Challenges to Net Neutrality Rules and Broadband Reclassification Go to DC Circuit

Even before the FCC released its net neutrality rules on March 12, 2015, ISP interests signaled they would take the agency to court. The likes of CTIA and NCTA predicted lawsuits, as reported in Part I of this Special Report (see 1609150017). Even FCC officials predicted such suits -- accurately, as it turned out. This Part II focuses on how litigation came to pass. Part III reports how the commission won an initial court case (see 1610130014).

Commissioner Mignon Clyburn had no “qualms” about voting to reclassify broadband as a Communications Act Title II telecom service subject to common-carrier regulation, even though there was a “99.999 percent chance” the order would be challenged in court, she said in 2015 on C-SPAN’s The Communicators (see 1503130058). “I wish it would not be.” Clyburn noted she wanted to reclassify broadband the first time the FCC approved net neutrality rules in 2010. “I was pro-Title II,” she said. “I thought it gave us the strongest, most sustainable framework. … I had no reservations on moving in this direction.” Clyburn said she didn’t get everything she asked for when the agency approved rules Feb. 26, 2015, but she was generally pleased with the order.

There was no need for Congress to approve rules, said Clyburn, whose father is Rep. James Clyburn, D-S.C. "I respect the role of Congress," she said. "I think that they have a duty and obligation to look from their perch as to how things are evolving in terms of the ecosystem. But we are the expert on communications and technology and the like, and I continue to believe clear rules from us and congressional guidance is the best course.”

Clyburn said she wasn't concerned that the general conduct standard is overly broad. The FCC needs to make sure it is “nimble enough,” she said. For example, since 2010, the number of subscribers using LTE devices has increased from 70,000 to many tens of millions, she said. “Things have changed in such a small period of time that I believe what some might classify as a catch-all would give us the dexterity we need to change and evolve with the times.” The general conduct standard in the rules allows the FCC to judge whether future activity not contemplated by the order harms end users or online content providers.

Even before the lawsuits began, CTA (then CEA), CTIA and others began complaining. In March 2015, Scott Bergmann, CTIA vice president-regulatory policy, began what he promised would be a series of blog posts on the rules. The order “ignores decades of bipartisan consensus that competition is the best way to meet consumers’ needs and instead calls for government regulators to play an unprecedented and far more intrusive role in the broadband marketplace,” he said. Bergmann said the text of the order makes it appear “the FCC is devolving to a new philosophy in which no level of competition would be sufficient.” There are abundant signs of mobile competition, including unprecedented consumer choice, increasing speeds and robust LTE deployment and declining prices, Bergmann said. “Instead, the FCC focuses extensively on the switching costs associated with mobile broadband.”

“Things are happening quickly,” from the IoT to wearables to driverless cars to drones, CTA President Gary Shapiro said, kicking off the SXSW policy summit in March 2015. “They’re raising policy implications.”

FTC, Other Concerns

The net neutrality order fails to protect consumers and hampers innovation, said former Rep. Rick Boucher, D-Va., current FTC Commissioner Maureen Ohlhausen and ex-FCC Commissioner Deborah Tate. This isn’t a turf battle or “tug-of-war” between the agencies, Ohlhausen said in March 2015, saying her concerns are about the impact on consumers. The commissions have worked together in a number of instances, Ohlhausen said at a Free State Foundation event. Reclassification may fence out the FTC, she said, even if that wasn’t the FCC’s intention. State jurisdiction is also affected, Tate said. Some of the FTC's concerns later played out in the FCC ISP privacy proceeding that stemmed from the net neutrality order (see 1606020062).

The FTC is concerned because the FTC Act contains a common-carrier exemption, as it didn’t make sense for the agency to regulate competition and consumer protection for a monopoly, Ohlhausen said. The exemption no longer is needed because the regulated area is more competitive, she said. Antitrust laws and FTC Act Section 5 could be used to protect consumers, Ohlhausen said. All other FTC members have also worried about the common-carrier exemption in a Title II scenario (see 1502240070 and 1503050051). Various FTC members also discussed this at a March 2015 congressional hearing (see 1503250059).

