedurally flawed (because the rulings were the product of a flawed and politicized process). The dissents effectively offered a roadmap to an appeal, a route that many petitioners quickly sought to travel.

The Courts

After the order's release, attention moved to the appellate courts—several of them, in fact. Even before the FCC's order was published in the Federal Register (which normally starts the appellate clock ticking), various parties filed petitions for review with the D.C. Circuit and Fifth Circuit on behalf of certain ISPs; after publication, the same parties filed again, as did others, adding the Third Circuit to the mix. The D.C. Circuit appears to be the venue of choice and chance: That court prevailed in a lottery to hear the initial appeal, and the FCC later asked (with the consent of all petitioners) that all pending challenges be transferred there. The other courts have agreed, meaning that the D.C. Circuit will reprise its role as the judicial arbiter of the FCC's attempts to regulate the Internet.

In fact, the D.C. Circuit already faces its first question, as a coalition of ISPs and their representative trade associations asked that court to stay the reclassification ruling and the Internet conduct standard pending appeal and before the order's June 12 effective date. Stays are an extraordinary remedy—they are only warranted where, among other factors, a challenge is likely to prevail and the rules at issue would impose irreparable harm (as the ISPs argue here). However, a grant of the stay would signal judicial skepticism of the FCC's actions that, apart from its implications for the actual appeal, would have immediate political ramifications.

At this early stage, the timing for a final ruling is unclear. The petitioners have asked that the court expedite the appeal—in which case, briefing could occur as early as this summer, with oral argument in the fall and a decision possible by the first quarter of 2016. Otherwise, briefing could be delayed until the fall, with oral arguments in the winter and a decision as late as the summer of 2016. (During the last appeal, oral argument did not occur until two years after petitions for review were filed, with a decision coming roughly four months afterward.)

Not surprisingly, all sides predict they will prevail, although partial victories are possible. Total victory for the FCC would be for the appeals court to affirm the order and rules in full and to bless the use of its authority, allowing the agency to advance other regulatory priorities; total victory for the ISPs would be for the court to vacate the decision in its entirety. But in between those extremes lie a number of other possibilities. For instance, the FCC stated that each of its open Internet rules and its classification decision are separate and severable from each other, such that a court could stay or invalidate one without disturbing the others. The court also could remand the order to the agency to improve its stated rationale for the rules, leading to a repeat of the entire process. Once the briefing begins in earnest, the relative likelihood of these various scenarios may become clearer. Of course, even then, the eventual losing side could seek rehearing en banc or certiorari before the U.S. Supreme Court. One way or the other, judicial closure is not imminent. Moreover, by early 2017, a new party could take control of the White House—and thus, of the FCC—which potentially could dictate the course of any litigation.

Congress

The FCC's action also spurred congressional activity. Net neutrality is not a new topic on Capitol Hill: Discussions of a possible legislative solution have proceeded in parallel with the FCC's rulemakings, and various members of Congress have kept close tabs on the agency. The action now could go in several directions.

First, Congress could nullify the FCC's open Internet rules on a relative fast track through the Congressional Review Act ("CRA"). The CRA requires the FCC to send its order and rules to Congress (and to the Government Accountability Office), which is permitted to review "major" rules before they become effective and to enact a joint resolution disapproving—and thereby invalidating—them. Republicans in the House and Senate (led by Representative Doug Collins of Georgia and Senator Rand Paul of Kentucky, respectively) have introduced companion resolutions to do just that. Following a simple majority vote in both houses of Congress, a joint resolution of disapproval could be presented to the President for signature—which, under the CRA's deadlines, would need to happen by June 12. But the CRA process is unlikely to doom the FCC's order. Even if Republicans could pass these resolutions over Democratic opposition, a presidential veto is all but inevitable. (Indeed, in 2011, after the FCC last attempted to adopt open Internet rules, the same process ultimately failed.)

Congress also could repeal or replace the FCC's rules through more conventional legislative processes—albeit subject to filibuster and the usual wrangling. Even before the FCC voted on the order, House and Senate Republican Commerce Committee leadership held hearings on a discussion draft of legislation that would prohibit ISPs from blocking, throttling, and paid prioritization but would otherwise limit the FCC's authority to regulate in this area. Thus far, a bipartisan legislative compromise has been elusive. Republicans have led that effort, and despite some hints of receptiveness from a few key Democrats, there has not yet been much momentum. But a grant of the stay request mentioned above could be a catalyst in that initiative, since Democrats may feel compelled to support a legislative fix rather than risk being left with no open Internet rules at all. In addition, there is not necessarily a consensus regarding the best way to address open Internet issues. For instance, Republican House Judiciary Chairman Bob Goodlatte—an outspoken critic of the FCC's rules—has suggested that the rules should be repealed and that antitrust law offers the best solution, since it protects competition and thus, the theory goes, Internet openness.

