It may have been Feb. 1, but it was Groundhog Day for the U.S. Court of Appeals for the D.C. Circuit Friday as it once again heard oral arguments from the government and net neutrality activists, by turns challenging and defending, the FCC's latest approach to regulating the internet, or in this case deregulating it.
The same court has weighed in multiple times on the issue, but will be doing so once again following that argument, likely sometime in the second quarter, in this latest rule challenge (Mozilla vs. FCC).
It was truly a marathon, and then some, with time limits thrown to the winds as judges peppered the lawyers with questions and follow-ups for almost five hours. The importance of the issue and of the court's ultimate decision was reflected in the scope and breadth of the questions and the various legal and technical technicalities getting the once and twice-over.
At stake in the case is whether the FCC was within its authority to essentially deed oversight of the Internet of everything to the Federal Trade Commission and Justice Department by reclassifying internet access as a Title I service not subject to common carrier rules, in the process eliminating the rules against blocking, throttling or paid prioritization of that access. The court does not have to get into the merits of the FCC's deregulation versus regulation call, only whether the FCC was or was not arbitrary and capricious in reversing the previous FCC's opposite view of the marketplace and need for regulation.
Issues up for discussion included whether the FCC ignored evidence countering its conclusions, whether it can reclassify mobile broadband, and whether it can preempt state and local efforts to regulate the net in the wake of that deregulatory Restoring Internet Freedom order.
The judges were tough on both sides, though the caveat is that judges sometimes play devil's advocate.so it is hard to say who got the worst of it. All three judges mixed it up with Mozilla et al., while Millett dominated the FCC questioning.
Or, put another way, had Punxsutawney Phil been in the courtroom, he would have had a hard time determining whether it would be an early spring or more winter for FCC-enforced bright-line net neutrality rules.
Mozilla, INCOMPAS, and a host of others, from activist groups to state governments, are challenging the FCC's decision in the Restoring Internet Freedom order to classify ISPs as Title I information services rather than Title II telecom services subject to some common carrier regs. The order eliminated rules against blocking, throttling and paid prioritization.
The FCC argues its order deregulating internet access simply restored the longstanding regulatory classification of broadband internet access service as an “information service” under Title I of the Communications Act", a call upheld by the Supreme Court in the Brand X decision--and return to a "light touch"--critics call it "hands off"--regulatory approach.
Central to the case is that 2005 Supreme Court decision (National Cable & Telecommunications Association v. Brand X Internet Services) upholding an earlier FCC's authority to classify internet access services as information services not subject to mandatory access to their networks by competitors. The Supreme Court concluded the FCC should be accorded so called Chevron deference to that decision, which means the tendency to defer to an agencies expertise in interpreting an ambiguous statute.
The arguments were heard by a three-judge panel of the court, Judges Robert Wilkins, Patricia Millett and Stephen Williams, with Judge Millett presiding.
Back in May 2017, Williams was on the panel that declined to reverse the 2015 Open Internet Order's bright-line rules against blocking, throttling and paid prioritization--those are the rules the RIF rolled back. That panel did not weigh in on whether that was the right approach to regulating the 'net, only that the FCC was not arbitrary and capricious in concluding it was. But Williams did dissent from applying the Title II-based rules to mobile broadband.
Representing Mozilla et al., was Pantelis Michalopoulos of Michalopoulos, Steptoe & Johnson, who is quite familiar with the net neutrality rules adopted under Tom Wheeler since he defended them when they were challenged in the same court.
Mozilla et al.
In his argument, Michalopoulos said that the order was a "stab in the heart of the Communications Act," telling the court it would end the FCC's oversight "of the main communications service of our time," a marketplace that lacked the competition to make the FCC's transparency requirements a sufficient governor of conduct. He said that when classifying ISPs, the FCC had to answer the question of whether, say, AT&T is offering telecommunications when it delivers Netflix, and it did not.
He said the FCC was just taking regulated parties' word for it, rather than look at a single consumer complaint about their service, much less the 50,000 complaints lodged. But he was asked by Millett whether even 50,000 would provide insight into the many millions of broadband consumers.
Judge Millett said that once the FCC has concluded internet access is an information service, hasn't it necessarily found ISPs are not providing a telecom service. Michalapoulos said no. Millett said it sounded like the services were mutually exclusive to her.