It’s not clear what companies are now regulated under Title II, Ohlhausen said, which is a concern since the FTC has brought more than 100 data security and privacy cases thus far, including cases against some of the largest players on the internet. Any application with two-way communication could be classified as a telecom service, including Twitter, said Boucher, honorary chairman of the Internet Innovation Alliance, which has members including AT&T, Ciena and TechAmerica, according to its website. Every time the FTC goes into court, defendants could say they're exempt from FTC jurisdiction because of the common-carrier exemption, Ohlhausen said. Some of those arguments will be weak, but some companies will be able to successfully shut out the FTC from protecting consumers, she said. In August, the 9th U.S. Circuit Court of Appeals tossed an FTC case against AT&T on such grounds (see 1608290032). That case continues to be closely watched (see 1611020031).

The net neutrality order was a “political bait and switch,” said Scott Cleland, chairman of NetCompetition, an industry-funded group. Broadband providers support net neutrality, he told us. “Title II is not net neutrality. It is a provision of law from 1934 to regulate the AT&T monopoly.”

First Challenges

Alamo Broadband, a wireless ISP south of San Antonio, and USTelecom filed what appeared to have been the first formal appeals in federal court. The challenges were made March 23, 2015, based on the legal theory that the declaratory ruling portion of the decision became final March 12, so appeals were due.

Alamo filed its appeal in the 5th U.S. Circuit Court of Appeals, which includes Texas. The WISP asked the New Orleans court to enjoin and set aside the order. The order is “in excess of the Commission’s authority” and arbitrary and capricious and “an abuse of discretion with the meaning of the Administrative Procedure Act" (APA), Alamo said: It's “contrary to constitutional right” and “otherwise contrary to law.”

USTelecom filed in the D.C. Circuit, which ultimately heard the case. “Our member companies conduct their business in conformance with the open Internet principles, support their enactment into law, and a regulatory approach that relies upon Section 706 authority," USTelecom President Walter McCormick said in a statement. "We do not believe the Federal Communications Commission’s move to utility-style regulation invoking Title II authority is legally sustainable." McCormick will be succeeded Jan. 1, 2017, as the telco association's head by Jonathan Spalter (see 1610040059).

Alamo and USTelecom's appeals were premature, the FCC wrote the U.S. Judicial Panel on Multidistrict Litigation on March 27, 2015. The order doesn't take effect until it's published in the Federal Register, which at that point hadn't happened, said the letter from Deputy Associate General Counsel Richard Welch.

USTelecom filed another appeal April 13, 2015, the day the rules appeared in the Federal Register, asking the D.C. Circuit to declare the rules “unlawful.” The “overreach is not only legally unsustainable” but “unwise given the enormous success of the commission’s Title I approach for consumers, businesses and Internet entrepreneurs,” McCormick said in a statement. The D.C. Circuit later won the lottery to hear the earlier USTelecom and Alamo petitions.

The association called the order “arbitrary, capricious, and an abuse of discretion within the meaning" of the APA. The order “violates federal law,” including the Constitution and the Communications Act, and agency regulations and federal notice-and-comment rulemaking requirements, the petition said. The agency predicted -- so far correctly, it turned out -- that the rules would be upheld. Also before many of the cases were filed, Wheeler said he expected the “big dogs” to appeal. It's “no surprise,” he said, during a news media conference following commissioners' April 2015 meeting. Wheeler also announced that Gigi Sohn, who was a key player on net neutrality, became his counselor. Sohn was CEO of Public Knowledge 2001-2013.

Additional Challengers

AT&T, CTIA, NCTA and the American Cable Association filed legal challenges April 14, 2015, to the D.C. Circuit.

USTelecom presented four questions, starting with whether subjecting broadband to common-carrier regulation “violates the terms of the Communications Act of 1934, as amended, and the First and Fifth Amendments to the U.S. Constitution; or is based on an unreasonable interpretation of the statute, is arbitrary and capricious, or is otherwise contrary to law.” USTelecom raised the same questions about the terms under which ISPs interconnect with other IP networks. It asked the court to consider “whether the specific rules the FCC adopted, including but not limited to its Internet conduct standard, exceed the agency’s authority, are arbitrary and capricious, or otherwise contrary to law” and whether the FCC “violated the notice and comment provisions" of the APA.

