TR Daily Court Upholds Most of RIF Order, Vacates State Preemption
Tuesday, October 1, 2019

Court Upholds Most of RIF Order, Vacates State Preemption

Over the partial dissent of Senior Circuit Judge Stephen F. Williams, the U.S. Court of Appeals for the District of Columbia Circuit today upheld the FCC’s 2017 reclassification of broadband Internet access service as an information service subject to Title I of the Communications Act and its reclassification of mobile broadband service as a private mobile service, as well as most of the rest of FCC’s 2017 restoring Internet freedom order (RIF).

However, the court vacated the provision of the RIF order that preempted states from adopting rules repealed in the RIF order, rules that the FCC “decided to refrain from imposing” in the RIF order, or that are “more stringent” than the rules in the RIF order. Judge Williams dissented from this aspect of the majority’s decision.

Both of the other judges on the panel that reviewed the case (“Mozilla Corp. v. FCC,” case 18-1051)—Circuit Judge Patricia A. Millett, who presided over the oral arguments earlier this year (TR Daily, Feb. 1), and Circuit Judge Robert L. Wilkins—indicated in concurring statements that they felt compelled to uphold the FCC’s reclassification of broadband Internet access service (BIAS) as an information service by the Supreme Court’s 2005 decision in “National Cable & Telecommunications Association v. Brand X Internet Services,” which upheld an earlier FCC’s holding that broadband Internet access service was an information service.

The FCC in 2015, with a Democratic majority and Chairman Tom Wheeler at the helm, reclassified BIAS as a telecommunications service subject to common carrier regulation Title II of the Communications Act, and the current Republican-majority Commission, under the leadership of Chairman Ajit Pai, reversed that decision in an order adopted in late 2017 and published in the “Federal Register” (TR Daily, Dec. 14, 2017).

In addition to overturning the 2015 regulatory reclassifications of fixed and mobile broadband, the 2017 RIF order overturned nearly all of the provisions of the 2015 open Internet order, including its bright-line conduct rules against blocking, throttling, and paid prioritization and its Internet general conduct standard.

The RIF order left in place some of the transparency requirements of the 2015 order and imposed specific transparency requirements on ISPs, directing them to disclose if they engage in blocking, throttling, paid prioritization, or prioritization of affiliate content or services.

The RIF order also stated that BIAS is an interstate service and preempted state actions that conflict with the federal regime for ISPs (TR Daily, Dec. 14, 2017).

Judge Williams had been the dissenting voice from a 2017 D.C. Circuit decision that upheld the 2015 FCC order.

In its per curiam (unsigned) decision released today, the D.C. Circuit remanded the order to the FCC to address issues in three areas in which it found the order inadequate: “(1) The Order failed to examine the implications of its decisions for public safety; (2) the Order does not sufficiently explain what reclassification will mean for regulation of pole attachments; and (3) the agency did not adequately address Petitioners’ concerns about the effects of broadband reclassification on the Lifeline Program,” it said.

Despite the remand on these issues, the majority declined to vacate the order.

“When deciding whether to vacate an order, courts are to consider the ‘the seriousness of [its] deficiencies (and thus the extent of doubt whether the agency chose correctly) and the disruptive consequences of an interim change that may itself be changed’ … . Here, those factors weigh in favor of remand without vacatur. First, the Commission may well be able to address on remand the issues it failed to adequately consider in the 2018 Order. … Second, the burdens of vacatur on both the regulated parties (or non-regulated parties as it may be) and the Commission counsel in favor of providing the Commission with an opportunity to rectify its errors. Regulation of broadband Internet has been the subject of protracted litigation, with broadband providers subjected to and then released from common carrier regulation over the previous decade. We decline to yet again flick the on-off switch of common-carrier regulation under these circumstances. But because the Commission’s Preemption Directive, see 2018 Order ¶¶ 194–204, lies beyond its authority, we vacate the portion of the 2018 Order purporting to preempt ‘any state or local requirements that are inconsistent with [the Commission’s] deregulatory approach[,]’ see id. ¶ 194.”

Regarding the preemption directive, the per curiam opinion says, “The Commission ignored binding precedent by failing to ground its sweeping Preemption Directive—which goes far beyond conflict preemption—in a lawful source of statutory authority. That failure is fatal.”

