• Last week, the Justice Department filed suit in DC District court to block AT&T’s $39 billion acquisition of T-Mobile, arguing that the merger violates antitrust laws. Sprint has since filed its own lawsuit in DC District court to block the proposed deal.
• The Senate debates the America Invents Act on Patent Reform (H.R.1249). These proposed reforms to the patent system are expected to be passed and signed by President Obama within the next two weeks. Many argue that the new laws will harm small inventors and venture capital funded companies.
• TechCrunch reports on Google CEO Eric Schmidt’s own take on improving the quality of issued patents through crowdsourcing.
• Groupon is considering delaying its initial public offering due to recent public market uncertainty.
• The Electronic Frontier Foundation provides analysis on the recent Capitol Records v. MP3Tunes opinion issued by the New York Southern District.  The court held that file de-duplication on cloud-based music services falls within the safe harbor provisions of the DMCA.  The decision will lead to reduced costs for online music locker service providers.

Broadband Internet as an Information Service

As noted previously, the FCC derives its authority over communications from the Communications Act of 1934, since amended by the Telecommunications Act of 1996.  Communications in the United States falls into neatly defined statutory definitions under the regulatory umbrage of the Act, e.g., “common carrier services” (Title II), “radio transmissions” (Title III), and “cable services” (Title VI).  47 U.S.C. §151 et seq. It is a fairly ordered and predictable means of regulating communications on its face; however, newly developed technologies often don’t*  fit into these neatly defined statutory categories.  Broadband Internet is one such example.

*According the agency’s, the legislature’s, or the courts’ opinion.

The recent Comcast BitTorrent case limiting the FCC’s jurisdiction over broadband Internet is essentially judicial fallout from the the agency’s March 2002 Cable Modem Order.  Under then Chairman Michael Powell (son of former Secretary of State Powell), the FCC determined that Broadband Internet is an “information service”, not a common carrier “telecommunications service” to be regulated under Title II of the Act, or a “cable service” under Title VI.  See 2002 Cable Modem Order, paras. 31-71.  Commissioner Copps at the time warned about the danger of classifying Cable Modem Services as  “information services” wholesale, subject only to Title I ancillary jurisdiction of the Communications Act, because it would lead to “… playing a game of regulatory musical chairs by moving technologies and services from one statutory definition to another.”  2002 Cable Modem Order (Statement of Commissioner Copps, dissenting.). Those concerns are finally now playing out.

Ancillary jurisdiction: ancillary to what?

The FCC’s decision not to classify broadband Internet as a telecommunications service, and as an information service survived a challenge at the Supreme court.  National Cable & Telecommunications Ass’n v. Brand X Internet Services, 545 U.S. 967 (2005).  In Brand X, the court found that the statutory language of the Communications Act was ambiguous enough for the FCC to be entitled to Chevron deference, when it ruled that broadband Internet should only be subject to Title I ancillary jurisdiction under the Act.  The agency’s interpretation was therefore upheld.  This meant that broadband Internet, then a still nascent industry, was subject to minimal regulations under Title I of the Communications Act.

Ancillary jurisdiction itself rests on a broad statement under Title I of the Communications Act.  Section 4(i) states that “[t]he Commission may perform any and all acts, make such rules and regulations, and issue such orders, not inconsistent with this chapter, as may be necessary in the execution of its functions,” 47 U.S.C. § 154(i).  The great discretion that this provision grants results in a case-by-case determination of whether FCC, testing the limits of its powers under the Act, is subject to constraints imposed by the judiciary.  In the case of broadband Internet, every attempt by the Agency to regulate it would be subject to challenge; those whose interests are at risk from the Agency action are able to challenge first the authority under which the FCC regulates, and also whether the discretion to regulate and adjudicate was taken too far.

Comcast v. FCC: ancillary to nothing

For broadband, the Comcast v. FCC (BitTorrent) case was that scope of discretion determining case.  The dispute came out of Comcast’s 2007 blocking of BitTorrent activity (that took up a disproportionate amount of bandwidth), and defending its policies by echoing the FCC Open Internet Policy that they were only practicing “reasonable network management.”  The ISP would secretly send reset packets (the Internet equivalent to someone intercepting a phone call, pretending to be the person on the other side, saying goodbye and hanging up) to BitTorrent file uploaders, severely hampering their ability to share files.

