In Verizon v. FCC, a three-judge panel of the U.S. Court of Appeals for the District of Columbia overturned the Federal Communications Commission’s (“Commission” or “FCC”) anti-discrimination and anti-blocking provisions of the Open Internet regime.  The panel vacated each measure as “per se common carrier obligations” impermissibly imposed on providers of broadband Internet service, which is currently defined as an information service not subject to common carrier restrictions imposed under Title II of the Communications Act.  The court did conclude that the Commission has the authority to promulgate rules governing broadband providers’ treatment of Internet traffic.  Specifically, the court stated that Section 706 of the 1996 Telecommunications Act “furnishes the Commission with the requisite affirmative authority to adopt the regulations.”  Any such rules, however, cannot contravene other express statutory mandates.  Thus, since the FCC has classified broadband providers as information service providers exempt from common carriage requirements, it cannot impose common carriage regulations.  This distinction and the panel’s order to remand the case for further review presents Chairman Wheeler with several options: (i) appeal the decision; (ii) try to adopt more limited rules that are consistent with the information service classification; or (ii) reclassify broadband services as telecommunications services.  The Chairman’s choice will carry broad implications for the future of communications and technology policy.

What Happened

First, the court answered a question left open in Comcast v. FCC by determining that Section 706 of the 1996 Act grants the Commission substantive regulatory authority to accelerate broadband deployment. In Comcast, the court rejected the Commission’s attempt to enforce the Open Internet principles by relying on Section 706(a) of the 1996 Act “as a hook for its exercise of ancillary jurisdiction.” But the court concluded that Section 706(a) of the 1996 Act might “arguably be read to delegate regulatory authority to the Commission” over broadband Internet access. Verizon v. FCC concluded that Section 706(a) does vest the Commission with such authority to regulate broadband providers’ treatment of Internet traffic. The court also concluded that the justifications for the specific rules adopted were reasonable and supported by substantial evidence.  In the Open Internet Order, the panel majority determined that the Commission had satisfied its responsibility to prove, through a “rational connection between the facts found and the choice made,” that the Open Internet rules are necessary to promote broadband deployment.

But the panel also recognized that Section 706 authority is not unbound, and that the Commission exceeded its statutory authority by imposing per se common-carrier restrictions on the provision of broadband Internet service through the anti-discrimination and anti-blocking rules.  Those rules, in the panel’s view, prevented broadband Internet providers from making “individualized decisions” regarding terms of broadband Internet access with an end-user and instead compels “those providers to hold themselves out to serve the public indiscriminately.” This compulsion, according to the court, is the sine qua non of common carrier status and therefore cannot apply to the provision of broadband Internet access – which the Commission currently defines as an “information service” outside the bounds of Title II of the Communications Act.

The Court explicitly referenced its recent decision upholding the Commission’s data roaming requirements. The court pointed out that under the data roaming rules the carriers were still free to negotiate individualized (or discriminatory) terms and prices and thus were not subject to per se common carrier requirements.  In contrast, the open internet requirements did not allow for such individualized terms.

The court alludes to the possibility that an anti-blocking rule could be structured in a manner to “leave sufficient room for individualized bargaining and discrimination in terms so as not to run afoul of the statutory prohibitions on common carrier treatment.” Carriers would need to maintain the ability to negotiate separate agreements with edge providers regarding the level of service provided and “could also charge similarly-situated edge providers completely different prices for the same service.”

The disclosure rules of the Open Internet Order did not suffer from this fate, according to the panel, because they do not impose common carrier obligations on broadband Internet providers.

Why It’s Important

The Verizon v. FCC decision represents a victory for opponents of the Commission’s Open Internet Order. Supporters must now convince the Commission to devote political capital, and limited time and energy to the issue at a time when the Commission’s attention is focused on its obligations to complete the broadcast incentive auction proceeding and the IP transition.

Broadband Internet providers may feel empowered to enter into business agreements with third-party content providers that improve the quality of the customer experience, such as by prioritizing broadband access or exempting certain content from data usage caps. These agreements would not be encumbered by the Commission’s now vacated rules.

What Comes Next

The Commission has a number of options in the wake of the panel’s decision, and Chairman Wheeler has already indicated that he will consider any and all options.

First, it could appeal the decision. The FCC may choose to seek en banc review of the majority decision.  The Federal Rules of Appellate Procedure provide the Commission 45 days to make this request after official entry of the judgment. The Commission could also forego en banc review and petition for a writ of certiorari to the Supreme Court.  The Commission has 90 days to make this decision after entry of judgment.

Alternatively, the Commission could forego appellate review of the panel decision altogether and instead launch a proceeding to amend the vacated rules under the common carrier restrictions imposed by the D.C. Circuit.  It does appear that the panel alluded to potential rules that could be consistent with the decision. While it could not adopt anti-discrimination requirements, it might be able to adopt some form of anti-blocking or even “establish a lower limit on the forms that broadband providers’ arrangements could take.”  As discussed above, any such attempt would need to leave room for individualized negotiations and differential prices and terms. The Chairman could also establish a multi-stakeholder process to establish such rules under the general 706 authority upheld by the court. Moreover, to the extent that carriers publicly agreed to abide by certain principles, those commitments could be enforced through the disclosure rules which were upheld.

Finally, Chairman Wheeler could seek to have the FCC reverse the information service classification. Attempting to reclassify broadband Internet service as a telecommunications service would carry broad implications for the future of communications law and technology policy and would be extremely contentious politically.