The net neutrality decision should have both sides happy

Reuters

Federal Communications Commission (FCC) Chairman Thomas Wheeler speaks during a Town Hall meeting in Oakland, California January 9, 2014

Article Highlights

  • The breadth and structure of the Communications Act is still problematic in many ways.

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  • It was widely expected that the DC Circuit would find the FCC has broad authority to regulate the Internet under Section 706.

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  • These principles give agencies substantial power to interpret their statutes broadly.

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This week's decision from the DC Circuit Court of Appeals, which rejected the Open Internet Order's no-blocking and non-discrimination rules, is very important. But, despite its importance, it is really not all that surprising. The more interesting question is what comes next. FCC Chairman Wheeler appears to have shown his hand, suggesting strongly that he prefers the Commission use its newly affirmed Section 706 authority to bring adjudicatory enforcement actions against firms that may engage in possibly problematic conduct, instead of continuing in the Commission's efforts to develop prophylactic network neutrality rules. This is the correct approach for the Commission to take. Let's look at why.

In its decision, the DC Circuit applied standard principles of administrative law (the area of law that governs the division of power between courts and agencies). These principles give agencies substantial power to interpret their statutes broadly. They, however, do not give agencies power to contravene clear statutory requirements. Under these principles, which were strongly reaffirmed only months before Oral Arguments in the Supreme Court's City of Arlington opinion, it is not surprising that the DC Circuit found that the Commission has sufficiently broad authority under Section 706 to regulate aspects of the Internet; nor is it surprising that the DC Circuit found that portions of the Open Internet order violated the Communications Act's clear prohibition on imposing common carriage requirements on networks like the Internet (which the FCC classifies as an Information Service). Indeed, this is precisely what most commentators have expected the judges would do.

I don't mean to overstate my, or anyone's, powers of prediction. There was still a lot of play in the case's likely outcome: would the judges find the no-blocking rule ran afoul of the common carriage restriction, or only the non-discrimination rule? Would all three judges sign on to the majority decision, or only two? Would the decision say anything substantive about Verizon's First Amendment or Takings arguments? And, of course, there was always a possibility that the judges could do something entirely unexpected. But, by and large, it was widely expected that the DC Circuit would find the FCC has broad authority to regulate the Internet under Section 706 but that it was statutorily barred from using that authority in some of the specific ways that it had.

The interesting question is "what next?" FCC Chairman Tom Wheeler may have already answered this question for us. In a posting on the FCC's blog, the Chairman explains that his "strong preference is to [use the Commission's power] in a common law fashion, taking account of and learning from the particular facts that have given rise to concern. ... If something appears to go wrong in a material, not a trivial, way, the FCC will be available to use the totality of its authority for adjudication and enforcement." This strongly suggests - borders on stating outright - that the Chairman does not intend to craft new, prophylactic, Network Neutrality rules. Rather, he strongly prefers a wait-and-see approach, allowing firms to develop new business models and practices. Should any of these raise the ire of the FCC, the Commission will use its (clearly articulated) Section 706 power to reign in the problematic conduct.

This is exactly the approach that the FCC should - and always should have - taken. A fundamental problem for Network Neutrality proponents is that the harms over which they are concerned are speculative. There have only been a few arguable instances of firms engaging in potentially problematic conduct - consumer harm in these cases has been de minimis, and their resolution has not required network neutrality rules. On the other hand, there is substantial evidence that some business models and practices prohibited by the Open Internet order could yield substantial benefits to consumers. Rather than proscribe entire classes of potentially beneficial conduct out of speculative concerns of possible harm, the FCC should take the more reasoned and cautious approach of waiting to see how the market actually develops. After yesterday's decision, it is clear that the Commission has the authority to act if action proves to be needed.

The most challenging aspects of how the Commission should proceed stem from administrative law, not communications law. As a bit of an aside, it is useful to remember that the DC Circuit's decision was primarily based in administrative, not communications, law. Indeed, the concerns that Judge Silberman express in his dissenting opinion are very apt: the Communications Act gives the FCC alarmingly broad powers, broader, perhaps than any other agency has ever been granted by Congress. It is well past time for Congress to review - and refocus - these powers. While I agree with the majority's holding that the Commission's interpretation of its Section 706 powers is permissible, this does not mean that I agree that it is proper for the Commission to have been delegated such broad powers.

Nevertheless, if the Commission is to use these powers well, it should undertake a process to more precisely define the contours of its Section 706 powers. This is essential both for industry to know what conduct may or may not be problematic, and also for the FCC to take action against conduct that it deems problematic. For instance, and in particular, any future FCC enforcement action likely turns on what it means that the FCC shall "encourage the deployment ... of advanced telecommunications capability to all Americans ... by utilizing ... measures that promote competition in the local telecommunications market." If the FCC has not engaged in serious and public discussion - something substantial but that may fall short of a rulemaking - about what this means prior to its decision to take action, it may well be difficult for the Commission to prevail in any enforcement action. Just as administrative law gives the Commission authority to construe Section 706 broadly, it also denies the Commission the ability to construe Section 706 favorably for the sake of litigation and requires the Commission to give firms sufficient notice of how it will construe Section 706 prior to taking any enforcement action.

The DC Circuit's decision, particularly taken with Chairman Wheeler's likely preference for an ex post adjudicatory approach to future concerns, should leave both Net Neutrality proponents and opponents reasonably happy. The Decision affirms that the Commission does have authority to take action against firms engaging in harmful conduct. And given the consumer benefits likely to result from conduct previously proscribed by the Open Internet Order, the Commission is unlikely to take action against firms using their newfound freedom to develop innovative and pro-consumer business models. The breadth and structure of the Communications Act is still problematic in many ways - this is a problem for Congress to address - but administrative law's procedural safeguards should provide some measure of stability and comfort for the firms that have previously been hampered by the Open Internet Order.

Gus Hurwitz is a visiting fellow at the Center for Internet, Communications and Technology Policy at the American Enterprise Institute, and an assistant professor at the University of Nebraska College of Law.  He is a contributor to TechPolicyDaily.com.

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