The FCC eventually made an adjudicatory ruling against Comcast, enjoining them from continuing to block traffic, and requiring them to be more transparent about their network management practices.  2008 Comcast BitTorrent Order, paras. 57-60.  The order, along with strong public backlash (and lawsuits) prompted Comcast to comply with the FCC order.  However, it still challenged the validity of the FCC ruling in court, asserting, inter alia, that the FCC had no jurisdiction to regulate broadband Internet under its ancillary jurisdiction.

A trio of Supreme Court cases** informs the current understanding of ancillary jurisdiction under Title I of the Communications Act.  The holdings have been well summarized into the two-part test that “[t]he Commission . . . may exercise ancillary jurisdiction only when two conditions are satisfied: (1) the Commission’s general jurisdictional grant under Title I covers the regulated subject and (2) the regulations are reasonably ancillary to the Commission’s effective performance of its statutorily mandated responsibilities.”  American Library Association v. FCC, 406 F.3d, 689, 691 (2005). That broadband Internet falls under the general jurisdiction is clear; however, whether FCC has Congressional mandate to regulate broadband Internet depends on the second part of the test.

**United States v. Southwestern Cable Co., 392 U.S. 157 (1968), United States v. Midwest Video Corp., 406 U.S. 649 (1972), and FCC v. Midwest Video Corp., 440 U.S. 689 (1979)

Unfortunately for the FCC, and net neutrality proponents, the D.C. Circuit found that all the bases for ancillary jurisdiction that the Commission argued in the case were, in fact, without support.  The court opined that jurisdiction to regulate broadband Internet under Title I was not given by Congress in the Act, not evident from past FCC policy statements, nor covered in Section 706 on advanced telecommunications services.  The wording of Section 256 “establish[ing] procedures for . . . oversight of coordinated network planning . . . for the effective and efficient interconnection of public telecommunications networks . . .” seemed promising for the FCC, but the Commission’s brief curiously failed to note an important limitation of that section, that “[n]othing in [it] shall be construed as expanding . . . any authority that the Commission otherwise has under law.” 47 U.S.C. § 256.

As the D.C. Circuit enumerated and summarily dismissed the FCC’s increasing tenuous theories of jurisdiction under Section 257, 201, and 623 of the Act, it was clear that the best legal efforts would not be able to salvage ancillary jurisdiction over broadband Internet, when there was no jurisdiction in the first place upon which to find ancillary jurisdiction.  There was only one recourse for the FCC to (rightly or wrongly) reassert regulatory jurisdiction — broadband would have to be redefined under one of the regulated statutory categories of the Act.

The “Nuclear Option” and the “Third Way”

The April 2010 decision forced the Commission to take a hard look at the “nuclear option” — to go back and exercise its general jurisdiction over broadband Internet under the Act, reclassifying it as a “telecommunications service” under Title II.  On the other hand, the FCC promises not to handcuff industry too much by forbearing from heavy handed regulation in a “Third Way.”  Even in the pitched PR battles that accompany high stakes regulation, a “nuclear” option sounds rather drastic, and to use it in a “Third Way” sounds somewhat zen; however, it turns out that the Commission has done both in the past.

Reclassification

Even though the agency has already decided that broadband Internet is an information service regulated under Title I of the Communications Act, overturning old promulgated rules in light of new factual situations is not new.  The Administrative Procedures Act merely requires the agency, when making a rule, to “examine the relevant data and articulate a satisfactory explanation for its action.” Motor Vehicle Manufacturers Association of United States, Inc. v. State Farm Mutual Automobile Ins. Co., 463 U. S. 29, 43 .  And even if a policy is long-standing, it can be overturned.  The agency need not show that the new policies are better than the old; the fact that it is permissible under statute is enough.  See FCC v. Fox Television Stations, Inc., 129 S.Ct. 1800 (2009).   This sets the table for the Commission to re-rule on the classification of broadband Internet under the Act.  See Reclassification NOI, paras. 28-99.

The Commission is indeed laying the groundwork for reclassification, building an administrative record through the Reclassification NOI in June 2010, and a future Notice of Proposed Rulemaking (NPRM).  At the same time, it has girded itself for the PR and political battle yet to come.  The FCC argues on its website that beyond its inherent rulemaking ability, the Supreme Court’s Brand X decision provides a persuasive legal basis for reclassification.  While the majority in the case held that Cable Modem (broadband Internet) service can be properly regulated as an “information service”, they also found that the Commission should receive deference on its classification decision.  Furthermore, Justice Scalia, Souter and Ginsburg opined in dissent the transmission of information and the computing functionality of broadband Internet, should be acknowledged as “separate things[,]”, the former telecommunications, and the latter information.  Brand X at 2715 (2005) (Scalia, J., dissenting). In theory, reclassification satisfies both of these requirements.