It adds, “The Preemption Directive conveys more than a mere intent for the agency to preempt state laws in the future if they conflict with the 2018 Order. As the Commission confirmed at oral argument, it is not just a ‘heads up that ordinary conflict preemption principles are going to apply.’ … The Order was meant to have independent and far-reaching preemptive effect from the moment it issued. Id.; see also 2018 Order ¶¶ 195–197. And the Commission meant for that preemptive effect to wipe out a broader array of state and local laws than traditional conflict preemption principles would allow. Oral Arg. Tr. 171 (Q: ‘It’s broader than ordinary conflict preemption?’ A: ‘That’s correct.’). The Governmental Petitioners challenge the Preemption Directive on the ground that it exceeds the Commission’s statutory authority. They are right.”

Regarding the “central issue” of the lawfulness of the FCC’s decision to classify BIAS as an information service, the majority said, “The Commission’s classification of cable modem as an ‘information service’ was not challenged in ‘Brand X,’ … but, given that ‘telecommunications service’ and ‘information service’ have been treated as mutually exclusive by the Commission since the late 1990s, … a premise Petitioners do not challenge, … we view ‘Brand X’ as binding precedent in this case.”

“‘Brand X’ held that, by virtue of the ambiguity [in the statutory definition of ‘telecommunications service’] of the word ‘offering,’ the FCC could permissibly choose not to classify cable modem service as a ‘telecommunications service.’ … As to DNS [domain name service] and caching, the ‘Brand X’ Court endorsed the Commission’s argument that those functionalities can be relied on to classify cable modem service as an ‘information service,’” the majority said.

The majority also upheld the FCC’s interpretation of section 706 of the Communications Act, as amended, which directs the FCC to encourage the deployment on a reasonable and timely basis of advanced telecommunications capability to all Americans by utilizing price cap regulation, regulatory forbearance, measures to promote competition, or other regulating methods that remove barriers to infrastructure investment. Section 706 also directs the FCC to “take immediate action” if the goal of reasonable timely deployment is not being met “in a timely fashion.”

“The Commission interpreted these provisions as ‘exhorting the Commission to exercise market-based or deregulatory authority granted under other statutory provisions, particularly the Communications Act’ not as ‘an independent grant of regulatory authority to give those provisions meaning.’ 2018 Order ¶ 270. Despite Petitioners’ contentions, we find that this interpretation of Sections 706(a) and (b) is lawful,” the majority said.

Applying the “Chevron” test for an expert regulatory agency’s interpretation of statutory provisions, the court noted it had held section 706 to be ambiguous in a 2014 opinion that ultimately overturned FCC net neutrality rules adopted when the agency classified BIAS as an information service.

“Thus, we proceed to Step Two of the analysis and ask whether the Commission’s understanding of Section 706 as hortatory represents a reasonable interpretation of the statute. We find that it does. Indeed, we have previously held that the language of Section 706(a) could ‘certainly be read as simply setting forth a statement of congressional policy’ and ‘just as easily be read to vest the Commission with actual authority.[‘] Id. at 637. We have also understood Section 706(b) to be similarly permissive. Id. at 641. Furthermore, in support of its interpretation, the Commission notes that Section 706 lacks details ‘identify[ing] the providers or entities whose conduct could be regulated,’ whereas other provisions of the Act that unambiguously grant regulatory authority do specify such details. 2018 Order ¶ 271. We find the Commission’s rationales in favor of its reading of Section 706 to be reasonable,” the majority said.

The court upheld the FCC’s reliance on section 257 of the Communications Act, which directs the agency to take steps to identify and eliminate barriers to market entry, as the source of its authority to adopt the transparency requirements in the 2017 order.

“The Commission observed [in the 2017 order] that ‘section 257 does not specify precisely how [it] should obtain and analyze information for purposes of its reports to Congress,’ and thus ‘construe[d] the statutory mandate to ‘identify’ the presence of market barriers as including within it direct authority to collect evidence to prove that such barriers exist.’ 2018 Order ¶ 232 n.847. We find that this interpretation of Section 257(a) is permissible. ‘The Commission, however, interpreted the statute to require a rulemaking based on authority other than section 257 itself only for rules intended to eliminate market barriers rather than rules meant to identify such barriers.’ Commission Br. 100. The relevant language in Section 257 is sufficiently ambiguous—Congress does not proscribe the means of ‘identifying’ market barriers. The Commission permissibly read the clause to apply only to the elimination of market barriers. In turn, we find that the Commission’s reading easily satisfies review at Chevron Step Two, under which we defer to the agency’s interpretation unless it is ‘arbitrary or capricious in substance, or manifestly contrary to the statute,” the majority said.