CTIA filed a two-page petition for review arguing that the order is “arbitrary and capricious,” an “abuse of discretion” in violation of the APA and of other laws. “Instead of letting consumers decide the success of new, innovative mobile services, government bureaucrats will now play that role,” said CTIA then-Chairman Ron Smith, CEO of Bluegrass Cellular; he now is the association's chairman emeritus. Michael Kellogg, a former federal prosecutor and clerk to William Rehnquist when he was an associate justice at the Supreme Court, was a lead lawyer for CTIA. He's a founder of Kellogg Huber. CTIA President Meredith Baker voted against the 2010 net neutrality order as an FCC commissioner.

NCTA President Michael Powell told reporters that as a D.C.-based association, NCTA was required to file in the District. The agency and Title II reclassification proponents had argued that the net neutrality order laid out a path -- set by the D.C. Circuit in overturning the 2010 order -- for reclassifying broadband. The court objected to imposing common-carrier restrictions on broadband providers without classifying their internet access service under Title II. Powell responded to reporters that the court also laid out a path to base net neutrality rules on Section 706, and that Wheeler, before endorsing the Title II path, said as much. Powell argued reclassification did “serious violence” to the regulatory system in the Telecom Act, “and in effect rewrote an Act of Congress, which an agency is not allowed to do.” Representing NCTA in the appeal were former U.S. Solicitor General Theodore Olson and former U.S. Assistant to the Solicitor General Miguel Estrada, both of Gibson Dunn.

ACA President Matthew Polka called reclassification “legally unsupportable and a step backward.” The previous Title I information service classification for broadband gave cable operators “the proper balance of ensuring consumers have open access to the Internet while giving providers the proper incentives to bringing high-performance broadband services to nearly every corner of the country," he said.

Days later, when Wheeler made the "big dogs" remark, CenturyLink appealed. The telco ISP said it “invests hundreds of millions of dollars a year to build, maintain and update an open Internet network and does not block or degrade lawful content. However, the FCC has chosen to subjugate the Internet to government-controlled public utility regulations from the 1930s.” Also in April 2015, USTelecom detailed its arguments. The FCC “reversed decades of precedent,” the group said. The association raised questions about the terms under which ISPs interconnect with other IP networks.

Also in April, the FCC asked other appeals courts to transfer legal challenges to the D.C. Circuit (see 1505120044), a move that ultimately was successful. The agency told courts that because petitioners seek review of the same FCC order that is being challenged in the cases before the D.C. Circuit, and because the Judicial Panel designated the D.C. Circuit as the court where the agency record is to be filed, they are “statutorily required” to move the cases.

In April and May, ISP interests asked the FCC and the D.C. Circuit to stay the net neutrality order (see 1505130049). Those moves were unsuccessful (see 1505080058, 1505010059 and 1506110048). “Petitioners have not satisfied the stringent requirements for a stay pending court review,” said the three-judge motions panel in June 2015.

Rules Take Effect

June 12, 2015, was a “red letter day” for consumers, innovators and those who build networks, Wheeler told the Consumer Advisory Committee then (see 1506120038), as net neutrality rules took effect (see 1506120036). “There have never been rules this extensive and this flexible.”

When the D.C. Circuit a day earlier turned down the stay request by a “handful of ISPs,” it was a “historic moment for consumers and for innovators,” Wheeler said. The FCC will be a “referee on the field who can make a call and throw the flag as necessary to address conduct that no one has anticipated,” Wheeler said. “Things evolve.”

The commission’s position is clear, Wheeler said: “Heavy-handed, monopoly era rules belong in the Smithsonian, not at the FCC.” The three bright line rules -- no blocking, no throttling, no paid prioritization -- are all critical, he said. “Top-down micromanagement of networks by this agency cannot continue to exist because of the very nature of this fast-changing technology.” The rules are written in a way that ensures that old-style regulation won’t return, Wheeler said. “There won’t be retail rate regulation,” he said. “There won’t be unbundling. We’re not going to require charts of accounts and accounting rules.”

The agency will be "known by its actions," Wheeler said. “Our actions are not to micromanage, to tell companies how they ought to do business.” The agency is responsible to say, “Wait a minute, that’s a foul, throw the flag,” he said. Many still insist the rules will “chill investment,” he said. “Tell that to Charter, which just said, 'We’ll spend $90 billion to acquire Time Warner Cable and Bright House.'” Those deals were completed in 2016. Also in June 2015, Commercial Network Services filed an informal complaint against TWC at the FCC (see 1506240049), which wasn't granted.

