TR Daily Judges Question Implications of FCC’s Internet Freedom Order
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Friday, February 1, 2019

Judges Question Implications of FCC’s Internet Freedom Order

A three-judge panel of the U.S. Court of Appeals for the District of Columbia Circuit today questioned defenders and challengers of the FCC’s 2017 restoring Internet freedom (RIF) order closely on a wide range of issues, from whether the FCC’s interpretation of “information services” encompasses voice telephony to whether it provided adequate notice that it might rest authority for its transparency rule on a reporting requirement in the 1996 Telecommunications Act — and how the court should deal with the fact that the statutory provision containing the reporting requirement was eliminated by Congress before the order took effect.

During the lengthy and complicated oral argument today in consolidated cases beginning at “Mozilla Corp. v. FCC” (case 18-1051), the judges sought clarification of parties’ legal arguments, explanations of how paid prioritization functions, details on how the disclosures required by the transparency rule are presented to consumers, and concrete examples of the types of state laws and rules that would be allowed or disallowed under the order’s preemption provision.

Petitioners challenging the order were broadly organized as government petitioners, who are focused on the preemption provision of the order and its implication for public safety especially, and nongovernment petitioners, who are challenging a broader range of provisions on a variety of grounds, including misinterpreting the 1934 Communications Act, as amended, and violating the Administrative Procedure Act.

Five separate attorneys argued on behalf of the two broad groups of petitioners, and FCC General Counsel Thomas Johnson defended the order, along with Jon Nuechterlein of Sidley Austin LLP, who represented ISP (Internet service provider) intervenors. The court had originally allocated a total of two and a half hours — substantially longer than the typical appellate oral argument — to allow time for parties to address the many issues presented by the case, but it ran much longer — more than four and a half hours, including a brief break after the petitioners’ initial arguments — as presiding Circuit Judge Patricia A. Millett allowed attorneys to speak beyond their allotted times.

The 2017 RIF order overturned nearly all of the provisions of the 2015 open Internet order adopted by a Democratic-controlled Commission, including the classification of broadband Internet access service (BIAS) as a telecommunications service subject to common carrier regulation under Title II of the Communications Act, classifying it instead as a Title I information service; the classification of mobile broadband as a commercial mobile service subject to Title II regulation; bright-line conduct rules against blocking, throttling, and paid prioritization; and the 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).

Non-governmental petitioners — including telecom and tech sector companies and trade groups, purchasers of BIAS, and public interest groups — have argued that the FCC misinterpreted the statute in its regulatory reclassification of BIAS, and that “the FCC’s failure to consider the evidence, abandonment of the open Internet rules, and denial of motions to introduce additional evidence, violates the Administrative Procedure Act or is otherwise contrary to law” (TR Daily, Aug. 21, 2018).

Twenty-two state attorneys general and various other state and local government entities that have also challenged the RIF order have said that the preemption of state laws that impose net neutrality protections violates the Communications Act, which established “a system of dual state and federal regulation” (TR Daily, Aug. 21, 2018).

Pantelis Michalopoulos of Steptoe & Johnson LLP, representing non-government petitioners, told the court that the RIF order “is a stab in the heart of the Communications Act” and that it “would write telecommunications out of the Act.”

He argued that the FCC “refused to answer the question” of whether an ISP is providing a telecommunications service when it transmits data from a content provider such as Netflix.

Judge Millett asked whether it was Mr. Michalopoulos’s position that telecom and information services are “mutually exclusive,” and when he said it was, she suggested that the FCC’s determination that BIAS is an information service necessarily precludes that it is a telecom service. Mr. Michalopoulos said that the same provider can provide both telecom and information services.

Senior Circuit Judge Stephen F. Williams, who as a member of the appellate panel that upheld the FCC’s 2015 open Internet order in “U.S. Telecom Association v. FCC” (TR Daily, June 14, 2016) dissented from its acceptance of that order’s classification of BIAS as a telecommunications service, pointed out to Mr. Michalopoulos that the Supreme Court in its 2005 “NCTA v. Brand X” decision upholding the classification of cable modem service as an information does not rest only on “the walled garden relationship” that was a more common experience for Internet users then than now. The “Brand X” court was clear that ISPs are offering an information service even when providing access to third-party content, Judge Williams said — a point he made repeatedly during today’s argument.