“While Petitioners correctly note that Section 257(c) was removed from the Communications Act before the 2018 Order became effective, see RAY BAUM’S Act of 2018, Pub. L. 115- 141, § 402(f), 132 Stat. 1089 (2018), it was not altered in any material respect for purposes of the Commission’s authority in this regard. The 2018 legislation that amended the Act introduced a biennial reporting requirement quite similar to the triennial reporting requirement contained in the former Section 257(c),” the majority added.

The court rejected the FCC’s argument that surviving challenges of its interpretation of statute under the “Chevron” test “insulates” it from challenges under the Administrative Procedure Act that its actions were arbitrary and capricious.

“That argument misunderstands the law. To be sure, the analysis of an agency’s statutory interpretation at ‘Chevron’ Step Two has some overlap with arbitrary and capricious review. … Nevertheless, ‘the Venn diagram of the two inquiries is not a circle.’ ‘Humane Soc’y of United States v. Zinke,’ 865 F.3d 585, 605 (D.C. Cir. 2017). Each test must be independently satisfied,” the court said.

“This is a case in point. The Commission has advanced what is, under controlling precedent, a reasonable interpretation of the statute for purposes of ‘Chevron.’ But aspects of the Commission’s decision are still arbitrary and capricious under the Administrative Procedure Act because of the Commission’s failure to address an important and statutorily mandated consideration—the impact of the 2018 Order on public safety—and the Commission’s inadequate consideration of the 2018 Order’s impact on pole-attachment regulation and the Lifeline Program,” the court said. Regarding challenges on “arbitrary and capricious” grounds of the FCC’s approach to determining that the reclassification of BIAS as information service would increase investment, the court said that “the agency’s position as to the economic benefits of reclassification away from ‘public-utility style regulation,’ … is supported by substantial evidence.”

Similarly, despite some misgivings, the court rejected challenges that the FCC’s failure to adequately consider its own past view that broadband providers have the ability and incentive to harm edge providers and consumers was arbitrary and capricious.

“The Commission reasonably concluded that the harms the [2015] ‘Title II Order’ was designed to prevent did not require the prior Order’s regulatory measures but could instead be mitigated—at a lower cost—with transparency requirements, consumer protection, and antitrust enforcement measures,” it said.

“We are, however, troubled by the Commission’s failure to grapple with the fact that, for much of the past two decades, broadband providers were subject to some degree of open Internet restrictions. For example, from the late 1990s to 2005, Title II applied to the transmission component of DSL service. ‘Title II Order’ ¶ 313. Even after the Commission issued the 2005 Wireline Broadband Order, which classified DSL as an integrated information service and thus further removing it from Title II’s ambit, the Commission announced that should it ‘see evidence that providers of telecommunications for Internet access or IP-enabled services are violating’ the Internet Policy Statement, which reflected Chairman Michael Powell’s four principles of Internet openness, it would ‘not hesitate to take action to address that conduct,’ id. at 14904 ¶ 96. In 2015, the Commission also claimed that ‘Title II has been maintained by more than 1000 rural local exchange carriers that have chosen to offer their DSL and fiber broadband services as common carrier offerings.’ … The Commission’s failure to acknowledge this regulatory history, however, does not provide grounds for reversal on this record given its view that market forces combined with other enforcement mechanisms, rather than regulation, are enough to limit harmful behavior by broadband providers,” it added.

It also rejected arbitrary-and-capricious challenges to the FCC’s reliance on its transparency rule to protect consumers, the FCC’s decision to change “its view about the magnitude of competitive pressures in the fixed broadband market,” and its decision to rely on antitrust and consumer protection law to protect consumers in lieu of the net neutrality rules it eliminated.

However, the court agreed with petitioners that the FCC’s “failure to consider the implications for public safety of its changed regulatory posture in the 2018 Order” was arbitrary and capricious.

“An agency’s failure to consider and address during rulemaking ‘an important aspect of the problem’ renders its decision arbitrary and capricious. ‘State Farm,’ 463 U.S. at 43. … When, as here, ‘Congress has given an agency the responsibility to regulate a market such as the telecommunications industry that it has repeatedly deemed important to protecting public safety,’ then the agency’s decisions ‘must take into account its duty to protect the public.’ Nuvio, 473 F.3d at 307,” the court said.