Briefs

The D.C. Circuit essentially accepted parties’ proposed expedited briefing timetable (see 1507020021) that ran through mid-October 2015. It shortened and consolidated the briefs proposed by the main telco and cable broadband groups challenging the order while raising the word limit for intervenors defending the regulations. Despite differences among some parties, the D.C. Circuit ordered CTIA to join fixed ISPs in one brief.

The main industry brief alleged the FCC majority made a political decision to impose enhanced net neutrality mandates and reclassify broadband. The brief was filed in August 2015 by USTelecom, CTIA, NCTA, AT&T and CenturyLink, though CTIA and AT&T joined only the section on wireless. The ACA and Wireless ISP Association also joined the brief. “The Order is not the culmination of a thoughtful and deliberate process,” the industry brief said. “It is the output of an agency determined (or pressured) to reach a particular result and visibly struggling to devise a post hoc justification for contradicting Congress’s pronouncements, the agency’s own longstanding policy, and real-world facts.” The order is “a sweeping bureaucratic power grab by a self-appointed ‘Department of the Internet,’” the brief read.

The NPRM included only “a few paragraphs … on whether the FCC should reclassify broadband" and less on reclassifying mobile broadband, the industry filers said. Then, politics intervened, the brief said. “After the White House held months of private meetings with interest groups pushing for Title II reclassification of broadband Internet access and the President publicly lobbied the FCC for that outcome, the FCC abruptly changed course,” the brief said. “Without seeking further comment, the FCC issued a decision, by a 3-2 vote, that ‘differs dramatically from the proposal.’”

The resulting order was sweeping, the brief said. “The Order does not merely reclassify a last-mile transmission service from an end user to the broadband provider’s facilities,” it said. “It reclassifies the entire retail Internet access service as a telecommunications service.” Wheeler has argued that the order isn't extreme and forbears from imposing most parts of Title II on ISPs (see 1501070054). Although this is true to some extent, “massive new regulation of broadband Internet access service remains,” the brief said. “The FCC leaves in place the heart of Title II, including its most consequential provisions.” The order does much more than just impose net neutrality rules, the brief read. “§§ 201 and 202 govern all rates, terms, and practices of telecommunications service providers, and § 222 imposes restrictions on access to customer data.”

The brief was scathing in its analysis of how the rules are imposed on wireless. “To retrofit the FCC’s desired outcome to the statute, the Order rewrites numerous regulations and principles that have long governed mobile broadband,” the brief said. “Those changes cannot be justified by the FCC’s political judgments that mobile broadband’s very success necessitates its regulation as a public utility or that reclassification of fixed broadband compels a parallel framework for mobile.” It said the internet conduct standard is unlawfully vague. The commission order "uses broad, undefined terms such as ‘interfere’ and ‘disadvantage,’ and provides only a non-exclusive list of equally unclear and incommensurable ‘factors’ that the agency will apply in some indeterminate way,” the brief said. “Those standards do not provide the clarity required to prevent arbitrary decisionmaking and to inform parties what conduct will subject them to enforcement.” The brief argued that the FCC doesn't deserve Chevron​ deference for its decisions in the net neutrality order. Chevron v. Natural Resources Defense Council established in 1984 the Supreme Court doctrine that if a reviewing court deems a statutory provision “ambiguous” and the expert agency's interpretation is “reasonable,” that agency's interpretation is to be given “controlling weight.”

Alamo, a small broadband provider, and Daniel Berninger, an internet entrepreneur, challenged the order on First Amendment grounds. “Broadband providers are speakers because they engage in speech, and they exercise the same editorial discretion as cable television operators in deciding which speech to transmit,” their brief said. “The rules are subject to strict scrutiny because they compel providers to carry all speech, including political speech with which providers disagree, and because the rules discriminate among speakers on the Internet.” The provisions “strip” ISPs of “control over which speech they transmit and how they transmit it,” the Alamo brief said. “The rules also compel the carriage of others’ speech, including speech with which broadband providers disagree.” Chevron doesn't apply in the USTelecom case, the brief said.