Forbearance

But what about the concern that classifying broadband under Title II common carriage rules would impose onerous and burdensome regulations on a still nascent and changing industry?  The agency agrees that it doesn’t want to impose onerous common carrier rules, but at the same time, it doesn’t want big industry players exclude to innovators or competing content.  Imagine what would happen if ISPs were able to block you from Gmail because they wanted you to use/pay for their webmail, or degrade YouTube or other video streaming sites because they want you to pay for a Hulu subscription?

The FCC’s answer to this is a narrowly tailored “Third Way” approach.  It isn’t Title I, but not quite full-on Title II.  The agency explains that it will classify broadband Internet as a ”telecommunications service”, yet forbear from applying many of the Title II common-carrier provisions (only 6 out of 48), as permitted in Section 10 of the Act.  This is similar to what it has done for the mobile phone industry.  Just as importantly, Title II + forbearance establishes a basis on which to assert Title I ancillary jurisdiction over broadband.

Since the Reclassification NOI, various industry members, such as AT&T, have expressed their displeasure with the Commission’s tack, while public advocacy groups such as Free Press and Public Knowledge have praised the possibility of reasserting regulatory authority.  Even former Commissioner Powell has made his opinions on the issue known.

A look ahead

After the recent election results, it appears as if net neutrality laws will sit in legislative purgatory.  A split Congress suggests that no major legislation on broadband is on the horizon, and that any action on telecommunications will only come on the agency level.  In the absence of congressional action, the FCC still has a lot of room to maneuver — the Third Way will likely be the Commission’s way forward.

On the other hand, the election results seem to rein in the FCC’s authority, even if only politically.  The election has been used as political fodder by pundits and political actors as a sign of the public’s opinion on the Open Internet Rules.  There are claims that net neutrality supporters were big losers in their recent election bids, and warnings from some to the agency not to further pursue its regulatory goals.  When the next Congressional session convenes, the House Committees will be reversed, and experienced and savvy lawmakers, such as Rick Boucher, Chair of the Communications, Technology and the Internet Subcommittee will be replaced.  Perhaps in response to these pressures, the most recent November FCC Agenda shows no signs of further moves on the Open Internet rulemaking front.

But despite the adverse political environment, there are rumors that the FCC will forge on with its plan for the Internet.  The Commission may decide that it simply cannot stand by through two years of legislative inaction while the Internet continues to evolve.  Already, we have seen great shifts in the way that broadband Internet is consumed in recent years.  While BitTorrent was the big net neutrality newsmaker back in 2006, players such as NetFlix (whose streams can comprise up to an astonishing 20% of all U.S. Internet traffic, at certain points in the day) have jumped into the fray, advocating for a strengthening of net neutrality.  Would the Open Internet Rules essentially be subsidizing NetFlix’ business model?

It is speculated in some news sources that FCC Chairman Genachowski plans to introduce a vote on the Open Internet Rules in the month and a half before the current lame-duck session of Congress ends.  At the same time, telecom companies beginning to compromise on net neutrality issues have received criticism from free-market politicians on the other side of the political spectrum.  The battle lines are beginning to blur, as stakeholders align more clearly, not with a certain side, but with their own economic and civic interests.

As we engage the world more through the Internet, telecom issues will have an increasing impact over Americans’ day-to-day lives.  Cable companies and phone companies want to avoid being commoditized as “dumb pipes,” and accordingly, lobbying in Washington on telecom legislation has become increasingly active.  Public interest groups are becoming increasingly wary of these interests, as companies continue to exert influence over the political process.  They will all be watching regulatory actions very closely as Congress sits tight in the constantly and rapidly changing technology landscape — and so should you.

UPDATE:

Immediately following the FCC Open Commission meeting on November 30, 2010, the Chairman’s office circulated an internal agenda for the December Open Commission Meeting.  It contains a Draft Open Internet Order (Final Rulemaking) that will be voted on December 21, 2010.  Chairman Genachowski has issued remarks on December 1 addressing the contents of the Open Internet Order, and Commissioners Copps, McDowell, Clyburn, and Baker weighed in with remarks of their own.  It seems as if the reclassification issue will be dropped, but it will be hard to say with certainty, until the Final Order is issued.  Instant reaction to the Draft Order can be found here.