Of the FCC's argument that internet access is not a telecommunications service, Michalopoulos waxed poetic in rebuttal, saying that it was like a surrealist painting that shows a pipe and says "this is not a pipe," or asking the sun to rotate about the moon and the earth.
The judges to a man and woman probed him on why the FCC was not within its authority to change its mind and reverse the previous Title II classification. He said it could, but only if it had explained, and considered and provided evidence of why, and that it had not sufficiently done so.
The judges suggested that Mozilla et al. in their argument continued to turn earlier rulings of the court deferring to the FCC--upholding the old rules for instance--into affirmative rulings by the court, which they were not.
Michalopoulos said the FCC has ignored evidence that providers have the incentive to hurt edge providers and the ability to do so with impunity absent the rules, another argument for why the decision was arbitrary and capricious and should not get deference from the court. "There is ample evidence in the record that they can get away with impunity because subscribers don't leave when they do block, throttling and degrade," he said, "such as when Time Warner and Comcast throttled Netflix."
There is some question on who was doing that throttling, however, with some ISPs pointing to Netflix itself and suggesting it was doing the throttling.
Also arguing for the intervenors, Kevin Russell, Goldstein & Russell, who contended that the FCC pointed to consumer protection and antitrust laws as a backstop in the absence of the rules against blocking and throttling, but without the analysis establishing how that would be the case, meaning the decision was arbitrary and capricious under the Administrative Procedure Act.
Judge Williams asked whether he wanted the FCC to write a treatise on competition law. He said no, but that the FCC had an obligation under the Administrative Procedures Act to conduct an analysis of things like tacit collusion absent the rules, but did not.
Judge Wilkins pointed out that the FCC did do analysis on the transparency rules it imposed as part of the order. Russell said that a big problem is that no matter what practices the ISP discloses as part of the transparency requirement, if there is insufficient competition, a consumer has no alternative. Wilkins conceded that could be an issue, then joked that of course everyone reads those online disclosures anyway. Judge Millett also suggested that the transparency disclosure about blocking, throttling or paid prioritization is being asked to carry a lot of water and wondered if it was allowed to be a graph at the end of a long list of other disclosures.
What About Public Safety?
Attorney Danielle Goldstein of the City of Santa Clara, among the five attorneys arguing against the order, said the FCC did not sufficiently take public safety implications of its order into account, like putting public safety at the back of the line due to paid prioritization.
Judge Wilkins said he was not suggesting that had ever happened. Gold conceded there was not evidence in the record, but that the implications of paid prioritization were not always visible. He asked if the argument was even ripe for consideration given that they did not know how each law would take shape and how the FCC would react. Isn't this too abstract?
Wu said he did not disagree, but that the question of whether the FCC preempt at all is ripe and the court should invalidate that language.
Stephen Wu of the State of New York argued that the FCC did not have the authority to preempt state attempts to restore net neutrality rules against blocking and throttling, but he got plenty of pushback on that argument.
Wu said the FCC's decision not to regulate does not give it the authority to preempt others' attempt to do so. He said states have inherent authority to regulate in the interests of public safety, for one.
Judge Williams asked whether Wu was saying the FCC would preempt state consumer protections for things the FCC says are of concern. Wu said it was unclear, but that the FCC was preempting state disclosure laws, which are traditional state consumer protections.
Judge Wilkins asked whether Wu was saying he wanted the court to write a decision saying the FCC has no authority, "none," to preempt state law in this area. Wu said no, they were saying that when the FCC asserts that it lacks statutory authority over practices, it can't preempt states from exercising their authority over those practices.
When federal power is withdrawn, states must be allowed to step in, said Wu. But even when the FCC is saying that the feds have jurisdiction over interstate communications, asked Wilkins. Wu said the FCC has expanded the meaning of interstate into states' wheelhouse, like disclosure requirements, that "touch upon" providers of interstate communications.
He said it was about states regulating in its core area of concerns, which is what the FCC is trying to preempt, but can't.
The FCC weighs in
Countering Michalopoulos et al. was FCC General Counsel Tom Johnson for the defense, who had plenty of time to go over his notes given the two-plus hours of what was scheduled for a 75 minute petitioner argument.
Johnson told the court that Brand X and that court's earlier ruling in USTelecom v. FCC had established that the FCC had the authority to do exactly what it did, which was to classify internet access as an information provider. He said the other side was just trying to re-litigate those judgments.