Circuit Judge Robert L. Wilkins said that even if the “Brand X” court did focus on the “walled garden” relationship, he didn’t “understand exactly where that gets you,” given that some of the major ISPs are now vertically integrated providers of content as well as Internet access. “How are we supposed to slice the bologna here?” he asked.

Mr. Michalopoulos said that video and Internet services are offered separately.

In response to Mr. Michalopoulos’s argument that caching — one of the features of Internet access service that the FCC argues indicate it is an information service — falls under the network management exception, Judge Millett asked whether he was arguing that the statute mandates treating caching as network management or that not treating it as network management is an unreasonable interpretation of the statute. He said it was not mandated but that the FCC had to follow its own precedent.

Judge Williams said that an agency can change its mind, but Mr. Michalopoulos said it must do so explicitly, not sub silentio.

Judge Millett asked how consumer expectations about Internet service — which played a role in the “Brand X” decision — are to be determined. “Are we supposed to poll consumers?” she asked.

When Mr. Michalopoulos referenced an analysis of expectations expressed in 50,000 consumer complaints, Judge Millett noted that there are “millions and millions” of broadband subscribers, “and we’re supposed to go by what 50,000 said?”

Judge Williams said, “Whatever ‘Brand X’ said, it can’t mean that what a particularly ill-informed consumer, even a million of them, think” should control the definition of the service.

Regarding the FCC’s reliance on competition to prevent blocking, throttling, and other behaviors that might harm consumers, because it perceived its hands to be tied after classifying bias as an information service, Mr. Michalopoulos said that the Commission was “more royal than the king,” given that ISPs themselves had suggested the FCC could use other authority, such as section 706 (advanced communications capability), to impose rules regarding blocking and throttling.

Judge Williams said that “it is not wrong to rely on standard economic analysis” in determining that ISPs have economic incentives to not block or throttle.

When Mr. Michalopoulos argued that relying on competition is inappropriate, given that “50% of the nation’s households don’t have a choice of high-speed provider,” Judge Williams pointed out that the statistic refers to service at 25 megabits per second downstream/3 Mbps upstream, and that many consumers have competitive options at lower speeds that they willingly select for their lower prices.

Kevin Russell, also arguing for the non-government petitioners, said that in arguing that it had no legal authority to regulate blocking and throttling after determining that Internet service is an information service, the FCC is acting like “a junior varsity Article II court,” and no longer deserves “Chevron” deference as an expert agency, since it is acting outside its area of expertise.

Mr. Russell also said that disclosure is no remedy if there is no place for an aggrieved party to go to seek relief. Judge Wilkins said, “That is an issue,” adding sarcastically, “and of course we all read those disclosures carefully.”

Mr. Russell also said that antitrust law, which the FCC suggests can tackle the enforcement role, is not designed to protect free speech, and that the FCC’s not caring that free speech is unprotected “would be difficult to square with its obligations under the Act.”

“What would a court have to do to determine that the FCC’s antitrust analysis was insufficient? It’s not like they didn’t talk about it,” Judge Millett said. She also asked about the FCC’s obligation to address “the consequences of losing access to certain edge providers. Do they just have to say, ‘This could happen. Too bad. Too sad’? Or do they need to argue” that there’s a solution.

Mr. Russell also argued that in its notice of proposed rulemaking (NPRM) preceding the RIF order, the FCC did not specifically mention section 257(c), which directed the FCC to report on barriers to entry, as a potential source of authority for the actions it was planning to take. The APA requires a “reference” to the legal authority in the NPRM.

Mr. Russell argued that under the FCC’s definition in the RIF order, mobile voice service is not a telecom service because a subscriber can’t make a call without a phone running compatible software. Judge Williams objected, “You’re speaking as though mobile broadband is only for smartphones. It can also be used for iPads.”

Mr. Russell said that tablets can generally be used for voice calls.

Mr. Russell also raised the issue of the FCC’s refusal to place in the record complaints it had received from consumers about broadband service, as requested by the National Hispanic Media Coalition. Judge Millett asked why NHMC, which obtained the complaints using a Freedom of Information Act request shortly before the record was closed, could not have placed the complaints in the record itself. Mr. Russell said that it received the complaints in a file that it could not simply dump into the FCC record, and that there was no time to go through the comments manually and file them in the record.

Stephanie Weiner of Harris, Wiltshire & Grannis LLP, arguing for the non-government petitioners on the mobile BIAS issue, argued that Congress did not intend section 257 to be an independent source of rulemaking authority.