Separately, Congress may use the appropriations process to limit the FCC's ability to implement its rules. Both the House and Senate Appropriations Subcommittees on Financial Services and General Government must approve the FCC's annual budget, and members of either committee have the ability to propose language in the relevant funding legislation prohibiting the FCC from using any funds for a particular purpose. The open Internet rules are sufficiently controversial that they could invite a rider of this sort. Several hearings have already been held, during which some members of Congress criticized the FCC's rules. And during those hearings, Republican FCC Commissioner Ajit Pai called upon Congress to forbid the FCC from using any appropriated funds to implement or enforce these rules. Again, it is not clear whether any such rider would be subject to a presidential veto, although that could turn on whether the FCC's funding authorization is part of a broader budget bill.

More generally, Congress can use its oversight authority to scrutinize and potentially influence the FCC's implementation and enforcement of the rules. Indeed, the process leading to the order has been the subject of heavy criticism. Several oversight hearings on process have already occurred, including one focused entirely on the FCC's open Internet rules. While such hearings are unlikely to have a direct policy effect, they could pressure the FCC to tailor its approach. In short, while it still appears that the courts will be the first to act, there will remain plenty of churn on Capitol Hill.

The FCC's Enforcement Bureau

Finally, as the courts and Congress duel over who will decide the fate of the FCC's rules, broadband providers must comply with them. Absent a stay, most of the FCC's rules will become effective on June 12; the enhanced disclosure requirements are subject to a longer approval process that likely will not conclude until later this year.

The FCC has made clear its intent to focus on aggressive enforcement. The last year has featured higher monetary penalties, more aggressive consent decrees entered into to settle alleged violations, and broader and more burdensome investigations in advance of notices of apparent liability (by which the FCC formally alleges violations).

Moreover, there is substantial uncertainty regarding the application and scope of some of the open Internet rules, much of it resulting from the order itself. To take one of the more notorious examples, the FCC has only identified illustrative but non-exhaustive criteria for how practices will be assessed under the Internet conduct standard, and even Chairman Wheeler confessed that "[w]e don't really know" how that rule will be applied.5 In addition, the order itself states that it is not "exhaustively determining provision-by-provision and regulation-by-regulation whether and how particular provisions and rules apply to this service," leaving ISPs with some uncertainty regarding their new obligations. And many of the order's statements about particular rules that do or do not apply include an "at this time" caveat, suggesting future flux regarding the nature of ISPs' obligations. Hanging over such questions is the statement by the Chief of the FCC's Enforcement Bureau in a recent interview that, "when you're in enforcement, you're almost always working in a gray area."6 These gray areas will be explored on an ad hoc basis as the FCC either initiates investigations or adjudicates complaints by outside parties, or perhaps through the reconsideration process. While the FCC will let ISPs seek "advisory" opinions about compliance issues, that guidance is expressly nonbinding and thus offers cold comfort to entities that will now be regulated as common carriers, many for the first time in any capacity.

* * *

In short, as the enforcement window opens on June 12, the courts and Congress are actively working to review and assess a path forward to ensure an open Internet. The enforcement process will be critical, however, because it is likely to supply much of the substance of the FCC's rules and will signal just how aggressive the agency plans to be in implementing them—a factor that could further influence the pace and tone of the judicial and legislative proceedings noted above. Whether it's from the courts or Congress or a new FCC in 2017, we likely have not heard that last word on the regulatory treatment of broadband and the rules of the road for an open Internet.

[NOTE: Following the initial publication of this article, the D.C. Circuit denied the request that it stay the FCC's order but granted the request to expedite the appeal. In addition, Congress did not enact a joint resolution disapproving the FCC's order pursuant to the Congressional Review Act before the June 12 deadline for doing so.]

Footnotes

1. Comcast Corp. v. FCC, 600 F.3d 642 (D.C. Cir. 2010).

2. Verizon v. FCC, 740 F.3d 623 (D.C. Cir. 2014).

3. Nat'l Cable & Telecomms. Ass'n v. Brand X Internet Servs., 545 U.S. 967 (2005).

4. Protecting and Promoting the Open Internet, Report and Order on Remand, Declaratory Ruling, and Order, GN Docket No. 14-28, FCC 15-24 (rel. Mar. 12, 2015).

5. L. Gordon Crovitz, "Obamanet's Regulatory Farrago," Wall St. J., Mar. 15, 2015, available at http://www.wsj.com/articles/gordon-crovits-obamanets-regulatory-farrago-1426457509.

6. Brendan Sasso, "The FCC's $365 Million Man," Nat'l Journal, Apr. 26, 2015, available at http://www.nationaljournal.com/tech/the-fcc-s-365-million-dollar-man-20150426.

Originally written for Telecom Law360.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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