It cited the comments of Santa Clara County, Calif., and the California Public Utility Commission in the FCC’s record regarding the public safety risks created by the 2017 order.

It also agreed with petitioners’ claims that the FCC’s failure to conduct “reasoned consideration” of the 2017 order’s impact on pole attachments was arbitrary and capricious, given that the pole attachment regulatory scheme applies to attachments for cable TV and telecommunications service, not for information service. Parts of the 2017 order acknowledge the FCC would no longer regulate broadband, while in others, “the Commission seemed to whistle past the graveyard, implying without reasoned basis that Section 224 [on pole attachments] would continue to govern reclassified broadband. … Both cannot be true,” the court said.

As for the Lifeline program, the court said that “broadband’s eligibility for Lifeline subsidies turns on its common-carrier status. … As a matter of plain statutory text, the 2018 Order’s reclassification of broadband—the decision to strip it of Title II common-carrier status—facially disqualifies broadband from inclusion in the Lifeline Program. … The Commission completely fails to explain how its ‘authority under Section 254(e) [of the Communications Act, as amended]’ could extend to broadband, even ‘over facilities-based broadband-capable networks that support voice service,’ 2018 Order ¶ 193, now that broadband is no longer considered to be a common carrier. After all, Section 254(e) provides that ‘only an eligible telecommunications carrier designated under section 214(e) of this title shall be eligible to receive specific Federal universal service support.’ 47 U.S.C. § 254(e) … And the statute expressly defines an ‘eligible telecommunications carrier’ as a ‘common carrier’ under Title II,” the court said.

In a signed concurrence, Judge Millett said, “I join the Court’s opinion in full, but not without substantial reservation. The Supreme Court’s decision in ‘National Cable & Telecommunications Ass’n v. Brand X Internet Services,’ 545 U.S. 967 (2005), compels us to affirm as a reasonable option the agency’s reclassification of broadband as an information service based on its provision of Domain Name System (‘DNS’) and caching. But I am deeply concerned that the result is unhinged from the realities of modern broadband service.”

She added, “As our opinion today recognizes, auxiliary services like DNS and caching remain in the broadband bundle. But their salience has waned significantly since Brand X was decided. DNS is readily available, free of charge, and at a remarkably high quality, from upwards of twenty different third-party providers. And caching has been fundamentally stymied by the explosion of Internet encryption. For these accessories to singlehandedly drive the Commission’s classification decision is to confuse the leash for the dog. In 2005, the Commission’s classification decision was ‘just barely’ permissible. ‘Brand X,’ 545 U.S. at 1003 (Breyer, J., concurring). Almost fifteen years later, hanging the legal status of Internet broadband services on DNS and caching blinks technological reality.”

In his own separate concurring opinion, Judge Wilkins said, “I too join the Court’s opinion in full. As Judge Millett’s concurring opinion persuasively explains, we are bound by the Supreme Court’s decision in ‘National Cable & Telecommunications Ass’n v. Brand X Internet Services,’ 545 U.S. 967 (2005), even though critical aspects of broadband Internet technology and marketing underpinning the Court’s decision have drastically changed since 2005. But revisiting ‘Brand X’ is a task for the Court—in its wisdom—not us.”

In his partial concurrence and partial dissent, Judge Williams quoted from Shakespeare’s “Macbeth” when he realizes he was misled by the witches’ predictions and that “his life is collapsing around him. The enactors of the 2018 Order, though surely no Macbeths, might nonetheless feel a certain kinship, being told that they acted lawfully in rejecting the heavy hand of Title II for the Internet, but that each of the 50 states is free to impose just that. … If Internet communications were tidily divided into federal markets and readily severable state markets, this might be no problem. But no modern user of the Internet can believe for a second in such tidy isolation; indeed, the Commission here made an uncontested finding that it would be ‘impossible’ to maintain the regime it had adopted under Title I in the face of inconsistent state regulation. On my colleagues’ view, state policy trumps federal; or, more precisely, the most draconian state policy trumps all else.” —Lynn Stanton, [email protected]

MainStory: FederalNews Courts FCC NetNeutrality PublicSafety UniversalServiceLifeline CaliforniaNews

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