What is Net Neutrality, and Who Gets to Define It?

Generally speaking, Net Neutrality is the aspirational principle “… that all Internet traffic should be treated equally.” (Wikipedia).  President Obama himself has explicitly supported this idea, both back in 2008 on the campaign trail, and more recently.  It has been variously been described by commentators as “… the fundamental principle that preserves the free and open Internet[,]” and a government takeover of press and media freedoms.

But without details to give the term real-world effect, the concept of “net neutrality” becomes ill-defined and infinitely malleable, fitting into any of the myriad narratives presented to the public.  It is certainly conceivable that net neutrality regulations can be the First Amendment issue of our time — a bedrock principle that will allow the Internet to become an equal-access, unfettered marketplace of ideas.  At the same time, that same equality, for others, only represents an excuse for a new Orwellian government-imposed censorship scheme.  Will net neutrality enable technological innovation, or stifle it?  The answers to these policy debates lies at the confluence of technology, economics, and politics, the implementational (or non-implementational) details of which will ultimately be written into the law.

The FCC Definition: The Open Internet Rules

The details of implementing Net Neutrality regulations lie with the Federal Communications Commission (FCC), which was created and vested with the power to regulate telecommunications by the Communications Act of 1933, since amended by the Telecommunications Act of 1996.

In 2007, the STLR blog commented on the current state of the law relating to Net Neutrality; since then, we have had an administration change, the issue has been brought from academic and technology policy circles into the mainstream, and agency action as well the legal landscape have progressed greatly.  However, the form and substance of future net neutrality regulations remain uncertain.

The FCC has dubbed its own flavor of Net Neutrality the “Open Internet Principles”, which were first made public in 2005.  While this statement of policy objectives has no legal implications, it was intended to pronounce a set of guiding principles for FCC rule-making — to give the public and the telecom industry more certainty in its business decisions going forward as the FCC continues to regulate.  (Telecommunications is conducive to natural monopolies, and is heavily regulated under the Communications Act under common-carrier principles, similar to utilities and railroads.)  In October 2009, The FCC made waves in the telecommunications industry when it released a Notice of Proposed Rule Making (NPRM) to collect public comments and build up an administrative law record before codifying the former Open Internet principles as rules that carry the legal force of Federal Regulations.  The Open Internet principles have been redrafted, and expanded to a list of the following six rules:

1. Content. Subject to reasonable network management, a provider of broadband Internet access service may not prevent any of its users from sending or receiving the lawful content of the user’s choice over the Internet.

2. Applications and services. Subject to reasonable network management, a provider of broadband Internet access service may not prevent any of its users from running the lawful applications or using the lawful services of the user’s choice.

3. Devices. Subject to reasonable network management, a provider of broadband Internet access service may not prevent any of its users from connecting to and using on its network the user’s choice of lawful devices that do not harm the network.

4. Competitive Options. Subject to reasonable network management, a provider of broadband Internet access service may not deprive any of its users of the user’s entitlement to competition among network providers, application providers, service providers and content providers.

5. Nondiscrimination. Subject to reasonable network management, a provider of broadband Internet access service must treat lawful content, applications and services in a nondiscriminatory manner.

6. Transparency. Subject to reasonable network management, a provider of broadband Internet access service must disclose such information concerning network management and other practices as is reasonably required for users and content, application and service providers to enjoy the protections specified in this part.

See National Broadband Plan at 58; Open Internet NPRM paras. 88-132.

While the first four rules (mandating lawful applications, services and content to be freely available to Internet users) track the intent of the original 2005 Open Internet principles quite closely, they did not speak to what is at issue for many Net Neutrality advocates and detractors today — the ability of ISPs to shape traffic (prioritize certain services or websites over others), or to degrade certain bandwidth consumptive, or business-model changing applications such as BitTorrent or Skype.  This is where the most contentious of the two new rules, the fifth non-discrimination rule, comes in.  It prohibits discrimination of lawful connections and content, directly the call for Internet Service Providers (ISPs) to treat all lawful sites and services “equally.”

The Devil is in the (Lack of) Details

The language of the proposed rules has been subject to much scrutiny.  The qualifying terms “subject to reasonable network management” that preface each of the proposed Open Internet rules leaves much room for agency discretion in composing the rules.  At its greatest extent, the non-discrimination rule is, as Susan Crawford, President Obama’s former special assistant for science, technology, and innovation and Cardozo Law School professor describes, a total lack of differentiation of treatment between data sent over the network.  All content and applications will be treated equally on a first-come, first-serve basis, regardless of the type of data, its originator, or its content.  In practice, however, many Internet providers prioritize some forms of network traffic, though the network management tactics are not as egregious as degrading a service or application to the point of unusability, or blocking it altogether, as Comcast did with BitTorrent in 2006.