Judge Millett asked Danielle Goldstein of the Santa Clara County, Calif., government, who argued on behalf of government petitioners, whether public safety officials had experienced blocking, throttling, or other problems prior to the FCC’s 2015 open Internet order and its Title II classification of BIAS.

Before 2015, “we understood the FCC to be policing broadband,” Ms. Goldstein said.

“You’re not saying public safety was being put to the back of the line [in prioritization] prior to 2015?” Judge Williams asked. Ms. Goldstein said that public safety officials “wouldn’t necessarily know” if they were.

Ms. Goldstein said that the FCC said that no “special” public safety issues were raised in the record, but that this was inaccurate. In addition, the after-the-fact remedies the FCC relies on “come too late” for public safety, where the harms incurred to life and property due to the inability to communicate swiftly with the public are “truly irreparable.”

Judge Millett asked whether the required disclosures must explain the potential “side effects” of network practices, such as the inability to obtain timely public safety information. Ms. Goldstein said no.

Steven Wu, who also argued on behalf of government petitioners, said that the FCC needs express authorization by Congress to preempt state authority, and in this case it is dictating what states can do in an area where it says it has no authority itself.

Judge Wilkins asked whether this issue is “ripe” for court review, suggesting that the court should wait until a specific state law is preempted.

“The court shouldn’t underestimate the burden on states of having their duly enacted laws invalidated,” Mr. Wu replied.

Judge Wilkins asked whether the “impossibility exception” applies — that is, whether it is impossible for state regulations and the FCC decision that it can’t regulate to coexist.

Mr. Wu said the impossibility exception applies when the FCC takes affirmative action, not when it says it lacks authority.

Judge Millett asked Mr. Johnson of the FCC repeatedly to explain how telephony can survive as a telecom service under the RIF order’s definitions. “You can retrieve and share information over the phone,” she pointed out. She added that the FCC has to decide the issue in a way that “makes sense with the rest of the statute.”

Judge Williams suggested that changing the format of information is “important” in determining whether something is an information service. Judge Millett noted that telecommunications relay service changes the format of information, yet it is treated as a telecom service.

Mr. Johnson remarked, “We can go back and forth on whether the Commission is entitled to regulate these two services differently.” However, Judge Millett persisted with her line of questioning, saying that she was “trying to understand the difference in characteristics” of the two types of service. Mr. Johnson said that the Act’s reference to an information service “always and necessarily” acting on the information is essential.

Judge Williams asked whether the FCC is relying on anything other than DNS (domain name server) look-up and caching in establishing broadband service as an information service. Mr. Johnson said the FCC treats DNS look-up and caching as “determinative.”

Judge Millett asked whether the FCC’s “evidence of a slowdown in investment” under Title II regulation was “a causation or correlation.” Mr. Johnson said causation.

Judge Millett asked about the statements of ISP executives in Wall Street presentations that the Title II regulation would not affect investment. Mr. Johnson suggested the statements were “ambiguous” and “not probative.”

Judge Millett responded, “What’s ambiguous about ‘not going to affect’ [investment]?” She also noted that statements under those circumstances “have to be true” under Securities and Exchange Commission rules. “It’s almost as good as being under oath,” she said.

Judges Wilkins and Millett suggested various hypothetical disclosures of blocking and throttling and asked what enforcement actions would be available. Mr. Johnson suggested the market would take care of such things.

Judge Millett asked about the public safety argument that the remedies envisioned by the FCC would come too late. “You don’t address that in the order, unless I missed it,” she said.

Mr. Johnson said, “The burden should be on them.” Judge Millett objected that the FCC has a specific statutory obligation to promote public safety.

“Why couldn’t you say you’ll have special rules to protect public safety?” Judge Wilkins asked.

Judges Wilkins and Millett both suggested that the order’s preemption provisions are broad and would seem to cover traditional public safety and police power actions by states.

Judge Millett asked Mr. Nuechterlein whether the ISPs he represented want to have the ability to offer paid prioritization.

“We don’t know where the Internet is going,” he responded, adding, “It’s a bad idea to impose a broad prohibition on paid prioritization.”

Mr. Nuechterlein also indicated that ISPs are not in agreement on this issue, with some on the record as being “OK with a narrow prohibition on paid prioritization under section 706.” However, “others are concerned about regulatory creep,” he said. —Lynn Stanton, [email protected]

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