Full Service Network, a communications-service reseller, also challenged the order. Unlike the other appellants, Full Service argued that the FCC forbears too broadly. The D.C. Circuit should order the regulator to “uphold the classification of broadband Internet access service [BIAS] as required by statute,” apply statutory definitions to BIAS and vacate FCC exclusion of “facilities based VoIP service” from BIAS, the brief said.

“‘Net neutrality’ is a red herring; the issue before the Court is the FCC’s claim of unprecedented power to regulate the Internet without congressional authorization,” said tech intervenors -- Scott Banister, Wendell Brown, CariNet, David Frankel, Charles Giancarlo, Jeff Pulver and TechFreedom -- seeking an internet “unfettered by excessive federal regulation.” In asserting Title II authority, the FCC violated basic statutory construction principles, including by unilaterally deciding “a question of utmost ‘economic and political significance’” without a clear mandate and despite legislative history contradicting its actions, they said. Even if the law “were merely ambiguous,” the D.C. Circuit should review the statute de novo and not accord the FCC Chevron deference because the agency was usurping judicial interpretive power, they said. The International Center for Law & Economics and Administrative Law also said the FCC exceeded its authority in asserting jurisdiction over the country’s "entire" broadband infrastructure. The Georgetown Center for Business and Public Policy said the agency failed to do appropriate economic cost-benefit analysis compelled by the Supreme Court’s then-recent Michigan v. EPA case, and never established that broadband ISPs would use “gatekeeper" power to harm consumers and content providers.

Big business/industry groups said broadband regulation was unwarranted because the market is highly competitive. Title II was particularly inappropriate for “the most technologically advanced and dynamic information system in history,” said the Business Roundtable, National Association of Manufacturers and U.S. Chamber of Commerce. The Telecommunications Industry Association said the FCC ignored the “extensive record evidence demonstrating” that Title II “would significantly diminish investment in broadband networks and thereby disserve” regulatory objectives. Mobile Future said the commission wasn't justified in imposing tougher rules on wireless in 2014 than it did in 2010.

Other net neutrality skeptics in the case were the Multicultural Media, Telecom and Internet Council, saying the reduction in investment and innovation would hit underserved communities the hardest; University of Pennsylvania Law professor Christopher Yoo (see here); Richard Bennett (here); the Competitive Enterprise Institute (here); Phoenix Center (here); Center for Boundless Innovation in Technology (here); and ex-FCC Commissioner Harold Furchtgott-Roth and the Washington Legal Foundation (here).

The net neutrality order is reasonable, "light-touch" broadband regulation to maintain internet openness that fosters innovation, economic growth and societal benefits, responded (in Pacer) the FCC and DOJ to petitioners challenging the order. Net neutrality rules constrain broadband “gatekeepers” from thwarting consumers and edge providers using the internet, and its broadband reclassification provides a solid statutory foundation, DOJ/FCC told the D.C. Circuit. The September 2015 filing said reclassification was tempered by forbearance keeping broadband free of most rules, contrary to the regulatory alarms sounded by USTelecom and others. “This is Title II tailored for the 21st century, without any requirement of prior approval of rates, need to file tariffs, mandated unbundling of networks, need to ask permission before introducing new products or government-mandated rate of return,” the brief said.

FCC backers included the American Civil Liberties Union and Electronic Frontier Foundation (here in Pacer); Open Internet Civil Rights Coalition (here in Pacer); the Computer and Communications Industry and Mozilla (here in Pacer); web developer Automattic, Medium Corp., reddit, Squarespace, Twitter and Yelp (here in Pacer); Engine Advocacy, Dwolla, Foursquare Labs, General Assembly Space, GitHub, Imgur, Keen Labs, Mapbox, Our Film Festival (also known as Fandor) and Shapeways (here in Pacer); and the Broadband Institute of California, Broadband Regulatory Clinic and the Media Alliance (here in Pacer). For more on the arguments of petitioners and supporters, see 1507310042, 1508070058 and 1509080020. For coverage of later reply briefs, see 1510060040 and 1510050064.

The D.C. Circuit heard oral argument Dec. 4, 2015 (see 1512040058) and ruled in June, 2016 (see 1606140023).