Circuit Court Strikes Down Net Neutrality Rules – Perspective

For several years now, an extremely consequential debate concerning net neutrality rules has pitted the freedom to equally access information on the Internet against the right of broadband providers to set prices for, and otherwise control, the bandwidth and Internet connectivity services as they choose.  Net neutrality refers to the notion that the web should be free and open so that users have unimpeded access to any service or application without Internet service providers (ISPs) imposing restrictions or bans on such access.

By statute, the Federal Communications Commission (FCC) is authorized to regulate “all interstate and foreign communications by wire or radio.”  Internet communications, therefore, fall within the jurisdiction of the FCC.   Through the Open Internet Order of 2010, the FCC established net neutrality rules on broadband providers, including disclosure, anti-blocking and anti-discrimination rules, in an effort to prevent companies, which provide access to the Internet, from discriminating against different content providers.  The FCC feared that broadband providers would grant preferential treatment to some influential content providers at the expense of new startups and smaller companies, which would struggle to compete in such an environment wherein established providers have reinforced brand advantages.  In this type of environment, some content might become slower to access, become inaccessible or simply cost more to access.

Pursuant to Title II of the Communications Act of 1934, the FCC is granted broad authorization to regulate “common carriers”, such as telephone companies.  Under this authority, the FCC could vigorously regulate the telephone companies, including mandating that all telephone calls made on its network be allowed, and further, regulating the rates that could be charged.   The rules set forth in 2010 by the FCC seem to reflect the exercise of this broad authority.   However, this broad regulatory power applies specifically to “common carriers.”  In 1996, Congress enacted The Telecommunications Act of 1996, which defines two types of entities: telecommunications carriers, which are classified as common carriers; and information services providers, which do not fall within that category.

In Verizon v. FCC, No. 11-1355 (D.C Cir Ct. App. 2014), Verizon Wireless sued the FCC claiming the regulatory body lacked the authority to regulate how their company offers content to its customers.  Verizon argued that the FCC could not subject it to the same regulations which governed utilities, such as telephone carriers, like AT&T and the Baby Bells in previous decades.  Verizon contended that anti-blocking and anti-discrimination rules, as applied to the telephone companies in years past, should not apply to them as they fall outside the category of “common carriers” because of the FCC’s prior categorization of Verizon and similar bandwidth providers as information service providers and not as telecommunications carriers.

The DC Circuit Court of Appeals agreed with Verizon’s position and ruled that while the FCC did have some authority under Section 706 of The Telecommunications Act of 1996 to regulate traffic on the Internet, the scope of its regulatory power did not extend to the implementation of the anti-blocking and anti-discrimination rules set forward in the FCC’s Open Internet Order of 2010, the directive which implemented the net neutrality approach.  In some respects, the FCC was hoisted on its own petard, or its prior leadership’s petard, with respect to whether these internet companies can be correctly analogized to the telephone companies of decades past.  The DC Circuit Court relied on the FCC’s decision in 2002 that Internet service providers were not a telecommunications carrier, but rather, an information service provider.  This self-classification limits the F.C.C.’s authority, according to the DC Circuit Court of Appeals.

While Verizon did win this particular battle, the DC Circuit Court of Appeals did offer the FCC some room to maneuver.  It noted, making an obvious analogy between the Internet and railroads, that “Railroads have no obligation to allow passengers to carry bombs on board, nor need they allow passengers to stand in the aisles if all seats are taken. It is for this reason that the Communications Act bars common carriers from engaging in “unjust or unreasonable discrimination, not all discrimination.”

The DC Circuit Court’s decision provides the FCC the chance to rewrite regulations that fall within the limited authority they were granted by Congress via the 1996 Telecommunications Act to encourage innovation and growth of the Internet.  In this regard, the FCC can seek to find a middle ground, which permits Internet service companies to allow some content providers to charge customers for special content, while keeping the information and services available on the Internet open to everyone. The question remains what kind of regulation is, using the railroad analogy, just and reasonable.

Further, the FCC can revisit its decision in 2002, which exempted the Internet from greater regulation as if Internet service providers were a utility.  Ostensibly, the FCC could attempt to reclassify broadband service providers as a utility so as to subject them to greater regulation.  From statements made by the current head of the FCC, Tom Wheeler, the Commission intends to first see if it can redraft some net neutrality rules that do not run afoul of the DC Circuit Court’s decision.  He has not, although, foreclosed the possibility of reclassifying these companies as common carriers to essentially enhance the scope of its own regulatory powers.

Accordingly, for content based businesses, such as, for example, Netflix, if the current regulations remain in force, these businesses could be subject to discriminatory treatment by the service providers.  For instance, preferential treatment could be granted to those companies willing to pay higher fees in exchange for allowing their customers faster access to their content.  Or, companies like Netflix, might refuse to pay, and be disadvantaged by slower transmission of content to its customers.  Ultimately, the end consumer could be paying higher fees for some preferred content.

Attorney Anna M. Vradenburgh counsels and represents clients regarding trademark, copyright, patent and other intellectual property issues, providing expert advice regarding intellectual property protection, exploitation and rights enforcement.  To discuss your particular matter with Ms. Vradenburgh, please contact her at the Eclipse Group, located at 6345 Balboa Blvd, Suite 325, Encino, California 91316, by calling (818) 488-8146 or going to her website or her profile on LinkedIn.  This article is not intended to be, nor should it be considered to be, legal advice.
Net Neutrality

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