He got further in his argument than Michalopoulos before being stopped by Judge Millett to ask what function on a computer would provide an information service that is distinct from the telecom function, but then the questions came thick and fast, mostly from Millett.
Johnson said under the 1996 Telecom Act handling of emerging computing services, the FCC could look at whether there were two services being offered that might deserve different regulatory treatment.
Judge Williams asked whether the FCC is relying on more than DNS and caching functionally integrated information processing capabilities to establish that internet access is an information service. Johnson said those were indeed determinative. Judge Millett, who dominated the questioning of Johnson, asked what further processing there was. Johnson said DNS and caching were all that Brand X required to qualify internet access as an information service and all that it was relying on.
Johnson said those services fully satisfy the info service definition, including storage and retrieval as well as processing. He said that the FCC's core area of expertise is network functionality and that DNS and cacheing do not fall under the management exception for a telecommunications service because they do not simply manage transmissions but provide enhanced functionality.
Judge Millett asked why definition of capability does not extend to telephone. He said that cable modem necessarily offers info processing with connection to transmission, while phone service provides transparent transmission (point-to-point) on a standalone basis, so it is Title II.
She asked him to explain how using a phone is different from accessing the 'net and why they both don't have the ability to acquire information. He said the FCC just does not think a phone offers the same, dynamic, experience. But Millett pressed for a clearer difference between their capabilities.
Millett said she was focused on definition of capability and why that does not sweep telephone into information service.
Johnson said the FCC was looking at the uses by consumers. But Millett said she still did not understand why phones would not also be an information service, and was it the amount of information one can get over the net rather than over the phone.
Johnson went back to issue of functionality. Millett never appeared to get the answer she was looking for. He said there was difference both in kind and degree.
Johnson said that where there was ambiguity, looking at different service characteristics was a legitimate way for the FCC to make a call.
Turning to the policy call, Johnson said the FCC determined that the threat to net freedom was not ISP blocking, for which there was scant evidence but that many Americans don't have access, which the Title II rules were depressing.
Millett asked if the evidence of a slowdown in investment was causation or correlation. Johnson said causation. He said the FCC looked at historical data about the threat of Title II, including on smaller ISPs trying to help close the digital divide.
She pointed to the ISP execs who told investors Title II was not going to affect investment. Johnson said that the FCC had deemed some of those comments to be ambiguous. Johnson said CEO projections in such financial calls were not probative. Millett pointed out that there were legal consequences if what they were telling Wall Street wasn't true.
Wilkins pointed out that the FCC had the right to change from prior policy, but that there was an enhanced explanation required. He said the FCC's deregulatory approach does not need to be better than the previous, just that we believe it to be better.
Millett asked whether the FCC viewed the lack of evidence of blocking and throttling before 2015 to mean that ISPs felt, or were, at liberty to do so, but didn't?
He said he didn't know what prior commissions were thinking but that if there were overwhelming incentives to block and throttle you would have seen more evidence, and that it was reasonable for the FCC to make predictive judgments based on that.
Johnson said absence such evidence, the FCC concluded the transparency route as the better way to go than ex ante rules.
Johnson got some tough questioning on what conduct was now no longer against FCC rules, including, say, Hulu paying an ISP to throttle Netflix. Johnson conceded it would be allowable so long as it were disclosed, but ISPs had pledged not to engage in anticompetitive throttling and the Federal Trade Commission could enforce those pledges.
Johnson said the petitioners lack standing to challenge the transparency rule since it did not harm them, and ample authority to impose it, so it was an academic debate.
Millett asked for an explanation of the impact of paid prioritization.
Johnson said the FCC 1) rejected the argument that prioritizing certain packets would affect best-effort services and 2) concluded that quality of service arrangements will benefit public safety by giving them ability to have dedicated networks, though it did not specifically address that public safety benefit in the order.
Millett latched onto the fact that the order did not talk about the fact that there were really no post hoc (after the fact) remedies for issues with slowing public safety. Johnson said it was up to the other side to show concrete harms.
She was not assuaged. She said if local government can't afford paid prioritization can't afford enterprise services, i.e. their own prioritization, how does prioritization benefit them. Johnson suggested localities do use enterprise services.