Indeed, where on the spectrum a line can be drawn to separate “reasonable” and “unreasonable” network management is not yet clear.  That evaluation will certainly be subject to technological change as much as it is to agency rulings and adjudicatory precedent.  The current FCC proceeding contains public comments on what the Open Internet rules should be that run the gamut of possibilities.  The FCC continues to seek public comments on the NPRM, but has not promulgated any rules at this point.

D.C. Circuit: Broadband Internet Cannot Be Regulated as Telecommunications

Further complicating the FCC rule-making authority is an April 2010 decision of the D.C. Circuit which ruled that the “broadband Internet access service” that the FCC seeks to regulate in the Open Internet NPRM is beyond the agency’s jurisdiction to regulate telecommunications services.  See Comcast Corp. v. F.C.C., 600 F.3d 642 (2010).

This surprising decision has catalyzed a slew of agency and industry actions.  Not long after the Comcast decision, the FCC proposed reclassification of broadband Internet to define it as a telecommunications service subject to common carrier regulations but practicing regulatory forbearance in a “third way”.  The approach draws legal support for reclassification of broadband Internet services from Justice Scalia’s dissent in a curious 6-3 Supreme Court decision that counted Justices Souter and Ginsburg as Justice Scalia’s allies in the minority. See Reclassification NOI, paras. 28-99, Nat’l Cable & Telecomm. Ass’n v. Brand X Internet Services, 545 U.S. 967 (2005).

The Commission also held closed door meetings with telecommunications and technology giants such as Verizon, Comcast, Google and AT&T, allegedly attempting to bring them to a compromise on draft legislation on Net Neutrality to submit to Congress.  These secret meetings excluded public interest and advocacy groups, which prompted advocacy group Free Press to decry the FCC’s actions in full page ads in the Washington Post.  Eventually, FCC Chairman Genachowski canceled the closed door meetings, after the talks broke down.

Concurrently, the terms of a separate and secret Net Neutrality deal between Google and Verizon were being dickered out (even while they were participating during the closed door FCC meetings), with Verizon guaranteeing non-discrimination over wireline broadband networks, and Google conceding to allow a discrimination exception for next generation (e.g. 3G and better) wireless broadband networks.  Most recently, draft legislation that works as a legislative end-around for FCC’s proposed rules was leaked from the office of Rep. Waxman (D-CA).

And the high drama of regulating the multi-billion dollar telecom industry continues.

The tumult at the Federal Communications Commission this past year has resulted in largely the same regulatory uncertainty and business-as-usual for the large telcos; they are careful not to overstep their bounds of what is perceived as “reasonable network management” and provide fodder for the FCC to gain a stronger public mandate to impose Open Internet Rules.  Whereas this blog’s 2007 article spoke at length about the battle over the Open Internet, it is clear that it has turned into a protracted war on the litigation, lobbying, and public relations fronts by all parties involved.  Whether it be the government, technology companies with conflicting interests, or public advocacy groups, there will be much more input and action from Congress, the Courts, and the FCC to come yet.

Connecting Legislation Back to Politics

So now, we come back to the latest battle in the Net Neutrality fight — the Nov. 2nd midterm elections.  In fact, the likely result of the election has already had an impact.  The recently leaked Net Neutrality bill acts against the Democrat-led FCC’s attempt to reclassify broadband Internet and bring it back under the ambit of the FCC’s jurisdiction.  The FCC will find itself in an increasingly hostile political environment, as rejuvenated Republicans in Congress push for less Open Internet regulations that they contend would hurt the economy at a critical time.  The FCC may be hesitant to regulate for fear of legislative overrule and repudiation.

It is difficult to know exactly the eventual fate of the proposed Open Internet rules and the ability of the FCC to regulate broadband Internet in the future.  Looking forward, I plan to post about the complex machinations that provide legal context to the current regulatory framework for broadband Internet, and the legislative implications of the mid-term election results.  With the number of powerful interests and the amount of money at stake, it won’t be easy to foretell what’s to come for Net Neutrality in the coming months and years.  But, if there is one thing for certain, it is that the Net Neutrality discussion will be around for some time to come!