Millett was focused on paid prioritization and what it actually meant. Was it a fast lane? Johnson suggested it was only a "few milliseconds faster" lane that would not adversely affect other non-prioritized services.
She asked if Johnson was saying there would be no harm to public safety, or that it was OK if there was. He said what the FCC was saying was that they had picked the best approach, but could not anticipate all harms.
Johnson responded to the challenge to the state preemptions.
He said the states had not identified something other than the jurisdictionally interstate service that the FCC was regulating, and only the FCC gets to have its hand on that interstate service. He said the FCC was not abandoning the field, but that for a state to reimpose the same rules or more onerous ones would undermine the FCC's decision not to impose onerous Title II regs.
Judge Wilkins wondered why the FCC had not provided some provision that there could be no prioritizing over public safety, then asked why a state could not do that. Johnson said he was not sure that such a targeted public safety reg would necessarily be out of bounds. But Wilkins said the preemption language was broad and would seem to cover that.
Clearly, the judges had issues with the FCC's relative silence on public safety implications of paid prioritization.
Jonathan Nuechterlein of Sidley Austin wrapped up the arguments for the ISP intervenors, who are just fine with the deregulatory order.
He said that the FCC clearly has discretion under Brand X to make the information service call it has made and deserves the court's deference to its reasonable discretion. He said there is no question that what any ISP does is offer a capability of processing, retrieving, storing and otherwise dealing with information "via telecommunications."
Nuechterlein said paid prioritization does not exist on the pubic internet to his knowledge. He called it a theoretical construct that ISPs would get together to agree on packet delivery. He said talk of fast and slow lanes and dirt roads are entirely speculative.
Michalopoulos countered in his brief rebuttal that there is plenty of paid prioritization.
Nuechterlein said in reference to the suggestion Hulu could pay to throttle Netflix that that would run into antitrust issues, in any event would never happen as a business matter.
“The U.S. Supreme Court has already affirmed the FCC’s authority to classify broadband as a Title I information service, and after today’s argument we continue to believe that the judiciary will uphold the FCC’s decision to return to that regulatory framework under which the Internet flourished prior to 2015 and is continuing to thrive today," said Matthew Berry, chief of staff to FCC Chairman Ajit Pai.
“Today we fought for an open and free internet that puts consumers first," said Mozilla COO Denelle Dixon. "Mozilla took on this challenge because we believe the FCC needs to follow the rules like everyone else. We argued before the Court that the FCC simply cannot renounce its responsibility to protect consumers on a whim. It’s not permitted by law, and it’s not permitted by sound reasoning. The fight to save net neutrality is on the right side of history. Consumers deserve an open internet. And we look forward to the decision from the Court.”
In the run-up to the arguments, both sides had been getting their thrusts or parries in early.
Evan Greer, executive director for digital rights group Fight for the Future, minced no words: “Comcast, Verizon, and AT&T are going to wish they never picked this fight with the Internet. More than a year after the repeal of net neutrality people are still outraged and paying close attention," she said. "Ajit Pai’s FCC blatantly ignored public opinion and acted with reckless disregard for the law in order to give a massive government handout to some of the most power-hungry corporations in the U.S."
She suggested a court decision in favor of deregulation would not deter them. "Telecom lobbyists were hoping that we would have given up by now. They thought they could outspend and outlast us. They were wrong. Internet activists are continuing to fight in the courts, in Congress, and in the states. Net neutrality is coming back with a vengeance. It’s only a matter of time.”
Matthew Berry, chief of staff to FCC chair Ajit Pai, had said he was confident the court would see it the FCC's way. "The U.S. Supreme Court has already affirmed the FCC’s authority to classify broadband as a Title I information service," he said, "and we have every reason to believe that the judiciary will uphold the FCC’s decision to return to that regulatory framework under which the Internet flourished prior to 2015 and is continuing to thrive today.”
No matter what the court does, the losing side will likely appeal to the full court, and continue to press Congress to resolve the issue once and for all with net neutrality legislation.
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Contributing editor John Eggerton has been an editor and/or writer on media regulation, legislation and policy for over four decades, including covering the FCC, FTC, Congress, the major media trade associations, and the federal courts. In addition to Multichannel News and Broadcasting + Cable, his work has appeared in Radio World, TV Technology, TV Fax, This Week in Consumer Electronics, Variety and the Encyclopedia Britannica.
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